Coronavirus and its Impact on the Economy: exploring threats and opportunities
Madhuri Saripalle, Associate Professor, Graduate School of Business, IFMR, Sricity.
The world economy is facing one of its worst crises since a century. Economies across the globe are seeing a sharp contraction in growth caused by the economic lockdown to control the spread of the virus. This has led to a supply shock, reduction in output, employment and consequently, demand. The Indian economy was already facing serious structural issues and facing a downturn, which probably have receded to the background with the more serious threat of the pandemic at hand. Two important questions are: a) when will the economy restart and what will be the sectoral response; b) what policy measures can speed up the recovery process? It is also a time to reset the economy by creating skills and improving productivity through innovation.
To address the first question, as economies restart, there will be varied response across various sectors. For example, industries such as essential goods and services such as drugs and pharmaceuticals, essential health and financial services such as insurance, production of essential foods such as pulses, etc, will see rapid growth, while industries and services which are based on discretionary spend like restaurants, entertainment, tourism will be hard hit. More detailed analysis can be read here and here. The impact of economic slowdown is widespread because almost every sector is dependent on trade and global supply chains. The pandemic is a double whammy on an already existing slowdown in the economy, which is a an area of much more serious concern.
In this article I will analyse the structural imbalances in our trade sector which have got further amplified with the pandemic and explore how these can be addressed.
Lack of diversity in Trade basket-opportunity or threat?
In our trade basket, if we exclude textiles, the exports and imports are concentrated in just a few products. The top 5 commodities constitute 60-70 percent of total exports and imports in India (table 1). It is time to create comparative advantage in labour intensive sectors such as leather, sports goods, automotive ancillaries to increase employment. The pandemic has given us an opportunity wherein supply chains will be re-routed from the manufacturing engine of the world-China to India so that we can prepare ourselves to skill our young workforce and increase productivity in export-oriented sectors.
Table 1: Diversity in Trade basket in India
S.no.
Commodities
% Share in Exports
% Share in Imports
1
Mineral Fuels, Oils and Products
14
32
2
Gems and Jewelry
12
12
3
Textiles
10
1.4
4
Electrical Machinery and Equipment
5
11
5
Nuclear Reactors, Boilers and parts
7
9
6
Organic Chemicals
6
4
7
Vehicles other than railway or tramway
5
1.1
8
Pharmaceutical Products
5
0.5
Total
63
71
Source: EXIM database. Ministry of commerce, GOI
Decline in trade from November 2019: when will green shoots emerge?
The decline in exports and imports started from November 2019 onwards when sectors such as jewellery, textiles, ores and minerals registered fall in exports. Important sectors such as oil, coal, iron and steel, transport equipment and electronic goods declined as well reflecting decreased economic activity. During January-March 2020, with the exception of ore exports and transport equipment imports (mostly railway and locomotives, boats and floating structures), there has been a widespread decline in trade due to supply chain disruptions. As countries emerge from lockdown, there will be revival in economic activity and there should be enough policy measures both on the supply as well as demand side simultaneously for a balanced pick-up in economic activity.
The blog is written by Sameer Abraham Thomas. The Author is a Faculty Associate, Centre for Writing & Pedagogy at Krea University.
21 July 2020: I got up earlier than usual today. The sound of rain woke me up at half past six in the morning – or perhaps it was the cessation of the sound; my father told me it had started raining earlier and had abated a little by 6:30.
Waking up in the dark, some pale light shining through the one window in my room, I listened to the soft drumming of raindrops on some roof somewhere, possibly ours, as if it were an alarm, rousing me from my slumber and calling me to adventure.
It seems to me as I write this that every morning is a call to adventure in some ways. What is it that gets us out of our beds? An alarm, perhaps – some sudden sound; or perhaps the cessation or change of some white noise that had lulled us to sleep at night, or that had slipped seamlessly into our ears at some point after we had nodded off and only just now felt the impetus to leave.
Sometimes, we wake up because someone is calling us, and the reason they want us awake and not asleep is our call to adventure. Sometimes we ignore the call and stay in bed. Adventure calls to minds that are not ready to hearken to that call. They are not yet ready. But one day…
I remember long periods of time when my mind wasn’t ready. It was either too busy making itself anxious or curling up in a defensive ball, paralyzing me to protect me from the dangers posed by any and every adventure, no matter how small. Those were not happy days, but maybe they were necessary at the time. Shields do protect us, but they wear down over time, unless withdrawn to make way for a sudden spear. And a worn-out shield can protect you no more than can a mind, tired of defending itself against itself.
The shield falls and then there is nothing left to insulate ourselves from the call, but now we are too exhausted from the battering of our shields to be able to respond. We lie in bed and listen to the call resound like some song at a festival we know we might love but which we are terrified of losing ourselves in. It takes time and courage to realize that perhaps joy lies in letting ourselves get lost; the challenge of facing the unknown, the challenge of choosing the right path, the challenge of fighting the world and not ourselves, and then the challenge of finding our way home – perhaps it was this that our minds were preparing themselves for all along. It took time, but finally they were ready, and then they fell before us, the clang of the fallen shield beginning yet another call to adventure as the spear finally finds itself in our hands. The call to adventure – we didn’t recognize it then. But, if we persist… today, we might.
The blog is written by C. Krishnan. The Author is Director, Financial Assistance & Senior Advisor, IFMR Graduate School of Business, Krea University.
I joined the banking industry in the pre-computerized era and have seen the many changes over the last three decades. However, the changes that I have witnessed in the last 10 years have probably been significantly more than what I had witnessed in the previous 25 years. The banking and financial services industry has been turning its focus toward innovation to prepare for a future that will be increasingly driven by technology.
Customers and prospective customers are no longer dependent upon banks as they used to be many years ago. Competition from shadow banking and Fintech/TechFin companies is growing. Lakshmi, Pepper, Nao, Ira and, Xiao Long may not be familiar names for the common person; however, they are quite familiar to the banking fraternity. What are they? They are humanoid robots and chatbots that are creating a revolution in the Banking and Financial Services Industry.
Some of the key trends that are re-shaping the BFS industry are:
A. Digital Transformation:
The industry is witnessing a continued and aggressive focus on digitization and the adoption of new and emerging technologies to bring in operational efficiencies, enhance speed-to-market and deliver superior customer experiences. Banks are cutting down expenses on branches to invest in self-service digital channels as mobile and online banking become more popular among customers. Digital wearable devices, which pack the power of smartphones, are making it increasingly feasible for banks to offer targeted services to customers.
B. FinTech Companies:
Many banks are seeking to exploit the opportunities presented by digital, either by leveraging the technologies in-house or by partnering with FinTech companies. Initially, these companies were seen as competitors taking advantage of the void that was created by the BFS industry’s inability to keep up with technological breakthroughs. However, today, Bank-FinTech partnerships are increasingly the norm, with the latter providing marketing, administration, loan servicing or other services enabling banks to offer tech-enabled banking products.
C. Building a Cognitive Side to the Business:
As new regulatory requirements and data protection laws put additional strains on already-stretched resources, emerging technologies such as AI and Robotic Process Automation are helping banks address these constraints efficiently.
D. Risk: Leveraging technology to elevate risk management:
Regulatory divergence, geopolitical instability, and the possibility of a downturn have created a host of impending risks, requiring financial institutions to rethink traditional approaches to risk management. Additionally, nonfinancial risks remain top of mind for regulators and banks alike and many have begun to sharpen their focus on this emerging subset of risks.
E. Transformation – Key to the Industry’s Future:
To be most effective, banks and financial institutions should re-define themselves as agile technology companies in the financial services industry, not the other way around. This implies that BFS companies should shed their non-core operations, retaining only those businesses that provide true differentiation for customers.
To summarize, as banks continue to cope with the developments that have already made an impact, their ability to transform themselves with speed and agility, and their future strategies to survive the next revolution, will determine the winners and losers in this increasingly digital world.
IFMR GSB MBA-Internship Stories are a series of interviews with the students of IFMR GSB, who have recently completed their Summer Internships. Here, Sumit Jha, MBA 2021 shares his internship experience and learnings at Credit Suisse.
Could you tell us about the organization you have completed/are doing your internship from?
Credit Suisse is a global wealth manager, investment bank and financial services company founded and based in Switzerland. It mainly focuses on global markets.
Did you focus on a specific domain while participating in summer placements? How did you approach the whole process?
Yes, I was focused on Risk Management. Before the placement season, I spoke to seniors within the MBA programme and did ample research on the roles offered by Credit Suisse.
Now that the internship has successfully concluded, could you reflect on your experience through the same?
From a learning perspective, the experience was great. I was able to gain deep practical understanding of risk management practices.
How was the environment of the company, the resources, employees and work culture?
The employees were friendly, helpful and approachable. The resources were great, from learning tools to hardware.
What were the key challenges you faced during your internship and how did you overcome them?
Getting appointments for meeting slots with senior stakeholders was challenging as their schedules were always packed. Though continuous follow up and reaching out to them over the phone eventually helped.
How about the learnings you garnered from this internship? Are there any milestones you would like to share?
The skills I learnt at Credit Suisse has helped me develop a practical understanding to complement the theoretical knowledge I will be acquiring in my MBA programme. I completed my deliverables before the assigned deadline and that was a definite milestone.
Do you think it’s important for an MBA student to do an internship? What values/skills can a student gain from a summer placement?
Yes, it is important. Practical understanding of concepts can help align your career, provide information related to upskilling and importantly tell you whether you should work in this domain or a change is required. It also helps decide, which subjects you should study in your final year or which stream to choose, whether generalisation will be suitable or specialisation.
During your internship, how were you connected with your academic mentor(s) at the institute?
I was in constant touch with my mentor over email and phone. The ensuing conversation along with constant support, aided in shaping a great internship experience.
Would you prefer to return to the organization for a job opportunity in the future?
Yes, I would definitely want to return to Credit Suisse for a job opportunity.
With due consideration to COVID-19, all internships were moved to the virtual mode- how was that navigating through this new experience?
Even though I missed the in-person experience and the fact that substantial learning during internships comes from shadowing a senior resource which is tough in the virtual mode but given the dire situation, Credit Suisse did the best in the circumstances.
Could you tell us how the remote working experience was, with respect to building team rapport, internal communication and work as a whole?
The entire experience was great, given the security challenges COVID-19 posed. The team was very supportive, internal communications were crystal clear and from a work perspective the experience was helpful as I learned some important practical concepts.
IFMR GSB MBA-Internship Stories are a series of interviews with the students of IFMR GSB, who have recently completed their Summer Internships. Here, Nandan AS, MBA 2021 shares his internship experience and learnings at JPMorgan Chase & Co.
Could you tell us about the organization you have completed/are doing your internship from?
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City. It is the world’s most valuable bank by market capitalization.
Did you focus on a specific domain while participating in summer placements? How did you approach the whole process?
Being an engineer and having worked in Fintech and Data startups, I was looking for a role where I could use my existing expertise and also learn more from an industry that is new to me. Corporate and Investment Banking is very new to me and the CADP program of JPMorgan Chase & Co. was perfect for my skill sets.
Now that the internship has successfully concluded, could you reflect on your experience through the same?
My internship with JPMorgan Chase & Co. started, when the uncertainty in businesses across the globe was building up. However, none of that affected the work or the interactions between the firm and the interns. We had 3-4 online sessions per week which included learning series, ‘virtually humane’ sessions, sessions on good work and volunteering etc. They always kept us engaged and ensured that we learnt and understood what it meant, to be part of this great organization.
How was the environment of the company, the resources, employees and work culture?
The culture is very welcoming and open. We were encouraged to ask questions about anything relevant to our internships, to our peers in the team, to our manager or the recruitment team and they never left any of them unanswered. Every intern was assigned a buddy, who was previously an intern like us and later got hired by the firm, to help us get our access details and support in any queries we had.
What were the key challenges you faced during your internship and how did you overcome them?
The concept of a completely virtual internship was new to me. Again, the great team, the continuous engagement, and the sessions imparted the constant feeling that we were in real working for a great organization.
How about the learnings you garnered from this internship? Are there any milestones you would like to share?
For someone who is from an Engineering background, this internship increased my interest in finance and financial products which was previously a whole new topic of study for me. I am pretty sure this learning will make a huge impact on my career going forward.
Do you think it’s important for an MBA student to do an internship? What values/skills can a student gain from a summer placement?
Yes. More than the skills, it is the excitement that builds in every student’s mind that drives the second year of MBA forward. To get a hint of what one may achieve in their career after college is a big morale boost, pushing one to perform better and reach the peak of productivity.
During your internship, how were you connected with your academic mentor(s) at the institute?
My academic mentor for the internship was Prof.Suresh Venkatraman. There was a particular conversation when he explained to me different scenarios in the organizations he previously worked for, and how he used to handle such situations. That learning from real-life experiences is the biggest learning any student can get from his/her academic mentor, and it has done wonders to my internship experience.
Would you prefer to return to the organization for a job opportunity in the future?
Yes, definitely.
With due consideration to COVID-19, all internships were moved to the virtual mode- how was that navigating through this new experience?
As mentioned earlier, the concept of a completely virtual internship was new for me but the organization ensured that it was seamless. Multiple platforms were used in the engagement process.
Could you tell us how the remote working experience was, with respect to building team rapport, internal communication and work as a whole?
We had 3-4 online sessions per week. Fun team activities were also conducted, where interns from different colleges were grouped into different teams and given weekly tasks with a scoreboard. This built a rapport and a sense of healthy competition among the interns, and also helped in forming new friendships.
Could you share a memorable incident from your internship days?
I cannot explain the feeling, the day I got appreciated for my work. For all the hard work we do, the gesture of appreciation is a big achievement and that is the most memorable incident for me, through this internship.
The blog is written by Amit Agrawal. The Author is a MBA student of IFMR GSB at Krea University
If you think economic super-powered China as the fastest growing economies in the world due to its 6-7% consistent growth rate, probably you might want to twitch your nerves again. China is not even in the top 20 fastest growing economies on the planet. In fact, about 38% of the top 50 fastest growing economies comes from one single continent.
‘Afri-terra’ (later Africa).
A leap in 2002 says that the GDP per capita of Sub-Saharan Africa was a paltry $588b. Yet by 2019, the GDP per capita had grown to well over $1600b – A 172% spurt increase in the wealth of the continent in less than two decades. This massive increase in wealth has brought Nigeria, Botswana, and Ghana out of relative poverty.
But what has brought Africa’s economy out of poverty? Or more importantly, who has brought it out?
Africa has been the most underdeveloped continent over the last several centuries; it has only 60,000 km of highways constructed in the entire 30.4 million km2 surface area, while the US stands with 108,000 km of highways in a 9.8 million km2 area. In fact, to this day there are still no paved highways that travel through anywhere in Central Africa. And the transportation network has been just one of a litany of infrastructure flaws in Africa. It had problems with electricity availability, internet access, and water shortages as well.
But things started to change just a few decades ago.
China slowly started gaining large amounts of influence in Africa post 1970s. It did this by increasing foreign aid and trade with many African countries and investing billions per year in African infrastructure projects. For example, Africa’s main railways in Kenya, Ethiopia, Angola, Djibouti, and Nigeria are all funded by China. They also funded for major Headquarters, Zimbabwe’s new parliament building, several major power plants, oil refineries, and an entire city in Egypt.
But why is China investing so much money in Africa?
Reason? ‘Resources’. China trades for one-third of crude oil against $128b with Africa.
Political Influence. At any of the UN special session votes: from voting on the status of Jerusalem to voting on human rights violations in Myanmar, Ukraine, Iran, and Syria, a large portion of African continent did not go against China. Now, my say isn’t that China is buying votes at the UN but at the very least China has probably influenced the voting pattern of many African nations. The same could very well be said for the US influence on many Western countries.
Labor. China began shifting a lot of its labor industries to Ethiopia due to cheaper labor. It is estimated that roughly 12% of Africa’s manufacturing production today is being run by Chinese companies.
ROI. China has pumped in money into Africa for good returns. From 2006 to 2011, the average return on African investments for China was a hefty 11% per year. In fact, roughly 15% of all African debt is owned by the Chinese government, and two-thirds of all loans given to African nations in the past 3 years have come from China. In 2018, China announced of financing $60b solely for Africa over the next decade.
Amidst this Chinese heavy investments, big tech is contributing to Africa’s modernization for last ten years. The South Korean company, Samsung, viewed Africa as the next giant consumer market and doubled its investment (2012) to become the most valuable phone company on the continent. But recently the true winner of this race was Huawei. As part of China’s plan to build up the infrastructure of Africa, they also ended up building over 70% of Africa’s 4G and 5G networks – meaning that at the end of the day, Huawei may not be the king of the smartphone market but they are the undisputed champion of the telecom industry.
Amazon’s $100m data-centre in Cape Town, Facebook’s multi-billion dollar ‘Project Simba’ and Google’s Equiano marks the booming African investment. Other notable investors are Microsoft, Netflix, IBM, Cisco, and Uber.
Overall, an influx of investments from both American and Chinese companies coupled with an increase of trade and investments from some national governments created an economic battleground. Companies and governments can build up Africa’s infrastructure the fastest, and dominate the emerging markets before its competitors can which resulted in some rapid modernization in infrastructure. For example, as compared to 2000, today roughly 45% of the population has access to electricity against 26% and 40% of the continent now has access to the Internet against 1%.
The biggest factor for Africa’s future economy might be Africa itself. Take for example, ‘Jumia’ – launched as an African e-commerce startup, expanded, got listed, and valued at a billion dollars. McKinsey’s database of large businesses in Africa reveals 400 companies earns revenue of $1b or more and nearly 700 companies have revenue greater than $500m. Another positive sign was when Africa witnessed the African Continental free-trade agreement (March 2018) for the purpose of making Africa a single market thereby deepening the economic integration of the entire continent. Projections state that this trade agreement could lift intra-African trade by up to 52%. But this is just one step.
BOTTOM LINE
Africa has been popularly called as ‘Sleeping Giant’ and now with the rise of globalization, it is reaping the fruits of it. Countries like Rwanda have defied the odds predicted by Western countries. People should stop looking Africa as the world’s charity bowl and rather start investing in it. India, being the forerunner, plays a key role in building up African economy particularly in nations like Kenya, Nigeria, South Africa, Mozambique, and Mauritius. Given the pandemic-negative news hovering over Africa, they need to do a lot more to be considered as the modernized economy.
The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Krea University or its members.
The blog is written by Aviral Singh. The Author is a MBA student of IFMR GSB at Krea University
Businesses across India have come to a grinding halt as they fight a prolonged war against Covid-19. This disruption has caused serious cashflow problems for various firms across sectors. At the forefront of this backlash are Non-Banking Financial Companies. After the fall of IL&FS, the lenders have been wary of lending money to them and with lockdown in place, it is bound to hit their customers who mainly belong from semi-formal sectors of infrastructure industry as the demand for property goes down. Adding fuel to the fire was the decision of RBI last month which obliged them to give moratorium of three months to their borrowers citing the reason that many of them belong to that part of the economy which will be worst hit due to this pandemic however it left the banks (Major source of funding for NBFCs) with the choice to decide on their discretion to pass on the benefit of the moratorium to NBFCs and given the poor credit history of the majority of them most of the banks were reluctant to pass the benefit of the moratorium to these companies. That came as a double whammy for cash strapped companies, on the one hand, it has blocked their source of income as people will avoid paying their debts back due to the seizure of business activities as well as uncertainties in the future business scenario and on the other hand it has forced them to pay their debts and bond payments despite their poor financials, hence taking away more liquidity.
What if these NBFCs delay their bond payment for this period and payback later?
There’s a clearly defined rule in bond markets which obliges the issuer of the bond to make the required repayment on the date at which their bond matures and if they fail to do so the bond is put under the category of default which can lead the company to get a credit rating of “D” hence closing all gates for it to borrow in the future. So that is a complete NO for a company given the current liquidity crisis.
RBI decided to lend the banks Rs 1 Lakh crore in four equal tranches (25000 crores) starting from March 27 till April 17 2020. Under this, if the bank bids for any amount it was eligible to get it at the current repo rate (Subject to change as per changes in repo rate in future) for a period of 3 years. After securing the amount the bank was to purchase fresh bonds of NBFCs, Corporates & PSUs in next 30 days and if it fails to do so they were to pay 2% higher interest. In order to ensure that the banks purchase bonds from as many entities as possible, they were restricted to buy not more than 10 % of the allocated amount from a single entity. They were also directed to use only 50% of their allocated fund for new issues whereas the rest should be used for purchase from secondary markets. The banks were given the facility of no intermediate repayments but were supposed to pay back the money taken from RBI at maturity along with the interest.
This opened the way for injection of liquidity for NBFCs as now they can issue new bonds which had a buyer and given that the banks borrowed the money from RBI at the current rate of 4.4% the banks had an opportunity to purchase bonds which gave them the opportunity to earn 6-7% of interest on the amount invested in non banking financial companies if held till maturity the deal looked enticing but as the credit risk associated with NBFCs were huge most of the money by banks were deployed to financially stable large corporations and public sector undertakings leaving the crisis of non-banking sector companies unattended.
RBI brings TLTRO 2.0, Says NBFC only!!
This time the RBI wanted to make sure that the benefits of TLTRO allocations should reach NBFCs so it put forward the condition that the money cannot be allocated in buying corporate bonds and banks can only purchase NBFCs bonds and it introduced more categories and conditions this time to make sure that NBFCs of all size got the intended liquidity push.
RBI decided to allocate Rs 50000 crore under TLTRO 2.0 which will be given in two equal tranches with the initial bid on 23rd April 2020. This time the banks were directed to follow some additional condition in deploying this capital. 10% of the issued fund will be earmarked for Microfinanciers, 15% of the issued fund should be used to purchase the bonds of NBFCs with assets worth of Rs 500 crore or below, 25% of the allocated money should be used to purchase bonds of NBFCs with asset size of Rs 500 Cr- 5000 Cr and the remaining 50% were at the discretion of Bank to be allocated as and how they would choose to. The banks were now free to purchase as much as they want from any company and any market (Primary or Secondary) and also the minimum time given to allocating the funds was increased from 30 to 45 days.
How’s the josh shown by banks?
Unlike expected by RBI, It instead got a cold shoulder from banks as only 14 bids worth Rs 12,850 crore came in as against Rs 25000 crore which was up for offer which was way less than the 18 bids of Rs 1.14 trillion which were received on April 9 during the TLTRO 1.0 (Remember in TLTRO 1.0 banks were allowed to deploy the allocated fund to purchase bonds of corporates and PSUs) clearly showing that even the relaxation in certain criteria wasn’t able to push banks in buying NBFC bonds due to the threat of credit risk despite for a great opportunity to earn higher returns. The banks wanted to play safe.
What did the Bankers argue to support their behaviour?
The bankers have been complaining that it isn’t an easy job to find investment-grade papers of these lower varieties and given the risk of being penalized if they are unable to allocate the money after borrowing from the bank as they are unsure of the timely returns, they avoided bidding for TLTRO. The situation would have been different for them if there has been no categorization by RBI in allocating the funds which currently mandates them to allocate a certain percentage in low rates papers. (However, if not for these rules the whole purpose of liquidity injection in small and severely hit NBFCs would have been defeated). Too much of subdivision has scared away the bankers. They have suggested that instead of being asked to just purchase bonds which is time-consuming they could also be allowed to give loans to NBFCs & MFIs. Some also suggest that TLTRO 2.0 should be priced at 3.75% which is the new overnight rate giving them an opportunity to make good profit from financially better-positioned companies hence helping them to hedge the risk of losing money by investing in weaker ones.
The road ahead for NBFCs
Approximately Rs. 63000 crore worth of commercial papers and non-convertible debentures is going to mature for big NBFCs in the course of next six months which means even if banks will buy Rs 25000 crore worth of bond it would only suffice for half of their money requirements the other half has to be brought in through other routes like bank loans, the recollection of loans and selling its bonds to retail investors and mutual funds which in the given scenario is easier said than done. Which in a nutshell has been successful in sending cold shivers to the companies in this sector and has sent RBI back to contemplation mode for planning another way to provide liquidity push to this sector
What do the experts and industry veterans have to say?
From what I was able to read, hear and extract out of many experts through news and social media is that given the scenario if RBI really needs to make a ground impact on this one than it could look west for guidance (US Fed). In the United States, the Federal Reserve Bank directly buys commercial papers unlike RBI which use a pass-through vehicle like TLTRO which help it in keeping the credit risk at bay (Risk hedged to Bank)
That RBI should open a direct window for NBFCs and Mutual Funds ( I know Franklin Debt Fund Fiasco came to your mind) instead of offering liquidity through banks, Yes I sense you this sounds a radical measure and needs much deliberation to think about its practical viability but given that lately, we have banks shying away even from some of the financially sound NBFCs (Many of them with capital adequacy ratio of 18% or above) it is high time that RBI must lead from the front to rescue this cash-starved sector and I close as I quote the words of Finshots ( Providing finest financial insights daily) here in the context of the central bank of India in this hour of crisis “Maybe, just maybe, what this country needs is a Dark Knight, a silent guardian, a watchful protector”
The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Krea University or its members.
The blog is written by Aviral Singh. The Author is a MBA student of IFMR GSB at Krea University
India is the third-biggest oil consumer in the world after The United States & China. It imports approximately 82% of its oil needs. Due to its heavy dependence on foreign markets for oil, it cost a lot on the country’s financials. India spent US$ 63.305 billion in the financial year 2017-18 on its crude oil imports. Moreover, it’s high reliance on foreign nations for its oil needs forces India to formulate its foreign policy accordingly and always possess a strategic challenge for India to meet its demand should there be any unforeseeable event.
In order to mitigate that risk, India came up with underground strategic oil reserve facilities at Vishakhapatnam, Mangalore and Padur. Which has a combined storage capacity of 5.33 million tonnes. Once full these reserves can help India meet 9.5 days of its oil needs. Given the rising demand for energy needs in India and oil forming a large proportion of it the government value these reserves a lot and always hunt for getting a good bargain in terms of price for filling up these reserves.
In the present scenario, the price of Brent crude is tanking like never before. While you think that it is all because of the slump in global oil demand due to Covid-19 outbreak you are seeing only half aside of the coin. Oil prices can be kept at high-profit margins despite demand slump if the supply is controlled through production cuts. OPEC along with Russia and The US are 3 big stakeholders when it comes to oil supplies. All 14 nations of OPEC wanted to cut the production so as to keep the prices of oil steady but non-compliance with Russia which is the third-biggest oil supplier has led them into a production war with both parties keeping the supply steady and even ramping up at times which combined with the huge drop in demand due to covid-19 outbreak it has lead to the sharp decline of oil prices a 40% drop in its price in March and right now the price of it is trading between $ 20- $ 30 per barrel which is at a record low.
This has led to the huge opportunity for high consuming high dependent oil importer India which can take advantage of low oil prices. However, sluggish growth of the economy due to low demand and the covid-19 outbreak has come as a double whammy for India which has resulted in low demand for oil from in the past few months. It can be observed from the fact that the demand for diesel which accounts for about 40% of the country’s oil requirement fell 7.4% in October 2019 due to slow growth in the economy. With that being said it happens to be that India has found another way to turn this tide in its favour despite all the odds and that is by ordering middle eastern oil to fill up its reserves. This single move has led to the serving of two important purposes which are of long-term importance to India both in terms of trade and diplomacy. First to take advantage of low oil prices to fill up its 5.33 million tonnes of empty oil reserves which are created by India Strategy Petroleum Reserve Ltd and it is being done by buying Brent crude worth of Rs 5000 crore at the dirt-cheap rate of around $ 30/barrel and secondly by giving a strong signal of solidarity to its trade partners and strategic allies in The OPEC and USA by doing its bit to stabilize the plummeting oil prices and help bridge the demand-supply gap.
I believe such a strategic move in this testing times is a masterstroke in the favour of nation from every aspect and has already started paying dividends by helping us to fully load our strategic reserves without a heavy hole on our critical current account deficit. On the diplomatic front, such gesture by India will be seen as a friendly move towards our high-value partners in the middle east which play a crucial role in both shaping up the national security policies and deciding the efficacy of foreign policy.
A lot of managerial learning to take away here especially with respect to long term vision and strategic thinking while decision making which was portrayed by our bureaucrats in this low profile yet crucial decision which was taken recently.
The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Krea University or its members.
The blog is written by Rajashree Sadhu. The Author is a MBA student of IFMR GSB at Krea University
“God always have a better plan for us, though the process might be hard and painful!” that’s what my grandfather told me always. Hey wait, I am not writing this article to give you philosophical advices.
But………. Then What?
Well, this abrupt lockdown of the entire world has bought a lot of unexpected dismay in our lives (especially migrant’s workers and not so privileged section of the society). Yet, isn’t that’s what life is, it happens to us when we are busy having other plans.
We are continuously worried and grumbling about negative things that we are facing due to this pandemic- loss of lives(due to Covid-19), job losses, salary cuts, internships cancelled, business at halt, economy is at a standstill, disruption in supply-chain and above all ‘THE GREAT RECCESSION’ (on its way).
But salute to the frontline warriors- doctors, nurses, policemen, sanitation workers and others who are working day in and day out to help us overcome this tough situation. This pandemic coupled with lockdown (which is the only solution to stay safe) has put humanity into a huge test. It’s an opportunity for all of us to serve the under-privileged section of the society who are not able to get their daily bread due to lockdown and no earnings.
Yet some miserable incidents are happening in few places – like pelting of stones at policemen, doctors when they are trying to help us in this pandemic, such incidents are really unforgiving. This is not the time when we should believe in rumors, be arrogant and thereby create violence in society. We all have to fight this together and cooperate with the frontline workers.
This time too shall pass, so we should focus on the positive things that we are experiencing and how can we make the most of the time that is available to us. If you ever felt that you lack time to do the things you wanted to do then this the opportunity. Up-skilling ourselves, improving our fitness, spending time with family these are the things we always wanted to do. Life always comes to us with surprise gifts, blessings and of course hurdles which makes our lives even better.
We neither know how long will this pandemic last nor how long will this lockdown continue, but we can hope that this period will be over really soon. Optimist will always love to see the positive side of things and so if we look deeper we will realize the good things that we are experiencing at this point.
The environmental pollution levels have gone down drastically, rivers are cleaner than we have ever seen before, we are able to breathe fresh air again and a few endangered species have started to appear in few places. This makes us realize that apart from human beings other animals too have equal rights to live in this planet. Nature always has its own healing process but in our rat race to achieve more we forget that, what we are experiencing now is nothing but the collective karma to humankind! Mother Earth will come alive again and it will be more vibrant than ever before.
There is another aspect of this pandemic- a lot of business opportunities will come up. Make in India and manufacturing sectors will be boosted up far more. Every country from now on will try to be self-reliant. The change in consumer behavior will open up new avenues for businesses. Fintech, digital payments, e-commerce will experience a big boom in the days to come. Medical infrastructure will gain more importance than ever before.
Most importantly this lockdown has provided us a huge lesson- no work is small, everyone has its own importance starting from a rag-picker to a top notch celebrity. Today, we should all be grateful to the doctors, paramedical staffs and nurses who are saving millions of lives in this pandemic.
Life always allows some crisis to occur, before revealing its full bright side. As every cloud has silver lining so does everything in life, for a period we are having a tough time but we will be victorious one day. This crisis will give us the zeal to put the best in whatever we do as don’t know when our day is. This Corona Virus will take away a lot of things from us, but in return it will provide us a life time lesson that will help us in the long run.
The blog is written by Jaykumar Patel. The Author is a MBA student of IFMR GSB at Krea University.
A Cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency leaped from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009 by the launch of “White Paper” by “Satoshi Nakamoto”. Bitcoin which I guess most of the people know for its significant growth in a short period of time, be its surge in price by 10 times as it peaked its value in April, 2013 in just two months from a mere low of $266 per Bitcoin. Or the Bitcoin during the most amazing period of Bitcoin bubble in 2017 which ultimately crashed in the beginning of 2018. But somehow cryptocurrencies still stand out to be different from the normal Fiat money.
Why Cryptocurrency?
Cryptocurrency is a virtual currency which is decentralized in nature that uses peer-to-peer technology. It enables all the functions such as currency issuance, transaction processing and verification. The real secret technology backing the cryptocurrency is the Blockchain Technology, which in expert’s view can be named as the technology which is going to change the world. Just like what the internet did to the world starting from the early 1990s, what Mobile connectivity did to the communication (telecommunication) industry from the early 2000 till now. Blockchain is going to play the same role for the world in the coming years as backed by many researchers. Blockchain technology is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset. The same system and technology which ensures the security of the cryptocurrency.
To make the understanding simple, here we will just consider the most well-known cryptocurrency i.e. Bitcoin.
Bitcoin vs Fiat money
Bitcoin is a decentralized, not governed by a central authority. But is generated by the miners which are spread all across the globe and hence is manipulation free or free from any government interference. The value of a Bitcoin is wholly dependent on what investors are willing to pay for it at a point in time. The security and credibility of bitcoin is supported by blockchain technology, which is in the current world…is impossible to hack!! Bitcoins are created digitally through a “mining” process that requires powerful computers to solve complex algorithms and crunch numbers. Currently, Bitcoin is created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a level that is expected to be reached in 2140.
On the other hand, Fiat money is a centralized currency which is governed by the central authority (central banks) and can be manipulated by the government as and when needed by them. The classic example is the currency devaluation of Yuan exercised by China to boost its exports. Fiat currency issuance is a highly centralized activity. While the bank regulates the amount of currency issued under its monetary policy objectives, there is theoretically no upper limit to the amount of such currency issuance. The classic example to the same right now is the world’s most accepted currency- the US Dollar, wherein the Fed is creating trillions of dollars as we speak to fight the current COVID-19 pandemic just to keep the financial system from collapsing. The aftermath of excess money printing can be known from what happened to Zimbabwe and Venezuela.
Adding to the current fiat money market, Investment strategist and Author Jared Dillian said “The dollar has no real intrinsic value, backed only by the full faith and credit of the US government” explaining further he says: Under a fiat currency system, the government says that a dollar is a dollar. Its value relative to things such as other currencies and gold is determined on global market….if there are too many dollars in circulation, the monetarists would say that the value of those dollars has diminished, eventually leading to higher prices for things.
In other words, money is losing its meaning!!
Are there any drawbacks of Cryptocurrency?
Just like a coin has two sides, cryptocurrency also has its own drawbacks, because of the anonymity and untraceable nature of cryptocurrency, it attracts illegal activities including money laundering, drug peddling, smuggling and weapons procurement. This has attracted the attention of powerful regulatory and other government agencies such as the Financial Crimes Enforcement Network (FinCEN), the SEC, and even the FBI and Department of Homeland Security (DHS). Though new security means are under development by data experts to overcome this challenge.
Why Bitcoin?
When we think of Cryptocurrencies the first thing that hits our mind is Bitcoin, of course there are Altcoins (Alternative of bitcoins) like litecoin, Monero, Dogecoin, Petro, etc. But Bitcoin is the only prominent and relatively stable and mature virtual currency in terms of value in the market right now. The easy availability and its generation by the mining process is easy to learn and exercise as well. You can even say that it is the bias of human nature to be attracted to Bitcoin after all the wonders miners and investors have seen during its rapid price surge in 2017.
Benefits of Bitcoin:
Payment independence
Low fees & fast transaction
Transparency
Counterfeit-proof
Decentralized
Security & control
Currently, Bitcoin is the most expensive cryptocurrency in the market followed by Maker, Bitcoin Cash, Bitcoin SV and Ethereum.
Why are you talking about it just know?
Simply because “Bitcoin is immune to coronavirus!” The world was already on brink of an economic crisis and the current coronavirus outbreak was just an extra fuel to a much larger economic recession. Economies all over the world are affected by the same, manufacturing and supply chain is severely hit. This ultimately affects the value of the stocks market, commodities market and obviously the currencies market because of the halt on import and export of goods and services. Moreover, in times where market turmoil, digital money and fintech apps have seen usage growth significantly. In fact, the COVID-19 pandemic has fuelled a 72% surge in the use of fintech apps in Europe during the last few weeks as people globally try adapting to new working conditions. Digital money is safe-to-use to provide remote payments – a quality one merely thought of as mostly just a convenience before, but now the most important thing that the world prefers is electronic payments to the risk of handling potentially virus-infected physical currency. Not only this, the decentralized nature of Bitcoin makes it more useable and preferred mode for transactions. Bitcoin is an asset that has almost unlimited potential in terms of price growth, and as Pantera Capital’s estimates show, new price records can be expected in 2021. As the world progresses and fights back against the pandemic, Bitcoin’s value and acceptance shall grow, from routine payments to much more sophisticated uses yet to be imagined and created by necessity being the mother of invention. Amid the current crashing global markets a new idea of shifting towards buying non-stock assets like cryptocurrency is gaining a lot of popularity.
Robert Kiyosaki, author of the best-seller “Rich Dad, Poor Dad” argued that the coronavirus pandemic is great for Bitcoin and Bitcoin ultimately stands to go parabolic after the coronavirus ends. He is so positive about Bitcoin that he called it People’s Money.
Tim Draper, an American venture capital investor says that he is certain that the lockdown and money printing initiated by world governments is going to make fiat less worthy and could push people to Bitcoin. He urged on saying that Bitcoin could be a key player in helping to recover from the economic meltdown after the pandemic gets over.
Nassim Taleb, author of the best-seller “The Black Swan” has urged Lebanese citizens to turn to cryptocurrencies, after the Bank of Lebanon increasingly impose tighter controls amid a deepening financial crisis.
Has it already started showing its magic?
Well, let’s just say it has started and the actual potential of Bitcoin is yet to be seen. Some of the points that might help you understand the actual picture of Bitcoin or Cryptocurrency during this pandemic is as follow:
The active Bitcoin supply within the last 2-3 years has reached a new all-time high of 2,774,058.
While the spot market collapsed, Bitcoin futures market saw high turnover, the aggregate daily volumes reached an all-time high of $37.24 billion on 12th March.
Binance, the world’s largest cryptocurrency exchange by market volume recorded the highest ever quarterly volume as evident/analyzed from its profits burning report.
Coinbase, a secure platform for trading cryptocurrencies saw a massive trading volume during the last week of March of around $2 billion in just two days.
Digital Asset Management company Grayscale revealed cryptocurrency demand is on the rise as it reported it’s highest-ever $503.7 million inflow in Q1 2020.
Russia has increasingly engaged into crypto services amid the current coronavirus outbreak. Traffic on Crypto exchange has surged by 5.56% within a month.
Bitcoin exchanges in India are resuming direct bank account deposits & withdrawals using Indian rupee following the Supreme Court’s crypto ban reversal. South Korea approved the trading of cryptocurrencies in the country.
Millions of Americans received their $1200 stimulus checks amid COVID-19 from the government and Coinbase’s $1200 orders of crypto exponentially increased from the US itself.
China tests Digital Yuan. A pilot version of a wallet app for China’s digital yuan is available for download in 4 cities for initial trial.
Italy has endorsed crypto adoption and the COVID-19 outbreak has urged Italian bank, Banco Sella to launch a Bitcoin trading service via bank’s hype platform. The Italian Red Cross deployed a tent bought with Bitcoin donation!!
Binance has enabled its users to buy and sell crypto with Bolivars, the national fiat currency of Venezuela. The daily Bitcoin trading volume of Venezuelan P2P exchange LocalBitcoins is rising from February.
The Reserve Bank of Zimbabwe is developing a regulatory sandbox for cryptocurrency companies to boost the crypto usage in the country.
Just an observation note that the last two-point talks about those counties which have faced severe consequences of hyperinflation, one of the key factor driving it was excess printing of money (Fiat money). And now they are trying to fix this using a decentralized virtual currency with a new ray of hope. The third last point talks about one of the worst coronavirus hit country, and even they are taking a stand to fight against it using the cryptocurrency (Bitcoin).
So in my view, I think this downside of coronavirus outbreak is going to be positive for Bitcoin as well as other cryptocurrencies in an urge to become financially independent, a hope for many severely affected countries and by investors as a potential income source.
Disclaimer: The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Krea University or its members.
