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Edition #114. Friday, 4 September 2020 |
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A 🔒 paid newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia. Someone sent you this? Subscribe to BFO
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Good morning, I thought of all the people I’d hate to wake up as. Here is my Friday list:
Let’s dive in. |
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Challenging WHO’s vaccine distribution model
Seema |
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A Covid-19 vaccine is now a question of when and how, not if—when will it be available and how will it be distributed.
As we have written, more than 5.7 billion doses of the vaccines under development have been pre-ordered. Some by the countries and some by a global alliance led by the WHO. The latter advocates distributing a vaccine proportional to a country’s population.
A group of 18 health experts from across the world—from Australia to Canada, US to Ethiopia, Netherlands to UK— have called WHO’s model of vaccine distribution flawed. They argue it “mistakenly assumes that equality requires treating differently-situated countries identically, rather than equitably responding to their different needs”.
In a paper published in the journal Science today, these experts also question the general thinking in the governments—including India—where the distribution plan rests on prioritising frontline healthcare workers, the proportion of the population over 65, and the number of people with comorbidities within each country. This approach, the paper says, “might end up giving the vaccine in large part to the wealthy, as one consideration”. (Low- and middle-income countries have fewer older residents and healthcare workers per capita than higher-income countries.)
Experts are today proposing a new “Fair Priority Model” for vaccine distribution. They argue it’s more ethical than the above two approaches and is applicable to all three groups that will eventually decide the vaccine distribution in the world:
1) The Covax Facility, the WHO-led global alliance 2) The vaccine manufacturers 3) The national governments
In their proposal, the authors point to three fundamental values that must be considered when distributing a Covid-19 vaccine among countries: benefiting people and limiting harm, prioritising the disadvantaged, and giving equal moral concern for all individuals. |
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The proposed model envisions a three-phase distribution:
Phase 1: Focus on preventing premature death, determined in each country by calculating “standard expected years of life lost”, a commonly-used global health metric.
Phase 2: Focus on metrics that capture overall economic improvement and the extent to which people would be spared from poverty. Two metrics are proposed.
Phase 3: Focus on countries with higher transmission rates first, but eventually all countries must receive sufficient vaccines to halt transmission. It’s projected that, eventually, 60-70% of the population will have to be immune.
In contrast to the Fair Priority Model, WHO’s plan begins with 3% of each country’s population receiving vaccines, and continues with population-proportional allocation until every country has vaccinated 20% of its citizens.
Challenging the WHO model, the experts say distributing different quantities of vaccine to different countries is not discriminatory if it effectively benefits people while prioritising the disadvantaged.
This argument is relevant for India, where New Delhi has made it clear that even though states are now on their own in devising strategies for containing and treating Covid-19 cases, for vaccines they’d have to turn to the Centre. Therefore, fair and ethical distribution for states will be an important, even contentious issue. Because states are at different levels of the pandemic, as well as health and economic metrics.
It’s urgent that India answers the question, ‘Who should get the vaccine first’, before it starts looking into how it’d reach those recipients. Infosys chairman Nandan Nilekani, also the person behind India’s unique identity number Aadhaar, has proposed an Aadhaar-like plan for taking vaccines to people. |
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As a metaphor, WhatsApp looks catchy and as an analogy Aadhaar appears apt. But healthcare is complicated. And the supply of vaccines is not the only challenge. One misstep (like the ones in Aadhaar enrollment) could push vaccine believers toward anti-vaxxers.
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The test of the impossible trinity Nithin Have you heard of the impossible trinity in economics? It’s a concept that says a country must choose between allowing free flow of capital for business or investment, managing its exchange rate (currency), and an independent monetary policy for inflation management.
It’s an either/or situation. Only two of the three are simultaneously possible. |
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Today, it appears that the RBI has taken a backseat in currency management, and let the Indian rupee strengthen to a six-month high.
“The recent appreciation of the rupee is working toward containing imported inflationary pressures,” said the RBI.
By “imported” inflation, the RBI is suggesting that a weaker rupee increases the import costs for India and, thus, increases inflationary pressures.
The current level of inflation is beyond the comfort level of the RBI. The usual strategy to deal with high inflation would be to increase the interest rates. But since this isn’t inflation created by domestic demand alone, using interest rates as a lever won’t help.
So the RBI is allowing the rupee to strengthen, in the hope that it reduces the import costs.
However, a stronger rupee hurts exporters. During the start of the pandemic, the RBI had let the rupee slide, which made exports attractive. But with supply chains disrupted, there weren’t many export opportunities. And now, when economies are opening up, a stronger currency isn’t helping their cause. Also, in light of McKinsey’s report that says India needs to create at least 90 million more non-farm jobs by 2030, it’s worth remembering that the exporters can have a multiplier effect on employment opportunities. Even compared to the largest of conglomerates.
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So what can RBI do?
Does it help exports and, in turn, reduce employment by letting the rupee weaken? Or restrict the inflow of foreign capital and let the rupee weaken? Or control “imported” inflation, instead, by letting the rupee strengthen?
There’s no easy answer to RBI’s policy trilemma. |
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A tricky fix for the urban jobs crisis
Seetharaman
The dust kicked up by the world’s most stringent lockdown is yet to settle. But the heavy price paid by the Indian economy and its people is becoming clearer by the day. India’s gross domestic product shrank 24% in the April-June quarter—its worst since the country started releasing quarterly numbers in 1996.
Now, a survey of 8,500 urban workers between May and July by the London School of Economics has more bad news. Four out of every five informal workers were out of work for more than a month, compared with one in every five of those formally employed. India’s urban unemployment rate in August was 9.83%, while in rural areas it was 7.65%.
In villages, the central government has turned to its flagship jobs programme, under which every family is entitled to 100 days of unskilled manual work for Rs 200 (US$2.7) a day. It has allocated Rs 1,20,000 crore (US$16.4 billion) for the scheme between April 2020 and March 2021. Now, the government is thinking of extending it to urban areas. |
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More than a third of India’s population lives in urban areas. The pandemic notwithstanding, migration to cities for better prospects will continue. But the cost of not having a job in cities can be taxing.
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So it may not be a bad idea for the government to step in with a stopgap jobs fix. But the government’s finances are a mess, thanks to falling tax collections. In the first four months of the fiscal, India breached its annual fiscal deficit target. And the minimum daily wage guaranteed under an employment programme has to be much higher than Rs 200. Urban incomes in India are on average 2.4X of rural incomes.
Nearly 19 million salaried jobs have been lost since April, and the state can do little by way of direct intervention there, unlike in the informal sector. Solving the jobs crisis in cities and towns with a government scheme is a lot harder than it seems.
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Definitely, maybe
Olina
Facebook, the world’s largest social network, can’t seem to Find a Friend in India.
In 2016, it tried to get pally with India’s internet users through Free Basics, but was swiftly blocked. Net neutrality and whatnot.
In the intervening years, Facebook has tried hard to change its relationship status with the Indian government. But the government seemed to have check-marked the “it’s complicated” box. Violent Whatsapp forwards and whatnot.
Finally, in 2020, Facebook made friends with the most powerful man in India. No, the other one. It thought it had finally found a way in, and Whatsapp would be allowed into the hallowed payments system. Friend of a friend is a friend, right?
Something weird happened, instead. First, the Wall Street Journal leaked the news of how an Indian head honcho at Facebook had been lenient with government-friendly, right-wing posts. Surely, this calls for a positive relationship status change?
But in a dramatic turn of events, the Minister of Information and Broadcasting, instead, turned the tables on Mark Zuckerberg, accusing Facebook’s India outfit of a leftist, anti-government bias. So where does that leave Facebook on the friendship scale with the government? Maybe, definitely, FB, they’re just not that into you. |
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I’d like to buy stocks, with only the upside please Nithin
Circa March 2020 (which seems like a long time ago), the pandemic ravaged the world. And the stock market fell faster than one could say “these are unprecedented times”.
Investors panicked. No one knew how much lower stock prices would go. In March, many countries, including India, France, Spain, and South Korea, put various restrictions or outright bans on short selling—a trading strategy that reaps profits when stock prices fall. The fear was that short sellers could destabilise markets, and hurt retail investors. In India, some of the restrictions on short selling that the regulator introduced in March have been extended a few times already.
On 26 August, the Securities and Exchange Board of India, the stock market regulator, said that the restrictions will remain in place till 24 September. And South Korea has decided to extend the ban on short selling for another six months.
But academic papers say there is more harm in banning short-selling activities. The purpose of the stock market is to let prices chart their own path. Over-reactions and under-reactions to events are a common feature of investing. And taking away a key part of that process distorts market behaviour.
Even strategists at Barclays, a global investment bank, oppose this ban: “It thus seems that as long as fundamentals improve, short selling should not be an impediment to further recovery in equity markets.”
So when the evidence is against the ban on short selling, why are regulators taking this option?
Stock market regulators most likely want to be seen as being proactive, and caring for the financial health of long-term investors. This way, when investors fear that their life savings are getting wiped out, they have a glimmer of hope that at least someone is in their corner to protect them.
For, when the market is panicking, no one gives two hoots about what an academic paper says.
But in times like these, as the stock markets remain disconnected from economic reality, it’s prudent to set aside the emotion and rely on research.
(No, research which shows that restrictions on short-selling activity do not help). |
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Where are you on the Indian barometer?
Bhumika
As an individual, you can be an Indian either by naturalisation or by birth. But for companies, it’s not so straightforward anymore.
On Thursday, the Times of India reported that QR code-based payments player BharatPe has been promoting its Indian-ness by distributing flyers showing Paytm* with the Chinese flag and PhonePe with the US flag. The company even redesigned its QR code to add the Indian tricolour.
Chinese e-commerce giant Alibaba is a major investor in Paytm. PhonePe is owned by Indian e-commerce player Flipkart, which is in turn owned by US retailer Walmart. As for BharatPe, it is funded by US-headquartered venture capital firms like Sequoia Capital and Ribbit Capital. All three companies are headquartered in India, have Indian-born founders, and employ Indians.
Maybe there will soon be a weighted-average way of measuring how Indian a company is based on various parameters. That should settle it once and for all. |
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*Paytm’s founder Vijay Shekhar Sharma is an investor in The Ken |
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That’s a wrap for today.
Don’t forget to write in with your thoughts and observations on how this pandemic is reshaping businesses, societies and economies. We will be back on Monday.
Stay safe, Arundhati |
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Beyond The First Order is a paid daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia. This newsletter is published by The Ken—a digital, subscription-driven publication focussing on technology, business, science and healthcare
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