📰 Navy’s dilemma: US-2 planes or helicopters?
India, Japan continue discussions for purchase of US-2 amphibious aircraft
•The Navy’s urgent priorities include helicopters and minesweepers, while India continue discussions with Japan for buying the US-2 amphibious aircraft, naval officials say.
•“The US-2 is a good capability addition, but it is not a top priority. There is a constraint of resources and there are other things on that list. The Navy is in urgent need of helicopters, minesweepers and submarines among others,” one naval source says.
•India and Japan have been negotiating a deal for 12 ShinMaywa-built US-2 amphibious aircraft at a cost of around $1.3 billion, but differences over the pricing offset clause have held it up.
Joint statement
•The joint statement issued after talks between Prime Minister Narendra Modi and his visiting Japanese counterpart, Shinzo Abe, earlier this month noted Japan’s “readiness to provide its state-of-the-art US-2 amphibian aircraft”, and the two governments decided to “continue their discussions in this regard”.
•While the aircraft will be a great force multiplier for the Navy, they will divert precious resources from other pressing needs. Of these, the most pressing need is for helicopters, which are crucial in clearing way for ships and are also the first responders in any emergency on the seas.
The inventory
•The Navy’s inventory currently consists of Chetaks, Russian Kamov-28 and 33s, six Sikorsky UH-3Hs, Seaking 42B & 42C and some advanced light helicopters. Except the last, all others are of 1980s vintage.
•Surprisingly, while the force is inducting modern stealth ships, most of the decks lie vacant because of a lack of copters. Beyond the off-shore patrol vessels, all ships can accommodate two helicopters each. To meet these, there is a requirement of over 123 naval multi-role helicopters.
•“These helicopters are needed to sanitise the area around the high-value assets and carry out attacks against enemy submarines at stand-off ranges,” an officer says.
📰 M777 broke due to faulty shell
Probe blames ammunition supplied by the Ordnance Factory Board
•A preliminary investigation has found faulty ammunition to be the cause of the accident involving an M777 ultralight Howitzer during firing trials early this month.
•“A preliminary inquiry has found that the explosion took place due to faulty ammunition supplied by the Ordnance Factory Board (OFB), and a further probe into the matter is on,” an official source said.
•On September 2, the gun manufactured by BAE Systems of the U.S. was undergoing field firing for compilation of range tables when the accident occurred. The ammunition exiting the barrel broke into multiple pieces damaging it.
•Commenting on the findings, OFB spokesperson Uddipan Mukherjee said such accidents could be caused by multiple factors.
•“Any such failure is attributable to a complex phenomenon pertaining to internal ballistics as the shell moves at a very high speed inside the barrel,” he said.
$737 million deal
•Last November, India signed a deal with the U.S. government under the Foreign Military Sales Program for 145 M777 guns at a cost of $737 million. As part of the agreement, two guns arrived in India in April for calibrating range tables and three more would arrive in September 2018 for training.
•Deliveries were slated to commence from March 2019 to be completed by mid-2021.
📰 Japan keen on friendship with northeast
Tokyo will invest in infrastructure, education and people-to-people sectors, apart from inviting 25 youth from region to the country this year
•Days after the visit of Prime Minister Shinzo Abe, Japan has begun its outreach for the northeastern region. At the fourth Northeast Connectivity Summit in Kohima from September 22 to 23, a representative of the Embassy of Japan said Tokyo would invest in the region’s infrastructure, education and people-to-people sectors.
•The next edition of the summit will be held in Tawang, Arunachal Pradesh, which borders China.
•“Kenko Sone, Minister, Economic Affairs, Embassy of Japan, speaking at the summit, said the northeastern region is located at a strategically and economically important juncture between India and Southeast Asia as well as within the Bimstec (Bay of Bengal) community. Therefore, Japan has placed a particular importance on the cooperation in the northeastern region,” said a press note by the Nagaland government on the summit.
Road network
•The press release noted that for the northeast, Japan had undertaken works on road connectivity, energy projects, water supply and sanitation, forest resources management, Japanese language education and post-war reconciliation, which aimed to build a deeper understanding of the actions of Japanese forces in the region during the Second World War.
•Mr. Sone announced that Tokyo would invite 25 young people from Manipur and Nagaland to Japan this year.
•During the latest visit of Prime Minister Abe to Ahmedabad, Japanese officials said Tokyo was committed to undertaking two major road and infrastructure building projects in Mizoram and Meghalaya. But the event in Kohima provided a broader portrait of Japan’s interest in the northeast.
•The next Connectivity Summit in Tawang is expected to take Japan’s representation into the strategically located region that borders China. It was noteworthy that during Mr. Abe’s visit, Japanese officials had declined to spell out if Tokyo would be interested in acquiring projects in Arunachal Pradesh.
Myanmar’s interest
•The summit also indicated Myanmar’s interest in the potential of the region. Speaking at the event, Myanmar’s Minister of Cultural Affairs Sai Kyaw Zaw urged people from Arunachal Pradesh, Nagaland, Mizoram and Manipur to forge closer ties with Myanmar as the country shared long borders with all four States.
•Nagaland’s Chief Secretary Pankaj Kumar also urged improved connectivity with Myanmar for unlocking the regional trade potential. The summit included diplomatic participation from Bhutan, Russia, Bangladesh, Laos and Thailand.
📰 Private players may run rail lines
Clients will benefit: Piyush Goyal
•The Union government is open to the idea of giving operations of railway lines to private players for enhancing competition, Railway Minister Piyush Goyal said in an interview.
•“It’s an exciting proposition. We will be able to generate competition in the process and improve customer satisfaction,” Mr. Goyal told The Hindu on board the Mahanama Express train, launched between Prime Minister Narendra Modi’s old constituency in Vadodara and his present one in Varanasi on Friday, ahead of the Gujarat Assembly elections.
•The Railways are the largest transportation network in the world, running 12,000 trains a day over 65,000 route km.
Various models
•Mr. Goyal, who took charge of the Railway Ministry on September 4 after Suresh Prabhu resigned following a string of derailments, said he was studying various models for attracting more private players.
No cap on safety funds
•Claiming that he was willing to spend unlimited funds on safety, he said clearing the backlog for track renewal would be the focus, and a zero accident rate would be an aspiration. “In my working, there is no budget for safety. Whatever (fund) is required we will spend,” Mr. Goyal said.
•Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe recently laid the foundation stone for India’s first bullet train project on the Ahmedabad-Mumbai sector worth Rs. 1.08 lakh crore.
•Mr. Goyal is also re-tuning policy to attract private companies for modernising railway stations. To begin with, the Railways have decided to do away with the ‘Swiss Challenge’ model of awarding railway stations to private players and taken a slew of measures to lease out at least 100 stations.
📰 Tech boost for soil quality scheme
Analysis without collecting sample
•The government’s massive scheme to analyse the soil quality of farms across the country may get a technology boost. The Department of Science and Technology (DST) is looking to link the programme with a research project at the Indian Institute of Technology Bombay that uses sophisticated imaging techniques and can picture the nutrient balance of a patch of land without necessarily collecting soil sample.
•Hyper spectral imaging, as D. Ramakrishnan, Professor, IIT Bombay’s Earth Sciences Department explains, means analysing extremely detailed images of an object — frequently to the scale of nanometres — and then reconstructing its constituent elements. Using custom-developed algorithms, satellite-images, or those taken from low flying planes or drones, can be used to calculate the proportion of nitrogen, potassium and phosphorous — the three most vital nutrients — as well as other minerals in the soil and be used to gauge its health.
•“This kind of spectroscopy can be used to analyse soil health…though it has wider applications in geology, characteristics of air pollution etc,” Mr. Ramakrishnan, who leads the project, told The Hindu in a phone conversation.
•His group is attempting to build a database of soil samples across the country and has gleaned about a third of their requirements. “In about 2.5 years we hope to have a complete database of samples across India…however to be able to map the country effectively we’d need satellite pictures. Currently no Indian satellite has the capability to take nano-scale resolution pictures,” he added.
•He, however, is aiming to build this technology to the extent it can be transferred to a private company and it then uses it for schemes such as soil health analysis. So far the researchers have figured out ways to measuring organic carbon and phosphorous in a soil sample via images.
•The DST said that it was in talks with the Ministry of Agriculture and State departments to evolve a programme and apply this technology for the government’s mission.
•“We are looking to have more State officials come on board,” said Murali Mohan, a senior adviser in the DST, linked to the project.
📰 ‘GSTN tweaked features, handled robust return filing’
Portal handled 1.3 lakh tax return filings and payments per hour on last day: CEO
•GST Network (GSTN) has tweaked some of the features on its portal over the past month to make the system more robust and allow glitch-free tax payment facility to almost 35 lakh assessees, CEO Prakash Kumar said on Sunday.
•Of the total 87.33 lakh registered businesses on the GSTN, which manages the IT infrastructure of the new tax regime, 68 lakh were eligible to pay taxes in August.
•Of the total registered taxpayers, 24.56 lakh are new registrations, while 62.77 lakh have migrated from the earlier excise, service tax and VAT regime. Mr. Kumar said the GSTN portal had handled a humongous load of 1.3 lakh tax return filings and payments per hour on September 20 — the last day of filing of August tax returns.
•“Nearly 35 lakh people had filed returns till Saturday. We have done some tweaking in our portal and it is evident from the load GSTN handled at the time of August return filing,” he told PTI. Mr. Kumar said a significant number of returns were filed even after the due date of September 20 for the month of August. Till September 20, over 30 lakh returns were filed, and the tally went up to almost 35 lakh till September 23.
•“A lot of businesses file returns even after the end of due date as the [GST] Council has done away with late payment fee. This delayed filing of returns used to happen at the time of VAT payment as well in States,” Mr. Kumar said. The Ministerial panel under Bihar Deputy Chief Minister Sushil Modi to look into glitches in GST Network will meet on October 4 to assess improvement in functioning of the portal.
•The group of ministers will meet just two days before the full GST Council meeting on October 6 and would update the Council on its findings.
•GST Network (GSTN) had faced glitches during the GSTR-3B filing for July, which had forced the government to extend the due date for filing of returns.
Tax collection
•As many as 49.68 lakh returns in GSTR-3B were filed for July. This compares with 59.6 lakh businesses who are required to file returns. Taxes of more than Rs. 95,000 crore were collected in the maiden month of roll-out.
•The GST Council had constituted the group of ministers to sort out the issues faced by businesses while filing returns and paying taxes on GSTN portal.
📰 ‘GST: MSMEs to gain via better competitiveness’
•The Goods and Services Tax (GST) is all set to enhance the competitiveness of the almost five crore Micro, Small and Medium Enterprises (MSMEs) that account for 25% of employment, 40% of industrial output and 45% of exports of the country. This, by making them a part of organised commerce and offering them a level-playing field.
•A simplified tax structure and a unified market are the two great promises of GST but the key benefits for MSMEs, a majority of whom are getting into the indirect tax net for the first time, include lower freight costs, which is estimated to come down by 1.5-2%. Significant benefits will be seen in lower cost of raw materials (in the past 2% CST was applied to raw materials imported from other states), and a lower tax burden. These benefits will have a more significant effect on boosting the cost competitiveness of MSMEs — a sector comprising tens of thousands of self-funded proprietary firms, private self-help groups, private cooperatives, khadi, village and coir industries.
•The market base for MSMEs will grow as tax complexities of interstate sales disappear. Original equipment manufacturers and corporates will come forward to procure components, semi-finished and finished products from MSMEs irrespective of location. Since there is no burden of tax on interstate sales, MSMEs will also have no issues in accepting orders from other States. They can also compete with low-cost imports, as the tax is the same for both locally manufactured as well as imported products — especially those coming from overseas low-cost producers.
•GST treats sales and services as one and the same. Hence, there is no additional tax burden for MSMEs that operate on the sales and services model of business.
•MSMEs will also enjoy ease of doing business as there will be no complexities in registration. Centralised registration has now replaced multiple tax and registration rules in different states. There will be no, or minimal, physical interface of bureaucracy as registration, payments, input tax credit and tax liability adjustment, returns, and refunds will now happen electronically. This will bring transparency in compliance and will also reduce the compliance cost.
•Thus, GST will allow flexibility in transfer of goods across states and reduce the cost of doing business for MSMEs.
‘Varying impact’
•However, the impact of GST on MSMEs will not be the same for all segments — electrical equipment, for instance, is expected to benefit from lower freight costs and tax rates, while there may be no big positive impact for leather and footwear sectors that are facing stiff foreign competition.
•On the other side, the cost of compliance is a big issue for MSMEs that do not have enough specialised manpower, managerial bandwidth, access to facilitation services. GST-registered organisations will have to file returns more often and regularly.
•MSME staff are, mostly, not familiar with using computers and web portals. Hence, they may have to seek the help of intermediaries to use a technology-enabled platform like the GST.
•In this context, it is important that there is handholding for MSMEs in transitioning them to this new tax regime. There is also a need to educate MSMEs about the various provisions and compliance requirements under GST for MSMEs through seminars, conferences, training sessions.
•There is a view that availing input credit only for tax paid by the supplier shifts the onus on to the customer and this could affect the trust between supplier and customer, especially for one-time transactions. On the other hand, there will be a new situation where the customer and supplier relationship will be based on compliance.
•That is, customers will prefer to do business only with suppliers who are compliant. MSMEs will have to get used to regularising the filings of their returns, as compliance will become a business imperative.
•GST is a massive reform and some hiccups in the initial months are unavoidable. The advantages of having a unified tax system and easy input credits will outweigh the teething troubles the industry may experience in the short term.
•MSMEs can hope that most of the current challenges will be a story of the past soon. If the government can take corrective measures in a proactive manner, the GST system will prove to be a boon for industry in general, and MSMEs in particular.
📰 Who’s lending to Indian businesses?
Banks’ share in new credit fell in FY17, as corporate bond issuances rose 56% and NBFCs lent more
•With the banks busy chipping away at their mountain of bad loans and operating on precarious levels of capital, who will fund the credit needs of Indian businesses? Reserve Bank of India’s recently released annual report for 2016-17 shows that many new sources of finance are springing up. Domestic businesses are increasingly turning to the bond markets, Non-Banking Finance Companies (NBFCs) and foreign direct investors to meet their funding needs.
•RBI’s compilation on the ‘Flow of financial resources to the commercial sector’ shows that FY17 marked a watershed year for Indian banks’ share in commercial credit.
•In the four years ended FY17, domestic businesses soaked up between Rs. 12.8 lakh crore and Rs. 15.1 lakh crore, per year in credit funding. Until FY16, the banking system met 50% or more of this requirement.
•But in FY17, banks’ share in new credit slumped to 35%, while non-bank sources met 65% of the financing requirement. Non-bank sources lent as much as Rs. 9.25 lakh crore to businesses, dwarfing bank credit flow of Rs. 5.02 lakh crore. So, who are these non-bank lenders to enterprises and how are they funding themselves?
Bond market buoyancy
•For years, market players in India have bemoaned the underdeveloped state of the domestic bond market. But the bond market has seen a remarkable pickup in the last three years.
•In FY17, public issues and private placements of corporate bonds (including commercial paper) raised Rs. 3.16 lakh crore for firms, a 56% jump from the Rs. 2.03 lakh crore in FY16. This took care of 22% of the total funding requirements of commercial enterprises.
•This number has almost doubled from Rs. 1.65 lakh crore in FY14. This data only includes the bonds directly floated by commercial enterprises, and not the money raised by finance companies for on-lending.
•What has prompted this sudden takeoff? On the borrowing side, firms have taken to bond issues to source more of their requirements because bond markets have transmitted the recent fall in interest rates much more quickly and effectively than banks. In the last couple of years, it has been much cheaper for high-quality corporate borrowers to tap bond markets.
•On the lending side, retail savings flooding into mutual funds, insurance firms and pension funds have helped stoke the domestic institutional investors’ demand for bonds.
•These trends, taken with active efforts by the RBI, suggest that bond markets may continue to remain a leading source of credit to businesses, offering stiff competition to banks. The only caveat is that the bond market route is more accessible to large enterprises with good credit ratings, than SMEs or borrowers with low ratings.
NBFC scale-up
•Non Banking Finance Companies (NBFCs) have emerged as key financiers to businesses, especially MSMEs. RBI data shows that in FY17, NBFCs and housing finance companies extended Rs. 2.59 lakh crore in credit to commercial enterprises, meeting 18% of their total credit needs. NBFC lending jumped 28% over FY16.
•For long, it was a sore point with entrepreneurs that the large corporate borrowers ended up cornering the lion’s share of bank credit, with lending procedures effectively keeping out Micro Small and Medium Enterprises. In the last three years though, wholesale NBFCs have aggressively stepped into the breach. Leveraging their deep regional reach, closer relationships with customers and alternative credit appraisal systems, NBFCs have driven a manifold expansion in loans against property and unsecured business loans to MSMEs.
‘NBFCs gain share’
•A Crisil study in November 2016 noted that NBFCs had gained a 3 percentage point share of overall credit pie from banks in the last three years as a result of their mortgage and MSME lending push, and would continue to gain share over the next three years. Housing finance NBFCs have emerged as a major source of funds for real estate developers too, with financial institutions such as LIC, SIDBI, National Housing Bank and NABARD playing a complimentary role in funding other businesses.
Two factors have helped NBFCs expand their lending activities at the cost of banks — their comfortable capital adequacy ratios and their ability to borrow at lower costs due to falling interest rates. In the last couple of years, NBFCs have been even more aggressive than corporates in tapping the bond markets for capital. They have also augmented their resources by borrowing from banks and institutional investors through securitisation deals. Lately though, there is worry the sluggish property market will force NBFCs to tread more cautiously on loans against property.
•While domestic non-bank sources such as bond markets and NBFCs have met about 46% of the total credit needs of businesses in FY17, foreign sources have chipped in with about 19% (Rs. 2.75 lakh crore).
•Here, the good news is that rather than External Commercial Borrowings or short-term credit, it is the more durable FDI money that is meeting this need.
•While it heartening to see these alternative sources filling in for bank credit, it is essential to recognise that these cannot completely substitute for bank lending. In April-June 2017 for instance, bank credit flow to the commercial sector actually shrank by Rs. 1.92 lakh crore. Despite non-bank sources pumping in Rs. 1.65 lakh crore, the aggregate flow of finance to business contracted by Rs. 27,300 crore.
•The other useful takeaway from the analysis is that one can no longer assume a one-to-one correlation between bank credit growth and the GDP growth numbers. To really measure credit expansion in the economy, we need data on both bank and non-bank lending. To extend this logic further, if bank credit growth slumps to a 20-year low as it did in March this year, it needn’t necessarily spell doom for the economy.
📰 All you need to know about Graded Surveillance Measure
What is the Graded Surveillance Measure?
•SEBI introduced the measure to keep a tab on securities that witness an abnormal price rise that is not commensurate with financial health and fundamentals of the company such as earnings, book value, price to earnings ratio among others.
Why did SEBI bring in the measure?
•The underlying principle behind the graded surveillance framework is to alert and protect investors trading in a security, which is seeing abnormal price movements. SEBI may put shares of companies under the measure for suspected price rigging or under the ambit of ‘shell companies’. The measure would provide a heads up to market participants that they need to be extra cautious and diligent while dealing in such securities put under surveillance.
How the Graded Surveillance Measure works?
•Once a firm is identified for surveillance it goes through six stages with corresponding surveillance actions and the restrictions on trading in those securities gets higher progressively. In the first stage the securities are put in the trade-to-trade segment (meaning no speculative trading is allowed and delivery of shares and payment of consideration amount are mandatory). A maximum of 5% movement in share price is allowed.
•In the second stage, in addition to the trade-to-trade segment, the buyer of the security has to put 100% of trade value as additional surveillance deposit. The deposit would be retained by the exchanges for a period of five months and refunded in a phased manner.
•In the third stage, trading is permitted only once a week ie every Monday, apart from the buyer putting 100% of the trade value as additional surveillance deposit.
•In the fourth stage, trading would be allowed once a week and the surveillance deposit increases to 200% of the trade value.
•In the fifth stage, trading would be permitted only once a month (first Monday of the month) with additional deposit of 200%.
•In the sixth and final stage, there are maximum restrictions.
•Trading is permitted only once a month at this stage, with no upward movement allowed in price. Also, the additional surveillance deposit would be 200%.
Will securities remain permanently in the Graded Surveillance list?
•There would a quarterly review of securities. Based on criteria, the securities would be moved from a higher stage to a lower stage in a sequential manner.
What are the points small investors should keep in mind about the Graded Surveillance Measure?
•As and when a security is shifted to various levels of surveillance, it is publicly announced on a daily basis on BSE and NSE websites as well as through circulars to the stock brokers. Moreover, the exchanges can also appoint independent auditors to audit the books of accounts of these companies and do forensic audit, wherever needed.
•This indirectly may also be an indication that the sudden rise in either the volumes traded or the price increase are not commensurate with the fundamentals of the said companies and hence small / retail investors are protected from getting stuck in such stocks inadvertently on some wrong advice.
•The only challenge for the small investors is that these announcements are often made at very short notice and implemented from the next day itself thus giving those who have already entered the stock less than adequate time to exit it. Of course, there is also potentially another risk. For example, even if time is given, the stock might crash next day on the news, triggering the lower price circuit and leaving no exit opportunity.
📰 The faltering economy
The Centre should capitalise on stable macros to push through tough structural reforms
•A set of weak economic numbers has left the Central government scrambling to do something to set things in order. Finance Minister Arun Jaitley last week promised appropriate action to revive the economy without going too much into the details of what could be in store. There is, however, talk that increased fiscal spending to the tune of Rs. 50,000 crore or more may be approved by the government to make up for lack of private investment. This comes after the expansion in gross domestic product slowed to a multi-year low of 5.7% in the first quarter of 2017-18, and industrial output growth dropped to 1.2% in July, compared to 4.5% a year earlier. In addition, retail price inflation jumped to a five-month high of 3.36% in August from 2.36% in July, further dimming the prospects of a monetary stimulus from the Reserve Bank of India to help boost the economy. The demonetisation of high-value rupee notes in November, and the implementation of the Goods and Services Tax this year seem to be the most proximate causes behind the lacklustre growth numbers released so far. But, as many have pointed out over the last few months, the economy has been decelerating for the last five quarters. In such a case, demonetisation and GST have merely brought to the fore a more fundamental weakness in the economy.
•Increased fiscal spending is unlikely to provide more than short-term relief to this problem, as it will not address any of the production bottlenecks in the economy. In addition, any loosening of the fiscal deficit target will affect India’s standing among global investors and project the image of a government resorting to fiscal stimulus to make up for the lack of more meaningful reforms. The real antidote to the current slowdown, on the other hand, is known all too well. The various rigidities in the market for land and labour have been holding back the economy for decades now, stopping investors from risking their capital on large-scale projects needed to boost growth. Further, the overall unease involved in doing business in the country and the even larger uncertainty looming around the rules that govern the conduct of business have seriously held back growth. It is no surprise then that, as reflected in the sluggish credit offtake numbers, private investment has failed to make sufficient use of the country’s relatively high private savings rate. But successive governments have found it easier to kick the can down the road rather than enact politically uneasy reforms needed to address the problem facing the economy. India’s major macroeconomic numbers, despite the recent worsening of the current account deficit, are still quite stable compared to a few years ago. The government must rise to the challenge and enact tough structural reforms, instead of finding an easy way out through the fiscal door.
📰 Turn the economic ship around
We need to apply the potential of social business to solve problems of inequality and unemployment
•In 1976, Muhammad Yunus launched Grameen Bank in Bangladesh, which made capital available to the poor, especially women. As he writes in his new book, A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions , the impact of microcredit in enabling millions of people to lift themselves out of poverty helped to expose the shortcomings of a traditional banking system. As he travelled across the world, Yunus found that low-income people in the world's richest nations were suffering from the same problems the poor faced in poorer nations: lack of institutional services, health care, inadequate education, substandard housing, and so forth. Yunus, who won the Nobel Peace Prize in 2006, argues that problems of poverty are failures of our economic system. An excerpt:
•For too long, we’ve tolerated the persistence of poverty, unemployment, and environmental destruction, as if these are natural calamities completely out of human control, or, at best, unavoidable costs of economic growth. They are not. They are failures of our economic system — and since the economic system was created by human beings, these failures can be corrected if human beings choose to replace that economic system with a new system that more accurately reflects human nature, human needs, and human desires.
Economics of social business
•Remember, the central problem with capitalism as it is now practised is that the system recognises only one goal — the selfish pursuit of individual profit. As a result, only businesses designed around this goal are recognised and supported. Yet millions of people around the world are eager to pursue other goals, including the elimination of poverty, unemployment, and environmental degradation. All three can be dramatically reduced if we simply begin designing businesses with these goals in mind. And that is where social business plays a crucial role.
•Social business offers advantages that are available neither to profit-maximising companies nor to traditional charities. The freedom from profit pressures and from the demands of profit-seeking investors helps make social businesses viable even in circumstances where current capitalist markets fail — where the rate of return on an investment is near zero, but where the social return is very high. And because a social business is designed to generate revenues and thereby become self-sustaining, it is free from the need to constantly attract new streams of donor funding to stay afloat, which drains the time and energy of so many people in the non-profit arena.
•Thus, the economics of social business can be simple and sustainable, as illustrated by successful experiments that have already been launched in both the developing world and the wealthy nations.
•We live in a particularly suitable time for these experiments with new forms of business, since electronic technologies for information and communication can play a huge role in amplifying the power of individual entrepreneurs. A social business owner who devises a product or service that helps the poor or benefits society in some other way may be able to attract a wide market by using social networking and other online tools to spread the word. Thanks to the Internet, good ideas can spread more rapidly, and proven business models can grow to scale more quickly and easily than ever. Health care, education, marketing, financial services, and many other economic arenas can be revolutionised through the combined power of social business and technology.
•It’s exciting to observe how these new economic concepts have been spreading around the globe through the efforts of entrepreneurs, executives, academics, students, and political leaders. Now it’s time to apply the potential of social business to solving the problems of inequality, unemployment and environmental decay — all symptoms of the broken engine of capitalism.
•We owe it to future generations to begin moving towards a world of three zeros: zero poverty, zero unemployment, and zero net carbon emissions. A new economic system in which social business plays an essential role can enable us to achieve this goal.
Crisis of capitalism
•Humankind as a whole is living in a time of unparalleled prosperity, fuelled in part by revolutions in knowledge. This prosperity has changed the lives of many. Yet billions of people still suffer from poverty, hunger and disease. And in the last decade, several major crises have combined forces to bring even greater misery and frustration to the world’s bottom 4 billion people.
•Few people foresaw these crises. The 21st century began with high hopes and idealistic dreams, encapsulated in the UN initiative known as the Millennium Development Goals (MDGs). Many of us were convinced that the coming decades would bring unprecedented wealth and prosperity, not just for a few but for all people on this planet.
•The establishment of the MDGs led to significant progress on several fronts in the battle against poverty. Sadly, however, 2008 will go down in history as the year of a rude awakening about the gross weaknesses in our capitalist system. It was the year of the food price crisis, the oil price crisis, the financial crisis, and the ever-worsening environmental crisis. In combination, these crises caused a profound loss of faith among people who thought they had full understanding of and control over the global system.
•Let’s start by considering the food crisis. Early in 2008, the United Nations World Food Programme (WFP) reported dreadful news: more than 73 million people in 78 countries were facing the reality of reduced food rations. We saw headlines reporting news of a sort that many people assumed we would never experience again: skyrocketing prices for staple foodstuffs like grains and vegetables (wheat alone having risen 200% since the year 2000), food shortages in many countries, rising rates of death from malnutrition, and even food riots threatening the stability of countries around the globe.
•Since the June 2008 peak in global food prices, prices have continued to fluctuate, reaching another record high in 2011. As of 2016, they had fallen slightly, bringing a bit of short-term relief to millions. But continuing high food prices have created tremendous pressure in the lives of poor people, for whom basic food can consume as much as two-thirds of their income.
•We need to consider how the evolution of the world economy and, in particular, of the system whereby food is produced and distributed has led us to today’s dilemma. Perhaps surprisingly, the economic, political, and business practices of the developed world have a profound impact on the availability of food in the poor nations of the world. Thus, solving the global food problem will require a redesign of the international framework, not merely a series of local or even regional reforms.
📰 Afghan overture
India’s decision to expand security assistance to Kabul has a nuanced geopolitical message
•President Donald Trump’s policy announcement on Afghanistan has clearly set the stage for diverse moves on the geopolitical chessboard. India’s plans to expand its security assistance to Afghanistan by training police officers in India as part of a UNDP project must be assessed in this light. A welcome step in itself and one that could have a significant impact on the security situation in Afghanistan, it also sends out a loud geopolitical signal. The main part of this message is meant for Afghanistan, as it indicates a continued commitment to its stability. By training police officers and hundreds of army cadets and officers, India is taking an important role in capacity building for Afghan security. The country saw the highest civilian casualties last year since the 2001 U.S.-led invasion. Increasingly, these casualties are coming not from Afghanistan’s border areas but its cities and villages where only a professionally trained police force, and not armies, can maintain peace. India has also announced this month 116 smaller “new development projects” across Afghanistan, and police forces will be crucial in protecting irrigation, housing and school projects from the Taliban and other terror groups. The second message, to Pakistan and other countries in the region that deal with the Taliban, is that India will not be deterred from assisting Afghanistan for its security. This is a clear counter to Pakistan Prime Minister S.K. Abbasi’s recent statement that India has “zero political and military role” in Afghanistan. This message is reinforced by New Delhi’s decision to send Indian engineers to refurbish several non-functional Soviet-era planes and to repair the helicopters India donated to Afghanistan last year.
•Third, there is a message to the U.S. and NATO forces, just ahead of an important visit by U.S. Defence Secretary James Mattis to Delhi, that could not be clearer: India will play a part in putting Afghanistan back on its feet in India’s own way and not necessarily, as the U.S. may prefer, with ‘boots on the ground’ or by sending large numbers of trainers into Afghanistan, where they would become marked targets. The decision to enhance security training comes coupled with an India-Afghanistan trade fair sponsored by USAID, that will welcome Afghanistan’s Chief Executive Abdullah Abdullah and other ministers to Delhi this week. Regardless of actual transactions made, the optics will be significant, demonstrating possibilities of India-Afghanistan business regardless of the obstacles in transit trade posed by Pakistan. An announcement by the government that the India-Afghanistan-Iran trilateral arrangement to circumvent the obstacles is on track was well-timed, and the commitment that the Chabahar port development project will be completed next year should reassure business on both sides about a sustainable trade route from South Asia to Central Asia. India and Afghanistan have lost too much time on each of these plans.
📰 The faltering economy
The Centre should capitalise on stable macros to push through tough structural reforms
•A set of weak economic numbers has left the Central government scrambling to do something to set things in order. Finance Minister Arun Jaitley last week promised appropriate action to revive the economy without going too much into the details of what could be in store. There is, however, talk that increased fiscal spending to the tune of Rs. 50,000 crore or more may be approved by the government to make up for lack of private investment. This comes after the expansion in gross domestic product slowed to a multi-year low of 5.7% in the first quarter of 2017-18, and industrial output growth dropped to 1.2% in July, compared to 4.5% a year earlier. In addition, retail price inflation jumped to a five-month high of 3.36% in August from 2.36% in July, further dimming the prospects of a monetary stimulus from the Reserve Bank of India to help boost the economy. The demonetisation of high-value rupee notes in November, and the implementation of the Goods and Services Tax this year seem to be the most proximate causes behind the lacklustre growth numbers released so far. But, as many have pointed out over the last few months, the economy has been decelerating for the last five quarters. In such a case, demonetisation and GST have merely brought to the fore a more fundamental weakness in the economy.
•Increased fiscal spending is unlikely to provide more than short-term relief to this problem, as it will not address any of the production bottlenecks in the economy. In addition, any loosening of the fiscal deficit target will affect India’s standing among global investors and project the image of a government resorting to fiscal stimulus to make up for the lack of more meaningful reforms. The real antidote to the current slowdown, on the other hand, is known all too well. The various rigidities in the market for land and labour have been holding back the economy for decades now, stopping investors from risking their capital on large-scale projects needed to boost growth. Further, the overall unease involved in doing business in the country and the even larger uncertainty looming around the rules that govern the conduct of business have seriously held back growth. It is no surprise then that, as reflected in the sluggish credit offtake numbers, private investment has failed to make sufficient use of the country’s relatively high private savings rate. But successive governments have found it easier to kick the can down the road rather than enact politically uneasy reforms needed to address the problem facing the economy. India’s major macroeconomic numbers, despite the recent worsening of the current account deficit, are still quite stable compared to a few years ago. The government must rise to the challenge and enact tough structural reforms, instead of finding an easy way out through the fiscal door.
