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13.6.21Editorials with thanks BS

In India's pandemic, the rich buy luxury cars and the poor lose their homes

Andy Mukherjee | Bloomberg Opinion | 13/06/2021 | 5 minutes ago

Mercedes-Benz AG recently introduced its Maybach sport utility vehicle in India--right in the middle of a fierce second wave of the pandemic. The 50 cars the German automaker wanted to sell by the end of 2021 were lapped up in a month. It turns out that just as the rich were scrambling to own these $400,000 wheels, annual per capita income was sliding below $2,000, with the country falling behind neighboring Bangladesh.

Emerging economies have historically tolerated higher inequality, hoping to hit the inflection point in the Kuznets curve, beyond which incomes keep rising but disparities fall. Whatever the merits of the controversial hypothesis, the gap opened up by Covid-19 is no price of progress. The situation that India finds itself in today--brisk sales of luxury cars and soaring net worth for billionaires amid widespread joblessness and depleted savings--reflects a lack of fiscal imagination. The state’s reluctance to do more could prove costly. Poor households ate less last year, and economists are warning of another wave of intense food deprivation.

Colleagues at Bloomberg News recently chronicled a story that’s becoming all too familiar: Shoemaker Shyambabu Nigam had to sell his modest house to pay the $8,230 medical bill from his wife’s Covid-19 complications. One of his three leather-sewing machines is also gone. The debt-strapped couple is renting a room in a nearby village. Well-meaning initiatives, such as a government-backed emergency credit line that has been available to small businesses since last May, can’t reach highly informal micro units like Nigam’s. ALSO READ: Companies desperate to re-open ask: What's your Covid vaccination status?

Prime Minister Narendra Modi has extended--until November--an existing program to make available fixed amounts of free food grains to 800 million people. Additional wheat and rice entitlements did help the poor last year. Yet, in the absence of incomes, the bottom quartile of the population had to drastically cut down expenditure on eggs, meat and fruit.

To avoid a second straight year of nutrition crisis, it’s critical to provide poor households an immediate sustenance income: Say, slightly more than $2 a day for at least three months. The proposal has come from a team of economists at the Bangalore-based Azim Premji University. It will, the researchers argue, be of some help, though perhaps won’t prove enough. “The proposed cash transfer is just equal to incomes lost last year by the poorest 10% of households, leaving alone the second-wave impact.”

Officially, there’s no word on such a cash transfer plan. Obsessed with keeping a lid on borrowing costs, the government is making things worse for the common man by its regressive consumption taxes, including on gasoline and life-saving Covid-19 drugs, and by a very high dependence on cheap money from the central bank. Excess liquidity, reflected in elevated asset prices, is creating what on paper looks like an oasis of opulence in a desert of despair.

Economic power flowing from workers and small enterprises toward large firms--uncontested, if not aided, by India’s fiscal policy--is boosting their valuations. It’s helping create the wealth that’s powering sales of Maybach SUVs and a lot else besides.

A $43 billion surge in Gautam Adani’s wealth this year has catapulted the tycoon from Modi’s home state of Gujarat to take his spot behind fellow Indian businessman Mukesh Ambani as the second-richest person in Asia. Billionaire investor Radhakishan Damani bought a $137 million mansion in Mumbai in April, the priciest-ever property transaction in the country.

Mid-size and small steelmakers are struggling with sub-optimal 62% capacity utilization, while five large producers, which raised their market share by 5 percentage points to 58% in just one year, are using their “blockbuster profit” to pay down debt, according to Crisil, an affiliate of S&P Global Inc.

When the government closes its annual accounts next March, the budget deficit will likely exceed its $206 billion target. This shortfall, which under normal circumstances would have been 6.8% of gross domestic product, may be higher now because of the deadly surge in infections in April and May, the first two months of India’s financial year. Output growth will be slower, and tax collections lower, than expected. When the government collects less in taxes than it spends, more money is staying in private hands. But are they the right hands? Probably not. ALSO READ: GST cuts on several Covid essentials; no change in tax on vaccines

Securing and administering vaccines should have been the obvious expenditure priority for this year. Even at a high per-dose cost of $10, adding 0.8% of GDP to the fiscal deficit would be money well spent, says University of British Columbia economist Amartya Lahiri. He's right. So far, only 5% of the 1 billion adult population has been fully vaccinated. Now that localized lockdowns are being relaxed, the 23 million daily-wage workers who have lost their livelihoods since January have to go out to rebuild their lives. The salaried class isn’t faring much better. Of the 8.5 million jobs lost this year, many may get replaced by gig-economy work. New-age startups may thrive because Covid-19 has accelerated the pace of digitization. Many traditional tiny firms, the kind that used to sustain millions like the shoemaker Nigam, will vanish.

The Taj Mahal, a Mughal emperor’s ode to his dead wife, stands tall in the northern city of Agra. Nigam's act of love to save his wife was to sell their two-bedroom dwelling that took years to own. The house had a view of the 17th-century mausoleum, and it now belongs to someone else.

📣Out-of-control shipping costs fire up retail prices from coffee to toys

Alex Longley, Catherine Bosley and Deirdre Hipwell | Bloomberg | 13/06/2021 | 40 minutes ago

The skyrocketing price of shipping goods across the globe may hit your pocketbook sooner than you think -- from that cup of coffee you get each morning to the toys you were thinking of buying your kids.

Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547% higher than the seasonal average over the last five years, according to Drewry Shipping. With upwards of 80% of all goods trade transported by sea, freight-cost surges are threatening to boost the price of everything from toys, furniture and car parts to coffee, sugar and anchovies, compounding concerns in global markets already bracing for accelerating inflation.

“In 40 years in toy retailing I have never known such challenging conditions from the point of view of pricing,” Gary Grant, the founder and executive chairman of the U.K. toy shop The Entertainer, said in a interview. He has had to stop importing giant teddy bears from China because their retail price would have had to double to add in higher freight costs. “Will this have an impact on retail prices? My answer has to be yes.”

A confluence of factors -- soaring demand, a shortage of containers, saturated ports and too few ships and dock workers -- have contributed to the squeeze on transportation capacity on every freight path. Recent Covid outbreaks in Asian export hubs like China have made matters worse. The pain is most acutely felt on longer-distance routes, making shipping from Shanghai to Rotterdam 67% more expensive than to the U.S. West Coast, for instance.

Often dismissed as having an insignificant impact on inflation because they were a tiny part of the overall expense, rising shipping costs are now forcing some economists to pay them a bit more attention. Although still seen as a relatively minor input, HSBC Holdings Plc estimates that a 205% increase in container shipping costs over the past year could raise euro-area producer prices by as much as 2%.

At the retail level, vendors are faced with three choices: halt trade, raise prices or absorb the cost to pass it on later, all of which would effectively mean more expensive goods, said Jordi Espin, strategic relations manager at the European Shippers’ Council, a Brussels-based trade group that represents about 100,000 retailers, wholesalers and manufacturers.

“These costs are already being passed to consumers,” he said.

Prices for customers are rising in other ways, too. For instance, anchovies from Peru have largely stopped being imported into Europe because with the higher freight costs they’re not competitive relative to what’s available locally, Espin said. Also, European olive growers can no longer afford to export to the U.S., he said.

Meanwhile, shipping bottlenecks and costs are hurting the transport of arabica coffee beans, favored by Starbucks, and robusta beans used to make instant coffee, which are largely sourced from Asia.

Few industry observers expect container rates to retreat much any time soon. Lars Jensen, CEO of consultant Vespucci Maritime in Copenhagen, said on a Flexport Inc. webinar last week that there’s “zero slack in the system.”

Closely held French shipping company CMA CGM SA, which raked in net income of $2.1 billion in the first quarter compared with $48 million in the year-ago period, indicated recently that it expects “sustained demand for the transportation of consumer goods” to continue throughout the year.

Freight costs are more painful for companies that move clunky, low-value items like toys and furniture. “If they are bulky products it means you can’t get very many in the container and that will have a significant impact on the landed price of the goods,” said The Entertainer’s Grant.

For some lower-value furniture makers, freight now makes up about 62% of the retail value, according to Alan Murphy, CEO of consultant Sea-Intelligence in Copenhagen.

“You simply can’t survive on this,” he said. “Someone is bleeding very hard.”

Companies are desperately trying to work around the higher costs. Some have stopped exporting to certain locations while others are looking for goods or raw materials from nearer locations, according to Philip Damas, founder and operational head of Drewry Supply Chain Advisors.

“The longer these extreme shipping freight rates last, the more companies will take structural measures to shorten their supply chains,” Damas said. “Few companies can absorb a 15% increase in total delivered costs for internationally traded products.”

Some firms in Europe are resorting to extreme methods, like using truck convoys to get products including automotive parts, bikes and scooters from China, said Espin at the European Shippers’ Council.

Central bankers have so far been sanguine about the phenomenon, arguing that the rise in consumer prices tied to supply hiccups won’t last. European Central Bank President Christine Lagarde said on June 10 that while supply-chain bottlenecks would push up production prices and the headline inflation rate is expected to rise further in the second half of this year, the effect will fade.

Several factors explain the relative lack of concern. Shipping costs only constitute a small fraction of the final price of a manufactured good, with economists at Goldman Sachs Group Inc. estimating in March -- when China-Europe rates were about half of current levels -- that internationally they made up less than 1%.

To top that, companies have annual contracts with the container lines, so the prices they’ve locked in are considerably lower than the headline-grabbing spot rates. Although the latest round of contract negotiations in May reflected the stronger spot market, HSBC trade economist Shanella Rajanayagam said that “the longer-term rates are much much lower than the spot rates, even if they are feeding through.”

With the end of lockdowns consumer demand is likely to shift to services from goods, but “the risk of course is that higher shipping costs persist -- especially given ongoing shipping disruption -- and that producers become more willing to pass these higher costs on to consumers,” Rajanayagam said.

While many economists note that even a full pass-through of higher shipping fares to consumers will have a marginal effect on headline inflation, Volker Wieland, a professor of economics at the Goethe University in Frankfurt and a member of the German government’s council of economic advisers, warns that they might not be sufficiently factored in.

“Even if the order of magnitude is smaller than estimated, the dynamic builds over a year and has significant effects,” he said. “That means there’s a danger we’re underestimating the impact.”

📣PM addresses G7 summit, vouches for 'one earth, one health' approach

Press Trust of India | 13/06/2021 | 7 hours ago

Prime Minister Narendra Modi on Saturday called for adopting a "one earth, one health" approach to effectively deal with the coronavirus pandemic globally during a virtual address at a session of the G7 summit.

Calling for global unity, leadership and solidarity to prevent future pandemics, Modi emphasised the special responsibility of democratic and transparent societies to deal with the challenge.

The prime minister also sought support of the G7 for a proposal moved at the WTO by India and South Africa for patent waiver on Covid related technologies.

"The prime minister committed India's support for collective endeavours to improve global health governance. He sought the G7's support for the proposal moved at the WTO by India and South Africa, for a TRIPS (Trade-Related Aspects of Intellectual Property Rights) waiver on COVID related technologies," an official statement said.

"Prime Minister Modi said that today's meeting should send out a message of 'One Earth, One Health' for the whole world," it said about his address at the outreach session.

The Group of Seven (G7) comprises the UK, Canada, France, Germany, Italy, Japan and the United States.

As chair of the G7, the UK invited India, Australia, South Korea and South Africa to the summit as guest countries.

📣Govt asks ministries to target 20% reduction in controllable expenditure

Press Trust of India | 12/06/2021 | 12 hours ago

The government has asked all ministries and government departments to target 20 per cent reduction in expenditures like domestic and foreign travel, overtime allowance, rent and office expenses, in the current fiscal year as it tightens its purse strings amid the second wave of the pandemic.

The Department of Expenditure under the Finance Ministry issued an office memorandum in this regard on June 10.

"All the ministries/ departments are requested to take steps to curtail all avoidable non-scheme expenditure and aim for 20 per cent reduction in controllable expenditure.... Expenditure in 2019-20 may be taken as the baseline for this purpose, the memorandum said.

However, expenditure related to containment of the pandemic is excluded from the scope of this order.

The memorandum said, ministries should aim to control expenditures like overtime allowance, rewards, domestic and foreign travel, office expenses, rents, rates and taxes, royalty.

Besides, expenditures related to publications, other administrative expenses, supplies and materials, cost of ration, clothing and tentage, advertising and publicity, minor works and maintenance, service or commitment charges, grants-in-aid general, contribution and other charges, should also be cut.

The savings that would accrue to the government due to this move cannot be exactly ascertained. This is the second year in a row that the government has come out with measures to rationalise expenditure.

Last year, the expenditure department had asked all ministries /departments to review appointments of consultants, curtail functions and ban use of imported paper for printing as part of measures to rationalise non-priority expenditure.

As per estimates, the government is staring at an additional expenditure of up to Rs 1.45 lakh crore to provide free vaccines and foodgrains to people devastated by the deadly second wave of covid infections.

Reversing a policy where states competed for vaccine supplies for certain age categories, the government earlier this week announced that the central government will procure vaccines for all adults. All above 18 years of age would get free vaccines from June 21.

Also, the free foodgrain scheme that was to end in June has been extended till November 2021.

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