27 Apr 2020: The Indian Express Editorial Analysis
1) Oil fall down-
Last week saw a virtual bloodbath in oil, with US crude prices crashing to an unprecedented minus $40.32 per barrel before ending at $16.94. But it wasn’t just oil.
Raw sugar futures prices for May delivery in New York closed at 9.73 cents per pound, the lowest since June 9, 2008. The front-month corn contract at Chicago, too, fell to $3.01 a bushel, a level it breached last on September 11, 2009.
Crude palm oil prices in Malaysia, likewise, plunged by 7.5 per cent on April 21, while now trading nearly 31 per cent lower since the start of the year.
The link with oil is obvious here: Sugarcane and corn are as much sources of food as substrates(the surface or material on or from which an organism lives, grows, or obtains its nourishment) for ethanol that can be blended(mixed) with petrol. Only 34 per cent of cane crushed by Brazilian mills in 2019-20 went for sugar production, the rest to make ethanol.
Palm oil is used to manufacture bio-diesel. Indonesia, last year, mandated a 30 per cent mix of bio-diesel in the regular transport fuel, while India requires 10 per cent ethanol-blending in petrol.
Ethanol, also called alcohol, ethyl alcohol and grain alcohol, is a clear, colorless liquid and the principle ingredient in alcoholic beverages like beer, wine or brandy. Because it can readily dissolve in water and other organic compounds, ethanol also is an ingredient in a range of products, from personal care and beauty products to paints and varnishes to fuel. In India, ethanol is mainly produced from sugarcane molasses by fermentation process. Ethanol can be mixed with gasoline to form different blends. As the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions and thereby reducing the occurrence of environmental pollution. Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered as renewable fuel.
Ethanol Blended Petrol (EBP) programme was launched in January, 2003. The programme sought to promote the use of alternative and environment friendly fuels and to reduce import dependency for energy requirements.
Biodiesel derived from biomass is a renewable source of fuel. It is renovated to be the possible fuel to replace fossil derived diesel due to its properties and combustion characteristics. The integration of compressed natural gas (CNG) in diesel engine known as diesel dual fuel (DDF) system offered better exhaust emission thus become an attractive option for reducing the pollutants emitted from transportation fleets)
The above diversion of “food crops” for fuel made economic sense so long as oil prices were reasonably high; both US and Brent crude ruled well above $50 per barrel till two months ago.
Oil’s collapse — refineries have significantly curtailed operations, with the coronavirus-induced worldwide lockdowns leading to a plunge(decrease) in road, sea and air traffic volumes — has meant that ethanol processors are shutting plants and Brazil’s mills will allocate more cane for sugar.
It is a matter of time before the transmission from crude to sugar, corn and palm oil also spreads to other grains and oilseeds. Low oil prices have brought down the prices of cotton and natural rubber as well, because of synthetic substitutes becoming much cheaper.
Simply put, oil producers, refiners and drilling services firms aren’t the only ones feeling the heat. Farmers will also suffer. Payment arrears(money that is owed and should have been paid earlier) to cane growers in Uttar Pradesh are already mounting as there’s little domestic or export demand for sugar. Moreover, given weak petrol sales, oil companies are reluctant to lift ethanol from mills. And with liquor vends shut, no offtake(take away) of potable(drinkable) alcohol is happening either.
The ray of hope, if any, is the fact that the demand for food should recover once hotels, restaurants, sweetmeat shops and ice-cream, beverage and snack makers start running after lockdown restrictions are lifted. Food consumption cannot be put off for too long — unlike travel, tourism, entertainment or real estate investments, which will be the last to emerge from the damage wrought(done) by COVID-19.
Indian farmers have done well to feed the nation in this hour of crisis. The prospect of global production shortfalls reasserting themselves — in rice, for instance — should open up opportunities for them to feed the world too.
2) Finding the cure-
Last week, at a video conference convened by the WHO, leaders from the Americas, West Asia, Europe, and Africa agreed to “speed up the development of safe and effective drugs to prevent, diagnose and treat COVID-19”. India, the US, Russia, and China stayed away from the meet.
Even so, the conference on April 24 showcased rare global solidarity in the four-month-long fight against the coronavirus. Hearteningly, there was also consensus that a vaccine against the virus should be seen as “a global public good” and should be “distributed in all parts of the world”.
FULL GENETIC SEQUENCE:
In the second week of January, Chinese scientists developed and shared a full genetic sequence of the coronavirus. This has spurred(led to) more than 100 vaccine development projects in different parts of the world, including India. Last week, clinical trials were approved in the UK, China, and Germany. These are remarkable developments, given that the virus was unknown in most parts of the world four months ago.
However, vaccines require several rounds of clinical trials and regulatory scrutiny(examination) before they are made available to the public. They have to be first tested in laboratories, then on animals, before being tested on a small group of people.
Safety protocols in most parts of the world demand the number of people exposed to the vaccine in clinical trials is gradually increased before a vaccine is approved. But the virulence (severity or harmfulness of a disease) of the COVID-19 pandemic has led to calls for expediting(speeding) timelines, even deviations from protocols.
PROPER TRIAL DESIGN AND PROCESSES:
For example, a paper published in the Journal of Infectious Diseases on March 31 suggested “a human challenge study with fewer participants than a conventional trial”. It recommended injecting volunteers with a potential vaccine and then exposing them to the virus. The paper’s authors, prominent bioethicists, acknowledged the ethical questions such trials would raise.
However, they argued that “with proper trial design and processes, the net risk for participants can remain low”. The US Food and Drugs Administration has said that “it will be flexible about regulatory procedures”. There need to be more conversations amongst scientists, physicians, bioethicists and regulators before an accelerated paradigm(model) to approve an anti-COVID-19 vaccine is put in place.
There are also concerns about how much the vaccine will cost, and whether pharma companies will put humanitarian concerns before profits. During the HINI pandemic in 2009, there was criticism that the wealthier countries had cornered(gained) the lion’s(huge) share of the vaccines.
It is reassuring, therefore, that the leaders attending last week’s video conference made a commitment to “ensure equal access to vaccines”.
3) Marshal Plan for East India:
A famous line of Tiger in Walt Disney Productions’ Winnie the Pooh is, “Life is not about how fast you run or how high you climb, but how well you bounce”. In the context of today’s economy, under siege(attack) because of the coronavirus pandemic, what matters is not how big a country’s GDP is or how fast it has been growing; the real challenge is how best and how quickly a country can bounce back to a growth rate of 7-8 per cent per annum.
The IMF’s projections for GDP growth for this year seem to be either in the negative or below 2 per cent for almost all major countries of the G-20 group. India could do a little better compared to the other BRICS nations, but its growth will most likely be below 2 per cent.
This, of course, is under an optimistic(positive) scenario. Many experts reckon(signal) that India could also go into negative GDP growth this year, if it does not reboot the economy properly and in time.
The Centre and the Reserve Bank of India are trying to remove all roadblocks(hurdles) so that factories and farms can resume operations, albeit(although) in a regulated manner that ensures that the virus is contained. The focus is largely on the supply side — how to ease restrictions and how to increase liquidity(money) in the system for resuming production.
DEMAND SIDE CHALLENGES:
My assessment is that it may not take too long as the real problem is the collapse in demand. And that demand may not pick up easily as the virus is likely to stay with us for quite some time. We could have lockdowns again if there is a surge(increase) in infection.
This will surely limit our travel and restrict our shopping for non-essentials. However, there is one demand that can easily revive — that of food.
The NSSO survey of consumption expenditures for 2011-12 revealed that about 45 per cent of the total expenditure of an Indian household is on food. For the poor, the NSSO reckoned, this figure was about 60 per cent.
We do not have information about the consumption patterns in 2020, but my guess is that about 35-40 per cent of the expenditure of an Indian household is on food and for a poor household, this figure is around 50 per cent. Herein, lies the scope to reboot(kickstart) the economy.
PROBLEMS OF MIGRANT LABOURERS:
We have seen the problems of migrant labourers during the lockdown. The sudden announcement of the nationwide lockdown gave them no time to go back to their families. They lost their jobs and incomes, and having spent whatever little savings they had, these workers have been reduced to penury (extreme poverty).
The Centre and states, despite their best efforts, have not managed to address the problem of hunger of these workers. Even civil society has not managed to bridge(fill) the gap. The migrant labourers may well have lost their trust in the state, and once the lockdown is lifted, most of them are likely to rush back to their families in villages — as if freed from jail.
And, it could be some time before they are back in the cities — that is, if they return at all.
So, farms and factories, especially the MSMEs in the relatively developed states of western, southern and north-western India are likely to face labour shortages for many months, perhaps years. This could lead to more mechanisation(use of machines) of farms and factories in these states. In Punjab, for example, most of the wheat harvesting is already done by combined harvesters. Now even paddy harvesting could be done by mechanised harvesters.
However, eastern Uttar Pradesh, Bihar, Jharkhand, West Bengal, and Odisha, from where much of the migrant labour comes, will face a double challenge. Their agriculture, with tiny farm holdings is already saddled with a large labour force — this comprises 45 to 55 per cent of the total labour force of these states.
PER CAPITA RURAL INCOMES:
Non-farm income from wages and salaries, through migrant labour, was an important source of income for households in these states. This is now severely hit. In all probability, the per capita rural incomes of these states could shrink, at least in the short run.
This could lead to poverty and increase hunger and malnutrition. How does one then reboot the economy and also address hunger and malnutrition?
A special investment package — like the Marshall Plan of USA in 1948 — for the eastern belt of India to build better infrastructure, agri-markets and godowns, rural housing, primary health centres, schools and enhances people’s skills will go a long way to revive the economy and augment(increase) the incomes of the migrant workers.
(The Marshall Plan was an American initiative passed in 1948 for foreign aid to Western Europe. The United States transferred over $12 billion in economic recovery programs to Western European economies after the end of World War II)
Rising incomes will generate more demand for food as well as manufactured products, giving a fillip(thrust) to the growth engines of agriculture as well as the MSME sector.
Building better supply chains for food directly from farm-to-fork( farm-to-fork(table) used to refer to the various processes in the food chain from agricultural production) to consumption, led by the private sector, will enhance the export competitiveness of agriculture.
It will also ensure a higher share of farmers in the consumers’ rupee. Such broad-based development in a relatively underdeveloped region of the country will lay the foundations of a long-term, demand-driven, growth of industry in India.
The all India relief package of Rs 1.7 lakh crore announced by the central government earlier, which is about 0.8 per cent of the country’s GDP, is too small to reboot the economy.
If India has to bounce back quickly, it needs a much bigger relief cum stimulus package — certainly not below 5 per cent of GDP. And, it should focus more on the eastern belt, where the issue is that of survival.
Else, the country could do even more badly on the indicators of poverty, hunger, malnutrition, infant mortality and well-being. India could get derailed from its course of attaining the Sustainable Development Goals by 2030.
East India will require heavy investment to tide(win) over post-COVID loss of livelihoods.
(The writer is Infosys Chair professor for Agriculture at ICRIER)