Documente Academic
Documente Profesional
Documente Cultură
MACROSCAN
In this issue
• Trade wars “If all the economist's
• Venezuelan Hyperinflation were laid end to end,
• Falling Rupee they’d never reach a
• Turkey’s crisis conclusion”
• Ayushman Bharat
- George Bernard Shaw
• 5G in India
• Aviation industry
1
Currenc-I Aug’18
What’s protectionism?
2
Currenc-I Aug’18
What’s the Real Scenario? the Pacific, forcing companies to adjust their
supply chains and pricing, with some U.S.
sold by U.S. firms, China’s exports to the The uncertainty about the duration of the
United States are typically Chinese- trade conflict was more damaging than the
assembled goods that contain many foreign tariffs themselves because it made business
parts and components — and are often planning difficult. If the tariffs are in place for
American-branded to boot. A further 37 a long while, there will come a point at which
percent of U.S. imports from China consist of the company would begin moving some
parts and components on which U.S.-based sourcing and production out of China, a
manufacturers rely. process that would be irreversible for several
Washington’s latest tariffs apply to 279 years once set in motion.
Second in line is $12.8 billion of U.S. soybean Finally, the Chinese government can absorb
exports. China accounts for more than half of the political costs of a trade war much more
American soybean exports, giving it market easily than the Trump administration can.
power. Indeed, as talk of a trade war heated Every time Trump lashes out at China, U.S.
up, the hit to U.S. farmers was immediate: stock markets plunge. That is particularly
Soybean prices plunged. Here, too, China problematic for a president who treats the
has an alternative supplier: Brazil.
Dow Jones industrial average as his personal
approval rating, especially because the single
How could it impact China? biggest constituent of the Dow is Boeing.
Because the president has tied himself to the
Though it is too early for trade damage to Dow, every time stocks fall, the Trump
show up in much economic data as yet, administration feels compelled to reassure
tariffs are beginning to increase costs for markets that it is seeking a negotiated
consumers and businesses on both sides of
solution to the trade conflict, a move that
undercuts its leverage
3
Currenc-I Aug’18
They could affect people around the world - especially since China has retaliated. The world's
second-largest economy has taxed US agricultural and industrial products, from soybeans, pork
and cotton to airplanes, cars and steel pipes. In theory, China could also tax US tech companies
like Apple. That would hit the tech giant, and it could be forced to raise its prices to compensate.
A global trade war could hurt consumers around the world by making it harder for all companies
to operate, forcing them to push higher prices onto their customers
Mr Trump's decision to take on China could lead to adverse effects for consumers in the US and
in China, but also worldwide. Economists reckon that every $100 billion of imports hit by tariffs
would reduce global trade by around 0.5 percent. An economic showdown between the world's
biggest economies doesn't look good for anyone
Particularly for India, the China is allowing the yuan to weaken to increase its export
competitiveness. This has led to the Indian Rupee reaching new lows while the South Asian
stock market has been adversely hit too.
4
Currenc-I Aug’18
A 2.4kg chicken costs 14,600,000 Bolivars A toilet paper roll costs 2,600,000 Bolivars
(Source: Reuters)
year’s end. In April, the IMF announced that In addition, the government has not made
Venezuela’s gross domestic product (GDP) policy changes to adapt to the low petroleum
was expected to be 45% below its 2013 level price. In early 2016, The Washington
by the same time. These are mind-boggling Post reported the official price of state-
numbers.
retailed petrol was below US$.01 per gallon.
The question is, how is it that Venezuela is So the answer is surprisingly straightforward
experiencing such hyperinflation and GDP and well understood. The government used
decline simultaneously only seen twice in the the oil boom that started in 2004 to
entirety of the last century?
disempower society and enhance state
control over production and the market, while
borrowing massively in international markets.
THE ‘HOW’ Although state control was detrimental to
production, the government could shelter the
The origin of this economic collapse was public from its consequences through
framed in the context of the Great Recession subsidized imports, which further damaged
of 2008. With improvements in the extraction domestic production.
5
Currenc-I Aug’18
6
Currenc-I Aug’18
Rising Crude prices: 80% of India’s fuel needs are satisfied through imports. The Indian crude basket, the
weighted average price of all the country’s crude oil imports, has gone up from $52.49 in April last year to over $63
in March 2018, a rise of 22% in a year. As per the Economic Survey 2018, every $10 increase in price of crude oil will
increase the current account deficit by around 0.4%. Naturally, greater the amount of dollars spent on oil imports,
greater would be the downward pressure on Indian rupee
Widening trade deficit: As per the recent government data, trade deficit (Imports-Exports) was at a 5-year high of
$18.02 billion in July 2018. Despite export growth of 14.32%, imports grew by a massive 28.2%1), primarily due to
expensive oil imports
High US Bond yield: The yield on the most widely watched bond rate in the world – US 10-year Treasury Notes
hit a high of 3.1% (first time since 2011), making the Treasury notes attractive to the investors. This has given a
robust boost to dollar in the foreign exchange market, adding to the downward pressure on the rupee
Capital Outflows: The vicious cycle of the dollar deficit and weakening rupee can be offset if other sections of the
economy earn additional dollars. For instance, the capital markets. However, foreign investments in equities and
bonds have also been decreasing. As per the data given by National Securities Depository Limited, in the last three
months, foreign portfolio investments stood at Rs 13,260 crore, a fifth of the figure at the same time last year
Trade war between US and China: Higher import tariffs imposed on the imports from China (by US) and
retaliatory tariffs from China have left investors worrying about the economic situation in China. This
coupled with rising bond rates on US Treasury Notes have led to an increased demand for dollars leading
to a fall in emerging market currencies like INR
7
Currenc-I Aug’18
8
Currenc-I Aug’18
TRY-USD
Turkey’s official currency, Lira, has been increase in interest rates in developed
steadily losing value over the last couple of markets always creates more volatility in
years. This year the currency has been in an emerging markets as institutional investors
absolute free fall with loss in value of c. 41% look to shift investments from “riskier” EM
YTD. Every financial crisis is an assets to comparatively “safer” DM assets in
interdisciplinary phenomenon where a search of yield.
sell the currency is greater than the sentiment a debt story. Over the past couple of years,
to buy it. Add to the situation - foreign Turkish growth has been fuelled by debt.
currency debt. If there is a considerable Whereas generally financial crises entail
amount of foreign currency debt and local government debt, here it is a case of foreign
currency is depreciating (remember that your currency debt in the hands of corporates.
assets are held in the depreciating currency), News of some bankruptcies have also started
the debt servicing costs and default risks rise.
pouring through. JPM has estimated that
around $179bn of debt would mature in the
Let’s analyse below why there is a negative year to July 2019 - the amount is about a
sentiment around Lira and Turkey more quarter of Turkey’s economic output.
broadly.
9
Currenc-I Aug’18
There was a failed coup attempt against the The undue influence of the President ensured
President in 2016, which has further raised that the central bank failed to raise interest
instability in the economy. Erdogan considers rates for a considerable period of time when
interest rates to be “evil” and hence has been inflation was increasing. This has reduced the
extending his influence over the central bank credibility of the central bank in global
to not increase interest rates to curb the fall in markets, even though it has lately been taking
value of Lira. He has also appointed his close measures to constrain liquidity in the
relatives to important positions in the ministry, economy.
10
Currenc-I Aug’18
Ayushman Bharath
In his last Independence Day speech before the 2019 elections, the
Prime Minister announced the launch of the National Healthcare 107.4 million
Protection Mission (NHPM), a scheme designed to ensure that the
country’s most vulnerable have access to healthcare. NHPM or families or 500
Ayushman Bharath is an ambitious program that will cover at least 40% million individuals
of the population and gives each family an insurance cover of 5 lakhs will be covered
per year.
The scheme accords the beneficiaries cashless treatment for secondary under NHPM.
and tertiary care at all public sector and empaneled private hospitals Currently only
and eligibility for this is based on Socio-economic Caste Census 440 million Indians
database.
The center has also given the State governments the choice of implementing this scheme
through a trust or an insurance model. In the case of the former, the state governments can
create trusts that will perform the role of an insurance company and disperse money to the
hospitals. In the latter model, the state governments would have to float a tender and the
insurance company is selected on the basis of competitive bidding. 23 states have opted for the
trust model. States can also combine their existing healthcare schemes with NHPM.
The scheme could also serve as an opportunity to tap into a large labor pool. The demand for
healthcare should necessitate the creation of new jobs in the healthcare services industry be it
doctors, nurses or administrators and could raise skill levels.
The scheme is ambitious, yet it is hard to deny the many teething troubles it will encounter. The
first is ensuring a system of checks and balances so that hospitals and doctors don’t
unnecessarily treat patients with the intention of earning a quick buck or register ghost
11
Currenc-I Aug’18
beneficiaries. Secondly, there is a fear that because the government has set low prices for
procedures, there is no incentive for hospitals to be a part of this scheme. This could either
make it difficult for patients to find the right hospitals or force caregivers to find loopholes and
make patients pay for the difference or could affect the quality of services provided. And finally,
there is the problem of shortage. India has a low doctor to patient ratio which needs to be
speedily remedied.
The proof the of the pudding is in the eating and while the scheme is great on paper and makes
for a good electoral promise, the success of the scheme will be determined by the country’s
ability to implement the scheme. India is a large country and the scale of operations, political
differences between the center and the states, lack of bureaucratic will could make things
difficult.
WHAT IS 5G?
• 5G networks are the next generation of mobile internet connectivity, offering faster
speeds and more reliable connections on smartphones and other devices than ever
before. One will be able to download - not merely stream - a full HD movie in less than 10
seconds on a 5G network. The same task would take closer to 10 minutes on 4G.
• It will also help to achieve high data rates with low latency (the delay before a transfer of
data begins following an instruction for its transfer). This requires a number of technical
changes, including sending data using higher radio frequencies and designing arrays of
antennas to reduce interference between many devices all communicating at the same
time. Together these add up to a 5G network with many more base stations. 5G base
stations could be placed every 250 meters, rather than the every 1 to 5 km needed for
4G.
12
Currenc-I Aug’18
"internet of things" devices in use, monitoring nutrients in the soil for farmers, package
locations for shipping companies and vital signs for hospital patients, for instance.
• Early 5G networks are being rolled out now in some U.S. cities. The Tokyo Olympics in
2020 are supposed to present the very first showcase of the full range of what 5G
technology can offer.
POTENTIAL IN INDIA:
• With 5G, Internet of Things (IoT) and Artificial Intelligence (AI) will become mainstream,
and connectivity will be seamless, enabling improvement in the quality of e-governance
and education, as well as enabling financial inclusion, smart cities, and an intelligent
transportation system. Above everything else, in a rapidly developing economy such as
India, 5G will show impactful results in agriculture and healthcare.
• An assessment made by the UN shows that 5G and IoT could enable the agriculture
industry to deliver a 70 percent increase in food production worldwide by 2050, catering
to the ever-growing global population.
• Another early beneficiary of the 5G roll-out will be the healthcare sector. The Indian
medical tourism industry is expected to double in size by 2020, to touch $8 billion, and
the advent of 5G will allow for blistering fast broadband, combined with Virtual Reality
(VR) and AI, to empower medical practitioners by providing more data on diseases and
also by delivering diagnosis and treatment that is not restricted by physical limitations.
• At the Mobile World Congress 2018 in Barcelona, Ericsson demonstrated two live IoT
use-cases in a 5G environment, which it said, could be relevant for India. The first case
shows how IoT networks with sensors can save lives through disaster monitoring and
early warning systems, while the farming solution uses artificial intelligence to monitor
temperature, humidity and CO2 levels to maintain greenhouse ventilation and ideal crop-
growing conditions.
13
Currenc-I Aug’18
• The committee formed to formulate a roadmap for 5G in India suggested that by acting
early to embrace the 5G opportunity, India can accelerate the 5G dividend and potentially
also become an innovator in 5G applications. The panel has given wide-ranging
recommendations entailing spectrum policy, regulatory policy, development of
application standards, education, etc. The panel feels the quantum of licensed mobile
spectrum in India is much lower as compared to countries like the US and the UK. Also,
the cost of spectrum, relative to per capita gross domestic product, is much higher than
most countries.
• The panel said that 5G roadmap pursued by India should not only move the country
forward but also result in progress of weaker sections of society and proposed some
kind of financial support to telcos as 5G networks will need new business models which
will bring higher investment risks to service providers.
The sub-1 GHz bands are key to providing coverage as well as in- building penetration of
airwaves (that is, they can penetrate walls) and require fewer towers and, therefore, investment.
But they can carry a limited amount of data. But as 5G requires high data capacity, telcos also
require high-frequency bands which are above 1 GHz. However, if telcos only have high-
frequency bands they will have to put in many more towers to ensure coverage and that would
require huge investments and make the project unviable. So a combination is key.
CHALLENGES IN INDIA:
• Investment in fiber network and infrastructure: With 5G requiring highest capacity
backhaul (backhaul portion of the network comprises the intermediate links between the
core network, or backbone network, and the small subnetworks at the "edge" of the
entire hierarchical network) to deliver its intended peak data rates, fiber has become a
critical backhaul and transport technology.
• Regulatory hurdles: On the government side, issues such as Right of Way (RoW) across
different states must be addressed on priority. Currently, RoW charges vary from a few
lakh rupees to 1.5 crores per km across different states. With states having different RoW
policies, telcos are losing out a significant amount of their infrastructure investments to
municipal bodies across states.
14
Currenc-I Aug’18
15
Currenc-I Aug’18
References
1. https://www.livemint.com/Opinion/7gNrvecy9QlyFrJYmZfiiL/The-how-and-why-of-
the-Venezuelan-crisis.html
2. https://en.wikipedia.org/wiki/Crisis_in_Venezuela#Economic_crisis
4. https://scroll.in/article/876204/widening-trade-deficit-high-oil-prices-why-the-rupee-
is-at-a-seven-month-low-against-the-us-dollar
5. https://tradingeconomics.com/turkey/inflation-cpi
6. https://ahvalnews.com/turkey-economy/turkish-current-account-gap-widens-
portfolio-inflows-slump
7. http://www.hurriyetdailynews.com/turkeys-external-debt-stock-reaches-466-7-
billion-in-first-quarter-133976
8. https://www.livemint.com/Opinion/PnHcP040QNZYkLT5BWK5rL/The-impact-of-
rising-oil-prices-on-Indian-economy.html
9. https://www.pwc.in/assets/pdfs/publications/2018/ayushman-bharat-national-
Aditi
health-protection-mission.pdf
Amol
10. https://www.livemint.com/Money/cTLp5La8xA6P8PmeXiMDmL/The-challenges-
before-Ayushman-Bharat-Scheme.html
Gunjan
11. //economictimes.indiatimes.com/articleshow/65139383.cms? Leena
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Samir
12. https://5g.co.uk/guides/what-is-5g/
Aishwarya
13. https://www.business-standard.com/article/economy-policy/trai-says-4g-5g-to- Awiral
drive-demand-for-spectrum-in-next-round-of-auctions-118080201338_1.html
Gaurika
14. https://www.financialexpress.com/opinion/why-india-must-get-fiberised-to- Gayatri
leapfrog-to-5g/1069371/
Suyash
15. http://fortune.com/2018/04/12/5g-technology-explained/
Saylee
16. https://thewire.in/tech/5g-the-next-generation-of-wireless-explained
Simran
17. https://www.business-standard.com/article/economy-policy/5g-launch-in-india-
likely-by-2020-economic-impact-of-1-trillion-by-2035-118082301296_1.html
18. https://www.business-standard.com/article/markets/interglobe-aviation-skids-11-
on-weak-june-quarter-results-118073100181_1.html
19. https://indianexpress.com/article/india/indias-spicejet-posts-quarterly-loss-on-
fuel-expense-forex-loss-5306667/
20. https://www.business-standard.com/article/companies/why-jet-is-flying-low-
facing-questions-from-sebi-over-results-deferment-118081401539_1.html
21. https://www.livemint.com/Opinion/63uRs1nOypm4GVPUBXFbYJ/The-Indian-
aviation-sectors-many-problems.html
22. https://www.reuters.com/article/usa-products-jetfuel/jet-fuel-prices-rise-with-
global-demand-as-economies-expand-idUSL1N1RP1K2
23. https://indianexpress.com/article/business/aviation/high-fuel-cost-weak-rupee-
hurting-aviation-sectors-profitability-5324908/
16