COVID-19 : a terrestrial black hole?

Terrestrial COVID-19 can only be compared to a black hole in space in terms of its mystery. We know they exist, but little else is certain about either. With the recent discoveries made regarding black holes, we may even say that COVID-19 is the more mysterious one.

Where did COVID-19 originate? We need to be thankful that China does not now contest that it originated in China. Initially, the Chinese claimed that it was brought to China by American soldiers.

There is no preventive either as vaccination or as anything else. There is as yet no cure either. Will the virus that causes COVID-19, namely SARS-CoV-2 revisit us seasonally? It is hard to say. We can only say 'it is more likely than unlikely'. However, the devastations caused by the disease are daunting. It is known to have ravaged almost all organs including lungs, kidney and the brain. It has caused strokes among the middle-aged, aggravated DVT (blood clots) among the pregnant and has discoloured the skins of some patients. The discolouration has occurred particularly in China. Like everything else about the opaque nation, we will never know whether the discolouration was caused by the virus or the Chinese treatment.

Certain data presented by The Economist are revealing. Air pollution kills 1.2 million Indians every year. Lockdown enforced in many parts of India has helped to clear air pollution substantially though this was not the objective. So, many lives have been saved which otherwise might have succumbed to air pollution. NASA reports that Indian atmosphere now is the cleanest for the past 20 years. (NASA started scanning our atmosphere only 20 years ago.)

The Economist also reports that rapes in Delhi have reduced by 83% in the aftermath of lockdown. Deaths caused by vehicle accidents in the country are down by 20,000 per month.

Different countries have fared differently in their encounters with the pandemic. Reasons are yet to be established beyond doubt. It is useful to compare Spain and Portugal which are neighbours with a border extending to about 1,200 km. Spain's experience has been a disaster. Portugal is comparatively unscathed. The differences are stark. Till date, Portugal has lost 800 lives to COVID-19 compared to 22,000 in Spain. That is, Portugal's loss of lives is 3.6% of Spain's. Population-wise, Portugal is 21.3% of Spain (10 mn vs 47 mn). Portugal's mortality rate from the disease is 3% against 10% for Spain.

What accounts for so much contrast between two neighbours ? Some epidemiologists argue that BCG vaccination is the differentiator. Portugal implements BCG vax for its children unlike Spain. America does not; India does. Is there some lesson here?

vendor payment

Economic Times has reported that large companies are planning to defer their payments to suppliers because of tight liquidity positions caused by the Covid-19 lockdown. For example, Tata Steel may delay payments by 45 days and Asian Paints by 30 days. Both these companies are respectable leaders in their respective industry. We view this development with concern for several reasons.

There is no doubt that these are difficult times for all business units. Every company has to try to solve its problems as much as possible without shifting the problems to other stakeholders. Let us now see if companies like Tata Steel and Asian Paints can mitigate their liquidity travails without endangering the liquidity of their vendors.

These companies are valuable customers for their banks. Credit Risk posed by them to the banks is the least. When banks are having surplus funds for lending, their customers of choice will be the likes of Asian Paints with creditable credit history. Banks are now sitting on a mountain of liquidity. As on April 15, the funds placed in Reverse Repo amount to Rs.6.9 lakh crore. This has even resulted in RBI reducing the Reverse Repo Rate from 4% to 3.75% on April 17 sending a clear signal to banks that they must lend more and depend less on depositing money with RBI.

Companies with good track record must make use of their easy access to banks and borrow more. This will create a win-win situation for both the lender and the borrower. The benefit for the banks will be the opportunity to lend to better-rated customers with potential for easier and timely recovery. Logically banks will treat this as a heaven-sent blessing. These large companies will also be able to retain the goodwill of their vendors who will respect the companies for standing by them even in perilous circumstances. This will ensure seamless movement of funds from banks to large companies and from these companies to  vendors many of whom are MSMEs. If this flow of funds does not happen, MSMEs which are already in dire straits will be forced to approach their banks for enhanced loans. The ground reality is that banks are more hesitant to increase their exposure to units whose credit history is already dented by adverse economic circumstances.

There is a long benign chain effect in the process. Vendors who are promptly paid by these large companies will be in a position to service their suppliers in time and the chain goes on.

An additional benefit the banks can reap in the process is the requirement to monitor a few well-maintained accounts instead of spending sleepless nights involved in dealing with too many customers. The consequent round of benefits accrues to the bankers of these vendors as the latter will be in a position to honour their bank dues on time. There are many instances where the banker to a large company is also the banker its vendors.

Tough times do not necessarily call for tough decisions. Postponing payments to vendors is a tough decision which will have snowballing  adverse impact on the economy. If banks and their large corporate customers get their act together and quickly exploit the opportunity to facilitate purposeful cashflows without taking undue risk, they will ensure their health apart from playing a productive part in sustaining the economy.

Supply Chain Management and Channel Financing: Extended lockdowns are a threat to sustenance of supply chain. Disruption of cashflows in any part of the chain will have its inexorable negative impact on the entire chain thereby posing a logistics problem. Success of channel financing depends not only on the willingness of the banker to lend to the channel partners  but also on the readiness of the manufacturer to come to the rescue of any entity in the supply chain who may be facing liquidity constraints. It is hoped that large companies and their banks will rise to the occasion and thereby quicken the economic recovery process.

Habitual ridicule

A newspaper is read for getting information on what is happening, comments on events and also for humorous takes on current events. Thus the newspaper has to inform, shape opinions and entertain. Most importantly, these responsibilities have to be performed with diligence and decorum.

Relentless ridicule of what the government is doing without taking into account the totality of government's purpose and action falls far short of the requirements of both diligence and decorum. You may have guessed what I am coming to.

If you continue to be a reader of The Hindu despite its partial ideological views, chances are that you would have noticed with dismay the consistently irresponsible and indecorous comments made by Mr. G.Sampath, Social Affairs Editor, The Hindu under "Allegedly" columns every Sunday.

The Editor is unable to write any piece without making snide references to prime minister's actions. The writings drip with base sarcasm which the author apparently mistakes for humour. For example, read the following which appears today:

"Yes, I'm talking about Phase III of the battle against the virus. It's simple: you donate your next 10 months' salary to PM CARE, a fund set up specifically to enable every Indian to demonstrate how much they care for the PM. In case you are unemployed and therefore unable to donate salary, don't panic. You can donate one finger a month for 10 months. This collective show of love and loyalty to the PM, modelled on the highly effective practices of the Yakuza - Japan ------------"

Yakuza is a criminal syndicate in Japan. It is unbelievable that a newspaper compares PM CARES FUND with Yakuza. Mr.Sampath does not seem to know it is PM CARES and not PM CARE. CARES is an acronym for "Citizens Assistance and Relief in Emergency Situations" (Fund).

Mr.Sampath is not the only one in The Hindu engaging in mindless criticism of the government and the prime minister. Ms.Vaishna Roy's 'Speech Melba' every Saturday is of  similar sinister genre.