Tag: bailout

The corner Bhelpuri guy

There’s this guy who sells Bhelpuri off a cart that he usually stations at the street corner 100 metres from home. His wife (I think) sells platters of cut fruit from another (taller, and covered) cart stationed next to him.

I don’t have any particular fondness for them. I’ve never bought cut fruit platters, for example (I’m told by multiple people that I’m not part of the target segment for this product). I have occasionally bought bhelpuri from this guy, but it isn’t the best you can find in this part of town. Nevertheless, every afternoon until mid-March he would unfailingly bring his cart to the corner every afternoon and set up shop.

He has since fallen victim to the covid-19 induced lockdown. I have no clue where he is (I don’t know where he lives. Heck, I don’t even know his name). All I know is that he has already suffered a month and half of revenue loss. I don’t know if he has had enough stash to see him through this zero revenue period.

The lockdown, and the way it has been implemented, has resulted in a number of misalignments of incentives. The prime minister’s regular exhortations to businesses to not lay off employees or cut salaries, for example, has turned the lockdown into a capital versus labour issue. Being paid in full despite not going to work, (organised) labour is only happy enough to demand an extension of the lockdown. Capital is running out of money, with zero revenues and having to pay salaries, and wants a reopening.

Our bhelpuri guy, running a one-person business, represents both capital and labour. In fact, he represents the most common way of operating in India – self employment with very limited (and informal) employees. Whether he pays salaries or not doesn’t matter to him (he only has to pay himself). The loss of revenue matters a lot.

The informality of his business means that there is pretty much no way out for him to get any sort of a bailout. He possibly has an Aadhaar card (and other identity cards, such as a voter ID), and maybe even a bank account. Yet, the government (at whatever level) is unlikely to know that he exists as a business. He might have a BPL ration card that might have gotten him some household groceries, but that does nothing to compensate for his loss of business.

If you go by social media, or even comments made by politicians to the media or even to the Prime Minister, the general discourse seems to be to “extend the lockdown until we are completely safe, with the government providing wage subsidies and other support”. All this commentary completely ignores the most popular form of employment in India – informal businesses with a small number of informal employees.

If you think about it, there is no way this set of businesses can really be bailed out. The only way the government can help them is by letting them operate (even that might not help our Bhelpuri guy, since hygiene-conscious customers might think twice before eating off a street cart).

One friend mentioned that the only way these guys can exert political power is through their caste vote banks. However, I’m not sure if these vote banks have a regular enough voice (especially with elections not being nearby).

It may not be that much of a surprise to see some sort of protests or “lockdown disobedience” in case the lockdown gets overextended, especially in places where it’s not really necessary.

PS: I chuckle every time I see commentary (mostly on social media) that we need a lockdown “until we have a vaccine”. It’s like people have internalised the Contagion movie a bit too literally.

Other airlines to bail out Spice Jet?

In a rather bizarre move, the Directorate General of Civil Aviation (DGCA) has directed airlines to not charge “exorbitant fares” for passengers stood up upon cancellation of Spice Jet flights. This is a rather bizarre idea and effectively amounts to asking other airlines to partially bail out Spice Jet.

Essentially when an airline is in trouble, passengers are loathe to book tickets on it, for they know that the chances of their flight getting cancelled is high. A cancelled flight usually means either cancelling the trip itself or rebooking on another airline (sometimes airlines have arrangements with each other for taking on passengers on cancelled flights, but currently no other airline in India will give credit to Spice Jet). Either ways, it is a costly affair for the passengers.

By directing airlines to not charge “exorbitant fares”, and assuming that such a directive will be followed (very likely that this directive is meaningless for this is the busy season and other airlines are likely to be booked out), the total cost of booking a ticket on Spice Jet actually comes down, for the charge a customer will have to incur for re booking on another airline for a cancelled Spice Jet flight is likely to be reduced. And thus passengers will not abandon Spice Jet at the rate at which they normally would. And since other airlines are taking a hit on the spot fares they could potentially charge (in the absence of this directive) they are effectively subsidising and “bailing out” Spice Jet!

The other problem is that in the absence of market mechanisms (which the price cap effectively curb), how will other airlines allocate their remaining capacity among all the passengers who have been stood up by Spice Jet? Some arbitrariness is likely to ensue and passengers are likely to be left more disappointed!

The government had started off by handling the Spice Jet case rather well, as Devika Kher has argued here. However, of late, the wheels of the DGCA seem to have come off in his aspect, and there seems to be a concerted attempt to let Spice Jet stay afloat against the wishes of the market. The Airports Authority of India and oil companies have been asked to extend credit for fifteen days.

It seems Devika spoke too soon!