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India’s Covid-19 deaths may not include those who died due to a lack of oxygen

This is edition 332 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

How do you classify a death that’s caused by the oxygen shortage that India is going through? You don’t. Well, at least that’s what the Indian government said. 

There’s no shortage of EV players. While only two names come up whenever electric scooters are mentioned—Ather, and as of two weeks ago, Ola Electric. Now, there’s another name emerging out of the murky depths, an old and familiar one.

Old ways of doing things are being ditched as a new proposal has been brought forward by India’s capital markets regulator Sebi. This time it’s for certain debt mutual funds—something called ‘swing pricing’. 

Death by bureaucracy

The actual death toll from Covid-19, especially during the second wave in India, is probably never going to be ascertained. 

For instance, what happens when a Covid patient suffering from a collapsed lung isn’t given medical-grade oxygen on time? Now, why the hospital or medical facility didn’t have the oxygen is a different rabbit hole, for a different piece. For now, let’s just focus on a simple cause and effect: no oxygen—> painful death.

How would you classify this death? Did the patient have pre-existing comorbidities? If they did, would that rule out the role played by oxygen, or rather, the lack of it?

It seems the answer lies in a bureaucratic turn of phrase. A Delhi government committee, set up to look into the allegation that 21 people died at Jaipur Golden Hospital due to lack of timely oxygen supply in May 2021, had this to say in its report:

“There was no mention of shortage of oxygen in any of the case sheets and patients were given oxygen supplementation till last, based on the clinical requirement, as per records made available to the committee…The reason of death in all 21 cases has been uniformly mentioned as “respiratory failure” in the proforma submitted by the hospital,” the report said.

The committee has also said that shortage of a drug was recorded in the case sheet of one patient. However, shortage of oxygen, if any, was not recorded.

The report has been contested by the kin of those who died because of the alleged shortage, claiming a “cover up” by the hospital and the Committee. The matter will come up for a court hearing in early August.

The report will have a direct impact on those who lost their loved ones, and potentially, the kind of compensation they get from the state. But reports like these also impact the larger narrative of “was there really a shortage of oxygen in hospitals?” It would seem that in denying there was a shortage, or that any deaths occurred because of it, the committee will be contradicting Jaipur Golden’s last minute appeal

Twenty-one critically ill patients died overnight between April 23 and 24 at the hospital in Rohini amid a serious oxygen crisis. “The oxygen pressure has dipped as we are running out of stock,” Dr DK Baluja, the medical director of Jaipur Golden Hospital said on April 24. The same day, senior advocate Sachin Datta, appearing for the Jaipur Golden Hospital, told the high court that the hospital lost 20 patients due to the shortage of oxygen, and was still facing a deficit in supply.

Reports like these also snake up the chain of command, even influencing the narratives of ministers. That’s why it shouldn’t come as a complete shock to us that the Ministry of Health and Family Welfare, in the Monsoon parliamentary session, claims there were “zero deaths reported” by states and Union Territories due to lack of medical grade oxygen.

Once again, there seems to be a bureaucratic twist to the tale. 

An Indian Express report has quoted Delhi’s deputy chief minister talking about why the link between deaths and oxygen is difficult to establish:

“When the Delhi government said yes, it seems like people died due to the lack of oxygen and decided to set up a committee to look into the deaths and give them Rs 5 lakh as compensation, the Centre did not let us do it…The Centre wants to hide the truth about the mismanagement it brought on, and doesn’t want the figures to come out. You didn’t want the government to send you updates, you didn’t want the government to collect these figures. If you ask me today how many such deaths have happened in Delhi, I have no data. This is what the committee was supposed to have done. The Centre did not allow the committee to be formed,” Sisodia said.

No committee→ no reporting→ no deaths. That’s bureaucracy’s bloodless coup.

PS: In case you are looking for data on oxygen-related deaths, here’s a useful map generated by a group of independent researchers and journalists, based on new reports.

The race for the third begins

In India’s two-wheeler industry, disruption is in the air. 

Last week, India’s mobility unicorn Ola said it registered more than 100,000 bookings for its electric scooter in a day. The scooter will be rolled out of the biggest two-wheeler factory in the world, being set up in the southern Indian state of Tamil Nadu. 

It’s worth noting that the price of petrol has hit Rs 100 (US$1.3).

The latest addition to the electric vehicle party is two-wheeler giant TVS Motor.  The company announced last week that it will invest Rs 1,000 crore (US$134 million) to ramp up its EV business, creating a brand new vertical headed by TVS family scion Sudarshan Venu. 

It already has an electric scooter, called i-Qube, available in a few cities, but TVS’ presence until now has been mostly about “testing waters”. TVS is also a strategic investor in Bengaluru based EV startup Ultraviolette. It is not yet clear if any of the new investment will go to the startup.

Traditional automotive companies have been cautious about transitioning to EVs. Bajaj has Chetak but its sales have been on and off as the company stopped taking bookings in April. Hero MotoCorp, an investor in India’s leading high-performance electric scooter maker Ather, is taking winding paths to enter the EV market to avoid family conflict. 

With the tides shifting, or maybe because of FOMO, traditional auto companies are finally being forced to take the plunge. But it won’t be easy. Startups backed by venture capital money could create problems that traditional auto companies never faced—aggressive pricing. 

Ola is attempting to disrupt the traditional two-wheeler segment with its new vehicle which is expected to be priced competitively, said Aditya Makharia, vice president at HDFC Securities. "We believe that along with the enhanced support offered by the government under the FAME scheme and improving product specs, the traditional manufacturers will face increasing competition from the new age two-wheeler companies," he said.

TVS could still make an impact. Sudarshan will have help from Jaguar Landrover’s Ralf Speth, who was recently appointed as chairman of TVS Motor, and Kuok Meng Xiong, an investor in global tech companies like Bytedance, Palantir, and Airbnb. Kuok’s involvement and expertise with tech could help the traditional auto manufacturer fight VC-backed companies. Interestingly, Kuok’s family is also one of the richest in Asia; their business empire spans property development, logistics, hospitality (Shangri-la Hotels), among others. 

Ola’s decision to enter the high-speed electric scooter market has increased the entry barrier significantly for EV startups. Electric scooters are no longer novel and investors are not willing to bet on startups to take on the might of Ather, Ola, and traditional auto. There are others in the EV market like Hero Electric, Ampere, and Okinawa—all successful businesses—but their presence has been largely limited to the slow-speed scooter market. The Rs 60,000 (US$804) bracket, in fact. And this cannot be seen as a direct replacement to Honda Activa, India’s biggest selling two-wheeler. 

Other startups trying to make high performance EVs are languishing with funds hard to come by. We wrote about it a couple of weeks ago. 

“There were a couple of approaches,” said a person associated with Ather. “There was a product innovation approach that Ather did, which got it to a certain point. And then there is the ‘burn capital like crazy’ approach, which is what Ola is doing.” The other two approaches, he said, can come from either significant improvement in technology or from companies that have extensive distribution like legacy auto manufacturers.

Now, technological innovation can come from batteries and involves R&D in cell chemistry, like significant improvement in range or charging time. But not many in the world have that capability, especially not in India. 

Ather and Ola emerged from the startup space, but all things point to the rise of a new big EV player emerging from traditional auto. TVS has the distribution, intent, and deep pockets. A lot rests on young Sudarshan.

Is the debt fund’s price right?

Someone at Sebi has been busy.

In the past year, India’s capital markets regulator has introduced a string of regulations hoping to make things more transparent for mutual fund investors. It announced a new matrix to call out the risks that a debt mutual fund carries. It asked debt mutual funds to keep at least 10% of their assets in securities (read: cash) that can be sold in an instant. It mandated that ‘important’ personnel at mutual fund companies must invest in their own funds.

And earlier this week, it proposed something called ‘swing pricing’ in certain debt mutual funds. 

All these new regulations are thanks to the Franklin Templeton mutual fund debacle in April 2020. Six of FT India’s debt mutual funds were shuttered due to having too much invested in securities that couldn’t be sold-off easily when investors wanted their money back. It’s now pretty obvious that some debt mutual funds could pose a serious issue during times of market stress.

Anyway, what swing pricing means is that mutual fund companies can adjust the notional price of a debt mutual fund lower if there are mass withdrawals from the fund. So instead of someone being able to exit at a price of 10, they may have to exit at nine. 

The idea is fairly straightforward. If investors who have a lot of money exit from a debt mutual fund, the fund manager will have to sell illiquid securities—the ones for which there are only a few buyers. Since there are only a few buyers, these securities may be sold at a large discount. Supply being greater than the demand for them.

In a falling market, there is a cost to providing this liquidity to investors that are exiting. And this cost is borne by investors who remain invested in the fund—usually the smaller investors—as it dilutes the value of their holding. Ergo, the ones who don’t immediately withdraw their money are penalised.

With swing pricing, the fund managers can lower the price of the fund in case of large redemptions. And pass along this cost to the ones who exit. The goal is to remove the advantage of being the first to run during market panic and get investors to remain calm and stay put. Simple.

This is a pretty big move by Sebi.

In a consultation paper, Sebi has said keeping in mind regulatory practices followed by other jurisdictions, a hybrid model is proposed which is partial swing during normal times and a mandatory full swing during times of market dislocation.

Sebi will determine ‘market dislocation’ either based on industry body Association of Mutual Funds in India's (Amfi's) recommendation or based on a combination of various factors like net redemption build up at industry level, global market indicators, Indian market indicators as well as bond market indicators.

Typically, investors will not know when the price has been adjusted or swung or the precise value of the adjustment. They learn about it only after the transaction and the price is revealed.

Does swing pricing meet its goal in practice?

This is what a working paper titled “Swing Pricing and Fragility in Open-end Mutual Funds” said in 2019:

Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods

So, it’s better for the mutual fund system. And better for investors. 

While some of Sebi’s earlier regulatory changes are questionable, this seems to be an interesting step in the right direction to protect small investors. 

However, it could come with a sacrifice. Debt mutual funds subject to these swing pricing rules could have difficulty in attracting new investor capital. Because an investor never knows how the pricing rules will play out. 

Maybe that’s the sacrifice one has to live with for a more robust mutual fund system. 

That’s it for today. If you have thoughts about any of the topics we covered, we’d love to hear from you.

Stay safe,

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