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Oil prices get yet another booster shot

This is edition 381 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,

Indian consumers are locked in a frustrating game with their oil consumption. No matter how much they moderate consumption, it never seems to impact prices. Oil prices have officially broken the demand-supply relationship.

Indonesia’s tourism industry is at an impasse over getting safety certificates. The government’s willing to issue them, but who’s going to bear the audit costs?

Education is a useful weapon of progress. But online schooling has had the opposite impact on school children from working class backgrounds.

Oil’s always on boil for Indians

When it rains, it pours. True for trouble too. Indians will have to brace for more pain on petrol and diesel prices that are now close to or have crossed the Rs 100 ($1.3) a litre mark. That’s because Brent, one of the key global crude oil benchmarks, breached the US$80 per barrel mark this week. Rising demand, supply shortages, and low inventory levels are to blame.

Goldman Sachs expects Brent to rise further to US$90 per barrel by the end of this year, upping its earlier forecast of US$80 per barrel. That’s bad news for India, which imports about 85% of its crude oil requirement. Oil on the boil adds to the country’s import bill, its current account deficit, and hurts its currency value. It fuels inflation too. Not great news for an economy that’s just recovering from the devastating waves of the pandemic. No wonder the stock market has turned jittery over the past couple of days.

Trying to predict the fickle fuel’s movement is a mug’s game. Nothing can be ruled out for a commodity that swung from US$115 to US$26 to US$80 a barrel between 2014 and 2018. In March-April 2020, Brent had crashed to below US$20 a barrel due to the Covid wave that squeezed demand and caused a massive oversupply of oil globally. The predictions then were that oil would stay subdued for quite some time. But yet again, it sprang a surprise, quadrupling over the past year and a half, aided by fast vaccine rollouts, economies opening up and the major suppliers—OPEC plus some non-OPEC countries—managing to keep supply under check.

The trouble for Indian consumers is that the centre and the states invariably make use of every sharp fall in oil prices to increase taxes on petrol and diesel. For instance, during oil’s rout between November 2014 and January 2016, excise duty on petrol and diesel was raised 9 times, totalling about Rs 12 to Rs 13.5 (~$0.17) a litre. Many states, too, upped their value-added tax (VAT). But when oil prices started rising between 2016 and 2018, taxes were not cut meaningfully. Heads I win, tails you lose, the governments seemed to say. Ergo: consumers bore the brunt.

The pattern has played out again over the past year and half. As we wrote in an earlier edition of BFO,

“Governments—both at the Centre and the states—have always leaned heavily upon petrol and diesel to fill up their coffers, and this has increased sharply in Covid times. When crude oil prices crashed last March-April, the Centre raised excise duty on petrol and diesel by Rs 13-16 (US$0.18 -0.22) a litre. Also, many states increased their sales/value-added tax. So, consumers didn’t benefit from low global oil and petrol/diesel prices.

And now, when global prices are rising, the governments don’t want to roll back the high taxes, given their dire financial straits. So, consumers bear the brunt both ways.”

From less than US$50 a barrel in January this year, the Indian crude oil basket (a combination of Oman, Dubai and Brent oil) has risen to nearly $78 now. And if Goldman Sachs is to be believed, this will go up further. This combination of rising oil prices and high taxes could mean higher petrol and diesel prices in the coming days and weeks.

Damned if you certify, damned if you don’t

Indonesia—especially tourism-dependent regions like the island of Bali—is desperately waiting to re-open its borders.

But there’s a lot of anxiety about how to do this. The government needs to demonstrate that it’s doing its part in preventing tourism hotspots from becoming the source of new outbreaks. The tourism industry—hotels, restaurants, and guesthouses—don’t want that either. But they also just want to get on with it. They’ve lost too much money in the past year.

The nervousness is showing in a dispute the Indonesian Hotel and Restaurant Association (PHRI) is having with the Ministry of Tourism over a proposed health certification scheme.

The Cleanliness, Health, Safety, and Environment (CHSE) certification was introduced by Indonesia’s Ministry of Tourism last year, as a means to standardise Covid-19 safety protocols in the tourism sector.

For restaurants, for example, the requirements include special training for all staff, and following a detailed plan for sanitising surfaces, among many other procedures. To get the certificate, tourism players must fill out a self-assessment form and be prepared for a visit from an auditor.

CHSE was first introduced in 2020 as a voluntary scheme. According to the certification body’s website, some 8,000 certificates have been awarded so far. The catch is that now, the tourism ministry wants to make it mandatory—an extra precaution before borders reopen.

The PHRI is opposing this, fearing extra costs. So far, the government has footed the bill for audits, but it has already mentioned that it can’t keep doing this and is envisioning a scheme where larger tourism players pay for it by themselves.  This would help the government recover costs so that it can continue to offer it for free to the smaller, MSMEs-type players in the tourism sector, who can’t afford the certificate.

Everyone’s resources are depleted: the tourism industry’s as well as the government’s. At the same time, a stringent Covid-19 prevention protocol that’s enforced and implemented widely could be a solution to reviving tourism. Damned if you mandate a certificate, damned if you don’t.

Education is a powerful weapon. But for who?

“Education is the most powerful weapon which you can use to change the world,” said the late Nelson Mandela.

Done well, no other intervention comes remotely close to the impact that schooling and education can have on ensuring a better future for children than the ones their parents had. But with countries the world over, and India especially, deprioritising schools as they dealt with Covid, a powerful weapon is being turned on its head.

If school was meant to empower children to break out of the divides that encircle their families, then online school might be doing exactly the opposite, argues a new report published in Nature.

Digital education, argue the authors, has ended up strengthening three types of divides faced by children from poorer families—digital, cultural and economic, and structural. It is a sobering report, which I’d urge you to read in full.

“Simply having access to a computer and an Internet connection does not ensure effective distance learning. For example, many of the educational resources sent by teachers need to be printed, thereby requiring access to printers. Moreover, distance learning is more difficult in households with only one shared computer compared with those where each family member has their own. Furthermore, upper/middle-class families are more likely to be able to guarantee a suitable workspace for each child than their working-class counterparts.”
“In addition to unequal access to digital tools, there are also systematic variations in digital skills (Fig. 1). Upper/middle-class families are more familiar with digital tools and resources and are therefore more likely to have the digital skills needed for distance learning. These digital skills are particularly useful during school closures, both for students and for parents, for organizing, retrieving and correctly using the resources provided by the teachers (for example, sending or receiving documents by email, printing documents or using word processors).”
“Upper/middle-class families are more likely to use digital resources for work and education, whereas working-class families are more likely to use these resources for entertainment, such as electronic games or social media. This divide is also observed among students, whereby working-class students tend to use digital technologies for leisure activities, whereas their upper/middle-class peers are more likely to use them for academic activities and to consider that computers and the Internet provide an opportunity for education and training. Furthermore, working-class families appear to regulate the digital practices of their children less and are more likely to allow screens in the bedrooms of children and teenagers without setting limits on times or practices.”
“Indeed, upper/middle-class parents are more likely than working-class parents to engage in activities that develop this cultural capital. For example, they possess more books and cultural objects at home, read more stories to their children and visit museums and libraries more often. Upper/middle-class children are also more involved in extra-curricular activities (for example, playing a musical instrument) than working-class children.
Beyond this implicit familiarization with the school curriculum, upper/middle-class parents more often organize educational activities that are explicitly designed to develop academic skills of their children. For example, they are more likely to monitor and re-explain lessons or use games and textbooks to develop and reinforce academic skills (for example, labelling numbers, letters or colours). Upper/middle-class parents also provide higher levels of support and spend more time helping children with homework than working-class parents (for examples, see refs.). Thus, even if all parents are committed to the academic success of their children, working-class parents have fewer chances to provide the help that children need to complete homework, and homework is more beneficial for children from upper-middle class families than for children from working-class families.”

If you’re wondering how Indian school kids are faring, please read this Emergency report that was published this month.

“The SCHOOL survey makes it clear that the reach of online education is very limited: the proportion of SCHOOL children who were studying online “regularly” was just 24% and 8% in urban and rural areas respectively. One reason for this is that many sample households (about half in rural areas) have no smartphone. But that is just the first hurdle: even among households with a smartphone, the proportion of children who are studying online regularly is just 31% in urban areas and 15% in rural areas. Smartphones are often used by working adults, and may or may not be available to school children, especially the younger siblings (only 9% of all SCHOOL children had their own smartphone). In addition, there are other issues of online access such as poor connectivity and lack of money for “data” (Table 2).
The proportion of parents who felt that their child had “adequate online access” was just 23% in urban areas and 8% in rural areas. Another major hurdle, especially in rural areas, is that the school is not sending online material, or if it is, parents are not aware of it. Some children, particularly the younger ones, lack understanding of online study in any case, or find it difficult to concentrate.”

That’s all for today folks! Tune in tomorrow for a brand new edition.


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