Beyond The First Order is a daily email newsletter that digs deep into the higher order effects of the Covid-19 pandemic on industries, ecosystems, economies, governments and more. This is a free edition of a paid newsletter that’s available exclusively to The Ken’s premium subscribers.

Edition #56. Tuesday, 16 June 2020
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Good morning,
 
Today is Tuesday, in case you needed reminding. Let’s start today with a big dose of creativity. SoftBank found a creative way to use its money—by doing a Lazy Susan. Jakartans have an altogether new plan for their swanky Mass Rapid Transport. Same with Indian startups and parking solutions. Malaysian airlines have found a way to keep flight tickets cheap. And as far as creative solutions go, this newsletter will go behind a paywall from July 1. (Psst, for you premium subscribers, you can continue to read it for free.)

Let’s jump in. 
Round-tripping deserves a quiet time

Rohin

Do you know what they call those rotating trays or turntables often seen in Chinese restaurants? Lazy Susans
Source: peciriacks/Pixabay 
Do you know what they’re good for? Of course, you do. Passing food around with minimal friction and maximal efficiency, till it comes back to you. Round-tripping.
 
Imagine moving money around the world, instead of food around a table. That’s round-tripping. Also called, yes, Lazy Susans.

Most governments hate round-tripping. First, because it allows unscrupulous businessmen to shuffle around money through other companies, with no economic value added in the process, except showing an artificial increase in revenue or capital flows. Secondly, because in a globalised world, it allows businesses to send capital out from countries where it was either illegally generated or likely to be highly taxed into countries that don’t ask pesky questions. And then bring it right back dressed as legitimate foreign investments. 

Lastly, and most irritatingly, because it’s often really, really hard to distinguish legitimate to-and-fro transactions between companies and fraudulent ones. 

Which is why India’s reserve bank, the RBI, last year decided to treat all round-tripping as potentially suspect. Indian companies could neither acquire stakes in foreign companies that already had investments in India, nor could they set up Indian subsidiaries through foreign joint ventures or subsidiaries. No matter how minuscule the stakes.

To bypass these restrictions, companies could “approach the Reserve Bank for prior approval through their authorised dealer banks which will be considered on a case to case basis, depending on the merits of the case.”

Well, it turns out a lot of potentially legitimate Indian fish are getting ensnared in the fine round-tripping nets of its regulatory apparatus. From The Economic Times.
The Reserve Bank of India’s stand on round-tripping is creating problems for several Indian individuals over investments in overseas funds and Indian companies looking to acquire foreign companies.  The RBI and Enforcement Directorate (ED), the agency that probes money laundering, have started questioning several individuals who had invested in overseas private equity, venture capital or alternate investment funds which may have later invested in an Indian startup, companies or assets.
Investors uneasy over RBI stand on round-tripping, The Economic Times
In spite of many investments being made using money on which taxes had been paid, and through legitimate channels, regulatory notices were creating a “spectre of harassment”. Leading to perhaps the opposite kind of effect as India may have liked.
“These kind of regulations have forced big Indian startups to domicile outside India, hurting India’s image as a global investment destination. With $500 billion of reserves, a $3 trillion economy, we need clear, transparent, forward-looking regulations which support investment not fear creating discretionary rules which hurt investments.” 
TV Mohandas Pai, chairman of Aarin Capital, to the Economic Times
It’s a good thing SoftBank isn’t domiciled in India though. Because the Financial Times reported on a rather ingenious Lazy Susan it had been using.

SoftBank invested more than US$500 million into a special class of Credit Suisse investment funds, called supply chain finance funds, which lend money to companies so they in turn can pay their suppliers. The funds in turn lent a much larger portion of their capital (including funds from other investors) back to SoftBank-funded companies.
The arrangement has allowed SoftBank effectively to provide financial assistance to other Vision Fund companies by paying their suppliers upfront but through a fund commingled with other investors and financing other companies.

[…]

Marketing documents for Credit Suisse’s main supply-chain finance fund show that, at the end of March, four of its top-10 largest exposures were to Vision Fund companies, accounting for 15 per cent of its $5.2bn assets. This included companies hit hard in the coronavirus crisis, such as Indian hotel business Oyo and struggling car subscription start-up Fair.
SoftBank invests in Credit Suisse funds that finance its technology bets, Financial Times
Fixing the bounce
 
Arundhati
 
Covid-induced problems need Covid-inspired solutions. Take the cheque bounce, for instance. It’s a criminal offence in India if you issue a cheque and your bank account doesn't have any money in it. You could be jailed. 
 
The Department of Finance last week, though, said: 
“Criminalising procedural lapses and minor non-compliances increases the burden on businesses and it is essential that one should re-look at provisions which are merely procedural in nature and do not impact national security or public interest at large,” the DFS said in the statement of reasons explaining the rationale behind the proposed move.
Some financial offences like bouncing of cheques may be decriminalised, The Economic Times
A move like this could certainly help hapless courts with their caseload. It also helps borrowers who are saddled with job cuts and salary cuts, and could face genuine problems with repayments. After all, that's why the country's central bank, the Reserve Bank of India, allowed for a six-month temporary stay on loan repayments. Decriminalising cheque bounces in a way is a logical extension of the moratorium. 
 
But the All India Bank Employees' Association has been taken aback by this laxity shown by the government. After all, bounced cheques were the banks’ trump card to ensure borrowers paid back their dues.  The bank union has suggested the finance ministry should not entirely decriminalise bouncing of cheques, but instead fix financial limits for attracting criminal provisions. It wants a limit of Rs 1 lakh (US$1,315) fixed for individuals, and Rs 10 lakh (US$13,154) for companies. If the bounced cheque is worth more than that, it recommends the person be tried under the criminal procedure code.
 
As banks are bracing for bad loans, this statement, especially, is telling.
The union said if mens rea or mala fide and criminal intent is an important criteria, then willful bank loan default should be made a serious criminal offence, which is hitherto being treated and tried under the civil procedure code. Hence, dilution of these sections would only facilitate increase in such acts with criminal and motivated intentions.
Bank employees' union seeks fixing limits for cheque bounce, Livemint
The government's problem and the banks' problem are the same, yet different.
Jakarta’s big MRT pivot

Nadine
 
When the first subway line opened in Jakarta last year, it was the talk of the town. The city of about 12 million inhabitants had been waiting for decades to finally get a modern mass rapid transportation route.
 
For some glorious months, Jakartans basked in the bright, neon lights of their new MRT. It was the dawn of a better future. 
Source: Tweet via @HasianReyza
We all know what happened next. Jakarta’s MRT suffered a huge setback from dwindling passenger numbers due to the pandemic. 
The operator served an average of 90,000 to 100,000 passengers daily between January and mid-March, but the number dropped to 5,000 in April and 2,000 in May.
MRT Jakarta drafts new business model… The Jakarta Post
How do you pivot a business that’s a piece of infrastructure designed to transport crowds?
The city-owned company said it’s now looking for “non-farebox income” and is rolling out a “beyond ridership scheme.”
 
These are fancy phrases intended to build confidence in a whacky plan: re-utilise empty MRT stations as “co-working spaces” and call on startups to “develop digital ecosystems along MRT Jakarta routes.” The plan envisions tech-enabled retail, such as vending machines and pick-up lockers for e-commerce to inhabit the spaces—and, presumably, pay rent to the MRT operator. 
 
But what’s the appeal for vendors if ridership remains low in the coming months, or even permanently?
 
Luckily for the MRT, its stations have–in some weird way–become attractions in their own right. With their minimalist design and cool lighting, they’ve become the backdrop for photoshoots and the subject of countless Instagram posts. Pre-pandemic, coffee shops and hipster boutiques sprouted alongside some entrances. Is there enough fertile ground for a “riderless MRT” ecosystem?
Making the most of a crisis

Arundhati
 
Covid-19 has extinguished many businesses in its wake, but it is also giving rise to new business models. Ideas that, in a pre-Covid world, seemed like a head-scratcher. One such idea is contactless parking. 
 
Parking in India is a five-minute transaction. The attendant directs you to a spot to park. Then, money and tokens change hands. Now, startups want to remove that contact. Imagine if there was an app where a user can, well before going to a mall, enter their vehicle details, pay a parking fee digitally, and reserve a spot. And when the user drives into the mall parking, the attendant checks the information in their app and then allows the user to enter. 
 
Delhi-based Park+, a Sequoia-backed startup, wants to do that. But as we wrote yesterday, in some states, malls may be open but shops aren’t. And even if they are open, footfalls may be low. So who needs parking space in those malls then? Not only are the shops seeing low footfalls, but the real estate reserved for parking is also largely unused. Now, what if that parking space can be used by other businesses? 
We are collecting a fixed fee for five parking slots from malls. Then, we plan to give those slots to on-demand bike-sharing companies like Bounce and Vogo, which need to park their vehicles somewhere.
Amit Lakhotia, founder of Park+, to The Ken
This model works fine for the bike rental companies. Being parked inside malls means they can cater to the last-mile mobility needs of mall-goers. 
 
Now, what did they say about not wasting a crisis?
Everyone can fly again

Kay
 
Just when people thought travel might become expensive with the pandemic, cheaper fares are already on the table in Malaysia. 
 
The country’s low-cost carrier, AirAsia, has launched a RM399 (US$93.3) “unlimited pass”. It enables pass holders to redeem unlimited flights across 16 destinations within Malaysia, for travel up to 31 March 2021. 
 
AirAsia said it saw more than 12,000 flights redeemed in the first seven minutes after the pass went on sale. The initiative is somewhat similar to AirAsia’s ASEAN pass, which was launched in 2015 but discontinued in late 2018. 
 
The airline announced plans to add more flights next month after the Malaysian transport industry gave the green light for transport service providers, including airlines, to run at full capacity. This comes as Malaysia entered a recovery phase on 10 June. Besides, the International Air Transport Association said there’s little evidence that Covid-19 could be transmitted within an aircraft. 
 
With Asia’s aviation industry expected to suffer steep losses this year, and in desperate need of a restart, offering cheap fares makes sense, according to experts.
Short-term, aircraft will continue to be much less full and airlines will be motivated to price seats to get customers flying safely in a Covid-19 world. Airlines have cut back their flights to absolute connectivity minimums and are losing money on the vast majority of remaining flights… Hopefully, the combination of increased Covid-19 safety measures alongside low prices will encourage a travel rebound.
Joe Leader, chief executive officer, APEX (Airline Passenger Experience Association)
A rebound in travel, thanks to increased airline load capacities, helps governments avoid footing the bill for expensive bailouts. AirAsia itself supposedly didn’t get a rescue package from authorities.
 
But governments may find it hard to avoid a backlash from other sectors where social distancing rules are still strictly applied. Like, say, the restaurant industry. You’d think all industries are equal. But in Malaysia, some are more equal than others. 
GST = God Save Tax

Savio
 
India had already been struggling to pay its states their share of the centrally-collected goods and services tax (GST). Last year, a flagging economy meant the central government sent states the equivalent of a shrug emoji. So, what does the Centre do when it’s time to honour a promise to compensate states if the annual collection growth was under 14%? It’s shrug goes heavenwards.
“Compensation is a larger issue. The Centre is not going back on its promise, but should it not enforce the force majeure clause since this is an event triggered by things beyond anyone’s control? It is an ‘act of God’,” an official told TOI.
GST mop-up hit by Covid, 'act of God': Centre, Times of India
Source: Times of India
Conditions ripe for ageism in the post-pandemic world
 
Arundhati
 
What happens to people over 60 in the workforce as the coronavirus leaves that age group more vulnerable? The Financial Times spoke to experts on this.
Rather than talking to employees about retirement, she [Ros Altmann, a former UK pensions minister and member of the House of Lords] advocates discussions about “pretirement”, which could involve people working fewer days or job sharing. This reflects the thinking of many pre-coronavirus commentators: organisations should adopt flexible approaches to all ages in their workforce. The current widespread working from home provides clear indications that old office-based approaches are not always necessary.
Will ageism get worse in the post-pandemic workplace? Financial Times
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That’s a wrap for today. Do write in with your thoughts and observations on how this pandemic is reshaping businesses, societies and economies. We will be back tomorrow.

Stay safe,
Arundhati
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Beyond The First Order is a daily newsletter that analyses the complex second and third order effects thrown into motion because of Covid-19 across India and Southeast Asia. This newsletter is published by The Ken—a digital, subscription-driven publication focussing on technology, business, science and healthcare