From India to Germany, while looking at the aviation industry
We look at the continued success story of India's digitisation before peeking into Germany's crisis. While we look at aviation industry, we also look whether Europe is actually buying Russian diesel.
Impact of digitisation in India during Diwali week
At the height of festivity in India during Diwali time, there’s a lot of commercial transactions that are carried out by almost all citizens of India (remember, it’s a 1.4 billion population). Hence, any analysis on digitisation carried out during this time will indicate a fair picture of the impact in real world. State Bank of India had carried out research during this time and the key excerpts from the same are showcased below:
The circulation of currency saw a decline for the second consecutive year during the Diwali week.
This drop amounted to Rs 5,900 crore, showing a notable reduction compared to the Rs 7,600 crore decrease observed in the previous year.
The shift is attributed to the increasing preference among Indians for digital payment methods, with the UPI platform gaining significant traction.
In the festive month of October, the National Payments Corporation of India reported an impressive volume of over 11 billion transactions, totaling Rs 17.16 lakh crore, conducted through UPI.
In the realm of retail digital transactions, National Electronic Fund Transfer commands a substantial 51% share in terms of value.
Smartphone-based transactions, facilitated by platforms like UPI and Immediate Payment Service (IMPS), contribute to approximately 21% and 8.5%, respectively, in the overall digital transaction landscape.
Notably, UPI transactions dominate the payment industry in terms of volume, constituting approximately 75% of the total transactions.
This shift towards digital avenues underscores the evolving payment preferences of the Indian populace during festive seasons.
Germany’s budget crisis
The German constitutional court has declared the reallocation of unused debt originally earmarked for emergency Covid-19 pandemic funding to current spending plans as unlawful. This has led to a freeze in spending across all ministries by the finance ministry.
Instituted in 2009, the debt brake imposes limits on government debt and sets the maximum size for the federal government's structural budget deficit at 0.35 percent of Germany's annual GDP.
Traditionally, the debt brake has been a cornerstone of German fiscal policy since the global financial crisis.
However, the Covid-19 pandemic prompted the government to incur emergency debt, temporarily suspending the debt brake to mitigate the pandemic's impact on the budget.
Subsequently, it was discovered that the additional funding was unnecessary. In response, the current coalition government opted to redirect these funds towards policies addressing climate change and promoting a greener, more sustainable economy.
The opposition in Germany expressed dissatisfaction with this reallocation, leading to a legal challenge in the constitutional court.
As a consequence of the court's ruling, Germany's budget now faces a significant shortfall of 60 billion euros ($65 billion).
In light of this fiscal challenge, some experts suggest that one plausible solution could involve a constitutional amendment.
Is Europe buying Russian diesel through India?
Approximately a year ago, Europe implemented restrictions on most oil shipments from Russia, yet it appears to be increasingly reliant on diesel that may be derived from Russian crude, according to a Bloomberg report.
According to data from market-intelligence firm Kpler, the region's imports of diesel from India, a major purchaser of Russian crude, are projected to reach 305,000 barrels per day, marking the highest volume since at least January 2017.
Although it cannot be definitively asserted that these molecules originated in Russia, as India also processes oil from other sources, the deliveries from Moscow have equipped Indian refineries with the capability to produce ample diesel, subsequently enhancing their export capacity.
In the wake of the West's disassociation from Russian oil, Moscow has discovered a growing demand for its crude in Asia. Indian refiners have seized the opportunity to acquire Russian crude at a discounted rate and channel the processed oil to markets such as Europe, where there is a heightened demand for diesel.
The proportion of Indian diesel flows to Asia presently constitutes about 19% of the country's total fuel exports, a decline from the 33% reported last year. However, a significant portion of this reduced volume has been redirected to Europe.
Overall, Europe's imports of diesel and gasoil for this month are anticipated to escalate to 935,000 barrels per day, reflecting a 5% rise from the figures observed in October.
Global aviation industry is back to “normal”?
One of the industries that was deeply impacted by Covid was the aviation industry. Since then, the world has returned to “normalcy”, but the key question is whether the global aviation industry has returned to it’s pre-Covid times?
The passenger load factor, a key metric indicating the percentage of capacity in use, has surged to 81.3% in Asia for the period up to the end of September.
This marks a significant increase from the 69.2% reported a year ago and aligns closely with the levels observed in the same timeframe in 2019.
In assessing the health of airlines, the industry relies various metrics like:
Revenue passenger kilometers (RPK) calculated by multiplying the number of paying passengers by the distance each person has flown.
The cargo equivalent is revenue ton kilometers (RTK).
To gauge potential capacity, available seat kilometers (ASK) and available freight tonnage kilometers (ATK) are utilized.
However, a different metric, named “return-to-normal” (RTN) tells us current seat availability as a percentage of the figure for the same period in 2019, before the pandemic. This throws up a different picture.
Across Asia, airlines are averaging just a 70% "return to normal" for the year through September compared to 2019. This implies that even if airlines were operating at a 100% load factor (full capacity), they would still be functioning at 30% lower than pre-pandemic levels.
Airlines across the region are grappling with various challenges.
Workforce reductions have left them with insufficient pilots, cabin crew, and ground staff to effectively operate their aircraft.
Additionally, supply-chain disruptions stemming from the pandemic, Russia's ongoing conflict in Ukraine, and a shortage of personnel across diverse sectors, from technology to food service, further compound the issues.
These challenges include delayed delivery of new planes, a recent controversy surrounding spare parts, and difficulties in sectors such as catering and equipment replacement.
So, unless the above issues get resolved, the aviation industry might still be struggling for some time.