India Slashes Policy Rate In Surprise Move To Ease Covid-19 Impact

India’s central bank cut its key policy rate for a second time this year in a non-scheduled move on Friday and extended some stimulus measures to reduce the economic impact of the coronavirus or Covid-19, and the consequent lockdown, as it expects the economy to contract this fiscal year.

The Monetary Policy Committee decided to slash the policy repo rate by 40 basis points to 4 percent, the Reserve Bank of India said in a statement.

In March, the bank had cut the repo by 75 basis points.

The marginal standing facility rate and the bank rate were consequently lowered to 4.25 percent and the reverse repo rate was reduced to 3.35 percent. The reverse repo was lowered by 25 basis points in April.

“The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target,” RBI Governor Shaktikanta Das said in a video conference.

Capital Economics economist Shilan Shah said the central bank leaving the door open for further loosening and, with the Finance Ministry belatedly showing willingness to provide some support, this reduces the downside risk that the economy falls into a deep slump lasting years.

The latest decision to reduce the key policy rate and to maintain the accommodative policy stance was unanimous. However, there were different views regarding the size of the reduction with five members including Das favoring a 40 basis point cut, while Chetan Ghate sought a smaller 25 basis points.

Policymakers are of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress, the RBI said.

“Beyond the destruction of economic and financial activity, livelihood and health are severely affected,” the bank noted.

Das expects growth in 2020-21 to remain in negative territory, with some pick-up in growth impulses from the second half of 2020-21 onwards. The contraction would be the first in four decades.

Elsewhere on Friday, Goldman Sachs reportedly predicted a 5 percent GDP contraction for the 2020-21 fiscal year.

That would be as deep as compared to the deepest recession India has witnessed since 1979, Goldman Sachs economist Prachi Mishra told CNBC.

The central bank also extended a special refinancing facility for small industries for a further 90 days. A voluntary retention route for foreign portfolio investors was extended by additional three months. The RBI also extended some special measures to boost credit for exporters.

Further, the bank had announced several regulatory measures to reduce financial stress that included a three-month moratorium on term loan repayments. These measures were also extended till August 31. The rules applicable for raising debt by state governments were also relaxed.

Despite the several stimulus measures announced by the government and the central bank, there is a need to ease financial conditions further, the RBI said, to facilitate smooth flow of funds and revive markets.

“With the inflation outlook remaining benign as lockdown-related supply disruptions are mended, the policy space to address growth concerns needs to be used now rather than later to support the economy, even while maintaining headroom to back up the revival of activity when it takes hold,” the central bank stressed.

ING Economist Prakash Sakpal expects another 25-50 basis points rate cut at the next scheduled meeting in early August, or even earlier if the situation continues to worsen in the months ahead.

The government has extended the lockdown that has been in place for over two months, till May 31 with some relaxations in areas with less number of Covid-19 cases.

The central bank aims to keep headline consumer price inflation at 4 percent within a band of +/- 2 percent. The inflation outlook is highly uncertain, the RBI said.

The bank expects the unusual spike in food inflation to ease in the coming months after supply lines are restored due to gradual relaxation in the lockdown, and also on hopes of a normal monsoon.

While weak demand may put less pressure on core inflation, the persisting supply disruptions cloud the outlook, the bank said.

Global factors such as lower crude prices and financial market volatility combined with domestic elements are set to pull down headline inflation below target in the December and March quarters of 2020-21, the bank said.

On the growth outlook, the RBI assessed that economic activity other than agriculture is set to remain depressed the June quarter due to the lockdown and continue so into the September quarter despite an end to lockdown as measures such as social distancing will remain and there is likely to be temporary shortage of labor.

The central bank expects an economic recovery to begin in the December quarter and gain momentum in the next three months as supply lines return to normalcy and demand revives.

“For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant,” the bank said. “On the other hand, upside impulses could be unleashed if the pandemic is contained, and social distancing measures are phased out faster.”

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India’s Money Laundering Agency Finds Proceeds in JPMorgan Case

A federal investigation agency in India said it had preliminary evidence that units of JPMorgan Chase & Co. were involved in crimes generating 1.87 billion rupees ($24 million) in proceeds, raising the stakes in a months-long money laundering probe.

The anti-money laundering agency Enforcement Directorate informed the top court on Friday about the findings as part of an investigation into JPMorgan’s alleged role in financing the Amrapali group, once among India’s largest real estate companies. Assets belonging to the JPMorgan unit, including bank accounts, could be seized, according to the order posted on the court’s website Friday, formalizing a ruling it first made in January.

“We are aware of the claims made against JPMorgan in court and we intend to vigorously defend ourselves against them,” JPMorgan’s India spokeswoman Mollica Senapati said in an email. She didn’t immediately respond to an email seeking comment about the amount of alleged criminal proceeds, which the agency raised from an estimate of 1.4 billion rupees at the probe’s outset last year.

Read more: India’s Top Court Says JPMorgan Helped Realtor Divert Funds

The Amrapali investigation emerged after a series of petitions by home buyers frustrated over unfinished housing projects. The court last year scrapped Amrapali’s registration under real estate laws and directed government-owned NBCC India Ltd. to complete all incomplete projects.

The court will next hear the Amrapali case on May 27.

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India Slashes Policy Rate In Surprise Move To Ease Covid-19 Impact

India’s central bank cut its key policy rate for a second time this year in a non-scheduled move on Friday and extended some stimulus measures to reduce the economic impact of the coronavirus or Covid-19, and the consequent lockdown, as it expects the economy to contract this fiscal year.

The Monetary Policy Committee decided to slash the policy repo rate by 40 basis points to 4 percent, the Reserve Bank of India said in a statement.

In March, the bank had cut the repo by 75 basis points.

The marginal standing facility rate and the bank rate were consequently lowered to 4.25 percent and the reverse repo rate was reduced to 3.35 percent. The reverse repo was lowered by 25 basis points in April.

“The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target,” RBI Governor Shaktikanta Das said in a video conference.

Capital Economics economist Shilan Shah said the central bank leaving the door open for further loosening and, with the Finance Ministry belatedly showing willingness to provide some support, this reduces the downside risk that the economy falls into a deep slump lasting years.

The latest decision to reduce the key policy rate and to maintain the accommodative policy stance was unanimous. However, there were different views regarding the size of the reduction with five members including Das favoring a 40 basis point cut, while Chetan Ghate sought a smaller 25 basis points.

Policymakers are of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress, the RBI said.

“Beyond the destruction of economic and financial activity, livelihood and health are severely affected,” the bank noted.

Das expects growth in 2020-21 to remain in negative territory, with some pick-up in growth impulses from the second half of 2020-21 onwards. The contraction would be the first in four decades.

Elsewhere on Friday, Goldman Sachs reportedly predicted a 5 percent GDP contraction for the 2020-21 fiscal year.

That would be as deep as compared to the deepest recession India has witnessed since 1979, Goldman Sachs economist Prachi Mishra told CNBC.

The central bank also extended a special refinancing facility for small industries for a further 90 days. A voluntary retention route for foreign portfolio investors was extended by additional three months. The RBI also extended some special measures to boost credit for exporters.

Further, the bank had announced several regulatory measures to reduce financial stress that included a three-month moratorium on term loan repayments. These measures were also extended till August 31. The rules applicable for raising debt by state governments were also relaxed.

Despite the several stimulus measures announced by the government and the central bank, there is a need to ease financial conditions further, the RBI said, to facilitate smooth flow of funds and revive markets.

“With the inflation outlook remaining benign as lockdown-related supply disruptions are mended, the policy space to address growth concerns needs to be used now rather than later to support the economy, even while maintaining headroom to back up the revival of activity when it takes hold,” the central bank stressed.

ING Economist Prakash Sakpal expects another 25-50 basis points rate cut at the next scheduled meeting in early August, or even earlier if the situation continues to worsen in the months ahead.

The government has extended the lockdown that has been in place for over two months, till May 31 with some relaxations in areas with less number of Covid-19 cases.

The central bank aims to keep headline consumer price inflation at 4 percent within a band of +/- 2 percent. The inflation outlook is highly uncertain, the RBI said.

The bank expects the unusual spike in food inflation to ease in the coming months after supply lines are restored due to gradual relaxation in the lockdown, and also on hopes of a normal monsoon.

While weak demand may put less pressure on core inflation, the persisting supply disruptions cloud the outlook, the bank said.

Global factors such as lower crude prices and financial market volatility combined with domestic elements are set to pull down headline inflation below target in the December and March quarters of 2020-21, the bank said.

On the growth outlook, the RBI assessed that economic activity other than agriculture is set to remain depressed the June quarter due to the lockdown and continue so into the September quarter despite an end to lockdown as measures such as social distancing will remain and there is likely to be temporary shortage of labor.

The central bank expects an economic recovery to begin in the December quarter and gain momentum in the next three months as supply lines return to normalcy and demand revives.

“For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and how long social distancing measures are likely to remain in place and consequently, downside risks to domestic growth remain significant,” the bank said. “On the other hand, upside impulses could be unleashed if the pandemic is contained, and social distancing measures are phased out faster.”

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India Plans to Suspend New Bankruptcy Filings for a Year

India won’t allow most companies to be tipped into bankruptcy for a year as authorities try to contain the economic fallout of the coronavirus outbreak.

Finance Minister Nirmala Sitharaman announced the plan Sunday as part of her speech to revive economic activity. Also, the minimum threshold to initiate insolvency proceedings have been raised to 10 million rupees ($132,000) from 100,000 rupees previously, and will largely insulate small businesses, she said.

The move risks delaying the clean up of the world’s worst stressed-loan ratio as creditors will be forced into lengthy debt resolution negotiations outside the bankruptcy framework. It may also slow fresh credit that’s vital to reverse the course of an economy set for a rare contraction as the pandemic stalls economic activity at jewelers to developers.

The measures will help small business who were “reaching a stage of bankruptcy,” Sitharaman told reporters in New Delhi. “All this had been kept in mind when we are addressing the issues.”

Bankruptcies in India are expected to climb as the coronavirus outbreak hits distressed companies harder in Asia’s third-largest economy. India has been under a strict lockdown since March 25 with some easing on April 20 and then May 4.

“It will ultimately hamper the recovery prospects of financial institutions in cases of existing defaults,” said Sumant Batra, who heads the insolvency and corporate advisory practice at law firm Kesar Dass B. & Associates. “The economic package is believed to provide assistance and incentives to sectors in order to recover from the economic slump, these proposed amendments to IBC will in no way address those issues.”

Sitharaman, in her fifth briefing in as many days on measures to support the economy, listed a package totaling about 21 trillion rupees ($277 billion) to help businesses and individuals get back on their feet following a nationwide lockdown to contain Covid-19.

The measures announced Sunday also included:

  • Additional spending of 400 billion rupees on a rural jobs guarantee program
  • Raising borrowing limits for state governments by an extra 4.28 trillion rupees to help them meet funding needs
  • To allow more private investments in state-run units in non-strategic sectors
  • Companies Act to be eased to decriminalize violations with technical and procedural defaults
  • Companies can list securities directly in foreign jurisdictions
Click below for more coverage on India’s relief package:
  • India Turns to Reforms to Keep Virus From Sinking Its Economy
  • India to Spend $20 Billion to Lift Income for Farmers, Fishermen
  • India Offers $32 Billion of Cheap Credit to Farmers, Workers
  • India Offers $72 Billion Liquidity to Help Shrinking Economy

— With assistance by Siddhartha Singh, Archana Chaudhary, Vrishti Beniwal, and Atul Prakash

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‘India can be an economically self-reliant country’

‘Opportunity for a country like India is huge in terms of wealth creation.’
‘That’s the reason India is an attractive economy for investors.’

Kris Gopalakrishnan, co-founder of Infosys, is the chairman of Axilor Ventures, an accelerator that helps early-stage start-ups succeed.

“I strongly believe that the long-term prospects of IT services are good,” Gopalakrishnan, below, tells Shobha Warrier/Rediff.com. The first of a two-part interview:

The prime minister has announced a stimulus package of Rs 20 lakh crore to kickstart the economy. Do you think this will help the economy bounce back?

This is a substantial stimulus package. We need to wait for the details. If the industry gets support from this, especially the SME sector, we will avoid some of the damages from the crisis.

The PM talked about Atma Nirbhar Bharat. Do you think India can emerge as an economically self-reliant country?

I believe, yes.

This belief comes from my experience in the IT industry where we have built world class, export-driven, financially strong and resilient businesses.

This belief comes from the start-up ecosystem where we have built 35+ unicorns (before the virus struck) in a short period of time, in less than 10 years.

Do you feel the lockdown has gone on for too long, and has affected the economy very badly?

As there is no past experience, everybody is trying to figure this out and come up with a right answer. We are experimenting with certain hypothesis, and it is probably a question of balancing life with livelihood.

At the end of the day, it is a political decision.

We see that different governments are taking different decisions, and the future will tell us which is the right path. That will become a pointer to how such crisis should be handled in future.

It is said the MSME sector and start-ups are the most affected because of no economic activity for two months.

It is quite clear that as individuals and businesses, everybody is affected in some way or the other. Some are more affected than the others.

The migrant labourers, the daily wage earners, people who are in the informal sector are more affected than those in the formal sector where by and large, companies have not laid off people or significantly cut salaries. Some have made some minor adjustments, but generally salaries are paid.

When it comes to businesses, those businesses that have debt in their balancesheet are more affected. Their cashflows are affected, hence the inability to pay their employees, suppliers, partners, etc.

Demand has dried up so, there is no revenue coming in.

No economic activity is happening.

So, it all depends on how much money you had in your books before the lockdown. This is going to affect companies at different times. Some companies may have three months’s cash, some may have six months’s cash and the better ones may have 24 months of cash.

Nobody had prepared for something like this. It was unexpected. Even at the beginning of March, nobody would have thought of a lockdown of this kind.

At that time, we knew there was a virus and checks were happening at airports.

The severity of the pandemic surprised all of us.

Those in the SME sector feel that by the time the lockdown ends, many companies will have to shut shop. Do you feel the situation will be the same for start-ups also?

Start-ups are, in some sense, SMEs only.

It all depends on whether you have the cash to restart the business, pay for your expenses, pay for your employees, etc.

You need cash to restart.

So, what kind of future do you see for start-ups?

This crisis is going to affect businesses and also individuals. That’s why the government is the last resort.

The RBI has announced a good monetary policy to increase liquidity to ease the situation from a monetary perspective. But the liquidity is not flowing into the system because many companies are already leveraged.

Now, the government also has come out with a stimulus package. Even if there is more money, it has to go into the hands of companies and individuals. This is where fiscal measures help.

You had said 25% of Indian start-ups would be in trouble if a recovery did not happen in the next six months/

A survey I looked at said that 25% of start-ups had cash only for two months. We are already in May. So, there are going to be failures in start-ups and the SME field.

The government restricting investments from China, has alarmed many start-ups as China has been an investor for many start-ups in India. Do you feel this decision is going to affect Indian start-ups badly?

This is balancing between national security geopolitics and the need for funding.

I think the government will look at fast-tracking investments on case by case basis. So, there is expectation that if investments are coming from China, the government will approve it on case by case basis.

What kind of future do you see for the IT service sector in India because one of the biggest partners, the US, is suffering very badly?

In IT services, there is a shortfall of talent globally. So, I feel the long-term prospects for the sector is very good because demand for IT services will continue to grow as we leverage technology more and more.

We still have significant amount of legacy systems which will have to be simultaneously maintained.

I strongly believe that the long-term prospects of IT services are good.

In the short-term, because the global economy is affected, you will see an impact on the IT services revenue.

You will see an impact on recruitment by the IT services companies also.

But the IT services sector will be less affected than for example, the construction sector or the hospitality sector.

If you look at services as a whole, different sectors are going to be affected differently.

Do you feel the e-commerce space is going to do well hereafter?

It is not just black or white. E-commerce segment was 10% of all the retail, before the Covid situation. Since it is such a small percentage, growth is possible with significant opportunities.

Having said that, in a country like India, during the crisis the kirana stores have done very well. They were the ones that were actually working and supporting the people.

We have always been talking about the huge domestic market in India. Of course, there were complaints of lack of demand before the virus struck. Do you see the domestic market picking up any time soon?

It will take some time. People’s incomes have been affected. So, demand will be muted for some time.

People are going to think twice before buying something like a refrigerator or a car. 

As and when the economy picks up, people’s incomes will rise and the situation will change.

If I look at the Indian economy from 1991 when the economy opened up and today, our middle class which was 50 million has moved to 350 million now. It means 350 million people have become middle class in the last 25, 30 years.

It was expected that it would double to 700 million in the next 20 years.

Opportunity for a country like India is huge in terms of wealth creation which will result in more people buying and consuming more things.

That’s the reason India is an attractive economy for investors. That’s why it is attracting foreign direct investment in large numbers.

There are very few economies in the world that can continue to grow at 7% to 8%.

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Global pvt wealth takes a hit; India sees 20% dip in Q4

In India, the drop was fuelled by the rupee’s depreciation from around 71 to 75 a dollar during the quarter.

Private wealth grew at a negative rate in all major economies, during the January-March quarter.

Emerging economies, including India, faced the brunt of the meltdown, with the total wealth growth rate ranging between -14 per cent and -26 per cent, in the first quarter of CY20, estimated a research report by New World Wealth.

In India, the drop was fuelled by the rupee’s depreciation from around 71 to 75 a dollar during the quarter, the report said.

The drop in the Sensex – which slumped 31 per cent – during the period, was the other major reason for the erosion in value of private wealth in the country, the report added.

“Apart from the human cost, the virus has also had a severe economic impact – our estimates show that global private wealth levels have dropped by around 15 per cent in Q1CY20 (in US$ terms),” the report noted.

This drop has been driven by declining global stock market returns, even as most major currencies have weakened their position against the dollar, the report added.

“This has negatively impacted the dollar-based wealth of most people globally, especially those in emerging markets,” the report said.

‘Global private wealth’ refers to wealth held by all private individuals.

It includes their assets (property, cash, equities, business interests), minus all liabilities.

The report also noted that some countries had handled the outbreak better than others, which may have impacted their ability to recover economically in the second half of the year.

Countries that appear to have handled the crisis best are Australia and South Korea.

  • Coronavirus Attack

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‘We Will Starve Here’: India’s Poor Flee Cities in Mass Exodus

In small groups and large crowds, through inner-city lanes and down interstate highways, hundreds of thousands of India’s poorest are slowly making a desperate journey on foot back to their villages in a mass exodus unseen since the days immediately after India’s independence in 1947.

For many, it’s a matter of life and death. Prime Minister Narendra Modi’s order last Tuesday to lock down the country for 21 days to prevent the spread of Covid-19 has dried up work in urban areas, leaving many rural migrants who keep the city moving while making less than $2 a day — construction workers, handymen, food sellers, truck drivers and household help — suddenly wondering how they’ll pay rent or buy food.

“We have to go to our village — we will starve here,” said Rekha Devi as she walked with her husband and two young children down a highway outside of Delhi, heading to see her family some 370 kilometers (270 miles) away. The couple lived on the construction site where they worked, but the job stopped suddenly more than a week ago.

“We haven’t eaten for two days,” Devi said, noting that the little money they had saved quickly ran out. “We are scared of this disease but I think hunger will kill us. We will stay hungry, but how can we watch our children starve?”

The family on Sunday walked with hundreds of others down a highway normally clogged with vehicles, their mouths and noses covered with scarves or handkerchiefs or masks. They clasped their children and belongings — tattered duffel bags stuffed with clothes, buckets filled with cooking utensils, blankets and sheets.

The grim scenes playing out across the nation of 1.3 billion people are some of the worst across the world since the virus crisis shut down much of the global economy. In India, it’s brought back memories of the mass migration sparked by deadly religious riots when the subcontinent was split up after the British left in 1947. These days, however, the divide is largely between those in India with money and those who live month by month, or even day by day.

Pessimistic Indian Doctors Brace for Tsunami of Virus Cases

What’s worse, the mass movement of people risks speeding the spread of the coronavirus across the country — undermining the goal of the 21-day lockdown. Right now, it’s nearly impossible to tell what will happen because India lacks testing data to determine what stage the pandemic has reached, according to Gagandeep Kang, an infectious disease expert and head of India’s Translational Health Science and Technology Institute outside of Delhi.

“Because we are not testing enough, we don’t know what this means in terms of disease spread,” Kang said. “If very few people are infected today, then they’re going home and if they reach home safely then that might be the best thing for them,” she added, while saying cases will emerge throughout the country in two to four weeks if many migrants already have Covid-19.

Modi last week announced the nationwide lockdown in a prime-time television address, prompting middle-class Indian families to rush to the nearest supermarket to buy food. Panic had been spreading among migrant workers even before Modi shuttered India’s massive railway network and grounded all domestic and international flights: Smaller, state-wide lockdowns had already hit daily wage earners, prompting hundreds of thousands to cram into trains and buses to reach the safety of their villages.

Modi’s government on Sunday asked states to quarantine migrant workers for 14 days and prevent them from traveling elsewhere in the country as the official case toll rose to more than 1,000, including 25 deaths. In a radio address, Modi apologized to the nation while urging them to understand he had no other option. His government earlier approved a 1.7 trillion rupee ($23 billion) stimulus package targeted at the poor.

‘I Seek Their Forgiveness’

“I had to take certain decisions which have put you in lots of difficulty, especially when I look at my poor brothers and sisters,” Modi said in a nationwide radio on Sunday. “They must be thinking what kind of prime minister is this who placed us in this difficulty. I seek their forgiveness.”

Local media have reported at least 22 deaths already among those trying to reach their villages, some in road accidents and others because of illness or starvation. The chaos reflects a lack of planning by the government reminiscent of Modi’s move in 2016 to eliminate more than 80% of India’s hard currency overnight, according to Michael Kugelman, senior associate for South Asia at the Wilson Center in Washington.

“Surely New Delhi understood that in a country with millions of migrants and a large informal economy, you can’t just shut the country down for three weeks and expect everyone to dutifully shelter in place,” he said.

In the western state of Maharashtra, home to India’s financial capital Mumbai, thousands of people trekked toward villages in the interior or in the southern state of Karnataka more than 600 kilometers away. As the summer temperatures touched nearly 95 Fahrenheit (35 degrees Celsius), some rested under trees along a highway leaving the city.

‘What Will We Eat?’

“Some kind-hearted people gave us food,” said one elderly woman, who estimated it would take at least five days to reach her home in Karnataka. “I don’t know whether we’ll get any more.”

As the humanitarian crisis began to unfold in Delhi, the government of neighboring Uttar Pradesh — India’s most-populous state — sent buses to a crowded station to ferry migrant workers from the outskirts of the Indian capital back to their villages.

On Sunday, Neha Kashyap walked there with her husband and three young children, trying to get a ride after their attempts to find transportation closer to their home had failed. Her husband had a small shop fixing sewing machines and small electrical appliances like blenders, but it closed after work began to dry up and they couldn’t make the rent.

“When there is nothing left to eat, what should we stay here and do?” Kashyap said, her eyes welling up with tears. “The government says stay where you are. Tell us what will we eat? How will we feed our children? How will we pay our rent? We have to try and get away.”

‘Keep Moving’

Around her, police sirens blared as hundreds of others slowly walked down the stretch of road hoping to catch one of the buses heading to Uttar Pradesh. “Keep moving, keep moving,” police shouted through microphones. Others beat their batons on the road to hurry on the crowds, and chided volunteers who handed out bananas and pouches of water. “Don’t you have any poor people in your own areas to help?” one officer shouted.

If she didn’t get her family on one of the buses, Kashyap’s only option was to keep walking toward her hometown some 530 kilometers away — longer than the distance between London and Paris.

“Whatever little our parents have, they will keep us alive — we have to go no matter what,” she said. “Let me tell you one thing: More people will die of hunger than from this disease.”

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