Observations on China's 15th Five Year Plan

The formal adoption of China’s 15th Five-Year Plan has generated much scrutiny and analysis. 

The central theme is the development of a modernised industrial system, elevating it above the regular headline of technological innovation. The sequencing reflects a practical focus: turning laboratory breakthroughs into scalable, high-value production capacity. Frontier sectors such as advanced manufacturing, semiconductors, next-generation information technology and aerospace are prioritised. The plan aims to achieve breakthroughs in critical areas, including semiconductors, industrial machinery, advanced materials, biotechnology, and foundational software, and to deepen integration between scientific and industrial innovation. 

Importantly, it does start to acknowledge the role of the structural imbalances in the economy. For example, under the overarching banner of “common prosperity”, it links household-centred policies to growth resilience: employment, childcare, education and social safety nets are no longer simply "livelihood" issues — they are productivity and confidence issues. But this focus on structural empowerment appears, as I discuss later, to be done in a more roundabout manner. 

The Plan has some clear departures from earlier versions, prompted by internal and external challenges. As mentioned, the elevation of the industrial system before innovation indicates a shift from the lab to the factory floor. Related is the focus from making breakthroughs to applying them at scale. It offers an opening up of high-technology sectors and deepening cooperation in specific regions and industries. 

In short, the 15th Five-Year Plan appears to mark a subtle shift from scaling up to sharpening China's edge — a strategy designed for a world of intensifying great-power competition, supply chain fragmentation, and technological rivalry. Its effects will be felt well beyond China's borders, influencing global trade flows, technology standards, and the competitive landscape across nearly every advanced industry.

Kyle Chan has an excellent analysis of the technology and innovation focus of the Plan. It focuses on strategic emerging industries and future industries as “new quality productive forces” to achieve the income level of a moderately developed country by 2035 (or socialist modernisation). 

A less discussed feature of China’s economic success is the long-term planning and persistent pursuit of the plan objectives. 

What makes China’s tech-industrial policy remarkable is not some hundred-year master plan for technological supremacy or meticulously engineered blueprint for success. It’s China’s sustained focus on a set of obviously critical technologies over years and even decades. While the strategies and tactics—and even the technologies themselves—may change, China’s overarching persistence has yielded steady gains that have allowed it to catch up and even achieve global leadership in key technologies. China’s new 15th Five-Year Plan is but the latest chapter in a much longer technology story.

The Five-Year Plans have shifted from top-down guidance to a broader strategic guidance framework.

The aim of the earlier Plans was rapid industrialisation and catch-up with a focus on heavy industry… Today’s Five-Year Plans serve as strategic roadmaps for China’s development and include a mix of qualitative goals and hard quantitative targets. Each part of the Five-Year Plan is broken down by sector and annually. Central government bodies and local governments then break down the Five-Year Plan and develop their own implementation plans. Local government officials are evaluated in part on their performance in meeting the national plan’s goals and targets. In general, China’s Five-Year Plans are best understood today not as rigid, top-down “plans,” but as high-level signaling mechanisms that guide local governments and the private sector to align their efforts with national priorities.

In this context, in an earlier post, Kyle Chan had pointed to China’s industrial policy strategy of creating interlocking industrial ecosystems that allow it to play across the manufacturing spectrum.

China doesn’t just have a smartphone industry or a battery industry or an electric vehicle industry. It has all of these industries and more. China’s strength across multiple overlapping industries creates a compounding effect for its industrial policy efforts… If you’re trying to develop a target industry, it helps to have the technology and manufacturing capacity in surrounding industrial domains… industrial policy is like a jigsaw puzzle. The more pieces you already have in terms of technology and domestic manufacturing capacity, the closer you are to filling in the remaining gaps. And if you’re already strong in multiple overlapping industries, then this creates a mutually reinforcing feedback loop that further strengthens your position in all of these connected industries… As China becomes stronger in some industries, this tightens its grip on others…

Having existing domestic suppliers in upstream industries can make it easier to source parts and work directly with suppliers to modify specifications to suit industry needs… Having an existing set of domestic buyers in downstream industries can provide a ready source of market demand and industry revenue… Technical knowledge and manufacturing know-how can be useful across industries. Investments in R&D and manufacturing techniques in one industry can have returns across other related industries… If you have a product that’s an input for multiple industries, then having all of those industries domestically allows for greater economies of scale for that product. 

Another notable insight from the Plan is its focus on higher-quality cultural and consumer goods as a national priority. Innovation extends as a cross-cutting policy mandate, underpinning everything from public welfare and soft power to trade and defence. The Plan talks about boosting “cultural confidence”, whereby Chinese citizens (and the world) feel pride in, and aspiration toward, Chinese-made goods and cultural products, not just Western ones. It refers to building a “cute, respectable image of China” through overseas Chinese film festivals, museum upgrades, high-quality art and literature, video games, animation, exhibitions, cultural tourism, and new public cultural spaces. It also includes the phrase “enable the people to enjoy a higher quality cultural life.” 

The Plan’s emphasis on stimulating domestic demand offers longer-term opportunities in sectors tied to lifestyle upgrades- dine-in consumption, fitness, outdoor sports, live entertainment, cultural activities, gaming, and digital content, and high-end dining, boutique travel, wellness services, and premium lifestyle experiences. This is a definitive signal that China has now openly embraced the lifestyle of capitalism. 

Carolyn Marie Yim has a good post that draws attention to the idea of Cool China as one where the country is increasingly producing things people want to buy, emulate, and follow, much as Japan made a similar transition from "cheap copy" to global design leader in the 1970s–80s. She writes,

This does not mean every Chinese consumer product will win, or that the world will wake up one morning and consciously decide to prefer Chinese made goods. Historical transitions are less theatrical than that. More likely, Chinese-made and designed goods will become globally normal the way post-war Japanese and German products normalized from cheap into high quality signifiers of quality and manufacturing. Moreover, consumers will not necessarily experience this as geopolitical preference. They will experience it as the increasingly common sensation that the nice plate, the good lamp, the respectable glasses, the favorite sweater, the pleasant cafe, the fun Chengdu trip, all seem to come from the same logistical and economic base.

This focus on cultural capital is, I suspect, coming from an interest in the promotion of soft power and is less about addressing the structural imbalances. The resultant policies, for sure, will have some impact on the consumption side and might even be interpreted as a focus on addressing the structural imbalances. I’m not sure. 

The 15th Plan comes at a time when the economy is slowing, and the limits to the input-based model are becoming evident. Credit-fuelled investment has been the primary driver of economic growth. 

Remarkably, all through the quarter century, even as the private sector has emerged as a major partner in economic growth, public spending has remained elevated at more than half of the output, and has hardly budged from 53.4% of the total GFCF to 52.5%.

Raising questions about the quality of public spending, since 2010, the Incremental Capital Output Ratio (ICOR), a measure of investment quality, has steadily risen and nearly doubled since 2010 to 7.6 in 2024. It appears that, economy-wide, the efficiency of China’s investment quality has declined alarmingly. 

This backdrop is important insofar as it offers valuable lessons. The central failing of China’s economic growth model has been its perpetuation of a structural imbalance between consumption and investment. In the first phase, it was about loading investments into physical infrastructure, including housing and the development of greenfield townships. The excess capacity built up on the infrastructure supply-side was sought to be exported globally through the Belt and Road Initiative (BRI). 

Since 2015, the 13th Plan period has seen an increase in industrial focus and investments. This got amplified following the 2021 bursting of the housing bubble, with the government going into overdrive on manufacturing capacity expansion, with a focus on frontier technology areas. It also spawned massive increases in investments in R&D and innovation in areas like green technologies, electro-tech, semiconductor chips, and AI. Again, borrowing the playbook from BRI, the excess capacity was exported globally, resulting in the country’s trade surplus hitting $1.2 trillion in 2025. 

In both these phases, the domestic structural imbalances were sought to be papered over by focusing on building capacity and exporting the production globally. It was like China decided to make infrastructure and industrial capacity at home for the world. Never mind whether the world wanted it that way or not. 

Now, as growth flags and as structural imbalances continue to persist, the 15th Plan has proposed that the “new quality productive forces” emerging from strategic emerging industries and future industries can be the driver of growth to realise an income level of a moderately developed country by 2035. An important political (and economic) signal is that the Plan aims to maintain growth between 4.5-5% for 2026, a compulsion that is an important factor driving the growth strategies pursued. In simple terms, it is about shifting focus to the development of advanced industrial ecosystems in frontier technology areas. It has the added imperative and justification of the new Cold War with the US and the West. 

If we go by the track record, the assumption among Beijing’s policy makers is that it would lead to another Plan period of more or less similar inputs-based industrial growth (albeit in frontier technology areas), fuelled both by domestic demand and global markets. 

I’m not sure whether these assumptions will hold. This time may well be different. As I blogged here, there are now emerging hard limits to the inputs-driven growth model. Further, as geopolitical tensions rise and the Cold War deepens, China’s access to advanced technologies and equipment will become scarce, forcing Beijing to pour more resources into developing the same internally. Given the technologies involved, the nature of the resource allocation challenge, especially to do so efficiently and effectively, is much bigger and more complex than throwing resources into developing infrastructure and industrial capabilities. I’m not sure that pouring resources into large public and private companies, even with the most militantly patriotic and idealistic motives, can help create the conditions to deepen links between innovation and the manufacturing industry and foster the deployment of frontier technologies. 

This would be like one country trying to mobilise all the resources to compete with the world at large in developing its own proprietary frontier technologies. The Soviet example, which did not end too well, notwithstanding very important differences, is not to be ignored. 

The external market access, even in developing countries, is facing strong pushback or is rapidly closing. No large middle-income developing country, those with the markets to meaningfully absorb the Chinese excess capacities, will countenance a flood of cheap imports that will not only make them acutely dependent on another country in strategically important sectors, but also weaken and destroy their own domestic industrial capabilities. The rising backlash from the world economy’s China problem is another salient limiting factor to the pursuit of export-based economic growth strategies.

Weekend reading links

1. Jemima Kelly calls out the delusion among the successful Silicon Valley venture capitalists about the limits to their knowledge.

“If you go back, like, 400 years ago it never would have occurred to anybody to be introspective,” said a great sage of Silicon Valley last week, during the modern-day equivalent of a Socratic dialogue (a podcast). “Great men of history didn’t sit around doing this stuff.” The sage was none other than Marc Andreessen — venture capitalist, crypto enthusiast, devoted Democrat turned Donald Trump adviser, and author of the 2023 late-capitalist cry for help, the “Techno-Optimist Manifesto” (“love doesn’t scale . . . let’s stick with money”). The man who bet big on Web3 (remember that?) and NFTs (remember them?), and who once described criticisms of the metaverse as “reality privilege”. (Meta, on whose board Andreessen sits, announced this week it was all but pulling the plug on the metaverse.) The a16z founder was proudly explaining to Founders podcast host David Senra that he had “zero” levels of introspection. “Move forward. Go,” was his own anti-introspective mantra. “I’ve found that people who dwell on the past get stuck in the past. It’s a problem at work and it’s a problem at home.” He went on to claim that the very concept of the individual was only invented a few hundred years ago and that it wasn’t until the start of the 20th century that we started to believe in guilt and self-criticism.

She says something which more people should be talking about.

Andreessen seems to conflate the idea of overthinking, and even of guilt, with introspection, a word deriving from Latin that simply means “looking within”... He also fails to realise that the current era is the only one in which we would even have the option of not being introspective; the only one in which the a16z-backed merchants of the attention economy have made non-optional boredom extinct. In a recent X post, Andreessen described his “information consumption” thus: “1/4 X, 1/4 podcast interviews of the smartest practitioners, 1/4 talking to the leading AI models, and 1/4 reading old books. The opportunity cost of anything else is far too high, and rising daily.” (One wonders whether he reads the old books, or asks those leading AI models for their summaries.) My main issue with Andreessen is not so much that he’s wrong; it’s that he’s so confident about it. He sounded similarly confident when he told us that bitcoin represented a breakthrough akin to the internet, that Web3 was the future and that we shouldn’t fear AI because “the moral of every story is the good guys win”. We seem to believe, as a society, that wealth, influence and confidence can be equated with wisdom.

2. The market does not think that the war is about to end anytime soon.

In the last two weeks, there has been a big build-up of call options — which give a holder the right, but not the obligation, to buy an underlying futures contract — compared with put options, which give the holder the right to sell a futures contract. In the first week of the conflict, the opposite was true. That suggests the market believes we are in for further upside in oil prices rather than downside. The average strike for call options expiring in June expiration was $126 a barrel of oil whereas for put options it is $81. Worth noting, there is a small build in call options with a June strike price of $450 a barrel.

3. Off-grid energy is on the rise in the US to power data centres.

By the end of 2025, an estimated 39 percent of the gas power capacity being developed in the United States was designed to serve data centers on-site, according to the Global Energy Monitor, a nonprofit organization that tracks energy projects. That is up from 5 percent at the end of 2024...

Wait times vary by region, but it now takes an average of four years or more for data centers to connect to U.S. grids, according to JLL, a real estate services firm... Companies are gravitating to gas because it can theoretically generate electricity all day, unlike the wind or sun. And smaller gas generators and engines can be installed much faster than nuclear power plants... Industry analysts and executives also question whether power plants built alongside data centers will remain competitive if it becomes easier to connect to the grid.

3. Paul Graham has a brilliant essay on how the brand has become the product itself, illustrated with the example of Swiss watch makers. 

The most striking thing to me about the brand age is the sheer strangeness of it. The zombie watch brands that appear to be independent and even have their own retail stores, and yet are all owned by a few holding companies. The giant, awkwardly shaped watches that reverse 500 years of progress in making them smaller. The business model that requires a company to rebuy their own watches on the secondary market to catch rogue customers. The very concept of rogue customers. It's all so strange. And the reason it's strange is that there's no function for form to follow.

Up to the end of the golden age, mechanical watches were necessary. You needed them to know the time. And that constraint gave both the watches and the watchmaking industry a meaningful shape. There were certainly some strange-looking watches made during the golden age. They weren't all beautifully minimal. But when golden age watchmakers made a strange-looking watch, they knew they were doing it. In fact they give the impression of having done it as a deliberate exercise, to avoid getting into a rut.

That's not why brand age watches look strange. Brand age watches look strange because they have no practical function. Their function is to express brand, and while that is certainly a constraint, it's not the clean kind of constraint that generates good things. The constraints imposed by brand ultimately depend on some of the worst features of human psychology. So when you have a world defined only by brand, it's going to be a weird, bad world.

4. Interesting correlation between Truth Social posts of President Trump and oil market actions.

Traders made bets worth half a billion dollars in the oil market about 15 minutes before Donald Trump’s post touting “productive” talks with Iran sent the price of crude tumbling and ignited volatility in other assets. Roughly 6,200 Brent and West Texas Intermediate futures contracts changed hands between 6.49am and 6.50am New York time on Monday, just a quarter of an hour ahead of the US president’s post on Truth Social that there had in recent days been “productive conversations” with Tehran to end the war in Iran. The notional value of those trades was $580mn, according to FT calculations based on Bloomberg data... It was not known whether one entity or several entities were behind Monday’s trades. Trump’s announcement at 7.04am triggered a sharp sell-off across global energy markets and jumps in S&P 500 stock index futures and European equities as investors dialled back bets of a prolonged conflict.

The well-timed trades echoed the flurry of large highly profitable bets made on prediction market Polymarket on the timing of the US’s attacks in recent months on Iran and Venezuela... Several hedge funds noted that this was one of a number of examples in recent months of large trades being made ahead of official US government announcements. One trader at a major hedge fund said energy consultants had recently noticed several large block trades that they found to be unusually timed. Another portfolio manager said a series of large and well-timed trades had created a “level of frustration” among investors. “My gut from watching markets for the last 25 years is this is really abnormal,” he added. “It’s Monday morning, there’s no important data today, there aren’t any Fed speakers you’d want to front run. It’s an unusually large trade for a day with no event risk . . . Somebody just got a lot richer.”

See also this by Paul Krugman.

After the War broke out, the statements of Trump and his team have sharply lowered prices. Researchers somewhere are surely working on these to scrutinise market actions emerging alongside these decisions. 

5. Ed Luce brilliantly points to a striking home truths about the war in the Middle East.

One moment, Trump is threatening “an amount of strength and power that Iran has never seen or witnessed before”. Then, roughly 36 hours later, he declares that the US and Iran have been having “very good and productive conversations”. Few took the latter on trust. It is a strange situation where the world must await a statement from Iran to check whether there was any truth to what a US president said. Iran replied that no talks had taken place. Who were we to believe? 

... Trump will dial the invective up or down depending on Iran’s apparent negotiating position. The one offer Iran will never make is to give up its ability to disrupt the global energy markets. Yet that is the one thing Trump must have. Indirect talks are thus geared to swing from wild threat to outsized promise in line with Trump’s mood. Each time he is exposed as having made an empty threat that failed to push Iran into the desired concession, he will need to step up his threat level. This used to be known as the credibility gap. It does not take a seer to guess that at some point he will hint at using nuclear weapons.

6. A less discussed risk associated with the Gulf war is that on the semiconductor industry. Tej Parikh writes that the chip industry will face supply chain squeezes as the war drags on. 

7. Mohammed El Erian writes about how the Gulf war could impact global financial markets. 

The GCC countries have generated a current account surplus of more than $800bn in the past four years... Over the years, the GCC countries have expanded the scale and scope of their strategies to invest their patient capital, embracing the full spectrum of public and private markets, direct investments and more. Along the way, the countries have built deep financial relationships around the world and, most recently, the GCC has been at the vanguard of investments in AI, life sciences and robotics.

He points to reduced revenues and increased war reconstruction expenditures as likely to lower surplus flows into the global markets. This would come at a time when the global financial markets are feeling the pressure of sharply increased government deficit financing, refinancing of maturing debt, and a massive surge in AI investment-related borrowings. He says that the net impact on bond yields, even if in the short- to medium-term, can be significant. 

8. It can have adverse long-term impacts on the energy markets.

Critical Gulf energy infrastructure that was presumed to be safe is now seen as vulnerable, he said. A precedent has been set. “Buyers will price that risk for longer than the initial outage itself,” Jan-Eric Fahnrich, a senior analyst at Rystad Energy, wrote in an analysis. Countries in Asia and Europe, which depend on L.N.G., are likely to face more expensive gas prices long after the Strait of Hormuz reopens.

And this

“This is by far the largest disruption of crude oil and refined products that we’ve ever seen in history,” said Jason Miller, a professor in supply chain management at Michigan State University. “Petroleum goes into everything,” he said, so the inflationary impact could be enormous… Higher energy prices tend to slow economic growth, increase unemployment and speed inflation. It is also important to note that the price of diesel and jet fuel — which are processed differently — generally rise faster than the gasoline that drivers buy at the pump. And that has a disproportionate effect on moving goods around the globe, whether by plane, ship or truck. Those elevated energy prices could eventually increase the priceof practically every avocado, automobile, pair of sneakers, cellphone and drug that is bought and sold around the world.  

9. Nice article that points to how much of Trump's current actions are a replay of what he said and did nearly four decades back. 

He sketched out the first outlines in 1987, spending $94,801 to place a full-page ad in three US newspapers. The world was “laughing” at America’s leaders over the Gulf crisis triggered by the Iran-Iraq war, Trump declared. As the US escorted tankers through the Strait of Hormuz, he said Washington was trying to “protect ships we don’t own, carrying oil we don’t need, destined for allies who won’t help”. It is a line that his tirades echo today. But back then, as he tested the waters for a possible presidential run, Trump had concluded the problem was a lack of “backbone”. Appearing a few weeks later at a New Hampshire rotary club event in 1987, Trump sneered at how the Iranian navy — “little runabouts with machine guns” — had held America to ransom. “Why couldn’t we go in there and take some of their oilfields near the coast?” he asked. The then 41-year-old businessman put it even more starkly in a 1988 interview with the Guardian: “One bullet shot at one of our men or ships, and I’d do a number on Kharg Island. I’d go in and take it.”

This is similar to his belief that tariffs should be used to correct trade deficits, which he advocated in the case of Japan in the 1980s. 

10. Saudi Arabia may be a bigger proponent of regime change than Israel. A NYT report suggests.

Prince Mohammed, the people familiar with the discussions said, has argued that Iran poses a long-term threat to the Gulf that can only be eliminated by getting rid of the government. Prime Minister Benjamin Netanyahu of Israel also views Iran as a long-term threat, but analysts say Israeli officials would probably view a failed Iranian state that is too caught up in internal turmoil to menace Israel as a win, while Saudi Arabia views a failed state in Iran as a grave and direct security threat... 

Prince Mohammed has argued that the United States should consider putting troops in Iran to seize energy infrastructure and force the government out of power, according to the people briefed by U.S. officials... while Prince Mohammed probably preferred to avoid a war, he is concerned that if Mr. Trump pulls back now, Saudi Arabia and the rest of the Middle East will be left to confront an emboldened and furious Iran on their own. In this view, they say, a half-finished offensive would expose Saudi Arabia to frequent Iranian attacks. Such a scenario could also leave Iran with the power to periodically close the Strait of Hormuz.

11. German railways fact of the week.

Last year, Deutsche Bahn’s punctuality fell to the lowest level recorded in the 190 years since the first railway line was opened between Nuremberg and Fürth in Franconia. A mere 60 per cent of all long-distance trains arrived with less than six minutes delay, compared with 90 per cent two decades earlier. But this data excludes all of the trains that were cancelled. Deutsche Bahn now underperforms even the worst British train operator.

12. Sanctioned oil, where it used to go and where it goes now.

13. Fascinating account of China's genius-class students.

An estimated 100,000 talented Chinese teenagers are selected every year to enter a network of science-focused talent streams run across the country’s top high schools. The genius classes, also called “experiment” or “competition” classes, coach gifted students to compete in international competitions in maths, physics, chemistry, biology and computer science... For decades, genius classes have been turning out the leading lights of China’s science and technology sectors... Genius-class graduates include the founder of TikTok’s parent company, ByteDance, and the core developers behind its powerful content recommendation algorithm. Both leaders of China’s two biggest ecommerce platforms, Taobao and PDD, came from the genius stream, as did the billionaire who started the food delivery “super-app” Meituan. The two brothers behind the chipmaker Cambricon, now one of the leading Chinese rivals to Nvidia, were in genius classes. So were the core engineers behind leading large language models at DeepSeek and Alibaba’s Qwen, not to mention Tencent’s celebrated new chief scientist, poached from OpenAI late last year...

China’s genius classes differ in important ways from talent streams in the west. First, the system dwarfs its international competitors in scale. Second, it is state-driven. China graduates around five million majors in science, technology, engineering and maths every year, according to the state media Xinhua, compared with about half a million in the US. Tens of thousands of these graduates are genius-class students, taken out of regular classes for an intense period of study between the ages of 16-18. While others swot for China’s feared college admissions exams, the gaokao, those on the genius path have the chance to bypass that fate altogether, bagging places at top universities before they are out of high school, depending on their results in starry international competitions. The best students continue to more advanced talent schemes at the top Chinese universities, such as the elite computer science programmes at Tsinghua and Shanghai Jiao Tong universities... Starting in the 2000s, university admissions were reformed, giving more flexibility to colleges to allocate places without relying solely on the results of the gaokao. National competitions were set up for students at the end of their sophomore year of high school. Those who won top prizes in the national exam could receive direct admission to one of the 985 Project universities, China’s 39-member Ivy League equivalent...

The chance to skip the gaokao was a strong incentive for students to participate in the genius stream. The traditional pathway for high-school students in China is three years of study in the gaokao’s mandatory subjects of Chinese, English and Maths, as well as three more chosen subjects from physics, chemistry, biology, history, geography and politics. Exams in all six subjects are taken at the end of the third year. Genius-class students, on the other hand, focus on their “competition subjects”. A student competing in the International Physics Olympiad, for example, needs to not only finish three years of high-school physics but also at least half of the college-level syllabus, in order to be competitive enough to take the national exam.

Should it be any surprise then that Chinese teams sweep most of the gold medals at Olympiads, with 22 out of the 23 contestants sent in 2025 winning gold medals.  

14. Energy consumption responds to prices.

After the Russian energy price shock, German households and industry used 17 and 26 per cent less gas respectively. A study of Britain’s response by economists at the Institute for Fiscal Studies found that a 45 per cent rise in residential energy prices triggered a 14 per cent drop in households’ consumption.

15. Some staggering statistics about the age of omniscalers and extreme business concentration. A new MGI report identifies nine "super-wizard" companies, omniscalers - Alphabet, Amazon, Apple, Microsoft, Meta, Tesla/SpaceX, Alibaba, Huawei, and Samsung - that are set to dominate many of the 18 fastest growing markets of the future. 

Collectively they generated $2.7tn of revenue in 2025, a sum larger than the GDP of Italy. They also invested more than $800bn in research and development and capital expenditure, a share of revenue three times greater than at companies in traditional industries... In 2024, the six US omniscalers generated $550bn of operating cash flow. That was 2.5 times the money raised on US equity markets that year and not far shy of the $600bn of total bank lending to the non-financial sector... Over the past 20 years, these nine companies have been active acquirers of smaller businesses, with Alphabet and Microsoft snapping up more than 200 companies apiece. Even when a US judge found Google to have been operating an “illegal monopoly”, he refrained from breaking up the company.

Weekend reading links

1. Private equity has outperformed public markets.

2. The Karnataka government has announced the implementation of an Alcohol-in-Beverage (AIB) based excise duty. As per this, the globally recognised practice for alcohol taxation, percentage of alcohot in a liquor brand will determine the duty levied. 

In Karnataka, alcoholic products currently fall under 16 slabs. A product was designated to a particular slab based on the Declared Price, the selling price determined by the distiller. The Additional Excise Duty levied by the government was dependent on the price per litre of the product, due to which the price of the premium liquor segment was on the higher side... Over the next four years, the government plans to abolish the slab system of excise duty collection completely. For FY 2026-27, the government will merge multiple slabs and reduce their number from 16 to eight... Currently, the duty levied for a bulk litre of say, McDowell’s – which is at the lower end, and Blue Label – which is at the higher end, is different and is based on the Declared Price. Both have 42% alcohol. Under the new system, both drinks will attract the same percentage of additional excise duty irrespective of the declared price

3. Japan lifestyle facts of the week.

The nation’s stock of 2.2mn drinks vending machines is down 23 per cent from its bubble-era peak in 1985, according to the Japan Vending System Manufacturers Association... Japan loved vending machines for their convenience despite higher prices. But three years of rising inflation has driven consumers to greater thriftiness. Well-known brands of tea and coffee can be 20 per cent cheaper in nearby convenience stores, which have also stepped up sales of freshly brewed coffee, while drugstores and supermarkets sell discount private-label brands. In 2024 just 42mn cases of drinks were sold via vending machines, down from 72mn at the 1997 peak, according to data from Inryo Souken, a Tokyo-based research institute. Vending machines also still need people to keep them stocked — and Japan has a chronic shortage of truck drivers.

4. Global crude landscape (HT: Adam Tooze)

As the war rages on, and the blockade of the Strait of Hormuz bites, oil prices are becoming a binding constraint on the world economy. Oil demand is highly inelastic.

Oil demand is, on average, highly inelastic in the short run because most end uses have few immediate substitutes — factory boilers rely on fuel oil, aircraft require jet fuel, and most cars still run on gasoline. Our estimate of the short‑run price elasticity of global oil demand is −0.024, implying that a roughly 40% price increase above 12‑month highs is needed to reduce total consumption by 1%. The response, however, varies materially by product. Naphtha is most sensitive because petrochemical plants can partially substitute ethane in cracking operations. Jet fuel is also relatively responsive, as airlines can cancel lightly loaded flights when fuel costs spike. By contrast, fuel oil is least elastic given its role in essential services like home heating, marine transport, and power generation.

The worst impacted by the 20% reduction in oil supply and 15% in LNG supply is Asia

Most crude shipments through the Strait of Hormuz are bound for Asia, with China, India, Japan, and South Korea as the principal buyers. In total, Asia takes about 11.2 mbd of crude and 1.4 mbd of refined products that transit the Strait. As a result, the immediate physical shortfall is concentrated in Asian markets, where reliance on Gulf barrels is greatest. Early signs of demand destruction are emerging in Asia as product prices surge and spot barrels become prohibitively expensive. Timing effects further reinforce this divergence. A typical voyage from the GCC to Asia takes approximately 10-15 days, while shipments to Europe require closer to 25-30 days via the Suez Canal, or even 35-45 days if rerouted around the Cape of Good Hope. As a result, the impact of disrupted Gulf flows will hit Asian markets earlier and more acutely, whereas Atlantic basin benchmarks such as Brent and WTI will remain cushioned for longer by inventory overhangs and slower supply adjustments.

India's dependence on Strait of Hormuz is especially acute.

Almost 50 per cent of the LPG and 30 per cent of the natural gas that India consumes comes from the Strait of Hormuz.

5. Gideon Rachman writes that Iran may have achieved a major strategic leverage going forward by demonstrating the chokehold that any restrictions on the Strait of Hormuz can have on the world economy. 

The strait’s closure creates both an immediate crisis and a long-term strategic quandary. The current problem is that the longer it is closed, the greater the threat of a global recession. The future dilemma is that Iran now knows that control of the Strait of Hormuz gives it a stranglehold over the world economy. Even if it relaxes its grip in the short term, it can tighten it again in future.

6. A measure of how much Israeli politics has become radicalised.

Israel should destroy all Iran’s oilfields and flatten the energy infrastructure on the island that functions as Tehran’s main oil export hub... the demands... came from Yair Lapid, the silver-haired former premier and television host who heads the centrist Yesh Atid party, and draws much of his support from liberal bastions such as Tel Aviv. Lapid’s message reflects how the fight in Israeli politics, for all Zionist parties in government and opposition, is not over whether to confront Iran but over who will prosecute the war better than Netanyahu. Israel’s offensive has higher public support than almost any other issue in the country’s fractious politics — even after two and a half years of multifront fighting that has disrupted daily life for millions of Israelis. Although Israel’s Arab parties staunchly oppose the war with Iran, polls suggest more than 90 per cent of Jewish Israelis back it, and the country’s Zionist opposition groups have fallen in behind it in unison.

7. Canadian pension funds' PE bets are souring, losing money on their PE investments.

Ontario Teachers’ Pension Plan, which manages C$279bn ($206bn) of assets, and the C$145bn Ontario Municipal Employees Retirement System reported returns of minus 5.3 per cent and minus 2.5 per cent respectively for their private equity portfolios in 2025. For OTPP, it was the worst performance for this asset class since 2008 and for Omers since 2020. La Caisse, Quebec’s C$517bn state pension fund, also reported weak private equity results. The group said its PE portfolio returned 2.3 per cent last year, well below the 12.6 per cent gain in its benchmark index, half of which is made up of listed stocks. The Healthcare of Ontario Pension Plan, which published results this week alongside OTPP, reported private equity returns of 3.6 per cent in 2025. Its broader private markets portfolio returned 2.1 per cent, compared with 11.7 per cent for its listed holdings.

8. Thames Water gets new offer from its senior creditors to take over the struggling utility, committing up to £6.55bn of debt and £3.35bn of equity. It is now with Ofwat for regulatory approval. 

Lenders including hedge fund Elliott Management and private capital group Apollo Global Management are locked in negotiations with the regulator as they attempt to take formal ownership of the UK’s largest water provider. The creditors have proposed a new management plan, which could lead to a stock market listing as soon as 2030... The creditor’s £6.55bn debt figure is made up of £3.25bn that will be made available to Thames Water on day one of their ownership, up from £2.25bn previously proposed, and up to an extra £3.3bn that will be made available to the utility over the funding period. The new debt would come in addition to £3bn of emergency financing approved last year to prevent Thames from being renationalised under the government’s special administration regime... The increased debt offering would come on top of an equity injection that has been revised upwards to £3.35bn from £3.15bn... Under the terms of the new proposal, Thames Water’s class A creditors would take a 30 per cent writedown on their existing debt, on top of “a write-off in full of the Class B Debt and any subordinated debt or equity held by existing shareholders”.

9. TJXX is the fourth-largest retail chain in the US and the fourth most profitable global fashion retailer.

10. Rana Faroohar writes about the concierge economy in the US, where the rich can get to the front of the que and buy convenience at a price. She points to the gold-plated subscription healthcare service that comes with minimal wait times for specialists, 24/7 access to physicians, longer sessions with doctors, and which is a $20 bn global business with roughly 40% in the US. 

The market for personal travel planners, high-end club memberships, private wealth managers and educational consultants has in recent years grown by high single to double digits. Fractional aviation subscription services (think NetJets) are growing by about 10 per cent a year. Those with Clear (the airport service that speeds you through security if you must fly commercial) have tripled since 2022. It’s all part of a burgeoning “concierge” economy that caters to affluent consumers who don’t wait — or want — for anything. The global “lifestyle concierge” services market — that’s the part of the business that gets you the right hotel, colourist, Pilates instructor or front-row tickets to the must-see football game — is expected to grow from $16bn to about $36bn by 2035. It’s about saving time, yes, and it’s also about making sure the rich get to speak to human beings who can fix problems and meet high expectations, rather than dealing with search algorithms, AI bots and monotone-voiced teleworkers, like everyone else. Concierge services are about convenience and access, but they are also about bringing ease and luxury to areas that have become digital commodities or suffer from high levels of consumer dissatisfaction, such as healthcare or financial services.

11. India's AIF market is surging.

From about 160 AIFs in 2015, with less than Rs 28,000 crore in commitments, they’ve grown to over 1,740 in number as of January, spread across three categories and with nearly Rs 15 lakh crore in committed capital, according to Sebi... Category-II funds, which include private-credit, real-estate, venture-debt, and private-equity funds, had become the default recommendation... The Indian alternative-investments industry has grown at a compound annual rate of 49% in ten years to September, according to data from PMS Bazaar. Category-II, III funds have grown at over 50% growth rate... category-II funds account for about two-thirds of the total Rs 15 lakh crore commitment... the US, where hedge funds (category-III funds in Sebi parlance) dominate the alternative-investment space... In India, though, a majority of AIF investors come from family-business backgrounds... A mutual fund would deliver 12–14% returns on a long-term basis, and here, AIFs were promising close to 25% internal rate of return for funds in which investor capital was locked-in for eight to 10 years... Reportedly, two-thirds of the money raised by Indian AIFs comes from domestic investors.

12. Global LNG market.

13. Italian judicial reforms face a referendum.

To insulate judges from political pressure, the constitution established the Supreme Council of Magistrates as an autonomous, self-governing body, comprised of two-thirds serving magistrates, elected by their peers, and one-third parliamentary appointees. The council handles the selection, postings, promotions and disciplinary proceedings of all Italy’s magistrates, now numbering around 10,000... In Italy, resolving contentious civil cases through all three levels of the justice system currently takes an average of 2,217 days — six years and one month. That is better than a decade ago, when it took about eight years but still far slower than the EU average of 795 days, or two years and two months... 

Under the proposed reforms, the magistrates’ council would split into three distinct bodies: one supervising prosecutors, one supervising all other magistrates, and a disciplinary court for all. It is a change that many legal experts — and politicians across the spectrum — have long advocated... the reform also envisions a more controversial change: magistrates would no longer be elected by their colleagues to serve on the self-governing bodies but would instead be chosen by lottery. Critics see this as a device to erode judicial autonomy vis-à-vis the political system.

14.  Softbank's spectacular free lunch in the US-Japan trade deal.

SoftBank was set to earn ¥1tn ($6.3bn) in fees... to build and operate a $33bn gas-fired power station in Ohio... It will earn the payments over 15 to 20 years if it can reach the target capacity of 9.2 gigawatts. The idea of a fee arose because SoftBank would otherwise earn nothing for its role as developer of the project. It has no equity in the power station, which will be financed entirely by Japan and owned 50/50 by the US and Japan via a special-purpose vehicle, set up as part of the trade deal... Under the trade deal, profits from the investments made are supposed to be split 50/50 between Japan and the US until Tokyo has recouped its money. After that, the US gets 90 per cent... SoftBank has already placed large-scale orders to begin construction of the power plant in Portsmouth, Ohio, including $10bn for close to 170 turbines from GE Vernova. As developer, SoftBank plans to sell the electricity to data centres it will also operate, say people familiar with the matter. The data centres will serve customers such as OpenAI, in which the Japanese group is a significant shareholder. Japan’s funding comes from both the Japan Bank for International Cooperation and commercial lenders. Nexi, Japan’s export credit agency, will guarantee 90 per cent or more of the commercial portion.

15. Among the several negative externalities of the Trump administration is the resurgence in interest in going nuclear. 

Britain’s Liberal Democrats... now want the nation to build a nuclear deterrent that is less reliant on the US... France, whose force de frappe is truly sovereign, said this month that it would increase its stockpile of warheads. In Poland, a rare point of agreement between the prime minister and the president is their openness to going nuclear. In South Korea, public support for a deterrent has gone up to 70 per cent in recent years. Saudi Arabia, which has said that it would get one if Iran did, might not wait for such a cue now that it and other Gulf states are under conventional attack from that quarter anyway. Even the original nuclear powers are chafing at old taboos. As of last month, there is for the first time in over half a century no binding agreement to limit nuclear arms between America and Russia, which have the world’s two largest arsenals.

Janan Ganesh writes about how Ukraine, Iran, and Trump's weaponisation of the US security umbrella, especially the last, has revived nuclear bomb acquisition.

One is the ordeal of Ukraine. In 1994, it gave up the Soviet nuclear weapons that were then on its soil in exchange for certain assurances about its security. Two decades later, Moscow began its long and ongoing war against Ukraine with the annexation of Crimea. The lesson, for some, is obvious. A country with dangerous neighbours should retain or acquire the ultimate deterrent. Another salutary tale is that of Iran. It seems that an unfinished nuclear bomb is the worst of all worlds: a provocation to other states but not a deterrent. A rational government would either abandon all ambitions of that kind or realise them in full. On balance, given Ukraine’s experience, observers around the world will regard the second course as the more prudent. On top of all this is the endless unpredictability of the US. Until now, countries with the expertise and resources to build the bomb, such as Japan and several European countries, have chosen to duck under America’s nuclear umbrella instead. As Donald Trump casts doubt over whether he would ever honour those mutual defence treaties, some of which were signed a human lifetime ago, this “nuclear latency” doesn’t seem so clever.

16. Shan Jin-Wei, Kun Li, and Kelly Liu suggest that S&P index inclusion may be up for sale by showing that if you purchase a S&P ratings then the company is more likely to get listed in S&P 500 index.

Firms that had recently obtained an S&P rating were significantly more likely to gain admission to the S&P 500. For non-member firms, the unconditional likelihood of being added to the index was 15.5 per cent; for firms that had recently purchased an S&P rating, it was 21.4 per cent. One possible explanation is that S&P tends to favour fast-growing firms, and that such companies are naturally more likely to issue debt and seek credit ratings. But if that were the whole story, we would expect to see the same pattern among firms that purchased ratings from Moody’s, and we did not. If rating purchases simply reflect firm quality or growth prospects, the effect should not be specific to S&P.

Firms’ behaviour further suggests that they see a link between rating purchases and index inclusion. When mergers among S&P 500 firms create openings for new additions, large non-member firms disproportionately increase their purchases of S&P ratings. Conversely, after a 2002 rule change that made foreign firms ineligible for inclusion, non-US firms listed on US exchanges sharply reduced their purchases of S&P ratings relative to Moody’s. The implication is clear: When the prize disappears, so does demand. Taken together, these patterns suggest that firms believe purchasing S&P ratings increases their chances of joining the index.

17.  Of the 937,876 candidates who took the civil services exams in 2025, just 0.1% got selected.

The situation is not much better if we take all the UPSC examinations, where of the 3.3 million candidates in 2022, the pass percentage was 0.18%.

18. The unit economics of AI tokens.

Tokens... are the most basic units of output from large language models: it takes about 1,300 tokens to generate 1,000 words of text... When OpenAI launched GPT-4 two years ago, for instance, it charged $33 for 1mn tokens. Today, it charges only 9 cents for 1mn tokens produced by its cheapest model.

Economic impacts of tax reductions

It has become a canon of economic orthodoxy that lowering corporate taxes will spur investment, and lowering income and indirect tax rates will spur consumption and economic activity, and both will boost tax revenues. 

India’s experience with several direct and indirect tax reforms over the last decade may be a test case to evaluate this orthodoxy. This post analyses the impact of these reforms on tax revenues and the economy, especially of corporate taxes. 

On 20 September 2019, the government slashed the base corporate tax rate from 34.94% to 25.17% (inclusive of surcharge and cess) for existing domestic companies, and to 17.16% for new manufacturing companies — representing a fiscal cost of roughly ₹1.45 lakh crore or 0.7% of GDP.

AK Bhattacharya has this description of the corporate tax rate reductions.

In 2016-17, new manufacturing companies incorporated on or after March 2016 were given the option to be taxed at 25 per cent plus surcharge and cess (compared to 30 per cent plus surcharge, etc.) if they did not claim profit-linked or investment-linked deductions, investment allowances, or accelerated depreciation. Additionally, the tax rate for all companies with an annual turnover of less than Rs 5 crore was brought down to 29 per cent plus surcharge and cess. In 2017-18, the tax rate for small and medium companies with an annual turnover of up to Rs 50 crore was brought down to 25 per cent. This meant about 96 per cent of companies that filed a tax return were brought under a concessional tax rate of 25 per cent plus surcharge and cess... In the following year, 2018-19, the government extended the coverage of the 25 per cent tax rate to cover all companies with an annual turnover of up to Rs 250 crore — a move that would benefit 99 per cent of companies filing tax returns... In 2019-20, the government extended the concessional tax rate of 25 per cent to all companies with an annual turnover up to Rs 400 crore, thereby covering 99.3 per cent of all companies filing tax returns. Subsequently, in September 2019, all companies not availing themselves of the various exemptions and incentives like tax holidays were allowed to be taxed at 25 per cent, inclusive of the 10 per cent surcharge and a 4 per cent cess. Moreover, manufacturing companies starting operations after October 1, 2019, were to be taxed at an overall rate of 17 per cent.

And this on its outcomes in terms of revenue impact.

Corporation tax collections used to be about 34 per cent of the Centre’s gross tax revenues in 2014-15. This share plummeted to 28 per cent in 2019-20 and further down to 23 per cent in 2020-21... the share of corporation tax in GDP has kept falling almost every year in this period — from 3.4 per cent of GDP in 2014-15 to 2.74 per cent in 2019-20 and 2.28 per cent in 2020-21... In 2014-15, about 188,000 companies in a sample size of close to 580,000 paid taxes at an effective rate of over 30 per cent and this cohort accounted for 60 per cent of the total corporation tax collected by the Centre that year. In 2018-19, thanks to the various tax concessions, only about 85,000 companies of a larger sample size of 885,000 paid taxes at the rate of over 30 per cent. And this cohort accounted for only 50 per cent of the corporation tax revenue of the Centre... In contrast, there were just about 24,000 companies in 2014-15 paying taxes at an effective rate of 25-30 per cent, accounting for only 16 per cent of the corporation tax collected by the government. Another 15,000 companies paid taxes at the rate of 20-25 per cent, but their contribution to the corporation tax revenue was only 10 per cent. By 2018-19, the number of such companies saw a huge increase, without, however, a corresponding increase in their share in total taxes collected. Companies paying taxes at 25-30 per cent numbered around 184,000 in 2018-19, but their share in corporation tax was 19 per cent. The number of companies paying tax at 20-25 per cent increased to over 46,000 and their share in total corporation tax rose to 23 per cent.

In short, the story of India’s corporation tax revenues is about how more and more companies have been taxed at a lower rate. As a result, the contribution of a large number of companies to the corporation tax kitty is getting smaller. No wonder, corporation tax buoyancy has suffered in the last seven years.

What has been the impact of corporate tax reductions on the wider economy? 

In absolute value trends, there’s no perceptible spike in private sector gross fixed capital formation (GFCF) from reductions in the corporate tax rates. Nor is there any Laffer curve-type rise in corporate tax revenues.

The twin objectives of corporate tax reductions are to spur private investment and, through it, drive up corporate tax collections. However, private sector GFCF as a share of GDP has fallen sharply since the two corporate tax cuts, and corporate tax revenues as a share of GDP have also been declining. It was at 2.98% of GDP in FY25 compared to 4% in FY12!

In fact, even as profits after tax rose as a share of GDP, the share of private capex in private sector GFCF declined and has been on a secular decline since 2010-11, apart from a slight recovery from the Covid-19 dip. This should be a matter of concern. 

After these reductions, manufacturers in India face one of the lowest corporate tax rates globally today, above only a tiny number of countries. The rates are lower than all major developing country peers. 

How do personal income tax (PIT) collections look? Encouragingly, it has been rising impressively since the regime shift in FY21. In fact, PIT collections have gone from ₹1.69 LC in FY11 to ₹11.83 LC in FY25 — growing faster than corporate tax every year since FY20, which is a structural reversal.

This performance on PIT is confirmed by its sharp increase as a share of GDP since the regime shift. Clearly, the PIT reforms (coupled perhaps with better detections and enforcement) have been a resounding success in terms of increasing PIT from 2.51% of GDP to 3.58% of GDP, a spectacular 43% increase as a share of GDP over just four years. 

However, as a share of PFCE, the trend has been muted, remaining range-bound in the 60-62% of GDP, though there’s a slight uptick since FY24, which must be watched for sustainability.

On the indirect taxes front, the revenue collections response to rationalisation and reductions have not been encouraging. 

Bringing all of them together, if we take out the pandemic volatility, the decade of direct and indirect taxation reforms and rate reductions (eight episodes in total) does not appear to support the economic orthodoxy on tax reduction’s impact on investment, output, and revenues. 

The launch of GST in July 2017 initially caused a dip in indirect tax collections in FY18, as businesses adjusted. The subsequent compliance surge (event F, FY22 onward) then drove indirect taxes to record levels — monthly GST collections averaging over ₹1.5 lakh crore from FY23.

The GFCF line tells a sobering story. From a peak of 36.5% of GDP in FY11, it fell steadily to 26.9% in FY20 and has recovered only modestly to about 29.5% in FY25 — still well below the FY11 peak. Neither the corporate tax cut (D) nor the post-COVID rebound has restored investment to its earlier trajectory, a point highlighted here.

The most notable pattern is that corporate taxes have shown the highest volatility among all tax revenues. 

Post-COVID (FY22 onward), PIT has consistently grown 20–40% annually — far outpacing corporate tax — making personal income tax the engine of direct tax buoyancy. GST's 29% surge in FY22 and 22% in FY23 (H region) may be a reflection of the compliance dividend of digitisation and e-invoicing, more than any rate changes.

The positive revenue response of PIT compared to corporate tax is perhaps due to corporate tax cuts being a one-time rate reduction that reduced the base but boosted profitability without proportionally boosting investment, while PIT benefits from a widening formal employment base. It is also perhaps understandable that the problem with corporate tax is less about base expansion and more about avoidance and evasion, neither of which is directly addressed through rate reductions. 

The private corporate sector's savings have consistently gone up — from 9.5% of GDP in FY12 to over 11% — while its investment as a share of GDP has been falling, indicating that companies have been using higher post-tax profits to build reserves rather than to invest in fresh capacity. It is not incorrect to argue that the 2019 corporate tax cut largely transferred fiscal resources to shareholders and balance-sheet strengthening rather than to productive fixed investment. This also says something about the economy’s aggregate demand growth expectations.

This experience on corporate tax reductions is in line with global experience. A meta-study of 441 estimates from 42 primary studies by Sebastian Gechert and Philipp Heimberger corrected for publication bias — which favours reporting growth-enhancing results — and found that the average effect of corporate tax cuts on GDP growth cannot be rejected from zero. The raw literature (before correction) shows 68% of studies finding a positive effect, but once publication selectivity is accounted for, this falls to about 38%, with nearly half finding a neutral result.

Interestingly, they show that “it is about 2.7 to 3 times more likely to publish a result showing a statistically significant positive impact of corporate tax cuts on growth compared to a significant negative result.” This positive bias is a big problem across economics and elsewhere, and does not get the attention it deserves. 

Their main findings are worth quoting:

First, corporate tax cuts tend to be even less growth friendly when considering a short time horizon. Second, considering both rate and base changes by looking at an effective average corporate tax rate may lead to slightly more positive growth rates in response to tax cuts. However, this is an outlier as compared to the rest of the literature using effective marginal tax rates, corporate tax shares in GDP or statutory tax rates, and the result is also not entirely robust to variations in the meta-regression estimator. Third, there does not seem to be a substantial difference between OECD and non-OECD countries regarding the growth effects of corporate tax changes. Fourth, explicitly controlling for other types of taxation (personal income taxes, capital income taxes, property taxes, sale taxes) does not affect our main findings. Fifth, more recent studies tend to find less growth enhancing effects of corporate tax cuts. Finally, it matters what happens to other budgetary components in conjunction with a corporate tax change: if we hold government spending fixed, a corporate tax hike will be slightly more detrimental to growth, implying that using the additional revenues for government spending instead of fiscal consolidation may foster growth, in line with theoretical arguments from endogenous growth models and empirical evidence on substantial productivity of public capital.

The key conditional findings are: corporate tax cuts reliably attract FDI (semi-elasticity ~-2.9, robust across studies), but their effect on domestic investment is weaker. When product markets have imperfections — which is increasingly the case given rising corporate market power — firms respond to tax cuts by increasing savings and reserves rather than investment. India’s equivalent experience — corporate PAT rising to record levels while private GFCF as a share of GDP fell — is a near-perfect illustration of this theoretical mechanism.

See also this earlier blog post on the questionable virtues of lowering corporate tax rates.

To conclude, let me add to Dan Neidle’s nice description of the tax populism of right and left-wing politicians. 

The tax populism of the right is that we can cut tax without anyone (or at least anyone the populists care about) being hit by cuts in services or benefits. There’s a magic money tree of government waste that can be harvested without consequence. The tax populism of the left is that we can fund services without anyone (or at least anyone these populists care about) being hit by increased tax. There’s another magic money tree, where trade-offs don’t exist.

The enduring tax populism among economists (and market experts) is that we can cut taxes and harvest a triple-win of an increase in investments, a rise in output, and higher revenue collections. There are no such free lunches. India is only the latest in the series of data points that invalidate this tax populism.