Weekend reading links

1. Indian students are the biggest consumers of foreign higher education,

According to Unesco, in 2017 there were 5.3 million internationally mobile students. China and India were the top two countries of their origin, and the US, Australia, and the UK the top destinations. In 2019, the number of Indians studying in the US crossed 202,014, or 18 per cent of all international students there. In Australia, 15 per cent of all international students were Indians. They were outnumbered only by the Chinese. In the UK (in 2018) Indians, at 19,750, were again the second-largest nationality among international students. In Canada, the largest number of international students on campuses was that of Indians, who accounted for 34 per cent of the total 642,000.

A survey by QS reveals that a majority of Indians prefer to study STEM (science, technology, engineering, and mathematics) subjects abroad, with 41 per cent of them choosing business & management, and 33 per cent engineering and technology. This choice is directly linked to employability abroad. It is easier to get jobs and work permits through these disciplines than with non-STEM subjects. In the US alone, 90 per cent of H-1B visa requests in 2011 were for jobs that required high-level STEM knowledge... Under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) education remittances (money going abroad for tuition fees only) were increasing in the past. In 2018-2019, education remittances were 25.9 per cent of the all outward remittances, (worth $13.8 billion). This increased to 26.9 per cent of the total (worth $17.4 billion) from April 2019 to February 2020.

2. Ashok Gulati argues in favour of focusing policy on reducing edible out imports,

On the agri-imports front, the biggest item is edible oils — worth about $10 billion (more than 15 mt). This is where there is a need to create “aatma nirbharta”, not by levying high import duties, but by creating a competitive advantage through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches. While mustard, sunflower, groundnuts, and cottonseed have a potential to increase oil output to some extent, the maximum potential lies in oil palm. This is the only plant that can give about four tonnes of oil on a per hectare basis. India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil. But it needs a long term vision and strategy. If the Modi government wants “aatma nirbharta” in agriculture, oil palm is a crop to work on.

The entire article is informative.

3. The World Bank's misguided Pandemic Bonds appears to have gotten its deserved burial. 

4. Another example of implementation failure, in the distribution of foodgrains to returning migrants,

Reports suggest that the government’s ambitious scheme of distributing free foodgrain to migrant workers during the lockdown period has not been effective. According to data released by the Ministry of Consumer Affairs, Food and Public Distribution, 11 states have distributed less than one per cent of the allocated quantities during the months of May and June. States and Union Territories have lifted 80 per cent of the free foodgrains (80 lakh metric tonnes) apportioned to them to distribute to an estimated 8 crore migrant workers over two months. However, according to the government's own data, only 13 per cent of this was distributed and benefitted only 2.25 per cent of the migrant workers.

5. The difficult of disengaging from China, this about the reliance of public sector units on Chinese contractors.

C Rajamohan has a very nice summary of the changing contours of Chinese foreign policy under Xi Jinping. He argues that the aggressive pursuit of its hegemony in Asia is likely to stoke nationalistic forces in its neighbours.

Shyam Saran on the consensus on bilateral relationship which has been irretrievably broken by the recent Chinese actions,

What were the key elements of this consensus. One, that India was not a threat to China and China was not a threat to India. Two, that there was enough room in Asia and the world for both India and China to grow. Three, India was an economic opportunity for China and China for India. And, four, that India-China relations had acquired a strategic and global dimension, thus enhancing the importance of strong and cooperative relations between them. Precisely for this reason, the two sides wished to seek a political resolution to their boundary issue so that they could work together on a series of global issues where they had convergent interest.

Good article by Jabin Jacob on the insecurities of the Chinese Communist Party which has in recent times opened up numerous fronts of battle for the Chinese regime.

Meanwhile the progress on disengagement remains elusive with the Chinese refusing to vacate the land encroached by them. Brahma Chellaney calls for active engagement at the border instead of the proposed disengagement since it would only involve India effectively vacating its own territory. 

6. A good snapshot of public views about China and US among populations of major countries,

A good summary of the multi-front battles that China has opened up in recent times as Xi Jinping pursues "wolf warrior" diplomacy.

7. Ground Zero for water wars, atleast in Africa, is the Grand Renaissance Dam built by Ethiopia on Blue Nile to generate 6000 MW of power, double the country's current installed capacity. The dam would have a storage capacity which is more than the volume of the entire Blue Nile river. Now that the construction is completed, Ethiopia is threatening to go ahead and fill the dam even as the possible tri-partite water sharing agreement with Egypt and Sudan has become entangled in protracted disagreements.

See also this report. 

8. The balance sheet of the power distribution sector reform program UDAY looks disappointing.

And signatures of success are all weak,

For example, at the aggregate level, financial losses of state-owned discoms rose by about 81 per cent in FY19. Further, the gap between the average cost of power purchased and supplied went up instead of improving. The aggregate technical and commercial losses have also not narrowed to the extent desired. Operational inefficiencies continue to mar discom finances and state government loans to discoms have more than doubled over the last five years.

The impact of accumulating power sector losses on state government liabilities is a matter of big concern,

The financial position of discoms has implications for state government finances. A new research paper by the Reserve Bank of India underlines the rising trend of off-budget borrowings by state governments. The majority of guarantees given by state governments are for borrowings in the power sector. On an average, power utilities account for over 60 per cent of total outstanding guarantees given by the states. In some states such as Uttar Pradesh, Tamil Nadu and Rajasthan, it is worth over 80 per cent of the total guarantees. The paper notes that if these guarantees are invoked, it would pose a potential risk to debt sustainability. However, at some point, state governments will have to foot the bill and take the liability on their books because discoms — given their financial position— would not be able to service the debt.

Into this pile of woes comes news that rating agencies have downgraded Power Finance Corporation to junk status, thereby impacting the cost of capital of one of the largest financiers to the distressed discoms.

This is not surprising since the strategy was never likely to work. The sector needs choices which demand trade-offs. I had outlined a minimal and essential agenda here.

10. As India pursues import substitution in the post-Covid future, ventilators are a good example of what is possible in such areas. With a determined push and strategic purchase commitment by the government, the worry of a deficit of ventilators has in three months turned into one of supply gluts.

But at the same time, ventilator capacity went up from about 300 per month from eight manufacturers to over 30,000 from 16 manufacturers, according to Rajiv Nath, Forum Coordinator of the Association of Indian Medical Device Industry (AiMeD)... Delhi-based AgVa Healthcare tied up with Maruti Suzuki India in March to ramp up production. The company’s co-founder Prof Diwakar Vaish says they have delivered one-third of their order of 10,000 ventilators. “We were initially given a moving target by HLL since specifications were subsequently changed. But we have managed to push production from 50-100 ventilators a month to almost 5,000. This has brought down the cost of ventilators for use in India to one-fifth of what was being paid earlier for imported machines,” he says.

The gluts have been exacerbated by the limited use of ventilators among Covid patients - just 3 per thousand having to use ventilators.

The two features of this transformation of the production capacity was strategic partnerships by manufacturers with the likes of public sector units and advance market commitment by the government.

Given the excess availability, this is perhaps an opportunity for India to allow exports and earn some goodwill.

11. From John Mauldin, observations on the unexplainable rise and rise of equity markets,

The Dow Industrials just closed out their best quarter since 1987... The S&P 500 rose 40% from its March 23 low—its strongest 100-day rally since 1933... But the latest AAII sentiment survey says only 22.2% of investors are bullish for stocks over the next six months. That’s a nine-month low and the third straight week of sub-25% readings... Tesla just bypassed Toyota to become the world’s most valuable car company. This after years of quarterly losses. But shares are up more than 5,500% over the past decade. Goes to show that, like “Hamilton,” investors love a good success story.

12. Fascinating account of how thieves organise their activities in Sierra Leone,

Like many clubs, it is selective. Only the right sort of person may join. It has a spokesman, a financial secretary and an interim chairman. But in other ways the Black Street Boys is rather different from, say, a club in Pall Mall or Augusta, Georgia. Members sport matching tattoos of the harp symbol used on bottles of Guinness. And instead of spending their days playing bridge or golf, the Black Street Boys talk about breaking into cars, picking pockets or robbing people at knifepoint. Before admission, “we’ll interview you, ask where you come from, what your motivation is and why you decided to come here and learn the ways of the streets,” says its interim chairman... There are hundreds of informal associations like these across the country. The youngsters who sell pirated cds in downtown Freetown answer to a chairman and vice-chairman, as do the beggars who loiter outside a hilltop supermarket in the west of the city. Neighbours band together and form committees to look out for one another. The chairmen mediate squabbles, punish thieves and drum up cash when members are sick. Some are corrupted by power and end up squeezing extra, undue payments from members. Such groups exist because the state is a shambles. According to a report last year by Transparency International, a Berlin-based watchdog, more than half of Sierra Leoneans paid bribes for public services. When officials are predatory, people turn to their communities for protection.

13. The leaders of most successful grand projects in history get more credit than they deserve. Post-facto assessments confer excessive praise and attribution. Sample this about Franklin Delano Roosevelt's New Deal which led US out of the Depression, 

FDR according to his biographer Robert Dallek, had no grand plan for rescuing America, only an “uncanny inexplicable feel for what might work and what would stimulate public approval”. Richard Hofstadter, a historian, describes an “era of fumbling and muddling through”.

14. Amidst all talk of easing business environment and attracting investors, Haryana reserves employment to locals,

The Haryana State Employment of Local Candidates Ordinance, 2020, is to provide a whopping 75 per cent reservation for locals in new jobs within the state in private concerns, subject to certain riders. These include that the new jobs should have a salary of under Rs 50,000; and that the company itself should have more than 10 people.

Apart from the inefficiencies and balkanisation of the labour market, it imposes additional compliances and its associated problems for businesses.

15. Snapshot of the frenetic front-loaded state government borrowings

16. In a summary of the all the global economic and social trends leading up to the Covid 19, Martin Wolf points to three determinants of citizenship in today's world,

In today’s world, citizenship needs to have three aspects: loyalty to democratic political and legal institutions and the values of open debate and mutual tolerance that underpin them; concern for the ability of all fellow citizens to lead a fulfilled life; and the wish to create an economy that allows the citizens and their institutions to flourish.

None of the leadership of the major businesses and financial market institutions in the US would meet the second and third aspects.

17. A fascinating FT investigation of the 'Ndrangheta mafia in the Calabria region of Italy. 

’Ndrangheta, a Mafia that remains little-known outside Italy but which has grown into one of the most dangerous, internationally active and financially sophisticated criminal enterprises in the western world. Over the past two decades, the leading families of the ’Ndrangheta — pronounced “en-dran-ghet-ah” — have expanded operations far outside their small home region. Today they control a large part of cocaine importation into Europe, as well as arms smuggling, extortion and cross-border money laundering. Several hundred autonomous clans have been transformed into one of Italy’s most successful businesses, with some studies estimating their combined annual turnover to be as high as €44bn — believed by law-enforcement agencies to be more than all the Mexican drug ­cartels combined.

This financialisation of Mafia activities is stunning,

Regular health service companies working for Italian hospitals are owed money by hospitals. Instead of waiting to be paid, they sell on the invoices at a discount. This helps them get cash upfront, but they lose a bit on what they are owed due to the discount. The buyers of these invoices package them up into a big pool of invoices inside a special purpose vehicle, SPV, and then sell bonds to investors backed by the invoices. The investors get paid interest on the bonds as the invoices are gradually paid off by the Italian health authorities. Intermediaries work to ensure the bills are paid, and the money flows from the health authority to the investor.

18. Shekhar Gupta points to the sociology of UP mafia. In a political system where government pack the system with people belonging to its caste coalition, the castes left out end up relying on the mafia. When the state had brahmin Chief Ministers, the mafia leaders belonged to the backward castes. In the recent decades as political power shifted, the mafia leaders were the upper castes. 

If a Yadav father or son is in power, it means the Yadavs have the power. That is only about 9 per cent of the population. They make an alliance with Muslims, and often with Thakurs. So, they are all accommodated in the legitimate power tent. All governance, distribution of welfare, including sinking of tube wells and hand pumps, appointment of the most important officers. The castes that feel left out then lean on their mafia leaders. This results in a counter-intuitive situation where the more active mafias usually consist of castes that are not in power. In the past, until the 1980s, when upper castes were usually chief ministers, crime syndicates and dacoit gangs were backward castes... Of course, once power in the state shifted to the lower and middle castes, including the Yadavs, upper castes moved to organised crime too. Brahmin and Thakur gangs came up now, while western UP became a lawless zone in its own right. The mafia the state is now dealing with in Kanpur is exclusively Brahmin.

19. From Calculated Risk via John Mauldin this unemployment graphic provides a perspective on the economic damage of Covid 19 in the US.

The larger point in the article about a permanent shock to the labour market is very compelling and likely. The Economist had talked about the 90 percent economy, where only 90% of the economic activity resumes after Covid 19.