1. A new NBER paper highlights another example of capitalism with Chinese characteristics, in the faster growth of private firms with connections to state-owned firms,
We use administrative registration records with information on the owners of all Chinese firms to document the importance of “connected” investors, defined as state-owned firms or private owners with equity ties with state-owned firms, in the businesses of private owners. We document a hierarchy of private owners: the largest private owners have direct investments from state-owned firms, the next largest private owners have equity investments from private owners that themselves have equity ties with state owners, and the smallest private owners do not have any ties with state owners. The network of connected private owners has expanded over the last two decades. The share of registered capital of connected private owners increased by almost 20 percentage points between 2000 and 2019, driven by two trends. First, state owned firms have increased their investments in joint ventures with private owners. Second, private owners with equity ties to state owners also increasingly invest in joint ventures with other (smaller) private owners. The expansion in the “span” of connected owners from these investments with private owners may have increased aggregate output of the private sector by 4.2% a year between 2000 and 2019.
2. Former Secretary Agriculture T Nanda Kumar has an article here with very practical suggestions to amend the agriculture legislations and break the deadlock.
3. Following its decision to counter-sue a participant in the clinical trials who had sued Serum Institute, the company's high-profile founder has now demanded government indemnification against all lawsuits.
4. Reetika Khera, Sudha Narayanan, and Prankur Gupta separate the wheat from the chaff on the issue of MSP. Using FCI data on procurements, they find,
One, the proportion of farmers who benefit from (even flawed) government procurement policies is not insignificant. Two, the geography of procurement has changed in the past 15 years. It is less concentrated in traditional states such as Punjab, Haryana and western UP, as Decentralised Procurement Program (DCP) states such as Chhattisgarh, Madhya Pradesh, and Odisha have started participating more vigorously. Three, perhaps most importantly - it is predominantly the small and marginal farmers who have benefited from the MSP and procurement, even if the size of the benefits may be larger for larger farmers. This is true not just in the DCP states, but also in the traditional states.
5. Twenty20, the Charity registered by Kerala's largest private employer, Kitex, and which had been ruling Kizhakambalam Panchayat of Ernakulam district since 2015, has now expanded its political base by retaining the Panchayat and winning three more in the same district and becoming the largest party in another in the recent local body elections in the state.
6. Good explainer in Indian Express on the findings of the recently released NFHS-5 survey.
The article points to this
paper by John Hoddinott and two others which has an assessment of the benefits-cost ratio (in terms of potential increments in future incomes) for interventions that reduce stunting.
7. As the pandemic broke out, governments across the world stepped in with, among other things, loan guarantee schemes to support small businesses. In US, the Paycheck Protection Program distributed about $525 bn to 5.2 m companies in the April-August period. In UK, £43.5 bn has been distributed to 1.4 million businesses, and it is still ongoing and expected to reach about £87 bn.
The efforts to quickly push out these loans was always going to be difficult and ran the risk of serious frauds. Unsurprisingly, both the US and UK loan guarantee schemes have seen massive frauds. The US PPP program has even been described as "legalised fraud". See also this and this on the US fraud and this on the allegations of fraud with the UK program.
8. Excellent NYT photo feature on how Russia may end up benefiting from global warming as it makes its cold northern parts amenable to agriculture.
A great transformation is underway in the eastern half of Russia. For centuries the vast majority of the land has been impossible to farm... But as the climate has begun to warm, the land — and the prospect for cultivating it — has begun to improve... Across Eastern Russia, wild forests, swamps and grasslands are slowly being transformed into orderly grids of soybeans, corn and wheat. It’s a process that is likely to accelerate: Russia hopes to seize on the warming temperatures and longer growing seasons brought by climate change to refashion itself as one of the planet’s largest producers of food... for a few nations, climate change will present an unparalleled opportunity, as the planet’s coldest regions become more temperate. There is plenty of reason to think that those places will also receive an extraordinary influx of people displaced from the hottest parts of the world as the climate warms.
And what does it mean for global geo-politics in the years ahead,
No country may be better positioned to capitalize on climate change than Russia... Russia is rich in resources and land, with room to grow. Its crop production is expected to be boosted by warming temperatures over the coming decades even as farm yields in the United States, Europe and India are all forecast to decrease. And whether by accident or cunning strategy or, most likely, some combination of the two, the steps its leaders have steadily taken — planting flags in the Arctic and propping up domestic grain production among them — have increasingly positioned Russia to regain its superpower mantle in a warmer world.
9. The persistent low interest rates and pandemic induced buying opportunities meant that private equity industry had a record year, with buyout groups striking deals worth $559 bn in 2020 with more than 8000 deals, the highest since records began in 1980.
10. Fascinating article in NYT about Japan's centuries old businesses
. The article covers Ichiwa, a shop which makes grilled rice flour cake and which has been in existence for 1000 years.
Japan is an old-business superpower. The country is home to more than 33,000 with at least 100 years of history — over 40 percent of the world’s total, according to a study by the Tokyo-based Research Institute of Centennial Management. Over 3,100 have been running for at least two centuries. Around 140 have existed for more than 500 years. And at least 19 claim to have been continuously operating since the first millennium... The businesses, known as “shinise,” are a source of both pride and fascination. Regional governments promote their products. Business management books explain the secrets of their success. And entire travel guides are devoted to them. Most of these old businesses are, like Ichiwa, small, family-run enterprises that deal in traditional goods and services. But some are among Japan’s most famous companies, including Nintendo, which got its start making playing cards 131 years ago, and the soy sauce brand Kikkoman, which has been around since 1917.
Such old businesses cannot survive merely by maximising profits, but need to have a higher purpose. This is called 'kakun', or family precepts which have guided such companies business decisions for generations. These businesses offer useful pointers for those look at an alternative to free-market capitalism.
The world’s cities produce over 2bn tonnes of solid waste every year. Even before the covid-19 pandemic local governments in poor countries struggled to keep their streets clean, clearing less than half the rubbish in urban areas and around a quarter in the countryside. Informal workers, who make up around 80% of the 19m-24m workers in the waste industry, have helped plug that gap. They both haul rubbish and scour municipal dumps and public spaces for things which can be re-used or sold, normally through middlemen, to recycling companies. In India waste-pickers divert over 40m tonnes of refuse away from landfills and into recycling every year, a task that would cost municipalities 15-20% of their annual budget. In South Africa they are responsible for recovering 80-90% of packaging.
12. In recent weeks regulators in US have opened anti-trust investigations against Facebook and Google, and in China against Alibaba. The markets in the US appeared to have hardly taken any notice of the actions against the two tech giants. But in stark contrast, the markets in US reacted strongly by clipping over 13% from the share price of Alibaba.
Does this mean that anti-trust investigators in China have greater credibility than their US counterparts? Or is it a case of markets pricing in the resolve of Chinese regulators to go after this particular offender?
At one level, these actions may be another example of capitalism with Chinese characteristics.
Regulators must consider the broader economic and strategic picture while implementing the law... What prompted the regulator's shift may not be that monopolistic abuses have gotten particularly bad lately, but rather that tech giants are thought to have gone astray in the directions they have pursued. For example, Alibaba and Tencent are criticized for leveraging their dominant digital platforms to repeat their tried and true winner-take-all approach in the local community fresh produce group buying sector. Once again using subsidized user acquisition and rapid scaling via online traffic diversion, tech giants are seen as greedy profit harvesters squeezing small Chinese businesses and potentially causing instability. In the eyes of China's anti-monopoly regulators and the central government, it is equally important to both curb such bad behavior and to point the tech companies to the right place to target, or even to monopolize.
A researcher at a Chinese government-affiliated think tank explained the clampdown on Alibaba this way: "Ant was like a loan shark. If the authorities did nothing about Ma, who led Ant, the public could rise up against the government."
13. Finally, after years of acrimony and months of intense haggling, EU and UK have closed a Brexit deal. While Britain leaves the customs union and single market, it is still a £660 bn trade deal which avoids the potential disruptions from a complete divorce. The preferential access deal means that imports from either side would be free of tariffs and quotas, a provision that goes far beyond any trade deal EU has with another country. This is a good summary of the provisions of the deal and this about the progress of the nine month long talks.
14. Interview of the NHAI Chairman here about the latest with the agency's road construction program. The agency is planning to use a mix of securitisation of toll revenues, InvIT, and toll-operate-transfer models for asset monetisation.
Two things, which this blog has long since been advocating and which goes against the commentary in mainstream media, stand out.
One, the vast majority (over 90%) of the projects are being built with significant upfront public investment, either through HAM (where 40% viability gap funding is given during construction) and EPC. The share of BOT-toll and even BOT-annuity projects has declined to negligible proportions.
Two, the vast majority of financing is coming from domestic capital, with bank loans being the major contributor (on the developer side in HAM projects, their debt will be mostly bank loans). It's good that NHAI are able to issue a significant share of bonds. Foreign capital will remain negligible in greenfield projects. Even in case of asset monetisation, the share of foreign capital will be small.
15. A big challenge as fiscally strapped governments, including states in India, navigate the post-pandemic world will be with managing the fiscal balance. Historically governments have sought to respond to such situations by cutting down on capital expenditures. This RBI report on state government finances has a graphic which shows that states have consistently scaled back Capex.
Interesting also that India has the highest Capex decentralisation among a sample of countries.
16. A not so flattering report card by the RBI on UDAY, the power sector reform initiative.
17. The heavily over-subscribed IPO of Bectors Food has drawn attention to the surprisingly under-reported story of Mrs Rajni Bector. She started her banking business in the seventies with an investment of Rs 300 and has now gone to raise Rs 541 Cr in the IPO. Sandeep Goyal writes,
By 1990, the business was clocking a respectable Rs 5 crore in turnover under the Cremica (cream-ka because of Mrs Bector’s lavish use of cream) brand she created in the 1980s. Business grew quickly to Rs 20 crore by the mid-1990s. But the big leap forward came with McDonald’s signing up Mrs Bector to bake the buns for their burgers in 1995. Today, Mrs Bector’s business, largely run by her sons, counts ITC, Mondelez, Hindustan Unilever, Big Bazaar, Spencer’s, Taj Group, Air India, Indian Railways, Barista, Café Coffee Day, Pizza Hut, Domino’s and Papa John’s as large institutional customers, besides a vast direct-to-customer sales network that retails breads, buns, biscuits, dips, spreads and sauces, and ice-creams under her own brand names... 12 per cent of all of India’s biscuit exports today come from her.
As Goyal writes, it is surprising that she's not received any recognition for her achievements.
18. Finally, as this NAR report points to (HT: Ananth), the Covid 19 is a great window for some vaccine diplomacy by India to enhance its soft power.