1. Ashok Gulati has a good article putting in perspective Punjab's agriculture. The state's typical farming household receives Rs 1.22 lakh per farmer as subsidy in 2019-20, the highest in the country. But in terms of agriculture GDP per hectare of gross cropped area, the state came out only 11th ranked. The concentration on wheat and paddy is clearly the reason and points to the need for crop diversification to sustain farm incomes.
2. Debashis Basu writes about the proposal on allowing corporate houses into banking. The real issue is one of regulation, specifically the capacity to regulate effectively also given the political economy issues. The mainstream criticism appears influenced by the worry that the likes of Ambani or Adani will be one of the licencees, and the likelihood of regulating them meaningfully.
3. Discom dues mount by 29% to Rs 1.38 trillion by end-October 2020. Granted Covid has been a major contributor, but this is in line with a long-term trend. This problem continues to elude solutions.
The fundamental problem is that discoms are unable to recover costs and the state governments unable to reimburse the subsidy incurred. So gencos and discoms assume debts, mostly from banks and from REC/PFC. The only meaningful way to address the problem is to take the long-route to change and squeeze credit supply.
4. On India's solar manufacturing,
Almost 75 per cent of India’s solar power capacity is built on Chinese solar cells, which is a component of a solar panel) and modules (the entire panel). India’s solar cell manufacturing capacity stands at 3 Gw and for modules it is 5 Gw, whereas the country’s solar power generation capacity stands at 32 Gw... It is no exaggeration that Chinese solar cells and modules have been instrumental in the growth of Indian solar power generation. Chinese solar equipment imports jumped nearly six times in 2013-14 when tenders for solar power projects were gathering momentum in India... Analyst reports show that China has reduced the benchmark price of solar photovoltaic panels by more than half to a global low of $0.15-0.20 per kwh in the past eight months.
India may have lost a manufacturing industrial policy opportunity with panels and modules. Industry argues in favour of higher tariff barriers - basic customs duty (BCD), safeguard duty, and anti-dumping duty for a few years, and treatment of manufacturers in SEZs on part with domestic companies (63% of cell and 43% of module makers are in SEZs, who also get levied duties imposed on imports). They also feel the Rs 4500 Cr PLI allocation for solar PV modules is inadequate.
5. From FT here a graphic on the status of foreign fast food retailers in India.
The numbers of KFC, McDonald's and Subway outlets in India should serve as a note of caution. After nearly two decades, their numbers are surprisingly small. One more signature that raises questions about the size of the middle class.
6. It's a testament to the times that people with extremely dubious track records manage to raise billions for their companies. Latest exhibit is electric truck manufacturer Nikola and Trevor Milton. Milton has a long history of "overstating technology and lying to customers", both central allegations against him in the context of Nikola.
It's stunning that the army of advisers who conducted due-diligence on the company could have missed the problems raised in the linked FT article. It also raises questions about the Special Purpose Acquisition Companies (SPAC) route that Nikola took to list instead of the more rigorous IPO route.
The company which once had a valuation of $30 bn, greater than Ford, has never manufactured a truck and is expected to do so only by late 2021, if at all.
7. A silver lining in the dismal economic scenario is the performance of India's corporates. Many of them appear to have used the opportunity presented by the problems of the last decade to deleverage, cut costs, and focus on their core competencies. This is great news going forward for corporate India.
This trend has accompanied pervasive economic weaknesses induced by various negative shocks, whose adverse impact appear to have been borne by the informal sector and the not so well-off.
It also raises the intriguing possibility of a new version of the India-Bharat divergence. This time, a formal India which races ahead, and an informal India which suffers and falls behind. It has implications on inequality, broad-based sustainable growth, and socio-economic stability.
8. Jean Dreze proposes an urban employment guarantee program. It's about issuing job stamps at minimum wage which can be distributed to urban poor and used by various government institutions for small works they need to undertake in routine course.
9. The staggering rise of Adani Green stock, growing 40 fold since June 2018 to reach a capitalisation of $23 bn! Besides it's one of the most illiquid stocks with not even one analyst rating.
10. India has emerged as a top destination for SWFs, surging ahead of China,
According to data by New York-based Global SWF, which tracks over 400 sovereign wealth funds, in the year 2020 to date, these funds deployed capital worth a record $14.8 billion in India, which is nearly three times more than what they have put in China ($4.5 billion). The gap between the capital deployed in the two countries widened this year, but the trend started in 2019, when sovereign wealth funds invested $10.1 billion in India, surpassing the $6.4 billion it did in China. This is a far cry from the period between 2015 to 2018, when China was way ahead in the game and sovereign funds invested a total of $46 billion in that country. In contrast, they invested only $24.6 billion in India over the same period... According to VCCEdge, in 2020 to date, top west Asian sovereign funds, including Abu Dhabi Investment Authority (ADIA), Public Investment Fund (PIF), Mubadala Investment Company, Kuwait Investment Authority and Investment Corporation of Dubai and Qatar Investment Authority, together put in $ 7.38 billion in 14 deals in India. These accounted for more than 20 per cent of all private equity investments in the country. In 2019 the same big boys had put in a mere $0.98 billion in 10 deals, accounting for less than 3 per cent of all PE money. However, the story is different when it comes to Singapore’s sovereign funds such as Temasek and GIC. They reduced their exposure to India, and invested $1.6 billion in 16 deals — a drop of 30 per cent compared to 2019, when they had invested $2.1 billion in the country.
11. A Business Standard editorial expresses concern at the large corporate bond issuance of over Rs 8 trillion this year on the back of low interest rates and high liquidity. It feels that policy is encouraging this releveraging which could become unstuck when rates rise.
12. In its efforts to combat the growing Chinese aggressiveness, the Australian federal government has been taking several steps in recent times. The NAR writes,
On Tuesday, parliament passed a law that empowers the foreign minister to scrap agreements between foreign countries and Australia's local governments or universities that are deemed detrimental to national foreign policy. About 130 agreements could potentially be affected by the law, 48 of which are with China, Australian media report. Under Australia's federal system, each state has the authority make its own rules on such issues as education, property management and the environment. Local governments also tend to handle cultural exchanges with foreign entities, like sister-city agreements... The legislation was drafted partly in response to a contentious memorandum of understanding signed by the state of Victoria in October 2018 in support of China's Belt and Road infrastructure-building initiative... Parliament followed up by passing legislation Wednesday requiring all foreign acquisition of land or businesses that could affect the country's national interest to be screened first by the Federal Investment Review Board. Previously, deals valued at 275 million Australian dollars ($205 million) or less were exempt from review. The change was likely intended to hinder Chinese investments in ports and other important infrastructure.
Between 2008 and 2019, the two Chinese banks lent $462bn, just short of the $467bn extended by the World Bank, according to the Boston University data. In some years, lending by the Chinese policy banks was almost equivalent to that by all six of the world’s multilateral financial institutions — which along with the World Bank include the Asian Development Bank, the Inter-American Development Bank, the European Investment Bank, the European Bank for Reconstruction and Development and the African Development Bank — put together... A report by Rhodium Group, a consultancy, says at least 18 processes of debt renegotiation with China have taken place in 2020 and 12 countries were still in talks with Beijing as of the end of September, covering $28bn in Chinese loans.
The fate of BRI was known well in advance, and the emerging evidence only validates the same. One more in the list of Bad Emperor failings that Xi Jinping is rapidly accumulating.
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