1. The pandemic has seen a sharp rise in profits of companies in India (and elsewhere) accompanied by wage cuts and layoffs. Mahesh Vyas asks the question whether the latter was prompted by opportunism to make a quick buck or to shed excess labour and become more productive.
2. FT finds Covid 19 induced business concentration in the US economy,
From Amazon to Starbucks, McDonald’s to Mondelez, many of America’s biggest businesses got bigger this year, even as the turmoils of Covid-19 plunged smaller rivals into crisis... Bank and central bank policies coupled with shifts in consumer behaviour have accentuated trends that were already putting more wealth and growth in the hands of a few large companies, according to academics, consultants and corporate advisers... an MGI analysis found almost all of the “superstar” companies at the top of its rankings had become stronger in 2020.
3. The raging pandemic did not prevent investment banks from scooping up a record $124.5 bn in fees as record low rates and booming markets fuelled debt and equity raising by businesses.
Globally businesses have raised $5 trillion in debt this year, the highest ever, and $300 bn in equity flotations, the highest outside of 2007.
This from The Times,
With more than 447 new share offerings and more than $165 billion raised this year, 2020 is the best year for the I.P.O. market in 21 years, according to data from Dealogic. (In 1999, 547 I.P.O.s raised roughly $167 billion in today’s dollars.)
4. FT reports of a new trend being mainstreamed in the private equity industry. PE funds are increasingly buying their own companies using something called continuation funds, which allow them to hang on to good companies and also find a buyer for an unsold portfolio company to exit the investment. The value of such deals appears to have risen five-fold from $7 bn four years back to $35 bn this year.
To execute them, a private equity firm creates a so-called continuation fund, finds investors to back it and then uses it to buy a portfolio company already owned by one of its other funds. At the heart of the process are groups known as secondary funds, specialist asset managers that raise money from pension and sovereign wealth funds. They are ploughing more of their cash into continuation deals, partly in the hope of generating quicker returns than they would from a traditional 10-year private equity fund. But as the trend gathers pace, its inherent tensions are drawing scrutiny.
This creates disturbing incentive distortions,
Industry executives say it can be a way of offloading struggling companies that rival buyout firms, trade buyers or public investors do not want. That can leave the interests of those investors backing the continuation vehicles rubbing up against that of the buyout firm selling a portfolio company back to itself. “It’s either for really high quality businesses people want to keep, or it’s flaky businesses you can’t get rid of any other way,” said a senior dealmaker at a large European buyout group. Some deals, for example, involve a bundle of companies that can include “a dog and a star”, according to a senior private equity dealmaker, because “if you’re just selling the dog, no one’s going to buy it.”
In simple terms, it creates the perfect conditions for "passing the parcel" on along a chain of funds, some kind of a Ponzi scheme.
5. Fascinating divergence in perceptions about democracy between western democracies and Asian democracies (excluding Japan).
Dissatisfaction with democracy reached its highest level in 25 years in western democracies.
6. The production-linked incentive (PLI) scheme of the Government of India faces the test of lobbying by industry groups to modify it to suit their vested interests. The idea of using PLI to incentivise certain targeted sectors is good. But it now runs the risk of degenerating into a scheme to target everything in the electronics industry, with associated rent-seeking.
7. In one of the most dramatic examples of market intervention in the housing market, the New York legislature passes a legislation prohibiting eviction of tenants for another sixty days. About 1.2 million households are estimated to be under risk of eviction. The legislation also makes it difficult for lenders to foreclose smaller landlords. Other states too have passed similar anti-eviction laws. the law does not extinguish the obligation of the tenants to pay rents after the moratorium ends.
8. On the benefits of hydrogen fuel cell cars,
You can make fuel using water and solar power, as he does. The byproduct of making hydrogen is oxygen, and the byproduct of burning it is water. Hydrogen is among the most plentiful elements on earth, so you don’t have to go to adversarial countries or engage in environmentally destructive extraction to get it. The car is as quiet to drive as any other electric, it requires little maintenance, and because it doesn’t carry 1,200 pounds of batteries, it has a performance edge... Electric is suitable for people with a garage who travel limited distances and can charge overnight. But for long-haul trucks, hydrogen doesn’t add weight or reduce cargo space the way batteries do. Furthermore, hydrogen tanks can be refueled in minutes.
9. In the backdrop of this survey by Indian Express which found that more than half of India's Board exam toppers in the 1996-2015 period (from a sample of 86) were now living and working abroad (with 11 just in Google alone in the US), Sanjaya Baru has an article on brain drain.
It is one thing for such children, from modest social and economic backgrounds and with excellent academic credentials, to seek educational opportunities overseas; it is quite another when wealthy families from big cities send their children to schools that in fact equip them for further studies and life overseas. The former may represent “aspirational India”, but the latter constitutes the “secession of the successful”.
The article also points to the steep increase of annual outward remittances under the RBI's liberalised remittances scheme (LRS) for "studies abroad" has increased from $1.54 bn to $4.99 bn in 2019-20.
Have we reached a stage where the benefits of brain drain (brain bank, soft power etc) now outweighs the costs? Is it time to impose a brain drain tax?
10. Naushad Forbes on India's industrial R&D spending,
In-house Research & Development (R&D) investment by Indian industry accounts for 0.3 per cent of GDP, compared with 1.5 per cent for the world. We must scale our investment in R&D by a factor of five. This requires much change. Of the top 2,500 R&D spenders worldwide, 32 are from India, while 507 are from China. China has a significant presence in all the top 10 industrial sectors. We have no firms in five of them, and are most glaringly absent from technology hardware and electronic equipment, where China has over 100 firms. And our largest firms, with the exception of the Tatas, are missing from the world’s list of R&D giants. Our big software firms, that lead the world in profitability, are nowhere when it comes to R&D. A single Chinese firm, Huawei, invests twice as much in R&D ($15 billion) as every firm together in Indian industry ($7 billion).
11. Finally, on the paradox of Japan's digital backwardness,
In a survey of 30 countries in the oecd, a club mostly of rich countries, Japan ranked last in terms of providing digital services: only 7.3% of citizens requested anything from the government online in 2018, a fraction of Iceland’s 80%, and behind even countries considered relative technological backwaters, such as Slovakia and Mexico... as of 2019 just 7.5% of the nearly 56,000 processes handled by the national government can be completed online.
The new government of Yoshihide Suga has prioritised digital governance as a priority, with an "advance digitisation in government" initiative.
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