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Sunday, February 21, 2021

Weekend reading links

1. Indian Express has this on the challenge facing FCI,

The Food Corporation of India’s (FCI) “economic cost” of wheat sold through the public distribution system (PDS) is budgeted to go up to Rs 29.94 per kg and that of rice to Rs 42.94 per kg in 2021-22, from their corresponding current levels of Rs 27.40 and Rs 39.99 per kg. These numbers are significant, given that under the National Food Security Act (NFSA) of 2013, 81.35 crore persons, accounting for over 67% of the country’s population, are entitled to receive 5 kg of PDS wheat or rice per month at Rs 2 and Rs 3 per kg, respectively... The economic cost is what the FCI incurs in procuring, transporting, storing and distributing every kg of wheat or rice. The estimated Rs 29.94/kg economic cost for wheat in 2021-22 includes a “pooled cost” of Rs 19.21 (roughly what the farmer gets); “procurement incidentals” of Rs 3.20 (gunny bags, market fee, arhtiya commission, labour and other mandi-level expenses); and “distribution cost” of Rs 7.53 (freight, handling, storage, interest and other administrative charges). In the case of the Rs 42.94/kg for rice, the pooled cost is Rs 27.90, with procurement incidentals at Rs 4.85 and distribution cost at Rs 10.19.

2. A good summary of the school reforms in Delhi. This is impressive,

A recent study by consultancy firm BCG has found that perhaps the biggest reform pulled off by AAP is the sea change in the mindset of the most important resource in the city's government schools: Teachers and the headmaster. Teachers have been made to feel human and are being treated with respect and dignity... Headmasters (over 1,000) have been sent overseas, including to Cambridge and Singapore, or to institutions like the IIMs for training... One, instead of keeping parents out, schools are now sending invitation cards for parent-teacher interactions. Many parents contacted for the study expressed surprise, awe and delight at being offered a cup of tea at their child’s school... The change in the school’s attitude towards parents has reflected in a change in the parents’ attitude towards schooling, education and its benefits. The parents have begun to take whatever the school says more seriously, rather than brushing their children off when they mention what the school requires of them.

These are all low investment but high human engagement activities. Don't know how much of this has translated into learning outcomes improvements. But hard to not feel that this is a more promising and essential pathway to improving learning outcomes than mere inputs.

3. Dani Rodrik makes four important points about the new social contract, one which goes beyond the older welfare state paradigm,

We can do much better on our active labour market policies, in terms of linking them up with employers to ensure that training programmes are . . . supplying the hard and soft skills that employers need. Second, [in] industrial and regional policies, we must target the creation of good jobs and maybe de-emphasise a little the traditional focus on capital investment, global competitiveness, innovation and so forth. Because even when those work they don’t necessarily create good jobs. Third, we need to rethink our innovation policies. We’re doing nothing right now to invest in technologies that augment rather than replace labour. Fourth, our international economic policies have to be those that enable countries to carry out these policies without them being overwhelmed by forces of international arbitrage.

As to what can be done in this regard, he say,

Move away from these open-ended subsidies or tax incentives and engage in attracting investment from good firms to distressed areas by essentially providing them with the customised services that they need most. That could be improving some brownfield area for their investment, providing infrastructure, investing in specific kinds of skills, providing technology, marketing assistance or help with business plans. On innovation, I’m really trying to countervail against this view that you always hear [that] technology is rapidly changing the kinds of skills needed on the job and workers need to adjust to increased education and continuous training. Here is this inexorable train that is moving and the rest of our society has to adjust. There are norms, private and public, that are embedded in innovation systems and the narratives in Silicon Valley, and that are very much about saving on labour. Finally, there’s relative power. When workers have more voice in the workplace they might either militate towards the adoption of technologies that are more complementary to their skills or, at least, ensure that when new technologies are adopted, the consequences for workers are less severe.

He refutes the evidence-based policy making crowd and channels FDR in calling for "bold and persistent experimentation",

Many of my colleagues respond by saying . . . show me what evidence-based policy you’re supporting — show me what has actually worked. I feel that is inadequate for the time. It is sort of like saying FDR should have been forced to take on policies only for which there had been evidence. That’s like a recipe for not trying anything new and FDR very explicitly said this is a time where we have to experiment.

4. Tom Peters has a scathing takedown of MBAs and the modern corporate culture in the context of McKinsey,

... business schools typically emphasise marketing, finance, and quantitative rules. The “people stuff” and “culture stuff” gets short shrift in virtually all cases. McKinsey is loaded with high-IQ MBAs addicted to spreadsheets and PowerPoint presentations. So are many other places that have fallen apart... Furthermore, McKinsey’s typical assignment is to improve market share and profitability. That combination, taken too far, is a poisonous combination in my opinion... Milton Friedman... introduced the idea that maximising shareholder value should be a company’s raison d'être. That led to an insane push for profitability at all costs. Investment of corporate profits in people and research has fallen through the floor ever since. One rigorous study found that the share of profits apportioned to people and R&D dropped from 50 per cent in the 1980s to 9 per cent in the 2000s. I loved my Stanford and McKinsey years. But I do not remember even a single moment directly related to the moral responsibilities of enterprise.

This comes as McKinsey just paid almost $600m to 49 states to settle, without admitting liability, allegations that it urged Purdue Pharma to “turbocharge” OxyContin sales via tactics that included the rebate formula. 

5. In order to change perception of public toilets as dark, dirty, and unsafe spaces, Tokyo is experimenting with see-through toilets made with a special glass which becomes opaque when the lock is turned. 

6. Adani Ports (APSEZ) acquires 100% stake in Dighi Port Ltd (DPL) for Rs 705 Cr, making it the 12th port to join the company across the eastern and western coasts. 

7. Interesting intervention by the government in the residential housing sector. In order to complete the large stock of nearly $63 billion stalled real estate projects, in November 2019, the Government of India established an alternative investment fund, 'Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects' (SWAMIH). It appointed SBICAP Ventures Ltd to be the fund manager, and contributed 50% of the Rs 250 billion ($3.5 bn) fund, with 10% each from LIC and SBI and remaining from private investors. 

The fund has so far approved investments in 159 projects involving Rs 145 billion investments to complete around 100,000 projects. The Fund has first charge on assets and cash-flows, over other earlier creditors, and invest via zero-coupon non-convertible debentures and at a standard 12% IRR across projects. 

In an interview, Irfan Kazi, CIO at SBICAP says, 

When you look at parameters like setup time, fundraise time, we are probably the fastest. The fund was set up in a month after the official announcement (2019), capital was raised in a month. No real estate fund, I believe, has done more than 100 deals probably in their lifetime. We are close to almost 150 deals now... In many cases we are dealing with the bottom rung of companies, which have lost manpower and some even no longer have a finance team, so due diligence can be hard. A no-objection certificate from existing lenders has come only in some cases and takes an exceedingly long amount of time. Then there are also pending court cases or home buyers demanding compensation.

8. Business Standard has a Reuters report on how Amazon lobbied the US government to influence the Indian government as well as how just 35 sellers make up more than two-third of the sales on the platform in India. It questions the companies claim that it provides a platform for over 400,000 producers and traders in India. 

Indian traders, both brick-and-mortar and smaller online sellers, have long alleged that Amazon's platform largely benefits a tiny number of big sellers and that the American giant engages in predatory pricing that has crushed legions of retailers. Amazon rejects this: It says it complies with Indian law, which stipulates that an e-commerce platform can only connect sellers to buyers for a fee, unlike in the United States, where Amazon can both act as middleman and sell goods directly to consumers. The company also says it runs a transparent online marketplace and treats all sellers equally. The internal Amazon documents contradict those claims, revealing how the e-commerce giant has helped a small number of sellers prosper, giving them discounted fees and helping one cut special deals with big tech manufacturers such as Apple Inc. The documents also show that the company has exercised significant control over the inventory of some of the biggest sellers on Amazon.in, even though it says publicly that all sellers operate independently on its platform...

Because foreign investment regulations in India bar e-commerce firms from holding inventories of goods and selling them directly to customers, companies like Amazon can only collect fees from vendors selling products on their marketplace. Globally, about 58% of Amazon sales of physical goods in 2018 came from third-party merchants; the rest come from direct sales to consumers, the company has disclosed. The ability to sell straight to people in the United States and elsewhere packs big benefits. It means Amazon can deal directly with manufacturers, for one, giving it greater control over its product range. It is this barrier - the regulatory wall around the consumer - that Amazon has been trying to overcome for much of the past decade in India.

This about Narayanamurthy owned Cloudtail raises several questions, 

But Amazon has been deeply involved in expanding Cloudtail - often referred to as "SM," or "Special Merchant," in the documents... Amazon had big plans for Cloudtail. The target was to ensure Cloudtail accounted for 40% of Amazon.in sales, "and build this into a $1+B business" in 2015, according to the report. To that end, the report reveals, Amazon helped Cloudtail "acquire key relationships" with major tech companies, including Apple, Microsoft and OnePlus. This included exclusive deals with these companies to sell their products, such as smartphones. The tech companies got a big new sales channel, while Cloudtail got coveted products that it listed on Amazon.in... The deals Amazon facilitated with smartphone makers, coupled with deep discounts Cloudtail was offering on the Amazon website.

9. NYT writes about the rise of dividend payouts by private equity owned companies by borrowings,

In the second half of 2020, private equity-owned companies borrowed some $27 billion to pay for dividends or debt restructurings, according to a report by S&P Global Market Intelligence’s Leveraged Commentary & Data. That was the most active period for these loans in nearly three years. And the borrowing hasn’t slowed down this year: $4.7 billion in the first six weeks. That was the second-highest amount for any comparable period since the firm began tracking that data in 2000... When private equity firms take dividends from their companies, the money doesn’t entirely go straight into its coffers. Rather, the payment goes to the investment fund that technically owns the company and in which the private equity firm’s clients — including charitable foundations and big pension systems — hold a stake. That makes dividend recaps a crucial tool for private equity firms to keep clients happy — and a way to deliver returns to clients even if a company isn’t turning a big profit. “Dividend recapitalizations are occasionally used to return funds to the pension fund investor so they can reinvest in another asset and ultimately strengthen retirements,” said Drew Maloney, president of the American Investment Council, the association for private equity industry.

10. Finally, the one reason being cited why equity market valuations may not be that far into the excessive bubble territory, the ultra-low interest rates. This graphic adjusts valuation for the interest rates.

But this assumes rates are going to remain low forever, which is most unlikely.

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