1. Tamal Bandopadhyay describes the PMC Bank scam,
The bank had lent close to 75 per cent of its loan book — around Rs 6,500 crore — to just one entity: Real estate firm HDIL. PMC’s former managing director, along with six key officials, including a few board members and chairman Waryam Singh, sanctioned these loans which were not captured by the bank’s system. The gang of seven — now behind bars — had created 21,049 fictitious accounts to ensure that the balance sheet would reflect the loan disbursed to HDIL group companies without revealing their identities. The money borrowed from PMC Bank through 44 loan accounts was used to settle loans taken from other banks by HDIL.
2. C Rajamohan writes on the role of semiconductor manufacturing in the strategic importance of Taiwan. TSMC has more than 55% share of the global market for high-end custom made chips.
3. Business Standard reports that Government of India is studying various models for establishing a company to monetise vacant government lands. It reports of the model of Canada Lands Company, established in 1956 as a self-financing federal government corporation to ensure orderly disposition of selected surplus properties with best value.
When the body was set up, government departments were incentivised to dispose of their holdings with no immediate benefits, paving the way for private sector to make a better use of such assets. It also maintains ownership or management of certain properties, which benefit from government presence such as the tourist attraction destinations, the famous one managed by the company being Canada’s National Tower. The company also purchases strategic surplus properties at fair market value and then improves, manages or sells them for the benefit of local communities and its shareholder — the Canadian government. Since 1995, the company has developed nearly 2,000 affordable housing units and 12 school sites, among others.
4. The 15th Finance Commission has made 57% of its grants conditional of certain requirements, relative to just 17% for the Fourteenth Finance Commission.
5. Copper prices breach $9000 a tonne mark for the first time since 2011 on the back of speculative bets on higher prices in China. The market faces a significant supply deficit as production fails to keep pace with rising demand in China.
This is also part of a broad-based shift upwards in commodities prices. Nickel rose above $20000 a tonne for the first time since 2014 and iron ore traded above $175 a tonne and close to a 10-year high.
6. Paul Krugman on how excessive deregulation brought about the recent collapse of the Texas power grid.
It has, however, pushed deregulation further than anyone else. There is an upper limit on wholesale electricity prices, but it’s stratospherically high. And there is essentially no prudential regulation — no requirements that utilities maintain reserve capacity or invest in things like insulation to limit the effects of extreme weather. The theory was that no such regulation was necessary, because the magic of the market would take care of everything. After all, a surge in demand or a disruption of supply — both of which happened in the deep freeze — will lead to high prices, and hence to big profits for any power supplier that manages to keep operating. So there should be incentives to invest in robust systems, precisely to take advantage of events like those Texas just experienced.
7. NYT points to latest study by BLS on labour market trends in the aftermath of Covid 19 pandemic.
The 10 occupations with the biggest increase in projected employment relative to the baseline projection are all in medical, health-science and technology fields. The 10 occupations with the largest declines relative to the baseline projection include restaurant, hotel and transportation job... The decline in projected employment growth because of the pandemic is almost entirely concentrated in jobs requiring only a high school diploma or no diploma.
One more data point about how labour market trends are adversely impacting the poor and less qualified, thereby widening inequality.
... for every Australian $100 of online advertising spend, A$53 goes to Google, A$28 to Facebook. The remaining A$19 is what all other media companies get. The figures may vary but across the world this duopoly dominates digital advertising. It accounts for over 52 per cent of all digital advertising in the US. In India, Google and Facebook walked away with over 70 per cent of the Rs 22,100 crore advertisers spent online in 2019. A bulk of what readers search and read is legacy brands.
9. Q3 2020-21 Indian corporate results point to a healthy recovery and significant improvements in the financial health of corporates,
Year-on-year (Y-o-Y) comparisons with Q3 of 2019-20 (October-December 2019) show low expansion in net sales alongside higher profits. A study of 2,814 listed companies (with a minimum of Rs 1 crore in net sales) shows a 2.2 per cent rise in sales Y-o-Y at Rs 25.46 trillion, a 15.25 per cent rise in operating profit, and a 62 per cent rise in profit after tax (PAT). Removing volatile sectors such as banks, refineries, and non-banking financial companies, the remaining 2,495 companies have registered sales growth of 5.86 per cent, and a 7.8 per cent rise in income, with a 47.1 per cent rise in other income. Operating profit is up 26 per cent, PAT has increased 58.5 per cent. Interest costs are down 5.7 per cent for all non-financials, and lower by 29.7 per cent for refineries, thanks to Reliance Industries’ drive to become debt-free. Interest costs, ex-refineries and ex-financials, went down by 2.8 per cent. Employee costs have risen by 6.75 per cent, indicating a welcome workforce expansion.
And this from Axis Bank research,
Sales of a set of 736 companies which we track (excluding finance, petroleum and trading companies) have grown 8.5 per cent (year-on-year), driven largely by manufacturing and IT companies, as against largely flat growth in the second quarter and a 25 per cent contraction in the first quarter. Even more noticeable is the rise in the operating profits of these companies — 34 per cent overall (and 51 per cent for manufacturing) due to a rise in operating profits margins for companies across sectors (given that raw materials costs have not risen as fast). Add to this a further (although more muted) increase in salaries and employee costs, and the presumptive GVA of these sets of companies had increased 18 per cent (y-o-y) in the third quarter (versus 6 per cent in the second quarter, after a contraction of 14 per cent in the first quarter). This will be reflective of non-agricultural (industrial and services sector) growth for the first three quarters of 2020-21. These nominal growth rates then need to be adjusted for inflation by using “GDP deflators”, which are a weighted average of the wholesale price index and the consumer price index. For the third quarter, the deflator computes to 3.2 per cent using a broad 40:30 share mix of the respective WPI:CPI inflation prints. The real growth in the companies’ results in the third quarter will, therefore, have been 14.8 per cent.
While the larger corporates have recovered and increased their profitability, it's the smaller companies and informal sector that's the matter of concern,
To get an approximate sense of the asymmetry in performance across larger, medium and smaller companies, we segmented the set of about 2,200 non-finance companies whose results are available for the second quarter. We ranked the financial results of companies segmented by sales — the largest with sales greater than Rs 250 crore in Q2, the smallest being less than Rs 5 crore and multiple segments in between. The results are unsurprising. Both profits and employee expenses follow an ordinal drop in magnitude as indeed does sales growth. This drop is likely to be even more accentuated once data on smaller companies, particularly small and micro enterprises, becomes available over the next couple of years.
10. AK Bhattacharya does a useful analysis of petroleum taxes on central and state government revenues. Consider this snippet underlining the importance of excise taxes on oil,
The share of the combined indirect tax revenue from oil in the Centre’s gross tax revenue has gone from about 10 per cent in 2014-15 to over 14 per cent in 2019-20 (for which the latest numbers are available). Of course, this increase was largely driven by excise, whose share in the Centre’s gross tax revenue increased from about 8 per cent to 11 per cent in the same period... In 2014-15, the share of the Centre’s indirect oil taxes in gross domestic product or GDP was about 1 per cent and this went up to 1.4 per cent in 2019-20. But the overall share of the Centre’s gross tax in GDP actually went down in this period — from 9.96 to 9.90 per cent. Take out the indirect tax revenue from the oil sector, the Centre’s overall tax efforts look even more unimpressive — going down from 8.95 per cent of GDP to 8.49 per cent...
In contrast, the states have not exploited the oil sector the same way as the Centre has in the last six years. Indeed, the share of oil taxes in the states’ own tax revenues has declined quite significantly — from about 20.5 per cent in 2014-15 to 16.5 per cent. Even in terms of the share of combined state oil taxes in GDP, the states did not do well with the share coming down from 1.28 per cent to 1.09 per cent in this period.
Another article in Business Standard highlights the increased role of excise taxation. The last time the Brent crude was $65 a barrel, a litre of diesel in Mumbai cost Rs 70-72, which is Rs 15-20 more per litre. It quotes the RBI Governor,
“CPI inflation excluding food and fuel remained elevated at 5.5 per cent in December, due to inflationary impact of rising crude oil prices and high indirect tax rates on petrol and diesel, and pick-up in inflation of key goods and services, particularly in transport and health categories. Proactive supply side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel – in a co-ordinated manner by centre and states – are critical to contain further build-up of cost-pressures in the economy.”
11. A Business Standard report has this about Adani Group's purchase of Mumbai International Airports Limited (MIAL),
People tracking the sector said the acquisition of MIAL had come at a “great price” for Adani. Adani Group paid Rs 1,685 crore to the minority partners for a 26 per cent stake while it has valued GVK Airport Developer’s 50.5 per cent stake at zero value. Instead, it takes over the debt of GVK of around Rs 2,507.95 crore, which, on full conversion, will be 95 per cent of the paid-up capital of the company. “Groupe ADP acquired 49 per cent in GMR Airports for Rs 9,720 crore, compared to that Adanis got a marquee asset like MIAL at an unbelievable price,” the person said.
It's almost like getting a nearly Rs 10,000 Cr asset for free!
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