Weekend reading links

1. NYT writes that the pandemic may have accelerated the automation trend.

The trend toward automation predates the pandemic, but it has accelerated at what is proving to be a critical moment. The rapid reopening of the economy has led to a surge in demand for waiters, hotel maids, retail sales clerks and other workers in service industries that had cut their staffs. At the same time, government benefits have allowed many people to be selective in the jobs they take. Together, those forces have given low-wage workers a rare moment of leverage, leading to higher pay, more generous benefits and other perks. Automation threatens to tip the advantage back toward employers, potentially eroding those gains... Restaurants, hotels, retailers, manufacturers and other businesses have all accelerated technological investments. In a survey of nearly 300 global companies by the World Economic Forum last year, 43 percent of businesses said they expected to reduce their work forces through new uses of technology.

2.  Arguably the most important challenge facing the RBI would be management of its exit from the current monetary accommodation. There are several factors other than the rising domestic inflation. One is the recovery in the developed economies and the associated likely commodities up-cycle, which would add to inflationary pressures at home. Second is the US economic growth and the inevitable reversal by Fed, which, howsoever much it's communicated in advance, will most likely lead to capital flights. Three, this capital flight may affect India even more given that many emerging economies like Brazil, Mexico, Russia, Hungary, Czech Republic etc have already started raising their rates. 

3. FT has a long read which draws attention to the controversy surrounding the two co-founders of Teneo, the world's premier chief executive advisory firm on PR issues. Both had to quit following serious allegations levelled against them. The article shows how political and corporate interests get enmeshed in questionable relationships, the power of networking in elite circles, the unsavoury practices that happen within corporate networks, and finally how little PR firms bring to the table despite the high amounts they charge. 

4. Credit cards monopoly fact of the day, airline ticketing edition,

Airlines have to pay credit card companies between 1 and 3 per cent of the ticket price, with larger carriers closer to the lower end of that range, according to industry executives. By contrast, the system adopted by Emirates known as Iata Pay charges a fixed fee of just a few euro cents per transaction irrespective of the ticket price... Emirates chief financial officer Michael Doersam told the Financial Times... that fees to payment providers were one of the biggest components of its cost of sales. Iata estimates that prior to the pandemic, airlines globally stumped up $8bn a year for the procession of payments to credit card firms and other external payments service providers.

5. FT reports of a $17 bn takeover of Sydney Airport by a consortium of investment companies,

The consortium offered A$8.25 (US$6.20) a share for the operator of Australia’s busiest gateway, Kingsford Smith International Airport... Members of the consortium included Australian investment manager IFM Investors, pension fund QSuper and Global Infrastructure Management (Australia), an affiliate of New York-based asset manager Global Infrastructure Partners. IFM Investors manages more than A$155bn in assets and is owned by pension groups including Australian Super, Cbus, Hesta and Hostplus. IFM owns 25 per cent of Melbourne Airport, 20 per cent of Brisbane Airport and 13 per cent of Adelaide Airport as well as a stake in Perth Airport, which are all unlisted.

6. Despite all talk of its demise over the last decade, Ruchir Sharma points to the growing economic might of the US,

The US share of global gross domestic product rose from a 2011 low of 21 per cent to 25 per cent last year. Average incomes started the decade 26 per cent higher in the US than in Europe in real dollar terms and finished more than 60 per cent higher. The US income lead over Japan grew even more dramatically... As a financial superpower, the US... share of global stock markets increased in the 2010s from 42 per cent to 58 per cent. The dollar emerged more dominant than ever, helping the US extend its lead over other developed nations. By late 2019, 75 per cent of all overseas loans to individuals and corporations were denominated in dollars, up from 60 per cent before the crisis of 2008. Six of every 10 countries used the dollar as their “anchor” — the currency against which they measure and stabilise the value of their own currency — near a record high.

This has to be counterbalanced with the lows,

In 2010, the US owed the rest of the world $2.5tn, a sum equal to 17 per cent of US GDP. By early last year, those liabilities had risen to $10tn and more than 50 per cent of GDP — a threshold that has often triggered currency crises in the past. Currently they are $14tn and 67 per cent of GDP.

7. The Economist points to work from home in government,

Britain’s tax authority is offering all employees the right to work from home two days a week. In America the federal government predicts that many civil servants will want to maintain flexible schedules after the pandemic. Ireland, which wants 20% of its 300,000 public servants working remotely by the end of the year, is offering financial support to encourage them to relocate outside cities. It will create more than 400 remote-working hubs, allowing staff to work closer to home. Indonesia has set up a “work from Bali” scheme for civil servants to help revive the tropical island’s tourism industry.

8. The problem of pending receivables of small businesses who supply/service larger companies,

While the buyers are legally mandated to make payments to a supplier within 45 days of accepting goods or services, the on-ground reality is frightfully different for small firms. And the pandemic has only made a bad situation even worse. Depending on the size of the small enterprise, the payments cycle—from the time an MSME receives a purchase order to the time they get paid—could vary between 90 to 180 days. In other words, their working capital is blocked for half the year, inhibiting the ability of these companies to scale up—one reason why India’s small firms tend to remain small. Many companies borrow from informal sources at high interest rates in order to meet immediate working capital needs. Since they have to keep borrowing, it’s a cycle of perpetual debt. The Global Alliance for Mass Entrepreneurship (GAME), an organization that works on entrepreneurship development in India, has come up with an estimate to quantify the scale of the problem. Based on consolidated data for FY2019-20 (data for the recent fiscal year is still not fully available), registered MSMEs were awaiting dues that amounted to a mammoth ₹15 trillion...

At the heart of this is a skewed balance of power—a mismatch between the large buyers’ cash flow priorities and the MSME’s cash flow needs. “The large buyers are making a judgement call about their need to show better cash flows. One way to squeeze that number out is by delaying payments to MSME suppliers," Ashwin Chandrasekhar, a vice president at GAME, said. “MSMEs don’t have bargaining power. The small company risks losing the buyer who could be 30-40% of their revenues."

The payment cycle has increased, even doubled in some cases, during Covid.  

A solution to this is the factoring receivables platform, TReDS. On it, a supplier can access loans at 6-7% instead of the 8-9% for regular working capital loans. However, it appears that despite efforts by the Government of India, the volume of transactions on these platforms even by PSUs is limited.

The problem of accessing loans even on TReDS is also one of approval of invoices by the buyers, which often takes time and is also deliberately delayed by them. One way around is to have pre-invoicing approaches like having the invoice validated by "billable events" like a third-party system like the GST or the receipt of a goods received note (GRN). Loans can be extended against such pre-invoices.

9. More about Sheryl Sandberg and Facebook,

Ms. Sandberg surrounded herself with a “kitchen cabinet” of outside political advisers and a team of public relations officials who were often at odds with others in the company.

This is about her role in delaying, denying, and deflecting Facebook's role in the US Presidential election controversy.  

10. Some facts about the IBC. TT Rammohan writes,

According to Macquarie Securities, recovery under NCLT has averaged 24 per cent if we leave out the top nine accounts referred to the NCLT by the Reserve Bank of India (RBI). We should not be surprised. Only 8 per cent of cases have been resolved. Thirty per cent of cases have undergone liquidation. Banks need to see if recoveries in bank-led resolution in the recent years are better... Macquarie estimates that cases take more than 400 days, whether for liquidation or resolution, against the stipulated time limit of 270 days.

Vivek Kaul compares it with the three other options, 

The rate of recovery in the case of the Lok Adalat stands at a measly 5.1% between 2012-13 and 2019-20. When it comes to the DRTs and the SARFAESI Act, the rate of recovery stood at 6.1% and 21%, respectively.

And more details about the IBC's performance,

The IBC came into existence in May 2016. Between then and March 2021, a total of 4,376 companies have been admitted into the corporate insolvency resolution process (CIRP). Of the total, 2,653 CIRPs have been closed. However, only 348 companies have ended up with an approved resolution plan... Of the 348 companies which have ended up with resolution plans, the rate of recovery as of March 2021 stood at 39.3%. Of the ₹5.16 trillion owed to financial creditors, only ₹2.03 trillion has been recovered. Also, the 39.3% recovery rate is primarily due to two big recoveries—the sale of Bhushan Steel and Essar Steel to Bamnipal Steel and Arcelor Mittal India, respectively... If we subtract these two cases from the overall figure, the rate of recovery for the remaining 346 companies falls to 30.7%...

Of the 2,653 closed CIRPs, at least 1,277 firms, around 48.1%, have ended up with an order for liquidation. Liquidation means selling the company piece by piece, asset by asset. As per the January-March 2021 newsletter of the Insolvency and Bankruptcy Board of India (IBBI), of the 1,277 firms where liquidation was ordered, data for 1,272 firms was available. The total outstanding amount in these cases was ₹6.47 trillion. But the assets on the ground were valued at only ₹46,000 crore. Liquidation also takes time. As of December 2020, around 69% of the liquidations had been going on for a period of more than one year; 26% of them for a period of more than two years.