1. I blogged here about the politics and economics of Cobalt mining in DRC. This article examines the politics and economics of extracting Lithium, used in Lithium-ion batteries for electric vehicles, from the giant brine sea high up in the Bolivian Andes.
The Indigenous Quechua people revere the Salar de Uyuni, 4,000 square miles of salt flats that their forebears believed were the mixture of a goddess’s breast milk and the salty tears of her baby... With a quarter of the world’s known lithium, this nation of 12 million people potentially finds itself among the newly anointed winners in the global hunt for the raw materials needed to move the world away from oil, natural gas and coal in the fight against climate change.
2. India cinema fact of the week,
It is one more paradox among the millions of contradictions that constitute India that what is perhaps the most film-mad country in the world also has among the lowest ratios of screens to human beings. There are just eight screens per million people in India today, compared with 37 in China and 124 in America. Yet Indians bought 1.98bn movie tickets in 2017, while Chinese cinemas saw a more modest 1.62bn admissions and American ones a meagre 1.24bn... Today there are around 8,000 permanent screens—as many as 1,500 shut just during the pandemic—and only 52 travelling cinemas.
3. Striking point in an FT article, "The rate at which booster doses in high-income countries have been administered exceeds that of total doses in low-income countries".
4. A very good analysis of the success of Bangladesh by Mihir Sharma. This is an important point
In India, female labour force participation peaked at 32 per cent of the working-age population in 2005, and has since come down to 21 per cent. (Pre-Taliban Afghanistan had a higher ratio of women to men working than India.) In Bangladesh, the past three decades have seen female labour force participation steadily increase, to its current level of 36 per cent. This is perhaps the biggest difference between India and Bangladesh, just as it is the biggest difference within India between states such as Tamil Nadu, Kerala and Maharashtra, and others, such as Uttar Pradesh, according to the Periodic Labour Force Survey.
This is an equally important observation about the difficulties with replication of such economic successes,
It is entirely possible that Bangladesh’s tragic origin story is in itself partly responsible for these choices. For example, fiscal prudence may have been imposed on a country without resources, before it became a habit. A less hierarchical and more inclusive economy may be a consequence of the multiple calamities inflicted on the country’s elite in the 1940s, 1960s, and 1970s. Openness to trade and investment — indeed, the outward orientation of the entire country — may be related to the fact that, for the first decade after independence, it had few internal resources and had to depend upon external assistance from multilateral agencies and Japan, which even in the 1970s was the country’s largest bilateral donor. The Bangladeshi-British economist Mushtaq H Khan, studying the difference in aid patterns between Pakistan and Bangladesh, has argued that the assistance to Bangladesh in the 1970s did not allow the concentration of political or economic power, aiding the emergence of a new middle class that “was drawn into the garment industry”. Openness to mechanisms for grassroots aid delivery also helped in the creation of the NGOs that have played such an important role in inclusion and development subsequently.
5. Some facts about Minimum Support Price (MSP) and the cost of extending it to cover all crops,
As of today, the government declares MSP for 23 crops: Seven cereals (paddy, wheat, maize, bajra, sorghum, ragi and barley), five pulses (tur, moong, chana, urad and masur), seven oilseeds (soybean, groundnut, rapeseed-mustard, sesamum, safflower, sunflower and nigerseed) and four commercial crops (sugarcane, cotton, jute and copra). The main procurement, however, happens largely for rice and wheat to feed the public distribution system (PDS). The PDS issue prices of rice and wheat are subsidised by more than 90 per cent of their economic cost to the government. In 2020-21, the food subsidy bill was almost 30 per cent of the net tax revenue of the central government... assuming that only 10 per cent of the production of remaining crops (excluding sugarcane) is procured, it will cost the government about Rs 5.4 lakh crore annually to procure these other MSP crops. This cost is estimated on the basis of economic costs of operation that are usually about 30 per cent higher than the MSP (in case of rice and wheat it is 40 per cent).
This about price deficiency payments,
One argument that is floated is that instead of physical procurement, one may use price deficiency payments (PDP), implying that the government pays to farmers the gap between the market price and MSP, whenever market prices are below MSP. We know very well that Madhya Pradesh adopted this scheme (Bhavantar Bhugtan Yojana) in kharif 2017 for eight crops (maize, tur, urad, moong, soybean, groundnut, sesamum, and nigerseed) but had to give up the very next season as traders gamed it, widening the gap between market prices and MSP, and benefited massively from this scheme, while the government incurred heavy expenditure.
Ashok Gulati therefore suggests income transfers,
It may be better to use an income policy on a per hectare basis to directly transfer money into farmers’ accounts without distorting markets through higher MSPs or PDPs. This can be improvised by better identification of tenants and owners through transparency in land records.
6. Tamal Bandopadhyay points to yet more examples of corporate governance failures in India, this time between ARCs and borrowers. Last week it came to light of fraud in four ARCs.
The four are accused of “unfair and fraudulent trade practices in acquiring” the stressed loans. The bad loans acquired by them were “far less” than the real value of the securities covering such loans. What’s more, the minimum cash the ARCs paid to the lenders for such loans — typically 15 per cent of the value — came from the defaulting borrowers! The money had been routed through several layers of dummy companies controlled by the borrowers or through hawala channels.
7. On the rise of retail stock market trading in India, Vivek Kaul writes
Between December 2019 and December 2020, the number of demat accounts went up by 26%—from 39.4 million to 49.8 million. Further, between December 2020 and October 2021, the number of demat accounts went by around 48% to 73.8 million. Around 1.7 million new demat accounts were opened in February 2021. By October, this had jumped to 3.5 million accounts.
He makes an important point about likely market trajectory in 2022
It also needs to be pointed out that the stock market rallied in 2020 because of the huge amount of money brought in by the foreign investors (about $23 billion) searching for higher returns, given the low interest rates in the Western countries. In 2021, this has fallen to $4.5 billion, with the foreign investors net selling stocks in October, November and December. This, to some extent, explains why the Sensex has fallen by 7.7% from its 18 October peak. To conclude, the Federal Reserve of the United States, the American central bank, has now decided to stop printing money by March 2022 and raise interest rates after that. The Bank of England has already raised interest rates. If this continues, the chances of fresh foreign money coming into India in search of higher returns in 2022 will come down. In fact, even in 2021, the stock prices have been driven primarily by domestic Indian investors. The question is: Will the domestic investors continue to bet big on the stock market in 2022 as well?
8. Livemint has an assessment of the Udaan program to enable air connectivity of remote place by providing bridge financing to airlines,
As of 14 December, only 403 of the 948 awarded routes awarded under the UDAN (Ude Desh ka Aam Nagrik) scheme were operational—connecting 65 airports, eight heliports and two water aerodromes—with airlines shying away from using most of the routes, wary of inadequate infrastructure, low demand, lack of manpower and capital... delays in operationalization and discontinuation of various regional routes were due to non-readiness of civil airports and heliports on account of unavailability of land and infrastructure, the unsustainability of operations on certain routes, and the adverse impact of the pandemic on passenger demand on these routes... the central government has released about ₹2,062.50 crore of the ₹4,500 crore earmarked for reviving existing unserved and underserved airports across the country. The Airports Authority of India (AAI), the state-run airport operator, is the implementing agency for conducting bidding to award routes connecting underserved and unserved airports. AAI has so far held four rounds of bidding since the launch of the scheme in October 2016... Government subsidies on regional connectivity routes often don’t make up for the costs borne by the airlines to operate such flights as fares on such routes are often capped, thus hindering airlines’ ability to make the flights sustainable for the long run.
9. Ruchir Sharma points to an important political economy issue across the world - the emergence of a cohort of young new capital investors who have benefited from the ongoing bull run, who will be a strong and vocal interest group for measures to keep the bubble inflated.
More than 15m Americans downloaded trading apps during the pandemic, and surveys show many of them are young, first-time buyers. Retail investors have also been hyperactive in Europe, doubling their share of daily trading volume, and in emerging markets from India to the Philippines. All told, US investors alone poured more than $1tn into equities worldwide in 2021, three times the previous record and more than the prior 20 years combined. After retreating last decade, US households overtook corporations as the main contributors to net demand for equities in 2020. They now own 12 times more stock than hedge funds... US households bought at an astonishing pace throughout 2021, peaking in the third quarter when their stock holdings rose by more than 16 per cent over the previous year. That level of new retail flows matches the prior record, set in 1963... Another warning sign of impending trouble for the markets is heavy borrowing to buy stocks, or margin debt. Net margin debt in the US now amounts to 2 per cent of GDP, a high since records began three decades ago. A large chunk of it is on the tab of retail investors: their borrowing to buy stock rose by more than 50 per cent over the past year to record levels, much as it did before the crashes of 2001 and 2008...But many retail investors are placing their bets in a highly speculative way, for example by buying one-day call options or stocks with low nominal value that are easy to lever up. It is a surreal sign of confusing times to hear avowedly socialist political leaders defend extreme capitalist risk-taking by a class of investors that includes many lower and middle-income voters. The result is a market that is historically overvalued, over-owned and to a perhaps unprecedented extent, politically flammable. Americans now have an unusually high level of savings and the share of their portfolios that they hold in stocks now matches the all-time high, going back to 1950... having done so much to inspire this retail investor mania, governments and central banks could face a major backlash when the next bear market inevitably arrives.
10. Excellent NYT article explaining how inflation is eating into New York city's $1 pizza slice joints.
11. Some facts about India's public expenditure and revenues. First on expenditure of States and centre.
And on tax revenue trends.
13. Promising signs in electronics manufacturing in India with the emergence of local manufacturing in wearables and wearables for mobile phones, thanks to the PLI scheme. These were almost 100% imported till a few quarters back.
14. Gillian Tett has an article arguing that far from reversing, globalisation may only have taken a different course, this time without America at the centre. In the article she points to this,
But Squid Game is a made-in-Korea product, backed by Netflix, which has become the most viewed show in 90 countries around the world this year. Indeed, polls suggest that one in four Americans has watched it, while Spanish, Brazilian and French offerings produced for a global audience now litter the Netflix site. The globalisation of media, in other words, is no longer about Hollywood; digitisation has made it a multipolar affair.
The absence of any Indian soaps and movies in the landscape of chart toppers in Netflix is interesting.
15. Status report on the Brazilian economic health,
Brazil launched one of the developing world’s most expensive programmes of government support, worth about 11 per cent of gross domestic product. The package limited economic damage — output fell just 3.9 per cent in 2020 and is set to rebound by around 4.5 per cent this year, taking the economy above its pre-pandemic level. But the budget deficit soared and inflation started to take off. Alarmed by rising prices, Brazil’s independent central bank has implemented the world’s most aggressive programme of interest rate rises, pushing the reference Selic rate to 9.25 per cent. Further rises are forecast to take rates as high as 11 per cent next year, increasing further the cost of servicing Brazil’s government debt. To help pay for Auxílio Brasil, Bolsonaro negotiated congressional approval to bypass a constitutionally mandated cap on public spending. Now the overall budget deficit is set to nearly double next year from 4.4 per cent of GDP in 2021 to 7.8 per cent, according to Goldman Sachs...Buoyed by the success of an emergency cash transfer programme during the pandemic, the president has launched a new welfare scheme, known as Auxílio Brasil, that could benefit about 50m poorer Brazilians, nearly a quarter of the population. The programme is handing out roughly 18 per cent more than the average R$189 ($33) given monthly to recipients of the Lula-era Bolsa Família scheme. In December, Bolsonaro secured congressional support to increase this amount to R$400 a month until the end of next year, two months after the election.
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