Weekend reading links

1. From a few months back, Andy Mukherjee peers ahead into the future of banking in the Indian context,

Google Pay wants to push time-deposit products of small Indian banks that don’t have much of a retail liability franchise of their own. According to a press release, Equitas Small Finance Bank will offer Google Pay customers up to 6.85% interest on one-year funds as part of a “branded commercial experience” on the platform... The move has global significance. It shows the tenuous nature of the hold financial institutions have on a core operation like deposit-taking, and their vulnerability to an assault from online search, social media and e-commerce behemoths. Alphabet, Facebook Inc. and Amazon.com Inc. may pose a far bigger challenge to brick-and-mortar lenders than fintech startups that don’t have the scale of platform businesses. Just like in India, deposit-strapped challenger banks might throw the keys to tech intermediaries with hundreds of millions of active users. When the giants storm the fortress, even larger banks will lose control of banking..

China’s homegrown tech titans have already shown how easy it is to dislodge traditional lenders from lending... India’s deposit-taking institutions don't have any special advantage left in moving retail money. Yes, they still hold the accounts for sending or receiving funds. But rather than transacting on their bank apps or cards, customers prefer to use Google Pay or Walmart Inc.’s PhonePe to pay one another and merchants... Since it won’t even take two minutes for a platform to book deposits from scratch, if another lender offers a better deal, idle funds might go there next. Customer loyalty, which is often just plain inertia, will no longer ensure stickiness... For a fee, platforms can easily extend their insights into consumer behavior and payment flows to influence deposit mobilization. The higher the commission, the lower the banks’ profit... Regulated institutions may be left holding a license to take deposits--and a thick rule book accompanying that privilege--but platforms will decide if a bank’s promotional offer is to be displayed prominently or buried in an obscure corner. The same slow, painful decline that gutted the print media after readers and advertisers moved online and publishers lost their sway over them may be waiting in the wings for banking, too.

2. FT has an interesting report on Dominic Cummings, former chief of staff to Boris Johnson and one of the leading forces behind his Brexit campaign. Cummings who courted numerous controversies during his tenure with Johnson at 10 Downing Street had a very bitter break-up with his boss, and is now leading a concerted campaign of leaks and media attacks to bring down Johnson.  

When he was at 10 Downing, Cummings, with his views on technocracy and scorn for the bureaucracy, had become a sort of poster child for tech-enthusiasts and supporters of bureaucratic reform. But as events since have shown, his hypocrisy and duplicity in trying to unseat Johnson reveals a dangerous and petty mind, one who is best kept as far away from the public realm as possible.

3. Business Standard reports on the near extinction of Indian mobile phone makers and the rise and rise of Chinese ones. 

To give a sense of the scale of opportunity, the Chinese makers sold over Rs 1.45 trillion worth mobile phones between January-October 2021. 

4. On the topic of Indians being successful outside India, there may be couple of statistical factors. One, Indians who emigrate are more likely to be the best and brightest, and therefore a super high quality pool with significant likelihood of spawning corporate leaders. Second, within the high quality pool of emigrants to the US, Indians are among the largest and naturally more likely to contribute such corporate leaders.

As I have written earlier, it's intriguing that all these highly successful Indians are concentrated as managers and executives, and there is hardly any presence in the ranks of similarly successful entrepreneurs. It does say something about the general nature of the emigrants. 

5. India's formal sector too may not be out of the woods,

Since the onset of the pandemic, the Employees’ Provident Fund Organisation (EPFO) has allowed members to avail of an advance to deal with expenses arising from Covid-19. Data from EPFO shows that between April 2020 to September 2021, 1.5 crore such claims were received. This implies that 23 per cent of India’s formal labour force (an upper limit, based on those contributing to EPFO) has availed of this facility. (Members were allowed to do so twice from June 2021). Of these 1.5 crore claims, 87.2 lakh were received in 2020-21. This works out to an average of 7.26 lakh claims per month. In comparison, in just the first six months of 2021-22 (April-September), 63.4 lakh such claims were received, at an average of 10.5 lakh per month. This suggests that not only has the formal labour force continued to face economic hardship, but also that it has been of a similar if not higher magnitude in the ongoing financial year.

It would be useful to compare these trends with the pre-pandemic share of EPFO members availing advances.  

6. Ganesan Karthikeyan has an interesting article where he argues that the endgame for Covid 19 has began. He claims that unlike till now, when the dominant mutants seek to maximise transmissibility, once large proportion of population are either immunised or infected the mutations that provide the virus with an evolutionary advantage are ones that help it evade immunity. Such mutants are more likely to produce milder illnesses so that its transmissibility is less reduced. 

He also makes an interesting point about what happens when the pandemic ends,

As has already become evident, we aren’t going to have lifelong protection after infection or vaccination. It is reasonable to expect that the virus will continue to mutate to evade immunity. Of the several unsavoury scenarios, one optimistic (and perhaps also likely) possibility is that the virus continues to circulate but infects only people without immunity — children born after the pandemic, older adults, or others with waning immunity. These vulnerable individuals will continue to require vaccination. This is presumably what happened after the 1918 pandemic. That virus now causes seasonal influenza.

Excellent primer on Omicron with links to latest research.  

7. The Economist makes an important point about China's AI ambitions

Despite leading America in the overall number of AI-related publications, China produces fewer peer-reviewed papers that have academic and corporate co-authors or are presented at conferences, both of which are typically held to a higher standard. It ranks below India, and well below America, in the number of skilled AI coders relative to its population. These shortcomings are likely to persist, for three reasons.

First, capital may not be being allocated efficiently... Beijing has created a system for rewarding local officials that favours debt-fuelled spending and seldom punishes wastefulness. Many state AI investments have been “reckless and redundant”... Jeffrey Ding of Stanford University. Zeng Jinghan of Lancaster University has documented the rise of firms that falsely claim to be developing AI in order to suck up subsidies. One analysis by Deloitte, a consultancy, estimated that 99% of self-styled AI startups in 2018 were fake... China’s second problem is its inability to recruit the world’s best AI minds, especially those working on high-level research... Though about a third of the world’s top AI talent is from China, only a tenth actually works there. A shortage of non-Chinese researchers further handicaps China’s capabilities... Even more problematic for the party, its master plan ignored the cutting-edge semiconductors that power AI. Since its publication Chinese companies have found it ever more difficult to get their hands on advanced computer chips. That is because virtually all such microprocessors are either American or made with American equipment. As such, they are subject to restrictions on exports to China put in place by Donald Trump and extended by his successor as president, Joe Biden. It will take years for Chinese companies to catch up with the global cutting-edge, if they can do it at all.

8. Scott Galloway points to the graphic that shows more than half US corporate profits are booked in tax havens, compared to roughly 5% in 1966.

9. Vivek Kaul argues in favour of a K-shaped recovery by pointing to the stagnant affordable housing market (compared to the rising higher income housing credit off-take) and declining two-wheeler market volumes (compared to the rising cars and vans market).

This on housing credit

And this on two wheelers (lowest in eight years)

This compared with a total of 2.15 m units of cars and vans sold in the nine months to December, compared to 1.78 m in 2020 and 2.12 m in 2019. 

10. As the pandemic continues, the OECD estimates that there are a record 30 million unfilled vacancies among its members. This raises questions about the much discussed concern that the pandemic will hasten automation and kill jobs. The Economist has an article which has links on research which points to the opposite direction,

Considering that so many doubts about the “robots kill jobs” narrative have arisen, it is not surprising that a different thesis is emerging. In a recent paper Philippe Aghion, Céline Antonin, Simon Bunel and Xavier Jaravel, economists at a range of French and British institutions, put forward a “new view” of robots, saying that “the direct effect of automation may be to increase employment at the firm level, not to reduce it.” This opinion, heretical as it may sound, does have a solid microeconomic foundation. Automation might help a firm become more profitable and thus expand, leading to a hiring spree. Technology might also allow firms to move into new areas, or to focus on products and services that are more labour-intensive.

A growing body of research backs up the argument. Daisuke Adachi of Yale University and colleagues look at Japanese manufacturing between 1978 and 2017. They find that an increase of one robot unit per 1,000 workers boosts firms’ employment by 2.2%. Another study, by Joonas Tuhkuri of the Massachusetts Institute of Technology (mit) and colleagues, looks at Finnish firms and concludes that their adoption of advanced technologies led to increases in hiring. Unpublished work by Michael Webb of Stanford University and Daniel Chandler of the London School of Economics examines machine tools in British industry and finds that automation had “a strong positive association with firm survival, and that greater initial automation was associated with increases in employment”... The methodology used by Mr Adachi and his co-authors is particularly clever. One problem is untangling causality: firms on a hiring spree may also happen to buy robots, rather than the other way round. But the paper shows that firms buy robots when their prices fall. This helps establish a causal chain from cheaper robots, to more automation, to more jobs.