1. China grapples with the issue of whether to impose property taxes or not. Remarkably for a communist country, China does not have property tax, capital gains tax, and any form of wealth or inheritance taxes. Instead it relies completely on income, corporation, and sales taxes, and revenues from sale of land leases. Concerns about its administration, public discontent, and political economy issues are cited as reasons for not going ahead with such taxes. Further, the government is also concerned that imposing taxes now will further add to the problems being faced by real estate market.
2. Ezra Klein points to the problem of governments trying to achieve too many objectives with one policy. He illustrates with the example of the recently passed CHIPS Act to encourage semiconductors manufacturing,
Page 11, for instance, encourages a pre-application that includes an environmental questionnaire “to assess the likely level of review under the National Environmental Policy Act.” Page 20 mandates that applicants prepare “an equity strategy, in concert with their partners, to create equitable work force pathways for economically disadvantaged individuals in their region,” which should include “building new pipelines for workers, including specific efforts to attract economically disadvantaged individuals and promote diversity, equity, inclusion and accessibility.” Page 21 asks for a plan “to include women and other economically disadvantaged individuals in the construction industry,” “strongly encourages” the use of project labor agreements and sets out requirements for “access to child care for facility and construction workers.”Pages 23 and 24 ask applicants to detail how they will include minority-, veteran- and female-owned businesses, as well as small businesses, in their supply chain and offer seven bullet points detailing how this might be done, including dividing supply chain requirements “into smaller tasks or quantities to expand access” and “establishing delivery schedules for subcontractors that encourage participation by small, minority-owned, veteran-owned and women-owned businesses.” Then there are requirements for “a climate and environment responsibility plan,” as well as community investments in areas like transit, affordable housing and schools.
He describes this as a the 'everything bagels' problem
You might assume that when faced with a problem of overriding public importance, government would use its awesome might to sweep away the obstacles that stand in its way. But too often, it does the opposite. It adds goals — many of them laudable — and in doing so, adds obstacles, expenses and delays. If it can get it all done, then it has done much more. But sometimes it tries to accomplish so much within a single project or policy that it ends up failing to accomplish anything at all.I’ve come to think of this as the problem of everything-bagel liberalism. Everything bagels are, of course, the best bagels. But that is because they add just enough to the bagel and no more. Add too much... and it becomes a black hole from which nothing, least of all government’s ability to solve hard problems, can escape. And one problem liberals are facing at every level where they govern is that they often add too much. They do so with good intentions and then lament their poor results... But there is a cost to accumulation. How many goals and standards are too many? And why is subtraction so rare? It is impossible to read these bills and guidelines and not notice that the additions are rarely matched by deletions. Process is enthusiastically added but seldom lifted. The result is that public projects — from affordable housing to semiconductor fabs — aren’t cost competitive, and that makes them vulnerable when a bad economy hits or a new administration takes over and the government cuts its spending.
3. Two graphs about the composition and destination for credit growth in India over the last decade. On composition - banks have declined from 73% to 64%, while that of bonds have risen from 16% to 22%.
On the destinations for the credit growth - share of industry (heavy and MSME) decline sharply from 44% to 31%, whereas that of consumption rose from 19% to 30%.
China has spent more than $130 billion on research incentives, government contracts and consumer subsidies, according to the Center for Strategic and International Studies. Electric car buyers in China get tax rebates, cheaper vehicle registration, preferential parking and access to an extensive charging network. China’s investments have allowed the country to lead the world in production, equipment and product design. Experts say it is next to impossible for any other country to become self-reliant in the battery supply chain, no matter if it has cheaper labor or finds other global partners. Companies anywhere in the world will look to form partnerships with Chinese manufacturers to enter or expand in the industry.
At the end of March, 6,571 cases had been so far admitted under this framework. Considering that around half of these proceedings were initiated by operational creditors, this does suggest that the Code has been able to serve as a powerful instrument for these firms, which are typically small and medium enterprises, to try to recover their dues from the larger companies. Of these admitted cases, 4,515 cases have been closed, while proceedings are ongoing in the remaining. And of the cases closed, a staggering 45 per cent have ended up in liquidation, while the rest have been either resolved, withdrawn or appealed. In the cases where the process has yielded resolution plans, realisations of creditors have been low. Of the total admitted claims of creditors estimated at Rs 8.98 lakh crore in these cases, the total realisable value was only Rs 2.86 lakh crore. This works out to only 31.8 per cent. Then there are the delays in the process to contend with. Of the cases that are currently going through resolution proceedings, almost two-thirds have crossed the 270-day deadline. And in the cases currently undergoing liquidation, 55 per cent have been going on for more than two years.
6. Naushad Forbes shines light on India private sector R&D spending.
We must increase in-house R&D from 0.3 per cent of gross domestic product (GDP) to match the world’s (and China’s) level of 1.5 per cent. Why does Indian industry lag so far behind the world in in-house investment? Where do the opportunities lie? The top 2,500 firms investing in R&D worldwide account for around 90 per cent of all industrial R&D, and the top 10 sectors account for close to 80 per cent. India has no firms in the top 2,500 in five of these 10 sectors, and just one firm each in two more. Within some sectors, we are much less R&D-intensive: Our software firms, large by world standards of profitability, are small in R&D, investing around 1 per cent of turnover on average, against a world average of 12 per cent (and a Chinese average of 10 per cent). And we are simply missing any giant investors in R&D. The world’s 26th-largest investor in R&D, Bosch, invests more than all Indian firms combined...Our 10 most profitable non-financial firms are in software (TCS and Infosys), oil refining (ONGC, Reliance and Indian Oil), metals (Tata Steel and JSW), and other industries (NTPC, Reliance Jio and ITC). Among them, they made a profit of $44 billion last year. They invested under $1 billion, or about 2 per cent of profit, in R&D. Contrast China: Its most profitable non-financial firms are in software, oil refining, beverages, mining, and construction. Among them, they made a profit of $106 billion last year and invested $31 billion in R&D — 29 per cent of profit. The top 10 in the US, Japan and Germany invest, respectively, 37, 43 and 55 per cent of profit in R&D... Among the 10 key technology-intensive sectors that dominate global industrial R&D, India has some presence in two — pharmaceuticals and automobiles. The pharmaceutical industry may have no presence in the league table of our most profitable firms, but it dominates the league table of our top R&D investors. With 41 of the top 100 R&D spenders, pharmaceuticals accounts for 34 per cent of all Indian industrial R&D. At 10 per cent of sales, R&D intensity is lower than the world’s 16 per cent, but this ratio is decent relative to every other sector.
7. On the shifting global economic centre of gravity,
Developing countries, broadly defined, have massively increased their global clout. In 2000, they made up 43 per cent of global economic output in purchasing power parity terms, according to IMF calculations. By next year, that will have risen to 63 per cent. That marks a profound shift from west to east and, to some extent, from north to south. The institutions forged after the second world war and the assumptions that underscored them simply do not reflect the world as it is today.
8. Fascinating visualisation story about the Indonesian government's efforts to shift capital to Nusantara in Borneo District. The current capital Djakarta is facing several problems, including sinking due to rising sea levels - 40% of the city now lies below the sea level. President Joko Widodo is proposing to relocate capital from Java to Borneo, the world's third largest island. Nusantara, meaning 'archipelago' is Javanese. He wants the shift to happen by end of next year, before his term as President ends. In keeping with the times, Jokowi wants it developed as a clean, green, and walkable city.
9. Goldman Sachs has settled a gender discrimination class action suit by paying $215 million, one of the largest such payout in US history. In this context, FT points to snippets,
“I would’ve been better compensated if I wasn’t a mom,” one woman who recently left the bank told the Financial Times. “For guys, most of the people I interacted with, their wives didn’t work.” One current female employee, meanwhile, said “Goldman promises women for a long time they will be senior leaders, then don’t do anything about it”. While the women interviewed said there were few signs of the overt sexism prevalent on Wall Street decades ago, they felt the bank’s culture remained less accessible to women without an interest in sports, and that speaking out on certain issues could still damage their careers. “To me there was never explicit bias,” said another woman who recently left the bank. “It was harder to interact with some of the senior men in the same casual way that other male colleagues at my level could.” One current junior female employee said that although “on a very theoretical level we are encouraged to speak up . . . in practice if you say something controversial it’s not well received”... described a culture in which going to HR to air issues made you “a pariah for life”.
10. Daron Acemoglu interview in FT by Rana Faroohar where he talks about his latest book on technology and development.
The research shows that major technological disruption — such as the Industrial Revolution — can flatten wages for an entire class of working people. It also points to the distributional conflict and power dynamics inherent in it. “Yes, you got progress,” Acemoglu says, “but you also had costs that were huge and very long-lasting. A hundred years of much harsher conditions for working people, lower real wages, much worse health and living conditions, less autonomy, greater hierarchy. And the reason that we came out of it wasn’t some law of economics, but rather a grassroots social struggle in which unions, more progressive politics and, ultimately, better institutions played a key role — and a redirection of technological change away from pure automation also contributed importantly.”... the fact that technology can create growth while also not enriching the masses (at least not for a long time). “Technological progress is the most important driver of human flourishing but what we tend to forget is that the process is not automatic.”... Acemoglu baulks at conventional policy prescriptions for dealing with tech-based inequality, such as universal basic income, because “it leaves the underlying power distribution the same. It elevates people who are earning, and gives others the crumbs. It makes the system more hierarchical in some sense.”
11. Japan welcomes back inflation (core inflation at 3.4% above the target rate of 2% for 13 consecutive months, but well under control), and with it economic growth (1.6% growth in Q1 2023), stock market boom (Topix at a 33 year high), revival of manufacturing, and much more.
12. Debashish Basu nails the Adani price manipulation allegation
Adani Green soared more than 5,000 per cent in three years, going up from Rs 55 to Rs 3,000; Adani Transmission was pushed up 1,500 per cent in two years, increasing from Rs 250 to Rs 4,000; Adani Total Gas zoomed 3,800 per cent in 2.5 years, up from Rs 100 to Rs 3,900; and Adani Enterprises went up almost 2,200 per cent in 2.5 years, from Rs 175 to Rs 4,000. On January 20, 2023, when Adani Total Gas had a jaw-dropping price/earnings multiple of 850, its peer group, comprising Indraprastha Gas, Mahanagar Gas, and Gujarat Gas, traded at multiples of 19.7, 15.9, and 23.3, respectively. It is still at 141, while the peer group is around the same at 23, 13, and 22, respectively. As Judge Stewart would have said, we know it when we see it.
I will repeat myself here from a previous column because it bears repetition of how brazen the alleged manipulation was. At its peak, Adani Enterprises, a component of the Nifty 50, was valued at a price-to-earnings (P/E) ratio of 427. If Reliance Industries was valued at a P/E of, say, 400, its market capitalisation today would be 16 times what it is and Mukesh Ambani would be the world’s first trillionaire, with a net worth of $1.38trn (trillion)! And, of course, if TCS and Infosys were similarly valued, the BSE Sensex would be 8-10 times higher at 480,000 to 600,000 instead of 60,000 or so! On the other hand, if Adani shares were valued as modestly (or correctly) as those of Tata Consultancy Services or Reliance Industries, Gautam Adani’s peak net worth would have been only a few billion dollars, not $150bn (billion), which briefly made him the world’s third-richest man.
13. Gillian Tettt points to a new report by McKinsey Global Institute on the trends in paper wealth globally. She writes
Number crunchers at the consultancy McKinsey believe that, since 2000, the world’s stock of paper wealth (the speculative, unrealised price of all its financial assets) has jumped by some $160tn. Yes, really. Partly, that reflects real economic growth. But it primarily stems from a sharp rise in global debt and in the supply of money through quantitative easing, particularly in countries such as the US, which has raised asset prices. For every dollar of global investment made since 2000, some $1.90 of debt has been added. During the 2020 and 2021 period, this “accelerated to $3.40 for each $1.00 in net investment”, McKinsey says. This was the fastest rate in 50 years. That has raised the putative value of all global assets, relative to gross domestic product, from about 470 per cent of global GDP in 2000 to more than 600 per cent today, with real estate and equity markets booming faster than the “real” economy to a truly remarkable ($160tn) degree.
14. Finally, more on the US experience of asset stripping and quality problems with private participation in railways
The railroads have shown great enthusiasm for cutting costs by any means possible — reducing staff by 30 per cent in the past six years, harming the freight system’s reliability while returning nearly $200bn in the past decade to shareholders. From 2019 to 2022, Norfolk Southern reduced its headcount by 23 per cent, returned more than $14bn to shareholders while investing less than $7bn back in its network, and saw its accident rate climb every year — by 25 per cent in total... American freight trains derail tens times as often as their British counterparts, according to the industry’s own data.
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