1. Good interview of Indonesia's President Joko Widodo. Widodo's second term comes to an end and given the term limits, he must step down despite an approval rating of close to 80%. With its 270 million youthful population, Indonesia should count as a future economic superpower, a top-five global economy. This is a good summary of Widodo's tenure
If there are two words that have defined Widodo’s presidency they are infrastructure and nickel. When he took office, demand for Indonesia’s bountiful commodities had slackened against a global downturn, its infrastructure was underfunded and enthusiasm from international investors for the world’s third-largest democracy was weak. The one-time city mayor set to work. Widodo points to the highways he has built, the airports that have sprung up in remote regions and the boom in new dams, seen as essential at a time when climate change has led to drought in large parts of the country. “Before, we had 240 dams, now we have 301,” he beams.But it is his second term, starting in 2019, which has seen the most ambitious economic policies, in particular the creation of a domestic electric vehicle and battery supply chain. By banning the export of nickel ore in 2020, Widodo forced companies such as China’s Tsingshan, South Korea’s LG and Brazil’s Vale to set up more local factories if they wanted access to Indonesia’s abundant reserves. These factories were not only to refine nickel but also to entice more companies to build more of their supply chains in Indonesia. Defying a ruling by the World Trade Organization that the ban was unfair, Widodo has stuck to his policy and it has paid off. Indonesia’s exports, boosted by soaring commodity prices, hit a high of $292bn in 2022 though they have moderated this year as China’s economy slows.
For all those who preach free-trade and oppose industrial policy, Widodo's success with bringing value capture to nickel processing into Indonesia should be one more reminder. Instead of promoting trade policies that favour large foreign multinationals, institutions like the World Bank should be helping countries like DRC and Ghana capture a greater share of value from their primary produce.
2. Martin Wolf feels that the tightening cycle has come to an end and, more importantly, easing will start sooner than what central banks are suggesting. Core inflation in both US and EU have been falling sharply towards the target.
In fact, if the target is a band of 2-4%, or say 3% (both of which ought to be the inflation target for a variety of reasons), then we are already in that band.
On similar lines, the graphic of the trajectory of interest rates over the last four decades is interesting.
Interest rates are only slightly above the historic trend. If expectations are for a return to a 2% interest rate trend, then I worry that's recreating the conditions for financialisation and other distortions. Instead a more sustainable and historically valid normal interest rate would be in the 3-4% range. We are actually closer to that range now than the markets imagine. But not if the markets expect the old norm of 2%.
3. Peter Goodman in the Times describes the rise and fall of the world's greatest joint venture, the economic relationship between the US and China. While it brought spectacular returns, it also left its costs
Chinese imports effectively boosted the spending power of the average American household about 2 percent, or $1,500, a year from 2000 and 2007, according to one study. Chinese goods pressed down American prices 0.19 percent a year from 2004 to 2015, another study found...Those hurt by Chinese imports were concentrated and conspicuous. Once-thriving American factory towns sank into joblessness and despair, swapping restaurants and hardware stores for food banks and pawnshops. From 1999 to 2011, a surge of low-priced Chinese imports eliminated nearly one million American manufacturing jobs and two million positions throughout the broader economy, according to a paper by the economists David H. Autor, David Dorn and Gordon H. Hanson.
4. Interesting facts about inequality in India
The OECD made an assessment of the number of generations required to move from the bottom 10 per cent of the income distribution to the mean income level. This was done by examining the rate of change of income between father and son. According to this assessment, the transition time from the lowest to the mean level of income in India is seven generations, a level comparable to that in China and above that in Europe and the US... In India, according to the World Inequality database, this has widened sharply between 1990 and 2018, the latest year for which they present an estimate. Over this period, the share of the top 10 per cent in pre-tax income has gone up from 34.4 per cent to 57.1 per cent, while the share of the bottom 50 per cent has fallen from 20.3 per cent to 13.1 per cent. Note also that the top 1 per cent account for nearly half of the increase in the share of the top 10 per cent... A recent report from Azim Premji University... points out: “In 2004, over 80 per cent of the sons of casual wage workers were themselves in casual employment. This was the case for both SC/ST workers and other castes. For non-SC/ST castes, this fell from 83 per cent to 53 per cent by 2018, and the incidence of better quality work, such as regular salaried jobs, increased. It fell for SC/ST castes as well, but to a lesser extent (86 per cent to 76 per cent)”.
From the Bihar caste survey
The sub-caste wise data on poverty indicates that 42.93 per cent of the families belong to Scheduled Castes (SC), 42.7 per cent to Scheduled Tribes (ST), 33.58 per cent to extremely backward castes (EBC), 33.16 per cent to other backward classes (OBC), and 25.09 per cent to the general category (GC) of upper castes. When it comes to government jobs, the general category castes, such as Bhumihars, Brahmins, and Kayastha, had the highest share with 3.19 per cent of their population in government jobs. The corresponding figures for the EBC, SC and ST are 0.98 per cent, 1.13 per cent and 1.37 per cent, respectively. A measure of the differences in access to education is provided by the substantial difference in the percentage of people who are graduates in different caste groups — 14.54 per cent in the general category, 9.14 per cent in the OBC category, 4.44 per cent in the EBC category, 3.12 per cent amongst Scheduled Castes, and 3.53 per cent amongst Scheduled Tribes.
5. Infrastructure operators are earning a greater share of their revenues from non-core operations,
Core aeronautical revenue share of India’s largest airport in Delhi reduced to 24 per cent in FY23 from 46 per cent in FY18, the year it became a public company. Since then, it has consistently earned more from non-aeronautical revenue streams including verticals like duty free, space rentals, and cargo, and commercial property development than from core revenue streams including landing charges, user development fee (UDF), and baggage x-ray charges. This is primarily due to low aeronautical charges levied upon airline operators for landing and parking aircraft... Indira Gandhi International Airport’s operator Delhi International Airport Limited (DIAL), in which the GMR Group owns a majority stake, generated an operating revenue of Rs 3,990 crore in FY23, of which Rs 938 crore was from aeronautical services and charges, Rs 2,477 crore from non-aeronautical services and charges, and Rs 575 crore from licence fees in connection with certain commercial property development activities at the airport. DIAL’s aeronautical revenue share dropped to 24 per cent in FY23 from 30 per cent in FY19 as the share of revenue generated through commercial property development increased to 14 per cent from 6 per cent between the same years. DIAL’s non-aeronautical revenue share has remained relatively stable, averaging around 58 per cent in the last five years, and includes revenue streams like duty free, land and space rentals, advertisements, cargo, F&B, and retail...In a similar trend, Mumbai’s Chhatrapati Shivaji Maharaj International Airport, operated by Mumbai International Airport Limited (MIAL), in which Adani Enterprises now holds a majority stake, also saw a drop in its aeronautical revenue share to 38 per cent in FY23 from 46 per cent in FY19 as its non-aeronautical revenue share jumped to 62 per cent from 54 per cent. In FY23, MIAL generated a total operating revenue of Rs 3,233 crore. As per Fitch Ratings, MIAL also uses 30 per cent of its non-aeronautical revenue for cross-subsidisation. For both Delhi and Mumbai airports, user development fee (UDF), which is a charge levied on passengers and is included in their ticket price, forms a large chunk of aeronautical revenue. The approved rate of UDF for DIAL by the Airports Authority of India is Rs 200 for domestic passengers and Rs 1,300 for international passengers, whereas for MIAL it is Rs 100 for domestic passengers and Rs 600 for international passengers. In FY23, Delhi airport saw average monthly traffic of 5.44 million passengers whereas Mumbai airport saw 3.66 million passengers...Similarly, Delhi Metro Rail Corporation (DMRC) has become increasingly reliant on external project income, which accounted for 48 per cent of operating revenue in FY22 compared to 35 per cent in FY19, while core revenue generated from passenger traffic dropped to 39 per cent in FY22 from 55 per cent in FY19... DMRC’s traffic revenue share fell to 39 per cent in FY22 from 55 per cent in FY19, while the share of external project income in total operating revenue jumped to 48 per cent from 35 per cent in the same time period... DMRC earned an average of Rs 45 crore every year between FY19 and FY22 by rendering consultancy and training services to various domestic metro projects in cities like Noida, Mumbai, and Jaipur, and to metro projects in other countries, like in Dhaka. In FY22, DMRC also raked in nearly Rs 500 crore through rental and lease earnings, which was slightly lesser than Rs 559 crore in FY19...IRCTC, incorporated in 1999, generated higher net profit from e-ticketing services than from catering and Rail Neer sales in FY23. Even though IRCTC’s core revenue from catering and the sale of its flagship bottled water product, Rail Neer, accounted for 50 per cent of total operating revenue in FY23, compared to e-ticketing revenue share of 34 per cent, it made Rs 1,021 crore in net profit from e-ticketing services compared to Rs 204 crore from catering and Rail Neer sales. IRCTC has the exclusive mandate for Indian Railways’ e-ticketing services, which began in 2002... In FY23, IRCTC’s e-ticketing revenue stood at Rs 1,198 crore and accounted for 80 per cent of total net profit, eclipsing IRCTC’s net profit from core revenue streams including catering, Rail Neer, and tourism services.
6. Times reports of a startup, Heirloom Carbon Technology, trying a new technology to remove carbon directly by vacuuming greenhouse gases from the atmosphere. This startup thereby takes the idea of removing carbon dioxide from air from science fiction to reality.
Heirloom will take the carbon dioxide it pulls from the air and have the gas sealed permanently in concrete, where it can’t heat the planet. To earn revenue, the company is selling carbon removal credits to companies paying a premium to offset their own emissions. Microsoft has already signed a deal with Heirloom to remove 315,000 tons of carbon dioxide from the atmosphere. The company’s first facility in Tracy, Calif., which opens Thursday, is fairly small. The plant can absorb a maximum of 1,000 tons of carbon dioxide per year, equal to the exhaust from about 200 cars...Heirloom’s technology hinges on a simple bit of chemistry: Limestone, one of the most abundant rocks on the planet, forms when calcium oxide binds with carbon dioxide. In nature, that process takes years. Heirloom speeds it up. At the California plant, workers heat limestone to 1,650 degrees Fahrenheit in a kiln powered by renewable electricity. Carbon dioxide is released from the limestone and pumped into a storage tank. The leftover calcium oxide, which looks like flour, is then doused with water and spread onto large trays, which are carried by robots onto tower-high racks and exposed to open air. Over three days, the white powder absorbs carbon dioxide and turns into limestone again. Then it’s back to the kiln and the cycle repeats...The carbon dioxide still needs to be dealt with. In California, Heirloom works with CarbonCure, a company that mixes the gas into concrete, where it mineralizes and can no longer escape into the air. In future projects, Heirloom also plans to pump carbon dioxide into underground storage wells, burying it. Heirloom won’t disclose its exact costs, but experts estimate that direct air capture currently costs around $600 to $1,000 per ton of carbon dioxide, making it by far the most expensive way to curb emissions, even after new federal tax credits worth up to $180 per ton. Heirloom has set a long-term target of $100 per ton and aims to get there, in part, through economies of scale and mass-produced components. For its next plant, planned in Louisiana, Heirloom will use a more efficient kiln and a denser layout to save on land costs.
7. The dramatic ouster of Sam Altman as CEO of OpenAI by the company Board is reflective of the rift in the AI community between those who see AI as the biggest business opportunity and those who are concerned at the existential, social, political and economic challenges posed by it. Or as FT put it nicely,
At the core of the recent turmoil is the tension between the commercial drive of any company to make money and concerns about the collateral damage that technology can cause.
The swift return and the support from Big Tech bigwigs and influential opinion makers like Larry Summers is equally emblematic of the dominance of moneyed interests over all ethical and other considerations. The episode has further empowered Altman as the messaiah of AI, and it's hard to imagine the new Board will exercise any oversight in terms social and ethical responsibilities about the direction of OpenAI's business. It's safe to assume that the first round has been decisively won by those who see AI in terms of the business opportunities it presents.
Now that the company leading the AI charge and its leadership would be even more emboldened in pursuit of its technological and business ambitions and all restraints have been eliminated, it's more important that the government step in to regulate AI. A few individuals and one company cannot be allowed to have so much power in determining the direction of the leading technology of our times.
In fact, the episode also ends the hypocrisy behind OpenAI's founding principle in 2015 of prioritising safety and humanity over profit. Under Sam Altman, whose roots are unambiguously in the world of techno-evangelism and profits, the presence of a non-profit Board overseeing a relentlessly profit-seeking and technology frontier expansion focused company was becoming untenable.
Open AI now joins the list of companies with excessively powerful CEOs and very weak boards. We know what happens to such companies. But unlike others here there are existential consequences for humanity, and the race to the frontier of artificial intelligence looks like an unconstrained pursuit.
8. Evidence of Covid 19 related learning loss in the US
The school closures that took 50 million children out of classrooms at the start of the pandemic may prove to be the most damaging disruption in the history of American education. It also set student progress in math and reading back by two decades and widened the achievement gap that separates poor and wealthy children... Economists are predicting that this generation, with such a significant educational gap, will experience diminished lifetime earnings and become a significant drag on the economy.
9. Couple of good suggestions to address the problem of stubble burning by farmers in North India that has been found to be a major contributor to the toxic smog in Delhi. The first is to replace free farm power with some form of DBT. The second is to create a market for paddy straw/stubble to incentivise farmers to harvest, collect and dispose it.
Baling machines (balers) for paddy straw are already in use in Punjab and Haryana, which has made it feasible to put paddy and other crop straws in the value chain. On average, an acre of land generates about 2.5 tonnes of paddy straw. The cost of baling this stubble is anywhere between Rs 1,000 to Rs 1,100 per acre (including the cost of cutting, raking, packaging and storing bales on land). From our estimates, it appears that a price of Rs 1,000-1,200 per tonne of bale of parali, covers the costs and leaves a small margin for the farmer. Punjab generates about 20 million metric tonnes (MMTs) and Haryana has about half of this. About 85 per cent of it is burnt in the field. Thus, the total cost of procuring the entire parali burnt in the field in Punjab comes to Rs 2,000 crore and, in Haryana, about Rs 1,000 crore. A small market for paddy straw sold in compact bales has already emerged in both the states for production of biofuel such as BioCNG and ethanol and as direct fuel in brick kilns, furnaces, and thermal plants. Some enterprising farmers have sold parali at Rs 180 per quintal this season — this can be treated as an indicative market value. This market is picking up but at its current pace, it will take many years to match the supply.
Therefore, ways and means need to be put in place for adequate availability of balers and incentives introduced for the use of stubble as a biofuel. Among various options, the use of straw for the production of compressed biogas through methods of anaerobic digestion is best from economic and environmental perspectives. It also produces bio-slurry, which can go back into the soil to replenish soil fertility. It is a matter of supporting the supply chains of paddy straw initially for four to five years. This will set the trend for converting agri waste into wealth and promoting a circular economy in agriculture in the entire country.
10. Argentina cannot but not help inviting economic crisis very close frequency. The victory of radical libertarian economist Javier Milei in the country's Presidential election run-off is a recipe for instability. Milei defeated the establishment Peronist candidate and Economy Minister Sergio Massa wining more votes in the run-off than any candidate since 1983.
Milei’s campaign centred on a pledge to take a “chainsaw” to the state — slashing spending by up to 15 per cent of gross domestic product — and to dollarise the economy to stamp out inflation. Argentina’s annual price rises hit 142.7 per cent in October... Milei, a self-described “anarcho-capitalist”, stirred controversy throughout the campaign, expressing support for ideas such as legalising the sale of human organs and eliminating all gun laws. He also referred to China, Argentina’s largest trading partner, as “murderous”, the Argentine Pope Francis as “a filthy leftist” and climate change as “a socialist hoax”...The win for Milei, a former television commentator who became famous for rants against economic mismanagement and corruption among Argentina’s governing elite, is a rebuke against Massa’s Peronist movement, which has dominated politics since the country returned to democracy in 1983. Over the past two decades, left-leaning Peronist governments have doubled the size of the public sector and introduced expensive subsidies and tight regulation across the economy. The Peronist model has faced unprecedented pressure this year amid spiralling inflation. Massa has resorted to money-printing to finance spending and tightened strict trade and exchange restrictions to protect scarce foreign currency reserves...Most economists in Argentina say Milei’s flagship plan to replace the peso with the US dollar is unworkable in the short term given that Argentina has almost no dollars in its central bank and no access to international credit. The official exchange rate is fixed at just over 350 pesos to the dollar, but the black-market rate is as high as 900 pesos. The gap, which has widened dramatically as the parallel exchange rate has plunged in recent months, has caused widespread distortion of prices.
This is a stunning statistic about Argentina's dollar use
About 10 percent of all U.S. currency in circulation is in Argentina, according to some estimates, or roughly $200 billion, more than in any other country outside the United States. That’s an average of about $4,400 in cash for every Argentine, compared to $3,100 for every American... In April 2020, at the start of the pandemic, $1 bought 80 pesos at the “blue dollar” rate. A year ago, $1 bought 300 pesos. On Tuesday, as markets in Argentina opened for the first time since Mr. Milei’s victory, the peso’s value fell to a record low. That day, $1 bought 1,075 pesos.
The challenge Milei faces is to dollarise without owning dollars, as the government's dollar reserves are miniscule.
11. India is witnessing an explosive growth in the Global Capability Centres (GCC) of multinational corporations and financial institutions, back-offices managed by the company itself that develop in-house technology, including cyber security systems, artificial intelligence, accounting and HR work, R&D in general.
Global capability centres have proliferated and expanded at a rate of 11 per cent a year since 2015 to become a $46bn industry employing 1.7mn people in India, according to Nasscom. Real estate group Colliers estimates the number of GCCs in India will double from 1,026 in 2015 to 2,000 by 2026.
This off-shoring of the company's work has unleashed a competition for talent with the Indian IT outsourcing majors. That's a great thing to happen and should be one Moree reason why these IT firms should buckle up and move up the value chain.
12. Novo Nordisk's magic drugs Wegovy and Ozempic are on a roll. From diabetes risk reduction to weight-reduction, they have now been tested to reduce the chance of death from heart attack or stroke by 20%.
Not since the rise of cholesterol-reducing statins, or perhaps even pain medications like Advil, has a group of pharmaceuticals so captured the public imagination. Wegovy, and its better known cousin Ozempic, are “semaglutides,” a class of drugs that slow digestion and mimic the effects of natural appetite-reducing hormones. First commercialised by Danish insulin maker NovoNordisk, they are now being developed and rolled out by many major pharmaceutical companies. Not only do they lead to an average 15-20 per cent weight loss in obese patients, they also appear to protect the heart, liver and kidneys, organs which are often put under strain by excess weight. Prescriptions for these drugs are up a whopping 300 per cent in the US since 2020, despite the fact that they can cost between $300 and $1,300 per month. Bank of America expects 48mn Americans (about one-seventh of the population) to be on the meds by 2030.
These drugs are disrupting several industries, including Krispy Kreme!
Let’s start with the pharmaceutical firms themselves. If you don’t have an Ozempic knock-off in the development pipeline, your share price may take a hit. Novo Nordisk now has a market capitalisation that is higher than the entire gross domestic product of Denmark, and Eli Lilly’s share price is up 40 per cent since it rolled out its own weight-loss copycat Mounjaro. But both Pfizer and Moderna — neither of which have a successful semaglutide on the market — have seen their share prices plummet in recent months... In early October, when Novo Nordisk announced that Ozempic was so effective against kidney disease that it was stopping a trial early, shares in some dialysis providers tanked. Now, healthcare analysts say that the $250bn cardiovascular disease market could be reduced by 10 per cent by 2050, and hundreds of billions-worth of additional business in treatments for diabetes, kidney and liver disease and other weight related illnesses could be disrupted. The Ozempic effect doesn’t stop there. Analysts have downgraded doughnut maker Krispy Kreme recently amid worries that Americans on semaglutides just won’t reach for as many sweet treats as they have in the past. Last month, Walmart chief executive John Furner said that customers on obesity drugs weren’t buying as many groceries, which led to a brief sell-off in consumer staple stocks such as Mondelez and PepsiCo.
13. With the RBI taking note and raising the risk weights on consumer loans, the issue of rising consumer loans in banking portfolios has taken centre stage. Unsecured loans have been growing at 23% in the last two years, compared to lending to corporations and SMEs at 12-14%. Tamal Bandopadhyay writes
According to the RBI’s latest Financial Stability Report, released in June, advances for unsecured retail loans rose to 25.2 per cent in March 2023 from 22.9 per cent in March 2021, while secured loans saw a decline to 74.8 per cent from 77.1 per cent during the same period. Overall, retail loans grew at a compound annual growth rate, or CAGR, of 24.8 per cent from March 2021 to March 2023 in contrast to 13.8 per cent CAGR for overall bank credit... Delinquencies, measured in terms of the inability of borrowers to repay loans between 31 and 180 days, for loans under Rs 50,000 rose to 8.1 per cent in June 2023... the total value of short-term personal loans (STPL) below Rs 10,000 grew 37 per cent in the financial year ending March 31, 2023, while STPL of Rs 10,000-50,000 rose 48 per cent. The credit bureau considers loans up to Rs 50,000 as STPL. Some 8.6 million such loans were disbursed in FY23, registering a 50 per cent rise over FY22. About 80 per cent of all personal loans disbursed in FY23 were STPL and 60 per cent of such loans had an ultra-small ticket size — below Rs 10,000. The overall personal loan portfolio was to the tune of Rs 11.16 trillion as of June 2023 — more than double of the level seen in March 2020 (pre-Covid).
Small cities are contributing more to these loans. About 38 per cent of STPL up to Rs 10,000 in the last 12 months were outside India’s top 100 cities. In contrast, 29 per cent originated in the top eight cities. To support the fact that small cities are playing a bigger role in this segment, the credit bureau says 35 per cent of STPL between Rs 10,000 and Rs 50,000 sanctioned between July 2022 and June 2023 were from beyond the top 100 cities, while the top eight cities accounted for 31 per cent. NBFCs dominate the origination and the portfolio of such loans. The share of private banks by origination volume has risen from the pre-Covid level, but relative to March 2022, it has dipped... Since January 2022, small-ticket personal loans of less than Rs 50,000, while representing a very small share of total retail balances, have roughly accounted for one-fourth of total volumes. In the June quarter of FY24, 51 per cent of consumers who took small-ticket personal loans already had more than four credit products at the time of accessing yet another new loan, compared with just 17 per cent in the June quarter of FY20.
As Tamal writes, there's clear stress at the bottom of the pyramid.
14. Graphics on fossil fuel consumption trends over the last decade.
UP Roadways will take you 550 kilometres from Delhi to Lucknow for Rs 822, or Rs 1.49 per km. The Railways will get you there for barely half the price, Rs 432. Indeed, you could get there in air-conditioned comfort for Rs 755 in a three-tier sleeper coach — less than what the “Volvo” bus service charges: Rs 1,000 upwards for “semi-sleeper” travel. Across the railway system, the passenger fare per kilometre ranges from as little as 21 paise for “ordinary” second-class travel to Rs 1.75 for a seat in an air-conditioned chair car, and more for greater comfort or speed (eg: Rs 2.58 by the Shatabdi). Across all classes of travel, the Railways earns Rs 2 per passenger-km... With expenditure more or less matching annual revenue of Rs 2.65 trillion, most of the massive investment under way has necessarily been funded by borrowings and (because debt-servicing costs have grown) increasingly through support from the Budget. The current surge in investment is outsize: Over the past decade it has crossed Rs 13 trillion, with Rs 2.6 trillion this year alone being almost equal to projected revenue!
The low fares in turn has generated a set of perverse incentives.
The demand for rail travel far exceeds supply, but the Railways has no financial incentive to increase passenger transport. The attention given to increasing haulage capacity has focused on new freight corridors, less so on boosting passenger transport capacity. The shocking result is that, while freight traffic has grown 40 per cent in a decade, passenger traffic has been static. In fact, it is marginally lower this year than a decade back... To make good the loss on its passenger service, the Railways pushes up freight rates for goods transport (the old cross-subsidy game loved by all populists). This is said to explain why the Railways has lost out on goods traffic to road, accounting now for only a quarter of the total, with almost all of it being bulk items like coal and iron ore.
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