1. Business Standard reports that Indigo is going to offer business class on its "busiest and business routes" on the back of trends of declining earnings in the economy class and rising ones in business class.
2. Some stunning numbers on NPAs of Indian banks.
Collectively all listed Indian banks (including small finance banks) posted close to Rs 3.20 trillion net profit in FY24, around 38.5 per cent higher than the previous year – and the highest ever... In the financial year 2024, which ended in March, 26 listed banks – 14 private banks, seven public sector banks (PSBs) and five small finance banks – had less than 1 per cent net non-performing assets (NPAs). When did we last see such robustness in the Indian banking industry? The list of sub-1 per cent NPA banks includes the top three by assets – the State Bank of India (0.57 per cent), HDFC Bank Ltd (0.33 per cent) and ICICI Bank Ltd (0.45 per cent). Among others, Axis Bank Ltd (0.31 per cent), IndusInd Bank Ltd (0.57 per cent), Kotak Mahindra Bank Ltd (0.34 per cent), IDFC First Bank Ltd (0.6 per cent), IDBI Bank Ltd (0.34 per cent), Yes Bank Ltd (0.6 per cent), Bank of Baroda (0.68 per cent), and Punjab National Bank (0.73 per cent) are members of this club. They have achieved this through the recovery of bad loans, providing or setting aside money for them and even writing them off.
But this must be seen against a slower deposit growth rate (compared to the rate of growth of advances), lower low-cost Current and Savings Account (CASA) ratios, and falling Net Interest Margins.
3. Rana Faroohar points to an important insight about the US politics
There are plenty of things Americans disagree on but one shared concern is loneliness... Despite America’s robust recovery, many struggle with a loss of economic control in a world in which hard work doesn’t bring security or community (something academic Robert Putnam first brought to light in his 2000 book Bowling Alone). Then there’s frustration over the pace of technological change (particularly its effects on children), and exhaustion with a culture focused mainly on consumption. All of this has led to what Democratic senator Chris Murphy has called a “spiritual unspooling”, in which many people feel disconnected and abandoned by society and its leaders... As Hannah Arendt laid out in her 1951 book The Origins of Totalitarianism, isolation and loneliness are the preconditions for tyranny, an observation that may come full circle in the US this November. While Americans are politically divided, people in places as far flung as Utah, North Carolina, Tennessee and Washington share “a sense of abandonment”, Murphy told me, “and even humiliation”, as power has shifted to a smaller number of geographic places, people and companies over the past couple of decades in particular. This perception is backed up by data — corporate concentration is at record highs, and socio-economic outcomes vary wildly depending on the zip code in which Americans are born.
And makes some very pertinent points on addressing the problem.
After a certain middle-class financial security threshold is passed, the good life tends to correlate instead with relationships — family, friends and community. The problem is that in our culture of high-speed digital capitalism and overwork, there is neither enough time nor, for many, enough money to provide the security to achieve that. That’s one of the reasons labour activists such as Shawn Fain are starting to push for a four-day work week as a way for employees to benefit from some of the huge corporate profit gains of the past several years... Politicos as divergent as venture capitalist Blake Masters and liberal senator Bernie Sanders have argued that one income should be enough to support a family of four, and allow participation in civic life. There is increasing cross-aisle consensus about things such as raising the minimum wage, social media regulation and, to a certain extent, antitrust action. All these fall within the realm of policies that address some of the root causes of loneliness, from economic insecurity and social isolation, to lack of personal agency... While the good life might mean more church time in red states and more community volunteering or PTA involvement in blue, the point is the same — the balance between individualism and collectivism in the US has become too skewed towards the former. This, as much as inflation or immigration or any other higher profile election issue, may be behind our national pessimism, even amid the broadest and fastest economic recovery in the rich world.
4. Albert Edwards on Fed policy
Société Générale’s permabear-in-chief, Albert Edwards, is railing against the US Federal Reserve, arguing it is “sowing the seeds of yet another policy disaster”. “In my opinion, tighter for longer is bonkers quite simply because it is now driving goods inflation into deep deflation to balance out higher services inflation,” he said. “It ranks with that catastrophic central bank policy error of keeping monetary policy super loose for the 25 years prior to the pandemic.”
5. Even as the EV hype rages, Toyota has announced "plans for a new generation of internal combustion engines, betting on a continued need for older technologies". Fuel engines are used alongside batteries in hybrid vehicles that are making a strong comeback. Toyota, unlike others, has bet on hybrids and has reaped its benefits as EV sales sour and hyrids return to favour.
Toyota’s chair Akio Toyoda has predicted that demand for battery electric vehicles will hit a ceiling at 30 per cent of the global market, opening the way for more hybrid sales. Toyota’s new engines will be between 10 and 20 per cent smaller and will allow for greater output when paired with batteries. They are expected to be used first in hybrid cars and then plug-in hybrids, according to one person familiar with the matter... Variants of the engines will be capable of running on diesel and petrol as well as on lower-emission or carbon-neutral fuels such as hydrogen or so-called e-fuel. This is part of a wider bet that alternative fuels made using electricity from renewable hydrogen and other gases will allow carmakers to keep selling combustion-engine vehicles that meet environmental regulations.
6. Cold storage infrastructure in India
Around 15 per cent of fruit and vegetables are lost after harvesting... Cold-chain storage and refrigeration facilities remain inadequate in the country, resulting in spoilage across the supply chain... a large proportion of India’s current cold chain storage capacity — of around 39 million tonnes — remains unutilised. The available cold-storage units also have a skewed geographical distribution. For instance, most cold-storage facilities are concentrated in states like Uttar Pradesh, West Bengal, Gujarat, Punjab, and Andhra Pradesh, while Bihar and Madhya Pradesh have insufficient numbers of them. Further, most cold-storage facilities are designed to store a single commodity at a time. This calls for boosting multi-storage cold chain capacity in the country... While over 92 per cent of cold-storage units are owned and operated by the private sector, there is scope for government intervention in addressing shortfalls in storage infrastructure. Although a subsidy of 35-50 per cent is provided to set up storage facilities, including pack-houses, the costs are still high.
7. Good article on how Free Trade Agreements (FTAs) have not proved beneficial for India. It studied the outcome from India's FTAs with ASEAN, South Korea, and Japan, all signed in 2010-11.
First, India’s merchandise trade deficit with these partners increased significantly more than its global trade deficit. Specifically, trade deficits grew by 302.9 per cent with Asean, 164.1 per cent with South Korea, and 138.2 per cent with Japan, compared to an 81.2 per cent increase in the global deficit. This comparison is based on pre-FTA (2007-09) data and recent trade data (2020-22). The trend continued in 2023. Second, India’s exports to these FTA partners have increased at a lower rate than its imports. For instance, with Asean, exports grew by 123.9 per cent and imports by 175.7 per cent; with Japan, exports grew by 56.4 per cent and imports by 98.5 per cent; and with South Korea, exports increased by 89.1 per cent and imports by 127.3 per cent.
India’s high tariffs (most-favoured nation or MFN tariffs) and the low tariffs in partner countries are key reasons for its low exports and high imports with these partners. MFN tariffs are the regular tariffs a country charges on imports, often eliminated for partner countries under FTAs. Many Indian firms avoid using FTAs because the compliance costs outweigh the benefits as partner countries already have low or zero MFN tariffs. The average MFN tariffs on Indian products in partner countries are very low: Singapore (0 per cent), Japan (2.4 per cent), Malaysia (3.5 per cent), Mauritius (1.1 per cent), the UAE (3.5 per cent), and Australia (2.6 per cent). This limits the benefits of FTAs for Indian exporters. In contrast, India’s average MFN tariff is high at 18.1 per cent, so eliminating these tariffs under an FTA gives partner country exporters a significant price advantage. This pattern continues with India’s new FTA partners. Also, a substantial share of imports into these countries is already at zero MFN duties: Canada (70.8 per cent), Switzerland (61 per cent), USA (58.7 per cent), UK (52 per cent), and EU (51.8 per cent). In contrast, only 6.1 per cent of India’s global imports are at zero MFN duty. Given these factors, India may not see a significant export increase, while partner countries could benefit more from the FTAs with India.
The oped points to non-tariff barriers that Indian firms must surmount when exporting to these FTA partners.
New trade agreements typically include two types of measures. Border measures involve eliminating import tariffs on products from partner countries. Behind-the-border measures deal with harmonising domestic regulations in areas such as the environment, labour, intellectual property rights, digital trade, and gender. Developed countries push for the inclusion of these subjects in FTA negotiations. While high environmental standards are beneficial, adopting the US or EU standards in India could raise the cost of power and food, halting many economic activities. Similarly, agreeing to high minimum wages could lead to higher product prices and hurt exports. Adopting more restrictive standards for medicines than those agreed upon at the WTO will raise medicine prices. There are other concerns. One, allowing UK or EU companies to participate in government procurement through FTAs would create competition for small domestic firms. In contrast, government procurement markets in the EU and UK are restrictive and complex for Indian firms to access. Also, stricter sustainability standards in the FTA with the UK may prevent Indian apparel from qualifying for tariff concessions.
8. The case against US buying EVs from China laid out in this NYT article.
9. Interesting deal whereby the sandwich maker Subway raises $3.4 bn in the largest corporate bond deal of its kind. Given that Subway does not own its 36000 stores, the deal was secured by its royalties from US franchisees as well as its intellectual property.
So-called whole-business securitisations give lenders more control if things go wrong, and limit a company’s ability to take on additional debt. The $1.35bn of five-year notes were priced with a 1.5 percentage point premium over the benchmark five-year Treasury, for a yield of 6.07 per cent. That premium was reduced from roughly 2 percentage points when banks first started marketing the deal. The seven- and 10-year notes priced with yields of 6.32 per cent and 6.56 per cent, respectively.
Subway is owned by the PE firm Roark.
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