Weekend reading links

1. Gig economy may create over a million jobs in FY26, taking the total workforce to 14 million.

According to data from TeamLease Services, ecom and qcom are likely to add nearly 1 million jobs this year, followed by the logistics and warehousing sector. Balasubramanian A, senior vice president, TeamLease, said: “Qcom and ecom are estimated to generate 900,000 to 1 million jobs as they expand into Tier-II, -III cities; logistics and warehousing are expected to create nearly 500,000 roles driven by new multi-modal parks and electric vehicle fleets.” A similar trend was evident last year (CY25) when ecom and qcom firms created 600,000 jobs, logistics players generated 400,000, and the banking, financial services, and insurance (BFSI) sector added nearly 200,000 new gig roles for field sales and digital verification. Similarly, data from jobs and career platform Apna, for financial year 2026-27, said that hiring is expected to be driven largely by qcom expansion into Tier-II and Tier-III cities with around a million jobs. Kartik Narayan, chief executive officer of jobs marketplace at Apna, said: “The top three sectors— qcom, retail, and logistics — will continue to dominate the space. Qcom would add nearly 1 million jobs and logistics may generate approximately 500,000-700,000 jobs.”

On wages

On whether an increase in demand will lead to a rise in salaries or incentives of gig workers, Apna said, “Salaries are variable payout given the job but are approximately between ₹12,000-₹25,000 with the mean being ₹15,000 for nearly 40 per cent of these employees. Gig worker payouts might remain flattish due to intense competition and any increase would be attributed to incentivising festival period delivery and other holidays than the actual pay-out per delivery.”

2. Sanae Takaichi wins the largest majority for the LDP in the 465-seat Japanese lower house since its formation in 1955, securing 310 seats in the snap polls. The result saw the Nikkei rise sharply and bond yield climb in expectation of increased borrowings to fund Takaichi's committed spending program. 

3. Contrary to all the talk of a declining US economy, investors are flocking to US assets.

Last year foreigners poured around $1.6tn into US financial assets, including nearly $700bn into stocks, both new records and significantly higher than the levels of recent years. The story is much the same for US corporate bonds, with foreign purchases up sharply... From Singapore to Seoul, they are staying up all night to trade on increasingly popular after-hours US trading platforms. Among the few foreigners sitting out this buying spree were central banks, which have been moving money from the dollar into gold... Foreign institutions alone now own nearly 15 per cent of US stocks, a record share and up by half from the level a decade ago... Notwithstanding all the America bashing, foreigners now own nearly $70tn in US assets, double the level a decade ago. And in the last year, most of those flows arrived as “hot money”. Foreign direct investment in factories and businesses, which cannot withdraw quickly, was much weaker than portfolio flows into assets such as stocks and bonds, which can reverse in an instant.

4. US plans tariff carve-outs to chip makers, especially the likes of TSMC, who make investments in the US. 

The size of the potential rebate programme would be linked to the recent US-Taiwan trade agreement. The White House has agreed to slash tariffs on imports from the island to 15 per cent in exchange for a $250bn investment in the chip industry in the US. Under the deal, Taiwanese companies including TSMC that invest in the US will be exempt from the forthcoming tariffs in proportion to their planned US capacity. The White House said it would allow Taiwanese companies building semiconductor plants in the US to import 2.5 times the new facilities’ planned capacity tariff-free during the construction period, according to an outline of the trade deal released by the commerce department. Taiwanese companies that have already built plants in the US will be allowed to import 1.5 times their capacity. TSMC would be able to allocate the exemptions it earns under the trade deal to its Big Tech clients in the US, allowing them to import chips from the company tariff-free. The size and scope of the rebates for US hyperscalers depend on the production capacity that TSMC forecasts it can reach in the US in coming years.

5. China is treating data as an asset.

In 2024, China became the first country to allow enterprises to classify data as intangible assets on their balance sheets. Beijing had already declared data a “factor of production” alongside land, labour, capital and technology. The National Data Administration now oversees dozens of data exchanges. China Unicom, one of the world’s largest mobile operators, reported Rmb204mn ($29mn) in assets in its first filing under the new rules. The motivation isn’t purely philosophical. Local government financing vehicles — the off-balance-sheet entities Chinese municipalities use to fund infrastructure — are drowning in debt. Some use data as collateral for fresh loans.

6. The rising Apple margins

7. Mirroring the changing trends, as EV sales slump across the US, EV battery plants are being converted into energy storage systems (ESS) for the surging demand to power data centres. Sample this

Tesla, which incorporates batteries from a range of suppliers including CATL and LG into its Megapack and Powerwall energy storage systems, reported that energy and generation storage revenues grew 27 per cent year-on-year to $12.8bn — up from $2.8bn in 2021, while its revenues from EV sales fell 9 per cent to $64bn. The shift to ESS has been accelerated by weakening government support for EVs, after the Trump administration slashed tax credits established in the Biden-era Inflation Reduction Act and moved to cut tailpipe emission rules and state clean-air standards intended to encourage drivers to switch to EVs... These policy rollbacks led analysts at BloombergNEF to revise down their forecast for EVs’ total share of 2030 car sales from 48 per cent to 27 per cent. EVs currently account for about 8 per cent of US new car sales. Stellantis is selling its 49 per cent stake in a battery plant just over the Detroit River in Windsor, Ontario, to Korean battery giant LG for just $100, after the European car group announced a €22bn writedown last week tied to its aggressive expansion into EVs. It had invested $980mn in the Windsor facility...

While the administration has cut consumer tax credits for EVs, President Donald Trump’s flagship One Big Beautiful Bill Act passed last year retained generous production credits for battery manufacturers. They include a $35 per kilowatt-hour manufacturing credit for battery production, and a 30 per cent investment tax credit for energy storage that will be phased out starting in the 2030s. The credits, along with US tariffs on Chinese energy storage batteries of close to 60 per cent, mean ESS cells can be produced in the US at prices close to parity with the Chinese imports that dominate the market.

8. Migrants make a disproportionately large share of successful US startup founders. 

Some 44 per cent of the 1,078 founders who created a US tech start-up valued at more than $1bn between 1997 and 2019 were born outside the country, according to a Stanford Graduate School of Business study. The top five grey matter exporters to the US were India, Israel, Canada, the UK and China.

9. AK Bhattacharya points to some facts about the Government of India's capital expenditure trends. 

Between 2005 and 2020, a period of 15 years, capital expenditure crossed 2 per cent of GDP only twice — in 2007-08 and in 2010-11... Between 2020-21 and 2024-25, she grew capex by 26 per cent on average every year... As a percentage of GDP, capital expenditure rose from 1.67 per cent in 2019-20 to 3.2 per cent in 2024-25... Interest-free 50-year loans to states... in 2020-21... accounted for only 2.8 per cent of the total capex outlay of the Centre. Over the years, this share has gone up and, in 2025-26, it was 13 per cent and is set to go up to 15 per cent in 2026-27... Almost 41 to 52 per cent of the government’s capital outlay is allocated to PSUs. In other words, the Union government depends not just on the states for executing its capex plan, but also on PSUs... almost half of the government’s capex is dependent on providing equity and loans to PSUs.

10. Martin Sandbu points to Michael Sandel's prophetic warning in 1996 in his book, Democracy's Discontent.

“To the extent that contemporary politics puts sovereign states and sovereign selves in question, it is likely to provoke reactions from those who would banish ambiguity, shore up borders, harden the distinction between insiders and outsiders and promise a politics to ‘take back our culture and take back our country’, to ‘restore our sovereignty’ with a vengeance.”

11. London has the lowest new housebuilding among all major cities in the world!

London has been set a target of building 88,000 new homes per year over the next decade. Last year construction started on just 5,891 — 94 per cent below target, a 75 per cent year-on-year decline, the steepest drop in the country, the lowest tally since records began almost 40 years ago and the lowest figure for any major city in the developed world this century... New starts by private developers were down 79 per cent over the past two years, compared with collapses of 85 and 94 per cent for affordable and council housing respectively, with work started on just 100 council-funded homes in 2024-25 by one estimate.

And rising costs due to regulatory changes are behind this. 

This is a good example of how well-intentioned policies to discourage foreign investors from buying up properties in London (and thereby squeeze out the local residents) may have had a perverse impact. 

Such investors are frequently blamed for worsening affordability, but a 2017 report led by the LSE’s Kath Scanlon found that these investors “had a positive net effect on the availability to Londoners of new housing, both private and affordable”, warning that “there would be real costs to the London housing market if overseas investment . . . began to feel unwelcome”. That is precisely what has happened over a decade of increased charges on owners of second homes and foreign investors.

This about the regulatory layers added in response to the 2017 Grenfell Tower fire. 

This has taken two forms: significant costs of upgrading existing homes to new standards, and the introduction of a new body — the Building Safety Regulator (BSR) — which has added a lengthy and exacting step between planning approval and starting construction, with inadequate resources quickly creating a logjam. This has placed a particular squeeze on the finances of affordable housing providers, who cite “additional costs and delays as a result of new building safety regulations” as a key reason for low build rates, leaving £120mn worth of council-funded homes on hold. Tens of thousands of provisionally approved homes in the capital are waiting on supplementary review by the BSR, which green-lights only a third of cases and takes an average of eight months to do so. These delays — at a point when developers have typically already poured large sums into a project — add huge financing overheads, in some cases expanding projects’ overall cost by more than 15 per cent. Adding to these are enhanced environmental regulations that are far more stringent than those in other European countries and levies requiring developers to invest in local infrastructure.

12. Tej Parikh has an excellent graphical summary that explains how the combination of an extended period of monetary and fiscal accommodation has led to plentiful cheap financing, eroded financial market discipline, kept zombie companies going, lowered business entry and exit, delayed recessions, and led to the accumulation of ever-increasing risks across the economy. 

Weekend reading links

1. The Swiss Central Bank has lowered interest rates to zero in its sixth consecutive rate cut, after consumer prices fell 0.1% in May from a year earlier. Switzerland has had negative rates from 2015-22, with the lowest being minus 0.75%.

2. Hybrids are making a comeback.

In the first three months of this year, hybrids — including cars that can and cannot be plugged in — made up about 14 percent of all light vehicles sold in the United States, according to the Department of Energy. That was around twice the market share of fully electric vehicles in that period. Republican legislation working its way through Congress could further lift sales of hybrids. In May, the House passed a policy bill backed by President Trump that would eliminate a $7,500 tax credit available to people who bought or leased electric vehicles. That legislation would also impose an annual tax of $250 on electric cars and $100 on hybrids to finance road projects. The Senate version of the bill introduced this week would do away with the tax credit, too, but does not include the annual tax.

A few large automakers dominate the sale of hybrids. Nearly half the cars and trucks that Toyota and its luxury brand, Lexus, sold in the first five months of the year were hybrids — and sales of those vehicles were up about 40 percent from a year earlier. Ford Motor’s hybrid sales rose 31 percent in the same period. Honda is on track this year for its highest hybrid sales ever, and the hybrid versions of its Accord sedan and CR-V sport utility vehicle now outsell the gasoline-only models. Hybrids are typically powered by a small gasoline engine that is paired with an electric motor driven by a battery that is much smaller and, thus, less expensive than the batteries in fully electric vehicles. These batteries are charged primarily by regenerative brakes and gasoline engines. Plug-in hybrids, which account for a small share of hybrids, have bigger batteries than regular hybrids and can also be charged from power outlets at home or at charging stations. Some plug-ins can go around 50 miles on battery power alone before the gas engine kicks in.

3. The changing nature of business lines and revenues of Reliance Industries.

Rahul Malhotra, director at Bernstein, calculates that Reliance now generates more than half its annual earnings before interest, taxes, depreciation and amortisation from consumer-facing businesses, compared with less than 10 per cent a decade ago.

4. Smartphone assembly has been the PLI's standout success.

5. Trends with India's FDI.

Manufacturing's share of FDI has continued to decline.

6. Why Chinese consumers took to EVs?

XPeng's Mona Max, which has just gone on sale in China for around $20,000. For this price you get self-driving capability, voice activation, lie-flat beds, film and music streaming. Young Chinese graduates, we're told, see all these as standard features for a first car purchase... a huge amount of government spending goes towards making EVs financially attractive, according to the CSIS study. Members of the public receive subsidies for trading in their non-electric car for an EV as well as tax exemptions and subsidised rates at public charging stations. These perks drove Mr Lu to go electric two years ago. He used to pay 200 yuan ($27.84; £20.72) to fill up his car for 400km (248 miles) of driving. It now costs him a quarter of that. People in China also normally pay thousands for their vehicle registration plate - sometimes more than the cost of the car itself - as part of government efforts to limit congestion and pollution. Mr Lu now gets his green one for free... Another proud EV owner in Shanghai... says that rather than charge her vehicle at a station, she changes her car's battery at one of the city's many automated swapping stations provided by EV maker Nio. In under three minutes, machines replace her flat battery with a fully charged one. It's state of the art technology for less than the price of a tank of fuel.

7. Some statistics on government spending on public sector units.

The government’s total receipts from disinvestment and dividend from PSUs over this period of 10 years fell from 0.45 per cent to 0.25 per cent of GDP... In contrast, the government has been increasing its capital allocations for PSUs through equity and loans in the last 10 years, from about 0.54 per cent in 2014-15 to about 1.66 per cent of GDP in 2024-25... In 2014-15, total equity and loans to PSUs were estimated at ₹67,512 crore, accounting for just about 34 per cent of the Modi government’s total capex of ₹1.96 trillion. By the end of 2024-25, that share rose to 54 per cent, as PSU equity and loans were estimated at ₹5.48 trillion, out of a total capex of ₹10.2 trillion.

8. State capability, airline industry graphic of the day.

9. Brazilian Supreme Court rules that social media platforms can be held legally responsible for users' posts, forcing them to proactively demove material like hate speech, incitement to violence, etc., even without a prior judicial takedown order. This follows rising concerns in Brazil about harmful digital content, especially on children and youth. 

10. The balance sheet of AI spending and benefits is not looking good.

On the cost side, the effects of AI mania are all too apparent. The four tech companies leading the charge — Alphabet, Amazon, Meta and Microsoft — increased their capital spending by nearly two-thirds, or $95bn, in 2024. As this year got under way, they were planning to boost capex by another $75bn... Bank of America Securities predicts that for the tech industry as a whole, spending on data centres will jump from $333bn last year to about $1tn in 2030. By the end of the period, 83 per cent of the money will go into AI-related investments. 

On the revenue side of the equation, meanwhile, some of the AI leaders are starting to notch up big percentage increases in business — but the extra revenue is counted in the tens of billions rather than the hundreds. Early this year, Microsoft said its annualised revenue rate from AI had climbed 175 per cent to reach $13bn. That is still only about 5 per cent of the total revenue it is expected to produce this year. OpenAI’s revenue run-rate from subscriptions, its main source of income, just topped $10bn, doubling from the end of last year. The rates of increase are notable, but the absolute figures still pale in comparison to the capex.

Weekend reading links

1. The mobile phone semiconductor chipset market in India is a virtual duopoly, with Qualcomm and MediaTek forming 72% of the market share in 2022. 

Chipsets constitute ~15% of a smartphone’s cost... As many as 152 million smartphones were shipped in India in 2022, according to Counterpoint Technology Market Research. Of this, 70 million contained Mediatek’s chipsets and 41 million had Qualcomm’s. Samsung’s Exynos chipset numbers stood at 13 million and Apple’s at 6.8 million, according to a senior executive with one of the chipset companies... Mediatek is inching up on the 5G market share as well. Analysts estimate that almost half of Mediatek shipments will be 5G phones by the end of 2023, bumping up its earnings further. The average selling price of the 4G and 5G chipsets from Mediatek is US$10 and US$20, respectively. For rival Qualcomm, the average selling price of 4G and 5G chipsets would be US$10 and US$25—nearly the same as Mediatek. For the flagship smartphone models, though, Qualcomm may sell at a 10-15% premium... One in two smartphones launched in the quarter ended September 2022 used Mediatek chips, according to market-research firm Techarc. From the time ODMs in Taiwan and China would give the company entry only to mid-level slots and reserve premium phone slots for Qualcomm, Mediatek is today marching lockstep with Qualcomm... In India, Mediatek has been in the trenches—it helped Indian phone makers such as Lava International, Micromax Informatics, and Karbonn Mobiles to launch feature phones and then 4G smartphones.

Mobile phone chipsets contribute 50-60% of revenues of both companies in India. They are now moving to supply chipsets for home broadband modems and set-top-boxes to both Airtel and Jio. Both see the Fixed Wireless Access (FWA) equipment market, where the Indian TSPs plan to cover 100 m households, as a major source of future revenue. 

2. Paul Krugman has an excellent post explaining succinctly the reasons for Canada's trade surplus with the US (almost entirely due to the oil exports from Athabasca tar sands to US midwest) and Japan's trade surplus (its ageing population and mature economy means that Japan has few investment opportunities, leading it to export capital, which in turn also means it must run trade surpluses).  

3. Useful description about President Trump's political beliefs.

Mr. Trump has never been particularly rooted to one ideology for all that long. He switched political parties five times before first running for president as a Republican in 2016, and at one point or another was for abortion rights, gun control, higher taxes on the rich and the invasion of Iraq before he was against all of them. His most consistent through line going back to his days as a real estate developer in the 1980s has been a conviction that the United States was being cheated by friends and enemies alike, which has informed his views of trade, security and alliances. Otherwise, he has been willing to shift direction if it suits his interests.

4. Despite high profile stories of large US companies ordering employees back to the office, work from home (WFH) continues to remain persistently high.

Stanford University economist, Professor Nick Bloom's... research, which includes monthly surveys of thousands of US workers, shows the share of work they do from home soared from well below 10 per cent before Covid to 61 per cent at the height of the pandemic in 2020, before sinking back to around 30 per cent in 2022. But those levels have stayed remarkably flat since late 2023, never dropping below 26 per cent. You can see a similar pattern in office visit levels... Some of the biggest fans of working from home are smaller, younger, less well known companies that are, as Bloom points out, among the fastest growing firms. Their expansion may be offsetting more noticeable cuts in homeworking at older businesses. Also, the longer hybrid working lasts, the more evident its advantages become for some firms... according to a paper Bloom and colleagues published on the trial last year. “Each quit cost the company approximately $20,000 in recruitment and training, so a one-third reduction in attrition for the firm would generate millions of dollars in savings.”

5. Trajectory of fiscal devolution in India over the last two finance commissions. 

The government had imposed a health cess of 5 per cent on imports of certain medical equipment in the 2020-21 Budget. The next year’s Budget imposed the Agriculture Infrastructure and Development Cess (AIDC) on imports of products such as gold, silver, alcoholic beverages, crude edible oils, etc. Besides, cess was also imposed from the excise side at the rate of ₹2.5 per litre on petrol and ₹4 per litre on diesel. That is why devolution to states now constitutes 26 per cent of the states’ own tax revenues, which is much lower than the pre-Covid period, barring 2014-15 and 2017-18.

6. RE in India hits a roadblock.

RE projects of 40 Gigawatts (Gw), tendered by four government-designated Renewable Energy Implementation Agencies (REIAs), have failed to find buyers. A February 5 review meeting of the Ministry of New and Renewable Energy revealed that these projects, awarded by RE-tendering agency Solar Energy Corporation of India (SECI) and state-owned generators NTPC, NHPC, and SJVN, have been pending for over a year because no state government has opted to sign power-sale agreements (PSAs) with the RE generator. The pending tenders amount to just under half the 94 Gw of RE-project bids issued by the four agencies in 2023-24. As a result, the option of pausing new tenders until all PSAs or power-purchase agreements (PPAs) are signed with the REIAs was being considered.

7. Investments by PE and VC firms in India's climate tech sector fell 61% in 2024 to $1.3 bn, mirroring global PE/VC investments which fell 40% to $30.9 bn. 

8. India health sector spending facts.

The social sector... share in total Union expenditure declining from 5.3 per cent in 2019-20 to just 3.9 per cent in 2025-26... The Budget allocates ~1.19 trillion to the health sector... The Union Health budget now accounts for 2.4 per cent of the total Union Budget and 0.33 per cent of the projected gross domestic product (GDP), down from 3.59 per cent and 0.56 per cent, respectively, in the 2021-22 Budget... The 11th Five-Year Plan proposed an increase in government health spending to a minimum of 2 per cent of GDP by 2012. The National Health Policy of 2017 recommended further elevating public health spending to 2.5 per cent of GDP by 2025. According to the latest National Health Accounts (2021-22), the Union government accounts for a modest 41.8 per cent of total government healthcare expenditure in India. A rough estimate suggests that the combined healthcare budget of the central and state governments for 2025-26 is approximately 0.79 per cent of the projected GDP... the per-capita Union health budget for 2025-26 is ~844 — 8 per cent lower than the pandemic year—raising concerns about achieving UHC by 2030.

9. A graphical summary of India's trade partners.

India also has the tenth largest trade surplus among US trade partners.

Weekend reading links

1. Michael Anton has a nice article on the enduring relevance of the themes in The Godfather. This is a good description of the attributes of the Don and his three sons.

Coppola has said that he approached The Godfather as a sort of gangster King Lear, the saga of a great chieftain with three sons who each inherited one of his “qualities,” but none the whole package. (That isn’t really what Lear is about, but whatever.) Sonny has the don’s ferocity and courage, Fredo his compassion and warmth, Michael his cunning and patience. 

The don succeeds because he has all three. He manages Machiavelli’s quasi-impossible combination of being at once feared and loved. Sonny is feared by all, and loved by those closest to him, but not by the Corleones’ wider circle. Contrast that with the parade of supplicants to the don in the film’s opening sequence; all but Bonasera the undertaker don’t merely fear and respect, but genuinely love him. Part of the story is how Michael gradually, painstakingly acquires both respect and fear—first from his immediate family, by the end from everyone. But Michael is never loved, except by his father, for whom he is clearly the favorite.

This is an interesting take on statecraft.

In Machiavellian terms, Michael knows how to use “the fox and the lion.” A prince needs both natures, “because the lion does not defend itself from snares, and the fox does not defend itself from wolves. So one needs to be a fox to recognize the snares and a lion to frighten the wolves.” A more perfect description of Michael Corleone couldn’t be penned. Machiavelli immediately continues: “Those who stay simply with the lion do not understand this.” A more perfect description of Sonny Corleone couldn’t be penned... 

“The state is never impersonal but always ‘someone’s state.’”

The Corleone family is rather much more akin to—almost identical with—the personal state of Machiavelli. As Harvey Mansfield explains, for Machiavelli, “stato means both status and state; stato is the status of a person or group while dominating someone else.”... This, more than Vito’s sons’ lacking all his qualities, is the don’s ultimate succession problem, and the ultimate reason why Michael fails. The latter can, and arguably does, make the strategically and tactically correct move in every situation. But he can’t create the same web of loyalties that encircled and enriched his father. In the sequel, Michael explains to Tom Hagen, “All these men”—meaning his henchmen—“are businessmen. Their loyalty is based on that.” Could one say the same of Luca Brasi’s relationship with Vito? Of Nazorine the baker’s?

... As Machiavelli explains, while principality is necessary to found states, republican institutions best preserve them. The perpetuation of states is the hardest challenge in politics—more difficult even than founding. Michael not only held on tightly to his power; he constantly increased it. Machiavelli, by contrast, counsels against inheritance and even (contrary to his reputation as this may sound) against one-man rule—after, that is, the necessary foundations have been laid. Power must be shared. A republic will last only “if it remains in the care of many and its maintenance stays with many.”

This is an interesting snippet. 

As Leo Strauss put it, for Machiavelli, “the foundation of justice is injustice. The foundation of morality is immorality. The foundation of legitimacy is illegitimacy or, in our language, revolution. The foundation of freedom is tyranny.”

2. Here Anton makes a pessimistic case (from the conservative side) about the future based on his reading of the present. This is an important reality

We still choose, sort of, but that hardly matters, because the people we nominally elect do not hold real power. And when they do, they often use it for unconstitutional ends. America’s real rulers are not the constitutional officers we nominally elect, and certainly not the American people, whom our understanding of political legitimacy asserts to be sovereign. They are, rather, a network of unelected bureaucrats, revolving-door Cabinet and subcabinet officials, corporate-tech-finance senior management, “experts” who set the boundaries of acceptable opinion, and media figures who police them.

This is a very good summary of the conservative case on a social, economic, and political crisis. Note that on many issues there will be convergence with the left. 

3. Nikkei Asian Review has a good story on why US technology companies will struggle to shake-off dependence on China. You can't replace such levels of revenue dependence in any time soon.

4. One area where China lagged behind India till end of 2020 was in the export of cars. In less than three years, its exports have rocketed, past even the US, and is now competing with Japan and Germany. 

The arrival of the electric vehicles has been behind the surge in Chinese exports. What does the stagnation in its exports compared to China's boom inform us about India's domestic automobile industry?

5. Smartphone usage across the world has been rising and stands at 4-5 hours per day.

See this report.

6. Interesting factoid about the UK economy - London's outsized importance in its total output. 

Removing London’s output and headcount would shave 14 per cent off British living standards, precisely enough to slip behind the last of the US states... By comparison, amputating Amsterdam from the Netherlands would shave off 5 per cent, and removing Germany’s most productive city (Munich) would only shave off 1 per cent. Most strikingly, for all of San Francisco’s opulent output, if the whole of the bay area from the Golden Gate to Cupertino seceded tomorrow, US GDP per capita would only dip by 4 per cent.

If you take out London, the GDP per capita of UK will be lower than that of the poorest US state of Mississippi! 

7. UK water privatisation facts of the day

After being privatised without debt in 1989, and given a £1.5bn government handout to make improvements to the network, water companies had ramped up £60bn in borrowing by March 2022 and paid out more than £70bn in dividends while presiding over leakage and pollution failures, including unknown quantities of untreated sewage pouring into coastal waters and rivers.

8. An FT editorial advocates restrictions on the tax deductibility benefit for interest payments,

The bias in the corporation tax system towards debt should be reduced. Debt interest payments can be deducted from taxable corporate income, whereas equity financing receives no such treatment. This encourages businesses to load up on debt. Higher corporate indebtedness leads to lower investment and innovation, and greater economic volatility. Allowing full expensing as well only raises the subsidy for debt-financed investment. One option would be to gradually curb the amount of interest that can be deducted, which would help cushion the short-term outlay of extending allowances too.

9. Interesting snippet about copper mining in Zambia

In the early years of independence from Britain after 1964, Zambia produced more than a tenth of the world’s copper. After nationalising the industry in the 1970s in order to fund development, Kenneth Kaunda, Zambia’s founding father and its first president, proudly declared that its citizens were “born with a copper spoon in our mouths”. The move paid for nation-building ventures that define Zambia to this day, such as the Tazara railway line to Tanzania, the hydropower that is the country’s primary energy source and the education of future generations of mine engineers. 

By the 1980s, that birthright was spent. Global copper prices tumbled. ZCCM, as the manager of mines, could not finance investment. Kaunda’s one-party regime crumbled in 1990, not least due to resistance from unions and voters in the Copperbelt. The mine privatisations that followed were slow to turn around the disrepair and came with what are now seen as one-sided tax breaks. Exploration died off.

Zambia borders DRC, the current leading global copper miner, and the government of President Hakiainde Hichilema has now committed to more than tripling production to 3 million tonnes by 2032. And that requires certain things to be addressed.

To even come close, Hichilema, a businessman who was elected in 2021, needs to attract deep pockets for new exploration but also investors with the appetite to turn around old underground mines that have faced high power costs to sustain. “Every tonne counts,” he said in March. The other thing that matters is geography. Zambia shares the same high-class copper endowment as the DRC, but its copper must travel 1,800km or more, largely by truck, to ports such as Namibia’s Walvis Bay or Dar es Salaam. It does, however, enjoy far more political stability in comparison.

Given the post-independence success with nationalised mining and disaster with privatisation, there's a strong case that mining activity in Africa should be done by state-owned companies. Yes, state-owned companies run the risk of corruption and cronyism. But privatisation runs the equal risk of corruption and aggrandisement by foreign mining companies. 

Under the circumstances, the strategy should be to figure out a mechanism to strengthen and insulate state-owned mining companies and enable more transparent management of the mining profits. 

10. Devastating expose of David Solomon, Goldman Sachs CEO, by Jen Wieczner. It's stunning how such leaders are allowed to get away in these times. Another example of the hypocrisy of liberals?

11. Windfall taxes are on the rise in Europe. 

Data from KPMG and the Tax Foundation show that more than 30 windfall taxes, several of which now cover multiple sectors, have been introduced or proposed across Europe since the start of 2022. A total of 24 EU countries have announced, proposed or implemented a windfall tax on energy companies, which European Commission officials put forward after energy prices soared at the start of 2022. The UK has also imposed a levy on profits made from the extraction of oil and gas from the North Sea. 

But banks have increasingly become a target, with the Czech Republic, Lithuania, Spain and now Italy imposing charges on the sector. Latvia could follow... Hungary has imposed levies on all financial institutions, including insurance companies, as well as pharmaceutical groups. Portugal introduced a 33 per cent levy on food distributors with excess profits generated in 2022 and 2023. Croatia has gone further still, introducing a windfall tax that potentially applies to all companies that report a revenue above K300mn (€40mn) for 2022. Bulgaria is also planning an economy-wide windfall tax... The IMF has also argued in favour of levies on excess profits becoming a permanent feature of the tax system.

This about historical examples

Before the outbreak of war in Ukraine, such taxes had not been widely used in decades. The levies were first introduced over a century ago in Europe during the first world war. In 1915, Denmark introduced the Gulasch tax, named after the German stew, on Danish food exporters that continued to trade with Germany during the war. At least 22 countries, including the UK, US, France, Italy and Germany, adopted some form of extra tax on “excess” corporate profits during the conflict. The second world war also saw the use of windfall taxes by the UK, Canada and the US. Other more recent examples include a windfall tax on crude oil enacted by the US government in 1980 and a 1981 one-off bank levy introduced by Margaret Thatcher’s British government. The UK’s Labour government also brought in a windfall tax on utilities in 1997, arguing that the previous Conservative government had sold off the companies cheaply.

This is the IMF report supporting some form of institutionalised windfall taxes.  

12. Akash Prakash has a good summary of the bullish case for India.

No other large EM country can grow real gross domestic product (GDP) at 6 per cent plus for an extended period irrespective of the economic environment in the West. No other large EM has spent the last five years rebuilding corporate and bank balance sheets. Corporate confidence and the private capex cycle are visibly improving. From a relative perspective, there are limited alternative choices in the EM world where you can deploy capital in size. Geopolitics has never been more favourable, and India finally seems to have a chance to build a credible manufacturing story. The country is far more relevant today, a top 10 market for virtually every product, among the fastest-growing, and a clear alternative to China for sourcing everything except the very basic assembly operations.

He also points to an interesting financial market paradox

One has never seen a bigger divergence between enthusiasm for the top-down view of the country and the ability to deploy capital on a stock-specific micro perspective. Almost every investor I talk to is finding it difficult to find new ideas. Markets are expensive, and the well-known quality stocks even more so.

13. The Biden administration continues its squeeze on China as part of its "small yard, high fence" approach of restricting access to advanced technologies. A new executive order limits US investment into China into strategic national security related areas like semiconductors, quantum computing, and artificial intelligence. It also restricts US private investments into these sectors in China. US funding into China-focused VC and PE fell to $14 bn in 2022 from $95 bn in 2021. 

14. Good timeline in The Ken highlighting Byju's slow decline.

The company's valuation has dived from $22 bn to $8.4 billion, and it looks set to continue. Its 2021-22 accounts are yet to be filed. 

There's now a Byju's stigma for ex-employees in the job market!

Some companies have specifically told recruiters not to look at Byju’s employees as they are concerned about their ethics... “When giving hiring mandates, certain companies have specifically told us not to look at Byju’s employees,” said Vivek Mehta, Partner at ABC Consultants... These people are not viewed as coming from a great organisation or company They have taken shortcuts to growth, shown inflated sales, and now this is what is coming to bite its employees. It’s not universal, but it has made recruiters cautious.

15. Tallying the competitiveness of Pharma API manufacturers in India and China. 

Weekend reading links

1. China's solar capacity addition is back and at a scorching pace.

The country installed almost three times the volume of solar capacity between January and the end of April than in the same period in 2022, and is on track to add more panels this year than the entire total in the US... The nation could install 154 gigawatts of solar capacity this year, BloombergNEF said on Monday, raising its China forecast from a previous total of 129 gigawatts. The US had a cumulative total of 144 gigawatts installed at the start of 2022, according to BNEF data... The rise in China’s deployments means the world is on track to have a total of 5,300 gigawatts of capacity by 2030 — about the volume of solar that is required in scenarios under which global net zero targets are met.

2. Green Hydrogen is the buzz word. It's estimated that 500 million tonnes of Hydrogen would be needed by 2050 or 10% of the energy mix. The total financing requirement for this would be a staggering $20 trillion by 2050. 

For an idea of the size of this capital project, however, it is worth dividing hydrogen capex three ways; the cost of renewable electricity needed to make the gas, expenditure on electrolysers used to split water into oxygen and hydrogen and, lastly, the infrastructure — pipelines, ships and storage sites — required to take the hydrogen where it is needed. Generating this amount of hydrogen will need almost 25,000TWh of renewable electricity a year, about 100 times the UK’s current electricity demand. On the assumption that solar panels and wind turbines are placed in sunny and blustery areas, we would need 10TW of infrastructure, Lex calculates. At an average cost of $800 per kW, the investment required would be about $8tn. The second bucket is the electrolysers. Today, inflation has pushed up the price to about $1,500 per kW but it could be as low as $250 per kW by 2050. Using a midpoint of $875 per kW implies a capex requirement of $7tn to achieve the desired goal. When it comes to infrastructure, the expenditure needed for transport and storage depends on the specific technology. The cheapest option involves pushing hydrogen through repurposed gas pipelines and using repurposed storage sites. Supply chains involving shipping hydrogen transformed into ammonia will be more expensive. Overall, capex may hover at about $5tn.... 

A simple way of calculating the average cost of hydrogen is to divide the capex by how much hydrogen the kit it buys might produce over its 20-year lifespan. By that reckoning, the average cost for the hydrogen would work out at about $62 per MWh... Assuming that natural gas will stabilise at a more reasonable $50 per MWh, that would suggest every unit of hydrogen needs a $12 per MWh subsidy on average. Multiplying that for the whole of the hydrogen produced, we are looking at about $4tn in subsidies... A look at Platt’s hydrogen price wall, which shows the cost of hydrogen produced in different regions, suggests that, while some projects manage to come in at $50-$100 per MWh, the cheapest hydrogen in Europe today costs more than $150 per MWh without transport and storage. European natural gas meanwhile is below $32 per MWh. This means that a serious subsidy push is needed if hydrogen is going to reach the scale required to break even with existing energy sources.

The Americans are supporting Green H2 development by direct tax credit of around $3 per kg for a period of 10 years, whereas the Europeans are mandating green hydrogen in energy mix mandatory (42% of the hydrogen used in industry to be renewable by 2030).

3. Adani Transmission facts of the day,

Adani Transmission, which went from being a fledgling to India’s largest private utility in seven years, has grown its asset portfolio 3.6 times to 19,779 circuit kilometers (ckm) across 33 projects. Of these, 13 projects are currently underway, but many face delays or cost overruns, including the largest one: the Warora-Kurnool Transmission line that runs through three large southern Indian states. Others have been beset by adverse weather, pandemic-era disruptions or legal wrangles — common issues in infrastructural projects in India which makes the Adani group the rare private company that has been scaling up aggressively in this space. With India planning to add more than 27,000 ckm of transmission lines by 2025, the company’s continued expansion will be crucial for the national goal.

The Adani story is important for another reason. It's now clear that India need the likes of Adani who have both the ultra-high risk appetite and the massive scaling ambitions required to support its very large infrastructure addition requirements. 

Apart from its long gestation and scarce long-term finance, infrastructure execution is full of messy problems arising from its entanglement with the local political economy. Even the most sanitised contracting cannot avoid the rent-seeking at various levels that extend through the life-cycle of the project. Given the messy realities of infrastructure execution, I've argued here that scale growth in infrastructure requires greasing with rents. This requires a third attribute, the capability and corporate culture to navigate the bureaucracy and polity. And Adani is the rare company which appear to meet all three requirements. 

The problem is with having the scaling ambition and also having the capabilities to realise it. This works at the level of the country and the company. Does India have the capabilities to grow at sustained high rates with its existing capabilities? Does Adani itself have the capabilities to support its spectacular growth ambitions? In Can India Grow, we've argued against the former. On Adani, there's little to suggest its track record for such scale execution. 

From its track record, the Adani Group appears to be one that has ultra-high risk appetite, sky-high ambitions, and excellent political economy navigation skills. But its capabilities are nowhere even remotely close to realise its ambitions. 

There's no precedent of starting out from nothing to own a third of India's airport capacity in 3-4 years. In any of the several other verticals it operates in, the Group has had little or no experience. There are hard limits to such inorganic growth. Infrastructure execution is not like IT with their network effects and exponential growth. 

For a start, there's finance. The Group has followed a virtual Ponzi financing model, whereby it bids aggressively for a project, secures it, raises debt by leveraging the new contract, uses this money to bid more, and so on. And simultaneously start execution. Ultimately, it has to keep generating revenues from the projects it has secured to be able to repay its burgeoning debt pile. In so far as its cash flow challenges, this is like a trapeze artist on the thinnest trapeze. 

This trapeze art works so long as either the rate of new project/contract acquisitions and associated debt mobilisation exceeds the repayment obligations and investment requirements, or the rate of project revenues and debt mobilisation exceeds the repayments and investments. The problem is that infrastructure execution is filled with uncertainties and time and cost over-runs are common, which in turn necessitate renegotiations, which in turn demand invoking political economy connections. 

Then there is the manpower capabilities. This includes capable sub-contractors at scale, good internal managers, and excellent senior project leadership capabilities. All these are extremely scarce. It's almost impossible to acquire the managerial and execution capabilities at the scale required from the Indian labour market. Talent of such quality at this scale just does not exist.

In the absence of all these, the Adani Group's growth was bound to hit the ceiling. It is all fine as long as they were merely acquiring contracts. However, once the repayments rose enough to demand project revenues too, the strains were inevitable. 

4. On the central bank forecasting

Most of the Federal Reserve’s rate-setters failed to foresee that inflation would ever rise, and then overestimated the speed of its decline. Economists at the BoE and the European Central Bank underestimated the scale and persistence of inflation. Across the world, poor forecasts have contributed to central bankers failing to do their main job: maintaining price stability. The failure to spot inflation has not only left central bankers risking financial instability by having to raise rates far faster than usual but threatened the credibility of institutions that rely on trust to steer the economy towards sustainable growth.

5. Some snippets about foreign banks in India,

HSBC India has 12 per cent share in the foreign exchange business, 9 per cent in exports, and close to 20 per cent of foreign direct investment has been done through this bank... More than 30 per cent multinational companies in India — over 1,000 — bank with Citi. It manages 8 per cent of India’s trade flows and 5 per cent of domestic electronic payments flows... HSBC India... is into multinational banking in a big way (45 per cent of the multinational companies in India bank with it) besides emerging and large Indian corporations.

Foreign banks have avoided the low margin mass-market services and have preferred sticking to the high-margin niche market services. 

6. Semiconductor chips manufacturing is an extremely specialised and perhaps the most capital intensive of all manufacturing. It's most unlikely that India will make a breakthrough and get a foothold on this market. The Chinese have struggled. Besides the amount being offered as PLI incentives are tiny for the kind of investments required for smaller size chip manufacturing. It's therefore no surprise that the Vedanta-Foxconn deal has unravelled, and it's perhaps good that it has unravelled quickly. All the others showing interest are doing so only to knock-off the incentives, and it's great that the government has seen through the game. None of the three dominant global chip makers - Intel, Samsung, and TSMC - have shown any interest. 

If there's an area in the semiconductor value chain that India should be pursuing aggressively, it should be in chip design where it already has some strength.

7. In the context of semiconductor chips manufacturing, FT has a long read on how small chips can get. The critical driver of how small chips can get is chip lithography, where Dutch company ASML is a monopoly. Its extreme ultraviolet (EUV) photolithography machines "print" transistors almost as small as "the diameter of a human chromosome on to sheets of silicon to make a semiconductor". 

It is now ASML that is seen as keeping Moore’s Law alive, helping manufacture chips the size of a fingernail that can hold about 50bn transistors. “What’s driven Moore’s Law? It’s basically lithography,” says Jamie Mills O’Brien, an investment manager at Abrdn, a top 50 investor in ASML.

But the limits are now clearly evident and imminent,

The latest 3-nanometre chips being mass produced for this year’s iPhones will be followed by what some see as an even bigger leap forward to 2nm by 2025. “But once you get to 1.5nm, maybe 1nm, Moore’s Law is 100 per cent dead,” says Ben Bajarin, a technology analyst at Silicon Valley-based Creative Strategies. “There’s just no way.” Chip engineers have defied forecasts of an end to Moore’s Law for years. But the number of transistors that can be packed on to a silicon die is starting to run into the fundamental limits of physics. Some fear manufacturing defects are rising as a result; development costs already have. “The economics of the law are gone,” says Bajarin.

To give a sense of the technology involved

ASML produces machines capable of vaporising tiny droplets of molten tin up to 50,000 times a second, creating a 13.5nm wavelength of light. This EUV light is then bounced off a series of mirrors inside a vacuum chamber, narrowed and focused until it hits a silicon wafer... The company’s high numerical aperture (NA) machine is the latest output of its huge research and development investment, which rose 30 per cent to €3.3bn in 2022. High-NA essentially expands the numerical aperture — or range of angles — over which the light can be bent and emitted, allowing it to create smaller transistor patterns on a wafer. ASML has just five customers for its existing EUV machines — TSMC in Taiwan, Samsung and SK Hynix in South Korea, and Intel and Micron in the US. All of them have ordered the latest model.

The company is also a monopoly in Deep UV (DUV) machines used to make larger chips used in cars and electric equipment.

8. Vivek Kaul makes some important points about the current state of the Indian economy,

First, a large section of the population is still struggling financially... Second, there has been a marginal turnaround when it comes to investment in the economy, but the question is if this can be sustained without a more equitable growth in consumption... Third, more people have gone back to agriculture over the last few years and that is not a good trend... “the agricultural sector witnessed a return of 36 million workers between 2017–18 and 2021–22”. This has led to a scenario where “the absolute count of workers in agriculture stood higher in 2021–22 than in 2011–12.” This is perhaps an impact of the gradual destruction of the informal sector, which has always been a major job creator... Fourth, micro, small and medium enterprises, which are usually major job creators, have been struggling for a while now... Fifth, there are not enough jobs for India’s youth.

9. In the context of mobile phone manufacturing and the PLI scheme, Andy Mukherjee raises questions on the value addition potential in India.

On each phone assembled locally, the government pays the likes of Foxconn and Wistron Corp., another Taiwanese contract manufacturer for Apple Inc., up to 6% of the invoice price... The emerging consensus in policy-advisory circles is that in a decade the nation will go on to capture about 20% of the final price of a device. That’s optimistic, considering that China garnered $6.5 on the first iPhone in 2009. It took the People’s Republic nearly a decade to raise its take to $104, or 10% of the final price of iPhone X, economist Yuqing Xing has estimated.

On this, Raghuram Rajan et al write,

For the Apple iPhone 12 Max, industry estimates are that Foxconn’s value added from final assembly and testing is about 4 percent of the manufacturing costs, which in turn are about 1/3rd of the value of the mobile phone. As India goes further into sub-assemblies, the value added in India will increase. But so long as India does not make the component parts themselves (such as the memory, the processor, the lens, the display, and the battery), the manufacturing value added in India will be small. Indeed, a key question is whether the 6 percent subsidy India pays on the finished mobile phone, coupled with state subsidies, actually outweighs the value added in India.

10. Finally, private equity investments may be posing national security concerns in the US vis-a-vis China as Chinese state-backed sovereign funds are investors in PE funds floated by US PE firms. Chinese state funds State Administration of Foreign Assets (SAFE) and China Investment Corporation (CIC) with $1 trillion and $1.35 trillion in assets have a quarter of their funds invested in alternatives, mainly through western buyout funds.

Private equity executives insist there is no risk to national security in having money from Chinese state entities in their funds because the way they are structured typically does not give such investors board seats or voting rights. Indeed, some see it as a risk-free way to attract Chinese capital without giving up any actual corporate influence. However, the close relationship between private equity and the Chinese state has become increasingly at odds with the shifting political mood in western capitals, where governments have become much more vigilant about the potential for Chinese influence over strategic industries. In the case of private equity, this is aggravated by a wider lack of transparency...

The investments by Chinese state-based funds are starting to attract political scrutiny because they have created ties between Beijing and western economies that could be nearly impossible to unpick. “It is deeply concerning that Chinese state investors effectively own such large swaths of our economy and infrastructure, through their investments in private equity funds and other investment vehicles,” says Alicia Kearns, a Conservative MP who chairs the influential foreign affairs select committee in the UK. “The private nature of these funds means it is impossible to know the true extent of this phenomenon.”... The fallout from the global financial crisis helped the Chinese sovereign wealth funds build closer ties with private equity firms, many of which were struggling to raise money from more traditional sources of capital... the large sums being channelled through private equity funds could make it much harder for the US government to consider using sanctions as a policy tool against Beijing in the event of heightened tensions between the two countries. “The more China is integrated financially and economically, this will act as a deterrent to introducing sanctions or mean it’s very difficult to implement them,” she says.

This indirect mode of Chinese capital inflows into the US skirts the rigorous scrutiny of direct investment under the Trump-era Committee on Foreign Investment in the US (CIFIUS) legislation.  

Weekend reading links

1. China has brokered a landmark peace deal between Iran and Saudi Arabia. The deal will lead to the two countries reopening their embassies in each other (which has been closed since 2016) and activating security co-operation arrangements. It was sealed by President X Jinping with Iranian President Ibrahim Raisi during the latter's recent visit to China. Iran agreed to stop further attacks on Saudi Arabia and curtail support for militant groups targeting the Saudi government. This should count as a major coup for China in its efforts to exert influence in the region. It also throws a challenge to the US, the traditional power broker in the region. 

But for the region too it has great significance. In recent times, Bahrain and UAE have established diplomatic relations with Israel (Abraham Accords mediated by Trump administration) and Saudi Arabia and UAE have restored ties with Qatar. This is a boost also for Iran which has now built alliances with Russia (supporting it with drones during the ongoing Ukraine war) and China, thereby raising concerns in Washington. The latest deal will put pressure on Israel, which had been harbouring plans of a grand alliance with Saudi Arabia against Iran, to start re-evaluating its position vis-a-vis Iran. The Israel-Saudi relationship is the only other remaining conflict. 

Iran and Saudi Arabia have been fighting proxy wars in Yemen and Syria. However, in recent days, Saudi Arabia seems to have also turned its tracks on Syria, and has called for rehabilitation of the pro-Iran Assad regime. 

2. Disturbing slowdown, even reversal, of structural transformation in the Indian economy from the annual Periodic Labour Force Survey (PLFS) data

The absolute number of workers in agriculture declined by 33 million between 2004-05 and 2011-12. Almost a matching decline was observed between 2011-12 and 2017-18. However, the slowdown and pandemic reversed this process. The agricultural sector witnessed a return of 36 million workers between 2017-18 and 2021-22. So pronounced was it that the absolute count of workers in agriculture stood higher in 2021-22 than in 2011-12, a decade ago. Besides a reversal of the structural transformation, the numbers also imply a declining per worker income in agriculture, thereby worsening the rural distress... Per capita income from all employment sources in urban areas was ₹5,186 per month for the pre-pandemic year of 2018-19. By 2021-22, in real terms at 2018-19 prices, this had marginally declined to ₹5,175 per month. For the country as a whole, per capita income increased by only 0.9% per annum between 2018-19 and 2021-22. Per capita consumption in urban areas is lower than its level in 2018-19, though this increased 1.4% per annum for the country. Declines in income and consumption are not surprising, as the PLFS data also shows that regular wages continue to decline in real terms, with urban regular wages declining at 1.4% per annum, faster than the 0.4% decline in rural regular wages...  

Though the number of workers in agriculture is no longer increasing, the data suggests that those who found refuge in agriculture during the pandemic are yet to return to their original occupations. This indicates that the economy is yet to fully recover from the twin shocks of the slowdown and pandemic.

3. An FT article on how smartphones and social media are destroying teen mental health. Mental health problems are on the rise in UK and US

The share of US teens who only met up with friends once a month or less has rocketed in the last decade, tracking worsening of mental health.

Girls are especially vulnerable to social media, with large amounts of screen time linked to negative psychological impacts including self-harm

4. China's increasing control over Cobalt, 

Over the next two years, China’s share of cobalt production is expected to reach half of global output, up from 44 per cent at present, according to a report by Darton Commodities, a UK-based cobalt trader. The increase comes despite western efforts to gain control over supply chains for critical minerals such as cobalt, lithium and nickel, which are essential for making electric car batteries. Chinese refining activity reached 140,000 tonnes in 2022, more than double its level of five years ago, as volumes processed in the rest of the world stagnated at the 40,000 tonnes mark, handing Asia’s largest economy a 77 per cent global share of refining capacity.

5. The widely varying water charges in US cities

6. The Economist writes on supply chain diversification away from China into an Alternative Asia (Altasia) stretching from Japan to India. 

Between 2020 and 2022 the number of Japanese companies operating in China fell from around 13,600 to 12,700, according to Teikoku Databank, a research firm. On January 29th it was reported that Sony plans to move production of cameras sold in Japan and the West from China to Thailand. Samsung, a South Korean firm, has slashed its Chinese workforce by more than two-thirds since a peak in 2013. Dell, an American computer-maker, is reportedly aiming to stop using Chinese-made chips by 2024... In 2020 South Korean firms’ total stock of direct investments in Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam—which together with unstable Myanmar make up the Association of South-East-Asian Nations (ASEAN)—and Bangladesh reached $96bn, narrowly outstripping Korean investments in China. As recently as a decade ago the stock of Korean companies’ investments in China was nearly twice as large as in Altasia...

The share of iPhones made in India is expected to rise from around one in 20 last year to perhaps one in four by 2025. Two Taiwanese universities have teamed up with Tata, an Indian conglomerate with ambitious plans in high-tech manufacturing, to offer courses in electronics to Indian workers. Google is shifting the outsourced production of its newest Pixel smartphones from China to Vietnam... More sophisticated manufacturing, especially of geopolitically fraught semiconductors, is also moving to Altasia. Malaysia already exports around 10% of the world’s chips by value, more than America. ASEAN countries account for more than a quarter of global exports of integrated circuits, easily surpassing China’s 18%. And that lead is growing. Qualcomm, an American “fabless” chipmaker, which sells microprocessor designs for others to manufacture, opened its first research-and-development centre in Vietnam in 2020. Qualcomm’s revenues from Vietnamese chip factories, many of which belong to global giants like Samsung, tripled between 2020 and 2022.

But there are formidable challenges,

China’s huge advantage has historically been its vast single market, knit together with decent infrastructure, where value could be added without suppliers, workers and capital crossing national borders. For Altasia to truly rival China, therefore, its supply chain will need to become far more integrated and efficient... For now the infrastructure that connects them is shabby, at best. Finicky regulations and national ambitions can easily gum up the alternative supply chain. Altasia’s poorer countries are not necessarily keen on the logical division of labour, which would see them play a bigger role in the more menial parts of the electronics supply chain. And forgoing all Chinese-made parts is next to impossible... Prospects for deeper integration are hazy, within Altasia and with big consumer markets in the rich world. India, on whose 1.4bn people Altasia’s future may hinge, seems in no rush to join RCEP... Altasia will certainly not replace China soon, let alone overnight... But in time China is likely to become less attractive to foreign manufacturers. Chinese labour is not getting any cheaper and its graduates are not getting much more numerous.

7.  An important positive trend about India's IT sector exports growth,

A quick breakdown suggests that IT services make up about 70 per cent of overall services exports. Within IT services exports, computer services have a 65 per cent share, followed by professional and management consulting services (22 per cent), technical and trade related services (8 per cent), and research and development (3 per cent)... Over the last three years, professional and management consulting has grown the fastest, at a whopping 29 per cent compound annual growth rate (CAGR), followed by computer services (16 per cent), and research and development (13 per cent). The one sector that generates revenues under each of these heads, and has, we believe, contributed to the fast growth in IT services, is Global Capability Centres (GCCs) and their rise. 

What are GCCs? Put simply, they are units set up in India by overseas multinational corporations (MNCs) to provide them with global tech services, research and development, engineering and IT support. Many large MNCs have set up GCCs in India, and the number has been rising, from 1,026 in FY15 to 1,570 in FY22. In fact, India is home to about 40 per cent of global GCCs, and this ratio is only expanding. Currently, their direct output is about $51 billion, making up 25 per cent of overall IT services exports. In the last two years (FY21-23), the output of GCCs has risen by a CAGR of 19 per cent, broadly in line with the growth in overall IT services exports... The GCCs are expanding both in scope and depth. After starting off as providers of support functions, they have moved up the ladder, to tech enablement, business operations, capability development, and even R&D and business development. Almost 50 per cent of the 1,570 GCCs in India provide engineering R&D support. These account for over 40 per cent of the total GCC headcount and have been growing at a CAGR of 12 per cent.

8.  Robin Wigglesworth points to a new working paper which highlights a very large gap in the US banks' assets market value and their book value, 

The U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%... 10 percent of banks have larger unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10 percent of banks having lower capitalization than SVB. On the other hand, SVB had a disproportional share of uninsured funding: only 1 percent of banks had higher uninsured leverage. Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run. We compute similar incentives for the sample of all U.S. banks. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk.

9. Finally, Sekhar Gupta makes the point I have made on numerous occasions

There are powerful Indian company brands known across the world, at least in business circles... None of them, however, has created a product brand that rules the world. India does not have a purely homemade car, a two-wheeler, a software or operating system, not even a perfume or a beverage. We are collecting GI tags for scores of — mostly agri — products and yet not a brand that looks out from shop shelves globally. Corporate India has failed to create a garment brand, and almost all that our factories produce and export is sold under the labels of international store chains. To that extent, our garment makers are also doing outsourced work. Which is precisely what the Modi government is now promising in its larger manufacturing push with production linked incentives and other concessions. While it is great that India is now making a lot of mobile phones for export, none of these carry an Indian brand name. The Chinese and Koreans, on the other hand, have spawned a half-dozen brands that dominate global markets. The Modi government’s manufacturing push is very good and necessary, but basically it is pushing Indian manufacturing in the same direction as our software (services) industry: Outsourcing.