| In light of the worst border clash between India and China in decades, it’s hardly surprising to see a virulent anti-China stance by the Indian government, businesses, and citizens. Sajjan Jindal, chairman and managing director of JSW Steel, one of India’s largest steelmakers, had this to say to The Economic Times: |
| The steel industry’s 100% refractories come from China. One approach is to say that war will be fought by our soldiers, and my job is to make steel at a cheaper price by buying from China. But another view is — look at the $100 billion opportunities that Indian companies should tap. There will be some pain in the short run. But see, I respect my country and my army. If they (China) have killed 20 of my soldiers, I’m not going to buy products from them and strengthen their armies more. |
| Jindal said the company is fine with the additional cost of importing from other countries like Brazil and Turkey. After all, it’s important to stand with your country against China, right? Well, not entirely. In response to a question on JSW’s exports of semi-finished steel to China, he said: |
| We are not really restricting our exports to China, because that prerogative is with the Chinese to put a stop on Indian imports. But we are prepared if they want to stop Indian imports. As of now, there is no sign of that. |
| At a time when the lockdown has led to a decline in local demand for steel, China is a silver lining for Indian steel manufacturers. |
| In April and May, while India was under curbs to contain the Covid-19 pandemic, China emerged as the most important export destination for steel companies, accounting for about 48 per cent of total steel exports. China top buyer of Indian steel under lockdown…, Business Standard |
| It’s not just steel companies that don’t want to say no to Chinese buyers. |
| “Border tensions between the two countries have not affected exports of tea to China,” said Mohit Agarwal, director, Asian Tea and a leading exporter to China and Iran. “The Chinese are buying both CTC and orthodox black teas.” In 2019, India had overtaken Sri Lanka in exports of tea to China riding on the rising demand for the Indian variety of black tea among Chinese millennials. India had exported 13.45 million kg of teas to China, whereas Sri Lanka, which had always been the leader in exports to China, was able to export 10 million kgs to the country. India exporting tea to China and Iran…, The Economic Times |
| China’s share in India’s total exports rose marginally to 5.3% in 2019-20 from 5.1% in the previous year. Moreover, a smaller decline in India’s exports in June than in its imports could help it see its first monthly trade surplus in nearly two decades. Clearly, not all knee-jerk responses are without some thought to the consequences. Why should your hate for China stop you from making some money off them? |
| Setting the economic clock back Arundhati First came Demonetisation. Then came India’s new way of levying indirect tax with Goods and Services Tax. Both held back India’s economic growth. Just as India was looking to put those headwinds behind it, the Covid- induced lockdown along with a trade war with China “could end up setting India’s economic growth back several years,” former Niti Aayog vice-chairman Arvind Panagariya said in an audio interview to The Wire. |
| “Even before COVID-19, our growth was only about 4.2% compared to 7% in previous years. We were slowly getting out of the slowdown when COVID[-19 pandemic] happened,” he said. Panagariya contended that the shock to the economy due to COVID-19 and the lockdown is unprecedented. “Nothing like this has happened in the past and may not happen in the future. If we impose another shock through trade now, then to bring the economy back to 7% and 7.5% growth I don’t think that will remain possible.” |
| India is raring to fight national security issues with China with import sanctions. The economist believes mixing the two up could have serious repercussions. |
 “I challenge you to tell me one example of any country which has benefited from increased protectionism. There is not a single one. It is illusionary to believe that import substitution will help any economy.” |
| It is not like this is a new idea anyway. When India tried it before, it failed spectacularly. |
| “Our policy of import substitution led to a growth of only 3.7% and 3.8% between 1951 and 1981. Our population grew at around 2.3%. So, per capita income growth was only around 1.5%. My generation did not see any perceptible change in living standard in that period. So if import substitution was such a good policy why did this happen?” he asked rhetorically. |
| As for resolving border issues with China, Panagriya says an economically resurgent India is much more threatening. |
| “We need to keep strategic patience with China because trade war can cause damage to India. See, we have to continuously deal with the threat from China because we have a very long common border. We have to live with these tensions. It is important for us to ensure that our economy is strong. We should focus on becoming a 10 trillion dollar economy. China is currently at 14 trillion dollars. If our economy is strong, China will be quiet at the borders,” Panagariya said. |
| “Modi needs to send Ambani a thank-you note” Rohin One of the many issues that propelled Indian Prime Minister Narendra Modi into his first term was a promise to strengthen the Indian Rupee against the US Dollar. This was him, back in July 2013, when the Indian Rupee was around Rs 60 for each US$. |
 |
| Source: Twitter Mr Modi was sworn in to his first term as Prime Minister less than a year later, in May 2014. “The rupee reflects the strength of the Indian economy and a declining rupee only showcases the fact that we as a nation are living beyond our means,” reported The Times of India, citing unnamed sources, as “the new PM’s belief”. This is a chart of the Indian Rupee to the US Dollar over a 10-year-period, based on data from XE.com, a currency exchange and money transfer platform. |
 |
| This is the two currencies over a one-year-period. |
 |
| This is them over a one-month-period. |
 |
| Something has arrested the Rupee’s depreciation against the dollar. What might it be? Or perhaps, who might it be? |
 |
| That was a headline yesterday from the home page of The Economic Times, India’s largest business newspaper. The Ambani in the headline is Mukesh Ambani, Asia’s richest man and the chairman of Reliance Industries. Over the last 11 weeks, he has raised 12 rounds of funding adding up to over $15 billion for Jio Platforms, the entity that owns Reliance’s telecom, software, and services units. The Indian Rupee was finally appreciating in anticipation of Reliance’s $15 billion coming into the country, said The Economic Times. A classic case of second-order effects, wouldn’t you say? |
| What past pandemics tell us about wealth distribution Nadine Humankind survived the Black Death. So now we stand a chance to look back at the incident that wiped out 25 million people, in search of clues that could help make sense of our current situation. There’s one effect of the plague that historians and economists believe the ongoing pandemic will mirror: a further concentration of wealth in the hands of the already rich. In an article in The Conversation republished by the BBC recently, two scholars describe two significant shifts with regards to wealth distribution in that era. The first was in the way wealthy families thought about their legacy: |
| “The sudden loss of at least a third of Europe’s population didn’t lead to an even redistribution of wealth for everyone else. Instead, people responded to the devastation by keeping money within the family. Wills became highly specific and wealthy businessmen, in particular, went to great lengths to ensure that their patrimony was no longer divided up after death, replacing the previous tendency to leave a third of all their resources to charity. Their descendants benefited from a continued concentration of capital into a smaller and smaller number of hands.” |
| In other words, the devastation of the plague caused rich families to go into survival mode, putting their clan above larger societal interests. The second shift the authors describe already reads as if it’s about Covid-19, not the 17th century: |
| “…Another less often remarked consequence of the Black Death was the rise of wealthy entrepreneurs and business-government links. Although the Black Death caused short-term losses for Europe’s largest companies, in the long term, they concentrated their assets and gained a greater share of the market and influence with governments.” How the Black Death made the rich richer, BBC |
| Breaking out of a catch-22 Arundhati Of the many dilemmas that the pandemic has unleashed, the one in financial services is who you save first: A. the bank B. the borrower. Most lenders picked B. By picking B, they were also saving the bank indirectly. Because if more borrowers are under moratorium (temporary suspension on repayments), you can avoid the bad assets problem for that period. Not HDFC Bank, India’s largest private sector bank. It went straight for option A. HDFC Bank was among those for whom the proportion of loans under moratorium was low. For instance, for ICICI Bank, another large private lender, 30% of its loans were under moratorium as of April-end. In comparison, HDFC Bank said its loans under moratorium were in low single digits. HDFC Bank’s low moratorium is reflective of the borrower base it had. Its borrowers were mostly professional workers where the job-loss was not as acute as with factory workers. It also cherry picks borrowers by mostly lending only to those who have parked their savings deposits with the bank. A mix of this saw fewer borrowers opting in for suspending their repayments. This moratorium outcome is reflected in the bank’s quarterly results. HDFC Bank saw its loan book grow by 1.09% sequentially, in the lockdown quarter, else regularly known as the June quarter for the financial year 2021. This, when data from the Reserve Bank of India showed that India’s lenders saw their loan book shrink by 1.08% between 1 April and 19 June. The fact that fewer loans were under moratorium for HDFC Bank not only means that the quality of its current loan book will stand the test of Covid times. But also that during these times, good borrowers especially stand out. As other lenders’ credit disbursal seized up with some part of the capital locked up in moratoriums, HDFC Bank seems to have doubled down on any remaining opportunity. Now as there is talk of the moratorium extending till December… |
| The original moratorium was for the period of March to May, and then there was another extension that would end in August. But senior bankers say the economy remains almost in deep freeze and the central bank and the government will have no option but to offer another extension to the moratorium. A chief executive of a private bank, on the condition of anonymity, said there would be a sharp rise in bad loans after this moratorium period comes to an end. “The current situation is feeble. There is no choice but to extend the moratorium till November-December,” he said. Extension of moratorium till Dec is the only viable option left: Bankers, Business Standard |
| …it is anybody’s guess where this will lead HDFC Bank. |
| Small town bliss as-a-service Nadine Many resorts and hotels are offering “workation” packages to capture the new cohort of remote workers born out of the pandemic. We wrote about some of those deals in BFO #64. They’re just the tip of the iceberg of a budding remote work movement. A town in Japan called Matsue–blessed with natural hot springs and not too far from Osaka, Japan’s second-largest metropolitan area–shows how far this can go. Matsue offers a three-night deal including food, yoga courses, and other amenities as a joint effort between the city, several businesses, and a university. It will even conduct a study with its participants about stress levels during and after the stay. Smaller communities within reach of metropolises should reposition themselves as a workation paradise. Leaving it up to hotels and resorts to get these customers is one thing; creating programmes and policies at the city-level is another. |
| Robots, please take over Jum In 2017, SoftBank chairman and CEO Masayoshi Son declared that robots would outnumber humans in 30 years. Well, that prediction came early for Sony’s PlayStation 4 factory in Tokyo. It already operates with a high degree of automation. Four humans versus 32 robots. That’s the makeup of the workforce churning out a new PS4 console every 30 seconds at Sony’s Kisarazu plant in the Japanese capital. It’s a blend that was “painstakingly optimised” to give the best investment return. The robots are certainly matching up to the tasks—even those you’d think are best left to the humans. |
| “Attaching the flexible flat cable—a tape-like electrical cord—requires one robot arm to hold up the cable and another to twist it. The cable then needs to be attached in a specific direction using just the right pressure, which may seem simple for a human but is an extremely complex maneuver for a robot.” PlayStation’s secret weapon: a nearly all-automated factory, Nikkei Asian Review |
| Automation has gradually been replacing work traditionally done by humans in a range of industries, from manufacturing to call centres, as companies looked to cut costs. Sony, which is set to release the next generation of PlayStations at the end of the year, is at the forefront. With the coronavirus pandemic, automation has definitely accelerated, says research firm Forrester. Even as lockdown restrictions ease up across the globe, companies are set to invest more in automation than rehiring the jobs that were lost. If there was anxiety about robots replacing human jobs earlier, it’s no longer the case. Society now sees the need to incorporate social distancing in workplaces. Robots, you’re welcome. |