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- Arvind's Newsletter
1.Here's why the world's most loved-emerging market is feeling jittery, opines Andy Mukherjee in Bloomberg.
India is the world’s most-loved emerging market this year. Foreigners have poured in billions of dollars so far in 2023 even as they have pulled money from most other developing economies tracked by Bloomberg data. The surfeit of enthusiasm has also stored up apprehension: How much longer before this bastion of stability wobbles may depend on $4 flip-flops.
India has stood apart from most other emerging markets is in delivering high economic growth - 6 per cent-plus expected in 2023 and 2024, according to the International Monetary Fund.It did so amid the turmoil caused by a strong dollar and a 525 basis-point increase in US interest rates. The spending power of the urban rich was visible in the $2,400–a-night hotel-room tariffs during the recently concluded Cricket World Cup final in Ahmedabad, in Prime Minister Narendra Modi’s home state of Gujarat.
According to Marcellus Investment Managers, a Mumbai-based advisory firm, much of this spending may be coming from just 200,000 families that constitute an elite “Octopus class,” whose wealth has grown 16 times over the past 20 years. As the super-affluent open their wallets wide, some of their demand may be spilling over, as evident in India’s record $31 billion trade deficit last month.
This resource gap isn’t posing serious concerns yet. For one thing, the central bank’s tight lid on domestic liquidity has helped keep the rupee stable. Also, from June next year India will be included in JPMorgan Chase & Co.’s global bond indexes, a move that’s expected to draw in about $24 billion over a short period.
What’s worrying from the stock market’s perspective, though, is that the Reserve Bank of India is also taking more direct steps to rein in debt-fueled consumption. The octopi have assets; the non-octopi have liabilities. Consumer loans is how the masses are keeping their heads above water amid high food and energy costs. Banks and finance companies have been so active in pushing retail credit out the door that the central bank had to step in this month and raise capital requirements against unsecured personal loans.
That is the prudent thing to do. Lending to subprime borrowers has become incredibly efficient in India because of the new digital technologies employed to attract and screen borrowers, pool their loans and find a deposit-taking institution to take the credit risk. However, retail loans, growing at twice the pace of total advances, could spiral out of control. And that could become a recipe for future trouble amid high unemployment and stagnant real wages.
“But there are signs of nervousness around smaller companies. The iShares MSCI India Small-Cap ETF, which holds stocks with a median market value of $2.4 billion, hasn’t had inflows in nearly two months, whereas the iShares MSCI India ETF, whose median holding has a capitalization of $30 billion, is witnessing steady interest. The reason is not hard to see. Smaller Indian companies are more expensive now than larger firms.”
Read on
2.Drought-like conditions in Maharashtra will likely shrinK the production of key kitchen staples such as onions, pulses, sugar, cereals. fruits, and vegetables.
Reservoir levels are down 20% now compared with this time last year. Maharashtra’s agriculture department estimates that climate change cost the state 36 million hectares of crops in the last five years.
3.How to embrace being a lark or an owl
Skip the advice about training yourself to rise early or burn the midnight oil. Your natural rhythms are your best guide writes Shayla Love in Psyche.
There’s no shortage of proclamations about the merits of starting your day early. Aristotle called rising before daylight a ‘healthy habit’, Marcus Aurelius offered a pep talk for getting up when you don’t feel like it, and Benjamin Franklin, known for his sage aphorisms, advised: ‘Early to bed, and early to rise, makes a man healthy, wealthy and wise.’ Today, CEOs regularly attribute their successes, in part, to setting their alarms for before 6am. And, of course, there’s the classic about the bird who gets the worm.
But maybe for you, rising with the sun doesn’t come so easily. Or, perhaps you have little trouble with mornings, but struggle with activities or responsibilities later in the day. People vary significantly in the times at which they wake up feeling refreshed or get sleepy at night. This is called your chronotype: your disposition to start your day earlier or later.
The types you are probably most familiar with are the early bird (or lark), who prefers an early morning wake up and is most inclined to be active early in the day, and the night owl, who favours a late wake time and increased activity in the evening or night. But chronotypes fall all along a spectrum, encompassing very early risers, very late risers, and everyone in between, says Roberto Refinetti, head of the Circadian Rhythm Laboratory at the University of New Orleans.
Read on
4.China signaled renewed support for the ailing property sector.
Officials are readying a list of 50 real-estate developers that will be eligible for financial support, and directed lenders to increase funding to them to ward off the threat of default.
China’s property sector is burdened with huge levels of debt, which analysts fear threatens financial stability and economic growth, while cities nationwide are saddled with millions of unfinished homes. Some experts remained skeptical that Beijing could fully address the problem, which “shows no signs of abating despite the government’s rollout of a seemingly endless series of supportive but as yet ineffective measures,” the Chinese business-focused outlet Caixin lamented in a recent cover story.
5.Indigo to offer business class in international routes
India’s largest airline IndiGo may soon be ditching a one-size-fits-all model to have a premium class with roomier seats and perks like hot food and a loyalty program as it looks to court more business flyers and rival Air India on international routes.
And the Economist has an interesting article on India is seeing a massive aviation boom. Read on.
The venomous snakes that infest the new airport rising near Mumbai, India’s commercial capital, are only a minor inconvenience compared with what has already been overcome at the site. Some 8,000 workers, labouring around the clock, have blasted away 55m cubic metres of rock, diverted a river and drained swamps. Seven local villages have been acquired and 3,113 families moved. Work on the airport began in 2021 and is due to be completed by late 2024. That is fast by global standards and in India unprecedented.
The country’s entire aviation industry is growing at an astonishing clip. Four new airports and four new terminals have opened in the past 12 months. That gives India 149 operational civil airports, twice the number it had a decade ago. Nine additional airports have been approved and many more are planned. In Jewar, 75km from Delhi, a second airport for the capital is also mushrooming. Officials envisage 15 dual-airport cities by 2040. There is talk of a possible third airport for Mumbai.
Domestic passenger numbers rose from 98m in 2012-13 to 202m in 2019-20. Already the third-biggest domestic aviation market by volume, India is projected to be the third-largest overall by 2026, according to the International Air Transport Association, an industry body. It is likely to see more than 500m passengers by 2030, predicts capa India, a consultancy. Airbus, an aerospace firm, thinks the domestic market will by 2042 be more than five times the size it was in 2019. The government wants to create aviation hubs akin to Dubai.
The new airports, part of a broader infrastructure push by the government of Narendra Modi, are expected to support India’s 6%-plus annual growth rate. Increased aviation tends to boost growth, according to a paper in Transport Reviews, a journal. And India is a vast country, with patchy road and rail links and far-spaced industrial and business centres. Delhi is 1,750km (1,090 miles) from the industrial hub of Chennai. “All you need is an airport,” says Aditya Mongia of Kotak, a bank.
India’s aviation industry has long been emblematic of the country’s economic state. It was founded by a pioneering industrialist, J.R.D. Tata, who was the first Indian to obtain a pilot’s licence and used it in 1932 to fly his airline’s maiden flight, from Karachi to Bombay (as Mumbai was then called). In 1953 his Tata Air Service, by then rebranded Air India, was nationalised and the industry became a prime example of the lethargy, low standards and state monopolies that characterised India’s mixed economy. After the country started liberalising its economy in the 1990s, private airlines proliferated; most—including half-forgotten names such as Modiluft, Damania and East West airlines—had gone bust by the end of the decade. A bigger boom followed in the 2000s, followed by an epic bust, putting paid to Kingfisher Airlines, Jet Airways and others. Today’s boom looks more sustainable.
The industry is still dogged by old problems. On November 8th newspapers carried stories about the miserable punctuality record of SpiceJet, a low-cost carrier; on violations of rules for compensation delays by Air India (back in Tata Group hands after its privatisation last year); and on groundings of dozens of Indigo aircraft because of safety worries. There is a national pilot shortage and regulatory enforcement needs strengthening. Even so, for two reasons this expansion seems durable.
The first reason is a lot of government support for it. The Modi administration is privatising older airports as well as building new ones. Its restructuring and sale of Air India has helped turn a loss-making millstone into a national champion. Under Tata management, the airline has 470 new aircraft on order, with an option for another 370. The government has also loosened a requirement that new airlines must fly for five years before being allowed to operate abroad. It is pushing states to lower taxes on aviation fuel, from as high as 29% down to the low single digits.
A state-subsidised regional connectivity scheme has boosted air links to smaller cities, connecting 72 unserved or underserved airports with 459 routes. The government “has embraced the reality that aviation is not a luxury form of travel”, says Salil Gupte, who heads Boeing in India. Jyotiraditya Scindia, the civil-aviation minister, describes the government’s aviation policy as a form of “democratisation”.
The second reason for optimism is soaring demand. Discretionary spending rose from 13% of household consumption in 2000 to 24% in 2020, and could rise to 33% by 2030, according to Macquarie, a bank. There has been “dramatic growth in recent years as per capita income has increased”, says Campbell Wilson, Air India’s boss. There is a lot more potential growth in store. Air travel is increasingly able to compete on price with first- and second-class long-distance rail. And only 2-3% of Indians have flown, reckons Mr Scindia. Indians make 0.1 trips per person a year; the corresponding figure for Americans is 2.1 and for Chinese 0.5, according to Airbus, which expects that Indian number to triple by 2031.
Air India is not the only airline betting on huge future growth. In June Indigo, India’s biggest airline by market share, ordered 500 new planes, the biggest aircraft order ever made. Akasa, which started operations only last year, has 56 aircraft on order and plans to book at least another 100 by the end of the year. “We wouldn’t be ordering new aircraft only on the basis of exciting and wonderful demand,” says Vinay Dube, Akasa’s CEO. “We’re ordering aircraft because we also believe we have the infrastructure capabilities to fly them.”
The airlines’ ambition is also apparent in their travel plans. This year Indigo added routes to Africa, Central Asia and the Caucasus. Akasa plans to start serving the Middle East, South-East Asia, east Africa and Central Asia. Air India’s order included 70 wide-body aircraft capable of long distances. This makes the government’s hopes for an international hub seem feasible.
Indigo already connects travellers flying between South-East and Central Asia. Air India plans to challenge Emirates and Singapore Airlines—so-called “superconnectors”—for long-haul one-stop connections between East Asia, Europe and North America. “If we want to be aviation giants, we should measure ourselves against some of the largest airlines in the world,” says Pieter Elbers, ceo of Indigo. “We should compete with them.”