Arvind's Newsletter

1.UPI breaks record with 14.04 billion transactions in May, sees 49% year-on-year growth

 The number of average daily transactions in May was up by 49% compared to the same period last year. In terms of value, transactions amounted to Rs 20.45 lakh crore in May, up again after a slight dip in April. An average Rs 65,966 crore was transacted every day in May via UPI.

2.IndiGo to add 10 new destinations in FY25
India’s largest airline will start 10 new destinations in FY25, as it speeds up expansion on the international front. The destinations include a mix of domestic and international. “We will be flying to Mauritius and add another destination in Thailand,” the airline’s CEO Pieter Elbers said on the sideline of the Annual General meeting of International Air Transport Association (IATA) at Dubai.

At present the airline flies to 122 destinations which include 88 domestic and 33 international.The capacity expansion comes on the back of record profit in FY 24. Despite facing grounding of more than 70 planes due issues with Pratt & Whitney engines, Elbers said the airline has been able to maintain its capacity guidance.

3.Air India to operate as merged entity from 2025;
no Vistara brand by year-end

The Tata group will bid goodbye to the Vistara brand by the end of the year, as it aims to bring its four airlines under one umbrella. According to three executives aware of the timelines, the Tata group complete the integration process late this year and start 2025 with just two brands: Air India, a full-service carrier, and Air India Express, a low-fare airline.

"The integration of Air India Express with AIX Connect (formerly called AirAsia India) is currently awaiting nod from the National Company Law Tribunal (NCLT).”

4.Claudia Sheinbaum was elected as Mexico’s first female president.

Claudia Sheinbaum — the former mayor of Mexico City and the chosen successor of the current president, Andrés Manuel López Obrador — won the presidency easily. Sheinbaum, a leftist-leaning engineer, received about 58 percent of the vote, to around 29 percent for Xóchitl Gálvez, a centrist entrepreneur, and about 11 percent for Jorge Álvarez Máynez, a progressive candidate. Mexican law restricts presidents to a single term. 

The No. 1 reason for AMLO’s popularity is the Mexican economy. Thanks both to his policies and to outside factors, incomes have risen for a broad group of Mexicans, and poverty has declined.

The minimum wage has doubled since he took office, notes our colleague Simon Romero, who’s based in Mexico City. AMLO reformed labor law so that workers could more easily join independent unions. He expanded pensions. He increased the number of mandatory vacation days that workers receive. He built infrastructure, like a tourist train line in the Yucatán.

“AMLO’s popularity is always talked about as something inexplicable,” Juan David Rojas, a political analyst, told The Guardian. “But it’s very simple: He does things that Mexicans like.” The economy has also benefited from the early stages of “friendshoring,” in which U.S. companies shift some operations from China to allied nations. Last year, the U.S. bought more goods from Mexico than China for the first time in two decades.

AMLO is a leftist, but his governing style has similarities to those of right-wing figures like Narendra Modi in India, Viktor Orban in Hungary and Donald Trump in the U.S.

AMLO has called the judiciary “rotten” and claimed some judges were part of a conservative conspiracy “dedicated to plundering the country.” He disparages journalists whose coverage he doesn’t like and runs weekly sessions devoted to “lies.” He has given the military additional powers, including policing many parts of the country.

As a candidate, Sheinbaum — who is a decorated climate scientist and will be Mexico’s first female president — linked herself tightly to AMLO. “Even though many Mexicans do not fully agree with our project,” she said in a victory speech, “we will have to walk in peace and harmony to continue building a fair and more prosperous Mexico.”

Sheinbaum, 61, insists that she is a different person from AMLO and will govern independently from him. She takes a more technocratic approach. As Mexico City’s mayor, she oversaw a sharp drop in crime, for example. She increased police salaries, improved training and implemented community-policing models that some U.S. cities pioneered, as Kate Linthicum of The Los Angeles Times has noted.

5.The AI Bubble ?

We had few weeks back posted an article in the Economist on the AI Bubble. Now Scott Galloway writes on the topic on his personal blog :

“Of course we are in a bubble now — how could we not be after the mind-blowing debut of ChatGPT? AI is amazing, but the bubble-multiplier effect is very much in play. 

According to the Economist:

The combined market value of Alphabet, Amazon, and Microsoft has jumped by $2.5trn during the AI boom. [This value creation] is 120 times the $20bn in revenue that generative AI is forecast to add to the cloud giants’ sales in 2024.

“That was in March. Now it’s $3 trillion. So the market is valuing AI revenue at 150x. Pre-AI, Microsoft was valued at about 10x revenue, Alphabet at 5x, and Amazon at around 4x. Growing into this AI multiple will require these businesses to find another $500 billion in annual revenue among them, in addition to continued expansion of their non-AI business, the equivalent of adding more than Alphabet’s revenue.

The darling of AI, Nvidia, has been painted into a corner of good problems. But, nonetheless, a corner. NYU Prof Aswath Damodaran has calculated that Nvidia, to justify its valuation, will need not only to continue to dominate the market for AI chips, forecasted to grow aggressively, but also to dominate another market of similar scale. Think about this: Built into the price of Nvidia is the expectation the company will find another market as big as AI, and achieve similar dominance.

There are two important questions regarding AI, and neither is “are we in a bubble?” We are. The important questions are “when will it pop” and “who will endure”.

6.Russia-China gas pipeline deal stalls over Beijing’s price demands

Russia’s attempts to conclude a major gas pipeline deal with China have run aground over what Moscow sees as Beijing’s unreasonable demands on price and supply levels, according to three people familiar with the matter.

Beijing’s tough stance on the Power of Siberia 2 pipeline underscores how Russia’s invasion of Ukraine has left President Vladimir Putin increasingly dependent on Chinese leader Xi Jinping for economic support.

The people familiar with the matter said China had asked to pay close to Russia’s heavily subsidised domestic prices and would only commit to buying a small fraction of the pipeline’s planned annual capacity of 50bn cubic metres of gas.

Approval for the pipeline would transform the dire fortunes of Gazprom, Russia’s state gas export monopoly, by linking the Chinese market to gasfields in western Russia that once supplied Europe.

Gazprom suffered a loss of Rbs629bn ($6.9bn) last year, its biggest in at least a quarter of a century, amid plummeting gas sales to Europe, which has had greater success than expected in diversifying away from Russian energy.

7.The many-sided crisis in consulting; opines Rana Foroohar in Financial Times

“I once worked for a large magazine company in the US that was worried about falling revenues and loss of readership amid what was then called the dotcom revolution. Corporate leaders decided to hire a major management consulting firm to analyse what should be done. After months of meetings and millions in fees, the verdict came in. Apparently, we just needed better story ideas. Needless to say this sage advice saved neither readers nor the product. For this and other reasons, I’ve always been sceptical of management consulting.

For starters, the “if you can measure it, you can manage it” approach to business just misses so much. Certain things, such as input costs and share price, can be discretely tallied. Others — like culture, loyalty and creativity — cannot.

Then there’s the buck-passing problem: companies very often hire consultants so they can blame someone else if the solutions to challenging problems go awry. Add to this the fact that artificial intelligence can increasingly do the lower end of consulting work, and you’ve got a profession that may very well be in for secular decline.

The signs are everywhere. Firms such as Bain and McKinsey are shedding workers and offering them financial incentives to leave. Deloitte and EY are cutting costs and reorganising. Throughout the industry, there’s a new sense of penny-pinching where things had once been flush.

While the profession boomed during Covid, when companies desperately sought help to deal with everything from supply-chain troubles to work-from-home shifts to the uncertain nature of the economic cycle, it is now slowing. According to the Kennedy Consulting Industry Monitor, revenue growth halved to 5 per cent last year.

Consulting firms are coming under political pressure, too. A couple of weeks ago, a bill to ban McKinsey from US government work, put forward by the Missouri senator Josh Hawley, passed the Senate homeland security committee. There are still multiple hurdles to it becoming law but the idea is to stop the defence department and other federal agencies contracting with firms that do business with the Chinese government. But it’s not only populist politicians who are sceptical of consultants.

Academics and industry insiders alike have become more critical in recent years. Economist Mariana Mazzucato and her colleague Rosie Collington last year published The Big Con: How the Consulting Industry Weakens our Businesses, Infantilises our Governments and Warps our Economies.

The book argues that consulting has thrived on the problems of modern capitalism, from financialisation and corporate short-termism to risk-aversion in a starved public sector, earning undue economic rents while creating very little value. “While consulting is an old profession,” they write, “the Big Con grew from the 1980s and 1990s in the wake of reforms by both the ‘neoliberal’ right and ‘Third Way’ progressives — on both sides of the political spectrum.”

Indeed, the industry’s problems go even further back. One could argue that modern management consulting is the unfortunate love child of early 20th-century Taylorism — in which Frederick Winslow Taylor, a mechanical engineer from Philadelphia, aimed to clock the productivity of workers down to the second — and Chicago School ideas about “efficient” markets, which gained steam from the 1960s onwards.

Consultants have created a huge global market by preaching the gospel of disruption. As Harvard professor Clayton Christensen argued in The Innovator’s Dilemma, in 1997, big companies were always at risk of having their lunch eaten by smaller upstarts. In order to get ahead of that, they needed to be changing all the time, internally.

But while that may have seemed true during the dotcom boom of the late 1990s, most sectors have become more concentrated, with big firms taking an ever larger slice of the economic pie. Still, the cult of disruption dies hard. As reformed consultant and Deloitte/Cisco veteran Ashley Goodall writes in his new book The Problem With Change, “while we were all busily disrupting ourselves hither and yon, we somehow lost sight of the fact that change and improvement are two different things”. In the beginning, he says, executives thought “we need to fix this problem; therefore, we need to change”. Now, he says, too many believe that “we need to change, because then all the problems will be fixed”.

Consulting itself will have to change, because technology can today do so much at the lower end of the pay scale. AI can put together a good-enough PowerPoint presentation or research document, knocking out a lot of what freshman consultants used to do. Meanwhile, there’s more competition at the top, with all sorts of boutique risk analysis firms and sector experts vying for a slice of the advisory business.

It’s possible that a recession will give the industry new life. Management consulting often makes money by telling companies to cut staff. It can also replace them temporarily with either technology or more consultants, without all those bothersome issues of full-time employment or benefits. But I suspect that, just as many superfluous jobs at the bottom end of the socio-economic food chain have gone away in recent decades, white-collar industries such as consulting will be disrupted, too. 

Will the result be fewer slide decks, mission statements, mandatory work bonding sessions and corporate-speak? If so, I’m all in.