Arvind's Newsletter

1.India’s Industrial Production jumps to 5.2% in May, highest in last 3 months while retail inflation for June surges 4.8%.

The index of industrial production in India grew by 5.2% in May 2023 from 4.2% measured in April 2023, according to data released by the Ministry of Statistics and Programme Implementation. In May 2022, the factory output, measured by the Index of Industrial Production (IIP) was at all time high-growth of 19.6%.

India's retail inflation for June 2023 rose to 4.81 percent for, the first time in five months, which may erase a chance of a rate cut by the Reserve Bank this year. Looking at the data, the retail inflation was higher than both the revised 4.31 percent for the previous month and the 4.58 percent expected in a Reuters poll of 55 economists.

Apart from the retail inflation, the food inflation also surged to 4.49 percent against a revised 2.96 percent in May.

2.India’s GDP growth is slowly trickling down: 415 million Indians lifted out of poverty in 15 years according to a UNDP report.

“The poorest states and groups, including children and people in disadvantaged caste groups, had the fastest absolute progress,” said the Global Multidimensional Poverty Index 2023 report from the United Nations Development Programme and Oxford Poverty and Human Development Initiative (OPHI).

The latest instalment of the report noted that 25 countries across the world, including India and China, had shown an encouraging trend by reducing deprivations experienced by poor people in the last 15 years.

India still lives in a relatively poor neighbourhood, shows an analysis of data from the report. As many as 231 million people in India are experiencing multidimensional poverty, the highest in the neighbourhood in absolute terms though lower in percentage terms.

3.NATO said Ukraine would be invited into the military alliance eventually, but didn’t offer a specific timeline, reports the New York Times.

The announcement during the bloc’s annual summit fell short of Kyiv’s call for a clear pathway, with Ukrainian President Volodymyr Zelenskyy — who was in attendance — voicing his disappointment in a series of tweets. It came after wrangling within NATO over Ukraine’s future: The bloc’s members agree on continued support to Kyiv to combat Russia’s invasion, and that Ukraine cannot be allowed into NATO while the war is ongoing, but while the U.S. and Germany argue for a cautious approach to Ukraine’s NATO roadmap, Eastern European nations are pushing for stronger gestures.

Why won’t Ukraine get into NATO right now? Ukraine is at war with a nuclear-armed Russia, which is right next door. NATO’s collective defence promise, the famous Article V, would mean that every NATO member is obligated to fight for Ukraine.That’s not just “give them weapons” but actually “fight for Ukraine.” And nobody wants to do that.

Western security analysts were largely disappointed in the end result: The strategic-studies scholar Phillips O’Brien labeled it “too clever by half” while the Atlantic Council’s Christopher Skaluba described it as “a head-scratching and disappointing formulation.” Still, G-7 nations are today expected to agree a long-term defence pact with Kyiv, offering equipment, training, and intelligence support.

4.A US judge yesterday ruled Microsoft can proceed with its planned $69 Bn purchase of video game giant Activision Blizzard. The deal would be Microsoft's largest-ever and the overall biggest in the video game industry should the deal close. The deal needs to still needs address concerns of UK’s Competition and Markets Authority.

The US competition watchdog, the Federal Trade Commission (FTC), had originally asked the judge to stop the proposed deal, arguing it would give Microsoft, maker of the Xbox gaming console, exclusive access to Activision games including the bestselling Call of Duty.

The agency’s concern was that the deal could preclude the availability of those video games on other platforms. The court ruling represents a setback to the FTC chairperson, Lina Khan.

5.Vietnam’s economic moment has arrived, opines the Editorial Board of Financial Times. It must capitalise on the manufacturing boom for its long-term development. Long Read.

After decades of showing promise, Vietnam’s economic moment may have finally arrived. It was the fastest-growing economy in Asia last year (8 per cent growth) and one of only a handful globally to achieve two consecutive years of growth since the Covid-19 pandemic.

The south-east Asian nation has become a major beneficiary of manufacturers’ efforts to “de-risk” their exposure to China as geopolitical tensions between Beijing and the west mount. Foreign direct investment soared to a decade high in 2022. Big names including Dell, Google, Microsoft and Apple have all shifted parts of their supply chain to the country in recent years, and are looking to do more as part of a “China plus one” strategy.

The allure is obvious. Since the late 1980s, its communist government has overseen a transition from a controlled economy to a more open and capitalist model. In turn, its proximity to China and vast young, cheap and well-educated workforce has attracted manufacturers. Though “Made in Vietnam” was initially synonymous with apparel such as Nike shoes, it is now increasingly associated with higher-end electronics such as Apple’s AirPods.

Businesses have grasped the opportunity to diversify their supply chains, as rising labour costs and political risks erode China’s relative advantage as a business destination. Over $20 bn in FDI flowed in last year mainly from Japan, Singapore, and China. The US share of imports from Vietnam has also risen almost 2 percentage points since US-China trade tensions began to flare in 2018.

Rapid export-led growth has pulled millions out of poverty in recent decades, but Vietnam’s economy is now at a crossroads. In the near-term, to continue riding the wave of investor attention, it needs to bolster its business environment. In the long run, to meet the government’s ambitious goal of becoming a high-income economy by 2045, it must also leverage the manufacturing growth boon to diversify its economy.

Over the next decade, Vietnam must raise its productive capacity to meet the growing demands of manufacturers investment plans. Youthful demographics provide a large pool of workers to choose from, yet competition for technical skills is growing. Vietnam’s schools outperform globally, but vocational training and universities need a leg-up.

A decentralised political structure means numerous signatures are needed to obtain investment approvals. Red-tape needs to be slashed. Above all, the country’s infrastructure needs upgrading — its electricity grid is straining under the weight of rising industrial demand. The country’s onward march to high-income status is not preordained, however. Malaysia and Thailand were on a similar trajectory to Vietnam’s now in the late 1990s. But they succumbed to the so-called “middle-income trap” — when countries are unable to transition from a low-cost to a high-value economy, making it difficult to compete with both low- and high-income countries.

As Vietnam’s economy grows, wages will rise too. It cannot rely on its low-cost model forever. Dependence on export-led growth would leave it vulnerable to the volatile global trading environment.

Over time, Vietnam will need to reinvest its current growth dividend to support the development of more productive, knowledge-rich sectors, to meet its 2045 goal. Backbone services like finance, logistics, and legal services create high-skilled jobs and add value to existing industries. The World Bank recommends greater support for tech adoption, strengthening management skills, and further reduction to restrictions on FDI in services. The business excitement around Vietnam is justified. But there is much work to be done to convert today’s “de-risking” trend into long-term prosperity.