Arvind's Newsletter

1.Tax filing for AY24 touches all-time high, surpasses 67.7 million

This figure represents a 16.1 per cent increase compared to the total tax returns filed during the previous assessment year, according to an announcement by the revenue department.

For AY23, the department received 58.3 million returns. It emphasised that the 5.37 million income-tax returns (ITRs) received from new taxpayers signify a "widening of the tax base."

It further stated that a significant number of taxpayers conscientiously compared data on their financial transactions by viewing their Annual Information Statement (AIS) and Taxpayer Information Summary (TIS).

2.Apple Inc.’s main supplier, Foxconn Technology Group, plans to increase its investments to more than $1.2 billion in southern India’s Karnataka state and add two component factories there, expanding a steady diversification from China to mitigate the risks of US economic and technology sanctions.

At least one of the factories that the Taiwanese company plans to construct in Karnataka will produce Apple parts, including for iPhones. The second plant will also be in Karnataka, but their exact location has yet to be decided. Foxconn is planning to invest close to $500 million to build two component factories in India. This on top of a $700 million facility it aims to build on a 300-acre site close to the airport in Bengaluru.

3.Biden and Trump neck to neck in a recent New York Times poll.

The first time poll of the 2024 election cycle shows a dead heat between President Biden and Donald Trump. If those two men are the presidential nominees next year, 43 percent of registered voters say they will support Biden, and 43 percent say they will back Trump.

But 43 plus 43 obviously does not equal 100. There are also 14 percent of registered voters who declined to choose either candidate. Some of them said that they would not vote next year. Others said they would support a third-party candidate. Still others declined to answer the poll question.

You can think of this 14 percent as the Neither of the Above (NOTA) voters, at least for now. In the end, a significant number of them probably will vote for Biden or Trump and go a long way toward determining who occupies the White House in 2025

Perhaps the most notable characteristic of NOTA voters is that they are highly critical of Trump. By definition, they are also unenthusiastic about Biden. But they are considerably less happy with Trump.

Biden enters a potential rematch with Trump as a modest favourite. He effectively has a small lead today, and Trump’s growing list of indictments may aggravate his problems with swing voters. Yet the race is extremely close. Anybody who assumes that the 2024 outcome is sure to repeat the 2020 outcome — even in a rematch campaign — is making a mistake.

4.China’s factory activity shrunk for the fourth month in a row.

China is showing signs of a significant economic slowdown after decades of supercharged growth.

A much anticipated post-pandemic recovery appears to have flopped, with data flashing warning signs across the economy.

This time, the government’s traditional tools for reversing course may not be viable options. The country must come to grips with how to manage a shaky property sector, sluggish consumer spending and towering local debt.

In the Bloomberg Originals mini-documentary China’s Great Slowdown, we explore the reality behind promises by Chinese leader Xi Jinping and other top Communist Party leaders to revive the world’s second-largest economy.

5.India needs more than govt funding to become chipmaking hub: Chip War author Chris Miller.

I have been recommending the readers of my newsletter to read Chris Miller’s superb book -The Chip War : The fight for the world’s most critical technology. MoneyControl has an excellent interview with the author. Long Read.

Excerpts:

Given that India has launched a $10 billion chip subsidy programme and only Micron is the only big name to have been approved for a chip assembling and packaging facility incentive, how hard is it for India to attract global chipmakers like Intel,Samsung and TSMC to set up foundries in the country?

It is possible, but not easy. Every major economy is competing for their investment. These companies have extraordinarily complex requirements when it comes to workforce and infrastructure requirements. Most countries that have built major fabrication infrastructure — including Korea and Taiwan — have started with assembly and test work before moving on to fabrication. India's vast market makes it attractive but there is a lot of competition

What does India need to do to be able to attract a serious and major global foundry?

Government funding and tax credits will certainly be necessary, but won't be sufficient. Fabs require very complex and specialised infrastructure, including large volumes of power and water. Operating them efficiently also requires a large number of specialised suppliers, for example for chemicals. Finally, companies need tax and regulatory policies that are as competitive as existing chipmaking hubs like Singapore.

For its outsourced semiconductor assembly and test (OSAT) plant in India, Micron is set to get back 70 percent of its capex as cumulative subsidies from the Central as well as state governments. Some have criticised it as India getting a raw deal given that chip assembling isn't as high-tech as a fab. What is your take?

Most countries that have become major chip producers started in the assembly, test, and packaging business.It takes years to build up a fully-fledged supply chain. Focusing on assembly and test work in the initial stage is a logical approach.

Some have argued that the ecosystem of local vendors spurred by chip assembling plants could help towards making India an attractive destination for fabs. Is that something that other countries have been able to do historically?

Yes. That's the strategy that Taiwan, Korea, Singapore, and China all pursued. The more OSAT capability and the more device assembly India has, the more the electronics ecosystem will get built out, increasing India's attractiveness for fabrication.
However, there's serious competition among these countries, and India needs to offer better infrastructure and tax and regulatory treatment to attract a larger volume of assembly work.

Economist Raghuram Rajan has critiqued India's smartphone assembly subsidy programme, arguing that: the import value of phone components is much more than the value added in local assembling, which itself could be lower than the subsidy offered. Do you think it is prudent to look at immediate economic benefits in designing subsidy schemes to attract electronics and chip makers to the country?

These types of programmes need to be carefully constructed in order to work. It's true that assembly on its own is a relatively low-value add. If India can use assembly work to build its ecosystem and then attract more component manufacturing, this could up-skill the entire Indian electronics ecosystem. A lot of component manufacturing is going to leave China over the next decade. The question is whether it goes to India or to Southeast Asia.

AI and quantum tech, both hinging on advanced semiconductors, are expected to contribute massively to the weapons of the future. Should developing countries like India be viewing the semiconductor supply chain through the lens of not just economic growth but also national sovereignty and defence?

Semiconductors certainly play a major role in advanced military equipment, and India must consider these dynamics. Yet, almost all chips that are produced — well over 90 percent — go to civilian devices. So, the dominant factor determining whether a country has a big chip industry is whether it can sell to the civilian market. Russia provides an example of a country that only has a defence market for semiconductors — and as a result, its chip industry is tiny and technologically far behind the cutting edge.

While Russia has restricted exports of neon and helium, China has done the same for gallium and germanium. Did the US fail to calculate these actions beforehand? How much will these restrictions impact the chip supply chain? Are these temporary positions that will get sorted out soon on the negotiation table or set to become a feature of the electronics supply chain?

No, these steps don't matter much because workarounds are easy to find. When Russia cut neon exports, other suppliers brought more neon online. China's gallium and germanium restrictions are likely to have a similarly small impact. China is the world's biggest producer of many of these minerals not because it has unique expertise or deposits, but rather because it has loose environmental rules and heavy government subsidies. If it cuts exports, costs increase somewhat, but raw materials are a tiny fraction of the price of a chip or the electronic device it goes in. So, this isn't a very effective tool for Beijing.

Amid the Ukraine war, India has been buying large amounts of crude oil from Russia, refining them into different petrochemicals and selling them to the West. (Apart from using cheap oil from Russia to ease domestic fuel costs). Do you think this strategy could be replicated for gases and chemicals required for chipmaking?

The challenge with chipmaking gases and chemicals is refining them to an extraordinary level of purity. Many countries have oil refineries but hardly any have plants for chipmaking chemicals. There is a major difference in terms of the expertise required.

Do you see the West's large chip subsidy programmes as a one-off effort to de-risk the chip supply chain or its first significant move away from globalisation? Is the philosophy of economic globalisation running out of steam and set for gradual decline?

No, de-globalisation is not a trend in the chip industry. The past several years have seen massive foreign investments by Taiwanese and South Korean chip firms in the US; major investments by US chip firms in Japan, Germany, and India; major investments by Taiwanese firms in the US; and by Dutch and American firms in Japan. The trend is rather of a removal of China from the cutting edge of the chip industry and a broader decline of foreign investment in China given Beijing's policy uncertainty as well as a desire for diversification.