Arvind's Newsletter- Weekend Edition

1.Montek Singh Ahluwalia: How to pack for India's journey to 2047

“With the new government in place, attention will naturally shift to how it proposes to deliver on the promise of achieving Viksit Bharat by 2047. The vision has gone down well as an aspirational objective. Since the transition will extend over two decades, the list of reforms needed is bound to be long, covering both the economy and also society. We will identify some of the areas where changes are needed. Each will involve a combination of policies and programmes, and the details can only evolve over time.” Read on.

2.Rs 44,000-cr power transmission projects delayed, plan to boost power supply may be hit

Around 32 transmission projects estimated to be valued at Rs 44,000 crores are facing delays of at least 12 months while 18 projects are delayed by an average of 32 months.

These delays in transmission projects will render new generation capacity unusable, Indu Shekhar Chaturvedi, director general at Electric Power Transmission Association said.

India’s energy needs have been growing and rose by 11% year-on-year in terms of billion units in Q1FY25. For now, India has mandated import of thermal coal to meet these power demands.

3.Huge Microsoft Outage Linked to CrowdStrike Takes Down Computers Around the World

Windows PCs have crashed around the world, bringing airlines, major banks, TV broadcasters, healthcare providers and other businesses to a standstill. Airlines including United Airlines, Delta, Indigo and American Airlines have been forced to ground and delay flights, stranding passengers in airports, while UK broadcaster Sky News was temporarily pulled off air.

Banking customers in Europe, Australia and India have been unable to access their online accounts, and traders have been unable to operate as normal.

What caused it? The issue originates from a faulty update from cybersecurity provider CrowdStrike, which has knocked affected servers and PCs offline and caused Windows workstations to display ‘blue screens of death’ when users attempt to boot them. Mac and Linux hosts are not affected.

When will it be fixed? George Kurtz, CEO of Crowdstrike, said that the company was actively working with customers impacted by the defect, found in a single content update for Windows hosts.

“This is not a security incident or cyberattack,” he said in a statement on X. “The issue has been identified, isolated and a fix has been deployed. We refer customers to the support portal for the latest updates and will continue to provide complete and continuous updates on our website.”

However, that doesn’t appear to help computers that are already affected, meaning that companies’ IT teams may have to follow a manual workaround that CrowdStrike sent to its customers earlier this morning, Reuters reports.

4.California’s power grid emerged largely unscathed from a record-breaking three-week heat wave, a success officials are crediting to renewable energy investment and especially batteries. 

During previous hot spells, including one in 2022, hundreds of thousands of Californians were asked to reduce electricity consumption. Since then, the state added 10 gigawatts of battery capacity, enough to power 10 million homes for several hours.

California now has the most grid batteries of anywhere outside China, and this time no voluntary conservation calls were issued. A utilities boss told The Sacramento Bee that the batteries “made a big, big difference,” although he warned that it would be “a long summer” and that there were ways for consumers to save energy without inconveniencing themselves.

Read more at: https://www.sacbee.com/news/politics-government/capitol-alert/article290009339.html#storylink=cpy

5.Bangladeshi students reportedly set fire to the state television building in Dhaka as clashes with police escalated during protests over quotas for government jobs.

 It marked the deadliest day in the week long protests; more than a dozen people were killed and hundred injured, while the government shut off the country’s mobile internet in response to the demonstrations, AFP reported. Students say they are deprived of access to coveted public-sector work thanks to a system that reserves more than half of those jobs for select groups. Anti-quota protests first began in 2018, but since then, the country has seen a “perfect storm of political and economic grievance ,” a Bangladesh-based journalist wrote in The Diplomat, in part due to rising inflation and increased government debt. Death toll rises to 64, protesters set jail on fire to free ’hundreds’.

6.Venture capital has an exit problem

The rocket-ship story of cyber security company Wiz is the kind of thing that the venture capital industry has long relied on to draw in investors. Four young engineers sell their first start-up to a giant tech company (Microsoft) and go off to found another. This one finds an unmet need and hits the big time: it quickly raises $1.9bn from some of the best-known names in venture investing. After just four years, a different giant tech company (Google) comes along and offers to buy it for $23bn. If the sale goes through, it will be the kind of payday that enters VC mythology. 

But of late, big hits such as this have been few and far between. The result, for start-up investors, has been a big overhang of ageing — and unsold — private tech companies. Unicorns — private tech concerns valued at $1bn or more — once earned that name because of their rarity. But there are now more than 1,200 of them around the world, according to CB Insights.

Until they cash in a lot more of those unrealised capital gains, many venture capital firms will find it hard to show the kind of strong cash returns needed to persuade their backers to put up fresh capital. That could well turn the unicorn logjam into a structural obstacle hampering the flow of new money into the latest wave of start-ups.

The problem has become more acute as tech stocks have stormed back from their post-Covid slump, but stock market listings and sales to other companies have remained subdued. In the US, there have been only four tech IPOs this year by companies valued at more than $1bn, compared with more than 70 in all of 2021, when the stock market was also hot.

Big acquisitions have also become scarce. As a result, billion-dollar “exits” by US tech start-ups number only 16 so far this year, compared with 211 in all of 2021, according to Crunchbase.

7.Euphoric markets are ignoring growing political risks

The past year has brought war to the Middle East, escalation of the trade conflict between the West and China and, on July 13th, an attempt to kill the frontrunner in America’s presidential race. But if you look at financial markets, you’d think nothing was amiss. No amount of blood or political rancour, it seems, can distract Wall Street from the good economic news: that fears of recessions have so far proved wrong, and that inflation has nonetheless tumbled. As a result markets are at, or close to, all-time highs in America, the euro zone and Japan, and many emerging-economy stocks are booming, too. Optimism is rife. Compared with companies’ profits, America’s stocks have only ever been this pricey during two previous booms.

It may be that the attempt on Donald Trump’s life was a random act without profound implications. America has a long history of attacks on politicians; neither the two attempts on Gerald Ford’s life in 1975 nor the one on Ronald Reagan’s in 1981 brought on crises. Yet the fact that it is easy to imagine partisan loathing inspiring an assassination attempt is a reminder of America’s political dysfunction, which is spilling over into global disorder. And if Mr Trump and his young running-mate, J.D. Vance, ride on a wave of solidarity to the White House, there will be another round of disruption. As his speech at the Republican convention showed, Mr Vance amplifies, more eloquently, Mr Trump’s isolationist instincts. Europe could face at once the loss of its nato security umbrella and the economic pain of more American protectionism.

Why are investors unperturbed by these threats? One reason is that the real economy has so far adapted to global tumult remarkably well. As the trade war has raged, Western companies have redirected their supply chains through “alt-Asia” countries including Vietnam and India (often veiling links to China, rather than severing them). When it had to wean itself suddenly off Russian gas, the German economy adjusted rather than collapsing. The damage wrought by tariffs has been obscured by America’s long-running jobs boom and the stimulus provided by its enormous deficits. Innovation, most notably the advent of generative artificial intelligence, has proceeded apace.

Yet it would be naive to think that the global economy is impervious to politics. Its prosperity ultimately depends upon the liberal, democratic and peaceful foundation on which modern capitalism has been built. It is telling that the good news investors are celebrating—the relatively painless reduction in inflation—has been achieved by central bankers, who are relatively insulated from political meddling. But politicians could set aside the taboo on interfering with interest rates, just as they have lately got over past misgivings about subsidies and tariffs. Mr Trump excoriated Jerome Powell, the chairman of the Federal Reserve, during his first term. If Trumpism lives on after 2028 through Mr Vance, who laments the strong dollar, then it is hard to see how the Fed will keep its independence in the long term.

The countries that are sitting out today’s stockmarket boom offer cautionary tales about the consequences of adverse politics and disruptions to trade. The worst-performing big market over the past year is China’s, which is down about 10% in dollar terms. Despite increasing admiration in the West for Chinese state capitalism and crowing in Beijing about turbulence in America, China’s recent economic growth has been disappointing. Its authoritarian government, lacking the discipline and dynamism demanded by democratic politics, has failed to resolve its property crisis or to fight the slowdown by stimulating consumption. In the West, Britain’s stock market has underperformed terribly since the country voted to leave the European Union in 2016, a decision which has disrupted trade flows with its closest partners. This week shares in tsmc and other tech firms fell after Mr Trump suggested that Taiwan should pay America for its defence guarantees.

In parts of the world—albeit not places that investors care much about—the real economy is suffering from the decline of the old order. Since the covid-19 pandemic developing countries have no longer, on average, grown faster than rich ones, as they did during the heyday of globalisation after 1990. Many of the poorest countries are encumbered by large debts that are difficult to escape because creditors, including China, are reluctant to respect the special status of the IMF, which they view as an arm of Western power.

Eventually political and geopolitical ructions will hurt the rich world, too. Nothing encapsulates Wall Street’s complacency about this possibility better than a growing belief that Mr Trump’s return to the White House would be good news for investors.

In recent days, as the perceived odds of interest-rate cuts and a Trump victory have grown, they have piled into small-cap stocks. It is true that cutting the corporate-tax rate from 21% to 15%, an idea Mr Trump has floated, could mechanically boost profits, that deregulation helps and that bigger deficits are stimulative. But the economy is running hotter and America’s budget is far more stretched than at the start of Mr Trump’s first term in office, both of which mean higher inflation is likelier than faster growth. Mr Trump has long viewed the stockmarket as a gauge of his performance and so may ditch his barmiest ideas. But it is not a good sign that being bullish about Trumponomics means hoping that its most harmful parts will be ditched under duress.

And if Messrs Trump and Vance were to allow more wars in Europe, or move towards the total decoupling from China that some national conservatives advocate, economic chaos would ensue. Investors would be hammered. Such a descent of the world order into turmoil would be worrying for investors were stocks priced normally. With their valuations sky-high, it is a recipe for a crash. Political risk is difficult for markets to price. But that does not mean they should ignore it. ■