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India's New Economy Can't Be a Monopoly Board – BNN

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(Bloomberg Opinion) — Two years ago, India rolled out a laudable plan to unlock the capital trapped in some of its smaller airports. But the actual outcome from privatization was less than reassuring: All six airfields put on the block went to one bidder. 

If that wasn’t enough, multiple media reports now say that Ahmedabad, Gujarat-based billionaire Gautam Adani, an early and enthusiastic supporter of Prime Minister Narendra Modi, might also succeed in taking control of the already-privatized Mumbai airport, as well as a new one coming up on the financial center’s outskirts. 

Airports are natural monopolies. To have one private owner controlling eight or more — a fresh batch of six will soon go under the hammer — can’t possibly be great news for airlines, fliers, or businesses operating from the premises. 

More worryingly, the concentration of economic power in aviation infrastructure is now symptomatic of a broader trend in India, particularly in businesses where the government supplies a key ingredient, such as telecom spectrum.

The splashy 2016 entry of tycoon Mukesh Ambani in 4G mobile was a huge boon. The richest Indian single-handedly crushed data charges for customers to 9 cents a gigabyte, the lowest in the world. But a field that once boasted a dozen players is now effectively a duopoly. The fate of a third service will be decided by a court order about how much time Vodafone Idea Ltd. has to pay its share of the $19 billion demanded by the government from telecom firms as past dues. 

If Ambani’s vision of a carriage, content and commerce triple play is sexy enough to attract investment from the likes of Facebook Inc. and Alphabet Inc.’s Google, Adani’s ambition of owning ports, airports, railway tracks, power plants and energy distribution utilities, is humdrum but lucrative.

The worry is that dominance by a handful of capitalists may not leave enough space for others. But then, who’s even ready or willing to compete, especially in sectors where state policy has a big role in determining winners? Barring some notable exceptions, the Indian business class is overextended, trapped in the debris of assets created with the help of syndicated loans from pliant state-run banks. Politicians even have a name for it: phone banking, where they make the calls and tell bankers to whom to give loans. 

It’s impossible to carry on this way. After the Covid-19 disruption, government-owned Indian banks will require as much as $28 billion in external capital over two years to raise their loss provisions on bad loans to 70% and double credit growth from last fiscal year’s abysmal 4%, according to Moody’s Investors Service. Much of this money will have to come from a government that can’t keep a lid on its borrowing costs. A sharp, private credit-fueled recovery for the economy appears to be out of the question. 

That’s probably why policy makers are resigned to letting whoever has any financing muscles take what they can. There are antitrust laws, but they’re being used to investigate discounting practices of Amazon.com Inc. and Walmart Inc.-owned Flipkart, even though their share of overall retail is minuscule. Tax laws have been used to hound startups.

Courts, which can enforce fair and stable relations between the state and business, are adding to the confusion by asking if banks have a claim on airwaves — a sovereign asset — held by insolvent telcos. Who’ll lend for 5G networks when such basic issues in creditor rights are undecided?

To top it all, the pandemic and badly soured relations with China provide ample cover for an isolationist campaign of economic self-reliance, which can be used by tycoons to charge local customers more. Adani won the bids for six airports fair and square, but then used Covid-19 to negotiate for extra time to take over three of them. However, when it came to winning the Mumbai terminal from GVK Power & Infrastructure Ltd., its liquidity-strapped current owner, disruption to travel doesn’t seem to have damped the group’s eagerness. Abu Dhabi Investment Authority and PSP Investments, a Canadian pension fund, were separately talking to GVK about a deal. They have written letters to the Indian government, asking for a transparent transaction, the Economic Times has reported.

India’s 2016 adoption of a modern bankruptcy law raised hopes that global capital would have an equal chance to take productive assets out of weak hands. The expectation was that the government would follow the Australian asset-recycling model to pay for $1 trillion worth of new infrastructure. But with insolvency courts temporarily shut to new cases, and so many airports going to one buyer, it’s unclear if foreigners’ ardor will endure. After the coronavirus, there’s no dearth of distressed assets globally.

Just as opening up the economy in the 1990s was a windfall for the current generation of middle-class Indians, excessive economic concentration will be a headache for the next. Like in South Korea, people may one day realize how a few conglomerates are sapping the entrepreneurial energy of everyone else. By then, it will be too late, and the country might be burdened with the equivalent of a “chaebol discount.” Laying the foundations of a competitive economy is still possible. But if India can’t ensure that with state assets, the corporate landscape will start looking like a Monopoly board, to its aspiring oligarchs and the rest of the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

©2020 Bloomberg L.P.

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Economy Week Ahead: Factories, Consumer Spending and Employment – The Wall Street Journal

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The Grove retail and entertainment complex in Los Angeles drew shoppers as restrictions on gatherings have eased.

Photo: valerie macon/Agence France-Presse/Getty Images

The U.S. jobs report for September highlights a week of data that will show how economies are recovering from coronavirus-induced recessions and from continued disruptions related to the pandemic.

Wednesday

China’s official purchasing managers index for manufacturing is expected to show factory activity expanded for the seventh straight month in September. Economists said manufacturers have sped up production to avoid shipment delays in the event buyers experience a return of Covid-19 this winter.

Thursday

The
Bank of Japan’s
tankan corporate sentiment survey for the third quarter is expected to improve, reflecting a gradual resumption of economic activity. In the second quarter, sentiment among Japan’s large manufacturers deteriorated to its lowest level in 11 years and even a significant gain will still show that more companies say business conditions are unfavorable than favorable.

The number of workers covered by Europe’s furlough schemes has been declining since lockdowns were eased, but without causing a surge in the number of people without jobs. That trend likely continued in August, with figures released by the European Union’s statistics agency expected to show that the jobless rate rose to 8.1% from 7.9% in July.

U.S. jobless claims have steadied at an elevated level in recent weeks, suggesting a slowdown in the labor market’s recovery. Economists expect only a slight decline in the number of applications for unemployment benefits during the week ended Sept. 26, underscoring continued labor-market disruption and a historically high number of layoffs.

U.S. consumer spending is expected to post another monthly increase in August, though at a slower pace than recent months. That would likely reflect several trends, including a partial rebound in employment, the expiration of some federal government benefits tied to the pandemic, and strong demand for many goods alongside a weaker recovery in the service sector.

The Institute for Supply Management’s September purchasing managers index for manufacturing is likely to reflect a strong rebound in factory activity amid a slow global recovery and strong domestic demand for autos, electronics and other goods.

Friday

Consumer prices in the eurozone were lower than they were a year earlier in August, and figures to be released by the European Union’s statistics agency are expected to show that they remained so in September, increasing the likelihood that the European Central Bank will have to provide further stimulus if it is to meet its inflation target.

U.S. nonfarm payrolls are expected to post another strong gain and the unemployment rate to decline in September as more businesses recall workers. But the pace of hiring might have slowed and the overall level of employment will likely remain millions of jobs short of pre-pandemic levels, underscoring the severe damage from the pandemic and the long road to full recovery.

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Economy Week Ahead: Factories, Consumer Spending and Employment – Wall Street Journal

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The Grove retail and entertainment complex in Los Angeles drew shoppers as restrictions on gatherings have eased.

The Grove retail and entertainment complex in Los Angeles drew shoppers as restrictions on gatherings have eased.

Photo: valerie macon/Agence France-Presse/Getty Images

The U.S. jobs report for September highlights a week of data that will show how economies are recovering from coronavirus-induced recessions and from continued disruptions related to the pandemic.

Wednesday

China’s official purchasing managers index for manufacturing is expected to show factory activity expanded for the seventh straight month in September. Economists said manufacturers have sped up production to avoid shipment delays in the event buyers experience a return of Covid-19 this winter.

Thursday

The
Bank of Japan’s
tankan corporate sentiment survey for the third quarter is expected to improve, reflecting a gradual resumption of economic activity. In the second quarter, sentiment among Japan’s large manufacturers deteriorated to its lowest level in 11 years and even a significant gain will still show that more companies say business conditions are unfavorable than favorable.

The number of workers covered by Europe’s furlough schemes has been declining since lockdowns were eased, but without causing a surge in the number of people without jobs. That trend likely continued in August, with figures released by the European Union’s statistics agency expected to show that the jobless rate rose to 8.1% from 7.9% in July.

U.S. jobless claims have steadied at an elevated level in recent weeks, suggesting a slowdown in the labor market’s recovery. Economists expect only a slight decline in the number of applications for unemployment benefits during the week ended Sept. 26, underscoring continued labor-market disruption and a historically high number of layoffs.

U.S. consumer spending is expected to post another monthly increase in August, though at a slower pace than recent months. That would likely reflect several trends, including a partial rebound in employment, the expiration of some federal government benefits tied to the pandemic, and strong demand for many goods alongside a weaker recovery in the service sector.

The Institute for Supply Management’s September purchasing managers index for manufacturing is likely to reflect a strong rebound in factory activity amid a slow global recovery and strong domestic demand for autos, electronics and other goods.

Friday

Consumer prices in the eurozone were lower than they were a year earlier in August, and figures to be released by the European Union’s statistics agency are expected to show that they remained so in September, increasing the likelihood that the European Central Bank will have to provide further stimulus if it is to meet its inflation target.

U.S. nonfarm payrolls are expected to post another strong gain and the unemployment rate to decline in September as more businesses recall workers. But the pace of hiring might have slowed and the overall level of employment will likely remain millions of jobs short of pre-pandemic levels, underscoring the severe damage from the pandemic and the long road to full recovery.

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Trump says the economy is booming. He's right — but you don't feel it – CNN

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Federal Reserve Chairman Jerome Powell spent all last week testifying about the recovery on Capital Hill. His message: This is a tale of two economies, and one looks much stronger than the other.
On paper, the economy is roaring back even stronger than Powell and many economists expected.: More than 22 million jobs vanished in the spring lockdown, but 10.6 million jobs have since been added back.
And US gross domestic product — the broadest measure of the economy — is expected to rebound sharply after collapsing at a revised, annualized and seasonally adjusted rate of 31.7% between April and June. The Atlanta Fed’s GDP Now model predicts GDP will jump at an annualized and seasonally-adjusted rate of 32% in the third quarter.
But that’s only one side of the story.

The other side

Many shops are still closed. About 11.5 million people who became unemployed because of Covid-19 remain out of work. And next week, unless Congress acts to provide more federal help, up to 100,000 airline industry jobs may be lost after the expiration of the CARES Act, which provided a $50 billion bailout to keep US airlines afloat.
Meanwhile, the sugar rush from Congress’s initial stimulus has worn off. Without more intervention we could be in for a long winter, especially as Covid-19 infections are rising again in some parts of the world.
“The risk going forward is that people are spending [now] because they have money in the bank even though they’re unemployed,” Powell said.
But once that money runs out, people might start scaling back their spending — a potential body blow to the recovery given consumer spending is the economy’s biggest engine.
Retail sales, one measure of how Americans’ spending behavior, have bounced back, recording their biggest monthly surge on record in May. But while the data has gotten better in the following months, the pace of improvement has slowed.

Fears of funds drying up

One possible reason is that unemployment benefits are now lower: a supplemental $600 in weekly jobless aid, part of Washington’s first stimulus bill, ran out at the end of July, and Congress hasn’t agreed on a new stimulus deal.
President Donald Trump signed an executive order to bolster benefits again, though by $400 a week this time, by diverting money from the Federal Emergency Management Agency. FEMA said that some states have already exhausted their allocated amounts.
Meanwhile, businesses using the Paycheck Protection Program to make it through the worst months of the crisis are worrying about funds drying up.
Problems like these underscore the importance of Congress taking action — and soon.
“I do think it’s likely that additional fiscal support will be needed,” Powell reiterated before the Senate Banking Committee on Thursday, even though the recovery will ultimately depend on the path of the pandemic.
If Washington fails to agree on more stimulus the fourth quarter of this year, as well as 2021, could look much weaker than expected, said Gus Faucher, chief economist at PNC, in a note.
But now that lawmakers are more focused on approving a new US Supreme Court justice, worries are growing that no further stimulus will be passed until after the election.
Experts at Oxford Economics still believe a $1.5 trillion stimulus package could be agreed upon before the election on November 3.
But the window to get a deal done is closing fast and will require that rarest of commodities in Washington: compromise.

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