Weekend reading links

1. US equity markets fact of the day!

Nvidia, is now worth $4.3tn, or one-and-a-half times the UK’s entire FTSE 100 index, give or take... The 10 biggest companies in the US, which are mostly tech-flavoured, with some finance bolted on at the bottom, now account for some 40 per cent of the S&P 500 and for a third of the revenue growth across the index over the past year. Big tech has done all the heavy lifting for investors in the US this year, hence why the S&P 500 is up 9.5 per cent so far in 2025 while the Russell 2000 index, which tracks smaller stocks, is up a more modest 4.2 per cent.

2. Manufacturing reverses course in East Asia.

3. The days of independent central bankers may be closing, even as their credibility among the public is waning. 

Inflation targeting, a system pioneered in New Zealand in the 1990s under which rate-setters pledged to do whatever it took to hit their price goals, grounded independence with an intellectual framework... Volcker helped lay the foundations for governments around the world to give greater independence to economic technocrats. The Maastricht treaty of 1992 created the framework for control over monetary policy to be handed to the European Central Bank at the end of the decade. In 1997, Tony Blair’s new Labour government finally gave the Bank of England, then a more than 300-year-old-institution, freedom to set interest rates without political meddling.

4. Who benefited in India from the Russian oil imports?

5. Spain's solar energy glut.

In 2023 and 2024, Spain added more solar power capacity than any other European country except Germany, whose economy is more than twice its size... At some times in spring, as much as 60 per cent of Spain’s electricity comes from the sun. That has enabled Spain to slash its use of gas and coal-fired power stations. Consumers have reaped the rewards, as cheap electricity frees the country from the angst elsewhere in Europe over utility bills... Spain has built so much solar capacity that at certain times of day it produces far more electricity than it needs. Prices have plunged as a result, dragging down owners’ profits with them. Over the past year, “day ahead” wholesale electricity prices were zero or even negative 10 per cent of the time, according to data from grid operator Red Eléctrica. In May, they were at zero or below for one-third of the entire month... Today Spain has 36GW of total solar capacity...

No longer is the Spanish system centred on a few dozen fossil fuel and nuclear plants whose huge turbines are located close to urban demand hubs. Instead, it relies on a web of smaller renewable plants dispersed across rural areas, including 54,000 solar installations. They generate power intermittently, depending on cloud cover and the rotation of the earth, and do not help to stabilise grid frequency and voltage in the same way as giant gas and nuclear turbines. “This transformation has pushed the grid to the limits of the generation mix,” said José Bogas, chief executive of Endesa, a big Spanish utility, in May. But, he added, “we have continued to operate the system as we used to”. While Spain has championed investment in solar parks, the grid has been neglected. According to BloombergNEF, it has been Europe’s stingiest grid investor since 2020, putting only $0.30 into the grid for every $1 invested in renewables, versus a pan-European average of $0.70... As long ago as 2017 a group of European grid operators, Entso-e, warned that the growth of renewables risked creating instability in the grid and called for the deployment of devices that mimic the stabilising function of turbines, known as grid-forming inverters.

6. Good primer on where America gets its pharmaceutical active ingredients and drugs. This generally on drugs.

And this is on prescription drugs.

7. Top ten Indian exports to the US

Indian manufacturers are trying to adapt to the new tariffs by embracing a India+1 strategy of serving US markets from elsewhere.

Raymond might consider ramping up production in its Ethiopia factory for the US market. Ethiopia faces only a 10% tariff. He is not alone in considering a diversification of production outside India as a call of last resort. Godrej Interio, which exports office furniture, is also considering increasing production from its factories in Oman and Vietnam—countries with lower tariffs than India at present. The US has imposed a 10% tariff on Oman and 20% on Vietnam.

This is a good graphic that shows how India lost the labour intensive manufacturing race.

The data shows India’s share in global exports of apparel, leather, textiles and footwear (ALTF) initially grew from 0.9% in 2002 to a peak of 4.5% in 2013, but it subsequently declined to 3.5% in 2022. In contrast, Vietnam’s share has increased to 5.9% and Bangladesh reached 5.1% of global ALTF exports in 2022.

And this about India's failure to increase its textile exports

In 2010, China controlled 36 per cent of global exports; by 2018, its share slipped to 31.3 per cent due to rising wages. Vietnam and Bangladesh seized the opening, doubling their shares to 6.2 per cent and 6.4 per cent respectively. India’s share fell slightly, from 3.3 per cent to 3.2 per cent.  

8. Private equity faces strong headwinds as they struggles to raise money despite offering unprecedented enticements.

Private equity groups raised just $592bn in the 12 months to June: their lowest tally for seven years, data from Preqin show. The decline came even as firms offered more discounts such as management fee cuts, “early-bird discounts” for investors who commit quickly to new funds and other incentives... The industry’s fundraising has shrunk by nearly a third from its record levels in 2021. Higher interest rates and a slowdown in dealmaking have left firms unable to sell trillions of dollars in ageing investments, causing growing frustration from investors, many of whom are now refusing to back funds. Accentuating PE’s challenges are a flurry of newer entrants into the industry in the decade after the 2008 financial crisis, leaving the market oversaturated. It had left a record number of funds chasing every potential dollar of new investment, consultancy Bain said in June... As a result, more groups are offering discounts, such as pledging to return the transaction fees that were once charged to their clients, as well as volume-based discounts and novel terms such as caps on some legal and travel expenses. These types of enticements have reduced net management fees paid to PE groups by about half since the global financial crisis, Bain & Co. found.

9. Barry Scannell points to some important legal issues raised by the rise of AI.

Generative artificial intelligence poses two copyright puzzles. The first is the widely discussed question of compensation for work used to train AI models. The second, which has yet to receive as much attention, concerns the work that AI produces. Copyright is granted to authors. So what happens to work that has no human author? 

The US has drawn the clearest line in the sand to date. In 2023 the US Copyright Office granted copyright protection to the graphic novel Zarya of the Dawn but rescinded protection for any AI-generated images — protecting only the human-authored text and arrangement. More definitively, a federal appeals court ruled in March that the pretty, purple and green AI-generated artwork “A Recent Entrance to Paradise” could not receive copyright protection because works must be “authored in the first instance by a human being”. The message is unambiguous: AI prompts, however sophisticated, are not enough alone to warrant authorship. China has taken the opposite path. In 2023, the Beijing Internet Court ruled that AI-generated images could receive copyright protection, finding that a user’s intellectual investment in selecting prompts and refining outputs constituted human creativity. So far, the UK and Ireland occupy a curious middle ground. Both jurisdictions provide copyright protection for “computer-generated works”. But this protection may be on shaky ground. A consultation from the UK government last year asked whether it should be removed. Ireland’s AI Advisory Council has made a similar recommendation. 

Global divergence in legal frameworks can create problems for businesses. The same AI-generated content could be legally protected intellectual property in Beijing while residing in the public domain in Boston. That means an AI-generated jingle or AI-generated marketing copy made in the US could, in theory, be used by anyone. .. Litigation against AI companies from the likes of Getty Images and The New York Times centre on exploitation of existing works. So far the ownership of AI-created content has remained largely untested before the courts. But that could soon change.

10. Indian capital markets and foreign investors in 2025.

Foreign portfolio investors (FPIs), spooked by sluggish earnings and a sliding rupee, sold Indian equities worth ₹210 billion ($2.5 billion) in the first half of August alone, bringing outflows to ₹1.16 trillion ($14 billion) in 2025 till now. Foreign institutional investors (FIIs) sharply reduced their exposure to Indian equities in July, making India the most underweight market among emerging market portfolios. India’s relative weighting fell to a negative 2.9 percentage points versus the MSCI Emerging Markets (EM) index. Meanwhile, China, Hong Kong, and South Korea saw increased allocations.

11. Tamal Bandopadhyay has a very good summary of India's financial inclusion success with digital banking.

The total number of PMJDY accounts in the first week of August 2025 stood at 561 million. Collectively, these accounts make for Rs 2.64 trillion, with an average account balance of Rs 4,726. The number of RuPay credit cards issued to such beneficiaries is 385.9 million. Linking RuPay cards to PMJDY accounts had multiplied digital transactions. Public sector banks have played a spectacular role in this movement. They have opened 435.1 million accounts – 77.55 per cent of the total PMJDY accounts; followed by regional rural banks (105.6 million; 18.80 per cent), private banks (18.4 million; 3.30 per cent), and rural cooperative banks (around 1 million; 0.35 per cent)… Of the total PMJDY accounts, 66.75 per cent, or 374.4 million, are in rural and semi-urban India, and 33.25 per cent (186.6 million) are in urban India. Importantly, women outnumber men as beneficiaries. There were 312.7 million (55.70 per cent) women beneficiaries in the first week of August… 

Together, they have enabled direct benefit transfers (DBT) that deliver subsidies and welfare with laser precision — no middlemen, no leakage. The DBT coverage exploded from 28 schemes in 2013-14 to 323 schemes in 2024-25, and the quantum of funds transferred zoomed almost 10-fold during this period – from Rs 7,400 crore to close to Rs 7 trillion. A contributing factor to the growth of digital transactions is the RuPay card. The 386.8 million such cards issued under the PMJDY scheme, the installation of millions of POS machines, and the mobile-based payment system have together boosted the financial inclusion drive. On an average, a bank’s branch now serves 7,100 people… As of January 2025, 21.17 per cent of PMJDY accounts were inactive.

12. India dairying facts of the day.

The average Indian milch cow, according to US Department of Agriculture data, produced 1.64 tonnes of milk in 2024. The corresponding numbers were 4.60 tonnes for New Zealand, 7.33 tonnes for the EU and 10.97 tonnes for the US... The US, incidentally, had a mere 24,470 dairy farms producing milk from 9.3 million cows in 2022. India has upwards of 50 million farmers engaged in dairying with some 110 million milch cows and buffaloes.

13. Very good article that makes that highlights why the US tariffs against India for purchases of Russian oil are hard to justify. 

Analysis of Chinese data by Energy Aspects estimates that China’s buying of Russian oil via various means increased from 1.5 mb/d before the war to above 2 mb/d, with several grades of oil bought above the price cap. China does not have the refining capacity to absorb significantly higher volumes of Russian oil than they used to buy. Thus, geographically India became the logical clearing country for the Russian barrels... Have Indian refiners gained somewhat from discounted Russian oil? Yes, they have, as initial discounts ballooned to above $20 versus the Dubai benchmark, although higher costs of shipping following sanctions reduced the discounts India received. However, these discounts were also enjoyed by China, Turkey and Brazil (which buys Russian diesel) alike. And since 2022, India’s refinery production has barely risen on average and product exports are fairly steady as domestic demand has been rising and absorbing the increase. The challenge is that, if the west is serious about sanctions on either Russia or Iran or both, it will have to contend with the loss of more than 6 mb/d of crude, a number that is much larger than Opec+ spare capacity. This would lead to a surge in oil prices, probably to well above $100 — a level that Trump and Europe would be likely to balk at.

14. Australian web-design software company Canva eyes an IPO.

Founded in 2013, Canva develops web-based design software that is widely used in schools and large companies to prepare presentations. It is one of Australia’s most valuable technology companies, alongside enterprise software developer Atlassian, and is backed by the country’s main venture capital funds including Blackbird, Square Peg and Airtree. Its latest share sale boosts its valuation from $32bn last October and comes after its rival Figma listed in the US last month, spurring rumours that Canva may be plotting an initial public offering soon. The company said in June it had 240mn active users a month and annualised revenue — a metric used by start-ups to project full-year revenue based on a recent month’s sales — of $3.3bn. Figma made $749mn in revenue last year and had 13mn active users a month in the first quarter of this year, according to its IPO filing. The company priced its shares at $33, and the stock now trades at $69.41, valuing it at $34bn.

Where's India's Canva equivalent?

15. End of Fed independence?

Trump’s imprint is already present at the Fed. Two of its seven board members, Christopher Waller and Michelle Bowman, were selected by him during his first term in office. This month, Adriana Kugler, who was tapped to be governor by former president Joe Biden, announced she was stepping down before the end of her term next year, prompting Trump to pick Stephen Miran, one of his closest economic advisers, to succeed her. If Trump succeeds in ousting Cook, whose term runs to 2038, it would give his nominees control of the seven-member board of governors. Moreover, the presidents of the 12 regional Feds, all of whom serve five-year terms, will need to be renewed at the end of February 2026. The decision to renew their terms lies with the Fed’s board.

16. The Netherlands leads the way with four-day week becoming common.

Average working weekly hours for people aged 20 to 64 in their main job are just 32.1, the shortest in the EU, according to Eurostat. It has also become increasingly common for full-time workers to compress their hours into four days rather than spread them over five... In spite of its shorter average working hours per person, the Netherlands is one of the richest economies in the EU in terms of GDP per head. That is because shorter working hours are combined with relatively high productivity per hour, and a high proportion of people in employment: 82 per cent of working-age people in the Netherlands were in employment at the end of 2024, according to OECD data, compared with 75 per cent in the UK, 72 per cent in the US, and 69 per cent in France. Women, in particular, have high employment rates in the Netherlands, especially compared with countries like the US, where average working hours are longer. In addition, people in the Netherlands tend to retire fairly late... children in the Netherlands rank as the happiest in the rich world.

17. On China's rare earths grip over the world economy.

China has built up this strategic strength over many decades. In 1987, Deng Xiaoping, then the country’s leader, remarked: “The Middle East has oil. China has rare earths.” In reality, rare earths are found all over the world. It is China’s willingness to commit to the often filthy business of mining and processing critical minerals — and the rare earths that are a vital subset of them — that has given Beijing its near monopoly. As a result, the country is thought to mine around 60-70 per cent of the world’s rare earths and control around 90 per cent of their processing and refining. The west has long been aware of the theoretical dangers of its reliance on Chinese rare earths. As one Trump administration official told me: “We’ve sat around admiring this problem for decades.” His view is that the west was stymied by a mixture of environmental concerns and a reluctance to sanction state intervention in the market.

18. Some facts on foreign portfolio investments in India.

India has now gone five years with zero net foreign inflows into the public equity markets, an incredibly long time. This year too, flows are running at a negative $13 billion. Foreign ownership of Indian equities is at a 15-year low. India is now a consensus sell, with regional, global, and emerging market (EM) funds all underweight. In the same five years, domestic flows have exceeded $185 billion. Just as foreign investors have lost interest, domestic investors have never been more bullish... 

A hundred dollars invested in EM equities 15 years ago is today worth $180, compared to almost $500 if it had been invested in global indices. Within this context, India has massively outperformed. Over the past five years, MSCI India delivered dollar returns of almost 15 per cent per annum, compared to just 5 per cent for the broader EM index. 

Many investors have lost faith in the EM asset class, cut exposure, and India has been a funding source, given its relative outperformance.

19. H1B Visa facts.

In fiscal year 2023, more than 72 per cent of approved H-1B petitions were for Indian nationals, far outpacing China at 11.7 per cent. Currently, the annual H-1B cap stands at 65,000, with an additional 20,000 slots reserved for holders of advanced US degrees, all allocated through a lottery system.

20. Finally, Nvidia valuation fact.

Add up analysts’ estimates of the next five years’ worth of free cash flows, discount them back at a 10 per cent rate, and they total just $650bn. In other words, the remaining $3.8tn of enterprise value represents cash arriving from 2030 onwards. That “terminal value”, in analyst-speak, would be justified if Nvidia’s free cash flow were to grow at a 6 per cent annual rate for the rest of time, Lex calculates. But that’s a punchy assumption. Some of Nvidia’s customers are already designing chips of their own. Its 72 per cent gross margin, far ahead of anything ever reported by Apple, is an open invitation to competitors... Huang is optimistic. He believes, for example, that companies could earmark $4tn for AI infrastructure by 2030, much of it to buy servers incorporating Nvidia’s Blackwell, Rubin and Vera chips.

China and the US today are upending the grand narratives on the economy and polity

China and the US are now egregious exemplars that contradict the conventional wisdom on economic growth and liberal democracy. 

The orthodoxy on economic growth is that, in addition to capital (physical, financial, and human), countries should have an appropriate and predictable regulatory and facilitating environment to unleash private enterprise. The orthodoxy on liberal democracy is that strong institutions, by promoting the fairness and predictability of the rule of law, will act as checks against the unpredictability of rule by laws enacted by autocratic rulers. 

China, specifically under Xi Jinping, and the US, under Donald Trump 2.0, have comprehensively shattered these comforting orthodoxies that have come to underpin conventional wisdom and shape narratives on the polity and the economy. 

China is a standout paradox in how capitalism and the private sector have flourished over the last three decades, with little of the institutional requirements that orthodox theories mandate as essential to economic growth. Despite its communist political system, the private sector dominates the country’s economy.

The private sector contributes over half of tax revenues, more than 60 per cent of GDP, over 70 per cent of innovations, 80 per cent of urban jobs, and 90 per cent of registered companies.

This has been despite an environment and bureaucratic system that would have been considered outright hostile to private enterprise in any other country. 

Chinese entrepreneurs have always faced cycles of risk and reward, but now a single regulatory investigation, a shift in local political winds, or a liquidity squeeze can turn a challenging quarter into an existential threat… the lived reality for many entrepreneurs is one of precarious privilege. They may command wealth and influence now, but their long-term position is far from secure. The life cycle of a Chinese private firm is notoriously short, less than four years for SMEs, compared with eight in the US and more than twelve in Japan. And when a business fails, there is often no institutionalised way to shield the founder from total financial and reputational ruin… Laws on paper go only so far; in China, the political motives that guide bureaucrats ultimately decide enforcement. 

It’s striking that this advice is being given to a country that has experienced three decades of spectacular economic growth, driven by the private sector, to emerge as the factory of the world and its second-largest economy 

Entrepreneurs need tangible, enforceable protections: fair access to credit; and legal frameworks that allow businesses to fail without destroying their founders’ lives… it is about ensuring that risk-takers can survive to try again… The legal framework required is clear: establish a national personal bankruptcy regime that allows honest but insolvent business owners to discharge debts while retaining essential assets, enabling them to restart their careers; limit personal guarantees for corporate loans, particularly for SMEs, to prevent the automatic conflation of business and personal liability. Beijing must ensure transparent, predictable regulation, so enforcement actions are guided by clear rules rather than shifting political imperatives. It should strengthen due process protections for those under investigation, avoiding prolonged uncertainty that can be as damaging as a formal penalty… If those with influence and resources cannot secure a fair hearing, due process, or a dignified way to start again, what chance does the average citizen have?

Arguably, China’s most consequential (strategically important for other countries) economic achievements have all happened in the last decade, when Xi Jinping has pursued a brand of centralised capitalism punctuated with multiple rounds of unpredictable crackdowns. Its dominance in clean technologies, batteries, electric vehicles, and critical minerals, among others, has emerged over the last decade.  

Yuen Yuen Ang’s works, which I have blogged about on several occasions, highlight in detail how successive Chinese governments have discarded orthodoxy and pursued practical and heterodox strategies to drive the country’s economic growth.

In the field of politics, the second administration of Donald Trump has spectacularly demolished all theories about the supposed bulwarks offered by institutional checks and balances. Janan Ganesh brilliantly captures the moment and underlines the importance of politics and winning elections as the only true check,

Consider Congress. It is the least trusted institution in America. Its Republican members are so deep in Trump’s pocket that most voted not to ratify Joe Biden’s election win in 2020. At a rate his predecessors never did, Trump invokes emergency measures, without much resistance from the legislature. Or take the judiciary. Trump has appointed a third of the Supreme Court, which has gone on to construe his powers and privileges generously. As for the federal executive itself, Trump gets to appoint 4,000 or so people to it, not just the cabinet and their immediate deputies. You will notice that little or none of the above is illegal. Before he violates a single rule, Trump can bend the state to his whim. What does that say about the state?

…. Institutions outside government have proven no harder for him to master. Business has been an alternative locus of power in the past, especially in America, where individuals can amass such large fortunes as to be able to look the president in the eye. Now, though, billionaires genuflect before Trump to secure favours or avoid punishments in a patronage economy, as do law firms. (“Big Law continues to bend the knee to President Trump,” boasted the White House spokeswoman in April. Imagine saying that deliberately, as opposed to being caught by a stray mic.) That leaves the media. Well, we try. But this isn’t Walter Cronkite’s era. So much news is now consumed via social media platforms whose owners were seated in front of cabinet nominees at Trump’s inauguration…

It is an old liberal instinct to take things outside of politics: for example, to establish as incontestable “rights” that should be argued for in the democratic realm. Another version of this mental crutch is the hope that “institutions”, within and without the state, will counteract a rogue leader. It is a reasonable hope. The founding scripture of the republic sets out exactly that system. But the evidence of the past eight months, during which Trump has imposed himself on civilian and not just official life, isn’t encouraging. Institutions are made up of human beings, not magic dust, and the president can appoint them or indirectly grind them down with pressure. 

See also this. It’s said that the true mark of institutional strength is when it’s tested. It’s now amply clear that none of the American institutions has been able to resist the devastating intent of Trump 2.0. 

After the definitive ideological takeover of the Supreme Court in his first term, Donald Trump has now set his sights on the US Federal Reserve Board. 

Trump’s imprint is already present at the Fed. Two of its seven board members, Christopher Waller and Michelle Bowman, were selected by him during his first term in office. This month, Adriana Kugler, who was tapped to be governor by former president Joe Biden, announced she was stepping down before the end of her term next year, prompting Trump to pick Stephen Miran, one of his closest economic advisers, to succeed her. If Trump succeeds in ousting Cook, whose term runs to 2038, it would give his nominees control of the seven-member board of governors. Moreover, the presidents of the 12 regional Feds, all of whom serve five-year terms, will need to be renewed at the end of February 2026. The decision to renew their terms lies with the Fed’s board.

The rate-setting FOMC consists of the seven-member Board of Governors of the Federal Reserve, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents who serve on a one-year rotating basis. While the heads of the regional Feds are selected locally, they must be approved every five years by the Board of Governors. 

This raises the possibility of a complete capture of the Federal Reserve system, something that cannot be discounted given the political determination displayed so far. It also raises the possibility that we have now passed the peak of central independence ideology. 

In the realm of the economy, institutional safeguards, especially the informal ones from the corporate world and the markets in general, were supposed to be invincible bulwarks. But all of them have fallen aside, even as ideals of competition, macroeconomic stability and predictability, and free-market principles have been ground down. The most surprising have been the markets, both bond and equity markets, which appear to be betting that Trump will only take it that far and pull back just in time. Even as new redlines are being crossed, it appears increasingly likely that they may be excessively optimistic in miscalculating the motivations and the moods behind these actions. 

As I blogged here, the trade landscape of the world economy has been redrawn, mostly irreversibly, in just over six months. Alan Beattie writes about the unpredictability of Trump’s actions concerning the economy. 

It’s now commonplace to say Trump’s shakedowns of trading partners and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator in a developing country. It’s actually worse than that. Good mafia bosses and efficient autocrats may be extractive, but they are predictable. Trump’s raids on companies and governments on behalf of the US Treasury are capricious — consider his reported demand that Switzerland buy off the US tariffs with investments and his sudden 15 per cent levy on the chip companies Nvidia and AMD’s semiconductor sales to China. They create uncertainty that weakens the entire basis of business and trade.

And even the trade deals are filled with unpredictability. 

The benefits that Trump offered in his tariff deals often fail to materialise or are disputed as soon as the deal is signed. The UK, one of the first countries to pay the US the equivalent of protection money in its agreement in May, is still waiting for some of the benefits in the form of zero tariffs for a portion of its steel exports. The Japan agreement in July headed straight into a fog of uncertainty over disputed provisions on investment and on import taxes. The EU kept complaining it didn’t know what Trump wanted — it’s a category error to assume he ever has coherent demands. 

One of the earliest attempts to analyse southern Italy’s mafia, by the sociologist Diego Gambetta, posited that organised crime fulfils a function in a society marked by profound distrust. Paying protection money provides security of contract and the settling of disputes in an otherwise chaotic business environment. But the mafia has to be competent and reliable. Dealing with Trump often means not just an offer you can’t refuse but an offer you can’t rely on — sometimes an offer you can’t understand. If the EU’s tariffs were protection money on behalf of Ukraine, Trump glaringly failed to deliver the quid pro quo. Perhaps he simply inferred from the concession that the EU was a weakling to be trampled underfoot.

So much so that The Times has described the US President as the “newest activist investor”

President Trump has inserted the government into U.S. companies in extraordinary ways, including taking a stake in U.S. Steel and pushing for a cut of Nvidia’s and Advanced Micro Devices’ revenue from China. Last month, the Pentagon said it was taking a 15 percent stake in MP Materials, a large American miner of rare earths. And on Friday, Intel agreed to allow the U.S. government to take a 10 per cent stake in its business, worth $8.9 billion. These developments could herald a shift from America’s vaunted free-market system to one that resembles, at least in some corners, a form of state-managed capitalism more frequently seen in Europe and, to a different degree, China and Russia, say lawyers, bankers and academics steeped in the history of hostile takeovers and international business.

When an ultra-powerful President becomes the “activist investor”, the whole economy becomes available for deal-making in the manner he deems useful or appropriate. 

In the US context, to the collapses of institutional checks and balances within the government, and that of the market restraints, one must add the breakdown of ideological bulwarks. It was thought that no matter what, the Republican and Democratic parties would always remain beholden to certain ideological strands. But the assault has demolished even this faith. In the context of the decision of the US government to take a stake in Intel, an FT article writes,

Trump has taken on that dealmaking role for himself, adopting a transactional approach to the presidency that has upended the US government’s treatment of private enterprise and shattered the Republican party’s free-market philosophy. On Friday, the president announced his latest deal: the US government would take a 10 per cent stake in struggling chipmaker Intel, using previously agreed federal grants to fund an $8.9bn equity investment. The move cuts directly across Republican orthodoxy, which touts the benefits of free-market capitalism and broadly objects to state interventions into corporate America.

The article describes these actions as part of the shift towards a form of “state-run capitalism”. In the circumstances, it may not be incorrect to argue that in the battle for global supremacy between the US and China, the Chinese model of capitalism with Chinese characteristics (essentially state-directed capitalism) appears to be winning, at least for now. 

And we are not even talking about how a new normal may have come to be established in political rent-seeking. David Kirkpatrick of The New Yorker has investigated and found that the Trump family may have benefited by $3.4 billion from the Presidency to date. 

For me, the examples of China and the US are good reminders about the tenuous foundations on which orthodox theories stand. It should serve as a powerful reminder about the limits to the great faith that we place in experts and expertise. Far from being expertise-driven, critical decisions on areas like liberalisation, outsourcing and off-shoring, immigration, technology adoption, etc., are prudent judgments that are essentially political choices. Technical expert advice is only one among the inputs that go into informing those political choices. 

For more on this, I blogged here on the problems with the argument on technical expertise and central banking and its independence. I also blogged here, here, here, and here, questioning the wisdom of blind or excessive faith in expertise and experts.

Amidst all these critiques and lamentations about the breakdown of orthodoxy, we should not become blind to several desirable trends. As I have blogged on several occasions (here, here, and here), capitalism, trade liberalisation, globalisation, outsourcing, immigration, woke liberalism, etc., all clearly went to excessive extremes. Now, a much-needed recalibration is happening with vengeance. And some parts of the Trumpian makeover of the US economy and polity are being met with approbation from even traditional critics and opponents. 

Mark Cuban, the billionaire investor and a supporter of Kamala Harris in the 2024 presidential race, said Trump’s decision to push Nvidia and AMD to pay a portion of their China-related revenues to the state was a good redistributive move that should have been supported by Democrats. “This is a ‘billionaire’s tax’ structured as a royalty or sales tax on semiconductors from the most valuable company in the world, sold to China,” Cuban said on X. “Will this make up for the explosion of the deficits we face? Not as it stands now. Not close. But give him credit for knowing how those CEOs approach problems and opportunities, and using his leverage to generate tax revenues,” Cuban added. “POTUS is more progressive when it comes to taxation than anyone in the progressive wing of the Dems has ever been.”… 

Bernie Sanders, the leftwing US senator, lauded Trump’s Intel deal, which mirrored a proposal he had made himself for the government to receive equity in return for subsidies granted under the 2022 Chips Act. “I am glad the Trump administration is in agreement with the amendment I offered three years ago,” said Sanders in a statement. “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment.”

Two areas of particular interest are how Trump moves on Big Pharma and Big Tech. He has already committed to lowering US drug prices by up to 80%. In late July, he wrote to the 17 largest pharmaceutical companies, demanding binding commitments from them to lower drug prices by September 29. 

The letters asked the groups to apply “most favoured nation” drug pricing to Medicaid, the US health programme for low-income people. They also asked drugmakers to offer new medicines at the same price in the US as in other developed countries, and offer direct-to-consumer drug sales that would “cut out middlemen” such as pharmacy companies.

What will happen on September 29? It also remains to be seen what happens with the ongoing antitrust actions against Big Tech. Contrary to what was widely believed, the Biden-era antitrust actions have continued. Landmark decisions on Google and Meta are expected anytime, which could dramatically revise decades-long paradigms on antitrust and makeover the competition landscape in the digital technology sector. It’ll be interesting to see how far this will be allowed to go once the first verdicts come. For example, will Trump intervene with deals that break up Google and Meta?

Successive democratic administrations compromised on their ideals and allowed these excesses to build up. And it has now taken a right-wing populist backlash to tame and recalibrate these forces. Liberals and progressives should take note. 

Finally, the ongoing trends in China and the US are also a reminder about Marx’s famous quote in The Eighteenth Brumaire of Louis Bonaparte, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past”. While both Xi Jinping and Donald Trump are creatures that emerged by harnessing the political forces unleashed by the underlying economic, social, and cultural conditions, their individual personalities and contributions to seize the moment and shape it in their favour should not be overlooked.

Weekend reading links

1. After all the bluster about "reclaiming the Panama Canal" from Chinese owners, it now emerges that the Chinese authorities have not yet cleared the $23 bn sale from HK-based CK Hutchison and a Blackrock-backed consortium. And apparently, China’s state-owned shipping conglomerate Cosco is now seeking at least a 20-30 per cent stake in the deal. 

2. Spain is taking a contrarian path. 

Spain is having a moment bucking Western political trends. The country has recently recognized Palestine as a state, resisted President Trump’s demand that NATO members increase their defense spending to 5 percent of gross domestic product and doubled down on D.E.I. programs. But there’s no better example of Spain going its own way than immigration. At a time when many Western democracies are trying to keep immigrants out, Spain is boldly welcoming them in. The details are striking. In May, new regulations went into effect that eased migrants’ ability to obtain residency and work permits, and the Spanish Parliament began debating a bill to grant amnesty to undocumented immigrants. These reforms could open a path to Spanish citizenship to more than one million people. Most of them are part of a historic immigration surge that between 2021 and 2023 brought nearly three million people born outside the European Union to Spain.

3. Domestic Institutional Investors (DIIs) are driving Indian equity markets, having replaced the role of Foreign Institutional Investors (FIIs).

Investments by DIIs grew at a much higher rate of 55.4 per cent from 2014-15 to 2019-20, compared with 37 per cent in the post-Covid period (2021-22 to 2024-25)... In absolute terms, investments by DIIs reached an all-time high of ₹14 trillion at end-March 2025. In contrast to the rapid growth of DII investments over the past decade, FII investments grew at only 4.9 per cent. Consequently, their outstanding investments, at ₹10 trillion at end-March 2025, were about 29 per cent lower than those of DIIs...

The co-movement (correlation) between FII investments and the equity market (BSE Sensex), which was 0.37 from January 2000 to March 2014, fell to a negligible (–) 0.03 from April 2014 to June 2025, implying that over the past decade, FIIs have had virtually no impact on the equity market. In contrast, the correlation between DII investments and the equity market, which was (-) 0.20 during January 2000 to March 2014, rose sharply to 0.59 during April 2014 to June 2025, suggesting that over the past decade, DIIs have predominantly influenced the equity market.

4. DeepSeek further delays the release of its new model after failing to train it using Huawei's chips, exposing the limits of China's indigenous chips.

DeepSeek was encouraged by authorities to adopt Huawei’s Ascend processor rather than use Nvidia’s systems after releasing its R1 model in January, according to three people familiar with the matter. But the Chinese start-up encountered persistent technical issues during its R2 training process using Ascend chips, prompting it to use Nvidia chips for training and Huawei’s for inference, said the people... Training involves the model learning from a large dataset, while inference refers to the step of using a trained model to make predictions or generate a response, such as a chatbot query... Industry insiders have said the Chinese chips suffer from stability issues, slower inter-chip connectivity and inferior software compared with Nvidia’s products. Huawei sent a team of engineers to DeepSeek’s office to help the company use its AI chip to develop the R2 model, according to two people. Yet despite having the team on site, DeepSeek could not conduct a successful training run on the Ascend chip, said the people. DeepSeek was still working with Huawei to make the model compatible with Ascend for inference, the people said.

5. India's wealth and income landscape.

6. GST notices issued by Karnataka Commercial Taxes Department to informal traders who use UPI payments system forces some of them to turn back on UPI.

The trigger was a series of Goods and Services Tax (GST) notices sent to street vendors who have been using the Unified Payments Interface (UPI) to accept payments. The state’s GST department had flagged them as unregistered traders whose turnover exceeded the limit over which GST registration is mandatory—Rs 40 lakh per annum for the supply of goods and Rs 20 lakh for services. These notices have set off a wave of fear rippling through small traders in several states where governments have taken similar action. In Karnataka, over 14,000 street vendors recently threatened to go on strike over the issue. The strike was called off after the state government hit pause on 6,000-odd notices following the backlash, but reports say other states like Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Gujarat have also begun requesting merchant turnover data. UPI may have brought simple, instant digital payments to India’s streets, but as the country’s small traders are finding out, it’s also brought fully traceable transactions—putting them directly under the lens of tax authorities for the first time.

7. The Bola Tinbu administration in Nigeria devalued the Naira sharply after taking charge in 2023, plunging the economy into chaos. Impressively, things seem to be looking up now, especially in manufacturing.

Facing ever-rising input costs and the threat of stock shortages, some companies used last year’s shock as a catalyst to reduce their reliance on imported materials... The use of local raw materials in the manufacturing sector increased to an average of 57.1 per cent last year, up five percentage points from 2023, according to MAN... In instances where some key raw materials are not available domestically, companies are finding other clever ways of keeping costs down... Regulatory uncertainty still bedevils business, although executives are hopeful that a new tax law signed by Tinubu and set to take effect next year would streamline the onerous burdens on them. Even so, the fight to localise supply chains has been worth it for those that succeeded. The naira has also stabilised since last year’s devaluation, as Tinubu’s reform agenda shows signs of bearing fruit.

One more example from recent times of how sharp devaluations have yielded quick wins. Argentina is the other example.

8. From a review of Breakneck, a book by Dan Wang, a Chinese-Canadian tech analyst.

Wang’s central contention is that China is run as an engineering state that excels at construction while the US has become a lawyerly society that favours obstruction. By 2020 all nine members of the Chinese Politburo’s standing committee had trained as engineers. By contrast, the US has turned into a “government of the lawyers, by the lawyers and for the lawyers.” The result is that the country’s legal aristocracy prioritises process over outcomes and systematically favours the well-off, Wang argues. From 1984 to 2020, every single Democratic presidential and vice-presidential nominee had attended law school. The consequences of these differing approaches can be seen in how the two countries have built high-speed railways. In 2008 Californian voters approved funding for an 800-mile rail link between San Francisco and Los Angeles, while China began construction on a similar length railway between Beijing and Shanghai. Three years later the Chinese line opened at a cost of $36bn and carried 1.4bn passengers in its first decade of operation. The first segment of California’s train line may open some time between 2030 and 2033 at an estimated cost of $128bn.

The book has some very striking statistics

For example, in 1990 there were just half a million cars in China. By 2024 there were 435mn, many of them electric. China now has the (over) capacity to build 60mn cars a year out of a total global market of 90mn cars sold. The country has emerged as a world leader in drones, precision manufacturing, industrial robotics and solar and wind energy, and is rapidly deepening its expertise in artificial intelligence, where the US probably still retains an edge. China also has 31 nuclear power stations under construction, compared with just one in the US. By 2030, China will account for 45 per cent of the world’s industrial capacity compared with 38 per cent for all the world’s other high-income states, including the US, Europe and Japan, according to the United Nations Industrial Development Organisation... Although 50 per cent of China’s economy may be dysfunctional, Wang argues 5 per cent performs superbly well with its leading tech companies now challenging the best in the world.

9. Tej Parikh writes that the rise of intangibles (IP, brand value, code, content, talent etc.) is responsible for four major trends in the US equity markets - high concentration, exceptionalism, volatility and bubble-like valuations. American investment in intangible assets surpassed tangible ones and its intangible investment of $4.7 trillion in 2024 is nearly twice that of combined France, Germany, the UK, and Japan. 

He also writes that intangible assets make up 90% of the total enterprise value of the 15 largest US companies, considerably higher than that of the broader US corporate sector. 

For US stocks, Kai Wu of Sparkline estimates that accounting for intangible assets would cut perceived overvaluation by about 25 to 50 per cent, relative to headline valuation metrics. “While the market is by no means cheap, once firms are given credit for their intangible assets, valuations look far less frothy than the headlines imply,” he says.

This graphic compares the US and European high-tech companies.

10. India's textile exports story.

Until around 2010, India held the second spot in global apparel exports, but its slow growth through the 2000s allowed Bangladesh to overtake it... During this period, many large Indian companies, too, expanded their manufacturing ecosystem to Bangladesh. Trade-policy analyst S Chandrasekaran indicates that roughly 25 per cent of textile manufacturing units in Bangladesh are Indian-owned — including brands like Shahi Exports, House of Pearl Fashions, Jay Jay Mills, TCNS, Gokaldas Images, and Ambattur Clothing. As they grew in size and faced labour issues here, they moved to a place where this problem could be addressed, said Kumar of Premier Agencies. While the average salary of employees in Tiruppur is over $180-200 (about ₹15,500-17,500) a month, in Bangladesh, it is around $100-115 (about ₹8,500-10,000). Despite these challenges, industry players believe India retains an edge due to its strong raw material base. The country is the world’s largest cotton producer and has an abundant supply of polyester, silk, jute, and man-made fibres, while Bangladesh relies on imports from India and China.

11. Two graphics from Unhedged on the extent of market concentration in the US equity markets.

And this

12. Peter Navarro takes aim at India for its Russian oil and arms purchases. 

13. SpaceX survives on government contracts and pays no taxes.

SpaceX has most likely paid little to no federal income taxes since its founding in 2002 and has privately told investors that it may never have to pay any, according to internal company documents reviewed by The New York Times... SpaceX can seize on a legal tax benefit that allows it to use the more than $5 billion in losses it racked up by late 2021 to offset paying future taxable income. President Trump made a change in 2017, during his first term, that eliminated the tax benefit’s expiration date for all companies. For SpaceX, that means that nearly $3 billion of its losses can be indefinitely applied against future taxable income... In 2020, federal contracts generated about $1.4 billion, or 83.8 percent, of the company’s total revenue that year. The next year, federal contracts brought in about $1.7 billion, or 76 percent, of the total revenue.

14. A summary of Indonesia's economy.

Official figures suggest annual GDP growth is still close to 5 per cent, a number that has remained largely stable over the past decade other than during the Covid-19 pandemic. But more granular economic data indicates that Indonesia’s once-burgeoning middle class is shrinking, the economy is creating more informal jobs than formal jobs, underemployment is rising, car and motorcycle sales are plummeting, and credit growth is at a three-year low... The economy is growing more slowly and creating fewer quality jobs, both of which are eroding the purchasing power of the country’s 280mn citizens. Manufacturing’s share of GDP has slid from a peak of 32 per cent in 2002 to 19 per cent last year, though it remains the biggest contributing sector to GDP... At the heart of the problem is Indonesia’s focus on developing its cyclical and capital-intensive commodities sector over labour-intensive manufacturing, which generates more employment and higher wages. Although the resource-rich archipelago is the world’s top exporter of nickel products, palm oil and coal, it is the country’s factories that have created more high-paying jobs and underpinned middle-class employment...

Indonesia was once home to a thriving manufacturing industry that created millions of stable jobs and formed the foundation of the country’s aspiring middle class. For years it ranked among the world’s top producers of apparel, footwear and furniture. Its success came despite a late start relative to its south-east Asian neighbours. Modernisation only began in earnest during the 1960s as a result of the industrial policies of former dictator Suharto. The industrial sector grew by an annual average of 10.7 per cent in the three decades starting from 1967, when he took office. In 1993, the World Bank described Indonesia as one of the “east Asian miracles” for its rapid growth, and declining inequality and poverty. But the glory days ended in 1997, when Indonesia and several of its neighbours suffered rapid capital flight during the Asian financial crisis and had to be bailed out by the IMF. Suharto was toppled in 1998. Growth plummeted, and between 2000 and 2024, the manufacturing sector averaged 4.3 per cent a year, less than half the previous rate. That period coincided with an increased focus on boosting Indonesia’s resources sector amid a global commodities boom driven by industrialisation and urbanisation in China. Successive governments introduced protectionist policies such as the local content rule, which requires manufacturers to source a certain percentage of products from the domestic market, to support domestic companies.

Mobilising municipal finances - focus on property taxes and LVC

A Business Standard op-ed has this paragraph, which could be taken as a balance sheet of two decades of the pursuit of innovative municipal financing in India.

The 2015 Smart Cities Mission mobilised local innovation but saw limited private participation — only 6 per cent of projects used PPPs, and by 2023, just 12 per cent had achieved financial closure, far short of the 21 per cent target. The viability gap funding scheme, despite offering up to 80 per cent support for social infrastructure, saw only 71 projects approved over two decades — hindered by bureaucratic delays, opaque contracting, and poor lifecycle oversight. Municipal bonds remain underused as most urban local bodies (ULBs) lack creditworthiness.

It’s not incorrect to say that we have a misguided prioritisation of policy focus in municipal financing, driven mostly by ideologies peddled by multilateral institutions, financial market participants, and experts in general. 

Given its very low baseline, increasing municipal revenues should be the primary focus of municipal governments in India for the foreseeable future. This would primarily involve revenues from two sources - property tax and the use of urban planning instruments. 

The former would involve expanding the tax base (especially by detecting under-assessed properties), shifting to capital value-based taxation (if not already done), and increasing property tax rates. This would require the pursuit of good governance practices - survey and analyse locality-wise data, identify leakages, review for follow-up actions, rigorous monitoring, enforce, and repeat. They should be coupled with rationalisation and simplification of the assessment processes and rates themselves. These basic plumbing actions are especially important, also since they get marginalised as officials pursue innovations and technologies (GIS mapping, etc.). Increasing property tax revenues should form the primary focus of municipal governments across the country. 

Urban planning instruments are a much under-utilised source of local government revenues. They range from the commonly used fees for various planning permissions (layout development, build permission, land-use change, etc.) to the scarcely used instruments of purchasable Floor Area Ratios (FARs) and land value capture (LVC). On the former, it may be useful to shift from a flat fee to an ad valorem (percentage of the property's basic value) basis. 

Currently, purchasable FARs are in the form of sales of transferable development rights (TDR) certificates issued in lieu of land lost to road widenings and other public purpose acquisitions. See this post on operationalising TDRs. This must be expanded in scope to include the purchase of FARs beyond the permissible limit on payment of a defined fee. In this regime, property rights come with a basic building right, beyond which the building rights must be purchased. This can be operationalised in several ways. Two methods are discussed in the paper here. 

The first is a ‘choose your FAR’ system which dispenses with administratively fixed FAR and replaces it with market-based model where unlimited FAR can be purchased. The second is an FAR trading model where the municipality fixes the permissible additional FAR and periodically auctions them. 

Mumbai already has a purchasable FAR regime where the government has defined a basic FAR that goes with property rights, and any further FAR (up to the Master Plan-defined limit for the area) must be purchased on payment of a percentage of the basic value (which varies depending on the land-use). The zoning regulations of Amaravathi, the capital of Andhra Pradesh, mandate that “wherever FSI exceeds 1.75, the applicant has to pay impact fee as levied by APCRDA from time to time” (Section 210.5 of AMRDA Zoning Regulations). More Indian cities must adopt similar policies. 

LVC instruments are a very powerful but severely underused planning tool to mobilise municipal revenues. Examples include betterment levy, impact fees, tax increment financing (TIF), etc. There’s a Government of India policy on LVC, which can form the basis for its widespread adoption. I have blogged here, here, here, here, and here exploring the LVC idea, including specific suggestions on the operationalisation of LVC policy. 

Apart from a few cases, despite being discussed for nearly two decades, LVC (outside of some small betterment levy) has struggled for adoption by Indian cities. Hyderabad’s transformational Outer Ring Road (ORR) is a good example of how impact fees levied on land development within a band on both sides of the 160 km road were escrowed to partially finance its construction. The National Highways Authority of India (NHAI) could adopt this for all its greenfield roads and widenings. Also, all metro railway projects. A few cities under the Smart Cities project used TIF, where the municipality raises resources to finance an infrastructure investment in a locality by levying an increment on the property tax on properties in that locality for a defined period. 

It’s not an exaggeration to argue that even if a small share of the high-level focus and efforts expended on PPPs, VGF and municipal bonds could have been spent on the boring issues of increasing property taxes and adoption of LVC instruments, Indian cities could significantly increase their revenue base.

Cities, as those in developing countries like India, with a low baseline of property tax and LVC revenues, would benefit disproportionately from focusing on property taxes and LVC. As the financial strength of the cities improves and average incomes rise, innovative financing tools like municipal bonds and PPP would assume greater relevance. 

A complement to this on the debt raising side, of greater relevance than municipal bonds, is to focus on plain bank loans through a project finance route. In other words, raise debt on revenue-generating municipal assets like water and sewerage, mass transit etc., without any recourse to the municipal general funds. A proposal in this regard is here. 

Deregulation as an organisational culture

A recent op-ed in the Business Standard had this to say about how corporate social responsibility spending is regulated.

The additional problem with legally mandated CSR spending is the opportunity it affords for increasing government intrusion. In a throwback to the licence raj era, the law already tells companies how much to spend and what they can spend it on. It is not outside the realm of possibility that the discovery of the skewed geographical nature of CSR spending would prompt the government to stipulate region-wise targets next. The legal obligation creates additional headaches. In 2018, for instance, the government issued preliminary notices to 272 companies for not complying with their CSR obligations. 

Another had this about the UGC’s regulations. 

In principle, determining and maintaining standards of teaching, examinations and research at universities is among the primary functions of the UGC… It performs the functions of licensing, regulation and disbursement. These three functions are not performed by one institution anywhere in the world because this eliminates all checks and balances. Such power enables the UGC to exercise enormous control over universities. Its interventions at political behest and its belief that one-size-must-fit-all drives its fetish for standardisation, whether curricula, appointments, promotions, salaries, evaluation, administration or institutional architecture. Such levelling crowds out or pre-empts excellence, because it stifles diversity, pluralism and differentiation in higher education, all of which are necessary to develop academic excellence.

Deregulation is back with a bang globally. Also, I had blogged earlier, highlighting the point that there are very few stroke-of-pen deregulation measures.

It’s also important not to see deregulation as a one-time exercise. While easing existing laws and rules/regulations/orders is important, an equally important focus should be on ensuring new rules and orders are formulated, keeping in mind the concerns of ease of doing business and ease of living. Otherwise, it’s only a matter of time before things get back to where they started. I blogged here proposing that a set of principles be outlined that govern all law/rule-making processes and be kept in mind by officials who are processing them. 

Statutes passed by a legislature are generally too high-level and broad-sweep to impact the ease of living or doing business directly, at least in most cases. These laws are operationalised through executive directives - rules (by government departments), regulations (by regulators), and administrative guidelines (by any government entity). The difference between the three is the authority levels (Cabinet/Minister/Officers) at which they are approved. In one way or the other, at each level, there is often an element of interpretation of the objectives of the law, and this gets reflected in the directives issued at that level. 

In other words, these executive directives interpret the statute and outline the details of implementation. It’s most often in the details of these operational directives (and not in the statutes themselves) that the problems with ease of doing business and ease of living lie. 

As an illustration, while the statute would empower the government to prescribe building rules, the details of those rules are prescribed in executive directives (Government Orders, Office Memorandum, etc.) that the Department typically issues internally. They define how various urban planning elements like Floor Area Ratio (FAR), setbacks, road-width, plot-size, building height, and land-use would apply in combination to different areas/localities. 

This can create issues in implementation that detract from the purpose of the reforms. For example, over the years, state governments have claimed to have initiated “reforms” to building byelaws that have either done away with FAR or considerably raised FAR. But in reality, its objectives were defeated by defining high minimum road width and plot size requirements (and height restrictions), which meant that very few properties were eligible to avail these incentives. Similarly, some other states eased building regulations, but only below a certain height and above another height, which effectively excluded the most relevant categories of apartments. 

Or take the issue of processes and requirements that are put in place as safeguards to access a service. Often, as newspapers report stories of abuse of the process, instead of taking actions to address them as governance failures, government entities prefer to respond with additional layers of safeguards and requirements. So, for example, as instances of fake invoices and Input Tax Credit (ITC) claims in the Goods and Services Tax (GST) rose, registration requirements were progressively made so tough as to make it difficult even for the vast majority of genuine businesses (till a recent directive addressed this partially). 

There are similar examples across departments where the operationalisation of laws and reacting to emerging adverse news items have spawned unintended regulatory thickets.

Therefore, all directives are double-edged swords. They can be used to promote their objectives or detract from their objectives, as in the aforementioned examples. The choice is exercised both by the leadership within the Departments, who formulate and guide the implementation of the directives, and by the frontline functionaries who implement the directives. 

No sustained and meaningful change in the regulatory environment is possible without instilling a culture of regulatory concern, or restraint, or thoughtfulness among officials across all levels regarding issues of ease of doing business and ease of living. The principles outlined here could form a basis for building this culture. 

As an institutional process, every executive directive issued by the Department that directly impacts businesses or citizens should be screened for its compliance with a set of principles on smart regulation. This can be in the form of a checklist (like with the Cabinet Note) that must be certified by the proponent officials as a procedural requirement before approval of the directive. Even at the risk of this becoming perfunctory over time, it can be a good starting point to focus the attention of the system on concerns of regulatory excess. 

Another step would be to initiate a high-profile system-wide awareness campaign to sensitise officials across levels about the importance of caution with administrative directives to ensure ease of doing business and ease of living concerns. For example, each Department could be asked to identify one or two of its most important services and re-engineer them from the perspective of ease of doing business and ease of living. As a process, the collective learning from this exercise could be significant. These kinds of measures could be supplemented with employee training using simple and easily understood illustrative examples that highlight the importance of this endeavour. 

The fundamental point is that while we can deregulate by liberalising existing laws/rules, any sustained deregulation cannot happen without the spirit of deregulation being imbibed by officials across levels.

Weekend reading links

1. McKinsey is facing new challenges following the expansion of its digital practice.

In the 2010s, as many chief executives grew increasingly nervous that their companies would be the next victims of digital disruption, McKinsey invested to broaden its offerings. Between 2013 and 2023 it acquired at least 16 specialist technology consultancies, giving it the ability to assist clients not only with their digital strategies, but everything from developing prototypes of new products to building whizzy data-crunching tools. That points to the final source of the firm’s recent expansion, as it has pushed more widely into implementing its own advice. Having counselled a client to spruce up its technology, sharpen its operations or squeeze its suppliers, McKinsey will often now hold their hands through the process. That has meant muscling in on a segment of the consulting market traditionally dominated by Accenture and the “big four” professional-services giants, which charge considerably lower rates, notes Tom Rodenhauser of Kennedy Intelligence. To compete, McKinsey has had to rethink how it charges clients (fees are now often tied to the results of a project) and whom it hires (focusing less on generalists, more on geeks and grizzled executives).

And there's the threat from the newbies like Palantir.

As bosses look to AI to transform their businesses, they are asking McKinsey and other consultancies for help. But they are also turning to less conventional partners. Palantir, an analytics firm, offers tools to feed enterprise data into AI models, and embeds its so-called forward-deployed engineers with its clients to get them up and running. Its revenue is still small (just under $3bn in 2024) but is growing at a blistering pace (48%, year on year, in the second quarter of 2025). Although it began by serving governments, it now makes over two-fifths of its revenue from businesses. Its market value has septupled over the past year, to more than $400bn. Analysts at UBS, a bank, describe Palantir as “McKinsey meets Databricks”, alluding to a software firm whose tools also help enterprises connect their data with AI models. That sounds a lot like QuantumBlack, McKinsey’s own AI unit and the crown jewel of its digital practice. Other AI companies are taking inspiration from Palantir, too. OpenAI, maker of ChatGPT, has begun offering a consulting-like service to help businesses deploy its models.

2. Impact of Trump tariffs on India's $86.5 bn exports to the US.

3. Taiwanese public opinion on integration with China.

4. Naushad Forbes writes about India's corporate R&D landscape.

We invest 0.3 per cent of gross domestic product (GDP) in in-house R&D to a world average of 1.5 per cent. Our 10 most successful non-financial firms (highly profitable firms in refining, information technology services and consumer goods) invest 2 per cent of profit in R&D; whereas their 10 most successful peers in the United States, China, Japan and Germany invest between 29 and 55 per cent. And Indian firms are completely missing in five of the 10 most technology-intensive industrial sectors worldwide… Our hundredth largest spending firm invested about ₹97 crore in R&D in 2022–23; our two-hundredth largest, about ₹33 crore; and our three-hundredth largest, about ₹16 crore. These are small numbers relative to the world’s leading firms.

5. China seeks to consolidate its semiconductor chip making industry.

Consolidation in the chip equipment space would help boost China’s bid to build a self-sufficient semiconductor supply chain and replace equipment from US groups such as Applied Materials and Lam Research, said Edison Lee, semiconductor analyst at Jefferies. Currently, a Chinese fab buying local equipment has to use multiple vendors, whose technology is not well integrated. “In the equipment industry, it is difficult to be very successful as a single-product company. Fabs prefer to buy multiple machines from the same vendor, which makes it easier to use,” he added. By consolidating, Beijing also hopes to better direct funding to firms deemed strategically significant... Little progress has yet to be made in consolidating China’s sprawling network of foundries — a segment that remains highly fragmented and politically sensitive. The past decade saw a surge in foundry projects backed by local governments, many of which built capacity in parallel, resulting in a glut of supply of mature chips and steep price competition. Chip experts note that China could also benefit from streamlining its advanced fabrication market, to concentrate talent and the most advanced chip equipment machinery in one place instead of being spread across disparate projects.

6. Some details of where Apple will source its US components from

For example, Apple said that all of its cover glass for iPhones and Apple Watches would be made by Corning in Kentucky, and that it would spend $2.5 billion on that effort... Apple also highlighted its partnership with Coherent, a longtime supplier of lasers for Apple’s facial recognition hardware, which is made in Texas... The iPhone maker said it expanded a partnership with Texas Instruments to make chips in Texas and Utah. Texas Instruments has long supplied chips for the iPhone, such as circuits to control USB interfaces or power displays... Other partnerships are with Applied Materials, a tooling company, GlobalFoundries, a chip foundry, and GlobalWafers America, which is supplying Taiwan Semiconductor Manufacturing Co. and Texas Instruments with made-in-USA wafers, the starting point for a batch of chips. GlobalFoundries manufactures chips for Broadcom, which supplies wireless chips for iPhones. Both will work with Apple to develop and manufacture 5G components in the U.S. Meanwhile, Apple will buy millions of advanced chips made by TSMC in Arizona, where it will be the factory’s largest customer... Apple said it would invest in and become a customer at an Arizona Amkor facility, which packages and tests chips, the final stage before installation in a computer. Apple also said it would expand existing data centers for artificial intelligence in North Carolina, Iowa, Nevada and Oregon.

This is a break-up of Apple's spending a year

In Apple’s fiscal 2024, the company spent $210 billion globally on cost of goods sold, $57.5 billion on operating expenses and $9.45 billion in capital expenditures for nearly $275 billion in global spending during the period.

7. Global rice prices plunge to an eight year low on the back of record harvests and India's resumption of exports. 

8. More on India's Russian oil imports

Indian refiners had gained $16bn in extra profit from importing discounted Russian oil, with almost $6bn of that going to Reliance... Before Moscow’s full-scale invasion of Ukraine in February 2022, India imported a minimal amount of Russian seaborne crude. Indian government data shows it has since bought discounted Russian oil worth nearly $140bn, which Ambani’s Reliance and others have processed into petrol and diesel for sale in both domestic and international markets... the country’s refineries operate by the book and that oil from Russia, unlike Iran and Venezuela, has not been subject to direct sanctions. Washington previously made no objection to the trade, as long as purchases were priced below the $60-a-barrel G7 price cap intended to limit Russian revenues while keeping oil flowing into the global market... Energy Aspects estimates that since the start of the war in Ukraine, India has received an average discount of $11 for each barrel of Russian oil compared with the international price of crude, though the discount has fluctuated and is now about $2 before freight costs.

See also this. 

9. Fascinating discussion about towns in France and England.

Yet it is shocking to realise that the medieval feudal lords had more of a stake in ensuring their new towns were sustainable than most property developers today. “The private sector has no financial interest in the sort of heavyweight placemaking you need to build at scale,” argues Hugh Ellis, director of policy at TCPA. “Even mining companies in the 1920s cared more about providing a decent home for their workforce than modern property development does.” Thrift adds: “If you look at the private sector housebuilding model, their necessity is to get the highest possible price for that house on the day they sell it. If it all goes downhill afterwards, it really doesn’t matter, because they’ve gone somewhere else by then.”

By contrast, the postwar new towns had a strong stewardship model of “owning the shops in the town centre and the business premises in the industrial area, having that money coming back in and being able to reinvest it for the good of the town and its maintenance,” says Congreve. But Ellis adds that the model “was deliberately broken in the 1980s by an ideological decision to basically vandalise the programme by forcing a fire sale of most of their assets to the private sector”. One reason why Milton Keynes — often held up a model new town — still has such good green spaces is that when its development corporation was wound up in 1992, a trust was created with an endowment to continue to manage the parkland.

10. Turmoil in the Chinese military as Xi replaces officials accused of corruption.

Three of the seven seats on the Central Military Commission — the Communist Party council that controls the armed forces — appear to be vacant after members were arrested or simply disappeared... Mr. Xi has set a 2027 target for modernizing the People’s Liberation Army, or P.L.A... In the first years after Mr. Xi came to power in 2012, he launched an intense campaign to clean up corruption in the military and impose tighter control, culminating in a big reorganization... The most jarring absence in the military leadership is that of Gen. He Weidong. The second most-senior career officer on the Central Military Commission, General He has disappeared from official public events and mentions, an unexplained absence that suggests he, too, is in trouble and may be under investigation. Another top commander, Adm. Miao Hua, who oversaw political work in the military, was placed under investigation last year for unspecified “serious violations of discipline,” a phrase that often refers to corruption or disloyalty. He was among around two dozen, if not more, senior P.L.A. officers and executives in the armaments industry who have been investigated since 2023, according to a recent tally by the Jamestown Foundation. Both men had risen unusually quickly under Mr. Xi’s patronage...

Since Mao Zedong’s era, the military has served not only as a fighting force but also as a lever of political control for Chinese leaders, as their ultimate protection against potential rivals or popular uprisings... Mr. Xi is the only civilian party leader who sits on the Central Military Commission, which ensures his singular power over the military. That also means that he cannot turn to other civilian officials to help him... The purges are likely to disrupt coordination, weaken confidence in commanders and prompt Beijing to be more wary of considering an amphibious assault on Taiwan

11. Excellent NYT editorial video advocating a change in the air ticket tax to fund the Federal Aviation Authority (FAA) that ends up as a case of taxing the regular air travellers to subsidise private jets. 

12. How the surge in gold exports provoked Trump's 39% tariff on Switzerland.

America’s trade deficit in goods with Switzerland was just over $38 billion last year. In the first six months of this year, the deficit ballooned to nearly $48 billion... In recent months, two-thirds of Switzerland’s exports to the United States were accounted for by various forms of gold. These bars of gold are often sent from London, a trading hub, to Switzerland, a refining hub, where the metal is forged into bars sized for the standards required by U.S. warehouses and then shipped across the Atlantic. Surging demand for gold in the United States as Mr. Trump threatened to upend the global trading order fueled a spike in Swiss gold imports — and greatly expanded the U.S. trade deficit with Switzerland. Excluding gold, Switzerland’s mammoth pharmaceutical industry accounts for half the value of Swiss products shipped to America. In 2024, Swiss drug companies, which include the pharma giants Roche and Novartis, exported around $35 billion worth of medicines, cancer treatments, vaccines and other drugs.

13. Some facts and observations about GCCs.

There are over 1,000 global organisations that collectively operate over 1,700 GCCs across India. They employ over 2 million professionals. They generate over $40 billion in annual value, set to surpass $100 billion in another five years. So, what’s the problem? Well, most GCCs are technically doing work that could have been outsourced to Indian outsourcers like Infosys, TCS, Wipro, HCL, etc. In fact, GCCs are so successful a strategy that they’re growing much faster than Indian outsourcers. And as if taking away potential revenue from Indian outsourcers weren’t enough, GCCs are now also taking away talent. That’s right. They’re hiring experienced and talented professionals using higher salaries, better brands and the promise of better work.

It's time somebody analysed the nature of the work done by in-house GCCs and that done by outsourced service providers like the Indian software firms. Is it significantly a case of the multinational firm (a) vertically integrating its activities and bringing them in-house, or (b) identifying more outsourceable work and relocating them to India, or (c) doing non-outsourceable, higher-skilled work in India? 

14. Fascinating statistic from Ruchir Sharma on wealth-creating companies.

Since 2015, the world has generated a total of 444 companies with average annual returns in dollar terms of more than 15 per cent, and a market cap that today exceeds $10bn. A solid majority of these — 248 — emerged outside the US... Countries such as Japan, Canada, Taiwan, Switzerland and Germany have their fair shares but the big numbers are in China, with more than 30 such compounders and... India has produced 40 steady compounders in that time. Most of the compounders have arisen in manufacturing, tech or finance... More than 50 — and thus more than one in five — of the steady compounders are European. And after a long slumber, signs are emerging of an entrepreneurial awakening: the number of tech start-ups in Europe more than quadrupled in the last decade to 35,000... Since 2015, the global billionaire population grew by 1,200 to over 3,000, and seven out of 10 new ones surfaced outside the US. While the number of names on the Forbes list grew by 70 per cent in America, it grew by 90 per cent or more from India and China to Canada, Israel and even Italy... Another cloak obscuring wealth creation worldwide is the market for private equity, credit and other assets, also widely seen as a US preserve. Nearly half of the $13tn in these private assets, and more than half in categories such as venture capital and infrastructure projects, is held outside the US. Unicorns — private firms valued above $1bn — are not an exclusively American species either; roughly 40 of the top 100 are based in other countries.

15. In a remarkable arrangement, the first such one, Nvidia and AMD have agreed to pay 15% of the revenues from chip sales in China to the US government in return for export licenses for their chips.

The two chipmakers agreed to the financial arrangement as a condition for obtaining export licences for the Chinese market that were granted last week, according to people familiar with the situation, including a US official. The US official said Nvidia agreed to share 15 per cent of the revenues from H20 chip sales in China and AMD will provide the same percentage from MI308 chip revenues... According to export control experts, no US company has ever agreed to pay a portion of their revenues to obtain export licences... Nvidia tailored the H20 for the Chinese market after President Joe Biden imposed tough export controls on more advanced chips used for artificial intelligence.

Trump has basically converted the US into a country where the rule of law has been replaced with the rule by law (made by Trump himself personally)! Talk about institutions!

16. India's exports to the US and their share of the country's exports of those products.

17. Europe rearms.

EU defence commissioner Andrius Kubilius told the FT that since Moscow’s invasion, Europe’s annual capacity to produce ammunition had increased from 300,000 to reach about 2mn by the end of this year Rheinmetall’s expansion will account for a big part of this growth: the company said its annual production capacity for 155mm rounds was set to rise from 70,000 in 2022 to 1.1mn in 2027.

18. In order to overcome deflationary pressures and stimulate household spending, China announces an interest subsidy of 1 percentage point on consumer loans (typical consumer loan interest rates are 3%) for purchases up to Rmn 50,000 ($7000). The subsidy will be borne 90% by the central government and 10% by local governments. This shift away from investment subsidy to consumer subsidy comes on top of a "trade-in" scheme whereby buyers can receive subsidised prices when they upgrade old goods like smartphones, air conditioners, and rice cookers.