AAPI: April 2023

DELHI, April 2023

Index of this Newsletter

INDIA

INDIA & THE WORLD

21. India’s Digital Infra Model to Work Well for Africa: Mittal
22. The SVB collapse: what it means for Indian equity markets and the banking sector
23. Amid a ‘semiconductor cold war’ between US and China, India emerges as a key ally for Uncle Sam
24. India is close to its potential output, needs reforms to accelerate growth: Pierre-Olivier Gourinchas, IMF
25. India to See Dramatic Rise in FDI Over Next 10 Years

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DELHI, APRIL 2023

NEWSLETTER, APRIL 2023

INDIA

– GENERAL POLICY, INFRASTRUCTURES, COUNTRY FINANCES, ETC.

1. AI Technologies: ICMR releases ethical guidelines for AI in healthcare and biomedical research involving human participants

ET Gov. 24 Mar. 2023

"AI technology in healthcare must undergo rigorous clinical and field validation before application on patients/ participants. These are necessary to ensure safety and efficacy."

With the ever increasing application of AI in every field, the disruptive technology is making significant inroads in all aspects of life, including healthcare. Some of the recognized applications of AI in healthcare are in the areas of surgery-assisting robots, diagnosis, finding new links between genetic codes, medical imaging, therapeutics, clinical decision-making, public health surveillance, data analysis, prediction of pandemics, and health management systems.

The Indian Council of Medical Research (ICMR), India’s apex body for formulation, coordination and promotion of biomedical research, has released the document titled Ethical Guidelines for AI in Healthcare and Biomedical Research. The document declares that “AI technology in healthcare must undergo rigorous clinical and field validation before application on patients/ participants. These are necessary to ensure safety and efficacy.”

Dr Rajiv Bahal, Secretary, Department of Health Research, Ministry of Health & Family Welfare, Government of India, and Director General, ICMR, says, “The adoption of AI technology in healthcare is growing in India. However, AI as data-driven technology has many potential ethical challenges which include algorithmic transparency and explainability, clarity on liability, accountability and oversight, bias and discrimination.”

While AI is capable of making intelligent decisions, it is essentially a machine which cannot be held accountable for the decisions that it makes. An ethically sound policy framework is necessary to guide AI technologies and ensure that decisions that AI makes are ethical and adhere to the values cherished by humanity. Before an AI technology is put into widespread use, affirmation is required that the system will operate ethically and safely.

The ICMR document emphasizes on the need for an ethically sound policy for AI. The document says:

"An ethically sound policy framework is essential to guide the AI technologies development and its application in healthcare. Further, as AI technologies get further developed and applied in clinical decision making, it is important to have processes that discuss accountability in case of errors for safeguarding and protection. Just like any other diagnostic tool, AI-based solutions themselves cannot be held accountable for its decisions and judgments. It is therefore important to have assignment of accountability and responsibility at all stages of development and deployment of AI for health."

The ten patient-centric ethical principles for AI applications that the ICMR's document highlights include accountability and liability, autonomy, data privacy, collaboration, risk minimization and safety, accessibility and equity, data quality optimization, non-discrimination and fairness, validity and trustworthiness.

ICMR is responsible for assessing the scientific rigor and ethical aspects of all health research. According to ICMR, the AI applications in the health space need to follow the same ethical principles that are followed by all biomedical and health research involving human patients. In 2017, ICMR released its National Ethical Guidelines for Biomedical and Health Research involving human participants.

Considering the far-reaching implications of AI-based technologies in healthcare, the guidelines released by ICMR are applicable to health professionals, developers of emerging technologies, academics, medical researchers, entrepreneurs, hospitals, and research institutions. In fact, the guidelines would be useful for anyone who wants to utilize health data for biomedical research and healthcare delivery using AI technology and techniques.

The concern is that the AI technologies might lead to discrimination in ways that may be hidden or which may not align with the basic human values. The ICMR guidelines lay emphasis on inclusive AI which is responsible, fair, secure and transparent. The idea is to have AI frameworks which address the explicit and implicit biases contained within systems to assure equality in prediction judgments, particularly when applied to biomedical applications.

The regulation of AI technologies in healthcare is in its nascent stage, even in the developed countries. The Indian government has taken several initiatives to regulate AI and other emerging technologies in healthcare. The guidelines released by ICMR will enable the Indian government to develop and establish better norms for AI in healthcare.

2. Faster Reforms Can Give a Boost to India Growth Story: World Bank

ET, 28 Mar. 2023

India’s potential economic growth could get a boost if government accelerates implementation of its ambitious reform agenda, World Bank said in a report that also outlined policy prescriptions for banking and infrastructure sectors.

“Addressing the aftermath of financial sector distress could unlock significant growth,” the multilateral lender said in its ‘Falling long-term growth prospects: trends, expectations, and policies’ report released Monday.

The report stressed on the need to improve efficiency and depth of banking sector. “Reforms could be undertaken to further rationalise the role of public sector banks, ensure a level-playing field in banking sector, and promote development of capital markets.”

On infrastructure, it suggested implementing reforms proposed by Task Force on National Infrastructure Pipeline, and improving contract enforcement, dispute resolution and financing.

“The steepest slowdown in investment growth over two decades to 2021 occurred in India,” the report noted. “Investment growth in India slowed from an annual average of 10.5% in 2000-10 to 5.7% in 2011-21.”

Structural bottlenecks have proved to be barriers to investment, it said.

For the South Asian region, it suggested that increasing female labour force participation could increase potential annual GDP growth by 1.2 percentage points between 2022 and 2030.

For India, World Bank said, “restrictive labour laws limit employment opportunities for women and discourage the adoption of new technologies, thereby reducing productivity in manufacturing”. India’s female labour force participation increased marginally to 32.8% in 2021-22, government data showed.

India’s estimates of potential growth since 2010 have been 6-8% a year.

GLOBAL GROWTH CONCERNS

The World Bank has raised concerns that the maximum rate at which global economy can grow without sparking inflation will slump to a three-decade low by 2030. It expects average potential GDP growth to dip to 2.2% a year between 2022 and 2030, with growth rate in developing countries slowing down to 4% compared to 6% between 2000 and 2010.

“A lost decade could be in the making for the global economy,” said Indermit Gill, chief economist at World Bank

3. Strong Judiciary to Help Meet Aspirations of Indians: Modi

ET, 15 Apr. 2023

Underlining the joint responsibility of the legislature, judiciary and executive in ensuring ease of living , Prime Minister Narendra Modi on Friday said: “Be it the government or the judiciary, the role of every institution and its constitutional obligation is connected to the ease of living of the common citizens.”

Modi said the judiciary as a pillar of democracy has a strong and sensitive role to play in meeting the aspirations of Indians in the 21st century.

Emphasising wider use of technology in the legal system, Modi on Friday said technology can speed up the justice delivery process as well as help bring justice to the remote areas. Modi was speaking at the platinum jubilee celebrations of Guwahati HC .

Chief Justice of India DY Chandrachud, while speaking at the function a week ago, stressed on the usage of technology, especially indigenous innovations, to cater the needs of Indian system. The CJI has spoken about adopting technology on many occasions of late.

Modi also presented a technology- based justice delivery roadmap. He also maintained that the alternative dispute resolution system was an important pillar of judicial delivery.

“Technology can help bring justice to remote areas such as in the northeast. Artificial Intelligence could be used to further bring ease of justice,” Modi said.

Praising the work of the Supreme Court’s e-committee, Nodi told the gathering about the third phase of the e-court mission as announced in this year’s budget.

The Prime Minister emphasised the need for the government and the judiciary to be sensitive towards those who have been incarcerated for petty crimes for years and do not have the resources or the money. He also took note of those whose families were not ready to accept them after the legal processes had been completed. Modi informed that this year’s Budget has a provision for financial assistance for such prisoners.

Citing the example of mapping of village properties through drones, under the PM Swamitva Yojana, Modi said: “India has taken a lead in dealing with the issue of property rights which had burdened the legal system.”a

4. Startup failure gradually declining in India; more awareness needed on govt support: STPI DG Arvind Kumar

ET Gov. 20 Mar. 2023

The STPI DG was in Goa to address the Future Tech Leadership Forum Goa 2023 on Saturday organised by the stakeholders in the state's IT industry.

Asserting that the rate of failure of startups in the country is slowly declining, Director General of Software Technology Parks of India (STPI) Arvind Kumar said there is a need to create more awareness about what the government is doing to promote startups.

Talking to PTI, Kumar said awareness campaign is very much required amongst the youth about startups.

“I go to a number of engineering colleges, they don't know anything about startups, they don't know about STPI, they don't know anything about what the country and government is doing,” he commented.

The STPI DG was in Goa to address the Future Tech Leadership Forum Goa 2023 on Saturday organised by the stakeholders in the state's IT industry.

Kumar said there should be a subject on entrepreneurship for students in 12th standard where the product cycle should be explained and they should be made job producers and not job seekers.

He said STPIs' directors are going to various colleges and giving lectures to youngsters about startups and also how to get funds for that.

“I think awareness is happening but it has to be accelerated,” Kumar added.

He said though they have not done any study on the failure of startups, there are studies which claim that the rate in India is one against ten.

“Failure is a part of startup ecosystem not just in India but also in the developed part of the world. Our country has just started the journey of startups, so naturally we will fail more, compared to those countries which have started ten years back,” he said.

Talking about Centres of Entrepreneurship (COE) created by STPI, Kumar said such initiatives are working to reduce the failure rate.

“COEs have chief mentors who are authority on the particular subject. They guide startups in COEs and do hand-holding. When something (startup idea) is ready, we call Venture Capitalists, Fund Managers who see the product and see if they can invest in it,” he said.

“Failure of startups is also reducing with the passage of time,” he observed.

5. India’s overall exports is projected to scale new heights, which is growing at 13.84% during FY23 over FY22 to achieve US$ 770.18 billion worth of exports

Press Information Bureau, Apr. 14, 2023

India's total exports (including both goods and services) are projected to reach US$ 66.14 billion in March, 2023. The overall exports from India (including both goods and services) are anticipated to increase by a positive 13.84% over FY22 (April-March) to achieve US$ 770.18 billion in FY23.

In March, 2023 the merchandise exports were US$ 38.38 billion as compared to US$ 44.57 billion in March, 2022. Whereas, in FY23, the merchandise exports were US$ 447.46 billion.

Non-petroleum and non-gems & jewellery exports in March, 2023 were worth US$ 30.20 billion, compared to US$ 30.99 billion in March, 2022. On the other hand, non-petroleum and non-gems & jewellery exports during FY23 (April-March) was US$ 314.98 billion, as compared to US$ 315.43 billion in FY22 (April-March).

As of March, 2023, the expected value of services exported is US$ 27.75 billion and in FY23 (April-March) is US$ 322.72 billion.

13 of the 30 important industries for exports of goods saw growth in March, 2023 compared to the same month in the previous year (March, 2022). Among them are oil meals (156.56%), oil seeds (99.5%), electronic goods (57.36%), coffee (17.86%), marine products (12.85%), fruits and vegetables (11.37%), rice (10.02%), ceramic products & glassware (9.73%), iron ore (6.85%), drugs & pharmaceuticals (4.19%), meat, dairy & poultry products (3.44%), tobacco (3.04%), and cereal preparations & other processed goods (2.7%).

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

- Agriculture, Fishing and Rural Development

6. The Return of Mango

ET, 14 Mar. 2023

The Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) is often seen as another name for digging holes. This view is unfair, since NREGA supports a wide variety of projects. It also overlooks the fact that some holes are quite useful. Wells and ponds are two examples. A careful evaluation of NREGA wells in Jharkhand by the Institute for Human Development (IHD), published in 2016, found that they were very productive.

Another example is a hole where you plant a mango tree. Digging the hole, of course, is only a small part of the job. Aside from that, you may have to build a well (another hole), level the land, build a fence, make a compost pit, guard the saplings, among other tasks. But most of this can also be done under NREGA. During the last six years or so, the Jharkhand government (inspired by earlier NGO initiatives) has been trying to tap this opportunity under the Birsa Harit Gram Yojana (BHGY) — known earlier as Birsa Munda Bagwani Yojana.

BHGY is a state scheme implemented under the umbrella of NREGA. By 2020-21, BHGY mango plantations covered more than 25,000 acres in Jharkhand.

Knowing how government schemes tend to work in Jharkhand, you might expect most of the mango saplings to be dead by now. In fact, a majority are alive and well, according to the state’s Social Audit Unit (SAU). Based on social audits of more than 18,000 BHGY projects, SAU estimates that the annual mortality rate of mango saplings is around 13% up to the fifth year, and negligible after that. This means that 57% of the saplings survive for good. One of us personally verified a dozen BHGY projects in Ranchi district and found SAU’s survival estimates to be credible.

We tried to estimate the internal rate of return (IRR) of BHGY projects. If you deposit money in a bank that pays a real (read: inflated-adjusted) interest rate of 10% a year, the rate of return on that investment would be 10%. Of course, you will be lucky to find a bank that pays so much. Industrial projects with an IRR of 10% are considered fabulous. But it turns out that IRR on mango plantations is much higher.

Just to clarify, we are talking of the financial rate of return, counting all costs and benefits at face value, whether they are borne by the government or the landowner. The rate of return to the landowner, of course, would be even higher, since the government bears most of the initial costs under NREGA. We are also ignoring ‘social’ costs and benefits, for instance environmental and nutritional benefits.

To calculate the IRR, we combined SAU’s survival estimates with BHGY’s cost norms and best-guess estimates of mango yields and prices. The investment costs add up to ₹3.38 lakh over five years for a one-acre mango plantation with 112 mango saplings. The opportunity cost of land use was added to that. Based on mandi-price data for different mango varieties and discussions with BHGY beneficiaries, we settled for a baseline mango price of ₹40 per kg (all figures are at constant 2019 prices). The baseline profile of annual mango yields, over a period of 40 years, is based on agronomic studies and discussions with the landowners.

All this involves a fair amount of guesswork. But whichever way you look at it, the IRR is really high: 31% in the baseline scenario. Interestingly, a 2005 study sponsored by the National Horticulture Board arrived at IRR estimates in the same range. Even in an ultra-conservative scenario where the baseline yields and output price are halved, and just 30% of the saplings survive, our estimated IRR is still a respectable 6% — similar to the rate of return on NREGA wells in the IHD study cited earlier.

If the returns are so high, then why were so few Jharkhandi farmers growing mango trees on their own, before NREGA came into the picture? There are two plausible reasons for this:

In Growing mango trees is not as simple as it sounds. It requires knowledge about timing, spacing, fencing, watering, compost, pests and related matters. BHGY includes provisions to support farmers with the required knowledge and inputs.

Most farmers in Jharkhand are small farmers who cannot afford to make this sort of risky investment on their own. Their first priority is to grow food for subsistence. Turning crop land into a mango plantation is a costly affair. The returns may be high, but they come after five years. And the risks are substantial when the farmer has limited knowledge.

In other words, the role of NREGA here is to enable farmers to make productive investments normally beyond their reach. It is not just a welfare scheme, but a sound economic venture. The evaluation of NREGA wells cited earlier came to the same conclusion.

Of course, not all NREGA projects in Jharkhand are like wells and mango plantations. Many of them have a low productive value, if any. And corruption continues to plague the programme. But wells and mango plantations are a useful reminder of the tremendous contribution that NREGA could make to rural development in states like Jharkhand.

There is another important lesson here. Mangoes are just one of the innumerable local products that could be developed in Jharkhand for the benefit of local communities, in a very healthy way — sustainable, equitable and participatory. This ‘mango model’ could be extended to all sorts of activities, including agriculture, livestock, pisciculture, horticulture, crafts and processing of minor forest products — mahua, tendu, bamboo, lac, mushrooms, honey, gum, etc. The mango plantation scheme is a welcome exception to the pattern of the state’s natural resources (land, water, minerals, timber etc.) being plundered. It should become the norm.

7. Government allows 5 private firms for cluster farming in 50,000 hectares with Rs 750 crore

Zee Business, 11 Apr. 2023 Priya Vishwakarma

The Centre has allowed five private firms to undertake cluster farming of specific horticulture crops in about 50,000 hectares on a pilot basis entailing an investment of Rs 750 crore, including government subsidy -- a moved aimed at making Indian produce globally competitive and boost farmers' income.

Desai Agrifoods, FIL Industries, Sahyadri Farms, Meghalaya Basin Management Agency, and Prasad Seeds are five companies selected for pilot cluster farming through a bidding process.

The Centre will give financial assistance up to Rs 100 crore depending on the size of the project under the recently launched central scheme Cluster Development Programme (CDP), which is implemented by the National Horticulture Board with an outlay of Rs 2,200 crore.

Speaking with PTI, Priya Ranjan, Joint Secretary in the Agriculture Ministry, said, the cluster-based approach has seen an incredible amount of success across the world. In India, the government for the first time is encouraging market-led development of entire value chain of specific horticulture crops by giving financial assistance.

"These five companies are spread across an area of almost 50,000 hectares and cover around 55,000 farmers. The investment within these clusters is about Rs 750 crores," he said.

For instance, Desai Agrifoods's Rs 103 crore 'banana cluster" project will be developed in Ananthapura, Andhra Pradesh, Sahyadri Farms' Rs 205 crore 'grapes cluster' project will come up in Nasik, Maharashtra, while Meghalaya Basin Management Agency's Rs 52 crore 'turmeric cluster' project will be developed in West Jaintia Hills, he said.

FIL Industries will develop an 'apple cluster' in Shopian, Jammu and Kashmir, while Prasad Seeds will develop a 'mango cluster' in Mahabubnagar, Telangana, he added.

Banana, apple, grapes, turmeric and mango are the main crops that these companies will focus on. The timeline for completion and operationalisation of the project will be four years.

The government aims to develop 55 different clusters identified across the nation, each with its specific crop. Initially, the pilot will be in 12 clusters with seven focussed crops on a pilot basis.

Under the CDP, financial assistance of up to Rs 25 crore will be given for mini clusters of more than 5,000 hectares, up to Rs 50 crore for mid clusters between 5,000-10,000 hectares and up to Rs 100 crore for mega clusters of above 15,000 hectares.

The implementing agencies of cluster farming are selected through a bidding process for different verticals: pre-production and production; post-harvest management and value addition; and logistics, marketing and branding.

In addition to private companies, farmer producer organisations (FPOs), farmer producer companies (FPCs), federations, cooperatives, societies, partnership firms, proprietorship firms, state agriculture and marketing boards and other public sector entities are eligible for becoming implementing agencies.

The main objective of DCP is to provide ease of access to farmers for clean, good-quality planting material. The provision of these planting materials will enhance the quality of produce at the farm level and will allow farmers to reap the benefits of exporting their crops as well. This will be possible due to the alignment of crop production with international standards.

8. India to implement world's largest dam rehabilitation program to mitigate climate change: Union Jal Shakti Minister

ET Gov. 25 Mar. 2023

The government is making serious efforts to restore the groundwater level and balance the demand and supply of water through rural water security schemes.

Union Jal Shakti Minister Gajendra Singh Shekhawat addresses at the United Nations Water Conference 2023 in New York on Friday.

Union Jal Shakti Minister Gajendra Singh Shekhawat has said to raise the groundwater level, increase water storage capacity and meet the challenges posed by climate change, India is implementing the world's largest dam rehabilitation program.

During his address at the United Nations Water Conference 2023 held in New York on Friday, Shekhawat discussed in detail the efforts being made by the Government of India in the water sector to achieve the Sustainable Development Goal (SDG) of drinking water and sanitation, including an investment of more than Rs 19.40 lakh crore. He said India is one of the largest users of groundwater in the world due to the diversity of geographical conditions. The government is making serious efforts to restore the groundwater level and balance the demand and supply of water through rural water security schemes. Along with the use and conservation, people are also being motivated to behavioral change towards water preservation.

Referring to the schemes launched by the government for cleanliness and pure drinking water, the Union Minister said that Jal Jeevan Mission is bringing a revolutionary change. This will prove to be helpful in achieving the targets contained in the SDGs. By the year 2024, tap water supply will be ensured in every rural household In India. Shekhawat said India's ambitious project Namami Gange has been included in the top 10 flagship missions of the world by the United Nations Conference. The mission has brought about a paradigm shift in the overall approach of river rejuvenation, pollution abatement, protection of ecosystems, and river basin management. He also mentioned various works done under the Arth Ganga project.

Referring to the achievements made by his ministry, the Union Minister said that water management is a priority of the Government of India. In the year 2019, Prime Minister Narendra Modi formed a separate 'Jal Shakti Ministry' for this. The ministry is working with five principles, political will, combined efforts, public funding, public participation, and insistence on ensuring sustainable change. The Ministry is running schemes in the rural sanitation and drinking water sector throughout the country.

Praising the Swachh Bharat Mission, Shekhawat said that it was started in the year 2014. It became a mass movement on the call of Prime Minister Narendra Modi and by the year 2019 its positive results were in front of everyone. To achieve the targets of Sustainable Development Goal 6.2, India built 108 million toilets.

Why is dam rehabilitation necessary?

India ranks third in the world in terms of the number of dams. India has the largest number of dams after China and America. Out of about 5,700 large dams in India, about 80 percent are more than 25 years old. About 227 dams in the country are more than 100 years old and are still functioning. 92 percent of the dams in the country are built on rivers connecting different states. In such a situation, if there is any problem with any dam, other states may have to bear the brunt of it. That's why there is a great need for dam rehabilitation.

Union Minister Shekhawat met French Environment Minister Christophe Bechu at the United Nations Water Conference. Shekhawat said that India’s relations with France have strengthened under the leadership of Modi. Today both countries have committed to ensuring close partnership in the water sector as well. The French Environment Minister also appreciated Prime Minister Modi's vision of creating the Ministry of Jal Shakti and his integrated approach toward water management.

9. Amul Readies to Take On the ‘Cokes of the World'

ET, 21 Mar. 2023

Amul, India’s largest dairy brand, is rapidly scaling up its portfolio of non-dairy products to become a total foods and beverages company to compete with Nestlé, Britannia, Coca-Cola and ITC, its new managing director, Jayen Mehta, said.

Speaking to ET in his first interview after succeeding RS Sodhi in January at the ₹61,000-crore brand owned by Gujarat Cooperative Milk Marketing Federation (GCMMF), Mehta, said: “Dairy remains our core, but we have a robust pipeline of growth; we want to straddle every foods category consumers use in the kitchen, and we are going about it with speed, scale and larger investments.”

The maker of Amul cheese, milk, ice-cream and butter has identified categories such as non-dairy beverages, snacks, pulses, cookies, edible oil, organic foods and frozen foods to accelerate with “speed and scale”, which Mehta said will be tailwinds of growth for the company. On the retail front, Amul is setting up ‘Ice Lounge’ parlours for premium ice-creams. “We are not worried about competition, since more players help in building products and categories. Having said that, we have to compete…we are competing with Coca-Cola with products like seltzers, with Britannia in cheese and cookies, with ITC in staples, and so on,” said Mehta, who has been associated with GCMMF for over three decades.

In November last year, Britannia announced a joint venture agreement with French cheese maker Bel SA to manufacture and sell cheese products, while Nestlé and ITC have announced plans to push growth in manufacturing and innovation, with forecasts of a healthy revival in the FMCG sector. On the record-high dairy inflation and milk prices being increased three times in the past year, Mehta said: “It was imperative to increase consumer prices, as cost of feed and fodder is a direct cost to the farmer. Besides, unseasonal rains and crop failure are factors that are not even reflected in topline inflation numbers.”

The cost index of cattle feed has been continuously increasing, which he said has to be calibrated into pricing decisions. But indications are that inflation could stabilize with a normal monsoon, he said.

10. IT and software network dispersion beyond metros catalyses a boom in India's startup ecosystem, says Dr. Omkar Rai

ET Gov. 18 Mar. 2023

Dr. Rai said that India's startup ecosystem is flourishing with 107 unicorns, making it the third-largest in the world. He attributed the growth of the startup ecosystem to the spread of the IT services and software networks to areas beyond the country’s metro cities.

Dr. Omkar Rai, Executive Chairman, Startup Odisha, has lauded India's efforts to create a technology-driven ecosystem under the Digital India program. He noted that this has resulted in the development of a resilient and secure India Stack, which has become the backbone of India's Digital Public Goods, being utilised by various sectors, including startups and MSMEs.

In an exclusive interview with ETGovernment, Dr. Rai stated that India's startup ecosystem is flourishing with 107 unicorns, making it the third-largest in the world. He attributed the growth of the startup ecosystem to the spread of the IT services and software networks to areas beyond the country’s metro cities.

Dr. Rai, who was Director General of STPI for over a decade, pointed out that 40% of unicorns in the country are from Tier 2 and Tier 3 cities. He noted that "only 9 out of the 24 unicorns added last year were from metro cities." This indicates that entrepreneurs from smaller cities are now beginning to make their mark. "There are opportunities for entrepreneurs to take advantage of the startup ecosystem," he said.

Urging young entrepreneurs to seize the opportunities available in the startup ecosystem, he said that there is no shortage of investments. Talking about the importance of supporting the founders and mentors, he said we must provide them monthly allowances and other forms of assistance.

Citing the success of the “Make in Odisha event 2022” as an example of the state's commitment to promoting startups, Dr. Rai described Odisha's state policy on startups as the most aggressive and inspiring among all states in India.

“The event showcased the state's various initiatives to promote entrepreneurship, such as the Startup Odisha Initiative, which aims to create a conducive environment for startups,” he said. He highlighted Odisha's success in the field of metallurgy.

"We are a leading state with around 40 percent women-led startups. There are several startups that have been solving our problems and helping in the augmentation of livelihood at the grassroots level. Still, there exists a vast opportunity in the areas of biotech, agritech, health sciences, metallurgy, plastics, and chemicals," he said.

He said that by 2025, he hoped to see the emergence of 100,000 startups, which would create a significant number of jobs and contribute to the country's economic growth.

Emphasising the need to ensure that the startup ecosystem is inclusive and accessible to entrepreneurs from all backgrounds, he said that women and marginalised communities entrepreneurs must be supported and encouraged.

"This means providing more support to women and marginalized communities who may face additional barriers to entry," he said.

- Industry and Manufacture

11. Walmart Talks to Indian Cos to Source White Label Gadgets

ET, 23 Mar. 2023

Walmart is in talks with leading Indian electronics contract manufacturers to procure white label electronic products such as IT hardware, mobile accessories, wearables and more, to sell them in the US under its sub-brands.

NYT News Service. Walmart will close technology hubs in Texas, California and Oregon, and aim to relocate employees from there to other locations, including the company's headquarters in Bentonville, Ark. (Marie Eriel Hobro/The New York Times)

Several industry executives familiar with the matter told ET that manufacturers such as Dixon Technologies and Optiemus Electronics are in the fray for orders amidst the US retail major’s drive to shift sourcing, especially on the electronics side, to India.

“They have been scouting a lot in India to figure out what the capabilities of the manufacturers are,” one of the executives, who did not wish to be named, told ET.

Walmart, which owns majority stakes in Flipkart and PhonePe, is looking to source a wide range of products such as cables, chargers, screen protectors, home appliances, hearables, wearables, tablets, laptops, and lighting.

Employees of Walmart have met multiple contract manufacturers, inquiring about their capacities, processes, and testing methods, the executive said.

Responding to an email, a Walmart spokesperson confirmed the development stating that Walmart has been "quite public about our plans to source from India".

ET’s emails to Indian contract manufacturers Dixon, Optiemus Electronics, Jaina Group and Bhagwati Products seeking comments did not elicit a response till press time.

India is already one of Walmart’s top sourcing markets, with annual exports worth $3 billion, as of 2020. That year, Walmart had said that it plans to triple its export of goods from India to $10 billion each year by 2027. “It will be a good starting point for Indian manufacturers to make inroads in the US, and the export potential is huge,” the first executive said, adding that Walmart is looking to reduce its reliance on Chinese suppliers amidst heightened geopolitical tensions between the US and China.

In the short term, Walmart will look to source products already being assembled in India. “Slowly as procurement picks up, the component makers are also expected to start making in India,” the executive said.

A second executive said that the sourcing will begin in phases. “Walmart approaches manufacturers which already make the products it intends to source. For instance, if a manufacturer has an in-house design of a laptop it makes for other brands, Walmart will come in to inspect if it meets their stringent quality standards,” the executive said.

But meeting the quality standards will be the biggest challenge for Indian manufacturers, the executive said. “They will give you an indication of the categories they are looking at. They will give you their specifications, and then you need to match the product as per their requirements, and it has to go through a lot of certifications,” the executive said.

The sourced products will have to go through reliability testing, apart from passing compliance regarding recycling, environment-friendliness, and some others which are not there in India currently. “The Chinese suppliers understand it very well, but the Indian ecosystem will take time to implement them. I see them (the compliances) as a bigger bottleneck than the finances,” the second executive said.

12. India Needs to Simplify Pre-Construction Process

ET, 27, Mar. 2023

India faces some challenges in the pre-construction timelines for real estate projects and global real estate investments, and streamlining the process would spur further growth in the sector, said S Lee Timmins, CEO-Eurasia region of Hines, one of the largest privately held real estate investors and developers in the world.

The company is looking to expand its commercial and residential portfolio in India and plans to enter the logistics segment as well.

“Challenges always exist in every market, and India is no different. India has some challenges with the pre-construction timelines, from the moment you make the determination to invest, to when you can start construction, which means planning the permits, the approvals, all of that aspect. Simplifying the process would be beneficial for developers,” said Timmins.

According to the CEO, it is common to make a significant investment at the start of a project and desire a speedy completion to begin generating income, whether through commercial leases or residential sales. “Therefore, any support from the government to clarify and expedite the process would be highly beneficial,” he said.

Hines has a presence in 314 cities in 28 countries, with $92.3 billion of investment assets under management and more than 102.1 million square feet of assets for which Hines provides third-party property-level services.

The company is evaluating about 5 million sq ft of assets in India.

Timmins said that India has done relatively well in terms of inflation as compared to other parts of the world.

“Nonetheless, inflation does remain relatively high in India. And as a consequence, that does create a little bit of a challenge in terms of construction costs,” he said.

For Hines, India is one of the key strategic areas of expansion and investment over the next decade, driven by a number of different factors.

“India’s impressive economic growth, even in a challenging global environment, has caught the attention of our global executive committee. Therefore, it is one of the key strategic areas for our growth over the next decade and beyond.”

13. Taking off: Boeing-GMR freighter conversion line can propel Indian firms up the aviation value chain

ET, 16 Mar. 2023

Conversion of passenger planes to freighters is a labour-intensive, high-precision job which requires special skill sets. Once the expertise is in place, Indian aircraft MRO firms can expand their portfolio and bet on cost advantage to compete with global rivals.

In what’s being seen as a boost to Prime Minister Narendra Modi’s ambitious ‘Make in India’ initiative, Boeing last week said it has tied up with domestic aircraft maintenance, repair, and overhaul (MRO) player GMR Aero Technic to build a facility in Hyderabad to convert passenger planes into freighters.

“Our cooperation with GMR Aero Technic is not only a testimony of the maturation of Indian MROs in the country to support the vision of Aatmanirbhar Bharat but also supports the anticipated growth of the cargo sector in the region,” Boeing India president Salil Gupte said in a press release announcing the plan to establish a Boeing Converted Freighter (BCF) line in the capital of Telangana where old Boeing 737 passenger planes will be converted into all-cargo flying machines.

To be sure, this is not the first facility set up by Boeing in the country. Nearly a decade ago, the US planemaker had built an aircraft maintenance unit in Nagpur in Maharashtra as part of an agreement under which Air India had agreed to buy around six dozen planes from it for USD8 billion. The state-of-the-art facility, built at an investment of around USD170 million, houses two huge hangars that can accommodate as many as six Boeing 737s for maintenance.

“There was even an automated German machine installed in the cafeteria that could make up to 500 dosas daily,” recalls a person who has worked in this facility.

But soon, Boeing realised that the maintenance unit would be a heavy drain on cash flows unless it got international business. Air India planes alone would not be enough to generate profits. Hence, even though the agreement clearly said that Boeing needs to create facilities to enable Air India to maintain its planes, and therefore also operate them, the Chicago-headquartered company decided to let the Indian airline run the Nagpur facility.

“They [Boeing] wriggled out of it. Without capital and other support, Air India was still able to get heavy aircraft-maintenance checks done at this facility,” the person quoted above says, adding, “If there was more support, we could have started conversion of passenger planes to freighters at Nagpur long back”.

So, what’s in store for the latest initiative? Will it help India move up the aerospace value chain? And more importantly, what kind of technology transfer will happen going forward? ET Prime interviewed over half a dozen experts to find the answers.

The genesis

It all started one year back when Boeing came out with a global tender seeking interest from aircraft maintenance firms for conversion of passenger planes to freighters. Besides GMR Technic, Air India’s erstwhile engineering arm which operates the Boeing-built Nagpur MRO facility, Air India Engineering Services Ltd (AIESL), also pitched for the project.

Boeing sent its teams to Mumbai (where AIESL has its key hangars) and Hyderabad (where GMR Technic is domiciled) to learn about their skill sets, gauge the scalability of facilities, check the proximity to international airports, and evaluate the benefits if operations are based out of a special economic zone.

The Boeing team, according to a source in the know, was also supposed to visit AIESL’s Thiruvananthapuram facility. But for some reason, the company decided to award the contract to GMR in November 2022 though it wasn’t made public.

An official announcement was originally planned during the high-profile Bengaluru Aero India show in February this year which was inaugurated by Modi, but it was pushed to March to coincide with the India visit of US secretary of Commerce Gina Marie Raimondo along with a team of US corporate bigwigs including Boeing’s chief strategy officer Marc Allen.

Moving up the value chain

So far, Indian aircraft maintenance units have largely been carrying out only heavy maintenance work (C checks) besides repairing plane components once their life is over or when corrosion is noticed. Conversion of passenger planes into freighters is a different ball game altogether.

“Converting old passenger plane into cargo is a huge structural modification,” says a senior engineering executive who has seen such modifications being carried out in Israel, requesting anonymity. “This announcement will take our workmanship and tooling to another level,” he adds.

Aircraft lessors or airlines typically buy planes that have flown passengers for nearly two decades at around INR80 crore and invest INR50 crore more to convert them into freighters which can be operated for another decade or more.

To convert a passenger plane, a new cabin has to be created by stripping off all seats and putting in rollers. Locks are placed to ensure that the cargo remains intact while flying. The most important part is the cutting of the fuselage next to the doors and creating a huge door that opens vertically like a car trunk. The cutting of the fuselage is a high-precision work and needs Boeing’s drawings and expertise, which will be the real technology transfer. The door itself will need to be imported since India does not produce them.

“Boeing gives you the design and kit and you have to implement the kit on the aircraft,” the second official says, adding, “So, this development places us somewhere between those with heavy maintenance know-how but well short of having a full-fledged assembly line like Airbus’s China facility in Tianjin”.

It will also require GMR to invest a “few million dollars”, according to this person, to get its hangars ready with all the tooling, jigs, and high-precision machinery which are “proprietary” and supplied by Boeing.

To begin with, GMR plans to create only one line for conversion which will be ready in the next 12-18 months, according to another person in the know. The group will hire around 50-60 people as the existing staff will be shifted to the new facility. They will be sent abroad to a BCF facility for rigorous training since even minor errors can be costly.

Each conversion typically takes around three-six months and delays are common as technical clearances are required before flying planes after major modifications.

Since a freighter conversion costs around INR50 crore, as per one of the officials quoted above, and the Boeing conversion kit itself can cost around INR45 crore depending on the terms of the agreement, this could leave only around INR5 crore in revenues for GMR. The number of planes that Boeing will send to Hyderabad is also not clear yet.

In the last six years, Boeing has converted nearly 100 such planes which are used by firms such as Amazon’s dedicated air cargo network Amazon Air, Brazilian low-cost airline Gol Linhas Aéreas Inteligentes (GOL), and Malaysian cargo airline Kargo Xpress.

Globally, Boeing has more than 250 orders and commitments from over 20 customers for converted cargo planes and the company is establishing more conversion lines at its London Gatwick MRO facility, KF Aerospace MRO in Canada, and Cooperativa Autogestionaria de Servicios Aeroindustriales in Costa Rica. Boeing also has the most number of BCF lines in China, including Guangzhou Aircraft Maintenance Engineering Company Limited, and has said that it will expand further.

The question of overcapacity

Such plans could lead to overcapacity, some officials feel. During the pandemic, when passenger planes’ belly cargo was not available, there were long queues in front of converted cargo planes as e-commerce firms were flooded with orders from customers locked in their homes. Things have changed and the belly capacity of passenger planes — which transports nearly 50% of all global cargo — is back to the pre-pandemic levels. This is why the freighter business is not as lucrative as it had been during the pandemic and international cargo rates have dropped by over 30%.

“Belly is cheaper and connectivity is much better,” says another airline official, who also did not want to be named.

In India, which historically has had few freighters, local firms are trying to increase their share of the cargo market. IndiGo has received two Airbus A321 freighters from Castlelake Aviation on a 10-year lease after a long delay. SpiceJet is currently operating three Boeing 737-700 freighters while QuikJet Cargo Airlines has started operating two Boeing 737-800 freighters for Amazon Air.

Besides this, DHL Group’s Blue Dart has six B757-200 freighters and it plans to add two Boeing 737-800 planes this month while Pradhaan Air Express, which recently launched services using an Airbus A320 freighter on India-Vietnam and India-Rangoon routes, plans to add another plane to its fleet in the next few weeks.

“We are also hearing that Blue Dart has big plans to induct 22 planes and phase out old B757s. Two other companies, one based in South India, are also discussing freighters’ induction, but those are at an early stage,” says one of the officials quoted above.

Meanwhile, some airline officials believe that so many freighter inductions could lead to a further drop in cargo rates. “We are reaching overcapacity even as there is no ecosystem in India for air cargo — be it technology, strong bases, interconnected terminals, ease in customs, and so on,” says another airline official who tracks the development closely.

For GMR, though, the focus would be to ensure that it does not go into “negative cash flow” mode once the BCF line is established.

“MRO has to be full 90% of the time to make money, and you need a constant feed of planes as workers come in shifts and you don’t want them to idle away time,” says one of the officials quoted above.

But since freighter conversion is a labour-intensive process, GMR will be betting on cost advantage over its rivals in the UK, Canada, and Israel as they typically incur higher manpower expenses. For context, China’s labour rates are half that of the UK and almost similar to India’s. Whether Boeing will eventually close down some BCF facilities that are high-cost and expand Indian lines much like it done in China remains to be seen, says another airline official.

"Converting old passenger plane into cargo is a huge structural modification. This will take our workmanship and tooling to another level."

— A senior engineering executive

The bottom line

Once the expertise is in place, it will be time for GMR — and perhaps even AIESL and Gautam Adani Group-backed AirWorks — to convince Airbus to convert its passenger jets to freighters in India and also ask Boeing to start conversion of wide-body planes locally, thereby moving up further in the aerospace value chain.

As for the automated German machine that Boeing had installed in Nagpur to dish out hundreds of dosas everyday, it was never really put to good use.

“We get sambar vada, idlis, parathas, and eggs for breakfast,” says a Nagpur-based AIESL engineer. “We never get dosas.”

14. Apple, Foxconn in Talks with Govt to Build AirPods in India

ET, 17 Mar. 2023

Apple is considering manufacturing AirPods in India through Taiwanese contract manufacturer Foxconn, and the companies are in the midst of initial discussions with the government.

As per officials aware of the details, the government is looking to provide some financial support to remove the disability that currently makes manufacturing AirPods in India much more expensive compared to China and Vietnam.

A production linked incentive (PLI) scheme for wearables is already in the works and that will boost the chances of Apple shifting a part of AirPods manufacturing in India.

“We have so far not decided on the quantum of incentives that will be given as talks with the industry are at initial stages. But we are aiming to come out with the PLI scheme in next financial year (starting April 1),” an official in the ministry of electronics and IT (MeiTY) told ET, asking not to be identified.

Another official said it’s an early-stage discussion between Apple, Foxconn, and the government. Foxconn, the world’s largest contract manufacturer, currently does not make AirPods for Apple. The hearables in the past have been made by a range of Chinese manufacturers including Luxshare.

However, Apple could be reluctant to place a fresh order for an important product like AirPod on Chinese companies due to the geopolitical situation, said people familiar with the matter.

Queries sent to Apple, Foxconn and the Telangana government remained unanswered at the time of going to press.

A Reuters report, citing sources, said Foxconn has won an order to make AirPods for Apple. The report added that Foxconn plans to invest over $200 million to build a new factory in Telangana to produce the wireless earphones.

Apple recently signed letters of intent with the states of Telangana and Karnataka to build large factories for various products.

Over the past few years, Apple has been shifting parts of its production of all devices from China to countries including India and Vietnam.

While iPhones are being manufactured in India, iPads and AirPods are being made in Vietnam. The importance of India in Apple’s scheme of things can be gauged from the fact that it has already shifted a big chunk of iPhone manufacturing to India, which is growing every year.

15. 7 States to Get Mega Textiles Parks: PM

ET, 18 Mar. 2023

India will set up seven ‘PM MITRA’ textiles parks, which would provide integrated large-scale and modern industrial infrastructure facility for the entire value-chain of the textile industry, Prime Minister Narendra Modi said Friday.

These mega textile parks will be set up in Tamil Nadu, Telangana, Karnataka, Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh, he said, adding that the parks will attract massive investments and create lakhs of jobs.

“The PM MITRA mega textile parks will provide state-of-the-art infrastructure for the textiles sector, attract investment of crores and create lakhs of jobs. It will be a great example of ‘Make in India’ and ‘Make For the World”, Modi said in a tweet.

The parks will boost the textiles sector in line with 5F (Farm to Fibre to Factory to Fashion to Foreign) vision, he added.

The government has provided an outlay of ₹4,445 crore for these parks and expects to draw an investment of around ₹70,000 crore.

Textiles minister Piyush Goyal said these parks will put Indian textiles industry on a firm footing on the global front and will be shining examples of sustainability, with zero liquid discharge, common effluent treatment, use of emission-free renewable energy and adoption of global best practices. He said this cluster-based approach will enhance the quality and competitiveness of products, boost exports and strengthen India’s position in global supply chains.

He said the selection of states took into account connectivity, existing ecosystem, policy, infrastructure, among others.

Kulin Lalbhai, chairman of CII National Committee on Textiles and Apparel, said these parks will aid the textile industry to leverage economies of scale.

- Services (Education, Healthcare, IT, R&D, Tourism, etc.)

16. BlackBerry establishes IoT center of excellence in Hyderabad

ET Gov. 16 Mar. 2023

New BlackBerry QNX developer hub aims to help advance Software-Defined Vehicle and IoT industry innovation.

BlackBerry Limited on Wednesday announced the new ‘BlackBerry IoT Center of Excellence, Engineering and Innovation’ in Hyderabad. The world-class engineering center is recruiting India’s best embedded software engineers to help build the next generation of software-defined-vehicles (SDVs) and advance innovation in other ‘Internet of Things’ industries, using the company’s trusted, safety-certified BlackBerry QNX product portfolio and award-winning in-vehicle software platform, BlackBerry IVY, the company said in a statement.

Ahead of the company’s annual TechForum India event in Bangalore on March 29, BlackBerry is announcing new plans to scale up operations to meet growing industry demand for its mission-critical embedded software solutions and engineering services, both in India and worldwide. By the end of 2023, the Hyderabad facility – set to be the second largest for BlackBerry’s IoT division globally, after Canada – is expected to host over 100 software engineers across a wide range of technology positions and skill sets, including senior management, technical project management, product engineering, cloud software development, integration and service delivery, it said.

Mattias Eriksson, President of BlackBerry IoT says, “Today is another milestone for BlackBerry’s ongoing investment in skills and innovation and signifies the importance of India as a home to world-class software innovators. We are pleased to expand BlackBerry IoT’s global software innovation network in Hyderabad, underscoring our commitment to serve our customers and partners and continue our rapid growth as an IoT software leader, especially in the automotive sector.”

Responsible for innovation, embedded software product development and engineering services, the teams will first use the QNX Software Development Platform (SDP) evaluation hardware and software to design and accelerate the development of systems that are safe, secure and offer real-time performance. This includes the QNX Accelerate initiative, offering QNX in the cloud to accelerate product development and reduce time to market for mission-critical industries including automotive, medical devices, industrial controls, robotics, aerospace, defense and heavy machinery, BlackBerry said.

Further, BlackBerry IVY software development is planned to roll-out later in 2023, bringing developers and OEMs with operations in India closer to the innovation cycle, offering access to benefits such as optimized data processing using on-vehicle machine learning (ML).

With BlackBerry QNX embedded in 215 million vehicles worldwide, in production with 45 different OEMs and all seven auto Tier 1 suppliers worldwide, this news underlines BlackBerry’s commitment to accelerating SDV innovation. Customers including Tata Motors, Mahindra & Mahindra, Stellantis, BMW, Aptiv, Bosch, Ford, GM, Honda, Mercedes-Benz, Toyota, and Volkswagen trust BlackBerry QNX for a wide range of safety-related systems. Similarly, 24 of the top 25 EV automakers use BlackBerry’s safe, reliable, and secure software for the foundation of future autonomous drive vehicle systems.

Eriksson further said, “India is an important market for local and global manufacturers in automotive and IoT sectors – particularly in Hyderabad, an ecosystem of engineering talent. This facility will help BlackBerry IoT to co-develop and co-innovate more closely with our customers and partners based in India, giving talented developers and engineers the opportunity to build the best solutions for complex problems for automotive and other embedded software industries.”

17. ‘No Dramatic Transition; Talent Pool Deep in TCS’

ET, 18 Mar. 2023

Tata Consultancy Services (TCS) CEO Designate K Krithivasan expects the transition from outgoing managing director and CEO Rajesh Gopinathan to be smooth with no significant change in the organisation or strategy.

He added that India’s largest software exporter would continue to focus on customers and employees, which have been core to its success over the years.

Thursday, TCS said that Gopinathan had resigned, and was being replaced Krithivasan, effective the same day (March 16).

The development surprised many, given that Gopinathan quit just over a year into his second five- year term as MD and CEO. This raised concerns about continuity and strategic direction of the software major amidst global macroeconomic challenges.

The stock opened 0.4% lower, fell further to an intraday low of ₹3,157 (down 1.3%) before closing at ₹3,178, a fall of 0.2% on the BSE Friday. The Sensex ended 0.6% higher.

"It is a continuum. It is not that we come up with a new strategy or a new set of priorities at TCS as every CEO changes,” Krithivasan said Friday, addressing his first press conference in his new role. “We have a core set of beliefs focussing on employees and customers. It is the most important engine that drives our growth”.

He said that the leadership at the software major focusses on a core strategy which is tweaked from time to time as required.

“Our core principle is to work closely with customers to ensure we look out for their needs as proactively as possible. And work with our associates who have been the bedrock of our success, so they perform very well. Do not expect a great strategic or organisational change,” said Krithivasan.

He downplayed concerns regarding a leadership vacuum in the critical banking, financial services and insurance (BFSI) vertical, saying the company has a huge, deep talent pool available. BFSI contributes to almost 32% of the company’s $25 billion plus revenue.

“Since BFSI is the largest business vertical, even folks who are not in BFSI today at TCS have deep knowledge. It's early days but we will ensure there is a smooth transition,” Krithivasan said.

Krithivasan will moving to Mumbai from his current place of work at TCS’ Chennai office.

Fifty-two year old Gopinathan has been at TCS for 22 years and was CEO for six years. However, Krithivasan who has been at TCS for 33 years is seen as a strong candidate, say experts.

Gopinathan will help Krithivasan transition into the new role. September 15 will be his last day at the company. Krithivasan, who is 59 years old, will have a five year term. The retirement age for executives at TCS is 65, said Gopinathan.

“Rajesh Gopinathan was re-appointed as CEO last year and therefore his resignation is a surprise and likely to be perceived negatively. However, the resignation is likely for personal reasons and the internal promotion of a TCS veteran along with a six-month overlap between the two should help ease the transition,” brokerage Centrum said in a note.

18. Marriott to Go Bigger on India, a ‘Bright Shining’ Story, says CEO

ET, 15 Apr. 2023

India can expect more Marriott International hotels across its other brands coming up in the country’s secondary and tertiary markets, Anthony Capuano, the hospitality group’s chief executive, told ET in an interview.

Capuano, who met Prime Minister Narendra Modi in New Delhi on Thursday, said during the hour-long meeting, the Prime Minister “encouraged us to partner with his staff to not just do a better job in the region, but globally to make sure that the next generation of travelers who crave adventure and local authentic experiences understand the breadth of those experiences that are available in India”.

Marriott International is the world’s largest hotel chain and lodging company in terms of the number of rooms, with more than 1.5 million rooms in its portfolio. The chain has 140 hotels in India and plans to get to 250 hotels in the country by 2025. It plans to launch 13 hotels, totaling 1,902 rooms, in India this year.

“India is one of the bright shining stories we have in our global recovery. We have more rooms managed in India than any other branded company in the world and would like to see that lead extend over time. The Prime Minister was thrilled to hear that we have already got projects, open and under construction, in markets that many of the multinationals might not be able to find on a map. As we think about meaningfully increasing our footprint across India, a lot of that growth will come from those markets,” he added.

Capuano said in the US, 60% of all the hotels are owned by Indians or Indian-Americans and with increased frequency those owners are tapping opportunities to reinvest in their home country.

“We met with our large US partners who are establishing development offices here in India. They are building operating infrastructure and are looking to grow their portfolios here,” he added.

While the chain operates in an industry that is cyclical and is influenced by macroeconomic metrics, there are dynamics at play that bode well for Marriott’s financial performance, Capuano said.

“Firstly, in many of the markets that are most important to us, notwithstanding the economic headwinds, the consumer’s balance sheet remains strong. This is great news for travel and tourism. In many of the markets that are important to us, the employment story is very encouraging,” he said.

“When you look at corporate earnings outside a few sectors like banking and technology, the corporate earnings story continues to be quite compelling which is great news for our business,” he said.

“We are a different company from a financial structure perspective than we were during prior economic downturns. We are in 138 countries today. We have got another 20 new countries in the pipeline,” Capuano said. “We have seen a global shift towards franchising which means less of our global fee volume comes from the riskier management fees. More and more of our income is coming from non-revenue per available room-related fees, like our credit card business, our residential business, our new yacht business.”

19. Can AI help personalise education and enhance reach? Here’s a lesson from Duolingo, Khan Academy.

ET, 30 Mar. 2023

The advent of generative AI in education comes with its own set of challenges. If technology can help improve the reach of education and personalise teaching, it will be a big positive. But until that happens, AI-driven learning models should be tested in a contextual and responsible way.

In an article titled The Age of AI has Begun, Microsoft co-founder Bill Gates last week shared some insightful views on artificial intelligence (AI) and what the technology can achieve in the coming decade. Calling it the most important advance in technology after the graphical user interface, Gates spoke about the possibilities of AI and the far-reaching impact it can have on various sectors including education.

Two of the toughest problems in education that remain unsolved even today are personalisation and reach. Can AI help personalise teaching based on the needs of the learners rather than sticking to a one-size-fits-all curriculum? Can it help quality education reach the needy?

Gates believes that generative AI can do it. He says the technology can improve the quality of education through personalisation. For example, the programme will be able to quickly spot a learner who is losing interest in the class and take immediate measures to motivate her besides giving feedback.

A 2023 survey by a research and analytics platform HolonIQsuggests that generative AI could be used in testing, assessment, language learning, corporate training/upskilling, and even in higher education.

With generative AI growing popular by the day, teachers and administers are facing a huge challenge. For instance, recently some students in the US were found to have used ChatGPT to write their assessments. Going forward, Gates believes that more such new tools will be created as AIs get trained on diverse data sets and attempt to cross the digital divide.

The advent of generative AI in education comes with its own set of challenges. For instance, already there are concerns about the wrong usage of AI and accuracy issues besides the broader threat to humans from machines.

In this context, let’s analyse the approach of two US-based education startups Duolingo and Khan Academy.

Duolingo

Duolingo has always incorporated behavioural nudges creatively in its product experience. Given that learning languages is often tricky, especially for adults, it created easy ways to navigate learning — right from listening to words to choosing from different options to writing the alphabets, and more.

Not only did it reinforce learning but also made the leaderboard fun and engaging. This author’s 75-year-old mother found herself topping the charts in a German language-training session, competing with some 20-year-olds across the globe while not missing a single chance to ace it.

The Pennsylvania-based startup has been specifically looking at two options.

#1. Explaining answers: The ‘Explain my Answer’ feature on the app helps users to understand more about their responses while learning. Beyond knowing whether the answer is correct or incorrect, based on certain exercises it helps users to chat with Duo to get an explanation as to why the answer was ‘right’ or ‘wrong’.

#2. Roleplay: Humans learn through real-world conversations. Using this basic tenet of learning, Duolingo uses generative AI in conversations to make them more responsive and interactive. Based on the conversation, the learners get feedback.

While this feature is currently available in Spanish and French languages for English speakers, Duolingo Max will be made available in specific geographies going forward. This phased approach can give the company the time to make its AI learn more and modify it accordingly.

Khan Academy

The 15-year-old company believes that AI has the potential to transform learning in a positive way. “...but we are also keenly aware of the risks,” the company says on its website.

In terms of specific focus areas, it is looking at prompt engineering to narrow the focus of AI and tailor it specifically for learning. It also wants to increase the accuracy and moderate interactions with users so that inappropriate content can be removed and other issues can be resolved quickly. The company is also focusing on “red teaming” to try to find flaws and vulnerabilities.

Khan Academy admits that there could be errors in the initial stages. It wants to focus on Khan Labs as the operating space for generative AI. Khan Labs tests learning tools so that the company can be sure about the features of generative AI before giving broad access to teachers and students.

This is a measured and practical way to approach the possibilities of generative AI on education — a sector built on trust. Given the current gold rush on generative AI, many educational companies are trying to quickly roll out features and market their courses/learning labelling them as generative-AI enabled.

But the context and the implications are still evolving.

The US Copyright Office is planning to examine the copyright law and policy issues raised by AI, including the scope of copyright in works generated using AI tools and the use of copyrighted materials in AI training.

Duolingo and Khan Academy’s experience shows it’s time to explore the possibilities of AI in education. But it must be done in a contextual and responsible way. If generative AI can really help improve the reach and personalise education, it will be a big positive for many.

However, until we prove that, we should stay away from promises that may falter when it comes to delivering trust.

(Originally published on Mar 29, 2023)

20. US seeks deeper bilateral cooperation with India in emerging technologies

ET Gov. 15, Apr. 2023

US Senator Todd Young suggested scaling up collaboration and exploring opportunities to partner in quantum technology, ocean science, nuclear energy, semiconductors, supercomputing and other latest emerging technologies.

Union Minister of State (I/C) for Science & Technology, Dr Jitendra Singh discusses with a high level US delegation led by Senator Todd Young in New Delhi on Friday.

A high level US delegation led by Senator Todd Young called on Union Minister of State (I/C) Science & Technology, Dr Jitendra Singh and sought deeper bilateral cooperation with India in areas like Artificial Intelligence (AI), Quantum, Cyber Security, Semiconductor, Clean Energy, Advanced Wireless, Biotechnology, Geosciences, Astrophysics and Defence, etc.

Singh told the US delegation that Prime Minister Narendra Modi, in the last nine years, took personal interest in science, technology and innovation, and tried pro-actively to implement social sector schemes through science based solutions to bring ease of living for the common man.

The minister said the patronage received from Modi has opened new opportunities and possibilities in all areas of scientific endeavors, but more so in areas of Space, Biotech, Geospatial and Sustainable Startups. He pointed out that since 2014, in every Independence Day speech, PM Modi has flagged key scientific challenges and projects like cleanliness, Hydrogen Mission, Digital Health Care system, Deep Ocean Mission, Clean Energy and Startups.

Senator Todd Young suggested scaling up collaboration and exploring opportunities to partner in quantum technology, ocean science, nuclear energy, semiconductors, supercomputing and other latest emerging technologies.

An official from the Department of Science and Technology informed the minister that a total of 35 joint projects have been identified which will be implemented by the Technology Innovation Hubs (TIHs) and research institutions from USA. Six TIHs under NM-ICPS have been identified for collaborative research and development with NSF-supported institutions. The hubs are part of a five-year, nearly $430 million investment by DST under the National Mission on Interdisciplinary Cyber-Physical Systems and comprise academic researchers and industry partners. Additionally, the Indo-US joint clean energy R&D programme is a joint initiative of the Ministry of Science and Technology, Government of India and the US Department of Energy which is an ongoing project.

Young informed that the US looks forward to a greater synergy and collaboration between the DST launched Technology Innovation Hubs and National Science Foundation as NSF has a foundation of academic expertise and core commercial competencies.

Talking about another area of collaboration, Jitendra Singh said the Union Cabinet has approved the LIGO-India project to build an advanced gravitational-wave detector in Maharashtra at an estimated cost of Rs 2,600 crore. The facility’s construction is expected to be completed by 2030. The observatory will be the third of its kind, made to the exact specifications of the twin Laser Interferometer Gravitational-wave Observatories (LIGO), in Louisiana and Washington in the US. LIGO-India will work in tandem with them.

The minister and the senator were also informed about five potential areas of collaboration between Geological Survey of India and United States Geological Survey for setting in place a MoU.

Jitendra Singh assured complete support from the Science and Technology Ministry for Indo-US collaboration in budding and promising startups in Bio-tech, Dairy and Agri-tech sectors.

Stating that these are the best of the times for both India and America to forge a durable and strong bond for global leadership in fighting global challenges, Singh said there are much of ease in the relationships and a clear sign of willingness and optimism to achieve the desired goals.

The minister urged the US to come to the aid of India in technology transfer in critical areas, as there is no other option but to collaborate.

Prof. Ajay Kumar Sood, Principal Scientific Adviser (PSA) to the Government of India and other senior functionaries of the Department of S&T and Department of Atomic Energy participated in the meeting.

India and the World

21. India’s Digital Infra Model to Work Well for Africa: Mittal

ET, 15 Mar. 2023

Bharti Enterprises chairman Sunil Mittal said that India has shown that digital infrastructure can take care of the absence of physical infrastructure, and called for the application of the Indian model of infrastructure development to Africa for the continent’s economic upliftment.

Speaking at an event organised by the Confederation of Indian Industry on Tuesday, he said the fact that the African continent has less than 2% of the world’s manufacturing, clearly suggests that it has fallen behind in the past several decades. He also said that India can play a role in improving digital infrastructure in Africa.

“Digital connectivity, that’s an area where I work in 15 countries in Africa for the last 13 years. It requires more attention and, to my mind, India has shown that while physical infrastructure can take years, if not decades, there’s a digital infrastructure that can take care of the absence of physical infrastructure,” Mittal said.

He highlighted India’s digital stack, which is based on digital identity in form of Aadhaar, in the form of fintech, in terms of moving finances and subsidies to people in the country in a frugal and cost-effective way and, more importantly, putting a mobile phone in the hands of everybody. “The famously called JAM trinity (Jan Dhan, Aadhaar and Mobile) is the right way to apply into Africa, so that they can get at least a very high-quality digital connectivity across continent,” Mittal said.

Mittal said every nation, when it gets the presidency of a body like the G20, wants to leave some important legacies behind. “Our prime minister has chosen as one of the few important legacies that he wants to leave behind, the Africa economic integration,” he said. What has become possible with the advent of digital infrastructure is absolutely amplified and showcased here in India, he said.

“Why would we not just shift a lot of these modules into Africa? India has done remarkable work in skilling, education and healthcare through digital interventions. So, the Indian model must be applied to Africa as it’s frugal and low-cost and we understand the payment capacities of countries,” Mittal said.

22. The SVB collapse: what it means for Indian equity markets and the banking sector

ET, 16 Mar. 2023

Experts believe the SVB downfall will not have a major impact on Indian markets. They feel, while there will be short-term volatility, the overall pain will be limited. However, banking crises are becoming more of a feature than a bug in the greater financial system. Should one blame the irrational exuberance of bank CEOs or the apathy of banking regulators?

On February 23, the Byrne Hobart newsletter informed its readers that the Silicon Valley Bank (SVB) was insolvent and levered at 185:1. The bank was planning to raise cash, and that raised alarms. Customers rushed to withdraw their deposits amounting to USD175 billion, which lead to a ripple effect on financial markets across the world.

The US Federal Reserve, which has been on a war footing to tame inflation, will now have to relook at its strategy of hiking interest rates at such a fast pace. As of now, global markets are worried.

The contagion effect

Over the last five days (since March 7) JP Morgan is down 8%, Citigroup plunged 14% and Wells Fargo has fallen 17%. The S&P 500 is down 5%. Banking stocks, which account for 25% of the Nifty 50, are also down 4%; the Nifty Bank Index has slid 5%, whereas SBI, which has the highest weight in the index, has plummeted 6%.

Indian markets are dependent on foreign money and there is a strong correlation between the US yield curves. Even equity markets follow the US markets, especially during times of distress. While the US regulator is doing its best to avoid a contagion effect, investors in India feel this will lead to some serious volatility.

“Collapse of SVB will definitely compound the negative sentiment prevailing in the Indian equity market. Indian markets have been overvalued due to infusion of domestic liquidity,” says Sandeep Bagla, CEO, Trust MF.

"It certainly was not justified for the bank to have such an asset-liability mismatch. It was the basic violation of Banking 101. They had a lot of short-term funds which were deployed in long-duration securities, mainly because they were chasing yields at a time when yields were close to zero."

— Devina Mehra, CMD, First Global

Indian companies that have deposits in SVB or similar banks would have to suffer temporarily as the money might get stuck, he adds. “Luckily our banking system is well regulated, and it is likely to have a limited effect on the Indian banking system. However, as SVB was primarily a major banker for startups in the US, the startup ecosystem in India is also likely to be impacted adversely,” says Jyoti Prakash Gadia, managing director at Resurgent India, an investment banking firm.

According to a Jefferies report, the SVB bank runs an NBFC in India known as SVB India Finance, which was sold to Temasek and United Overseas Bank in 2015. It is engaged in venture debt lending and has stable liquidity. Jefferies feels this is unlikely to be a systemic risk in India.

Experts, ET Prime spoke to, are confident that the crisis will not have any big effect on Indian markets. While there will be short-term volatility which will affect prices in India, the overall pain will be limited.

“There should not be a direct impact on markets as the issue has now been contained with the US regulators ensuring that all depositors for SVB, as well as other banks, are covered in full wherever there is erosion in the bond and securities portfolio because of interest rate changes. This doesn't cover credit-related issues but that doesn't appear to be the problem, at least as of now,” says Devina Mehra, chairperson and managing director, First Global.

She further adds that the event may have an indirect impact on markets if it changes the Fed's stance on rate hikes and tightening. The market has moved very rapidly on that with two-year yields down 75 basis points (0.75%) in a matter of three days, which is higher than even what happened during Black Monday in 1987. Now, several Wall Street firms are assuming that the Fed will not increase rates this week at all. The terminal rate -- the rate at which the Fed will stop hiking -- has fallen by 0.6%-0.7%.

“My personal view is -- this is a little overdone as the Fed cannot signal it has completely taken its eye off the inflation ball. Especially, as labour markets have been extremely tight,” Mehra adds.

So, what really happened at SVB?

The devil is in the details

The Byre Hobart newsletter said that since assets were not marked-to-market, SVB could hold them as long as it has deposits. The bank did have deposits initially – from startups or other matured tech companies in the US market. These companies had raised a lot of money in the post-pandemic boom either through venture capital or IPOs. Between 2021 and 2022 beginning, US banks had either invested in debt securities or kept some part of the money in cash. According to Netinterest.co, the securities portfolio ballooned to USD6.26 trillion, up from USD3.98 trillion at the end of 2019 and cash balances went up to USD3.38 trillion from USD1.67 trillion in 2019. This was all good till startups were raising money. But in the latter half of 2022, funding activities and IPOs dried up. At the same time, startups started to burn cash. Some even wanted to move funds to the money market mutual funds. To obtain liquidity, SBV had to sell some of its held-to-maturity portfolio and book losses.

While nobody expected a bank run on the Silicon Valley Bank, this is what precisely happened. Around USD42 billion in deposits flowed out of SVB in two days -- 25% of the total deposits simply evaporated.

"SVB was primarily a major banker for startups in the US. The startup ecosystem in India is also likely to be impacted adversely."

— Jyoti Prakash Gadia, MD, Resurgent India

Banking in the US market is less regulated than India or even Europe. This leads to CEOs taking risks on interest rates or credit quality only to chase high yields. When things turn, it leads to a catastrophe, which is just not limited to the financial markets.

“Regulating banks like utilities could help prevent the kind of reckless behaviour and risk taking that led to the 2008 crisis and the current SVB bailout. Taxpayers’ money is used in the bailout, and they don’t have any share in the profits. They should look at the best interest of the society than maximise profits for shareholders,” says Anish Teli, managing partner, QED Capital.

Now Peter Theil, the billionaire-investor accused of influencing others to withdraw their deposits from the bank, allegedly sent first emails or messages to pull out money from SVB. That was more than enough for someone to go to Twitter and talk about it. There was a fire on the mountain -- run, run run!

Impact on banking sector

The current collapse is the second biggest in the US banking history. On Friday, financial regulators decided to shut down the bank and took control of deposits. Interestingly, one more bank, Signature Bank, went down.

So, why is it that sophisticated banks go down even now when they have access to forecasting and information and can plan their asset-liabilities more carefully?

Experts believe, in this case the Fed is also to be blamed. While interest rates increased fast, banks have not been able to adjust to the change where funding costs or deposit rates are also high. There is an inverted yield curve and bankers are now blaming the Fed for the same.

The trouble with interest rate is that when they start to go up, they hit bank assets the most. For SVB, unrealised losses through long-term debt, which was held to maturity, went up to touch USD16 billion in September 2022 as compared to profits a year ago. The short-term book, which was available for sale (AFS), was much smaller and not hit so badly. According to Netinterest.co, SVB was technically insolvent at the end of September 2022. “Its USD15.9 billion of HTM mark-to-market losses completely subsumed the USD11.8 billion of tangible common equity that supported the bank’s balance sheet,” Marc Rubinstein writes in Netinterest.co. Rubinstein is a former hedge fund manager, and the author of a weekly finance newsletter Net Interest.

The bank moving much of its assets to HTM also meant that hedging was not an option anymore, writes Michael Green in his newsletter. Green is the chief strategist and portfolio manager at Simplify Asset Management. But at the same time nobody really expected interest rates to move up, or for that matter mortgage rates to go to 5%. For over a decade, no bank executive has dealt with such kind of situation where interest rates were on a rise for so long.

The CEO of SVB, Greg Becker, an avid cyclist, was like any other CEO. He believed the deposit money is here to stay. This is despite the industry having faced a dot-com boom in 2000 where many clients asked for their money rather quickly when deposits fell from USD4.5 billion to USD3.4 billion within a few months in early 2001. This time, deposits fell from USD198 billion at the end of March 2022 to USD165 billion by February 2023-end. Out of the total USD173 billion deposits, USD152 billion are uninsured.

“It certainly was not justified for the bank to have such an asset-liability mismatch. It was the basic violation of Banking 101. They had a lot of short-term funds which were deployed in long-duration securities, mainly because they were chasing yields at a time when yields were close to zero. Also, there was a concentration risk with most of the deposits coming from VC-funded startups and crypto companies. Also, there was not a recognition of the fact that even though company accounts were separate, many of them were effectively controlled by a handful of VC firms. The book was a lot more concentrated than it appeared,” Mehra says.

Banking crises are becoming more of a feature than a bug in the greater financial system. It is either due to the irrational exuberance of CEOs or the insensitivity of the banking regulator. It has happened in the past. It will happen in the future. It hurts financial markets – sometimes even for the long term.

(Originally published on Mar 15, 2023)

23. Amid a ‘semiconductor cold war’ between US and China, India emerges as a key ally for Uncle Sam

ET, 16 Mar. 2023

India and the US recently signed an MoU on establishing the semiconductor supply chain and innovation. What does the US coming closer to India through multiple technological partnerships mean? How does China see the US-India bonhomie? An undeclared cold war between US-China on semiconductors has started to brew.

Rather than just tanks and missiles, global competition has become increasingly about chips and technology.

This isn’t a defence or conflict resolution expert advising on what may happen in the future, this is what visiting commerce secretary of US Gina Raimondo said about the present. She made these comments last month at Georgetown University’s School of Foreign Service.

Raimondo was in India for the fifth India-US commercial dialogue in New Delhi last week. The bilateral dialogue saw a key memorandum of understanding (MoU) being signed between the two countries on semiconductor supply chains.

With the MoU signing, experts believe a new cold war is emerging between China and the United States on semiconductors and India is becoming a formidable ally of the United States in this drive to win the semiconductor war.

Many experts believe this is the strongest “decoupling” step by the current US government as it comes in the backdrop of the Biden administration’s decision to implement the CHIPS Act 2022.

The news of the MoU comes just a week after reports of Cupertino giant Apple Inc. partner Foxconn Technology Group planning to invest about USD700 million on a new plant in Bengaluru to ramp up local production.

Apple Inc is also reportedly shuffling management of its international business to put a bigger focus on India, Bloomberg has reported.

On the surface, it may look like a basic agreement on establishing the semiconductor supply chain and innovation partnership but it underscores the importance of India-US chip bonhomie.

Is India a benefactor because of the US’s strategy to keep China in check or are there other motives?

Chips of the trade

The current MoU follows other heightened technological cooperation between the businesses of world’s two largest democracies India and the US recently. Whether it’s through the CHIPS and Science Act or the launch of the iCET partnership lately.

The businesses from both sides themselves are also keen to cooperate on the fresh MoU on semiconductors with a rapid pace. Experts see this move will see complementarities between the US CHIPS Act and India’s semiconductor mission.

Raimondo, on being asked by ET Prime that whether the US is looking at India as a counterweight to China in the semiconductor space, said, "This is about making the semiconductor supply chain more resilient, more diversified, and how that is beneficial for both the United States and India and how we can work together to achieve that goal."

Raimondo was in India on a four-day trip, accompanied by CEOs of 10 US companies. The MoU also concentrates on information sharing and policy dialogue with India.

The US Secretary of Commerce also pointed out that the United States is not producing enough semiconductors and it is getting them all from "either just Taiwan" or just getting them packaged in Malaysia, and it exposes the United States to incredible disruptions.

Almost 93% of the world’s most advanced semiconductors are produced in Taiwan and that isn't, by any measure, stable or resilient, she said.

The US-India Business Council applauded Raimondo and India’s Minister of Commerce and Industry Piyush Goyal on the MoU signing.

“Our members are supportive of India’s ambitions to integrate into global semiconductor value chains — specifically in the areas of packaging, assembly, and testing. USIBC is providing a platform for dialogue to address some of the current policy and infrastructural impediments to developing that semiconductor ecosystem, so that India can realise those ambitions and seize its ‘techade’,” Ambassador Atul Keshap, president of the US Chamber of Commerce’s USIBC said.

Shortage and security

Raimondo, addressing Georgetown University’s School of Foreign Service, last month on the CHIPS Act, said that “manufacturing atrophy” in the semiconductor industry has real consequences. She said it's a threat to the United States’ national security.

But how?

Almost all of the United States’ sophisticated defense capabilities like satellites, drones, hypersonic weapons are dependent critically on chips.“Those weapons used by the United States military depend on a supply of chips that are currently not produced in America and the vast majority are tested in China," Raimondo said.

Interestingly in 1990, the US accounted for 37% of global chip manufacturing capacity. As on date, the number has plunged to 12%.

The US once manufactured nearly all of the world’s most advanced semiconductors. Today, the US manufactures none, Raimondo added.

According to the Australian Strategic Policy Institute’s latest report, the US excels in the design and development of the most advanced semiconductor chips and has a research lead in the technology areas of high performance computing and advanced integrated circuit design and fabrication.

Even though Taiwan is a semiconductor manufacturing powerhouse and is supplying over 90% of the world’s advanced semiconductors, most of the chip research and design is actually conducted in the US.

"The West’s look to India on semiconductors is part of a broader effort to pivot away from China and to redirect digital supply chains away from China. Also, more US-India cooperation on semiconductors could pave the way for exploring some type of three-way partnership with Taiwan, a true semiconductor giant."

— Michael Kugelman, director — South Asia Institute, The Wilson Center

The US believes, over the last two years, China has produced more than 80% of new global capacity for certain mature chips, and their market share is growing. Taiwan alone produces 92% of the world’s leading-edge chips. Interestingly, the majority of Taiwanese chip manufacturing is still based on the technology created at UC Berkeley — with federal funding.

Despite the above, there is a catch — which is not having enough "design engineers".

The US is worried it will have an estimated shortfall of 90,000 skilled technicians by the year 2030 if it doesn’t act well in time.

According to the Semiconductor Industry Association of the US, the country is expected to experience a shortage of design engineers by 2030 due to a number of factors, including a yearly loss of 2% of its experienced design engineers and a strong reliance on international students (lower enrolments)

In 2021, US car prices increased nearly 30% and the US believes it was responsible for a third of core inflation — all because they didn’t have enough chips.

Last year, car company Ford didn’t have access to enough chips — even for simple things like windshield wipers — their workers in places like Michigan and Indiana only worked a full week three times in the entire year!

Additionally, the chip shortage meant medical device makers didn’t have enough chips to produce life-saving products like pacemakers and insulin pumps, which are used every day in every hospital in the US. All this is making the United States nervous.

India strategy

Why is India the flavour of the season on semiconductors?

Konark Bhandari at Carnegie India believes that for the first time, stars may have aligned for India. Interestingly, India didn’t have attractive semiconductor policies for many decades.

In 1989, Chandigarh-based state-owned Semiconductor Complex Limited (SCL), which was set up in 1984, was destroyed in a fire that charred India’s semiconductor dreams.

India’s current semiconductor policy, launched in December 2021, is seen by experts as the most comprehensive policy ever devised. It has generated interest among those in the supply chain. At the same time, there’s consensus that the production-linked incentive (PLI) scheme for mobile handsets and other electronic items has taken off at the right time and shown that India can manufacture at scale.

“The PLI scheme is the cornerstone of the government’s push for an Aatmanirbhar Bharat. With the success of the PLI scheme, and considering that India is expected to consume up to USD80 billion in semiconductors by 2026, manufacturing domestically would be a significant priority, so as to avoid hefty import bills,” Bhandari told ET Prime.

‘Friend-shoring’

The US is aiming to create resilient supply chains that “benefit the US and our friends and allies”.

In pursuit of resilient and secure global supply chains, the US envisions “coordinating with like-minded countries and ‘friend-shoring”. Raimondo said “we know that we cannot make everything here in the United States, nor should we”.

All this comes in the backdrop of the US announcement of USD39 billion in incentives to bring semiconductor manufacturing back to the US. Moreover, the country is also investing USD11 billion to build a strong semiconductor R&D ecosystem to generate the ideas and the talent to support these efforts.

The Biden administration is aiming to make the US semiconductor workforce the gold standard for other industries to follow. It aims to write tech standards that align with democratic values, and invest in democratic countries’ shared digital future.

Three crucial groupings out of which India is a part of two groups — Indo-Pacific Economic Framework and the Quad are through which the US is fighting the semiconductor cold war with China.

Third crucial grouping is the US-EU Trade and Technology Council.

United States wants to work with partner countries like India to create diverse, resilient, and sustainable supply chains. The move aims to tame China, experts opine.

About the current India-US MoU, Raimondo termed it as “a significant step in the coordination of both our countries’ semiconductor incentive programs and will strengthen mutual priorities, including promoting commercial opportunities, R&D, and talent and skill development." Commenting on one of deliverables of the MoU, Bhandari pointed, the two sides will be looking at “coordination on subsidies being offered, so that a subsidy-race among allies is prevented”.

Why does it irk China?

China has time and again rubbished the US government's plans to assist India in building semiconductor manufacturing capacity.

CCP's state-run The Global Times calls it 'lip service'. Chinese experts have called the US CHIPS Act an 'economic coercion' against China and it won't succeed in changing global semiconductor industrial distribution.

Observers believe with recent sanctions, China’s semiconductor production line is in jeopardy. China's current autonomy rate in semiconductor manufacturing is less than 20%. Any lack of supporting foreign technology will be the biggest obstacle to developing China’s semiconductor industry at the pace CCP wants.

The bottom line

The US is building a strong R&D ecosystem of USD11 billion to generate the ideas and the talent to support its semiconductor thrust.

The heart of these investments will be the creation of the National Semiconductor Technology Center (NSTC) by the US.

NSTC is going to ensure that the US leads the way in the next generation of semiconductor technologies — everything from quantum computing, materials science, and AI to the future applications.

A robust collaboration between India and US through NSTC will be a step in the right direction to fully win the semiconductor war with China.

24. India is close to its potential output, needs reforms to accelerate growth: Pierre-Olivier Gourinchas, IMF

ET, 12 Apr. 2023

" Consumption also seems to be softening. I think for India, the key to long-term growth is going to be really to unlock more growth in potential output."

APPierre-Olivier Gourinchas

India is closer to its potential output, leaving less room to accelerate growth, and hence the country needs to step up investments in infrastructure, upgrade of healthcare and increased access to education to lift its potential growth, International Monetary Fund (IMF) chief economist Pierre-Olivier Gourinchas has said. In an interview with ET's Deepshikha Sikarwar, Gourinchas ruled out any spillover impact of the banking crisis in the US and Europe. Edited excerpts:

IMF's World Economic Outlook (WEO) notes that a hard landing - particularly for advanced economies - has become a much larger risk. Can policy interventions help prevent it?

Let me address this in two parts. First, if we were to have a much sharper slowdown than we anticipate in our baseline projections, if there is more financial instability... It's not the situation right now, but let's imagine, and then it would be totally warranted for policies to adjust to address financial stability... monetary policy would also adjust. The second part would be to say, well, maybe we have a sharper slowdown because of policies. For instance, if it turns out we don't have financial instability, but inflation is more persistent than anticipated, then there would be a need for more policies to contain inflation. But these policies, this tightening of monetary policy, for instance, would slow down economic growth further and could bring a sharper downturn.

So, it depends on what drives the sharp slowdown or the hard landing. If it's coming from financial instability, it's one thing. If it's coming from inflation being more persistent, it might require a stronger policy that will slow down the economy faster.

India has been seen as a bright spot, but is slowing down with the rest of the world. How can it accelerate growth?

In our projections for 2023-24, we have a slight slowdown of growth. Last year was about 6.8% and we're now projecting 5.9%. So, there is a bit of a slowdown and then a rebound after that to 6.3%. The slowdown, which was already in our projections in January, is actually a little bit sharper now. It was 6.1% and now we are 5.9%. That largely reflects the fact that we've got some revised data for previous years, and we now think that there is less of an output gap for India. India is closer to its potential output and, so, there is less room to grow. Consumption also seems to be softening. I think for India, the key to long-term growth is going to be really to unlock more growth in potential output.

We have to think about investment in infrastructure, about different ways that we can boost potential growth, whether that includes strengthening health, including increasing access to education, or increasing female workforce participation. These different aspects, which are sort of long-standing drivers of growth but also long-standing areas of development for a country like India, are still on the table. The number of the initiatives that are in place are actually going in that direction...in particular, on infrastructure investment, for instance.

How big a risk are the developments in the banking space in the US and Europe? Do you see any spillover impact globally?

So far, we don't. It's quite remarkable if you look at the banking turmoil of the last month. Typically, when you have a broad episode of financial instability, you get a lot of nervousness in global markets; capital flows back to, let's say, the US treasuries, the dollar appreciates, it becomes very difficult to obtain dollars for international borrowers, and all kinds of spreads increase. We have not seen much of that in the last month. The volatility has been contained in the banking sector in the countries that were affected - broadly in the US and Europe - and even there, it has come down quite a bit after measures were taken to address instability.

There is a growing view that banking regulation and supervisory rules need to be re-examined in the wake of recent developments in the sector in the US and EU. And that even small financial entities can imperil markets. Your view?

It's certainly the case when you think about regulation. It's sort of an organic set of rules and it needs to evolve over time as the financial sector transforms itself and new vulnerabilities or new types of exposure might emerge. I think some of this is definitely going to take place in the US. For instance, there is already a review of the events that led to the collapse of Silicon Valley Bank. I am sure that global regulators, whether the FSB (Financial Stability Board) or the BIS (Bank of International Settlements), would also look at what can be done to make sure that there is a proper assessment of interest rate risk which has been the main driver in the recent episode, but also after the technological transformation. One of the striking things in the US was the speed at which deposits could flow out of regional banks. In a world in which you can have digital transactions and in the world in which information spreads around much more rapidly, perhaps with the use of social media, there is something one may well want to look at what this means for how to ensure the stability of financial institutions going forward.

Inflation has proven sticky and may require interest rates to stay firm longer. What could this mean for the already fragile global financial markets?

It's certainly the case that the very rapid increase in interest rates has created some strains and had some undesirable side effects on the financial sector. When central banks increase interest rates, one of the objectives is to reduce the amount of intermediation in the banking system to make loans more expensive and somehow contract the volume of lending and that will help cool off the economy. That's one of the desired effects. But one of the unintended consequences that it generates is sharp losses on the portfolio of long-term securities that banks are holding or other institutions and that can create some fragilities for these institutions going forward. There are two observations here. The first one is, most of the advanced economies' central banks have already indicated that they were close to the peak of their hiking cycle. And we look at the dot plots by the Federal Reserve, their own projections of where they expect to be over the course of the next few years... They're indicating that they are close to their peak.

Also, banks are likely to be a little bit more prudent in extending loans. What that is going to do is that it will slow down the economy on its own in the sense it's going to do the job of the central banks. So, less hikes may be needed even if inflation is a little bit more persistent. We are on this sort of knife edge between the additional cool-off from the contraction in lending and maybe, little still, some persistence in inflation.

What is your view on moves towards 'dedollarisation'? India, for example, is entering into arrangements for rupee trade.

By and large, what we're seeing right now is not making much of a difference to the international monetary system the way it's organised. We live in a dollar world. At the level of individual countries, to facilitate trade with specific partners, it makes perfect sense to have arrangements that rely on local currencies that would not involve the dollar if it's in the interest of all the parties. It's not probably going to change the overall architecture because the dominance of the dollar rests on several interlocking features that involve not just trade invoicing, but also the currency in which you borrow. We're talking about dollar debt. The currency against which you know central banks want to measure the movements of their own currency. Eventually, maybe, in the long term, we will have a more balanced world that will have more reserve currencies than just the US dollar. But this is not in the near or even medium-term future.

25. India to See Dramatic Rise in FDI Over Next 10 Years

ET, 20 Mar. 2023

Emerging from a Canadian industrial conglomerate, Brookfield is today among the top three alternative asset managers in the world with over $800 billion in assets under management (AUM) across real estate, infrastructure, renewable power, private equity and credit.

It is also among the world’s largest owners and operators of hard assets — pipelines, port terminals in Brisbane and Sydney among many others, airports, office blocks such as Canary Wharf in London, telecom towers such as T-Mobile’s in Germany, solar parks and data centres. In India, it has already deployed $22 billion in 12 years in Reliance Jio Infocomm’s telecom towers and RIL’s gas pipeline in Andhra Pradesh, 50+ million square feet in office properties in key Indian cities along with 3,400 hospitality keys (Hotel Leelaventure). Chief executive officer Bruce Flatt and Anuj Ranjan, president, private equity, spoke to Arijit Barman & Bodhisatva Ganguli about Brookfield’s global outlook and its plans for India. Edited excerpts:

Till last year, the firm’s investments, including dividends, had returned more than 3,700% since you took over. That compares with about 500% for the S&P 500 Index. You invest in hard assets such as toll roads, airports, ports, utilities and real estate. How have you managed to outperform so consistently? And is this sustainable considering the volatility that we currently find ourselves in?

Bruce Flatt: Our business is about buying good businesses in good places, holding for long periods of time. We are focused on backbone of the economy across the world.

What we have found, is by entering those businesses or buying those types of assets and operating them well and selectively selling them at sometimes greater than the fair value is very important. There are two things that are highly relevant to most businesses and in particular to what we do. One is the value of an asset, which is generally determinable by the discounted cash flow of an asset and the second is the price. But the price that's in the stock market is often affected by things which are out of the ordinary. You just saw what happened in the United States recently with regard to Silicon Valley Bank. The stock markets went down by 5% on Friday and 3% on Thursday and 2% on Wednesday. That's 10% down for the week. But that had nothing to do with the value of most businesses. Therefore, the price and value are very different and our goal over time is to make investments where we get good value. So, if we can, we buy assets or businesses when the price is lower than their value and sell them when the value is higher. Or at least when the price is greater than the value.

So I’d say the returns that we have been generating over the last 20, or 25 years have been a combination of that investing style and the building of an asset management business for alternatives.

But the alternative asset management business has been relatively a new phenomenon.

Flatt: When we started in alternatives, there wasn’t really a business. Institutional clients across the world invested originally in bonds, and then they invested in equities. And 20-25 years ago, we and a few others started introducing other products to them. And when I say other products — it’s investments in real estate, infrastructure, renewables, private equity, credit, energy transition, all of those types of products. Our returns are both the investment success for our own balance sheet, but also what we have done for our clients, as those clients have institutionalized their business into alternatives as well. I guess we have ridden this wave of institutionalization of alternatives. The amount of alternatives when we started out 25 years ago was at 2% and today that 2% has become something like 16%, but for some institutions, it’s 60%.

Does the current global volatility throw up a lot of buying opportunities for Brookfield?

Flatt: The short answer is yes. The longer answer is we’re quite positive on the markets and the environment today. That’s not a common opinion these days. Part of the reason is because of what we do. Part of it is also the fact that we raised $100 billion of capital last year for investing. We’ll raise another $100 billion this year. So we have a lot of capital. And the entry point for investments is always important. Both bonds and equities are more fairly valued today than they were before. Growth stocks are more fairly valued today than they were before just like technology’s more valued than were before and PE multiples broadly are more valued than they were before. So it’s a much better environment to enter for new investments and that presents opportunities because of what I just argued about value versus price. It just means maybe you are buying at a discount to value and at a fair point as opposed to 18 months ago when a lot of things were overvalued in both private and public markets and that potentially comprised returns over a longer term. So it’s a much better point today.

If you were to buy companies today, which sectors would they be in? And in which geographies?

Flatt: India for sure. But I will come to that in a bit. We are in 30 countries around the world. What we do is establish a business in a country where we have attributes that we think are favourable to investments over the longer term. We stay and operate in those countries and buy assets in those countries that fit all of our areas of operation when it makes sense. Last year, we put $60 billion to work across all our businesses. This year I think we’ll probably put $30, $40, or $50 billion to work.

If you set up a vast global business across six or seven businesses (verticals), it allows us to respond to opportunities in a flexible manner. So, our funds don’t say, for example, you have to invest in India for this period of time because you have money available for a certain period of time. The number one mistake people make is if they have money and are forced to make investments within a certain period of time. But sometimes it's the wrong time to invest.

As long as it’s in one of the places that we’ve endorsed as an investment, and has investment merit, our funds are agnostic to where the opportunities are. Often they switch across geographies to markets where the valuations are reasonable and to places where we are doing better.

But inevitably, half of our money goes to the US. It has the largest GDP, and the most liquid market, with most companies with the most capitalisation and the most opportunity. And therefore, almost 40% to 60% of every fund goes into the US, 20% goes to Europe, 20% to Asia, India and a small portion to South America. I do think India over the next 10 years will see a dramatic increase in FDI from foreign investors just because of what’s going on geopolitically. In India, we have $22 billion in assets. In China, we have something like $15-22 billion across businesses.

The $60 billion that you put to work last year and the investments planned for this year would be predicated upon a low-interest rate regime. But that’s changing and inflation is a genuine concern. Would you agree?

Flatt: Inflation is actually a good thing and most of what we own are positively disposed to inflation. If you buy a regulated utility and you buy it at the rate base and you’re supposed to get an 8% return, it’s an 8% return on a real basis. So you get 8% plus inflation. And when we bought the asset, we assumed you were going to get a 2% increase in inflation. Well, guess what? We’re getting 6%. And therefore, when you compound at 8% and you add 2% or you add 6% over a number of years, it’s highly positive to your numbers because it compounds.

It’s more expensive to build solar and wind facilities today. It’s more expensive to build real estate. Ultimately that gets affected into the contract values. In utilities and infrastructure you earn on a monthly basis whereas, in real estate, you actually get it when the lease rollovers happen. The retail sector has been doing very well in the US in the last 18 months because of inflation. Stores pay a percentage of sales to us as rent. So, as the value of the goods they sell is going up, you get 15% of those sales.

None of the investments we have made or will make are predicated on a 0% interest rate. Now if rates go up by 500 basis points more from here — which they will not — then maybe I think your question would have a different answer. Also remember, interest rate increases are a one-time event whereas real return assets may take a hit on incomes for a short period of time, but then they just keep going. They’re not bonds. If you own a 30-year bond, you lose your value because you have locked in a 2% return for the next 30 years, or seven or five or whatever it is. That’s what happened to these regional banks. But the real return assets, you don’t, the cash flows keep going up, keep compounding away. That’s the big difference in owning these types of assets.

Remember a lot of the assets we have fixed-rate financing, so there’s no increase in financing costs.

Anuj Ranjan: We are an operations-oriented investor. Meaning, across our portfolio, we have about 180,000 operating people, 25,000 here in India. And how we generate our returns is by operating these businesses or assets better. Interest rates and inflation are higher than they were in the past. They’re probably closer to normal or maybe slightly higher than normal today. But for a long-term investor like us, we're betting on our people's capability to operate assets or businesses and deliver better returns.

How do you see the meltdown of Silicon Valley Bank, Silvergate’s implosion? One-off events or precursors to bigger and macro-level busts? Shares of larger banks including Citi, JPM, and Bank of America dropped along with SVB, and so did the broader US markets.

Flatt: I don’t know if these are one-time events but it’s a small piece of the financial sector in the US. What’s happening in the asset management, insurance and banking industry in the US is another round of consolidation. Money is flowing into the large players as we have seen it in our funds. You just continue to see this in tougher times. Consolidation to the bigger, more trusted and better brands.

One of the biggest trends has been around globalisation. To what extent do you see this decoupling of supply chains and the China+1 strategy play out in the Brookfield portfolio?

Flatt: There are three large trends that we’re capitalising on: Decarbonisation — what’s going on around the world of getting carbon out of the system, deglobalisation and digitalisation of everything.

It will take tens of trillions of dollars of investment across the world to get carbon out of the industry. Sixty to 70% of carbon is produced in the power-generation business. And in the next 20 years, we are going to take coal out of most countries and natural gas out of some.

Digitisation… you see a mobile handset but behind that machine are billions and billions of investments in hardware, in chips and software. We paid $8 billion for Jio’s towers. But that's just one country’s, one operator’s towers. We just put up an $18 billion investment to buy T-Mobile’s towers in Germany. But the data centres, the fibre to the home, the wi-fi systems, like everything behind the delivering data are witnessing a dramatic investment over the past 10 years. With the cloud companies, it's even increasing.

On deglobalization, I’d say we went through a 25-year push for many products to be outsourced to India and China, and other countries. Initially, China took large, more sophisticated, electronic and sophisticated parts of the manufacturing value chain and India was originally at the lower end. But India is industrializing too. But with what's going on politically in the world, most companies, especially US companies are thinking they need to diversify their supply chains and are diversifying either back to the US or to places like India, which I think is an amazing opportunity for your economy. Machine goods and semiconductors are going back to the US. So we just financed a $16 billion partnership to build a plant in Arizona with Intel. And I think that’s just the start of a big trend of reindustrialization of the US.

It’s not that nothing will be built in China going forward. But it will largely be for China, a little bit for exports, but India will be a big beneficiary of this diversification of the supply chain.

Is India doing enough to make it easier to do business here?

Ranjan: Absolutely. I’d say we have invested about $22 billion largely over the last eight years, and a lot of it has been enabled by many of the positive reforms of the government across real estate, infrastructure and just general FDI investing. Our capital's been quite welcome and we have so far had a great journey investing here in building up the business.

In the recent budget, they have quadrupled infrastructure spend, and it was really focused on capex. I think they’ve identified the areas that need FDI from groups like us. We as an investor are going to be a beneficiary, I think, of all of these policies that are already in place.

From being one of the largest owners of office blocks in the country to the two Reliance deals, you have made several marquee bets in India. Do you have an India allocation number in mind?

Ranjan: It’s hard to put a number. But I would say we went from effectively zero dollars invested in the country to $22 billion over eight years. And a lot of that was large-scale transactions. We are investing across all the sectors we've already gone into. So, real estate across all the different sectors like offices and hospitality. In infrastructure, we had a road platform. Of course, then we have taken big bets in telecom and in data centre infrastructure. Renewables are a big focus for us globally. We have built 4.5 GW in a measured and thoughtful way. We plan to do a lot more in India, given the size of the market and its growth prospects. We are well positioned to capture a significant part of that growth going forward, both through greenfield development and opportunistic M&A — but we are patient and will maintain that discipline as we grow.

In PE, we continue to focus on technology, financial and business services in a big way. But we can scale all of that up pretty dramatically in the next five years.

Flatt: I talked about the big focus on the reindustrialisation of the US but I think an equally sized opportunity is there to help the global corporates come to India and both provide them with the operating skills to be able to get plants and real estate and infrastructure and renewables built for them. We deal with all those companies around the world as they use our office buildings but now want to bring plants to countries like India and this is a big investment opportunity for them, for India and also for us. This is going to be an enormous build out and we also have the capital, and operating capabilities on the ground here to support it.

You talked about decarbonisation. But that means many things today. From utility-scale solar parks to mobility solutions to batteries to green hydrogen. What’s the scope for Brookfield?

Flatt: The unique thing about the wind but in particular solar, in most countries of the world today, it is the lowest cost energy. Period. No subsidies. And that's a really important thing. People want to do good, but they even want to do good more when it's the lowest cost. You need to assist companies to decarbonise. We raised a fund last year for $15 billion. We’ve been putting it to work. Our fund is for traditional transitioning to lower carbon. We’re helping steel companies decarbonise. We are helping industrial companies decarbonise. We’re the largest counterparty to Amazon to get carbon out. Our goal is to fund their efforts and give them operating skills to be able to decarbonise.

We’re not early-stage investors in any major degree, not because we don’t want to be but because our skill is putting large sums of money to work and operating them well in major countries in the world. And so I would say hydrogen will come, batteries are coming. We’re using them all. We’re funding some things. We are funding battery projects, we’re putting batteries with our solar facilities, but we’re doing all those things in small degrees until we know it makes economic sense and we can make money. And at that point, we can come in. And we did that with solar. We started small but ramped up big.

You are among the largest landlords of offices worldwide. But post-Covid, are offices still attractive?

Flatt: I will tell you what has changed. Office rents in high-quality office properties are more desired, more full and going at much higher rents than in were pre-Covid. The disparity between good and bad has always been there but it's even greater today as there is a flight to quality for everything.

After selling your Indian road portfolio last year, how are you planning to bulk up your infrastructure vertical? Will highways be at the epicentre of that or newer areas like ports, data centres, etc., be the next big growth opportunity?

Ranjan: We are one of the largest infrastructure investors in the country, and we expect many new opportunities to emerge from the “three Ds”— digitalisation, decarbonisation, and deglobalisation. India presents a tremendous opportunity for investment around these strong thematic tailwinds, and across all these sectors. We will continue to look at all assets on both a risk-adjusted and absolute return basis where our operations-oriented approach can add value.

Are you actively looking at opportunities that are emerging due to the government’s asset monetisation exercise? The Ashok Hotel, Concor, Power Trading Corp., airports — are all primed for divestment. Do they interest you?

Ranjan: We like areas where we can deploy capital at scale, manage operations through our in-house expertise and add value. We are excited about the initiatives from the National Monetisation Pipeline and National Infrastructure Pipeline as and when the government brings them to market.

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AAPI

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Tuesday 18 April 2023

NEWSLETTER, 20-IV-2023

– GENERAL POLICY, INFRASTRUCTURES, COUNTRY FINANCES, ETC.

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NEWSLETTER, APRIL 2023

– GENERAL POLICY, INFRASTRUCTURES, COUNTRY FINANCES, ETC.

- Agriculture, Fishing and Rural Development

- Industry and Manufacture

- Services (Education, Healthcare, IT, R&D, Tourism, etc.)

India and the World