Need To Know: May 17
Indian Stimulus
Modi: Hope and a prayer …
India has unveiled details of an economic stimulus package worth 20 trillion rupees (US $266 billion), equivalent to roughly 10 percent of India’s gross domestic product.
The package far exceeds the small, initial $23 billion the government injected into the economy in late March to help individuals cope with the Covid-19 fallout. It provided primarily poor households with cash, whereas the new 15-point plan targets the broader national economy.
Small and medium-sized companies will get access to emergency lines of credit and collateral free loans. The plan provides help for workers, including those involved in state construction projects, and allows for delayed tax payments and, in some cases, rate reductions. There are also measures to boost liquidity (particularly for power distribution companies, whose revenue has been slashed) and to support the completion of real estate projects.
The Modi government is facing a tsunami, as growth was at multi-year lows before Covid-19. Neither five consecutive rate cuts by the central bank last year nor a cut in corporate tax rates in September revived consumption.
The real problem is India needs more structural changes. India has some of the world’s most convoluted taxes. While strides have been made, bureaucracy is stifling. And inefficient industries and techniques are heavily subsidized. That’s India’s bigger sickness.
Trump Stops Pension From Investing In China
Pointing to Covid-19, American President Donald Trump has ordered the main federal government pension fund not to invest its portfolio in Chinese companies, which his administration says pose a serious national security risk to the United States.
The intervention comes as the Federal Retirement Thrift Investment Board (FRTIB), an agency that manages almost US $600 billion, prepares to shift the international component of the fund into an index that includes Chinese companies.
The FRTIB in November rejected a request from a bipartisan group of senators not to invest in the index, saying that such a move would disadvantage the roughly 5.5 million federal employees who invest in the retirement fund.
But the Trump Administration says using the MSCI All Country World ex-US Investable Market index would “expose the retirement funds to significant and unnecessary risk.”
It says Chinese companies include those that supply the People’s Liberation Army, make surveillance equipment to help China repress religious minorities, and violate U.S. sanctions by dealing with Iran and North Korea.
In a letter to the FRTIB, the White House also said it should consider China’s actions regarding Covid-19, “The Chinese government concealed critical information from the United States and the rest of the world regarding Covid-19 and exacerbated the ensuing global pandemic.”
Analysts say the Trump administration’s move will likely create pressure on the whole government state sector to not use the MSCI index.
As we’ve discussed repeatedly, it’s not whether there will be U.S.-China decoupling after Covid-19, but how deep the break will go.
Laos: Does Battery Of Southeast Asia Have Juice?
The Lao government plans to start construction later this year on the country’s seventh large dam on the Mekong River, another project in its ambitious strategy to become the “Battery of Southeast Asia”
Dammed if you do …
With a 2028 completion date, the 684-megawatt Sanakham dam would join three currently operational dams and three others under construction. Another remains in the early planning stages.
The electricity will primarily be sold to Thailand, whose official plan calls for 14,000 MW of renewable energy by 2036.
The snag? The Mekong may not be so renewable.
Last year the water in it fell to its lowest level since records began. Cambodia endured months of debilitating electricity blackouts because there was too little water to run a big hydropower plant. Fish catches declined by as much as 80-90%. The parched conditions are thought to have lopped US $1.5 billion off Thailand’s GDP. In Vietnam the measly flow spurred saltwater intrusion in the delta, leaving many people with no fresh water to drink.
A drought in the lower basin played a big part. But disappointing rains may not have been the whole story. A new study claims that the 11 dams built on the Chinese portion of the Mekong (see map) exacerbated the water shortage.
The study found that in 2019 China’s part of the basin received more rain and snow than normal — despite China’s claims it too was suffering from drought. Had all that water flowed downstream, the river would have been between seven and eight metres deep as it entered Thailand—higher than usual for that time of year. In fact, it was less than three metres.
Just two of China’s dams can store almost as much water as the Chesapeake Bay, an estuary of more than 11,000 square kilometres in America. During the dry season the upper reaches of the basin should contribute about 40% of the water flowing through the lower Mekong.
Laos adding more dams exacerbates the problem. The battery may not have enough juice.