US – China Trade War: What’s in it for India?

US – China Trade War: What’s in it for India?

One of the main Presidential Elections agenda for Donald Trump in 2016 was to bring back more jobs to America and for doing so he would introduce strict measures on countries with high trade deficits with the US, mainly hinting on China. And with almost two years of his term over, Donald Trump has taken it too aggressively in the calendar year 2018.

The year began with the US imposing tariffs on Solar Panels, Washing Machines and other small electronic goods which formed a major chunk of Chinese imports to the US. Further in March 2018, President Trump asked the United States Trade Representative to investigate and apply traffic on goods worth 50-60 Billion USD. As a retaliation China too imposed tariffs on US Imports to China, which mainly includes automotive parts, weapons and food products. As a result of this retaliation Trump announced another round of tariff on goods worth 60 Billion USD in May 2018 and also planned to keep a check on investments. With this announcement, a full blown trade war began between the two global giants with US announcing tariffs on goods worth 250 Billion USD (source) and China announcing the same on goods worth 110 Billion USD till September end.

The question that comes to mind is that ‘Is it fair enough from the end of the United States to go into a full-fledged trade war with China at a point where the global GDP growth rate is already slowing down. However when one realized the trade deficit between the two countries and their government bond holders, it becomes very clear if US needs to do so.

With a trade deficit of 380 Billion USD it is very clear that US needed to take measures.

The ongoing trade war is being seen as a full blown war by various analysts who predict that this may slow down the global GDP growth rate by around 0.5%. However the point here to be noted is that if it will be a curse for all or if it may be a blessing in disguise. For instance, with Apple getting a major hit due to the sanction of tariffs in for import from China is planning to shift its base to Vietnam, which may boost the economy of Vietnam. In near future, many manufacturing units from China may move to nearby countries with low cost production capacity which may boost their economy.

Now the main concern for us is ‘What is in it for India’. The main point here to be noted is that the trade war may not only restrict to these major giants but the ripples of it will be felt by most of the countries, including India as in its current form the global economy is still in a way bipolar in nature, though moving towards a multi-polar setup. The tariff imposition will increase out import cost resulting in increased prices, pushing the inflation which so far seemed to be manageable. The rupee value may further degrade on this account. Also in case that case, government may not achieve its fiscal deficit target. Further the sentiments of investors will decline globally resulting in lower investments with many already looking cautious, which is already evident with downward trend of the bull in recent past.

However, for being a more of an internal market demand based economy and just by being a silent spectator as on date, India can see a lot of potentials due to the void that this trade war has created. For instance, as a result of this war, China may reduce its crude import from US and may look for alternatives. As a result, crude oil prices may fall globally which is a good news for India as it might lower its burden on Imports. Thought oil bills might reduce, investor sentiments might get weaker too squaring off the benefits. With our Exim component standing at around 40% of our GDP, it is hard to predict regarding the case. Also due to the voids so created in US imports, Indian manufacturing sector may explore ways to fill the gaps so created.

One of the major advantage that India may see is the softening of the Chinese stand as it will be the bigger looser of the Trade War with US, being an export dependent economy. With most of its industries being hit, it may look towards its neighbor India and other south Asian countries for help. The situation may help India negotiate better. Also India may seek a resolution of OBOR and entry into Nuclear Supplier’s Group. With its relations with the smaller neighbors souring in recent past, this comes as an opportunity as the bear will be weaker than before.

There is no doubt that economic growth of all involved, directly or indirectly, will be hurt across the globe, but the intelligent will be the one who is hurt the least and still grabs the new opportunities, in economic or geopolitical scenario, better through the tricky waters.

JIO: Was the Risk as risky as being said?

Reliance JIO: Was the Risk as risky as being said? How is it Making profit so early? Will it continue the run?

It was 1 September 2016 when Mr Sunil Mittal had a handful of laugh for the last time, as Mr Mukesh Ambani, was gearing up for a big fat announcement. Anticipations were high, and so were the expectations from him, as whenever they (Reliance) did something, they did it too big and always in a way overturned the market. Even that day the markets of their potentials competitors shattered, went down by almost 6-8% on an average, wiping out approximately INR 500 Cr (figure arrived as per average drop in share value and total equity capital) from their equity value in just one day which was not seen earlier, even during 2008 crisis.

On its launch, Mr Ambani made an announcement of investing INR 85,000 Cr into this new telecom branch of Reliance Industries, backed by its deep pockets (2,20,000+ Cr deep) that it has from its Oil business. However as per multiple reports, the investment has already crossed INR 1,50,000 Cr. And still Mr Ambani is pouring in money into Jio and doing some shopping, Saavn was bought recently and merged with Jio Music. With such huge investment, with competitors like Airtel, Idea & Vodafone and without such high potential of revenue per user ( INR 120-150 per user) is was junked out by many as analysts as a suicidal investment.

However, in its 15th months of operation, Jio posted its first profit of INR 504 Cr. This shocked many as how is an investment of around 2 Lakh Crores make profit so early, in spite of starting its revenue collection only in 7-8th month of operation as for initial few months they gave away SIM and unlimited data and voice calls, all for free.

When seen preliminary in the beginning, it seems really tough to figure out the strategy. However when the links are studies and connected, all the dots seem to join and opens up the strategy being used and the best part is that, it could have been thought by others too. Simply put, the answer is Optical Fiber cables. Yes, this is their major part of strategy, combined with their ability to take bigger risk, backed by deeper pockets. Now lets see how this charts out their plan.

If one sees deeply, them one can notice that most of the investment done by Reliance Jio is towards laying optical cable fiber only. With initial investment alone it has almost covered all the major parts of the country. As Optical Fibers offer high speed (theoretically the speed of light) and very low maintenance, it explains why Reliance Jio invested big, only in 4G and not in 2G and 3G. Further, the Optical Fibers ensure minimum loss of data, thus there is minimum wastage of energy and maximum efficiency. As a result of this, it has the capacity to transmit heavy traffic at a cheaper cost and maximum efficiency, with a single time investment alone with low maintenance.

The most important question comes to mind is that with all that huge investment and optical fiber technology being used, will Jio be able to compete and make profit? As known, as on date Mr Ambani has invested almost INR 1,50,000 Cr and is still adding investment. With its current database of 15.2 Cr users, assuming a depreciation period of 15 years alone and a maintenance & operation cost of INR 3,300 Cr. per year (Low as optical fibers are low on maintenance and high on operational efficiency needing very less intermittent energy supply), it gives a cost of only INR 73.1 per user per month as the cost (inflation not considered to keep it simple). However when the same is seen for Airtel, with a user base of 29.2 Cr, whose operational cost was INR 38,583 Cr for year 2016-17 and a depreciation cost of INR 12,203 Cr as per the P&L statement, it come around INR 145.2 per month. Further when the same is analysed for Idea, with a user base of 19.76 Cr, whose operational cost was INR 25,183 Cr for year 2016-17 and a depreciation cost of INR 7,700 Cr as per the P&L statement, it come around INR 138.7 per month. So it is clear that the investment done by JIO is competitive and is definitely going to make profit.

Further if we see the trends in ARPU (Average revenue per user per month) as released by Cellular Operator Association of India for last 8 Quarters, it can be seen that it has been dropping continuously, almost dropping by 50%. This steady drop explains the fierce competition between various operators to offer services at lower charges, and in such competitions, only the one who can sustain long term and ensure profitability can go long. This clearly explains the recent trends of loss by operators in recent past and profitability by Jio too.

Thus, with above analysed and detailed, it can clearly be said that the huge sum of investment that Mr Ambani did in Reliance Jio was a well thought out plan and wasn't as risky as being thought out to be. Further to add, the revenue of Jio will only increase as the optical fiber network has a higher capacity and can be used for other services too in parallel (like music sharing, movie streaming, etc). Thus its clear that Jio is here to stay and turnaround the market as expected. The only way for others to compete is to improve their own efficiency, lower operational energy demand, diversify services, and may be switch to optical fiber network or a better alternative.

Blockchain, ICO, Mining, Bitcoin : What is this that people Talk of?

Blockchains, Initial Coin Offering, Mining, Bitcoin : What is this that people Talk of?

(Finally Back to writing after a hiatus)

Towards the end of the last year, we all read news of Bitcoin, the currency that rose up in value by almost 1500% in a year. FOMO (Fear Of Missing Out) crept in and many of us even started to look for opportunities and places to buy them. Not to blame, but this was so evident as the Crypto market in totality rose from a $19 Billion at the beginning of the year 2017 to $600 Billion at the end of year 2017 (source: Coinmarketcap). No market ever had seen such a growth. But the question still remains, what exactly is this technology and what has this technology got to offer. What let to rise in this technology, because of which  the crypto market saw a multi-fold investment.

Before we begin, it becomes important to know what block chain is. Blockchain, not just literally, means a chain comprising of blocks which are linked throughout the chain using a hidden language (you see, this is where the prefix "Crypto' came from). These links can be only be verified and build by those who are authorized to decode the language. This also means that, even if the data of the block chain i.e. blocks are given to any person, it is of no value as it cannot be deciphered, which is the most important aspect of this technology.

The relevance of this technology can be understood if we analyse the current practices & implications of the database platforms. Whenever we save any document in say our gmail or yahoo account, we entrust them with our data in a readable format in their terms and conditions, which become open to them to read and analyse.Them being free platforms, it becomes important to add a source of income in order to maintain and expand the platform and improve the user experience. How do they do that? Of course by selling the information from the data we have stored with them to the ones who want to buy them. I guess this explains why we see those ads on our browser when we search something on google or yahoo or even more recent, acquisition of watsapp by Facebook in a whopping $19 Billion deal. This clearly puts our privacy to risk and necessitates the need of block chain technology.

  On 31st October 2008, a white paper was published by some person named Satoshi Nakamoto (who in reality doesn't exist by the name) that proposed a peer-to-peer electronic cash system. This system aimed at introducing a currency that will surpass the financial institutions system and can be used as a form that can be directly be transferred as a form between the buyers & sellers. The white paper also laid down various principles and procedures on how this can be verified and put to use in real by laying down a network of transaction, called ledger, which will be stored in an open source, every CPU that runs with the client. Thus Bitcoin was one of the first currency that used this block chain technology.

Now a days, many startups & established institutions have started to come up with a product/ledger in offering have claimed to have the best public ledger based on block chain technology. The system they offer claims to solve a particular issue and give a different user experience. In order to fund this, they undergo an Initial Coin Offering, which is a means to raise a capital at a certain initial price without going through the strict and rigorous methods used by Financial Institutes. All is needed is a listing & trading platform.

Once the ICO is launched and coins are offered, manpower is needed to validate the transactions across the network by solving the complex equations and in return avoiding any double-spending (duplication as we know it). Miners also add more currency to the chain as time progresses up to the maximum limit as per the requirement of the network. 

Yes questions still arise on the legality or functionality of such networks as they work on a technology that cannot be properly monitored due to its nature of secrecy, but still people are will to use this as a mode, as it doesn't violate their privacy as being done by other database platforms.

With implementation of block chain technology in just a currency market, we saw a huge Cryptocurrency market in the field of currency. Just imagine what wonders can be done when the technology is applied in other fields. We may in future see a CryptoIdentity - which may solve the Adhaar security issue if any, CryptoChain - a supply chain solution, CryptoRide- a peer-to-peer secure ride sharing network, CryptoVote - a network to make election process faster & cheaper, CryptoWelfare - a network to transfer public benefits in secure and quick manner.

With above said, 2018 already seems so exciting.