Category: Business

A majority of MNCs believe that the Indian economy will perform significantly in the next three to five years, a report by EY-CII titled ‘Vision – Developed India: Opportunities and Expectations of MNCs” revealed. This projection is in the light of 71 per cent of multi-national companies (MNCs) considering India for global expansion. The report stated that the country has the potential to attract US$475 billion worth foreign direct investment (FDI) in the next five years with its sharp focus on reforms and economic growth.

According to reports, even as the pandemic and geopolitical conflict resulted in investor uncertainty, India has the potential to attract Foreign Direct Investment (FDI) flows of $475 billion in the next five years due to the focus on reforms and economic growth, according to a report by the Confederation of Indian Industries (CII) and EY.

The report noted that FDI in India has seen a consistent rise in the last decade, with FY 2021-22 receiving FDI inflow of $84.8 billion despite the impact of the COVID-19 pandemic and geopolitical developments on investment sentiment.

“India is seen as an emerging manufacturing hub in global value chains, as a growing consumer market and as a hub for ongoing digital transformation. In addition, in a rapidly changing geopolitical environment, India’s large and stable democracy and consistent reform measures are recognized by the MNCs (multinational company),” the report said.

The report titled ‘Vision—Developed India: Opportunities and Expectations of MNCs’, added that 71% of MNCs working in India consider the country an important destination for their global expansion. The optimism is driven by both short-term as well as long-term prospects.

“A majority of MNCs feel that the Indian economy will perform significantly better in 3-5 years backed by 96% of respondents being positive about overall India’s potential,” the report said.

Top global CEOs expect the recession to be mild and shorter, according to a survey by KPMG. As per KPMG 2022 CEO Outlook, 86 per cent of CEOs surveyed believe a recession over the next 12 months will happen, but 58 per cent feel it will be mild. The risk of recession has risen in the last few months as central banks across the world are hiking interest rates to contain super-hot inflation caused by a combination of factors such as the pandemic and Russia’s invasion of Ukraine.   

A survey of more than 1,300 chief executive officers (CEOs) at the world’s largest businesses reveals that over the next year, 86% of these global leaders anticipate a recession to hit.

However, 58% of these leaders expect the recession to be mild and short. Fourteen percent of senior executives identify a recession among the most pressing concerns today — up slightly from early 2022 (9%), while pandemic fatigue tops the list (15%), said the survey — the KPMG 2022 CEO Outlook.

These leaders were asked about their strategies and outlook during the survey. Over the next year, more than 8 out of 10 (86%) global CEOs anticipate a recession to hit, with 71% predicting it will impact company earnings by up to 10 per cent, said the survey.

Most of the top executives are of the opinion that the recession will make the post-pandemic recovery difficult. As per the survey, 73 per cent of CEOs believe the recession will upend anticipated growth over the next three years, and 75 per cent also believe a recession will make post-pandemic recovery harder. 

“71 percent of CEOs predict a recession will impact company earnings by up to 10 per cent over the next 12 months,” the survey stated.

A strong majority of senior executives believe that a recession will disrupt anticipated growth (73%). However, three-quarters (76%) have already taken precautionary steps ahead of a looming recession, it added.

Despite those concerns, senior executives also feel markedly more confident about the resilience of the economy over the next six months (73%) than they did in February (60 per cent), when KPMG surveyed 500 CEOs for its CEO Outlook Pulse survey.

Further, 71% of leaders are confident about the global economy’s growth prospects over the next three years (up from 60% in early 2022) and nearly 9 in 10 (85%) are confident about their organization’s growth over the next three years.

“Tested by enormous challenges in quick succession — a global pandemic, inflationary pressures and geopolitical tensions — it’s encouraging that CEOs, surveyed in our 2022 CEO Outlook, were confident in their companies’ resilience and relatively optimistic in their own growth prospects,” said Bill Thomas, global chairman and CEO, KPMG.

After the consumer banking exit, Citigroup which is focused on servicing large local corporates, multinationals, financial institutions, emerging and mid-sized corporate clients in India says that multinationals are starting to see India as a global manufacturing base, which will positively impact small- and mid-sized businesses.

In an exclusive interview to ANI, Citigroup’s Global Co-Head of Banking, Capital Markets and Advisory, Manolo Falco said that there is tremendous opportunity to support India’s capital and advisory needs.

Here is the transcript of an email interview of Manolo Falco to ANI:

Q: India is the 5th largest economy of the world. What does it mean to you? What reforms/measures pushed India to make in top 5 economies?
Falco: Fiscal prudence and discipline, development of physical infrastructure, ease of doing business, thriving start-up ecosystem, and the build out of India’s digital and financial infrastructure (UPI is recognized as amongst the best in the world), underpin the country’s growth. Recent Government policies on logistics, hydrogen, spectrum, EV, will support further growth, self-reliance, and efficiency. Multinationals are starting to see India as a global manufacturing base, which will positively impact small- and mid-sized businesses. For us at Citi, there is tremendous opportunity to support India’s capital and advisory needs. What I hear from our clients is that they want to grow more. What I hear from investors is they want to find meaningful opportunities to take part in.

Q: What are your plans for India after the consumer banking exit?
Falco: Citi will be focused on servicing large local corporates, multinationals, financial institutions, and emerging and mid-sized corporate clients. Through our universal banking proposition, we help clients with long-term financing, our global footprint, cash management, and protection against rate increases and volatility. We will double down on this strategy. I believe banking models such as what we’ve created will be extremely valuable in helping clients navigate through the uncertainty we see in today’s world. In India, within my business, we have advised clients on episodic business, including capital raising and M&A, worth ~$500 billion over two decades. We will continue to capitalize on our deep global relationships. There is also opportunity to support capital needs of mid and emerging corporates, who bank with our commercial banking business. Our investment bankers will be tasked with identifying these leaders of the future. Our focus and business strategy meant we were on every tech IPO last year.

Q: Indian stock markets are facing the heat of a higher interest rate environment globally. What is your medium-to-long term view on the Indian stock market?
Falco: While I don’t expect recovery too soon given the high interest rate environment, inflation, and volatility in commodities, we may be closer to a recovery given the work by central banks. India would be at the forefront of that as the economy is performing well. So we expect markets to do well, on a relative basis. Over the last two years, including 2022YTD which was a tough year, India will be a relative outperformer, up 22% 2021-2022 YTD and -2% 2022 YTD. India trades at a very healthy premium to its global EM peers. The country has witnessed high interest rates in the not-so-distant past and yet finds opportunities for continual growth. Recent green shoots and the revival of foreign inflows have resulted in a pickup in secondary market deal activity, albeit in narrow execution windows.

Q: What is your view on India’s Primary market. When do you see a revival?
Falco: India has a strong Primary Market and ranks amongst top 5-7 in capital formation globally across years. India’s primary capital markets positioning was further strengthened as it hosted multiple jumbo, $1 billion+ IPOs in the tech space, allowing India’s tech champions to list in their home market, rather than other large financial markets. India’s primary markets attract best-in-class global investors and Sovereign Wealth Funds; in addition, there is a captive pool of domestic capital. We are bullish the ability of India’s primary markets to finance its long-term equity story. Even short term, India did not close its door to primary capital activity. In a tough year, there was the completion of LIC’s jumbo IPO and the second-largest tech IPO for Delhivery. August and September were very active months in the block and follow-on market, raising over $3 billion. Away from India, Citi, as a JGC, recently concluded the Euro 9.4bn IPO for Porsche, which is the second-largest IPO this year. The success of the IPO speaks to our global distribution, which is also available to our Indian clients.

Q: Given the global turmoil, like Ukraine-Russia war, Inflation in US-UK and European countries, what kind of capital demand within India can we anticipate?
Falco: India Inc. has raised a total of $20 billion and $13 billion in the private and listed equity capital markets spaces respectively so far this year. There is a healthy bid for the market though it is very price elastic – so pricing, not volume, has meant the cost of capital has fundamentally changed, which is an ongoing issue in the market. Given the continued tension in IPO markets and narrow windows in secondaries, listed equities could see $5-6 billion in activity through the last three months of 2022. The private markets remain relatively insulated and can see another $6-7 billion worth of volumes over the same time frame. We believe issuance activity should slowly recover as issuers and investors adjust to the new normal.
In terms of debt capital, we expect strong demand from Indian issuers in next 12-18 months, which is expected to result in sizeable debt issuance in 2023. Given the Indian growth story, investor interest remains high for Indian issuances. For Citi, India remains one of the most important Asia Pacific markets with huge interest from global investors.

Q: With MNCs looking at a China + 1 strategy, what are the investment opportunities in India for them? Are inbound M&As an opportunity?
Falco: India is a huge opportunity – it is a sizeable economy with huge growth potential as well as diverse opportunities and a Government who is really focused on the right solutions for the country. I see huge potential in India for continued high growth and the country represents a massive opportunity for both local and international clients. I expect inbound investments in Infrastructure to bring efficient long-term capital. I think we need to be more aggressive in bringing opportunities to local companies, such as in clean energy, chemicals, renewables, technology and services. My focus will be to ensure we have talented global bankers with deep sector knowledge to help clients navigate the India opportunity. (https://theprint.in/economy/multinationals-starting-to-see-india-as-global-manufacturing-base-citi-investment-bank-boss/1156602/)

By, Tobias Burns 

The United Nations warned of a global recession Monday amid efforts by regulators in the world’s most advanced economies — like the U.S. and Europe — to stanch sky-high inflation.  

The international body called on central banks like the U.S. Federal Reserve “to revert course and avoid the temptation to try to bring down prices by relying on ever higher interest rates.” 

The Fed is raising interest rates to try and slow the economy and bring down inflation, which is near 40-year-highs following global economic shutdowns caused by the coronavirus pandemic. Since March, rates have increased from around 0 percent to between 3 and 3.25 percent. 

But a growing number of voices, now including a major U.N. economic body, are calling for an about-face from monetary authorities. They argue that lower inflation targets are not worth the pain of continuing hikes in interest rates, which are projected to hit 4.6 percent next year, according to a median estimate from the Fed. 

The U.N. Conference on Trade and Development (UNCTAD) urged central banks in a report released Monday to change course, describing any upcoming recessions as “policy-induced” and a matter of “political will.” 

“The real problem facing policy makers is not an inflation crisis caused by too much money chasing too few goods, but a distributional crisis with too many firms paying too high dividends, too many people struggling from paycheck to paycheck and too many governments surviving from bond payment to bond payment,” Richard Kozul-Wright, director of UNCTAD’s globalization division, said in a statement. 

Monday’s UNCTAD report disparaged comparisons to the last period of high inflation in the global economy, saying that today’s economic conditions are inherently different from those in the 1970s and that drawing parallels between them was tantamount to “sifting through the economic entrails of a bygone era.” 

Specifically, the report said that wage-price spirals, whereby higher wages lead to higher prices and vice versa, are not a relevant force in today’s global price dynamics. 

“Despite the absence of the wage-price spirals that characterized [the 1970s], policymakers appear to be hoping that a short sharp monetary shock – along the lines, if not of the same magnitude, as that pursued by the United States Federal Reserve (the Fed) under Paul Vol[c]ker – will be sufficient to anchor inflationary expectations without triggering recession,” the UNCTAD report said.  

“Sifting through the economic entrails of a bygone era is unlikely, however, to provide the forward guidance needed for a softer landing given the deep structural and behavioral changes that have taken place in many economies, particularly those related to financialization, market concentration and labor’s bargaining power,” the report said. 

Some U.S. commentators have made similar observations, downplaying the wage-price spirals that drove inflation 40 years ago and emphasizing the globalized nature of today’s economy. 

“There’s a huge Greek chorus out there that believes that inflation could result in a wage-price spiral,” Westwood Capital managing partner Dan Alpert said in an interview. “But that ignores the supply side and ignores the enormous differences between the supply picture in the 1970s, when we did have a wage-price spiral, and today. Today we have an enormous volume of exogenous supply and goods — goods that are coming from all over the world.” 

The Fed has acknowledged that mutual reinforcement of higher wages and higher prices is not at play in the domestic economy, noting in the minutes of its July meeting “the apparent absence of a wage-price spiral.” 

But Fed chair Jerome Powell has often linked the two concepts in speeches and public statements. During a September press conference, he said that members of the Fed’s interest rate-setting committee “expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices.” 

Asked how long Americans should be prepared to feel economic pain resulting from interest rate hikes, Powell responded, “How long? I mean it really depends on how long it takes for wages and more than that, prices, to come down for inflation to come down.” 

More broadly, Powell has argued that the pain of recession and economic slowdown is the lesser of two evils, the greater being consistently higher prices for U.S. consumers. 

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said in August. 

Republicans have taken a hawkish stance against inflation, arguing that wage-price spirals are still a risk for the U.S. economy as it faces recession. 

“Certainly we have a pretty dangerous wage-price spiral. No country wants to be in it, and we’re deeply in it. We have stagflation, just the traditional definition of it,” House Ways and Means ranking member Kevin Brady (R-Texas) said on the CNBC television network on Monday. 

“What worries me is I’m not sure the Fed knows what the unemployment rate needs to be to decelerate inflation. Therefore, I don’t think they know what the economic growth should be slowed to achieve that. I’m just worried that they’re winging it here,” he said. 

Despite differences on the risk posed by inflation, some Republicans and U.N. economists agree that the previous period of extra-loose monetary policy over the last decade was excessive. 

“We had a real easy money policy for too long and asset prices got inflated, got a little overdone, and now as we’re normalizing interest rates, it’s going to tend to take some of the wind out,” Sen. Pat Toomey (R-Pa.) said in an interview. 

U.N. economists said much of the same thing in a statement released with Monday’s report. 

“In a decade of ultra-low interest rates, central banks consistently fell short of inflation targets and failed to generate healthier economic growth,” UNCTAD wrote. (UN warns of a global recession as countries race to lower inflation  | The Hill)

Mukesh Ambani, Chairman and Managing Director of RIL, laid emphasis on Next-Gen leadership roles while he will continue to provide hands-on leadership. The 45th annual general meeting of Reliance Industries Limited (RIL) has set the stage for Next-Gen leadership.

Akash and Isha Ambani have assumed leadership roles in Jio and Retail, respectively, while Anant has joined New Energy business. They are part of a young team of leaders and professionals mentored by senior leaders, Mukesh Ambani outlined.

Mukesh Ambani will continue to provide hands-on leadership and along with existing leaders and Board of Directors, will work towards making Reliance more robust, resilient and truly future-ready.

Strengthening institutional underpinning for Reliance by enriching Reliance’s leadership capital and institutional culture along with a robust governance system to ensure accountability at all levels was another emphasis area at the AGM.

Creating robust architecture for tomorrow’s Reliance to ensure that it remains a united, well-integrated and secure institution even as it develops existing businesses and adds new growth engines, Ambani outlined.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, “A highlight of the AGM was Mukesh Ambani’s emphasis on succession planning. He concluded his address by seeking everyone’s blessings for the Gen Next taking over the reins confidently.

“With Akash heading Jio, Isha heading Retail and Anant heading Energy, the plans are clearly spelt out. Mukesh Ambani’s promise to double the value of the company by 2027 is reassuring. His commitment to India and faith in the India growth story remains as strong as ever.” (IANS)

The Consulate General of India in New York, in partnership with the Department of Promotion of Industry and Internal Trade (DPIIT) and Invest India, held a Roadshow on One-District-One-Product (ODOP) on July 12th, 2022. The show was attended by stakeholders from the food, hospitality, textiles and relevant business sectors.  

Consul General Shri Randhir Jaiwal gave the opening remarks, talking about the importance of the ODOP initiative and detailing the uniqueness of the products. From Araku coffee, with its distinctive texture, flavour and aroma, to the SIMFED turmeric from the organic state of Sikkim, he talked about the individuality and exclusivity of the items at display.

Joint Secretary from DPIIT, Ms. Manmeet Nanda familiarised the audience with the ODOP initiative and its vision. She elaborated that the whole idea of the initiative is to showcase unique products from different district of India, and that this stems from the mandate of Aatmanirbhar Bharat, focusing on a resilient India that is recognized as a brand globally. Expanding on the same, she talked about the vision of promoting sustainable trade along with creating a direct market link between the makers and buyers of these unique products. 

Explaining the progress that the initiative has made thus far, Ms. Nanda highlighted that more than 700 products with a unique quality and a large export potential have been identified till date. Each product tells a story – a story of creation, craftsmanship, tradition, custom, and people. Today, India’s unique products have ties all over the world. Farmers in Jammu and Kashmir sell walnuts to distant countries like Europe, and international brands sell Indian Pashmina stoles.

Representatives of Invest India took forward the discourse and emphasized the four pillars of the ODOP initiative – ecommerce, marketing, licensing, and selling and trade.

Different products from different parts of the country were showcased, ranging from cardamom tea, millet pasta, saffron, ginger flakes and more. From the north, the range extended from walnut wood carvings to Basohli paintings. From the state of Rajasthan, items of blue pottery were displayed. From the North-East, the variety consisted of coffee, jewellery, and special silks such as Eri Silk and some non-violent silk products. The non-violent silk items are so called as their production does not involve harming of silk worms.

Members of the diaspora were urged to promote products from their districts and adopt the vision of the ODOP scheme.  They were urged to promote ODOP products through gift giving, socially as well as officially.  Earlier, the Consulate had organized a display of ODOP products at Times Square during International Day of Yoga celebrations on 21 June 2022.

India’s pharma exports have witnessed a growth of 103 per cent since 2013-14 from Rs 90,415 crore to Rs 1,83,422 crore in 2021-22. The exports achieved in 2021-22 is the Pharma Sector’s best export performance ever and is a remarkable growth with exports growing by almost USD 10 billion in eight years, said Ministry of Commerce & Industry in a statement on Sunday.

Highlighting the achievement in a tweet, the Union Minister of Commerce and Industry Piyush Goyal said: “India’s booming drugs & pharmaceuticals exports more than double in 2021-22 compared to 2013-14. Under the active leadership of PM @NarendraModi ji, India is serving as ‘Pharmacy of the World”.

The pharma exports in 2021-22 sustained a positive growth despite the global trade disruptions and drop in demand for COVID related medicines. The trade balance continues to be in India’s favour, with a surplus of USD 15175.81 Million, said the ministry.

India ranks third worldwide for production by volume and 14th by value. Indian pharma companies have made global mark with 60 per cent of the world’s vaccines and 20 per cent of generic medicines coming from India.

The share of pharmaceutical and drugs in India’s global exports is 5.92 per cent. The formulations and biologicals continue to account for a major share of 73.31 per cent in total exports, followed by Bulk drugs and drug intermediates with exports of USD 4437.64 million. India’s top five pharma export destinations are the US, UK, South Africa, Russia and Nigeria. (IANS)

As Americans feel the squeeze of rising inflation, fears are growing that a recession is around the corner.  The U.S. economy is running hot as a record stretch of job growth, steady consumer demand and intense demand for labor has helped fuel the highest inflation rate in 40 years.

While the economy has recovered far quicker than many economists expected, the speed of the rebound is putting pressure on the Federal Reserve to take more significant action to help slow price growth.

Wendy Edelberg, director of The Hamilton Project and a senior economic studies fellow at the left-leaning Brookings Institution, said the economy has been “revving” given the amount of fiscal stimulus that has been poured into the system to keep it afloat during the coronavirus pandemic.

But in order to combat the skyrocketing inflation, Edelberg and other economists say a slowdown is vital.

“So, now the question is, how smoothly does that slowdown happen?” Edelberg said. “And slowdowns can be painful. So, there’s absolutely a risk of a recession.”

The Fed’s primary tool for keeping prices stable and the job market strong is adjusting the federal funds rate. When the Fed raises or cuts its baseline interest rate range, borrowing costs for home loans, credit cards and other lending products typically move in the same direction.

When interest rates rise, consumer and business spending tends to decrease as the costs of borrowing money increase. Higher interest rates also incentivize saving, which means less immediate spending in the economy.

After slashing rates to near-zero levels amid the onset of the pandemic, the Fed in March launched a series of interest rate hikes meant to bring down soaring inflation.

The Fed hopes higher borrowing costs will slow down the economy enough to curb price growth without halting the recovery.

“Our goal is to restore price stability while fostering another long expansion and sustaining a strong labor market,” Fed Chair Jerome Powell said last month, adding the bank is aiming for the economy to achieve a “soft landing, with inflation coming down and unemployment holding steady.”

Powell, other Fed officials and some economists believe the U.S. economy is strong enough to withstand rising interest rates without falling into recession or losing jobs. The U.S. gained nearly 1.7 million jobs over the first three months of the year, consumer spending has remained strong and there are roughly two open jobs for every unemployed jobseeker.

Those confident in the Fed’s handle on inflation believe the bank can stanch inflation while only reducing job openings and the intense need for workers, rather than slowing the economy into layoffs.

Even so, the Fed is facing serious turbulence as it attempts to steer the recovery to a sustainable pace.  The war in Ukraine, the sanctions imposed on Russia and Moscow’s response has fueled rapid price increases for oil, gasoline, food, key minerals and other essential consumer goods already hit by inflation. COVID-19 shutdowns in China have also jammed up supply chains, which were already overwhelmed by consumer demand.

Dana M. Peterson, chief economist at The Conference Board, said Fed rate hikes could help reduce consumer demand for goods and services, pent-up savings, rising wages and housing market heat, but can’t do anything about supply chain dysfunction, COVID-19 shutdowns and the war.

“The supply side drivers of inflation, which includes the supply chain disruptions and also higher global commodity prices, the Fed can do very little about. Nonetheless, the Fed is going to be raising interest rates,” Peterson said during a Thursday briefing with reporters.

“I don’t know how confident the Fed is about anything, but certainly I think they’ve abandoned expectations that there’s going to be kind of a natural solution to inflation.”

Economists warn more must be done to tighten monetary policy to cool the economy, which could still mean pain in the months ahead for more Americans’ finances.

“As you slow the economy down, inflation will fall,” Ray Fair, an economics professor at Yale University, said, adding that’s how the Fed can help lower inflation. “But the cost of that, of course, is slower output growth and higher unemployment.”

And Fair, director emeritus at the National Bureau of Economic Research (NBER), said his own research suggests the Fed has “got to do quite a bit” of intervention to slow the economy.

“They’ve got to raise the interest rate, for example, more than just two percentage points, if they expect to get much lowering of inflation,” Fair said. The Fed funds rate is currently at a range of 0.25 to 0.5 percent and bank officials expect to raise it to roughly 2 percent by the end of the year.

Some economists fear inflation may be rising too quickly for the Fed to curb without raising rates so high, it halts economic growth.

In March, consumer prices shot up 1.2 percent, according to data released by the Labor Department this week. The data also found those prices had risen to 8.5 percent in the past year alone, marking the highest yearly increase in roughly four decades.

Americans saw prices go up in a variety of areas, ranging from food to gasoline and transportation, as the Ukraine-Russian war helped exacerbate the nation’s ongoing inflation problem.

Fair, whose bureau is often looked to for measuring recessions, said the NBER’s defines such an event as roughly, but not completely, “two successive quarters of negative real growth in GDP.”

Recent weeks have seen reports of institutions like Bank of America warning of recession shocks. A recent survey by The Wall Street Journal found more economists are also changing their tune on chances of a recession, finding forecasters “on average put the probability of the economy being in recession sometime in the next 12 months at 28 percent,” compared to 18 percent in January.

In an interview, Desmond Lachman, a senior fellow for the right-leaning American Enterprise Institute, said he feels a recession is likely.

“In order for [the Fed] to get the inflation out of the system, they’re going to have to tighten policy and that’s going to produce a recession,” Lachman said.

But others believe the Fed may have to contend that higher inflation could be around for a little while longer, as the central bank proceeds in slowing down the economy.

“They’re also going to have to recognize that they may not get back to a 3 percent or 2 percent (annual inflation) target anytime soon,” Peterson said, arguing such an attempt “would essentially drive the US economy into recession.”

Mortgage rates swelled above 5 percent for the first time in more than a decade — an unexpectedly rapid ascent that has begun to temper the U.S. housing boom and could usher new uncertainty into an economy dogged by soaring inflation.

The 30-year fixed-rate mortgage, the most popular home loan product, hit the threshold just five weeks after surpassing 4 percent, according to Freddie Mac data released Thursday. The average has not been this high since February 2011.

The run-up comes as the Federal Reserve has launched a major initiative to rein in the highest inflation in 40 years. Fed officials are betting that higher interest rates will slash inflation and recalibrate the job market. But their plan also rests on the assumption that higher rates will cool demand for housing, especially while homes themselves are in such short supply.

Low rates fueled the revival of the U.S. housing market after the Great Recession and have helped drive home prices to record levels. But after two years of hovering at historical lows, rates have been on a tear: In January, the 30-year fixed average was 3.22 percent. It was 3.04 percent a year ago. And while mortgage rates had been expected to rise, they’ve done so more quickly than many economists predicted.

“I’m not surprised that rates have hit 5 percent, but I am surprised that everyone else is surprised,” Curtis Wood, founder and chief executive of Bee, a mobile mortgage app, said via email. “If you look at historical action by the Fed in a high-rate environment and compare that to what the Fed is doing today, the Fed is underreacting to the reality of inflation in the economy.

“I’m surprised that rates aren’t at 6 percent right now,” he added, “and wouldn’t be shocked if they’re at 7 percent by end of year.”

Consumers have been absorbing higher prices in nearly every facet of their lives, with essentials such as food and gasoline spiking 8.8 percent and 48 percent, respectively, compared with last year. But higher mortgage rates can significantly limit what they can buy, or price them out altogether.

Several months ago, a home buyer would be looking to pay $1,347 a month on a $300,000 loan at 3.5 percent interest. But if the buyer had waited until this week, the same loan at 5 percent would tack on $263, bringing the monthly payment to $1,610.

The Federal Reserve’s efforts to tame inflation are driving the rise in rates. Although the Fed does not set mortgage rates, it does influence them. The central bank took its first steps toward bringing down inflation in March when it raised its benchmark rate for the first time since 2018. In addition to the federal funds rate hike, the Fed is soon to begin the process of reducing its balance sheet.

The Federal Reserve holds about $2.74 trillion in mortgage-backed securities. It indicated it will reveal its plans for reducing its holdings at its May meeting. The more aggressively the Fed sells those bonds, the faster mortgage rates are likely to rise.

The cost of housing doesn’t only weigh on buyers and sellers. It also has proved to be a major complication for the economic recovery, and potentially jeopardizes policymakers’ ability to rein in soaring inflation.

Inflation is rising at the fastest pace in 40 years, with prices climbing 8.5 percent in March compared with the year before. Shelter is a major part — roughly one third — of the basket of goods and services used to calculate inflation, or what’s known as the consumer price index. That means that if housing costs don’t meaningfully turn around soon, it will be that much harder for overall inflation to simmer down to more normal levels.

Shelter costs also stand apart from other categories, such as gas, food or plane tickets, that may be more susceptible to forces like the ongoing coronavirus pandemic, supply chain disruptions or a war. (Courtesy: https://www.msn.com/en-us/money/realestate/mortgage-rates-hit-5-percent-ushering-in-new-economic-uncertainty/ar-AAWe1XQ)

Americans who have been to the grocery store lately or started their holiday shopping may have noticed that consumer prices have spiked. The annual rate of inflation in the United States hit 6.2% in October 2021, the highest in more than three decades, as measured by the Consumer Price Index (CPI). Other inflation metrics also have shown significant increases in recent months, though not to the same extent as the CPI.

Understanding why the rate of inflation has risen so quickly could help clarify how long the surge might last – and what, if anything, policymakers should do about it. The recent acceleration in the rate of inflation appears to be fundamentally different from other inflationary periods that were more closely tied to the regular business cycle. Explanations for the current phenomenon proffered to date include continuing disruptions in global supply chains amid the coronavirus pandemic; turmoil in the labor markets; the fact that today’s prices are being measured against prices during last year’s COVID-19-induced shutdowns; and strong consumer demand after local economies were reopened.

How we did this

At least one thing is clear: A resurgent inflation rate is by no means solely a U.S. concern. A Pew Research Center analysis of data from 46 nations finds that the third-quarter 2021 inflation rate was higher in most of them (39) than in the pre-pandemic third quarter of 2019. In 16 of these countries, including the U.S., the inflation rate was more than 2 percentage points higher last quarter than in the same period of 2019. (For this analysis, we used data from the Organization for Economic Cooperation and Development, a group of mostly highly developed, democratic countries. The data covers the 38 OECD member nations, plus eight other economically significant countries.)

At 5.3%, the U.S. had the eighth-highest annual inflation rate in the third quarter of 2021 among the 46 countries examined, narrowly edging out Poland. The increase in the U.S. inflation rate – 3.58 percentage points between the third quarter of 2019 and the third quarter of 2021 – was the third highest in the study group, behind only Brazil and Turkey, both of which have substantially higher inflation rates in general than the U.S. does.

Regardless of the absolute level of inflation in each country, many show variations on the same pattern: relatively low inflation before the COVID-19 pandemic struck in the first quarter of 2020; flat or falling inflation for the rest of that year and into 2021, as many governments sharply curtailed most economic activity; and rising inflation in the second and third quarters of this year, as the world struggled to get back to something approaching normal.

For most countries in this analysis, 2021 has marked a sharp break from what had been an unusually long period of low-to-moderate inflation. In fact, during the decade leading up to the pandemic, 34 of the 46 countries in the analysis averaged changes in inflation rates of 2.6% or lower. In 27 of these countries, inflation rates averaged less than 2%. The biggest exception was Argentina, whose economy has been plagued by high inflation and other ills for decades. The OECD has no data on Argentine inflation rates before 2018, but in the 2018-19 period it averaged 44.4%.

At the other end of the spectrum is Japan, which has struggled against persistently low inflation and periodic deflation, or falling prices, for more than two decades, mostly without success. In the first quarter of 2020, Japan’s inflation rate was running at an anemic 0.7%. It slid into deflationary territory in the last quarter of 2020 and has remained there since: Consumer prices in the third quarter of this year were 0.2% below their level in the third quarter of 2020.

A few other countries have departed from the general dip-and-surge pattern. In Iceland and Russia, for instance, inflation has risen steadily throughout the pandemic, not just in more recent months.

In Indonesia, inflation fell early on and has remained at low levels. In Mexico, the inflation rate fell slightly during the 2020 lockdown period but returned quickly, hitting 5.8% in the third quarter of 2021, the highest level since the fourth quarter of 2017. And in Saudi Arabia, the pattern was reversed: The inflation rate surged during the height of the pandemic but fell sharply in the most recent quarter, to just 0.4%.

As China increases lending to other developing countries, ‘debt trap’ charges are growing quickly. As it greatly augments financing for development while other sources continue to decline, condemnation of China’s loans is being weaponized in the new Cold War.

Debt-trap diplomacy?
The catchy term ‘debt-trap diplomacy’ was coined by Indian geo-strategist Brahma Chellaney in 2017. According to him, China lends to extract economic or political concessions when a debtor country is unable to meet payment obligations. Thus, it overwhelms poor countries with loans, to eventually make them subservient.

Unsurprisingly, his catchphrase has been popularized to demonize China. Harvard’s Belfer Center has obligingly elaborated on the rising Asian power’s nefarious geostrategic interests. Meanwhile, as with so much else, the Biden administration continues related Trump policies.

But even Western researchers generally wary of China dispute the new narrative. A London Chatham House study concluded it is simply wrong – flawed, with scant supporting evidence.

Studying China’s loan arrangements for 13,427 projects in 165 countries over 18 years, AidData – at the US-based Global Research Institute – could not find a single instance of China seizing a foreign asset following loan default.

China has been the ‘new kid on the block’ of development financing for more than a decade. Its growing loans have helped fill the yawning gap left by the decline and increasing private business orientation of financing by the global North.

Instead of tied aid pushing exports, as before, it now shamelessly promotes foreign direct investment from donor nations. Unless disbursed via multilateral institutions, China’s increased lending to support businesses abroad has not really helped developing countries cope with renewed ‘tied’ concessional aid.

Grand ‘debt trap diplomacy’ narratives make for great propaganda, but obscure debt flows’ actual impacts. Most Chinese lending is for infrastructure and productive investment projects, not donor-determined ‘policy loans’. Some countries ‘over-borrow’, but most do not. Deals can turn sour, but most apparently don’t.

While leaving less room for discretionary abuse in implementation, project lending typically puts borrowers at a disadvantage. This is largely due to the terms of sought-after foreign investment and financing, regardless of source. Hence, the outcomes of most such borrowing – not just from China – vary.

Sri Lanka
Sri Lanka’s Hambantota Port is the most frequently mentioned China debt trap case. The typical media account presumes it lent money to build the port expecting Sri Lanka to get into debt distress. China then supposedly seized it – in exchange for providing debt relief – enabling use by its navy.

But independent studies have debunked this version. Last year, The Atlantic insisted, ‘The Chinese “Debt Trap” Is a Myth’. The subtitle elaborated, “The narrative wrongfully portrays both Beijing and the developing countries it deals with”.

It elaborated: “Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota”.

The project was initiated by then President Mahindra Rajapaksa – not China or its bankers. Feasibility studies by the Canadian International Development Agency and the Danish engineering firm Rambol found it viable. The Chinese Harbour Group construction firm only got involved after the US and India both refused Sri Lankan loan requests.

Sri Lanka’s later debt crisis has been due to its structural economic weaknesses and foreign debt composition. The Chatham House report blamed it on excessive borrowing from Western-dominated capital markets – not Chinese banks.

Even the influential US Foreign Policy journal does not blame Sri Lanka’s undoubted economic difficulties on Chinese debt traps. Instead, “Sri Lanka has not successfully or responsibly updated its debt management strategies to reflect the loss of development aid that it had become accustomed to for decades”.

As the US Fed tapered ‘quantitative easing’, borrowing costs – due to Sri Lanka’s persistent balance of payment problems – rose, forcing it to seek International Monetary Fund help. Some argue borrowing even more from China is the best option available to the island republic.

To set the record straight, there was no debt-for-asset swap after Sri Lanka could no longer service its foreign debt. Instead, a Chinese state-owned enterprise leased the port for US$1.1 billion. Sri Lanka has thus boosted its foreign reserves and paid down its debt to other – mainly Western – creditors.

Also, Chinese navy vessels cannot use the port – home to Sri Lanka’s own southern naval command. “In short, the Hambantota Port case shows little evidence of Chinese strategy, but lots of evidence for poor governance on the recipient side”.

Malaysia
China has also been accused by the media of seeking influence over the Straits of Malacca, through which some 80% of its oil imports pass. Debt-trap proponents claim Beijing therefore inflated lending for Malaysia’s controversial East Coast Rail Link (ECRL).

The Chatham House report notes, “The real issue here is not one of geopolitics, but rather – as in Sri Lanka – the recipient government’s efforts to harness Chinese investment and development financing to advance domestic political agendas, reflecting both need and greed”.

ECRL was initiated by convicted former Malaysian prime minister Najib Razak. Ostensibly to develop the less developed East Coast of Peninsular Malaysia as part of China’s Belt and Road Initiative, it rejected other less costly, but much needed options.

Borrowings are far more than needed – probably for nefarious purposes. Loan terms were structured to delay repayment – to Najib’s political advantage by ‘passing the buck’ to later generations. But such abuse is by the borrower – not the lender – unless Chinese official connivance is involved.

Non-alignment for our times
There is undoubtedly much room for improving development finance, especially to achieve more sustainable development. Instead of mainly lending to the US, as before, China’s growing role can still be improved. To begin, all involved should respect the United Nations’ principles on responsible sovereign lending and borrowing.

After more than half a century of Western donors’ largely betrayed promises, China’s development finance has significantly improved ‘South-South cooperation’. Meanwhile, sustainable development finance needs – compounded by global warming, the pandemic and Ukraine war – have increased.

After decades of the West denying China commensurate voice in decision making, even under rules it made, its role on the world stage has grown. But instead of working together for the benefit of all, rich countries seem intent on demonizing it. Unsurprisingly, most developing country governments seem undeterred.

As the new Cold War and the scope of economic sanctions spread, collateral damage is undermining development finance and developing countries. To cope with the new situation, developing countries need to consider building a new non-aligned movement for our dark times.

Gautam Adani, founder and chairman of the Adani group, a conglomerate with businesses in sectors such as energy, ports, mining, edible oil and so on, with a net worth of $118 billion is now the world’s sixth-richest person, driven by a meteoric rise in the value of Adani group’s listed stocks. The 59-year-old mogul has overtaken Google’s famed founders Larry Page and Sergey Brin, according to the Bloomberg Billionaires Index.

It is important to note here in this context that Adani’s net worth soared by $8.57 billion, or about Rs 65,091 crore, due to a rise in the share prices of Adani Green Energy, Adani Enterprises, Adani Gas and Adani Transmission on Monday. While India’s benchmark indices ended the day in the red on Monday, shares of Adani Group surged up to 16 per cent.

Adani Green Energy breaks into list of top 10 most valued firms on BSE, replaces Bharti Airtel

With an almost $41.6 billion jump in his personal fortune, Gautam Adani is the world’s biggest wealth-gainer this year. Meanwhile, Reliance Industries (RIL)— India’s most valuable company—chairman Mukesh Ambani’s total wealth now stands at $97.4 billion, and he is now the 11th richest in the world, as per the latest Bloomberg billionaire ranking. So far this year, his personal wealth has increased by $7.45 billion. If we go by the Bloomberg wealth index, Adani is $20.6 billion ahead of Ambani at present, and it could be tough for the RIL boss to catch up very quickly.

The moot question is: What’s made Adani so rich, so fast? The tycoon is pushing into clean energy, airports and power plants. The mega stock market gainer that catapulted Adani to the top position is Adani Green Energy. Shares of the company soared 16.25 per cent to settle at Rs 2,701.55 apiece on BSE on Monday. It entered the list of top-10 valued companies as its market valuation zoomed over Rs 4.22 lakh crore.

For the last 14 years, Ambani has been the leader of India’s wealthiest list. The oil-to-telecom conglomerate boss was briefly dethroned by pharmaceutical tycoon Dilip Sangavi a few years ago but grabbed the top position.

Last week, Adani had reached a net worth of $100 billion as he became the new member of the centibillionaires club. Worth mentioning here is that Amazon founder Jeff Bezos (currently have a net worth of $176 billion) was the first to hit the $100 billion milestone in 2017 since Microsoft. co-founder Bill Gates back in 1999 for a brief period.

Tesla chief executive Musk, now the world’s richest person with a fortune of $249 billion, joined the elite club in 2020.

Meanwhile, in the last 10 years, while Ambani’s wealth has grown 400 per cent, Adani has seen a 1,830 per cent jump, as per the 2022 M3M Hurun Global Rich List.