EP 178: Biden says stands by Israel; India FX cross $600B; VP Harris on a trip to Mexico

Sree Iyer: Namaskar. Today is June 7, Monday and welcome Daily Global Insights with Sri and Sree. I’m your host Sree Iyer and joining me is Sridhar Chityalaji. Sridharji, namaskar and welcome to PGurus Channel. Why don’t we start with the first news item on the United States, sir, President Biden says, he stands by Israel, despite pressure from his progressives. What are your thoughts, sir?

Sridhar Chityala: Namaskar, good morning to everybody. We kick off another week and we look forward to another exciting week with lots of events unfolding as we move into the moving to the week. I think it’s just his reaffirmation. There was too much noise going on in the system by the progressives against the support for Israel plus, there was also attempts to block the money that was being sent for protection of the dome, which mitigated many of the Rockets flying from Gaza. So, it was good on the part of Mr Biden to step up and say, hey, you know, we have a defence partnership for the protection and this is the historical relationship between the United States and Israel, you know, you progressives you just need to tone down the rhetoric.

Sree Iyer: The storm is brewing for Dr Fauci’s resignation and for a more comprehensive investigation with more email leaks, almost 2,000 emails a day from Fauci that is amazing sir. How can somebody have 2,000 emails being sent every day? And that also shows you how the little US knew in the early days of the pandemic about what was going on?

Sridhar Chityala: Well, I think there is a chorus going from either side of the party for surprise, there’s both left as well as the right media houses, mainstream media houses, now, citing and publishing all these data is obvious, that the world is suffering. There is no left or right the world is suffering as a result of this pandemic. So, people have the anxiety to get behind. If there have been 2,000 emails, as is alleged over the weekend based on the evidence that is coming out slowly or information that is being released slowly. You know, if that’s the case then, it’s a worrying’s sign as to you know such a major event right in the middle of that event, there’s a lot of activity going on and nobody is aware. And Dr Fauci is supposed to be the guiding father or the guiding mentor, not just the United States, but for around the world on this pandemic. So it’s extremely worrying. Whether typically in the beltway fashion, whether this investigation will be suppressed or whether this would you know, move into a much more actionable outcome in terms of who the guilty people are. And whether China will be eventually made accountable for whatever has happened remains to be seen but I’m very sceptical that they would be anything coming out of it.

Sree Iyer: Trump is back and in his first public address in a fiery speech, slams New York probe, Biden, Fauci and China. Speaker Donald Trump an interesting idea. This would be a first, I think I don’t think any sitting president went on to become the speaker of the Congress sir.

Sridhar Chityala: Yes, indeed, firstly, he was in North Carolina in Greenville, addressing the NC GOP Summit and there’s also a Senate race for the, you know, the Senate nominations are going on. He was quite vocal in terms of the New York probe by Mr Vance and the rest of the crew, he said it’s political and its objective, it’s biased. I think the evidence is already coming out that seems to be the case.

Then, he took on Biden on the various policies of Biden right from China to immigration to tax to various policies that he is acting which is going to take the United States backwards. He has been vocal on Fauci right from the days though were sitting side by side during his last day last year of the administration. S,o you took on and obviously you know, China is his favourite topic. He remains the only president who took China head-on. So, therefore, all these things, propped up. One of the ideas that are being mooted is whether, you know, President Trump can become House speaker and he would whether you know, he could go ahead and impeach few people through the House process. This was in an interview with I think Frank Allen Root the Republican conservative radio host in the radio interview. This topic was presented whether he should consider running for a House seat from Florida and be nominated by the Republican House to be the speaker. So, he said it’s an intriguing idea. Intriguing ideas often probably results in some kind of a tangible outcome. So let’s wait and see.

Sree Iyer: Yes, indeed. And it’s got an interesting connotation there, in the sense that this also assumes that the Republicans will be able to secure a majority in Congress. Because if that doesn’t happen and if Trump will get elected, I don’t think I have any doubts about that. You can always cherry-pick the constituency like the way Ilhan Omar, like the way AOC does, like the Pramila Jaipal, does. I bet every one of you guys will not be able to get the adjacent constituency. You won’t be able to win but, that’s a matter for a different day, a different turn.

Biden rejects Caputo infrastructure, proposal and likely to meet again on Monday; Manchin going it alone would hurt the Democrats because they would not even be able to get a simple majority, isn’t it?

Sridhar Chityala: Well I think as far as Manchin is concerned he said you know, we have had disastrous Obamacare, you remember it was most partisan on both of the Senate as well as the House side. It has floundered forward and backwards. So, some bipartisan support would make it a meaning for the proposition, especially the infrastructure funding program or climate accord or any of these things. So there’s a continuity. Now, this is about the thing that you raised which is you know, you go on, one regime comes in, you go extreme left on policies. Then, another regime comes in then you move extreme right. In the process, we are not moving the agenda forward. So, I think Manchin is right in saying let’s try and see whether we can fill the consensus around it. As far as the infrastructure plan is going forward-backwards, forward-backwards. You know, 550 versus 2.25 then 1.75 Biden and then you know, 560 went to 750, then, it went up 1 trillion. And Biden is basically said, the proposal is unacceptable. Miss. Caputo is nominated senate representative to negotiate with Biden. It doesn’t look like it’s going to converge and potentially will know this week before Wednesday before the president leaves for his trip. What’s going to happen to this infrastructure proposal.

Sree Iyer: Three senators of the United States will be visiting Taiwan and the visit is likely to irritate the Chinese Communist Party. Anything even you the word Taiwan and they get irritated. No, surprises there sir.

Sridhar Chityala: There are no surprises at all. I think you have still occasionally, the US carriers passing by the Taiwan Strait, you have had the army go in and help them. You also have the vaccine 750,000 vaccines were sent from the United States. Japan has sent the vaccines. The United States supported Taiwan attending the WHO, China opposed so they got out of it. So Taiwan has been a source of an irritant for China in terms of both Japan Korea though less, but Japan and US engagement having said that they have been very quiet in the recent past around their rhetoric’s around Taiwan, but this visit will certainly rake up the issue.

Sree Iyer: Vice president Kamala Harris, leaves for Mexico and Guatemala on a two-day visit to discuss the root causes of illegal migration. I thought the Beltway experts would have all the information, sir.

Sridhar Chityala: Well, there is this perceived view of at least Madame Harris and maybe some of our progressives that if you give them developmental money and build infrastructure and build capabilities and jobs around the Central Asian states of El Salvador Guatemala and even adjacent Mexico. They believed that they would this bleeding would stop or the Surge of the illegal migrants would stop. Far from it, so she’s going to get a first-hand assessment as if she has not had before by directly meeting with the leaders of Guatemala. I think she’s almost, we should hear more as the day, progresses out, the outcome of our discussions yesterday, she supposed to finish and land this morning or later this afternoon into Mexico and conclude her discussions. But, this is the objective. If you recall, she had a telephone conversation and shared committed 300 to 400 million. If, I remember the numbers correctly of the developmental budget of Central Asia.

Sree Iyer: President Biden will also be leaving on Wednesday for his first overseas trip. I think you mentioned it just a short while ago, to attend G7 Summit, in Cornwall, and the United Kingdom. And on the way meet NATO leaders, in Belgium and meeting with Turkey President Erdogan and with Vladimir Putin, in Geneva quite a bit on his plate, sir.

Sridhar Chityala: Indeed. So, this is a week of visits, so we’ll hear more. We have The Senators going to Taiwan. We have a vice president who left yesterday for Central Asia and Biden will leave on Wednesday. So, he leaves on Wednesday 9th, he stops in Belgium where he will address and meet with the NATO leaders, even meet with some of the EU Representatives. Then from their prior to going to Cornwall, or after the Cornwall, which is 11th to 13th, is the G7 meet, you know, Climate, Covid and Global minimum tax, corporate minimum tax are all topics that are likely to be discussed at the G7 meet, And it was supposed to be G7 + 3 or G7 + four. The four being South Africa, India, Korea and Australia. These were the four countries, but India is unlikely to visit. They would probably do a virtual Summit. I don’t know whether the rest of the people are coming because of the Covid circumstances. But, this was supposed to be a very important meet.

Then, he has a meeting with Mr Erdogan, it will be interesting to see the scope of the discussion of that particular meet. Whether Armenia figures in that discussions remains to be seen. Then, he comes to Geneva to meet with Mr Vladimir Putin, on the 16th of June, this is announced in DGI and then he makes his way back.

Sree Iyer: Let’s now, take a look at things happening around India, India’s foreign exchange reserves may have already crossed USD 600 billion providing it with the much-needed confidence to deal with any potential Global challenges. I think what we are mentioning here is the possible threat from China.

Sridhar Chityala: I think that there are at least we can look at three if the pandemic expands and economies, begin to shut down then, India must be capable of importing whatever it needs to. So there is sufficient balance in the account. In the event of a threat that looks very, very highly likely. Then, it has the capacity to absorb that. Today, India is a net creditor rather than a net debtor. India’s outstanding overseas or private debt is about 540 to 560 million dollars depending on the exchange rates, and so it is 600 billion dollars gives it the net Surplus in terms of the reserves. So, the reserve bank’s Governor is extremely happy and he issued a statement, our calculations are delayed. We may have already crossed 600 billion. To me, it is excellent that India during the seven years of Modi’s, tenure India’s, Foreign Exchange Reserve is almost double from 300 billion dollars to 600 billion dollars. It makes a huge difference.

Sree Iyer: India and Australia are discussing the reopening of the Comprehensive Economic Cooperation Agreement (CECA) to expand bilateral trade from 15 billion in 2021; India exports about 4 billion while importing 8.5 billion from Australia. I take it back. I think they are trying to take it to 15 billion sometime in the future. Perhaps you can expand on this.

Sridhar Chityala: So, this plus or minus again the 15 million number comes up based on the volatility and sometimes you have a spurt in trade, you eliminate one-off, for example, you have Covid Vaccines. So Covid Vaccines is not imported on an annual basis, whereas it is a one-off. So this is where that roughly 15 billion comes up, but, the exports are 4 or 5 million on a normalized basis imports are 8.25 billion USD on a normalized basis. So the goal for them is to really expand this by removing tariffs and barriers. For example, India has tariffs and barriers on Agro products and Dairy products. Australia is a big exporter of Dairy and Agro product. So you know some of these things would become the scope of the discussion is critical for Australia. Australia is trying to decouple from China. It is important for India because India is building what we call a portfolio of countries to augment its bilateral, trade and bilateral trade to grow to about half a billion or a trillion dollars as time passes on. So, it doesn’t want to be asymmetric, you know, 150-160 billion dollars from the United States and then about 80 or 70 billion dollars from China. So you can see that we covered it already that there is a Free Trade Agreement and investment agreement, as two separate packages, they are working with the EU. They are working with the UK, to build a bilateral, Free Trade Agreement. They are now working with Australia for a Free Trade Agreement. They have free trade agreements with West Asian nations, of course, they have free trade agreements with ASEAN countries and as well as bilateral with Japan, Korea, the whole objective of this is to build a portfolio of capabilities and India is also now expanding into manufacturing and more refining and various range of products like Mobiles, alternate energy like solar. So I think especially it becomes very relevant and helpful in these trying times when domestic consumption is a constraint. This is where the exports in terms of augmenting, the GDP of the economy.

Sree Iyer: Indian social media company Koo gets a major shot for Global expansion with service in Nigeria. Those of you who are following this pact between Twitter and many countries may know that Nigeria upon its president being cancelled from Twitter has actually shut down the service in Nigeria. Maybe, that’s why Nigeria is looking at Koo and India is still thinking about how to respond back to what Twitter did. There is going to be a separate five-minute talk from me on this one, it will come on PGurus shortly.  Sir, your thoughts?

Sridhar Chityala: Well, I think the fact that Koo is now in is planning to be in Nigeria is the expected movement of Koo to be an alternate player competing with Twitter. So, therefore to your point, what is India going to do? India has issued, I think that final show cause or final compliance notification, which is to say, either comply or get out. That’s the final notice that’s been sent to Twitter. Twitter may, you know, comply or Twitter may choose not to comply. It remains to be seen. I would be very surprised even that Facebook has complied. Alphabet has complied. Apple, you know, is technically compliant because it’s not in this phase. So, my impressions are that you know, Twitter may concede ground and basically tell, okay, we’ll follow the rules. Over the weekend, some of the members, this RSS leader, the vice-president, apparently, some of their Twitter handles certification or the tick light or tick symbol disappeared which is effectively to say that you know they are thereon. In my view, it is not going to stop Koo from emerging.  Because there are going to be emerging platforms, that’s going to lay siege to some of these media companies which have tripped themselves into territories, which is not there to restrict.

Sree Iyer: Some of the things that Twitter has done in the past are just downright ridiculous. About a few years ago, they had a CEO called Raheel Khurshid. This guy used to give a tick mark to people with 10 followers, 15 followers and they amazingly belonging to one section of the society in India and the others had to sweat it through. I am a best-selling author on Amazon for several weeks and I still haven’t got a tick mark. I’m not going to go asking them for it. I’m going to find out what else I can do with this. What I’m trying to say is this whole thing about how Twitter handles things is very subjective. They have their own mind. Sometimes this mind goes into places that it should not be going into. I can go on a rant forever.

Let’s go to the next news, sir. Brazilian Health regulator approves exceptional import of Bharat Biotech’s Covaxin vaccine. So this vaccine is now getting respectability across the world especially in its ability to counter some of the mutants, isn’t it?

Sridhar Chityala: It is. And also I think it’s homegrown, so India is looking at it as an alternate. I think it’s almost well on its way to get the WHO approval. Covaxin is not reliant on APIs, from overseas. And most of it, I believe, is homegrown in India and vaccine is going to be one of the driving factors as you look at next 4-6 years as the world combats, not just covid but integrates covid into mainstream other viruses for which vaccines are taken on a periodic basis. We also don’t know what else is to come, if this is all a lab experiment, what more to come? They apparently have got one other virus of which one person has been detected to have it and then he has died in China. So how many people contacted and how many deaths, we don’t know. But at least we know that there is the next virus, starting with the alphabet H, HN 103, or some such number. So more to come. So this vaccine is going to become an integral part of our lives.

Sree Iyer: Hyderabad based ‘Biological E’, is the name of a company that has an upcoming covid-19 vaccine called Corbevax, which could become the cheapest or most affordable vaccine, perhaps priced below rupees 400. This is a new company, I think. Sir, are your thoughts.

Sridhar Chityala: This is a new company which is based out of Hyderabad. Hyderabad is the epicentre of biomedical research. Either Hyderabad or Pune. Pune is another place that seems to be the epicentre of biopharma biotech research. Therefore a number of companies are coming out, both public and private companies, of these two cities. is quite amazing. They are saying that they are going to price this vaccine somewhere between 300 to 400 rupees for vaccination, whether they are two doses or one dose, the details are not known as yet. But if it is 300 to 400 rupees then I think they just going to bring down the cost quite dramatically. My view is, this is the reason why Pfizers, BioNTechs, Eli Lilly, and Johnson & Johnsons of the world are afraid. They want to be in a place where there is a volume. Because if there is price elasticity, they have the volume to cover up and price elasticity is going to be inevitable if somebody is going to have an annual vaccination program and consumption of close to, two to three billion doses. The reason why I put two to three billion doses is when you take a nucleus of people of India, South Asia, Africa, and even Southeast Asian adjacent Nations, you’re talking about two-dose vaccines. That is a huge number of sheer dosage that is required.

Sree Iyer: In Global News, in a significant development G7 Nations arrive at a landmark deal to tax take giants like Facebook, Google, and Amazon. Most of the nations support a global minimum tax rate of 15% for Global Majors operating from various offshore destinations. Does this mean a death knell for tax inversions, sir?

Sridhar Chityala: It means a potential death knell for tax havens. If you are operating and you are established in that say, in Guernsey or Cayman Islands or any of these places, it doesn’t matter because you are a US company and being a US company, you pay a tax doesn’t matter where you earn income from. It has received wide support from the G7 countries. The chancellor for the exchequer for the UK came out and issued a public statement, ‘Look, it’s high time this has not been reformed and it’s long overdue.’ So there has to be harmonization. So most of the countries are, when you look at the 0% countries, no big-name except the tax havens and then you have the less than 10%. Again, you have a combination of Eastern European and to some extent Latin American countries. Then, you go into 20% plus, Germany tops the list. Then most of them are in the 25%, 35% per cent tax rates. This is primarily directed at the tax havens that operate from Europe and also the Caribbean. The United States has a corporate tax rate of 21%, and Biden wants to take it to 28%. So I think that this is a good move. The fact that the G7 have concerns have acceded to this is a great victory for Janet Yellen and Biden Administration who have been advocating this model.

Sree Iyer: There you go. We just praised the Democrats. So this is for all those naysayers who say that we carry a brief for the Republicans.

Putin says don’t spoil Russia-UK partnership after MI6 criticism. Who criticized the MI6?

Sridhar Chityala: No, MI6 criticized Russia for its covert, and other types of activities. There’s always been a tug of war between the Russians well as the MI6 in Britain. So they said don’t feed bad information to the British government. Some of it may be true, some of it may not be true but we really would like to normalize the relationship with the UK. Remember, there is a lot of Russian czar wealth in the UK still. So, therefore old wealth is still in the UK. So I think the UK is saying if Germany is normalizing. If they want to have Nord Stream 2 flowing into Europe, why are you hurting the UK? Why should we be denied our fair share of contribution from the Russians? I think that seems to be the underlying motive.

Sree Iyer: At PGurus, we have tombs and tombs of data on how Britain is the take-off point for money going into tax Havens. So Britain is over, that’s going to be turning off the spigot in my opinion. So let’s wait and see how this plays out. I expect some pushback. Anyway, that’s just me and the sceptic in me.

Israel’s domestic security warns of violence as a country faces the prospect of a Netanyahu unseating. We talked about this last week that Naftali Bennett could be the new prime minister of Israel. But it’s a very unusual combination. There are already talks about one of his perceived partners having second thoughts. What is the latest on this? Is Netanyahu going to be dethroned or is he going to continue?

Sridhar Chityala: 12 days time has been given to the coalition. So they have time, I think three days have elapsed. So there are nine more days. People still believe that Netanyahu may spring a surprise by the time it comes to voting and establishing the majority in the Israeli Parliament in anticipation that should BB be unseated which is very unlikely at this stage. They expect lots of trouble brewing and clashes and maybe more rockets getting fired from Gaza notwithstanding the truce discussions that are happening between Egypt and the Hamas leaders in Gaza. It remains to be seen whether they would be quiet or there would be more belligerent and as result violence. I think that’s what being Israeli intelligence has warned.

Sree Iyer: Last week, we talked about China’s incursion into Malaysian air space. Chinese ships sail near Senkaku Island for the 112th day in succession. China also rotates 90% of its troops in the Ladakh valley. Sir, China is keeping itself busy. The rest of the world is also beginning to respond to this. Where is this leading, sir?

Sridhar Chityala: July 1st, it’s leading to July 1st of July 1st week when mr Xi Jinping will be anointed at the major communist CCP Congress event. He is supposed to announce the next phase of the strategy in terms of way and how China will be the Global superpower occupying Belt and Roads occupying various ports rising as a technology power with AI and robots with space, defence, etc. So he’s going to unveil the expansion of his plan and to cement a Chinese place in the economic and political history. So, all these things that are happening is a continued activity towards that. Senkaku is because Japan has been raising issues about Taiwan but has also been questioning some of the broader stuff in partnership with the United States. Japan has also irritated China by sending vaccines and money to Taiwan. So, these are some of the things.

As far as India is concerned you all are aware that India is a constant thaw for China, so there’s no love lost between the two. Unless it is not a Modi government. The reason why this is turnover has been reported is that apparently most of the 50,000 people or so deployed have suffered from cold and adverse conditions and so, they explicitly made a point and said, ‘we have fresh legs on the ground. What about you, India?’ So India says, ‘We also have fresh like legs on the ground and we rotate once in two years, they are well aware of the terrain.’ So, there is this game going on in the South China Sea and as well as in the Himalayan Kingdom.

Sree Iyer: As a corollary to that, India and China are sitting down for the 12th round of talks very, very shortly. One wonders, what’s going to be discussed? So we’ll wait and see.

US and Japan to pledge billions of dollars to Covax to combat China vaccine diplomacy. The United States will supply 750,000 doses of vaccine to Taiwan. So now we are seeing that Taiwan is experiencing a big shortage of vaccine and all the other countries such as the United States and Japan are rushing to fill that need. I’m hoping that India will again get its vaccine supply chain back together so that it can start participating in some of these initiatives. Sir, your thoughts on whether India can be the most reliable and most cost-effective supplier?

Sridhar Chityala: India could well emerge as the cost-effective supplier once it goes for a more domestic-based supply chain rather than a globally reliant API based program. The reasons are that they are subject to the vagaries of the political systems that prevail. So in my humble view that, I think India will evolve itself to be… They already are the largest vaccine producer and supplier in the world. India produced the largest doses of vaccines.

As far as Taiwan is concerned, they are quite desperate. The number of cases has begun to increase. 750,000 is the number that you mentioned. Japan gave them funds, not vaccine because Japan itself is short of vaccines to meet its own obligations and they’ve been ramping up. So Taiwan has received help. Whether India will help Taiwan remains to be seen. Can’t see in the immediate future. But once Sputnik, J & J, Eli Lilly, Covax get into play, you may begin to see India providing more vaccines to some of the emergency needs of nations that are in a desperate situation.

Sree Iyer: Al-Qaeda leadership is well in place and residing in the Afghan-Pakistan border region including Ayman Al-Zawahiri. Sir, I thought Al-Zawahiri was eliminated a few years back!

Sridhar Chityala: The latest reports indicate that he is very much alive. So in Pakistan, Afghanistan theatre is always a drama. So, who is alive and who is dead on any given day remains a mystery. The fact is that they are intact whether he is an Ayman Al-Zawahiri or whether he is a duplicate, we will not know. But certainly, the intelligence is stating that he’s intact. Now why this news is relevant is because the United States is pulling out of here rapidly and many people are concerned about the security apparatus in Afghanistan as a result. But these are the questions for which Afghan has never had a solution in 50, 60, 70 years. It has always had a tremendous amount of problems because of whatever be the nature of the ecosystem that is prevalent in that part of the world.

Sree Iyer: Sir, I am also reading now that the United States is perhaps going to leave behind about 2,500 troops in Afghanistan, it’s not going to be a complete pullout.

Sridhar Chityala: I think this 2500 number is Special Forces. Who are these Special Forces? Don’t know. There’s another rumour that is floating around which is to say that the United States is also contemplating bases in adjacent countries. It is looking out for some base, then I think it made a sensation in Pakistan because there was a rumour that they could be finding a couple of bases in Pakistan, that prompted the Pakistani government to say, ‘No, we’re not going to have any bases of the United States within our country. So there are a lot of questions rather than any specific answers, it’s all part of the speculation that is going on when you have a major pull-out.

Sree Iyer: In Markets, El Salvador is likely to become the first country to accept Bitcoin as legal tender. Is there any truth to the statement, Sir?

Sridhar Chityala: It is. I think that it is very much likely that El Salvador could emerge as the first country. El Salvador has got a lot of ex-pats, people working all around the world, mostly in the United States. So, the story is that they’re a lot of people who work here and you know what better way. There’s a lot of wire transfer services that go for remittances from the United States to El Salvador. Bitcoin could be a good way of transacting for these people. Many of them do only cash, there are no cards. That’s why Western Union, which a part of a much larger enterprise is an integral part of the wire transfer service in that part of the world.

Sree Iyer: ‘Higher interest rates could be good for the country’ says Janet Yellen. Markets are poised for the rally as we look ahead. Why would higher interest rates be good? It could put down growth, isn’t it?

Sridhar Chityala: Higher interest rates would imply that people are not engaged with excess liquidity sitting in their bank accounts, getting into the speculative type of activities. So there is a self deterrence that is in place. So people don’t do speculative buying as a result of cash and lower rates. So the cash is being dumped by the Biden Administration with an intent that, that would speed up consumption and keep the economy growing. Already, we are seeing the first casualty of that. What is the first casuality? People are unwilling to come to work. They don’t want to come to work because there’s money. people are reliant on this borrowed cash from the balance sheet of the United States. The third is engaging in speculative activity with no steady income in mind, especially when the rates of low.

Sree Iyer: That brings us to a close of today’s episode. We’ll be back again bright and early tomorrow. Sridharji, as always a pleasure talking with you about events in and around the world. Viewers, there will be small changes this week as I have some travel commitments, but we will keep you posted. We will try and get these episodes out every day. Thanks for listening and do join in on our Hangouts. Also, subscribe to our Channel and consider joining us as a member. Thank you very much. And we’ll be back again, bright and early tomorrow. Namaskar.

Sridhar Chityala: Namaskar. Thank you. Have a wonderful day and looking forward to a wonderful week and more exciting news awaits us as all these people make the travel around the world.