EP135 India, Israel, UAE trade could reach $110B by 2030, Yellen wants countries to raise corp taxes

India, Israel, UAE trade could reach $110B by 2030, Yellen wants countries to raise corporate taxes, the Philippines intensifies war of words over the South China Sea, all these and more

Sree Iyer: Namaskar, April 6th, episode 135 Daily Global Insights. Welcome to Daily Global Insights by Sri and Sree. A lot of stuff has been happening around the world. Here are today’s main points:

  • Border Patrol arrests two terrorist suspects in California amid migrant surge – Yemenis in the wanted list
  • Why stop at US Border? Team Biden eyes Global Minimum Corporate Tax
  • The Philippines intensifies war of words over the South China Sea
  • Trilateral Trade development between India, Israel and UAE could reach $110 Billion by 2030

In US news, Stay out of politics Republican leader Mitch McConnell tells US CEO of consequences from this Coca-Cola incident. Sridharji welcome to PGurus to channel, sir. I hope you’re doing well. How are things in New York?

Sridhar Chityala: Namaskarji, Good morning to everybody on this wonderful Tuesday morning. New York is chugging along quite well, and you know, we are in the middle of a new wave of democratic led presidential government in the state, you know, so I think we are battling along between covid and Law and Order and Crime that seems to be gripping the various cities and Manhattan is no exception to the rule but will bat along.

Sree Iyer: Sir, your thoughts on what Mitch McConnell said, I mean he suddenly seems to have woken up and realized that he needs to say something.

Sridhar Chityala:  Generally the corporations have never taken sides. As you all are probably aware that Republicans tend to be pro-business and less taxes, less government and more business and more incentives both for job creation as well as incentivisation for Capital formation. And for these corporations to come in and take a political stance on one party versus the other party, it’s very refreshing to see Mr Mitch McConnell issue the rebut which is to say stay out of politics and get out of the way. This is not your business.

Sree Iyer: Now, there are also some other things happening, isn’t it? Coca-Cola is now beginning to disappear off of some officers. So there is a backlash for doing something like this for taking a stance, isn’t it?

Sridhar Chityala:  It is, it is, so, therefore, now in as far as the state of Georgia is concerned or in many of the GOP places Coke is completely banned so coke will not be consumed.

It’s now they have issued an explicit ban for the coke, for a brand of that league to face this type of consequences. Coke was once the world’s number one brand, once upon a time and for it to face this type of consequence is very appallingly kind of poor. When they have their own discriminatory practices of ID’s within their corporate enterprises and taking this kind of a stand, so that’s the second. I just want to add one other thing. A thing there have been polls going on in terms of the Stance taken by Georgia as well as the other thing between 36 to 42% of the Americans, this is the initial pore trickling and they all support the law and they do not support the stance that has been taken.

Sree Iyer: Well, I’m curious as to what the quad in the squad is going to squawk so far hasn’t opened their mouth. I would at least expect them to dish out water bottles maybe at Border to welcome all these great friends and when everybody else has to go through the normal procedure. Anyway, I’m ranting here. Border patrol arrest to terrorist suspects in California amid migrant surge. They are found out to be Yemenis from the Wanted list of terrorists. So now whatever we said a few days back is coming true, sir. Anybody can come in.

Sridhar Chityala:  Anybody can come in. I think the Yemenis terrorists are the cause for concern because by accident they were not picked up. They were not picked by a formal kind of scanning and identification process. The further the border patrol has now stated they believe more than 100 to 150 people may have passed through. Remember, when Trump was the President, Trump was the first person to raise the issue according to his reports it’s close to 120 plus countries, people from those countries are coming in. So what is in store for the United States for the next 12-24 months only almighty knows.

Sree Iyer: And you know already as far as Yemen is concerned this government has reversed its policies three times.

Sridhar Chityala:  Look, I think that this is the forward-backwards, forward-backwards. So, in many of the countries that potentially were considered sensitive and risky from a terrorist threat point of view, access and lights were denied and visas were restricted that was the first thing that was lifted by Mr Biden. So, as you all probably know in this Quad Squad gang is a whole wealth of people, who are advocating this opening up under the pretext that this can go on. So, therefore, now we have that also open. I am strongly advocating removing passport control and immigration control in the airport so that we all can have seamless entry. Why we all need to kind of stand in the line show our passports and come, you know, they’re coming. So, why not? We also kind of come and go.

Sree Iyer: Janet Yellen says, that team Biden is eyeing a global minimum corporate tax? There are 197 countries other than the United States. Is Janet Yellen saying, that all these things have to normalize the minimum corporate tax in the same number so that it discourages the US corporations to set up incorporation there? Is that what they are meaning sir?

Sridhar Chityala:  I think that she is trying to make this case in the G20 because G20 is the first broad set of countries beyond G7. So, G20 then she may take it up to G20 plus. She feels that the United States is a disadvantage when you have several Nations, which attract capital, for example, India has as you probably are aware introduced a scheme for certain companies establishing businesses are flat 10% tax. I think so, 10% maybe my numbers are a little bit incorrect, but something of that ilk so, you know the pro Manufacturing can move and production too. So what she’s saying is hey, you can set that up because you are basically arbitraging, you know, my type kind of tax income. So let’s all be on, you know, consistent and same kind of tax model, so, that there is a minimum tax. I just don’t know whether the countries will bite it because the reason is the capital needs and the growth and investment and development needs are different from Country to Country. So now this is the Mantra that Democrats are saying we have a funding model. We have a funding model. We have a funding model to drive all these social programs. The only funding model for driving all these programs is to tax the companies which are making money that seems to be the only one.

Sree Iyer: Yes indeed and Biden is saying that he’s prepared to push through infrastructure plan with no GOP support. This is the Biden stimulus package that we talked about 2.2 trillion to start with I think it might change a little bit here and there and now Biden is saying that he will do it with or without GOP support. Sir, this infrastructure is supposed to benefit the entire country, the country consisting of Democrats, Republicans and independents. Why is he not trying to take the country along?

Sridhar Chityala: Why is he not taking the country along? Because again, the agenda will get marginalized his own Senator Representative Manchin has basically opposed, he says 28% corporate tax I oppose. So therefore that is not the right funding model because it deprives precious capital of the business. So, he does he doesn’t want anything at taking any chances and the progressive left in Schumer and Nancy Pelosi, led by respective groups are hell-bent on pushing their agenda through. Just, last night that they got a Senate parliamentarian ruling that they can have two more filibusters to their Philip and so they can rush their agenda through. So we’re going to see a broad set of agenda, this is only the first phase, there is going to be another two trillion and they will some more money coming. They’re going to be maybe minimum payments coming being issued, etc. Etc. So there’s more coming with a filibuster, you know with well-armed filibuster under their Armoury

Sree Iyer: An important ruling Supreme Court Justice Clarence Thomas says that SCOTUS will have no choice but to take on big tech over First Amendment. So this is the first big ruling coming from the Supreme Court of the United States, sir.

Sridhar Chityala: I think under the freedom of ideation and expression and so on many of the commercial social media platforms are allowed to conduct conversations under the First Amendment. They say the First Amendment doesn’t apply when they use that on one side and then arbitrarily apply the kind of rules. So I think that this change coming to the First Amendment as far as the social and tech platforms are concerned.

Sree Iyer: Cities that slashed funding is now inundated by homicides, 34 shot and 8 murdered over the weekend in Chicago, sir.

Sridhar Chityala: Indeed. I think that they have identified some 8 to 10. Apparently, there’s also in Portland there is a mass exodus of resignations from the police officers and so on. So, all these states which basically went on this after this George Floyd kind of incidents defund, defund. Let us kind of settle these issues like in the old wild west like you know kill, slaughter each other and whatever the story is, but the kind is alarming. I mean, you know, we will do the special feature that you requested in Manhattan, every day the headlines that we kind of, you know, the flashing news is not very good.

Sree Iyer: Soros group pledges 20 million of the 100 million to the infrastructure plan to recast American, so, Soros group want to pledge a total of 100 million and the first tranche is 20 million towards the infrastructure plan. I mean When the US is spending in trillions. Why is this guy trying to give 20-30 million? What’s the point here, sir?

Sridhar Chityala: If I have to give you a sarcastic view, listeners take it with a pinch of salt. He’s talking about recasting the community. He says communities need to be made deeply aware of these things.  All he’s basically saying is that he’s pushing a political agenda to recast and that seems to be his motive rather than his spending money for infrastructure. He is not into the infrastructure business. George Soros has destroyed countries

with his, you know currency hedges and currency bets. He has never created wealth for any nation in right throughout his history. He’s amassed wealth and he has abused using the markets the right way. Okay, he’s not violated any rules or laws, but for him to say he’s going to recast society is a complete kind of non-sense. I don’t know what’s happened to him?

Sree Iyer: And GOP States expand school choice as lockdowns boost alternative programs. This is an important development, sir,

Sridhar Chityala: It is a very very important and very profound development. One of the things that happened in the last 12 months or so. I’m going back to 2020 here is that when this covid kind of came in and also you probably are aware being from, California. Especially among certain communities like for example, the Hindu Community when the schools were compromising the educational system and the leftist agenda being propagated at advance to school and college system. Many of the parents raised had lots of concerns and issues around, so, they started to pull back to what you call a home education. So, Republican states are now saying we will set up an education account, will set up to tutor account, will give tax concessions provided you’re able to leverage and educate. Remember when you do that, there is no cost to the government right, your self-funding this education. So this home education is beginning to now take off, so, that they can have the better quality outcome of education to the children. Even private tutors are allowed and then you can go and sit and write the examination. I think it’s a very positive move.

Sree Iyer: In global news, Iran and China have signed its 25-year agreement, is this something highly unusual, isn’t it? You never sign a 25-year agreement.

Sridhar Chityala:  Yeah, it is basically to tell Biden, the United Nations, I don’t care. World organizations I don’t care. 25-year agreement energy, infrastructure and capital program plus of course, remember Iran is Hormuz and the straits the Persian Gulf Waters, so what China is saying is you want to kind of put sanctions? I’m signing 25 years agreement. You have restrictions on the kind of conditions on the money. Now, I will trade in Renminbi, what are you going to do?

Sree Iyer: The United States and Japan are planning a Belt and Road alternative for Indo-pacific with 5G smart cities, the focus being that they want to be able to roll out 5G. So I see that subtle shift that you mentioned a few weeks saying that, what used to be quad centric strategy is now becoming bilateral.

Sridhar Chityala:  It is, it is. Japan is a  little bit of a cause for concern because we don’t know which way you know, depending on which morning you wake up, you know, you seem to go left or centre, you go right and when you have Australia, France, India and others. When you had rare earth, when you had the bio, now suddenly to say that we are going to have a Belt and Road Initiative for 5G. Remember you got to understand that in the Pacific and the Indian Ocean the seawater, underground cables is a significant part of the infrastructure of communication interconnectivity between various islands and various places. So if these people are going to have their own kind of a program with 5G, what happens to the rest of it? Some of those areas even China is trying to contest and for example in the Pacific part where you have Australian continent, you find that many of them have used their influence to make sure that the Chinese don’t occupy unnecessarily and bring those kinds of businesses. I think there is far more integrated strategy is required if China has to be combated.

Sree Iyer: Japan also trades words with China over Uyghur and Hong Kong.

Sridhar Chityala: Yes, I think it’s like I have a procession. So first you had the United States, then you have EU, then you have the UK, then you have Germany. So now it is the turn of the Japanese to stand up and say, we don’t like your human rights stuff either in Hong Kong or Uyghur. But then what happens is China may send another rhetoric and then basically they kind of keep quiet. So it’s just one more routine that is going on in here. These Uyghur, Hong Kong, Tibet and Taiwan has become the centrepiece of an issue. China is taking no bar of it and they’re doing whatever they want to do.

Sree Iyer: Japan also woos Germany on Indo-Pacific with first plus 2 talks or 2 plus talks. Foreign and defence ministers are going to meet so Japan is also doing the same two plus two with Germany.

Sridhar Chityala: With due respect, we have to give credit to Mr Shinzo Abe for this 2 plus 2 dialogue. I find 2 plus 2 dialogue to be very very effective. But surprised that right in the middle of the Bay of Bengal effort that is right now going on, we touched on that yesterday, so you have the German Defence Minister and the German foreign minister meeting with the Japanese defence minister and foreign minister to cover the South China Pacific strategic roadmap or strategic threats emerging from China. I can understand France because France has got at least two or three major islands in the Pacific and the Indian Ocean, Australia has but Germany is coming all the way doesn’t want to be left behind. So it’s a massive confusion with his bilateral and multilateral dialogues that are going on. How somebody synchronizes this policy is beyond comprehension.

Sree Iyer: The Philippines intensifies the war of words over the South China Sea. So with your permission, I’d like to put up a picture here. So please you can talk to that. We’re talking, viewers, about a place called Whitson Reef. It’s called Philippinos call it Julian Felipe Reef. Brunei, Malaysia, Vietnam have overlapping claims over this vital Waterway, which is rich in fisheries and resources. Sir, please take it away.

Sridhar Chityala: Yeah, thank you. I think if you can see from this image right in the middle of the reef, there’s a whole bunch of fishing vessels. Remember the two changes the Chinese made. One that the patrol boats now can use as self-protection. So it becomes like naval boats, which are fully armed. So what you are seeing is right in the middle of this reef you have a lot of fishing vessels that are going on and it is now contested by Brunei, Malaysia, Vietnam, and the Philippines and China has taken no bar of it. This is the reef that came under contention under the International Court of Justice. China chose not to participate in that event. But why we are pointing this out is that this could be one of the flashpoints as five countries are involved and the rumour is that some of these are Chinese PLA rather than the fisherman. So whether they are merely fishing or whether they’re also trying to anchor themselves and cherry-picking parts and pieces of the reef, we don’t know but the image is very profound. It’s a satellite image.

Sree Iyer: Sir, I also have the Scarborough Shoal now, which is located inside the Philippines economic zone. Beijing has again transformed several of these reefs into artificial Islands equipped with military structures. Viewers, you can see all the tug boats in that picture. You can see all those dark points. Those are all the tugboats that China has got and this is one other thing Scarborough Shoal, which could also be a flashpoint, sir.

Sridhar Chityala: There are 4 flashpoints around that region. This is one of the major flashpoints. So we could potentially see something flare-up in one of these four points. What you’re seeing is these fellows are not taking claim of the whole, they are cherry-picking parts and pieces of the reef, and there’s a lot of dredging that is going on. Many of them now are equipped and fully armed So, in other words, it has become not just an occupation of the reef and building of an island, but the careful defence capabilities as a deterrence.

Sree Iyer: In Indian news, trilateral trade development between India, Israel, and UAE could reach 110 billion by 2030. That is a huge number, sir.

Sridhar Chityala: First and foremost, probably nobody covers this news. It is very transformative. Israel, UAE, India in a trade. Apparently, Israel is also working on an alternative to the Suez Canal so that there is no such kind of clogging that takes place. Israeli is basically about trade, there is a lot of Agriculture and much other such stuff happening there. So Israel is jointly working with UAE, which is very positive because UAE and India are two very big trading nations. So if this is a $110 billion trade infrastructure, it’s important in two contexts. One, it’s also strategic deterrence because Israel is very strong on the defence kind of stuff and the technology and sophistication in the developments that will creep into the UAE logistical infrastructure augurs well, and then that feeds into India. 110 billion is a big number, sir, it is a very big number.

Sree Iyer: In more positive signs, the foreign portfolio investors are again putting in a lot of money into India. In fact, in March the amount of money that came in was ₹17,304 crores.

Sridhar Chityala: Yes, small-cap to mid-cap, money continues to pour in through the FPI Foreign Portfolio Investment scheme. It is a reflection that sooner or later covid is going to go away. There may be abrupt cases growing up and they see growth opportunities coming out which again augurs very well on the structural side of India from a capital point of view.

Sree Iyer: Viewers, I want to take you back to 2015 when Modi came visiting New York and many of the banker Chiefs like Jamie Dimon and everybody met with him and one of the things that they said was one of the hardest challenges that India faces is that India’s bankruptcy code needed some more clarity and I think now India is working on that. It took a few years. Now, you have a prepackaged insolvency process. It’s a positive step. But it’s limited in its scope. Why do you fear it is limited sir and what do you think needs to be done?

Sridhar Chityala: Well, I think it is the beginning of the journey. I won’t use the word end State. It’s the beginning of the journey. There is no resolution mechanism. So when there is a dispute between two parties, the bankruptcy is about your file bankruptcy you have a resolution and then you have enforcement and you move forward. The problem has been around the resolution and the enforcement. These prepackaged is basically saying it’s restrictive here of 5 things that you can do, beyond these 5 things you have to go. So, then it gets into a permanent kind of a scenario. Without a resolution, you can unclog the capital from the balance sheet of your lender. You cannot sell the assets. You cannot charge off, you cannot write. So they commence the first step by saying OK here’s a small package for especially the SME sector because they are neither bankrupt nor they are equipped to receive a new branch of capital because of their non-performance. So, therefore, unless you have a bankruptcy process, well-established bankruptcy process in place, they can’t liquidate themselves. This is a great thing about the United States. We have a very clearly defined bankruptcy. You sell an asset. You made losses, what are you going to do? If your company is worth 20 cents in a dollar, will it ever become one dollar? No way. So you take it and you absorb those losses, book and forward tax credits and then you know recapitalize the company and start again.

Sree Iyer: In global covid update Global cases rise as the next wave commences and India has witnessed close to 100,000 new cases with Maharashtra topping the list.

Sridhar Chityala: Yes, in Maharashtra, the number that I hear is anything from 47,000 to 50 or 50 plus thousand. It seems like one specific State makes up the whole bulk of issues and there are some of the incidents that we hearing, people are struggling to get hospital treatment and so on. While nobody has been able to lay their hands as to what exactly is driving this momentum, but there are lots of reasons that are given. But having said that I think they are accelerating these vaccinations programs. Maharashtra again is a very badly managed State with lots of chaos and confusion. PGurus has been doing a lot of articles around all the stuff that is going on around the state. So the thing is that this issue needs to be solved so that India can unclog out itself and then do the journey forward.

Sree Iyer: In markets, the DOW climbs more than 370 points to a record high. S&P jumps more than 1% amid optimism in economic recovery. So we have a good situation going now, but with the new corporate taxes, do you think that could run into a headwind, sir?

Sridhar Chityala: Well, I think that by the time the tax comes into effect it could be, 2022. They have to pass the law, implement and so on. So, 2021 is a bumper year. All the analysts are expecting because of the continued regime and cash in the system. Q-1 earnings to be very good. Both in DOW as well as in S&P the numbers look positive. So 2021 is the year of US equities. So, therefore, if you are not in US equities in 2021, you may never be in equities, The market is doing very well on the back. Also, there’s pent-up demand. Remember the markets have been locked up for almost 13-14 months. So pent up demand by people coming back into the market and participating in lots of things. So there is a recovery momentum as well in progress. Remember, Sports is very big lots of sports activities were cancelled in 2020. Now stadiums are opening. So in 2021, we will begin to see a lot of retail and service type of consumption driving the momentum in the US economy and therefore the earnings.

Sree Iyer: Sir, President Biden thinks that his 28% corporate tax rate will not hurt the economy. One of his own Senators Manchin is opposing the 28% rate now, so you have Democrats among themselves not in agreement and in general, we have talked about 35% being too high and then Trump brought it down to 21%, now, we are bringing it back up from 21 to 28 per cent. So why is everybody looking at the same picture and coming up with a new result, different results?

Sridhar Chityala: It’s justifying the rationale for 2.2 trillion first tranche check money. That’s all it is because you know, so Mr Pete Buttigieg says we have a funding plan in place, it is fully self-funded, it’s a 15-year payback. So Mr Buddy Greg, are you earning money? No. Is the economic outcome generated from activities where you have deployed capital? No. Where am I getting it from? Well, I see there’s a lot of money sitting with the corporations. They are making money here. They’re making money there. So let me pinch that money. So when you have a decoupled source of repayment to a source of investment then there is no connectivity. So when you have no connectivity, it is randomisation. So they are trying to rationalize by saying, by increasing the taxes, I justify it. Remember 21 and 28 you are alluding to is Corporate. There is still personal taxes, which they are trying to increase from 34% to 39.6%. Then we have a wealth tax, capital gains tax and estate tax. More to come.

Sree Iyer: All these taxations will certainly break the back of many of us and I think looking out to living in other countries might become a very something that people will start looking forward to. America will not take this kind of taxation lying down. I can tell you right off the bat. That’s not what American Spirit is, that’s not what American entrepreneurship is, and I think we have to wait and see how this plays out. It is certainly very very discouraging that so early in his term instead of focusing on a few important things such as managing covid, they have opened the borders, they have raised taxes. I think it’s just crazy, what’s going on right now in the government.

So with these words viewers, please do subscribe to our new channel. This channel is what you can think of as a plan B channel for PGurus. Sometimes what happens is for something or the other the main channel gets restricted and right now we’re going through that phase. This is day two. We have five more days to go after which we can resume full transmission on our main Channel. But until then we have to make do with what we have got and this is our plan B channel. Do subscribe to this also because the videos will are only on this or the other so you’re not going to get multiple messages. So we will make sure of that. And again, thanks for watching. Sridharji, take care and we’ll be back tomorrow same time same place. Namaskar.

Sridhar Chityala: Namaskar. Thank you. Have a wonderful day everybody.




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