Ten interesting things that we read this week

Some of the most interesting topics covered in this week's iteration are related to 'Difficulties in realising India's solar ambitions', 'the importance of branding as a competitive moat', and 'Japan's friend renting business'.

Published: Nov 19, 2017 08:20:19 AM IST
Updated: Nov 20, 2017 10:27:53 AM IST

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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘Difficulties in realising India’s solar ambitions’, ‘the importance of branding as a competitive moat’, and ‘Japan’s friend renting business’.

Here are the ten most interesting pieces that we read this week, ended November 17, 2017.

1) Reality dawn on India's solar ambitions [Source: Financial Times]
The winning bid for the 500-megawatt Bhadla solar park in Rajasthan in May’17 was one of the lowest prices for solar power ever seen anywhere in the world. The companies — Acme Solar, an Indian developer, and SBG Cleantech, a joint venture whose shareholders include SoftBank of Japan — said they would build the project for a guaranteed price of just Rs2.44 ($0.04) for every unit of electricity they eventually sold.  For many in the Indian energy industry, the Bhadla auction confirmed that the country is undergoing a generational shift from coal-fuelled power to solar and wind. Given that India is already the world’s third-biggest carbon emitter and plans to electrify even its most remote villages within two years, a rapid expansion in the country’s renewables sector would prove a huge boost for attempts to keep global temperature rises below 2 degree Celsius — the target set by the 2015 Paris climate accords.

India has set an aggressive target of building 175 gigawatts of new renewable power by 2022, of which 100 gigawatts would come from solar. At first, the country struggled to build new capacity as quickly as the targets required, but over the past two years, a string of record-low bids for new solar power projects have fuelled optimism that it could soon catch up. Acme Solar’s bid of Rs2.44 for Bhadla in May, meant that prices had dropped 50% in two years and over a quarter in just three months. It also meant that solar was now substantially cheaper than coal- averaging at Rs3.20 per unit. The successful bid raised some eyebrows in the industry. However, the companies behind the bid defend the offer. Manoj Kumar Upadhyay, the founder and chairman of Acme suggests there are good reasons the price of solar power in India is so low. In addition to its strong and reliable sunlight, the price of Chinese-made solar panels has tumbled in the past few years as a manufacturing boom has created over-supply.  Moreover, India’s notoriously high cost of capital has been reduced by strong government involvement in the solar power sector.

At parks like Bhadla, government acquisition of land combined with guaranteed grid connections and payment guarantees (should state utilities default) has reduced the developers’ projected financing costs to around 9% - not far above the central bank’s benchmark rate of 6%. However, the problem Mr. Upadhyay faces is that there are several factors that could yet push costs up considerably. Firstly, while the amount of annual sunlight received at Bhadla will be fairly predictable over the contract’s 25-year period, less reliable is how polluted the site becomes. A study last month showed that India’s thick blanket of air pollution is sapping solar power generation by a quarter. Secondly, the cost of solar panels has stopped falling in the past six months, and begun to rise instead, from $0.30 per watt of power to around $0.35, mainly because both the US and India are now considering anti-dumping duties on Chinese-made panels.  Such a move would push the overall costs of projects like Bhadla up by 20% or $32m more. Third, the Government’s new goods and services tax, has also pushed up costs for solar developers. Finally, there is a serious risk the utilities buying power will simply not pay.

The Central Government has sought to allay these fears by providing several layers of guarantees to solar developers, with itself as the final backstop. But with some states already trying to renegotiate deals with solar power developers to take advantage of falling prices in the sector, some worry that banks could start to push up the financing costs. Already, concerns over the runaway Indian solar power industry have started to slow its growth. The pace of new tender announcements has slowed 68% in the past year and since May, no company has come close to bidding Rs2.44 for a new project. There are also signs that banks are getting nervous about whether they will be repaid. One foreign banker says they are not willing to finance Indian solar projects until companies can prove they are able to build at the costs being quoted. With an estimated $10bn of bank finance already committed to the industry, a series of defaults from developers would prove serious for India’s already distressed lenders.

2) Buffett’s 1972 letter to See’s Candies [Source: Base Hit Investing]
John Huber of Saber Capital Management discusses a rare letter sent by Mr. Buffet to the CEO of See’s Candies, Chuck Huggins in 1972. In the letter, Buffett attempts to give some general advice on the distribution, merchandising, and marketing of the chocolates. The two main takeaways from the letter were: a) Buffett was extremely concerned about protecting the See’s Candy brand; and b) he recognised that the key to protecting the brand was to tell a good story about the product. Buffett knew that the brand was the company’s main asset and the only real reason for the attractive economics (lots of cash came out of the business and very little had to go back in). And of course, this high return on capital was the key ingredient that Munger used to convince Buffett that the business was worth paying a large premium over tangible capital – something Buffett was very reluctant to do up to that point.

High return on capital can be earned in two ways: by earning above average profit margins, or by turning over its capital quickly. Firms generally derive their high returns on capital through either having an advantage on the consumer side (high profit margins) or on the production side (high capital turnover). See’s great profitability stemmed from the former. There can be many reasons why companies are able to consistently achieve high markups over their cost. While some products are expensive, complex to change, and critically important to a customer’s business operations (e.g. SAP), some derive their margins as a result of their strong two-sided networks (e.g. Facebook, Google, and Tencent). Companies like See’s however are able to charge high prices because of a strong brand name.

John believes strong brands can be divided into two main buckets: a) Companies that offer a better product or service than competitors (e.g. Apple); and b) Companies that offer a product or service of similar quality to competitors, but are just better at telling a story about that product (he picks Coke, Tiffany’s, and Nike as examples here). Most brands, he feels fall into the second category. There is nothing disingenuous about promoting your product – marketing is part of business strategy and effective marketing – like the swoosh logo and the “Just Do It” slogan for Nike (which in hindsight were brilliant) – sometimes makes all the difference between good companies and average companies. However, he says that a business that depends on the “story” is often more likely to be vulnerable to shifting consumer behaviour.

See’s Candies is an example of one of these companies that had a strong brand, but required a story that had to be told and an image to be maintained in people’s minds. Buffet mostly knew this and that’s why he emphasised this in the 1972 letter to Huggins: “We might be able to tell quite a story about the little kitchen in California that has become the kitchen known ‘round the world’.” He even talks about making marketing pamphlets that should: “form the basis of the legend that we eventually want to have permeate the country. Such a booklet, along with really classy display and appropriate advertising… could well enhance our image…”John highlights sections of the letter that hint at some fear that the brand could erode if, for example, it is placed: “on a counter with 25 other offerings of cheap bulk candy, and other run-of-the-mill products.” Buffett’s comments imply that there is no guarantee regarding the sustainability of a brand, and while brands are very valuable, they are also very vulnerable. While he didn’t think See’s was in a precarious situation, he knew that the moat that See’s had could evaporate very quickly under the right circumstances.

Buffett knew that the brand came not from making better chocolate, but from better marketing of that chocolate. He tells Huggins that the way the chocolates are displayed in the stores impact the customers’ “impression of our quality”, and that the chocolates “have to be offered in a way that establishes them as something very special”. He likens See’s to Coors when they marketed the fact that their beer came from one brewery, even though he “always had the suspicion that 99% was in the telling and 1% was in the drinking.” In short, Buffett knew that the product had to be sold (distributed, marketed, and presented well). See’s chocolate tasted great, but that wasn’t enough to separate itself from competitors. Consumers had to associate See’s with some “legend”, or some hallowed kitchen in California that gave off the sense of history and nostalgia.

3) Modi looks to spark India electricity drive [Source: Financial Times]
As he looks to counter criticism of his handling of the Indian economy, Narendra Modi has returned to a familiar project of successive Indian prime ministers: providing electricity to everyone in the country. The Indian premier has promised that his government would spend Rs123bn ($1.9bn) to provide every household with an electricity connection by April 2019 — just in time for the next general election. Ministers hope the drive will boost economic output following a recent dip in growth. But government data shows that despite ministers having made rural electrification a priority from the start of this Government in 2014, the pace of change has slowed considerably since the middle of the past administration. And for Mr. Modi to hit his target, he will need a fivefold jump in the number of houses connected every week. The figures raise questions about whether the PM will be able to meet his targets, and whether his scheme is likely to provide the boost to the economy his government badly needs.

India has been struggling for decades to implement plans to connect households in rural areas. In recent years, it has watched neighbouring China provide connections to every single village, but the most recent government figures show that 16% of Indian villages are still without a link to the grid. Even when a village has been deemed to be connected, that can mean only 10% of households have power, along with public buildings, such as schools and health centres. More than 40mn households across the country still lack power, according to Mr. Modi. To connect them all by April 2019, the Government will need to provide power to nearly 540,000 households every week. The average rate in the past four weeks has been less than 95,000. While Mr. Modi has focused on rural electrification since coming to power in 2014, government figures show that he has failed to recapture the momentum achieved after the previous government launched its first electrification scheme. This is despite the fact that India now has a surplus of generating capacity.

In 2009-10, 18,000 villages were connected, according to the Rural Electrification Corporation, and the same again the following year. But in 2013-14, the final year of the Congress-led government, that fell to just 1,197 villages. In the first year of Mr. Modi’s administration it rose to 1,405, while last year it was 6,015. The rate at which poor households have been connected free has also declined. In the past financial year, 2.2mn received free connections, well below the 5.9mn that received them in 2010-11. There are several reasons for the slowdown. One is that as more villages become electrified, it is only those that are very difficult to reach that remain, and these take more time. But there are other problems that Mr. Modi’s administration has not yet tackled. One is that free connections are available to households below the poverty line but those above it do not qualify and so have frequently been reluctant to pay. The new scheme aims to solve this problem by expanding the qualification criteria for free connections and by allowing others to pay for them in installments afterwards.

However, the Government is still struggling with problems at distribution companies which provide the connections from the main grid to homes. Many of these companies are deeply in debt and suffer losses which leave them reluctant to invest in connections to rural households unlikely to pay enough to recoup the costs. “Governments have offered subsidies for connection, but not for the electricity consumption itself,” says Ashwini Chitnis, senior research associate at Prayas, an NGO focusing on energy. “This creates an existential problem for the distribution companies, which lose around Rs4-5 for every unit of power they supply to poor and newly electrified households.” And while the government has launched a scheme to help clear up these companies’ balance sheets, ministers at a local level still show little appetite for raising customers’ tariffs as a way to improve their financial performance.

4) What the hell is an Initial Coin Offering (ICO)? [Source: MIT]
Initial coin offerings (ICO) are all the rage. Dozens of companies have raised nearly $1.5 billion via the novel fundraising mechanism just this year. But what exactly is an ICO? In an ICO, instead of offering shares in a company, a firm is offering digital assets called “tokens.” A token sale is like a crowdfunding campaign, except it uses the technology behind Bitcoin to verify transactions. The interesting aspect is that tokens aren’t just stand-ins for stock—they can be set up so that instead of a share of a company, holders get services, like cloud storage space, for example. An example of this is Bitcoin. Bitcoin and other digital currencies are based on blockchains—cryptographic ledgers that record every transaction carried out using Bitcoin tokens. Individual computers all over the world, connected via the Internet, verify each transaction using open-source software. Some of those computers, called miners, compete to solve a computationally intensive cryptographic puzzle and earn opportunities to add “blocks” of verified transactions to the chain. For their work, the miners get tokens—bitcoins—in return.

Blockchains need miners to run, and tokens are the economic incentive to mine. Some tokens are built on top of new versions of Bitcoin’s blockchain that have been modified in some way—examples include Litecoin and ZCash. But advocates of blockchain technology say the power of tokens goes beyond merely inventing new currencies from thin air. Bitcoin eliminates the need for a trusted central authority to mediate the exchange of value—a credit card company or a central bank, say. In theory, that can be achieved for other things, too. Take cloud storage, for example. Several companies are building blockchains to facilitate the peer-to-peer buying and selling of storage space, a model that could challenge conventional providers like Dropbox and Amazon. The tokens in this case are the method of payment for storage. A blockchain verifies the transactions between buyers and sellers and serves as a record of their legitimacy. How exactly this works depends on the project. In Filecoin, which broke records last month by raising more than $250 million via an ICO, miners would earn tokens by providing storage or retrieving stored data for users.

Some people think ICOs could lead to new, exotic ways of building a company. If a cloud storage outfit like Filecoin were to suddenly skyrocket in popularity, for example, it would enrich anyone who holds or mines the token, rather than a set group of the company’s executives and employees. Someone has to build the blockchain, issue the tokens, and maintain some software, though. So to kickstart a new operation, entrepreneurs can pre-allocate tokens for themselves and their developers. And they can use ICOs to sell tokens to people interested in using the new service when it launches, or in speculating as to the future value of the service. If the value of the tokens goes up, everybody wins.

With all the hype around Bitcoin and other cryptocurrencies, demand has been extremely high for some of the tokens hitting the market lately. A small sampling of the projects that have raised millions via ICOs recently includes a Web browser aimed at eliminating intermediaries in digital advertising, a decentralised prediction market, and a blockchain-based marketplace for insurers and insurance brokers. Still, the future of the token marketplace is highly uncertain, because government regulators are still trying to figure out how to treat it. The SEC recently warned investors to watch out for ICO scams. China went so far as to ban ICOs, and other governments could follow suit. Of course, the scene does seem ripe for swindles and vaporware. Many of the companies launching ICOs haven’t produced anything more than a technical whitepaper describing an idea that may not pan out.

5) How to hire fake friends and family [The Atlantic]
Money may not be able to buy love, but in Japan, it can certainly buy the appearance of love, and appearance, as the dapper Ishii Yuichi insists, is everything. Ishii Yuichi’s business involves becoming other people. The handsome and charming 36-year-old is on call to be your best friend, your husband, your father, or even a mourner at your funeral. His eight-year-old company, Family Romance, provides professional actors to fill any role in the personal lives of clients. With a burgeoning staff of 800 or so actors, ranging from infants to the elderly, the organisation prides itself on being able to provide a surrogate for almost any conceivable situation. Yuichi believes that Family Romance helps people cope with unbearable absences or perceived deficiencies in their lives. In an increasingly isolated and entitled society, the CEO predicts the exponential growth of his business and others like it, as à la carte human interaction becomes the new norm.

Roc Morin, the author of this piece, sat down with Yuichi to discuss his business and what it means to be, in the words of his company motto, “more than real.” Yuichi told that an incident pertaining to the unfairness of the Japanese society propelled him to start his company, where people could hire friends and family as per their needs. The clients can fill an order form where every possible preference is listed: hairstyle, glasses, beard, fashion sense.... Do you like classy or casual? Is he affectionate or stern? When he arrives, should he be talkative or tired from a long day at work? And the list goes on. Also, the rules are set: 1) A person can only have five families at a time; 2) They cannot share personal contact information; 3) If it’s a boyfriend or girlfriend scenario, they cannot be alone in a room. They can hold hands, but they cannot hug. No kissing. No sex. On asking whether there are any requests he has rejected, Yuichi says, “Unless it’s a crime, we will accept any request. Some people with anorexia, for example, want to see people who are willing to eat in front of them. They just find relief in watching a person who eats a lot. We will even do that.” 

While sustaining a lie for life is a challenge, when asked whether it is possible to avoid the truth forever, Yuichi says, “The truth does have to come out eventually. The happiness is not endless, but that doesn’t mean that it’s without value. A child had a father when she needed him most. It might have been a brief period, and she might know the truth now, but she had a meaningful experience at that time.” Also, when asked whether everyone in this world is replaceable, Yuchi says, he’s not sure about that. But he did cite a case where a man in his 60s wanted to order another copy of his wife as she had died. The company provided one and she has the same memory as the man’s deceased wife. How? There’s a blank sheet, and the client writes the memories that he wants the wife to remember. The motto of his company is ‘more than real’ and given that in today’s world the concept of ‘reality’ has got distorted (he cites the example of Facebook wherein even if the people in the pictures haven’t been paid, everything is curated to such an extent that it hardly matters), he uses it to provide exactly the kind of ‘reality’ clients want.

6) The science behind why you keep replaying that one song [vice.com]
We all have this tendency to play our favourite songs on loop. While in the process we don’t realise the number of times that we hit replay. We get the song stuck in our head, and decide that the only way to make it stop replaying in our mind is to repeatedly blast it out of speakers or headphones until we’re completely sick of it. The author of this piece, Alfred Maddox, too suffers from this same ‘problem’ and his friends and colleagues claim that he is "ruining" songs for them, and himself, by listening to them so much. He typically listens to a song for at least five to ten times, consecutively.

To know more about this habit, whether it’s unhealthy, Alfred went to Peter Vuust, a music professor and brain scientist, for answers. On asking about what goes on in his brain when he plays a song continuously till his friends and colleagues are bored to death, Peter says, the reason we like listening to music and feel the desire to have it repeated is likely because it affects the reward centre of our brains. This is the biological system that rewards us for doing things that are vital to our survival. It's the reason we get a little high from eating food, and a little higher from having sex and so on. It's nature and biology's way of making sure we repeat the things necessary for our survival. We rarely watch a movie or read a book much more than two or three times. But we listen to music again and again. Music is also the art form with the most repetitions. According to Peter, music affects our reward system and it varies from person to person. Music gets some people way higher than others.

There are a few people that get absolutely nothing out of music. It is documentable that listening to it generates no activity in their pleasure centres whatsoever. There's no music that appeals to them, and they can't understand why other people spend time on it. But then there are people who get goosebumps, when they listen to the music they like. This is regulated by dopamine—the brain's natural dope. There are also drugs that work by releasing more dopamine into our brains. But narcotics affect the brain in different ways. They all affect the dopamine system in some way and there is a lot of it coursing around in our brain when you do cocaine, amphetamine and those kinds of drugs.

But what happens when a person gets sick of listening to a song. If we listen to something a bunch of times, it makes its way to the other end of the spectrum, and we stop learning anything new when we listen to it, which our biological systems are hypersensitive towards. And maybe that spectrum is a bit wider for some than others. Meaning it takes longer for some before the brain realises that you aren't actually learning anything new. That’s the reason why musicians are far more sensitive to minute changes in sound than non-musicians. It could also be that you're just really good at getting a lot of information out of the music. But why do different people have different listening habits? Peter says, “We all use music in wildly different ways. Some people are part of opera clubs and go to the opera together; other people go to football games and chant songs together at the stadium. Our brains are different. We're just as different on the inside as we are on the outside.”

7) Why unlimited vacation means more time in office [Source: Financial Times]
One of the most annoying fads to come out of Silicon Valley in the past few years — the unlimited vacation policy, has spread. It does not seem that long ago that boundless time off was a novelty promised by the likes of Netflix and LinkedIn. Now it is being offered by law firms in London, loan companies in Latvia, recruiters in Berlin and electronics outfits in Taipei. The contagion is not surprising. It is hard to think of another work perk that promises so much and delivers so little — to workers. But it is a different story for companies. A big firm that ditches fixed paid leave for open vacations can wipe millions of dollars worth of unused leave liabilities from its books that would otherwise be paid to departing employees. At the same time, it can safely offer bottomless holidays knowing most employees will never take them, especially in the US, the only major advanced economy in the world that does not guarantee workers paid vacation time.

In Europe, where workers are guaranteed at least four weeks’ paid leave, the thought of this American import creeping into more and more offices is awful. Some companies are doing better at using open holiday schemes to make their workers less exhausted. But the author says, she knows more who would feel too pressured to try it, especially if they had to justify time off that was once ordained. Sure enough, evidence is already rolling in showing that people end up taking fewer days off at companies that have abandoned firm rules on holidays in favour of open schemes. The author explains why. She cites example of a woman who was initially thrilled to be able to take two weeks off for her honeymoon this year. The trouble was, she had been invited to a wedding abroad early next year and did not think she could go because she felt “too nervous” about asking for another week off. The interesting thing is that she was thinking of switching jobs and did not want to go back to a job with the traditional two weeks of paid vacation a year.

That underlines something that the author says she hadn’t thought about before: some companies are doing better at using open holiday schemes to make their workers less exhausted, happier and potentially more productive. But they probably have to be run by people like Aron Ain, chief executive of the Kronos management software group. He decided to introduce open vacations at the beginning of 2016, after struggling to recruit workers. But he did not do it willy-nilly. He decided to return any savings to employees, by boosting maternity leave and other benefits. He used a consultant to figure out pitfalls, such as people being afraid to ask for too much time off. He also tried to sidestep such problems by insisting employee leave was tracked to make sure managers were handling leave requests fairly. The result: employees took off an average 2.6 more days last year than in 2015. Voluntary turnover dropped. Workers said they were happier and Mr. Ain thinks it is no coincidence that 2016 was Kronos’s best financial year ever. The author confesses she has changed her opinion. There are upsides to unlimited vacations, but only at companies with an unlimited commitment to making sure that they actually work.

8) The Opiate of the bosses [Source: Project Syndicate]
When you advance business interests at the expense of public health, disaster is bound to knock the door of your company. The rapidly escalating opioid crisis is destroying lives across the United States. While there is plenty of blame to go around, the largest share of the guilt belongs squarely on the shoulders of the major drug companies – Big Pharma. The cynicism with which pharmaceutical firms have encouraged opioid drug use is appalling. Providing far too little analysis and oversight, they distribute opiates widely, alongside misinformation about how addictive the drugs truly are. Then they entice doctors with inducements and giveaways, which include trips, toys, fishing hats, and, in one case, a music CD called “Get in the Swing with OxyContin” (one of the most popular opioids) to prescribe them. In 2007, several executives of the parent company of Purdue Pharma, which markets the popular opioid OxyContin, pleaded guilty of misleading doctors, regulators, and patients about the risk of addiction associated with the drug. The company had to pay $600mn in fines and penalties.

In the decade since, opioid distribution has expanded substantially, driving a rapid increase in addiction and death rates. Yet Big Pharma was undeterred. Multiple state attorneys general are now taking drug manufacturers, including Purdue Pharma, Johnson & Johnson, Endo Health Solutions, Inc., and their subsidiaries, to court for marketing and distributing their products by “nefarious and deceptive” means. Similarly, in 1994, the so-called Cigarette Papers, some 4,000 pages of internal documents leaked from the tobacco company Brown & Williamson, showed that the industry engaged for years in a public campaign to deny the addictive qualities of nicotine and the health hazards of smoking, despite industry-funded research showing otherwise. This year, new investigations, including by the World Health Organization, showed that major tobacco companies like Philip Morris have continued to use covert and illicit tactics to advance their business interests, at the expense of public health.

But, the good news is that pressure on companies is mounting, because some investors are becoming jittery. Last month, a coalition of unions, public pension funds, state treasurers, and others established the Investors for Opioid Accountability. Bringing their collective $1.3 trillion in assets to bear, the coalition’s members plan to scrutinise the actions of boards of directors more closely, in order to strengthen accountability and encourage independent board leadership. The Nobel laureate economist Milton Friedman famously argues that the only social responsibility of business is to maximize profits. But, when firms’ efforts to create shareholder value lead to such far-reaching consequences – or “externalities,” in economists’ parlance – for the rest of society, the argument that self-interest advances social welfare falls apart.

Physicians are bound by a rather Hippocratic Oath, which obliges them to do no harm and to uphold medical ethics. But companies, too, have an enormous capacity to do harm, and investments in corporate social responsibility initiatives or community projects do little or nothing to mitigate that harm or offset ethical breaches. If managers’ business strategies fail to reflect their companies’ social responsibility – or, worse, depend on ignoring it – they must be held accountable, just as rogue doctors are (or should be). Leaders like Trump, who value protecting corporate interests above nearly all else, may be encouraging companies to believe that they have nothing to worry about. But they do. As the US opioid crisis shows, a bottom-line mentality inevitably increases the number of people directly harmed by companies’ behaviour. And those people can no longer afford to ignore the lasting damage done to their environment, communities, and families.

9) Our crowded, lengthy commutes are making us lonely than ever [Source: qz.com]
Commuting can be bad for our health, whether it’s packed, delayed trains or mile-long traffic jams. It contributes to our anxiety, stress, and our waistlines. A recent study of British commuters found that even just a 20-minute increase in commute time is equivalent to getting a 19% pay cut for job satisfaction. Every extra minute spent travelling to and from work feels like a lifetime—and, unsurprisingly, increases strain on our wellbeing. Interestingly, ‘Millennials’ –who are often maligned as entitled, work-shy snowflakes unwilling to go the extra mile for their professions, are bearing the brunt of this phenomenon. Stagnant wages and rising housing costs are pushing people further away from their jobs. The number of workers who commute daily in the UK for two hours or more has increased by a third in five years. This is a problem felt acutely by those aged between 20 and 35, who typically spend over a third of their post-tax income on rent.

It’s been quoted widely that the young British and American people are earning lesser than their predecessors. As a result, they face increasingly long journeys to work, with less to show for their efforts. In the UK, young people commute for the equivalent of three days a year more than their parents. American workers are commuting longer too, according to the 2013 US Census—and nearly 600,000 workers endure “extreme commutes” of 90 minutes or more. Facing skyrocketing living costs, and less disposable income, young people are also going out less, and spending more time on social media. A University of Pittsburgh study of adults aged between 19 and 32 years old found those who spent more than two hours a day on social media were twice as likely to feel socially isolated. That leaves commuting one of the few times we’re consistently around other people. And yet, ironically, it’s an incredibly isolating experience.

Harvard political scientist Robert Putnam lists long commutes as one of the most substantial predictors of social isolation. He suggests that every 10 minutes spent commuting results in 10% fewer “social connections”—connections that make us feel happy. While many assume loneliness is a problem only felt among older generations, but it is a growing issue among young people. A survey of 2,000 Brits published by the UK’s Nationwide bank earlier this year unearthed a surprising phenomenon—nearly 89% of people aged between 18 and 34 who were polled said they had experienced “feeling disconnected or isolated” from society at some point in their lives, compared to 70% of those over 55. The younger generation might have instant streaming video, avo lattes, and “deconstructed food,” but they also live in an age of job insecurity and perilous casual worker contracts, burdened with enormous debt, and high living costs. It’s difficult to find a millennial worker who doesn’t feel disposable—most of them are. So if they’re offered a job with a long commute, the chances are they’re going to take it.

A lengthy transit to work seems like a relatively minor inconvenience, but long commutes and increased social isolation need to be taken more seriously. Research shows feeling lonely is terrible for your physical and mental health. Earlier this year, medical practitioners warned that being lonely can be as bad for you as having a long-term medical condition like high blood pressure. Feeling isolated can contribute to problems, such as anxiety and depression, which in turn can make you feel more alone, says Stephen Buckley, a spokesperson for Mind, a British mental health charity.

These underlying factors aren’t going to go away overnight. But there are ways to get help if your commute is getting too much. As an increasing number of people face long, strenuous commutes—employers may need to become more open to flexible working scenarios and telecommuting. According to a 2014 survey of more than 300 US workers by the University of Illinois, most employees performed at least as well as in the office when telecommuting—and some actually do better.

10) Surat beats Kolkata to become India's new shell firm capital [Source: Livemint]
Surat has replaced Kolkata to become the new capital of shell firms that evade taxes. According to the Income Tax (I-T) department, a majority of the companies featuring on the new list of shell firms provided by the government are based in Surat. Kolkata had topped the first list. The tax department began tightening the noose around shell firms earlier this year, as more details about such companies came to light after demonetisation. In the new list, tax officials have found that over 80% of the 2,138 shell firms, which had deposited unaccounted cash of at least Rs5,000 crore during the note ban, were from Surat. The tax department expects this number to go up. Earlier, the tax department had identified 16,000 shell firms floated in Kolkata between 2011 and 2015, to launder money.

The probe further revealed that Surat had become a safer bet for shell firms compared with Kolkata for two main reasons. First, Surat’s diamond business has also resulted in a flourishing parallel trade, with traders shipping diamonds worth millions of dollars illegally abroad, mostly to Dubai and South Asian countries, from where they can be sold to western markets. Since the system was in place and operators were well-versed with the parallel economy, it was easy, explained a senior I-T official. The second reason is that Surat also has indirect exposure to overseas markets, which is complex and tough to crack. The earlier modus operandi of converting black money into white was to buy shares of listed shell firms, jack up their prices, sell shares after a year and claim long-term capital gains exemptions. However, in the new cases, the entities are adopting new strategies to make transactions more complex in nature.

Under one such scheme, called “layering”, which the Surat operators have mastered, laundering takes place through multiple transactions involving several entities making it difficult to expose the money trail. In the case of shell companies, assets are seldom in the beneficiary’s name and money moves to jurisdictions where Indian law has no reach. “In the recent past, we have come across a significant number of cases where promoters have parked money in overseas bank accounts with some links with Surat-based firms. The matter is currently under investigation,” said an Income Tax officer quoted above. The I-T officer said this was how Surat replaced Kolkata, which was the previous centre for shell companies since 1980. Also, shell companies based in West Bengal have already been prosecuted, said another I-T official. “The continuous crackdown on companies in Kolkata by us is another probable reason for entities avoiding West Bengal to launder money through shell routes,” he added.

In the last three years, the tax department has identified over 1,155 shell companies, which were used as conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was over Rs13,300 crore. So far, it has launched criminal prosecution complaints against 47 persons. Meanwhile, the department has also initiated action against chartered accountants involved in helping shell companies to flourish.

- Saurabh Mukherjea is CEO, and Prashant Mittal is Strategist, at Ambit Capital. Views expressed are personal.

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