Jamal Mecklai: Money for nothing, really!
US corporations have the equivalent of $542 billion (close to India’s GDP) as undistributed corporate profits, and that this number has almost doubled in the past two years. Closer to home, Business Standard has reported that 700 Indian companies had nearly $7 billion of cash on hand, compared to less than a billion last year. This could mean that companies are extremely risk-averse—they are holding on to cash because they fear the future. But most other indicators of risk—volatility of global financial markets, for one—are signalling high risk-taking behaviour on the part of investors. Further, global growth and growth prospects are all high (for the US) to very high (for India).The other possibility is that the value of capital has fallen. Which is why the returns on so-called risk-free capital are so low and, incidentally, have been low—less than 6% for 10-year US government bonds—for nearly a decade. To my thinking, they will continue to remain low (and, perhaps, even fall further) till such point as the value of knowledge—determined, say, by the price of education—reaches stratospheric levels.
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