Arvind's Newsletter

1.India’s February core sector growth fastest in three months

The output of eight core infrastructure sectors, which account for two-fifths of India’s industrial output, expanded by 6.7% in February—the fastest pace in three months (though lower than February 2023), according to data released by the ministry of commerce and industry on Thursday.

The growth in India's eight key infrastructure industries—coal, crude oil, steel, cement, electricity, fertilisers, refinery products, and natural gas—was also revised to 4.1% for January, from 3.7% earlier.

During February 2023, core sector output had expanded at 7.4%.

India’s fiscal deficit during the first 11 months of FY24 stood at ₹15.01 trillion, or 86.5% of the revised annual estimate, according to data released by the Controller General of Accounts.The decline in the fiscal deficit, despite a jump in government spending to fuel economic growth, was due to higher tax receipts and an increase in non-tax revenue.

The Centre aims to reduce the fiscal deficit—the difference between the government’s income and expenditure—to 5.8% of gross domestic product during FY24, from 6.4% in the previous fiscal year.

2.IndiGo to fly more international routes, destinations; aims doubling size by 2030: CEO Pieter Elbers

The country's largest airline with a domestic market share of little over 60 per cent is also betting big on A321 XLR aircraft that are expected to be part of its fleet "somewhere in 2025", to further expand its overseas presence.

Taking off, seatbelts on. Budget carrier IndiGo plans to double in size by the end of this decade. In an interview with PTI, the airline’s chief executive officer Pieter Elbers said that it wants to add new domestic and international routes and destinations by 2030 as well. He also added that amid ongoing supply chain and engine issues, the company is taking some mitigating measures that are paying off. Meanwhile, in an interview with The Economic Times, the company’s chief financial officer Gaurav Negi said that, despite expansion plans, the company is keeping a strict check on cost and will use its cash reserves to digitise the company, and diversify operations. 

3.Slippery road: India's clean energy drive faces a tricky patch of taxation

India’s shift towards a low-carbon economy will come at a significant cost to the government’s revenue. India’s petrol and diesel consumption is a major revenue source for both the central and state governments. The price of each litre of petrol has Rs 19.9 central tax embedded in it. Together, the Centre and states earned about Rs 7.5 lakh crore from the oil and gas sector, Business Standard reports. 

Electrification will slowly dry up this revenue stream. In fact, the government will have to spend more as incentives and subsidies to promote EV adoption. While petrol accounts for 16% of India’s fuel consumption, diesel makes up 38%. 

Subsidies have helped a faster shift in the commercial , which largely depends on diesel and gas-powered vehicles. Diesel-guzzling Indian Railways is rapidly electrifying its route. Every 100 route kilometres electrified saves four million litres of diesel annually.

4.Daniel Kahneman, the Israeli American psychologist who revealed how biases and irrationality guide our economic decisions, died Wednesday at age 90. 

Kahneman, who wrote the book Thinking, Fast and Slow (TFAS) in 2011, didn’t study economics but won the 2017 Nobel for his groundbreaking work in behavioral economics. He used psychology to show the ways our economic choices are often biased by judgments that defy rational thinking; for example, why losing $100 feels about twice as worse as winning $100 feels pleasant. Science journalist Daniel Engber hailed him as “our greatest scientist of mistakes.”

If any of my readers has not yet read TFAS it is strongly recommended by me and if you want to read more of his life and his collaboration and friendship with fellow Israeli American mathematical psychologist, Amos Tversky do read “The Undoing Project- A Friendship that Changed Our Minds” by Michael Lewis.

5.New York officials voted to impose a $15 toll on most cars driving into parts of Manhattan, to reduce pollution and traffic. If the program clears several legal hurdles, it would make New York the first American city to implement “congestion pricing.” Critics say it would essentially make Manhattan residents pay just to return to their homes, and could impact small businesses, but cities like Stockholm, London, and Singapore have seen success with similar measures. Drivers priced out by the toll are “going to be unhappy,” a Singapore-based economics professor said. “But if you make things livable for them by making sure they’ve got their subway connectivity, bus connectivity, then that goes a long way.”

New York City is finally welcoming robotaxis. But only if they’re accompanied by human safety driver

6.The changing face of protest; Rest of World

People generally think about facial recognition technology as something that provides an extra layer of security. But it's increasingly being deployed by governments around the world to provide an extra layer of authoritarian control over dissent. "While authorities generally pitch facial recognition as a tool to capture terrorists or wanted murderers, the technology has also emerged as a critical instrument in a very particular context: punishing protesters." "Mass protests used to offer a degree of safety in numbers. Facial recognition technology changes the equation."

7.A digital twin might save your life

Having a digital twin has been a fantasy that science fiction writers have toyed around with for a long time. But things are beginning to change rapidly, Joe Zadeh writes in Noema. “In the last decade, thanks to advances in AI, the internet of things, machine learning and sensor technologies, the fantasy of digital twins has taken off. BMW has created a digital twin of a production plant in Bavaria. Boeing is using digital twins to design airplanes. The World Economic Forum hailed digital twins as a key technology in the “fourth industrial revolution.” 

Tech giants like IBM, Nvidia, Amazon and Microsoft are just a few of the big players now providing digital twin capabilities to automotive, energy and infrastructure firms.

The first city to begin the process of digitally twinning itself was Singapore, which deployed fleets of aircraft, drones and cars armed with lasers to scan the entire city-state from above and on the ground and then combine as much weather, demographic and movement data as possible. That twin will be used by the government to simulate construction projects, the effects of flooding and extreme heat, large-scale emergencies and more.”

8.How India could become an Asian tiger'; The Economist

Is india achieving its potential? In the year to the third quarter of 2023, the country grew at a blistering rate of 8.4%. Over the next half-decade it is expected to expand at 6.5% a year, which would make it the world’s fastest-growing big economy. So far, so good. The problem, as critics point out, is that China, Japan and South Korea all expanded at 10% or so a year during their periods of rapid growth. Part of the reason for India’s less impressive figures is a slowdown in globalisation. But a new book by Karthik Muralidharan of the University of California, San Diego, called “Accelerating India’s Development”, argues that the crucial barrier to faster development is a lack of “state capacity”.

Mr Muralidharan describes this concept as the “effectiveness” of government. Throwing money at a state lacking capacity is like adding fuel to a car near a breakdown: it won’t get you very far. Currently, the Indian state succeeds when on “mission mode”, achieving clearly defined goals. In April it should pull off the largest democratic exercise in history, as voters pick a prime minister. At the same time, it struggles with mundane, everyday aspects of governance, such as education and health. Three in five rural children in the fifth year of school cannot read at a second-year level—and in the past five years the failure rate has only worsened.

Part of the issue is the precociousness of Indian democracy. The franchise became universal in 1950, when the country was mostly impoverished. Citizens demanded that the state met their basic needs well before it had the money or capacity to do so. India launched its food-security programme in the 1960s, for instance, when it was a fifteenth as rich per person as America was when it launched its own such programme in the 1930s. This set a pattern: the Indian state does a lot, but little well.

In his 800-page tome, Mr Muralidharan lays out fixes. The book is crammed with details about how the Indian system works and could be improved. Three ideas stand out. They concern how the state should manage people, use technology and improve its federal system. And they hold lessons for other governments.

Since 2002, when Mr Muralidharan was a graduate student, he has been conducting surveys on absentee rates. It turns out that teachers skip school perhaps as often as pupils: they are absent 20-30% of the time. The problem is not pay. In 2017 a study by Rohini Pande of Yale University found that across 33 countries, India offered the second-highest wage premium to public-sector employees. Rather, the problem appears to be governance. School supervisory positions have ultra-high vacancy rates of 20-40%. Mr Muralidharan calculates that filling such roles would be ten times more cost-effective than hiring more teachers.

Such problems reflect a strange approach to civil-service management. About 1m Indians apply each year for about 1,000 slots, making it one of the most selective bureaucracies in history. Yet India has just 16 public employees per 1,000 people, one of the lowest ratios in the world. Indian officials also hop from position to position across various different tiers of government, moving every 15 months on average. As a recent retiree notes, this means that they have far too little time to develop proper expertise in any one area. Therefore problems go unresolved.

Better data would help. It should not take an academic survey to ascertain rates of teacher absenteeism. Official numbers on educational outcomes paint a far rosier picture than those collected by independent organisations. Schools and low-level bureaucrats have incentives to cheat. As such, Mr Muralidharan suggests digital data collection, audits and stiffer accountability.

A running theme throughout the book is the need to pay attention to India’s federal structure. The country has 28 hugely diverse states, 15 of which are big enough to be in the top fifth of the world’s countries by population. Historically, Indian politicians have fallen prey to cycles of corruption in which companies bribe leaders in exchange for favours, with leaders then using the money to fund expensive campaigns that involve, in effect, bribing voters. In some states, this cycle is starting to break down. Campaigns promising to get stuff done are precisely what propelled Narendra Modi, India’s prime minister, to fame when he ran the state of Gujarat.

Progress in the “third tier” of government, which is made up of villages, towns and cities, has been less impressive, however. Deng Xiaoping, China’s leader from 1978 to 1989, introduced reforms that rewarded local officials for their economic performance. India could use something similar, especially if states granted their local authorities more resources and power. Of the 18 similar countries looked at by Mr Muralidharan, India was the least decentralised when it came to fiscal affairs. Just 3% of state spending happens at a local level, compared with 51% in China. In 2000 three Indian states—Bihar, Madhya Pradesh and Uttar Pradesh—were split in two. So was Andhra Pradesh in 2014. All four splits have led to faster economic growth.

There is much else in Mr Muralidharan’s book. But changes to personnel, data and federalism would together represent the beginnings of a reform package that could do wonders for India’s governance, and therefore its growth. Indeed, the sheer variation in performance across India’s cities and states demonstrates the potential benefits. Karnataka, a large and reasonably well-run state, is six times richer per person than Bihar, the country’s poorest state—making India one of the world’s most geographically unequal countries. Internal migration is relatively rare, which means that for incomes to grow faster, poor states will have to get their act together. The changes outlined by Mr Muralidharan will be tough to enact, but not impossible. And if some states make the leap, they may inspire others to follow their example.

A discussion with Muralidharan on his book can be heard in the YouTube video below