Arvind’s newsletter

Best wishes to my subscribers on the first issue of the New Year.

1. New York Times has generally been known for its articles critical of India, so it was surprising to see this piece published in the last day of 2022. Richard Cohen, Paris bureau chief of NYT spent 2 weeks in India to write this article in which he opines that invasion of Ukraine, compounding the effect of the pandemic, has contributed to the ascent of India, which defies easy alignment. India could be a decisive force in a changing global order. The article while it is not pro-India it is balanced in its coverage. Few excerpts:

"The postwar order had no place for India at the top table. But now, at a moment when Russia’s military aggression under President Vladimir V. Putin has provided a vivid illustration of how a world of strongmen and imperial rivalry would look, India may have the power to tilt the balance toward an order dominated by democratic pluralism or by repressive leaders. Which way Mr. Modi’s form of nationalism will lean remains to be seen. It has given many Indians a new pride and bolstered the country’s international stature, even as it has weakened the country’s pluralist and secularist model."

"The Ukraine war, compounding the effects of the Covid-19 pandemic, has fuelled the country’s ascent. Together they have pushed corporations to make global supply chains less risky by diversifying toward an open India and away from China’s surveillance state. They have accentuated global economic turbulence from which India is relatively insulated by its huge domestic market. Those factors have contributed to buoyant projections that India, now No. 5, will be the world’s third-largest economy by 2030, behind only the United States and China." Read on.

2. Louis-Vincent Gave is an astute observer of geopolitical and macroeconomic developments and their impact on financial markets. The analyses of the co-founder of the Hong Kong research boutique Gavekal are required reading for numerous investors worldwide. In an in-depth interview, Gave shares his views on the end of China’s zero-Covid policy, his thoughts on inflation and the Fed, the outlook for gold and commodities and why he sees a boom in Emerging Markets. Few excerpts:

What will opening of China mean for the economy in China and the world? First, we’ll get a surge in consumption. You have to remember that it’s not three months, but three years of pent-up demand. Going into the pandemic, households in China had about 8 to 9 trillion RMB in cash in their bank accounts. Today that number is 15.5 trillion. It has gone up more than 50%, because for three years all that people did was work and go home. They are more cashed up than ever before. Plus, mortgage rates have just dropped 150 basis points.How big is the release of pent-up demand in China going to be? It’s going to be enormous.But in the near term, a gigantic Covid wave will hit China.Yes. During the first few months, everybody will get Covid. Remember the summer of 2021, when there were hundreds of cancelled flights in the US every day, because the pilots called in sick? So the next six to nine months are going to be all about a massive increase in Chinese demand on the one hand, and massive production dislocations on the other. That’s why I think the hopes of inflation dropping quickly in 2023 may be overdone.

3. Is the ping of a text stealing our focus or do we just lack willpower? And could mindless scrolling ever be good for our brains? The Guardian unpacks some surprising truths.

4.Scientists now have a good handle on what causes us to age, biologically speaking: The so-called “hallmarks” of the aging process range from damage to our DNA to proteins that misbehave because of alterations to their chemical structure. Most excitingly, we now have ideas of how to treat them. By the end of 2023, it’s likely that one of these ideas will be shown to work in humans. One strong contender is “senolytics,” a class of treatments that targets aged cells—which biologists call senescent cells—that accumulate in our bodies as we age. These cells seem to drive the aging process—from causing cancers to neurodegeneration—and, conversely, removing them seems to slow it down, and perhaps even reverse it.

5. Investors have been excited by the promise of hydrogen and disappointed before. Will this time be different ? The global energy and climate innovation editor of the Economist, Vijay Vaitheeswaran, provides his point of view.

Guzzlers of fizzy drinks in Brisbane could be helping to tackle climate change in 2023. By the end of the year, the vehicle delivering those sugary beverages may no longer spout climate-warming gases. PepsiCo Australia, the local arm of the world’s biggest purveyor of snacks and drinks, will test a new sort of lorry powered not by a dirty diesel engine but by fuel cells, devices that convert hydrogen to electricity while emitting only water vapour.

Enthusiasts are bubbling with excitement as a swirl of geopolitical and energy trends has put the spotlight once again on hydrogen, a clean fuel that can be made from a variety of primary energy sources. Hydrogen has seen previous false dawns. Two decades ago European and Japanese carmakers wasted billions chasing the dream of fuel-cell passenger cars. But governments and investors are betting that this time will be different.

One reason is growing interest in using hydrogen to replace fossil fuels in heavy industries, such as steel-making. That would help reduce carbon emissions—and could also boost energy security by reducing dependency on natural gas, the price of which has soared in the wake of Russia’s invasion of Ukraine. Environmentalists love that “green” hydrogen can be made with renewable energy in electrolysers—devices that use electricity to split water into oxygen and hydrogen. This has sparked a global rush to manufacture them, with around 600 proposed projects, about half of them in Europe. But Big Oil is keen on hydrogen too, because “blue” hydrogen can be made in a cleanish way from natural gas, if methane leaks are minimised and resulting carbon emissions are captured and sequestered.

Just how durable this latest wave of enthusiasm for hydrogen will prove to be should become clear in 2023. A global recession could slash funding for novel technologies as companies cut capital expenditure and investors grow risk-averse. Supply-chain disruptions could also spoil things. They have already forced ITM Power, a pioneering British firm, to roll back plans to scale up its production of electrolysers. And as countries respond to the energy shock they may prioritise security of supply, from dirty sources such as coal, over new technologies that can help tackle climate change.

One telltale sign will be how many of those electrolyser projects actually go ahead. Andy Marsh, chief executive of America’s Plug Power, a pace-setter in the industry, predicts that global electrolyser sales will shoot up from almost zero a few years ago to $15bn in 2023. Bernd Heid of McKinsey, a consultancy, believes the first gigawatt-scale green-hydrogen project will get the go-ahead next year. BloombergNEF (BNEF), a research firm, reckons electrolyser shipments will rise from 1GW now to 2.4-3.8 GW in 2023, mostly in Asia.

But there is much enthusiasm about green hydrogen in Europe too. “Europe has been pregnant with a lot of projects but will finally give birth in 2023,” says Daryl Wilson of the Hydrogen Council, an industry body. He expects the regulatory uncertainty that has held back many of those projects to be cleared up. Mr Heid predicts that Europe will conduct the first global auction for hydrogen supply and demand, and that the European Commission will set up a European Hydrogen Bank in 2023.

Perhaps, but as that BNEF forecast suggests, Asia will be worth watching, too. China is currently the biggest manufacturer of electrolysers, and the firm predicts that scaling up production will help it cut costs by 30% by 2025. India has unveiled policies to promote its own green-hydrogen industry. That is prompting Western firms to try to manufacture electrolysers and make hydrogen there. India’s Greenko, a renewables firm, thinks its joint venture with Belgium’s John Cockerill, an electrolyser giant, will produce the world’s lowest-cost ammonia (a fuel derived from hydrogen) by the end of 2023. HomiHydrogen, an Indian startup, plans to make electrolysers that are “98% Indian-made” by that time.

But the biggest force pushing hydrogen forward in 2023 will be a tidal wave of government money in America. The Inflation Reduction Act, which is really a climate-change law, offers a staggering $3/kg in subsidy for green-hydrogen projects. Unlike Europe’s thicket of rules, America’s hydrogen policy is clear and extremely compelling, experts say. Many green-hydrogen projects, currently unable to compete against dirtier forms of hydrogen (which typically cost around $2/kg), will suddenly enjoy costs below $1/kg. In sun-kissed or wind-swept areas, some may even see negative costs.

Mr Heid predicts that America will leapfrog Europe in attracting hydrogen projects, with total investments possibly reaching $100bn by 2030. The global hydrogen race is hotting up, and 2023 looks to be a make-or-break year. Watch this gas.