The Great North Indian Plains And Economic Convergence - Renewable Energy And Fast Data

The first of the two-part article focussed on India continuing to gradually converge with what the industrialised countries already have - good infrastructure, especially railways and roads, and how that, among other reasons, should also lead to lower regional inequality over time.

In the second part, I would like to focus on technology - the latest of which we are absorbing along with the industrialised world, instead of substantially after them, and hence leapfrogging previous iterations of technology where applicable. Hence, this will take effect over a time frame slightly longer than five to seven years. So, let us jump into the ongoing - and accelerating - data and energy revolutions, and focus more specifically on:

(1) The solar, storage and self-driving car revolutions, and

(2) The 5G, Augmented Reality and Offshoring 4.0 revolutions

Let us first understand the importance of energy for growth. Primitive humans used their own energy to produce "stuff" and they in turn got most of their energy by eating other species. Some thousands of years ago, we started to "domesticate" other species. We also started to discover inanimate objects - minerals of all sorts, and then long dead organisms in the form of coal, and that, along with the earlier basic harnessing of wood, winds, and water got us to the modern age.

Coal had started the first industrial revolution, oil the second one, computers the third, and now we are on the fourth one going by the currently in-vogue nomenclature. Along the way, we added nuclear and gas to the list as well. In the last 40-45 years, the global production mix has changed a bit but the overwhelming reliance on fossil fuel remains (picture below from IEA 2017 Key World Energy Statistics). During this time, the world population increased from around 4 billion to about 7 billion and per capita energy consumption increased by close to 30 per cent with much of the increase coming from emerging economies (CAGR increase of approximately 0.6 per cent)

Now, let us come down to consumption.

We can see that China's per capita residential consumption is not that much higher than India's, but its industrial consumption is. US and Indian residential consumption is also similar but then US’ population is about four times lower than that of India. However, the gargantuan difference is in transportation. Indians cannot consume and commute much without more energy. This consumption is not just of electricity but total energy usage (hence, includes directly used oil, gas and in our rural case, especially, bio-fuels and waste - though this is changing) Moreover, if Indians beyond the small upper middle class start driving cars like the Chinese do, much less the Americans, then crude could rise sharply if the change happens relatively quickly.

We will need a variety of public policy responses; for example, think of bio-diesel and ethanol - on one hand we have agricultural overproduction, on the other hand we have high crude imports. The right steps are again being taken but tinkering will not be enough; new technologies must flourish and must so be nurtured. India has taken the right steps of late - for solar especially (below from Wikipedia/Central Electricity Authority)

Now, 22 GW is around 15 per cent of India's total installed electricity capacity. But this does not mean that close to 15 per cent of India's electricity consumption comes from solar. As solar energy is not received in the night and since there is no viable large-scale method to store power, the consumption fraction is lower. Nonetheless, one can take solace from a few factors here:

(1) The overall target of 100 GW by 2022 seems achievable even though it maybe a stretch,
(2) Inter-connecting of the five regional grids in India has been achieved though many UHVDC lines (long distance connections for bulk power transfer) still need to be laid, and
(3) Storage technologies are improving.

While we are much better off than the days of July 2012 (blackouts and power shortages), even more needs to be done. Now, that village electrification and pre-paid meters are being pushed, we might be on the cusp of 24x7 power for all in the coming decade, including in the relatively poor and dense areas of the Gangetic plains. The implications would be tremendous - white good sales will take off, which in turn could increase female labour force participation rate; people will be able to study and work longer hours, and agricultural productivity could increase. North India would disproportionately benefit given its low base of productivity and infrastructure.

Let Us Move On To Data

5G technology, which is under trial in various parts of the world (including in India), promises up to 100 times faster internet speeds ( around 10 Gbps), and 10-100 times lower latency. That would involve a lot of capital expenditures as 5G would run on higher frequency (smaller wavelengths) and such waves travel or penetrate a shorter distance. However, once we have even a half-functioning 5G infrastructure, along with revolutionary developments in other technologies such as augmented reality (AR) and robots/"cobots", the understanding of modern economics and trade itself could change.

The next level of outsourcing - think 3D Skype and holograms from sci-fi depictions - would be available for one and all, and we are not too many years away from this. With protectionism on manufactures and visa-tightening on services, this could be the next big boom for India, though we will need to get our act together for manufacturing no matter what (I will cover that in another article). Yes, services exports with no real in situ component, for example a professor teaching at an American university from India, could also face a backlash in the West (and Japan). However, India, unlike China, allows the leading American tech companies to operate in India, and that gives us leverage to negotiate. Moreover, geo-politically too, India is closer to the democratic West and Japan than communist China can be at least in the near term.

All this may sound too-much-pie-in-the-sky, but the economic case is clear. India's per capita income is around $2,000 and America's is $60,000. Richard Baldwin has written about this new kind of trade in his book The Great Convergence. My friend, Rajeev Mantri, has perceptively noted that at some point, we could move to a world where services will be more traded (as described above) but goods will be not much more so or perhaps even less so (because of various technologies such as additive manufacturing, etc).

These trends could also have enormous consequences for international/trade macro-economics in another way: currently, we see a Public Private Partnership (PPP) multiplier for incomes greater than 1 (often around 2-4 times) for poorer countries, due to the non-tradeable nature of services. Could we in a few decades, in a world where much more of gross domestic product is tradeable overall, see the gradual disappearance of the Balassa-Samuelson effect? If so, convergence at market exchange rates for poorer countries (and for poor regions with such countries) could be hastened at the margin.

To conclude, more and better rail/road infrastructure, revolutionary changes in our energy infrastructure and finally 10-100 times faster online connectivity could see a very different global economy, of which the Gangetic Valley could perhaps be the biggest beneficiary.

The world would have come a full circle. History, as they say, rhymes if not repeats.