Latest news with #Ricardian
Hindustan Times
28-05-2025
- Business
- Hindustan Times
Wastage as an economic, environmental opportunity
The chairman of ONGC, Arun Singh, and I were sitting in the Gaya airport lounge after addressing the IIM Bodh Gaya convocation in early April when I noticed some inefficiency at the airport and mentioned to him Kunal Shah's attention-grabbing comment about 'inefficiency being the world's biggest employer'. He smiled and offered another profound observation 'India's biggest opportunity is curbing waste'. He went on to say India and the world both need it and defended his argument with some telling statistics in the energy sector. This article is a result of his insight. In this era of tariffs, reciprocal tariffs, and punitive tariffs, our single biggest import item is oil. How much wastage is there in the use of oil, gas, and power? In this piece, we do not take up the wastage that bedevils our agriculture, especially its management of water; we focus only on energy use. Last year, India's oil bill stood at $137 billion. India consumes around 2,300 million barrels of oil though it produces only about 210 million barrels of crude oil a year. India's domestic production so far has only produced ~2.5 billion tonnes cumulatively, requiring us to import the bulk of our oil need. It is odd that a country of India's size does not have greater oil reserves. The fact is that it does. India has 12 billion tonnes of verified and proven oil and oil equivalent hydrocarbon reserves. Many estimates put the theoretical limit closer to 42 billion tonnes of oil and oil equivalent hydrocarbon reserves. However, this oil is not as easily accessible as in a clutch of West Asian and other oil-exporting countries. India only extracts about 35% of the oil from a domestic well on average. Most drilling sites are undersea ones and, after a certain depth, are not easy to extract economically. Despite oil's importance to India, there has been little technological innovation to make more domestic extraction, in a manner that makes economic sense, possible. Hence, most of the oil below the ground stays there. We import the bulk of our needs. In a Ricardian world (after David Ricardo, one of classical economics' giants) where global trade and comparative production advantages of countries maximally benefit national economies, that might have been fine. But, in today's splintering world, this leaves us exposed. There is a lot that can be done — from utilising state-of-the-art techniques for acquiring reservoir data to advanced drilling methodologies. Even a 10% increase in the overall recovery factor would have reduced our overall import bill by $12 billion annually over the past 10 years. To a lesser extent, the wastage extends to natural gas, too. Natural gas prices have been volatile after the Russia-Ukraine conflict. India is dependent on imports for half of its overall consumption. The gas lost during the overall transmission is referred to as Lost and Unaccounted for Gas (LUAG) and is computed at around 2.7%. If we dig further, we find that the internal combustion engine (ICE) does not use fuel efficiently. The latest ICE cars operate at an efficiency level of around 30%. If ICE engines operate at the efficiency of electric vehicles (EVs) — around 90% — we could cut 33 million metric tonnes of India's oil demand. Every five percentage points of improvement reduces oil demand by about 2,000 tonnes. If the ICE engines operated at the same efficiency levels as EVs, it would have an impact of $19 billion on India's oil import bill. Not only would we import less oil, but it would also be a boon for the environment too. For instance, by converting all ICE vehicles in Delhi to EVs, we can reduce PM2.5 levels by about 40 points on the air quality index. However, the topic of wastage does not end there. Just consider other instances of fuel consumption; imagine how much fuel airlines consume circling airports due to the lack of runways before landing. Similarly, ICE trucks transporting goods, apart from the poor efficiency in fuel-energy conversion, often return to their depots empty or with half loads due to information gaps and the absence of an efficient clearing platform. This raises logistics costs and makes manufacturing in India more expensive. The problem of wastage extends equally to power consumption as well. India's technical losses in transmission and distribution have significantly reduced the 'green' impact of EVs. Despite good progress in adding renewable energy capacity, India's overall power consumption is still dominated by thermal sources (contributing over 70% of the power drawn). The thermal-dominated grid incurs large transmission and distribution losses of around 15%. While significant progress has been made to address this, we are still four to five times more inefficient than China. Even a 1% reduction in the losses reduces the overall carbon footprint by around 2,400 million metric tonnes of CO2 equivalent. This is equal to converting all the four-wheelers in Delhi to EVs. Wastage is a big consumer of energy in India, a consumer we should not cater to today. As the world becomes more volatile and our economy bigger, en route to becoming the third largest economy in the world, the whole world would like us to consume less. As the explorer, Robert Swan, said, 'The greatest threat to our planet is the belief that somebody else will save it.' Let's begin a war on wastage to help ourselves! Janmejaya Sinha is chairman, BCG India, and Kaustubh Verma is managing director and partner, BCG. The views expressed are personal.
The Hindu
22-05-2025
- Business
- The Hindu
Tariff wars and a reshaping of AI's global landscape
In the aftermath of the presidential election in the United States in 2024, renewed implementation of substantial tariffs could lead to a fundamental restructuring of global technology supply chains that power artificial intelligence (AI) development. While established players recalibrate, countries such as India are finding themselves in a precarious, yet potentially advantageous, position — as the 'third option' in the technological rivalry between the U.S. and China. The tariffs have raised the costs of imported components that are critical to AI infrastructure. In 2024, electronics imports to the U.S. alone were nearly $486 billion, with data processing machine imports costing around $200 billion, sourced largely from tariff-affected countries such as Mexico, Taiwan, China, and Vietnam. These tariffs risk making the U.S. the most expensive place in the world to build AI infrastructure, driving companies to relocate data centre construction abroad, ironically to China. The first wave of the Trump tariffs, between 2018-20, resulted in a price increase for imported semiconductor components. The current tariff regime has expanded this to as high as 27% on critical AI hardware components in 2025, particularly affecting specialised AI accelerators and advanced logic chips, components that constitute the computational foundation. Economics behind the scenes Economic theory suggests such tariff policies should stimulate domestic production through import substitution. Indeed, some reports project that the U.S. will more than triple its domestic semiconductor manufacturing capacity from 2022 to 2032, which is the largest projected growth rate globally. However, classical Ricardian trade theory reminds us that comparative advantage remains operative even under protectionist regimes. The specialised nature of AI hardware production means that it has to deal with dispersed technical capabilities, creating inevitable inefficiencies when global supply chains are artificially segmented. This protectionist approach often comes at the cost of economic efficiency and innovation. The tariffs disrupt global supply chains, increase production costs, and create uncertainty that discourages investment. Empirical studies show that a one standard deviation increase in tariffs can reduce output growth by 0.4% over five years, and reversing the recent U.S. tariffs could have led to a 4% cumulative output gain. In the context of AI — where innovation cycles are rapid and dependent on access to cutting-edge technology and global collaboration — such disruptions can slow technological progress and reduce productivity. Tariffs may shield domestic firms from competition, reducing their incentive to innovate, and limit access to advanced imported technologies that are necessary for AI advancement. This is consistent with what economists call a 'deadweight loss', where the diminished trade volume creates economic inefficiencies that benefit neither producers or consumers. Rapid expansion in AI chip demand will require massive increases in data centre power capacity, from about 11 GW in 2024 to potentially 68 GW by 2027 and 327 GW by 2030. Failure to meet these infrastructure needs could undermine the U.S.'s competitiveness in AI. Research demonstrates that access to expensive, advanced computational infrastructure serves as a primary determinant of innovation capacity in AI, leading to a stratification effect. Moreover, tariffs imposed by developed countries can reduce technology transfer rates, temporarily changing innovation incentives, which can in turn, slow down the overall pace of AI innovation. On the other hand, tariffs by developing countries can speed up technology transfer but affect relative wages and innovation differently. This is a complex interplay that can increase global inequalities in AI capabilities. Where India stands This could create unexpected opportunities for India, which has positioned itself as a strategic 'third option' in the U.S.-China technological competition. Indian IT exports growth rates have been around 3.3% to 5.1% year-over-year in recent years. AI and digital engineering segments are among the fastest-growing areas within India's tech sector. The Indian government has launched significant AI-related programmes, and increased semiconductor design, fabrication and technology investments, with several billion dollars in semiconductor fab proposals and multinational research and development centres such as AMD's $400 million design campus in Bengaluru. India's comparative advantage lies in lower labour costs and specialised knowledge domains. India produces approximately 1.5 million engineering graduates annually, with a lot of them showing considerable aptitude for AI development. India depends heavily on imported hardware components and international collaborations for this. Tariffs and supply chain disruptions that raise costs of AI infrastructure could slow down India's global ambitions in AI. However, India might also benefit indirectly if companies seek alternatives to China for manufacturing and data centre locations. The economic reshaping catalysed by these tariff policies has accelerated what economists call 'capital substitution effects'. As hardware costs rise, companies increasingly shift toward optimising existing resources through algorithmic efficiency, model compression techniques and hardware improvements rather than raw computational power. The tariff environment has effectively created these price signals. The cost of using AI models is falling dramatically (by about 40 times a year) due to this. Therefore, while tariffs may increase upfront infrastructure costs, consumer-level AI applications might not see immediate price hikes. Tariff structures interact with differential regulatory environments uniquely to create novel competitive dynamics. Lenient data protection regulations, broad digital access, and data availability can partially offset hardware cost disadvantages through greater access to training data. Regulatory and economic factors can defy simplistic analysis. Decentralised AI development Tariff changes have led to the development of specialised AI hardware that is designed specifically for particular applications rather than general-purpose computation. This 'application-specific integrated circuit' (ASIC) approach represents an architectural shift. To optimise data centre infrastructure for AI inference, over 50% of workload accelerators could be custom ASICs by 2028, up from 30% in 2023. Ironically, policies intended to strengthen domestic technological capabilities could inadvertently accelerate the decentralisation of AI development. Historical analogies suggest that technologies facing market constraints often evolve toward more distributed implementations. The mainframe-to-personal computer transition of the 1980s offers an instructive parallel. Arindam Goswami is a Research Analyst in the High-Tech Geopolitics Programme at The Takshashila Institution, Bengaluru
Yahoo
18-04-2025
- Business
- Yahoo
Opinion - Trump's tariffs will boost economy, deter unfair trade
President Trump promised when he was campaigning for reelection in 2024 to impose tariffs. He expressed his feeling that the word 'tariff' was one of the most beautiful words in the English language. He insisted that tariffs would punish United States trading partners that have been taking advantage of us and deter future unfair trade. The United States would receive increased revenue from the tariffs and better terms of trade. What do we see now that President Trump is in charge? Prices for oil and gas futures are coming down, meaning America is once again on its way to energy dominance. The price of commodities like eggs, which were almost $10 a dozen during the last part of the Joe Biden era, have dropped and will head back to more rational pricing very soon. And the net creation of full-time employees is increasing. Consumer confidence is returning. All indicators of economic progress. While the economy is moving in the right direction, Wall Street insiders have gone apoplectic, not on actual economic results, but in sheer panic. Some of it is fear that tariffs will constrict economic growth, but there is a strong likelihood that some of the wokesters on Wall Street share the Trump Derangement Syndrome of the left. Their sell-off fails to consider the direction of the economy but instead focuses on the maybes. They aren't thinking about the long-term but are fixated on the what ifs. The good news is that there are hidden gems in the report on job creation. The Department of Labor reported exceptional growth of more than 228,000 new full-time jobs, which was almost double the expected growth. Census data, however, retrieved from the Federal Reserve Bank of St. Louis show that the number of full-time workers increased by 459,000 from February 2025 to March 2025. That's the right direction. And information like that isn't being considered by the Bulls on Wall Street. Nor are they focused on the unfair trade practices that disadvantage United States business. The fearmongers only see China's promises to raise tariffs on United States goods. China is our most potent adversary. It effectively controls our supply chain in many areas. It not only has been imposing tariffs even before the Trump tariffs, but it steals our intellectual property, violates the parameters of the World Trade Organization, bribes officials at multilateral institutions to our disadvantage, and uses child and slave labor to make products consumed in the United States. Many of those who are comfortable with the status quo argue for free trade. But even a Ricardian economist must surely realize that the doctrine of comparative advantage goes out the window when trading partners cheat by stealing intellectual property, using slaves to make products, dumping into the free market of the country, and imposing a tax (tariff) on the products the host country is trying to export to its trading partner. The unfair trade also occurs by imposing regulatory barriers on the host country that effectively deter free trade. That is what has been going on in the U.S.-China trade relationship, as well as with most other nations of the world. The imposition of United States tariffs should not cause a major disruption as most nations desire trade with the U.S. In fact, more than 50 nations have already reached out hoping to resolve trade conflicts with us. The fundamentals of our economy will continue to strengthen and promote more fair trade, which in turn will open the spigots for free trade. Those who are panicking now will be shown to have been willing to remain on a suboptimum dirt path rather than exit to a more prosperous, long-term superhighway. Andy Biggs represents Arizona's 5th District. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The Hill
18-04-2025
- Business
- The Hill
Trump's tariffs will boost economy, deter unfair trade
President Trump promised when he was campaigning for reelection in 2024 to impose tariffs. He expressed his feeling that the word 'tariff' was one of the most beautiful words in the English language. He insisted that tariffs would punish United States trading partners that have been taking advantage of us and deter future unfair trade. The United States would receive increased revenue from the tariffs and better terms of trade. What do we see now that President Trump is in charge? Prices for oil and gas futures are coming down, meaning America is once again on its way to energy dominance. The price of commodities like eggs, which were almost $10 a dozen during the last part of the Joe Biden era, have dropped and will head back to more rational pricing very soon. And the net creation of full-time employees is increasing. Consumer confidence is returning. All indicators of economic progress. While the economy is moving in the right direction, Wall Street insiders have gone apoplectic, not on actual economic results, but in sheer panic. Some of it is fear that tariffs will constrict economic growth, but there is a strong likelihood that some of the wokesters on Wall Street share the Trump Derangement Syndrome of the left. Their sell-off fails to consider the direction of the economy but instead focuses on the maybes. They aren't thinking about the long-term but are fixated on the what ifs. The good news is that there are hidden gems in the report on job creation. The Department of Labor reported exceptional growth of more than 228,000 new full-time jobs, which was almost double the expected growth. Census data, however, retrieved from the Federal Reserve Bank of St. Louis show that the number of full-time workers increased by 459,000 from February 2025 to March 2025. That's the right direction. And information like that isn't being considered by the Bulls on Wall Street. Nor are they focused on the unfair trade practices that disadvantage United States business. The fearmongers only see China's promises to raise tariffs on United States goods. China is our most potent adversary. It effectively controls our supply chain in many areas. It not only has been imposing tariffs even before the Trump tariffs, but it steals our intellectual property, violates the parameters of the World Trade Organization, bribes officials at multilateral institutions to our disadvantage, and uses child and slave labor to make products consumed in the United States. Many of those who are comfortable with the status quo argue for free trade. But even a Ricardian economist must surely realize that the doctrine of comparative advantage goes out the window when trading partners cheat by stealing intellectual property, using slaves to make products, dumping into the free market of the country, and imposing a tax (tariff) on the products the host country is trying to export to its trading partner. The unfair trade also occurs by imposing regulatory barriers on the host country that effectively deter free trade. That is what has been going on in the U.S.-China trade relationship, as well as with most other nations of the world. The imposition of United States tariffs should not cause a major disruption as most nations desire trade with the U.S. In fact, more than 50 nations have already reached out hoping to resolve trade conflicts with us. The fundamentals of our economy will continue to strengthen and promote more fair trade, which in turn will open the spigots for free trade. Those who are panicking now will be shown to have been willing to remain on a suboptimum dirt path rather than exit to a more prosperous, long-term superhighway.
