#304 UncertaintyBans on Bike Taxis, The Great Rewiring of Childhood, Magnetic Myths, and Finance Commission in a Quandary
India Policy Watch #1: The Long Last MileInsights on current policy issues in India—RSJAbout 6 weeks ago, the Karnataka HC banned bike taxi operations, giving service providers six weeks to wind down their operations. The HC had ruled that the bike aggregators cannot operate in the state unless the government notifies relevant guidelines under Section 93 of the Motor Vehicles Act, 1988, along with the necessary rules. It also cited a 2019 expert committee report on the effect of safety and traffic due to bike taxis. This ban was challenged by Rapido, a bike taxi aggregator, which sought an interim relief. The state transport department had already issued notices to all bike taxi providers to cease their operations, deeming them illegal. On Friday of this week, the HC declined to grant a stay or provide any relief, which means that from June 16, bike taxis will be off the road in Bangalore. The division bench of the HC stated that interim relief could have been considered if the state was working on rules, but not when it had decided against it. The history of bike taxis in Karnataka is quite convoluted. In 2021, Karnataka became the first state in the country to introduce an electric bike taxi policy. Several e-bike taxi aggregators took advantage of this opportunity and began offering their services. Last-mile connectivity in Indian cities is a persistent problem for citizens. The wider spread of metro connectivity in most Indian cities in the last four years has made travel between those stations quite convenient. But the option for short-distance travel from a metro station to the final destination is limited to auto rickshaws, whose availability in most locations is patchy. Walking even small distances isn’t an option given the weather in India and the total lack of safe pavements available for pedestrians. What’s worse, autos in most Indian metros don’t ply on meters, charge arbitrarily high rates, and refuse rides depending on their whims. The auto drivers, on the other hand, will tell you that they have no choice but to sidestep the metered rates and demand higher fares because traffic congestion has reduced the number of rides they can do on any given day. Anyway, the upshot of all of this is that getting an assured auto rickshaw with predetermined rates is a near impossibility in Bangalore. Bike taxis were a solution to this, as evidenced by their success in much of Southeast Asia. They were cheap, especially when you consider the recent steep hikes in metro and bus services in Bangalore. They were plentiful, and they would show up regardless of where you were in the city. Now they have been banned because the state government seems to have three problems with them. First, the state government believed that a number of non-transport bikes (those with white number plates) were being used as bike taxis. This meant a loss of revenue for the government, as a non-transport bike was being used for commercial purposes without the revenue going to the government. This doesn’t take away from the fact that bike taxi providers pay GST and other taxes as part of doing their business. Second, the lack of a stringent on-boarding mechanism in terms of checking of licenses, background verification of the driver and the lack of availability of safety controls like controlling for speed or stoppages during a ride are open risks. The state government, which otherwise seems to be pretty lax on safety concerns of citizens (see last week’s edition on the stampede), is, however, quite worried over safety here. Lastly, the state government has been under pressure from the well-organised auto and taxi unions that have been opposing bike taxis for a long time. The unions would like nothing better than continuing with their monopoly. Also, there is a possibility that the state government could be thinking of setting its own bike taxi service after the relative success of a similar ride-hailing car service that it launched a few years back. Whatever may be the reason, we have banned a service that was critical for citizens, who demanded it and used it extensively to show its usefulness and for which there were multiple providers keen on delivery. In a free society, all that the state should have done is to facilitate this with a low-touch set of guidelines that would ensure the safety of the people involved. Instead, we have banned it with no intention of bringing it back. What’s worse, other states that currently allow these services might follow suit. This is plain stupid. Global Policy Watch #1: An Uneasy FutureGlobal policy issues relevant to India—RSJJonathan Haidt was on the Rest is Politics podcast last week talking about polarisation, happiness and his last book, The Anxious Generation. The discussion is wide-ranging, thoughtful, and prescient. It was recorded in February and by the end of the interview, Haidt expresses his concerns about Trump and the MAGA coalition breaking constitutional norms, defying courts and their desire to push the US society into a state of anarchy, and possibly, civil war. His diagnosis of what happened to US society in the decade and a half since smartphones and social media became ubiquitous is quite revealing. Noah Smith had a similar post, Social media destroyed one of America's key advantages, this week on his Substack. The more alarming part of his argument was his correlation of how mental health and democracy decline in tandem because of social media polarisation and addiction. What’s more, he is worried that an entire generation has now grown up with a phone-based childhood that isn’t normal: with limited shared experiences in real life, a fragmented social media diet that boosts the worst instincts, lower attention spans and a fall in institutional trust. How will the society fare when this anxious generation runs it eventually is a sobering thought. I was reading The Anxious Mind, and a key chapter in it is about the four foundational harms that are leading to the great rewiring of childhood (or phone-based childhood, as he calls it) since 2010. I have extracted different passages from the chapter below to highlight these harms.
Global Policy Watch #2: Myths About Rare Earth MagnetsGlobal policy issues relevant to India—Pranay KotasthaneRare earth magnets had their tryst with glory this week. The US president declared, in all caps no less, “OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND ME. FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA.” Despite this announcement, the matter will not be resolved just yet. China will relax the export restrictions for an initial six-month period only, which means these controls can be used as leverage again should US-China economic relations worsen. Looking a few months ahead, China is highly unlikely to roll back these controls entirely. The resultant uncertainty means companies will try to stock up on magnets while they can, which would possibly increase their prices. These rising prices will also fuel a search for non-rare-earth permanent magnets and other alternatives (see editions 292, 302, and 303 for more details). In this edition, I aim to address three common misconceptions about rare earth magnets, which have resulted in an overestimation of China’s geopolitical leverage. Myth #1: Everything that goes into making high-tech products is high-techI call China’s actions regarding rare earth magnets ‘low-level resource weaponisation’ because these magnets are dumb. But the commonly narrated story goes something like this: these magnets are critical for defence equipment such as radar seekers and electronic warfare systems. And since these are smart systems, the magnets used in them would also by definition be high-tech. But that’s hardly the case. Not everything that goes into a high-tech system is high-tech. These magnets are made from processes whose patents have long expired or can be licensed from Japanese firms such as Hitachi. Moreover, numerous alternative methods are being developed for producing these magnets from recycled end-of-life magnets. These dumb products can be manufactured through various processes, provided the prices are high enough for these methods to be economically viable. Consider an analogy from the semiconductor world. Chip manufacturing needs both complex photolithography machines and neon gas. Both are necessary to build chips, but only one of them is smart. No company can replace a photolithography machine or make one of its own in quick time. However, if one company stops supplying neon gas, other companies can substitute the original vendor. The acquired knowledge and capability required to produce a photolithography machine are several orders of magnitude higher than what it takes to make neon. Rare earth magnets are like neon, not like photolithography machines. Myth #2: The Economy Will Come to a Halt if China Doesn’t Supply Rare-earth MagnetsThere’s no doubt that China’s restrictions will cause short-term pain to several industries. But it’s not as if China-supplied magnets cannot be substituted. They are vital but not indispensable. Take the case of automobiles, where these magnets are used in motors for several functions, including windshield wipers, headlight adjustment systems, power windows, seat adjusters, and rear-view mirror controls. Though rare-earth magnets are valued for their compactness, several other alternatives are possible: electromagnets (used by BMW), permanent non-rare-earth magnets (using ferrite cores), and induction motors. The hindrance to other options wasn’t the technology but the low prices. EVs have a bigger problem since these magnets are used in the powertrain, where rare-earth magnets provide unparalleled efficiency. But here too, rare-earth-free motors are now available, currently only for EV two-wheelers. Myth #3: India has no Option but to Import Rare Earth Magnets from ChinaIt’s sensible for automotive companies to ask for a quick resumption of rare earth magnet supplies from China. However, the government needs to do far more than facilitate this, because the next India-China confrontation is likely to see China using this tool again. The good thing is that India isn’t in a particularly bad position either. For one, its monazite sands have many light rare earths, including Neodymium, the rare earth most widely used in magnets. Second, IREL (India) Ltd is setting up a Rare Earth Permanent Magnet plant in Vishakhapatnam. Third, several companies have plans to increase capacity in the rare earth magnet recycling space. The stumbling block is government regulations and control. Deregulating all segments of this supply chain, fast-tracking environmental regulations, and funding exploration projects to reduce information asymmetry will go a long way in reducing China’s magnetic attraction. As I have mentioned before, keep track of the prices of rare earths and rare earth magnets. As long as prices are rising, the invisible hand of the market will make many alternatives possible. India Policy Watch #2: The Grey LiningInsights on current policy issues in India—Pranay KotasthaneI’ve long argued in this newsletter that India’s fiscal federalism is a problem of vertical devolution (how the Union shares resources with states as a whole), not one of horizontal devolution (how states share resources amongst each other). The good news is that this idea is now firmly in the Overton Window. Earlier, states were hesitant to challenge the Union government on this issue, especially if the same political party was in charge at both levels of government. That seems to have changed. The Chairman of the 16th Finance Commission mentioned a week ago that of the 28 states, 22 had asked for a substantial increase in vertical devolution—from 41 per cent of the divisible pool to nearly 50 per cent. This includes states such as Uttar Pradesh and Madhya Pradesh, which are currently governed by the BJP, as well as Karnataka and Tamil Nadu, which are in the opposition camp. But that’s where the good news ends. A recent Mint report suggests that the Finance Commission is unlikely to accede to these demands:
And so it seems things will be more of the same. That would be a shame, because increasing vertical devolution can be used as leverage to address many chronic issues in our federal system. It can be used to incentivise state governments to carve out a fixed portion of their GST collections for local governments. And it can force the Union government to give up several Centrally Sponsored Schemes which shouldn’t have existed in the first place. If a sudden jump in vertical devolution upsets too many carts, the Finance Commission could propose a glide path that eventually results in 50 per cent vertical devolution over five years. This move would also alleviate many concerns related to the Lok Sabha seat reapportionment between states. By choosing to uphold the status quo, the Finance Commission would be forgoing a significant opportunity to reform India's fiscal architecture. We hope it does “upset the cart”, because it’s now time for a motor vehicle. HomeWorkReading and listening recommendations on public policy matters
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