#303 Unseen Costs

The Stampede in Bengaluru, China's Magnetic Repulsion, and Some Moves Towards Deregulation

India Policy Watch: Our Lives Are Cheap

Insights on current policy issues in India

—RSJ

The Royal Challengers Bangalore (RCB) won their maiden IPL championship this week in Ahmedabad. A city of passionate fans who have supported their team for the past 18 years finally got their wish fulfilled. Celebrations were planned for the team’s triumphant return to Bangalore. Tens of thousands of fans thronged the home stadium of the team to see their team with the much-coveted trophy. The crowd swelled to an unmanageable proportion, and soon things got out of control. What followed was what has now become a sickeningly familiar sight in India. A stampede, bodies crushed against one another, and the loss of 11 lives and many more injured. It is remarkable how often we have had such deadly stampedes in recent years in India. But I haven’t seen a single report by any panel that has studied these events, identified the root causes and recommended measures that need to be taken together by the local administration and the event organisers to prevent such incidents. We just stumble from one tragedy to the next while finding the easiest of scapegoats to blame. There is also some kind of misplaced pride that we manage large crowds in India better than others, given our population. This is false, and the sheer good fortune that allows many other major events to conclude without such incidents should not be misconstrued as competence in managing them.

What happened in Bangalore this week could have been prevented if there had been even a single planning meeting between the police, the local administration, the stadium officials and the event organisers before the event. I suspect there was none. Nor was there any planned itinerary for the day’s events that was made public to everyone in advance, with clear instructions on where and how the team would be available for the fans to get a chance to see them. The stadium where the celebrations were to be held accommodates only 35,000 people. It would have been clear to anyone by the afternoon that the number of people already on the streets in and around the stadium was swelling to multiples of that capacity. There was no clear announcement on telling fans about the futility of heading to an already full stadium. Or stopping more fans from queuing up at the gates of the stadium. Which brings me to the question of entry to any ticketed large event in India. I have queued up in those narrow barricaded lanes for tens of such events across multiple cities in India. These are death traps. They are wide enough for just a single person to move because the default assumption is that the only way to enforce an orderly, single lane queue in India is by making it so narrow that only a single human body can fit in there. Once you are in that queue, you are trapped. These queues tend to be really long, and the front of the queue moves at a glacial pace through a very narrow gate. At that gate there is usually a three-level validation of tickets by the organisers (for reasons I have never understood), the inspection of bags and belongings by the security and a full body metal detection test before you are ushered into another narrow door, staircase and a corridor to find your way to your seat. There’s no holding area or a release point of any kind in this sequence where the crowd can spill into in case there is a stampede-like situation. The whole thing is designed without a single thought of public convenience or safety. The central design principle used in such cases in India is to catch someone who is trying to get in without a ticket. Everything else, including the lives of people, is unimportant. This isn’t a difficult problem to solve. A single trip to a football game in any one of the big leagues of Europe will give us a good understanding of how to manage entry and exit from such events. They have learnt their lessons after a handful of tragic events back in the 80s. However, we only seem to make it worse every passing year, with more checks, stricter restrictions on what can be allowed inside, and narrower barricades. Lastly, there are almost no emergency medical facilities available for such events that are actually functional. All you get is one empty ambulance on standby and a first aid box. I have participated in well-attended marathons in India that don’t have an ambulance available for an emergency. Most organisers live in the hope that nothing untoward will happen at their events. The gap between what the organisers are planning and how well the local police or emergency response team understand it is huge. There’s barely any dry run or scenario planning done. It is all left to providence. This kind of belief in fate is touching. And plain stupid and criminal.

The accountability of the Bangalore tragedy has followed the predictable path. A few transfers and temporary suspensions of police officers have been announced. This will all soon be forgotten, and they will be back to their usual jobs. A couple of employees of the event manager and of RCB have been arrested. They will be taken through the grind of the criminal process in India till they find their way out of the maze through uniquely Indian means. Soon, the public will forget this (like they have already forgotten Hathras and Kumbh stampedes that happened in just the last 12 months), and then it will all be business as usual till the next tragedy strikes. It boggles my mind how casually we continue to take urban crowd management. This can be solved with a simple set of guidelines that prioritise safety, making that checklist a part of the license (yes, that’s still needed) approval for any event and placing accountability on local administration and police for dry runs before the event.

Meanwhile, the Monetary Policy Committee (MPC) met on Friday and delivered a bazooka. It cut the repo rate by 50 bps (the consensus was 25 bps) and also announced an unexpected 100 bps cut in the cash reserve ratio (CRR), the mandatory amount of deposits that banks keep with the RBI as reserves, over September-November to further ease liquidity in the banking system. The MPC also changed its policy stance from accommodative to neutral, signalling it has done what it has to do on rate cuts for the foreseeable future. The expectation of inflation in FY26 was also lowered from 4 per cent earlier to 3.7 per cent, the lowest it has been for a long time. The front-loading of rate cuts and easing of liquidity are aimed at easing transmission and spurring demand in the economy. Clearly, there is a concern that despite the above expected growth in Q4, the global headwinds and continued weakness in domestic consumption are going to weigh on GDP numbers for the next two years. I expect this bazooka to lead to better and quicker transmission of rate cuts to consumers and a small uptick in credit growth, which had come down to below 10 per cent in the last couple of months, from H2 FY26 onwards. But I’m not sure if this will sustain or if it will support GDP growth because there's an underlying lack of demand in the economy. An expected slowdown in global trade and a weak US economy will only make it worse. But the RBI has done what it could to support the government, much earlier than I expected. The ball is now in the government’s court.

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Global Policy Watch: China Will Make China+1 a Reality

Insights on global issues relevant to India

—Pranay Kotasthane

In the previous edition, I proposed that China’s abuse of its market power should be considered as an international market failure. This week’s events strengthened this argument. China’s export controls on rare earths and rare earth magnets are causing immense pain to automotive companies across the world.

The pain point this time is the restrictions on rare earth magnets. Such magnets produce high-strength magnetic fields and have an exceptional strength-to-weight ratio, which enables the design of compact and efficient motors. These motors aren’t useful only for the EV powertrain. The small motors are also vital for windshield wipers, headlight adjustment systems, power windows, seat adjusters, and rear-view mirror controls. Cars can and do get made without such magnets, but that would mean sacrificing efficiency, speed, or compactness.

Foreign companies that import these commodity products now have to seek the approval of bureaucrats from the Bureau of Industrial Security and Import and Export Control, a part of China’s foreign affairs ministry. Companies must certify and convince the bureaucrats that these magnets won’t be used for defence and military end uses. Officials demand photos of production facilities and products. And after all this, a Reuters report claims that “there are only three senior officials within the bureau who can approve the export permits.” As you would imagine, bureaucrats are extra-cautious given the heightened geopolitical tensions, and genuine applications continue to languish in the corners of the ministry. Here’s more from the report:

“A Chinese-language guide to the process published by the Ministry in late March runs to almost 14,000 characters.

European auto suppliers alone have filed hundreds of requests since early April, with only about a quarter granted. These applications can range from dozens to hundreds of pages, according to sources who have either filed requests or been briefed about them.

Public Ministry of Commerce guidelines require information including technical product descriptions, signed contracts. Descriptions of production facilities and photos of products are also encouraged….

"Another concern we have heard from some companies is that they are being asked for sensitive and excessive information that is part of their intellectual property which has led to delays in their applications," Dunnett added.

While applications are meant to be processed in 45 working days, the ministry says applications related to national security will take longer, without defining how long.” [Laurie Chen and Lewis Jackson, Reuters]

This clear abuse of market dominance is being projected as a geopolitical masterstroke. Some Chinese scholars even argue that these controls will strengthen China’s position as magnets constitute a small portion of China’s overall exports, but the world is entirely dependent on them. This asymmetric dependence is being touted and flaunted as geopolitical leverage. Meanwhile, automakers worldwide are grappling with this shock. Many are projecting production delays. Some are even considering the procurement of electric motors from China since the controls only apply to magnets, not the machine parts made using them. Seeing this, Chinese officials may be basking in the success of this strategy, but it’s a dumb move that will go a long way in reducing China’s rare earth dominance. Here’s why.

One, if Chinese companies can build a DeepSeek without the most advanced GPUs, automakers across the world can definitely build electric motors without Chinese rare earth magnets. The capability, knowledge, and capital required for getting around chip restrictions are orders of magnitude higher than the effort needed to substitute China’s rare earth magnets. China does not possess any unique processing and refining techniques that cannot be copied or replaced. Initiatives towards process-for-process, system-for-system, and material-for-material substitutions will likely displace the immediate shock generated by these restrictions over time.

Second, Japan has already demonstrated how to counter China’s resource weaponisation. China’s 2010 rare earth export restrictions initially hit the production targets of Japan's semiconductor, automobile, and advanced material industries. However, there is no evidence of systemic job losses due to this move. This move forced Japan to look for substitute sources, build stockpiles, invest in urban mining, and partner with other countries. The net result is that Japan is less dependent on China’s rare earths today than in 2010 (down to 60 per cent from 90 per cent) and consumes half the rare earths it did in 2010.

Third, a rise in prices of rare earths will help companies in other countries compete with China’s unfair subsidies. The problem hitherto wasn’t that these magnets were costly, but that they were too cheap for others to make production viable. Market prices of Neodymium—used in most rare earth magnets—have halved since 2022. These restrictions are raising prices, sending a signal to other foreign companies to get their act together.

Previous efforts towards diversification had limited success because China’s export control curbs were country-specific and undeclared. As soon as other countries began diversifying production, Chinese companies resumed exports and flooded the market. The current restrictions differ in that China has formally acknowledged them as retaliatory actions and established a bureaucratic structure for implementing them, giving them a semi-permanency that didn’t exist earlier. This should give hope to competitors worldwide. Other governments can play a role by reducing regulatory barriers to enable alternate extraction, refining, and recovery.

China is trying its best to make China + 1 a reality. Lend it a helping hand.

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Not(PolicyWTF): We Want to Break Free

This section looks at surprisingly sane policies

— Pranay Kotasthane

Going ahead, I’ll use this section to highlight policies that reduce state intervention in markets. Consider it as a deregulation dashboard. Fortunately, three such policies were introduced this week.

1. The rules for procuring scientific instruments were modified by raising the financial limits beyond which bureaucratic red tape kicks in. Currently, all government scientific institutions have to use the Government e-Marketplace (GeM) portal for procurement. While GeM aims to streamline and increase transparency in public procurement, it ultimately slows down scientific research. I mean, why would a foreign vendor of specialised equipment register itself on this portal when the demand from India constitutes a small portion of their overall market? The tyranny of the GeM hasn’t gone away yet, but the government has mercifully increased the threshold beyond which research institutes need to produce multiple quotations, public advertisements, etc. Deregulation would entail eliminating these procurement restrictions for all scientific research. For now, raising financial limits is a good start.

2. The minimum land requirement for setting up Special Economic Zone (SEZ) units for making semiconductors and electronics has been relaxed from 50 hectares to 10 hectares. Regressive industrial land policies are one of the biggest constraints to manufacturing in India. We need a government-wide deregulation effort to eliminate all such requirements in their entirety.

3. SEBI has clarified that companies with a large number of public shareholders can still apply for initial public offerings (IPOs). Previous rules treated a high number of public shareholders as a potential indicator that a company had raised capital from the public without following protection and disclosure requirements. This relaxation would encourage more companies to list on the market.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Podcast] In the latest Puliyabaazi, we discuss India’s sedition laws in the context of the arrest of a university professor for a social media post.

   Untangling the Sedition vs. Freedom of Expression Debate राजद्रोह बनाम अभिव्यक्ति की स्वतंत्रता

2. [Paper] Politics, markets, and rare commodities: responses to Chinese rare earth policy studies Japan’s response to China’s rare earth restrictions in 2010.

3. [Book] This is an old one, but Kai-fu Lee’s AI Superpowers is a bold and thoughtful book on US-China competition, and the future of work in the AI age. I found myself disagreeing often, but equally enjoyed the book’s provocations.

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