Resolving the public debt pile facing the developed world

Public debts have soared among advanced economies, with the US leading the way. Their sustainability is now a big risk and casts strong headwinds on economic growth. 

The repercussions are already being felt in the sovereign bond markets, including in the safest of assets, the impregnable US Treasury markets. 

The response, especially the recent actions of the US Treasury, arguably even encroaching into the Fed’s domain, to prevent bond yields from rising are extraordinary. It first announced a temporary swap of the Bank of Japan’s Treasury holdings for dollar cash to pre-empt any liquidation to generate the dollars required to prop up the Yen, and followed up with an announcement to double the purchases of Treasury bonds. More are likely to follow in the months ahead, especially with a President who has announced his intent to wage war against the bond markets. 

Chris Giles has an excellent description of America’s ongoing debt surge.

The most relevant measure of US federal government debt, that held by the public, has risen from $3.4tn in 2000 to $32.3tn now, or a rise from 33.7 per cent to more than 100 per cent of GDP in just over 25 years. More importantly, the burden of servicing that debt has doubled, from 11 per cent of tax revenues in 2000 to 21.5 per cent in the first 10 months of the current fiscal year… With the US on a path to continue running deficits close to 6 per cent a year, even at full employment, the debt-to-GDP ratio is set to rise every year, increasing the call on tax revenues to service that debt and the pressure on the Fed to lower interest rates… 

Since 2000, when the federal government ran a surplus of 2.3 per cent of national income, primary public spending (excluding net debt interest) has risen from 15.5 to 19.9 per cent of GDP. All of this increase can be accounted for by spending on services for an ageing population — social security, Medicare and veterans’ programmes. On the tax side, revenues have fallen from 20 per cent to 17.2 per cent of GDP over the same period, partly a result of a cyclical peak in revenues at the end of the last millennium and partly the result of tax cuts. First came the Bush tax cuts, which were made permanent on a mostly bipartisan basis during the Obama administration, and then came the 2017 Trump tax cuts… It does not need to eliminate the deficit, but does need to put debt back on a downward path, which almost certainly requires a balanced primary deficit — a metric that excludes net interest costs — something the US has not achieved since 2007 and not on a sustained basis since the 1990s.

The combined debt held by the public and federal agencies in the US now touches $36 trillion. The US interest bill has doubled to more than 3% since 2021, and the fiscal deficit is running at nearly 6% of GDP with little prospect of declining anytime soon. 

America does not stand alone. Since the Second World War, as welfare states took hold, public spending as a share of GDP has risen steeply across the developed countries. Further, since the seventies, public debt as a share of GDP has been on a similar upward trend. 

Welfare spending has been rising, and subsidy policies have ratcheted up since the global financial crisis. 

This increase in public spending and borrowings is a political choice made in response to rising expectations from governments among the electorate. 

For measure, in the US, net positive mentions of government support — covering welfare and protectionism — in Democratic and Republican party manifestos have trended higher since the early 1970s, based on calculations from the Manifesto Project’s database. In particular, these mentions have surged since the GFC. This suggests politicians are increasingly pitching policies that extend state assistance to appeal to voters. In the UK, the National Centre of Social Research reported in 2023 that expectations for government to keep prices under control, reduce income differences and provide industry with the help it needs to grow all reached a record, based on the British Social Attitudes survey. Indeed, curbing support hasn’t been easy for governments either. Britain’s Labour party was forced to reverse over £5bn of planned cuts to welfare spending. French politicians are also struggling to agree on how to cut expenditure, given the inevitable pains on the public.

A similar expectation cycle has been set off in the financial markets on monetary policy under the watch of technocratic central bankers like Ben Bernanke and Mario Draghi. These cycles have come to reinforce each other. 

A May 2024 paper by John Cochrane and Amit Seru, senior fellows at the Hoover Institution, concurs. It argues that the expectation of central bank support whenever conditions deteriorate inflates stock prices, fuels leverage and, in turn, raises risks of a self-reinforcing monetary policy intervention and taxpayer-funded bailouts. Central banks have also been cautious about unwinding their QE holdings too quickly, fearing market convulsions. This has left their balance sheets elevated, creating a structurally higher liquidity base in the financial system that props up valuations and market activity today.

The rising indebtedness has close historic parallels. In an FT interview, Thomas Piketty pointed to the experiences of European countries in the 19th and 20th centuries. 

We have a long history of public debt in France and Britain. Britain had more than 200 per cent of GDP of public debt in the 19th century. In the case of France . . . after each of the world wars, it was between 200 per cent and 300 per cent. The good news is that we’ve always found ways to get rid of it, and in each of the three instances I’m referring to, through different mechanisms, it went down to very little — less than 20 or 30 per cent GDP in a few years. It was never repaid, in effect, as opposed to the British solution in the 19th century, where it took basically one century of budget surplus between 1820 and 1914 to reduce the public debt coming from the Napoleonic War period… 

The British approach of the 19th century corresponded with a very aristocratic political system where basically one tier was in power and they wanted taxpayers to reimburse them. Was it the best way to prepare the country for the 20th century? I’m not completely sure, because in effect there was more money put into interest payments than money invested in education. And Britain lagging behind in education with respect to the US or even with respect to Germany or France in the 20th century is the number one explanation for a British decline. I would not recommend doing the same in the future… The most successful experience with large public debt is probably Germany after [the] second world war, where they had this exceptional tax on private wealth which raises a lot of money. This contributes a lot to the reduction of the public debt without any inflation. Of course they were traumatised by inflation in the 1920s, so they didn’t want inflation anymore. The other way, of course, is through inflation, which is a wealth tax on the poor, typically.

A major reason for the surging debt stock since the turn of the millennium has been external wars. It has been estimated that the total cost and future obligations of the post-9/11 wars are about $8 trillion in 2021 dollars, excluding future interest costs on the debt. To put all this in perspective, “the US defence budget in 2025 was over $900bn, equivalent to 35 per cent of total global defence spending and more than three times the defence budget of China, the next most powerful military actor.”

Despite this, the dollar has continued to hold reasonably steady. The exorbitant privilege has ensured the dollar's status as the world's pre-eminent reserve currency and the Treasury market's role as the world's safest haven asset, thereby allowing the US access to unlimited global capital at a low cost. While there are no competitors to the dollar on the horizon, the Treasury's safe-haven status is facing competition. 

For one, the central banks, which accumulated reserves by buying up 63% of the extra debt issued by G-7 governments in 2008-21, are now unwinding their balance sheets by running down the dollar component of their reserves. They are instead pursuing alternatives like gold, commodities and the more liquid currencies of smaller developed countries like Switzerland. As William White has pointed out, this has created vulnerabilities. 

Indeed, a report by the European Central Bank showed this week that gold had now replaced US Treasuries as the world’s top reserve asset. By the end of last year bullion accounted for 27 per cent of all global central bank reserve assets, up from 20 per cent a year before. Treasuries fell from 25 to 22 per cent over the same time. This leaves a gap that has been substantially filled by hedge funds, mainly American owned but often counted as foreign investors because of their bases in tax havens such as the Cayman Islands. Many own Treasuries as part of highly leveraged “relative value trades”, financed by short-term borrowing that has to be constantly rolled over. 

William White, former chief economist of the Bank for International Settlements, points out that this works well — until it does not. White argues that the purchase of government debt by non-bank institutions such as hedge funds depends in turn on their access to short-term financing such as the repo market. He adds: “Should any disturbance interrupt that access, as in March 2020 [during the Covid-19 pandemic] or April 2025 [when Trump announced swingeing tariffs], an intense deleveraging spiral could easily follow.” Recent shocks from hedge fund margin and collateral calls have made the Treasury market more fragile and a potential source of systemic risk.

And there’s more. 

White also worries about fiscal dominance — a phenomenon in which the central bank cannot raise interest rates to meet its inflation target because of the punishing servicing cost of high, short-term public debt. This in turn undermines price stability. Another possible concern is financial repression, where the government forces banks and other financial institutions to buy its IOUs at below-market interest rates.

And with bond yields rising, the debt service costs are increasing. One estimate puts an additional $34 bn in financing costs by the end of the first quarter of next year for G7 nations. And this will only rise. 

Debt reduction can be achieved, as has happened in the post-war era in the UK, France, the US, etc., and more recently in Greece (more on it later). 

It requires that both the stock and flow of debt must be brought down. The former requires that the rate of economic growth (g) must exceed the rate of growth of debt (or the interest rate, r) for a long period, and the latter requires ensuring that the primary balance is positive. 

One can think of some scenarios under which the debt reduction can materialise. The ideal scenario of growth driven by a productivity surprise (say, AI) may be too optimistic, given the need to sustain real GDP growth (g) in the 3-4% range against a real interest rate (r) at 1-2% and the ageing demographics and falling labour force participation rates. Fiscal consolidation resulting in primary surpluses is another possibility, though the very high mandatory spending plus interest (now at 75% of the budget and heading to 80% by 2036) means that austerity alone can only be a marginal contributor. 

There is no historical precedent of grow out of debt at this debt level without either financial repression or fiscal consolidation alongside. The 1990s US surpluses under Clinton were a one-off combining Bush’s 1990 and Clinton’s 1993 revenue measures, the peace dividend, and the dot-com boom’s capital gains windfall. 

Then there are the scenarios of Fed-led financial repression, with moderate or high inflation. However, the inflationary path requires that the debt is long duration, new issuance reprices only slightly, and the social and political consequences are managed. But the US Treasury’s weighted average maturity is only about six years, which sharply limits this pathway to debt reduction, and there may be no political tolerance for sustained inflation beyond, say, 3.5%. In any case, repression and inflation will be important factors eventually in the years and decades ahead. 

They were important contributors to bringing down the debt-to-GDP ratio after the War, and the recent increase in bond buybacks announced by the US Treasury Secretary Scott Bessant are the early steps in a long period of financial repression. 

This brings us to debt restructuring and haircuts, which are unthinkable for the US given that the US dollar is the reserve currency. There is also the possibility of a consolidation forced by a crisis (à la Greece), though it looks unlikely for now and may lie 10-15 years ahead. 

Finally, the option of muddling through, stabilisation without meaningful reduction, is a very strong likelihood for the foreseeable future. Through a combination of mildly negative r-g through soft repression, containing primary deficits, and occasional tailwinds and reforms, debt-to-GDP can stabilise at 110-130%. Japan has run this combination for over two decades with 220-260% of GDP without any crisis, and Italy has done so at 130-140%. 

For debt reduction, the US and others may find Greece an unlikely example. From a peak of 212.6% in 2021, by the end of 2025, Greece reduced its debt-to-GDP ratio to 146.1%, and it is estimated to decline to 125% by the end of the decade. 

This spectacular record-breaking drop of nearly 67 percentage points within a four-year window has been achieved through a combination of strong GDP growth post-pandemic (4-5% real growth), early repayment of its financial rescue packages, negative real rates from the inflation shock, maintaining a primary budget surplus of above 2%, and concessional EU financing. 

This combination of factors is unlikely for advanced countries like the US. In the circumstances, the best hope is a trend of moderate inflation (say, 3%), repression to keep interest rates down, some reversal of the accumulated tax cuts, and some expenditure reduction, all of which will only stabilise the debt at about 120-130%. This would create the conditions for deeper reforms on both the revenues and expenditure sides after a forced crisis sometime in the later part of the next decade.

A scenario which cannot be dismissed is one where the erratic policies of the Trump administration, combined with rising inflation, a supply shock (of the kind in Iran), and an AI-equity market meltdown, spook the bond markets, resulting in a significant spike in bond yields. This could, in turn, force the US Treasury into biting the bullet on revenue and expenditure-side reforms. 

In the meantime, the bare minimum to calm the markets would be to at least ensure that the debt-to-GDP ratio is stabilised by bringing the fiscal deficit under control. But wars and Trump 2.0 policies work in the opposite direction.

Some thoughts on the Hyderabad model of urban growth

This is a long read, triggered by a recent article in The Economist lauding Hyderabad’s vertical growth-enabling policy. 

It is an opportunity to think more broadly about the drivers behind Hyderabad’s spectacular urban growth over the last three decades, one with few precedents in India. Also, to avoid drawing the wrong lessons from the city’s success in economic growth and real estate development, this post will provide some qualifications. It will point to the role of the government, the political economy and the role of large developers, and the consequences of deficient urban planning. Finally, it will offer some comparison between the Hyderabad model and those of Gurgaon and Shenzhen.

The Economist article lauds Hyderabad’s vertical growth and the enabling policy of the government. 

Hyderabad, unique among India’s cities, abolished fsi in 2006. And then, miraculously, life went on. NIMBYs foretell all sorts of doom the moment anyone talks about building anything. They warn of Gothamesque ghettos with gridlocked streets, dry taps and overflowing sewers. Nonsense. Today tall residential blocks line the highways in Hyderabad’s western suburbs and traffic still flows faster than in most major Indian cities. Dozens more towers, including the Trump ones, are sprouting in a neighbourhood called Kokapet that was not long ago full of custard-apple orchards and is now a forest of construction cranes. 

There are two reasons Hyderabad has not descended into dystopia. One is its 160 km-long orbital motorway, the first bit of which opened in 2008 and is now an arterial road in the new skyscraper belt. The other is that abolishing the arbitrary cap on FSI did not mean the abandonment of all rules. Regulations covering minimum street widths and required setbacks still apply. Aviation authorities impose restrictions around air-traffic funnels. The effect is that developers can build high only if they have a large enough plot next to a wide enough street somewhere far enough from an airport. Markets decide the rest. The cost of construction rises with height, so a builder’s decision about how much to pay for land and how tall to go rests on whether potential buyers of flats will cough up enough to make the project profitable. That has prevented a housing bubble.

For a start, Hyderabad’s spectacular urbanised growth over the last three decades owes primarily to government actions. Four, in particular, stand out. 

1. The spurt of IT services industries locating to Hyderabad provided the economic anchor to sustain the spectacular property development that followed. Its emergence owes all to government policies. From having nothing apart from a small software cluster at Mythrivanam, the spectacular boom in the IT industry was catalysed by the conscious efforts of the then government of Andhra Pradesh in the mid to late nineties. It established the 158-acre HITEC City at Madhapur through a PPP between APIIC and L&T, with Cyber Towers being the iconic building. The then Chief Minister, Mr Chandrababu Naidu, toured the US and Singapore extensively, wooing software firms, and his efforts culminated in Bill Gates's visit in 2001 and the announcement of Microsoft’s largest R&D centre outside Redmond. It was followed by GE and ICICI and a flood thereafter and continues to this date, expanding to all kinds of sectors and innovations. The Cyberabad brand took off. 

Starting with a few hundred in the early nineties, Telangana state’s IT employment has moved from 0.4 million in FY14 to about a million in FY25, and 85–90% of that sits in the western Hyderabad corridor. 

2. The state’s IT services push was supported by the Andhra Pradesh Infrastructure Investment Corporation (APIIC)’s model of acquiring land, developing trunk infrastructure (transport and utilities), and leasing/selling with clear titles through a single window at concessional rates to incoming firms. This too, like with the ORR, had its set of controversies and scandals.

Apart from the L&T HITEC City, APIIC developed the initial 100-acre Financial District at Nanakramguda, and several others. HMDA has been the price-discovery mechanism for the entire premium belt through its periodic auctions that have unlocked vast extents of government lands. The high premium commanded by these auctions is also because the state layout provides serviced plots with clear title. This is closer to a Chinese SEZ-style state land-lease model than to Gurgaon's private-land-assembly model.

3. The Outer Ring Road (ORR) has been transformational to the urban growth in the western part of the city. Notwithstanding all the controversies on the alignment finalisation, land acquisition, contracts, and tolling, the Hyderabad ORR should count as a totemic example of high growth-catalysing infrastructure investment in India’s history. It unlocked value by enabling the vast hinterland of barren and rocky lands to become productive centres. It was a truly visionary project when conceived in the early 2000s and even when its execution started in 2005. 

The ORR enabled orbital and radial access to the city, thereby resetting the commute dynamics and unlocking vast barren lands, reducing times by multiples. It is no surprise that every land price in the corridor is capitalised against ORR access time. HMDA’s designation of a 1-km high-density buffer on either side of the ORR effectively unlocked about 316 sq km of premium-development-eligible land, the value created from which dwarfs the ₹6,700 cr cost of the road itself.

The ORR did the work of several economic growth crowding-in instruments, and produced the pattern of intense capitalisation of access to it, and (on the flip-side) the neglect of everything it does not touch.

4. The last enabler, the subject of The Economist article, is the deregulated development control regulations, specifically the unlimited FAR adjoining wide roads brought in by the GO Ms No 86 of 2006. In fact, even among the DCR, the GO’s success was only in its deregulation of the FAR. The high FAR manifests in the most salient aspect of Hyderabad’s real estate growth, the skyline of massive high-rises. 

Even with all the above, it also critically required the enterprise, vision, and risk appetite of a handful of local real estate developers (My Home, Rajapushpa, Aparna, etc.) who hoarded large land banks in anticipation of the developments since the late nineties and early 2000s in the run-up to the boom. Only large real estate developers could afford to take the risks that lock up huge upfront capital and endure the vagaries of business cycles. 

However, it has managed to escape the market concentration that characterises markets like Gurgaon. The nature, scale and pace of development have also ensured that while a dozen developers account for the bulk of Grade-A supply, and the top three alone control about 64 million sq ft of upcoming pipeline, there is a long tail of over 30 mid-tier local names.

Such entrepreneurship could also flourish only in a political economy and social milieu which condoned the often questionable overlapping of public and private interest, and deep-rooted corruption. Governments changed, but the underlying model and ongoing work continued unhindered. It is a very good example of Mancur Olson’s stationary bandit at work. 

The combination of the 158-km Outer Ring Road, an unlimited-FSI building regime, a hospitable IT policy, and a handful of developers with 2000s-era land banks has added roughly a mid-sized city's worth of office, housing and vehicles to a 200-square-kilometre arc of west Hyderabad in about a decade-and-a-half. The public sector supplied the foundation. The private sector built on it. What emerged are pockets of car-dependent, single-use, higher-income, gated communities, with limited mass transit or affordable housing. 

This brings us to the issue of urban planning. 

Here, apart from the single instrument of unlimited FAR in the development control regulations, it is notable that the state fell short on the critical aspects of urban planning - master-planned mixed-use, walkable street grids, timely metro and mass transit access, transit-oriented density transfer, affordable housing, and vibrant public spaces and community life (apart from those in the gated communities). Even the unlimited FAR has its set of problems. 

However, it can also be argued that more than state failure, these outcomes were the result of private incentives and the political economy overwhelming urban planning imperatives. The reality of developers with large land banks near the ORR and their close relationships with both politicians and bureaucrats trumped all other factors. 

In any case, they have had several undesirable long-term consequences. Here are a few.

1. Residential real estate development has almost completely taken the form of high-rise gated communities and villas, all serving the upper middle-class and above. Affordability has been the casualty. 

The sub-1000 sqft supply is a mere 2–4% of the west corridor’s pipeline, versus 13% for Hyderabad city and 18% at the all-India top-7-city level. Apart from public housing under various government schemes, it will be a big surprise if there is even one development of housing in the 600 sqft range and below, catering to the lower-income class. The corridor’s default product is a 1,500–2,200 sqft 3 BHK, forming half of everything built, and easily catering to the upper-income class. 

This is a resounding nod to the reality that even in the most deregulated contexts and rapidly growing economic regions, affordable housing and lower-income housing will remain heavily under-supplied. It must be acknowledged as an area of market failure, requiring policy action. 

A ₹10 lakh household income supports roughly a ₹65–80 lakh home, which puts everything from Kokapet, Financial District, Gachibowli, Madhapur, and Raidurg out of reach for a typical mid-career IT professional. Even a ₹25–30 lakh household income (senior IT / GCC AVP) is stretched at ₹2 Cr pricing in Financial District. What this means is that the corridor is now selling primarily to senior tech and finance executives, NRI, and dual-earner-tech/finance households. Junior and mid-level tech workers are being pushed to Tellapur/Kollur/Miyapur. Even in these peripheral areas, sub-1000 sqft housing reaches only about 8%. 

2. The revenue bias of the state government may have compounded the problems. The massive premiums commanded in the land auctions, coupled with the restrictive DCR (on setbacks and open space requirements), have distorted the real estate market and skewed it significantly upwards. For illustration, at ₹150 cr/acre for Neopolis land, the input land cost alone works out to ₹8,000–10,000 per saleable sqft (assuming 2.5–3.5 FSI usable given the large setback and open-space rules). Add construction (₹3,500–5,000/sqft for a premium tower), financing costs (typically 12–18% of project cost), developer margin (20–30%), and GST and other statutory levies/fees, and the total cost comes to ₹13,500–17,000/sqft. This land economics forces ₹4 Cr and above units. In contrast, in Velimela, where land is still ₹5–10 lakh/acre (not for long, one would imagine), 2 BHKs can come at ₹40 lakh. 

In fact, it can be safely said that the entire land-use regime consisting of the ₹150 cr/acre Neopolis land price, the setback rules that make sense only for large plates, the developer economics that require more than ₹80 lakh units to sustain the ORR-belt cost stack, has displaced sub-1000 sqft out of the ORR corridor. The real affordable-format supply in Hyderabad now exists outside the ORR corridor’s western arc, in Miyapur, Bachupally, Nizampet, Kompally (north-west), Kukatpally (central), Uppal, Nagole, LB Nagar, Ghatkesar (east), and Rajendranagar, Shamshabad, Adibatla (south). These are outside the ORR corridor’s western arc. Anarock’s Q3 2025 Hyderabad realty breakdown indicates that 87% of the new supply added was in the premium, luxury, and ultra-luxury segments, priced upward of ₹80 lakh, a figure which rises to more than 95% in the ORR corridor. These are figures that point to a serious housing crisis. 

3. This has been despite the HMDA having a 5% of developable area mandate for each of the Economically Weaker Section (EWS) and Lower Income Group (LIG). Builders have the flexibility to construct it on alternative land within a 5 km radius. However, there is not even a single instance of any developer having built physical units using this option. Instead, they have preferred to use the cash-out loophole of paying a shelter fee, which was carved by amending the Special Development Regulations for the ORR Growth Corridor. It allows developers to pay a capitalisation fee equivalent to 1.5 times the basic land value to HMDA. The low basic land value means this becomes a cheap option, one immediately capitalised into the cost of construction. 

This must count as one of the biggest missed opportunities of Hyderabad’s ORR-based growth, and adds to the list of planning and policy failures. More importantly, the amendments to the EWS/LIG mandate underline the dominance of real estate developer interests. 

4. Also, given the lack of any public transport connectivity linking them, these gated communities are car communities. The very large enclosed boundaries of these communities mean that they are not walkable localities, thereby further isolating the communities and increasing the reliance on cars.

The Phase 1 Blue Line of the metro terminates at Raidurg, on the eastern edge of HITEC City, whereas the next 5–6 km, as in the schematic, contains the highest concentration of new office and residential capex in the corridor, and it has no rail transit at all (though they are included in the Phase 2 corridor of 11.6 km whose work has just started). They are also served sparsely by a fragmented bus network. Even when completed, the configuration and the nature of the development in the area make it sub-optimally useful. 

The metro gap is perhaps the single most consequential planning failure of the western corridor. Hyderabad, like others in India, are seeking to fit the metro into a built-form, instead of shaping the built-form around a built or planned metro. 

5. Furthermore, they are also not mixed-use developments (the institutions/offices, residences, and commercial areas are distinct), thereby forcing households to commute to buy their groceries and vegetables. To some extent, the basic requirements are met by having small shops inside each gated community selling groceries and vegetables/fruits. But outside of this, all commutes are long and car-based. It is unsurprising, therefore, that, like elsewhere in India, there is not one example of Transit Oriented Development (TOD) among the current stations. 

6. The absence of lower-income housing, coupled with the redevelopment and gentrification of even the erstwhile villages, has meant that West Hyderabad must rely on distant areas for various household services. Housemaids, drivers, and other help must travel long distances using autos and bikes to come and work in these communities. Apart from the costs on their lives, this creates their own set of problems (like getting a housemaid early morning or having a driver stay back late, or even their reliability). 

7. The “unlimited” FAR also meant that the government has foregone large revenues in the form of sale of purchasable FAR permitted over a base FAR (which comes with the property right). It can, however, be said that its absence has lowered the cost of construction and boosted supply. For now, the foregone revenues have been recovered many times over in various forms of economic activities, thanks to all the complementary actions that confluenced in the region’s development. 

All this means that West Hyderabad has made its choice of a pattern of living that revolves around secluded gated residential communities and is car-based, instead of the walkable, mixed-use, mass-transit and outdoor public-spaces-based living that characterises many western cities. There are benefits and costs with each model. But once the choice is made, it is almost cast in stone. 

It is also pertinent that while West Hyderabad has developed at this pace, the same planning and development control regulations (DCRs) have had no impact on the rest of the city. Economic growth over the last two decades has largely bypassed the existing twin cities of Hyderabad-Secunderabad and facilitated western suburban expansion. It is hard to think of even one example of meaningful-sized urban regeneration or redevelopment in the remaining parts of the city. It can even be argued that the development of the western ORR corridor has come at the cost of the rest of the city. 

This also reflects the restrictive nature of the existing DCRs, despite the unlimited FSI. Very few, or hardly any, plots in the built-up city can avail this unlimited FSI, thereby pushing development outside to the suburbs and benefiting builders. This is one more illustration of the fact I blogged here that reforms to DCRs across Indian states have largely bypassed the built-up city and benefit only the greenfield suburban developments. 

How does Hyderabad’s development compare with two similar examples of rapid growth to scale - Gurgaon and Shenzhen? 

Unlike Gurgaon, which emerged primarily on the back of private land assembly enabled by the licensing regime of Haryana’s Development & Regulation of Urban Areas Act (1975) and even private infrastructure development (e.g., CyberHub metro), the government had a big role to play in the development of the other two. In Hyderabad, as aforesaid, the government aggregated lands, allocated and auctioned them, while also developing the trunk infrastructure. 

Shenzhen is the extreme case of transformation of farmlands, with population rising from a mere 30,000 to 17.6 million in 40 years, and is instructive for its sequencing. It built the metro alongside, not decades behind, the office and housing pattern. Shanghai Pudong transformed farmland east of the Huangpu into finance-and-office from 1990 onward, but again with subway preceding the office boom. Songdo (Incheon) in South Korea is a smaller-scale but similarly planned-from-blank comparison.

Among the three cities, only Shenzhen retained state agency over the density and transit pattern of what it was building. West Hyderabad and Gurgaon both handed the pattern to developers who, rationally, given their incentives, built gated single-use tracts at the highest FAR they could get. The transit, water and sewer bill is what the state pays afterwards.

The best comparison for west Hyderabad is not Shenzhen (which had state agency), nor Gurgaon (which lacked any state trunk infrastructure). It is a distinct third pattern, created by strong state trunk infrastructure, state land assembly and allocation, weak state land-use and transportation planning, strong private densification, and remarkable entrepreneurship and risk-taking, all riding on a booming IT services industry. This third pattern deserves its own space in the Indian urban development literature.

Weekend reading links

1. Good long read in the Indian Express about the ridership deficit facing metro railway systems in India. This is a good website for network maps.

Radhika Shenoy, 28, a working professional in Hyderabad’s Secunderabad, points out that last-mile connectivity is a major challenge when she uses the Metro. “Neither my house nor my office is close to a Metro station. So, taking public transport becomes more expensive than using my own scooter or hiring a cab or auto,” she says... Manvika Shivhare, a 29-year-old lawyer based in Lucknow, says most people she knows never use the 23-km-long city Metro to get round the city, preferring to travel in an auto or two-wheeler instead. “The Metro is useful for going to the Airport, for which it would cost Rs 70, while the auto would take Rs 400. But none of us uses it for our daily commutes, since Lucknow is such a small city.” Shivhare says this won’t change even with the upcoming 11-km-long Line-2, connecting Charbagh Railway Station and Vasant Kunj in Lucknow.

2. India's crude oil imports from Russia rise to more than 2.6 million barrels per day in June and July.

3. The big semiconductor chip companies distort South Korean education priorities and the labour market.

For decades, South Korea’s brightest students gravitated towards medicine, and private tutors focused on helping students gain admission to elite universities. Now, some semiconductor departments sponsored by Samsung and SK Hynix — which guarantee employment after graduation — are attracting growing interest, and cram schools are catering to job seekers pursuing lucrative chipmaking careers. In the 2026 admissions cycle, SK Hynix-linked semiconductor programmes at several leading universities recorded higher application rates than medical schools, whose applicant numbers fell by nearly a third to a five-year low. 

Kwon Seok-joon, an engineering professor at Sungkyunkwan University, said generous chipmaker bonuses had altered how students viewed the trade. “For 20 years, medicine was the only path that guaranteed both wealth and prestige in Korea,” he said. “The Hynix bonus broke that monopoly. For the first time, chip engineers are in the same league as doctors when families discuss a safer future.”... In May, Samsung reached a landmark profit-sharing agreement with its 78,000 semiconductor employees, with average payouts expected to approach $400,000 in the memory chip division. Rival SK Hynix agreed last year to distribute 10 per cent of operating profits to workers over the next decade, implying average bonuses of about $500,000 this year based on projected earnings.

4. More evidence of lagging salary growth amidst rising sales growth.

Growth in net sales of 3,057 non-finance companies in the June quarter was 22.18 per cent year-on-year, according to a Business Standard analysis of the numbers from the Centre for Monitoring Indian Economy... Salaries in the June quarter went up at less than half the pace at which sales have grown — at less than 9 per cent... The starkest contrast was in the mining sector, where sales grew 40.83 per cent and salaries and wages 1.04 per cent. Lower growth in wages has likely he­lped operational profits, where margins had come under pressure because of higher costs of raw materials.

5. Labour market expectations from the PLFS 2023 survey data.

Our job seekers expect up to 40 per cent higher salary than actual earnings reported in the PLFS for the same occupation. Male job seekers, in particular, show greater over-optimism in salary expectations relative to women, expecting almost Rs 8,000 more per month than the actual average earnings for these jobs and Rs 8,500 more per month for salaried jobs. Altogether, salary expectations diverge from reality by more than 30 per cent. When we assess the job aspirations and expectations of job seekers who are below 25 years of age in our sample, we find that expectations are even more skewed – again, more so for young men than young women... 

So we set out to inform and expose a random subset of our 3,000 job seekers to the real world and re-surveyed both the informed and the non-informed a year later. Twelve months after receiving information, we find that providing accurate information about job opportunities significantly dampened job seekers’ labour-market expectations of landing their ideal job relative to those who were not informed. Men, in particular, were less likely to report that they were on their ideal career path. This disillusionment is accompanied by a decline in men’s job-search intensity. Thus, as preferred job offers fail to materialise, job seekers adjust their expectations downwards and either remain in the same jobs or drop out of the labour market and enrol at educational institutions.

6. Is fusion energy, the process that energises stars and sun, about to become a reality?

Privately held fusion companies raised $4.5bn over the past year alone, according to the Fusion Industry 2026 report. There are now more than 50 such companies. Last month, General Fusion, a Canadian outfit backed by Jeff Bezos, became the first publicly listed fusion company. These signals hint at an important shift: fusion energy is gradually being perceived less as a scientific challenge and more as an economic one.

7. Made in Switzerland.

Switzerland, where manufacturing still accounts for almost 19 per cent of GDP, twice the contribution from its celebrated financial services industry. The white cross on a red background, emblazoned on products from Heule precision tools to Caran D’Ache pencils, is both a guarantee of quality that is understood worldwide, and a valuable marketing device for Swiss manufacturers... Switzerland has the highest proportion of high-tech manufacturing of any of the OECD’s 38 member countries...

A landlocked country of 9mn people, with few natural resources and some of the world’s highest wages, is not an obvious starting point for a manufacturing success story. But the Swiss made it work. Companies responded to high wages and an appreciating currency by becoming more productive, more specialised, more sophisticated and more expensive, while focusing on global markets rather than their small pool of domestic consumers. “Swiss Made” became shorthand for the result: watches, machinery and precision tools good enough that customers around the world would pay extra for them. One of the results is an economy unusually rich in relatively small companies that dominate particular niches. A study published this summer identified 100 such Swiss businesses, together generating more than SFr40bn in annual revenues. They range from VAT, a maker of vacuum valves used in semiconductor production, to Burckhardt Compression and specialist manufacturers such as Rondo, whose machines shape dough into pastries in bakeries around the world...

That strength is underpinned by an unusually deep apprenticeship system. About two-thirds of young Swiss pursue vocational education and training, most learning partly inside companies — supplying manufacturers with generations of machinists, technicians and other skilled workers. Bern pushed its commitment to open markets still further in January 2024 when it unilaterally abolished all tariffs on imports of industrial goods. The government argued that such protection had become counter-productive: cheaper imported components would reduce costs for Swiss factories embedded in global supply chains... at least 60 per cent of manufacturing costs must generally be incurred in Switzerland and an essential manufacturing step must take place there for the product to qualify as “Swiss Made”.  

But protectionism and the appreciating franc are denting the country's competitiveness and manufacturing base. 

8. The changing face of economics research. First, the dominant fields of research are changing.

Second, it is reaching out to other disciplines.

A research paper by Tom Harris, an economics PhD student at the London School of Economics, bears this out. Aggregating the literature published in 24 leading economic journals between 2000 and 2025 and NBER working papers between 2021 and 2025, he found the share of papers written by teams spanning different fields had jumped 16 points to 35 per cent between 2000 and 2025, while solo-authored papers fell as a proportion of the literature from 34 per cent to 15 per cent.

Third, economics research is becoming more empirical.

Research from Prashant Garg, a postdoctoral researcher at Bocconi University, and Thiemo Fetzer, economics professor at Warwick University, finds causal claims in economics have jumped. In 1990, 7.7 per cent of claims made in the literature were causal. In 2023, that hit 32.6 per cent. Additionally, papers with more causal claims are more likely to receive citations and wind up in top five journals, the research suggests.

And this turn to empiricism has had not so good consequences.

Results derived from real-world data and experiments are hard to replicate under the same conditions and methodology, with research suggesting that up to 70 per cent of recently examined economics papers contain some results that cannot be reproduced. Sometimes this is simply because the data is broken or otherwise unavailable to other researchers, although other theories abound: pressure to publish, data manipulation, patterns of funding and structural incentives in the academy, for instance. There are also cynical explanations, such as questionable research practices or fabricated data sets.

9. Israel's economic squeeze on Palestine is less reported but adds one more dimension to the genocide.

Israel quickly canceled permits for tens of thousands of Palestinian laborers to reach their workplaces in Israel... Since the start of the Gaza war, unemployment in the West Bank has skyrocketed to 28 percent, more than double the rate before the conflict... Then, in May 2025, Israel started confiscating hundreds of millions of dollars per month in import taxes that it collects on the Palestinian Authority’s behalf. This revenue stream accounts for about two-thirds of the West Bank government’s budget for 2026 of about $6 billion, according to Palestinian officials. That deficit has forced the Palestinian Authority to lower the salaries of 140,000 civil servants and security officers, shorten school weeks to three days and accumulate billions of dollars in debt... 

Israel has also erected new roadblocks across the West Bank, stifling the movement of goods within the territory... Israel has also limited the amount of shekels that Palestinian banks are allowed to send to Israeli banks, a crucial process that helps enable Palestinian merchants to buy goods from Israel and the rest of the world. The Netanyahu government permits quarterly transfers of about $1.5 billion from Palestinian to Israeli banks — far less than previous administrations allowed. The restrictions have resulted in about $5.7 billion languishing in bank vaults in the West Bank, according to Palestinian government and banking officials.

10. The public sector dependency in the UK

In Britain 50-60 per cent of the electorate works in the public sector or gets benefits or a state pension, suggesting a tipping point has been hit.

11. India's labour market facts of the week.

A new NITI Aayog report notes that about 87 million people aged 15-29 are outside education, employment or training, while only 8.25 per cent of graduates are employed in jobs aligned with their qualifications.

12. The Economist has an excellent article that points to research about the impact of AI on students. David Stromberg of Stockholm University and Victor Lei and Wu Yanhui of the University of Hong Kong tracked 27,000 pupils aged 12-18 in China, where AI adoption has been fast. Around 80% reported using models such as Doubao and DeepSeek, and the other 20% formed the control group.  

After six months, pupils using AI saw their average homework score rise by 18% across all subjects. The time they took to complete each assignment fell from an average of 64 minutes to 45. But come exam time, the same students scored 20% below their classmates who had not called on AI’s help. Homework scores once predicted exam performance; now those who score highest are, perversely, more likely to do worse in exams.

The drop in exam scores was concentrated among students who rushed their homework. Those who used AI but spent as long on assignments as non-users paid little penalty. What matters, then, is how pupils use the technology. Those whose exam results remained strong were not simply copying and pasting answers to save time. More likely they used the chatbots as a personal tutor, perhaps to explain difficult concepts or help solve specific problems.

John Burn-Murdoch says this finding underlines the importance of conscientiousness (or self-discipline) in this modern digital age with all its distractions and access to shortcuts.