Saturday, January 1

Hopeful, heartbreaking portrait of a Nation’s Remaking

I loved this article....beyond the obvious accusation of condescension, it is a hopeful, heartbreaking story being played out a million times over everyday in India.

My favourite quotes
"Ravindra Misal rejected tradition to become that rarity in India: A Self Made Man"

"A generation being trained rather than educated. They knew nothing about industry, art, history, literature, science"

"Their heads were filled with SWOT analysis and ways to win friends and influence people, not with the tolerance of Asoka, the poetry of Kabir, the universalism of Tagore."

Monday, April 20

Worst case scenario for US: IRELAND!!

Paul Krugman on Ireland

Let me also say that Ireland’s recent policy moves — raising taxes and cutting spending in the face of a severe recession, so as to reassure nervous lenders — are an extremely disturbing omen. Iceland was one thing; but now another advanced economy, with a 7-digit population, has hit the limits of anti-recession policy.

Click here for Krugman's NYT article

Friday, April 17

No bad politicians, only misunderstood voters

I have never believed in this strange notion of "all politicians are bad", I believe it is always a case of where the true intent of voters is not understood.

A very interesting article by Madhav Raghavan based on a paper: "Public Disagreement" (Sethi, Yildiz), makes the that discussions and interactions among segregated groups could actually magnify initial biases. Especially when there are inherent bias shared in groups that are invisible or incomprehensible to external folks.

Madhav Raghavan writes

This is reflective of much of India’s caste-based politics, where leaders are able to unite a caste or sub-caste under one ideology, but in a manner that makes their collective views more opaque to everybody else. The Yadavs may unite under Lalu Prasad, but few who are not Yadavs may understand their motivations.

Sethi & Yildiz write

"Members of different social groups often hold widely divergent public beliefs regarding the nature of the world in which they live. Communication in segregated societes can cause initial biases to be amplified, and new biases to emerge where none previously existed."

Also check out Nandan Nilekani's opinion of caste based politics

Wednesday, April 15

Astrology vs. Rocket Science

Who gains from Doha round and by how much,? Is it rocket science or astrology? Are the US bank bailouts trade distorting subsidies?

Read this article in Business Standard

Hoping for a crisis to reform!

Ajay Shah' in this article: India in the Great Recession points out the industrial production growth is at its worst levels since 1993. In addition capital inflows are down, tax collections are down.

Yet private investments have been surging and today constitute a larger piece of the pie, compared to government and household sector, are also the most volatile.

According to Ajay any reversal in private investments, which is likely given the drop in production, could tip India into downturn similar to 1992-93. And given the weak state of fiscal and monetary mechanisms to counter the downturn, we could be in quite a "spot".

Given the surging private investments, Ajay Shah is almost hoping for a crisis that would kickstart the necessary reforms just like in 1992.

Tuesday, April 14

Economists on Indian Economy

In a series of interviews Ila Patnaik talks to leading economists on India. Being an economist herself, the questions are intelligent with ample time to explore responses, where issues like quality of IIP data given its 1993 base are discussed in depth. I wonder what was the size and profile of intended target audience.

I am slowly making my way through them. But definitely a must see to get a quick handle on Indian economy.

Monday, April 13

Need for caste based politics

As India prepares to elect its 15th Lok Sabha: "the biggest, largest political, democratic show in the world"; we will witness yet another spectacle, a tamasha and hopefully, a peaceful election of a new government in a country that is so uniquely...hmm...Indian.

As is often said, in India "we do not cast our vote; we vote our caste", elections will all be about herding the 3700+ "vote-banks" of religions, castes, sub-castes by scores of political parties into various permutations of coalitions to form a "majority" government. Indian politics is rarely about competition of ideas or issues or ideologies but a huge negotiating table with all castes/religions/regions represented based on their numerical strengths hoping to get hand on the various levers of state power.

Many would find this blatant deeply divided, splintered identity based politics appalling...I believe it is a step forward, where the elite have lost their monopoly control over the main political parties.

The intelligentsia's response to this is lot of hand wringing and self-loathing about "bad" politicians who exploit the illiterate and poor. The upper class elites who decry identity politics, also don't care to vote. At least they didn't have to. The upper classes/castes have managed to maintain their environmental privileges i.e. near monopolization of jobs, good (free) education, & professions.

Caste-based identity politics is not "bad" politicians taking advantage of illiterate rather represents a legitimate hunger & aggressive demand for equality, justice and freedom.

Even after decades of Independence, the caste you were born into determines your education, profession, income, quality of life and opportunities presented. And till recently the lower castes and less privileged have accepted the inequities as predestined "karma" most probably from previous births.

But since the 1990s, with opening of the economy, legacy of Mandal Commission, greater awareness and access to economic opportunities, "genteel" expressions of reform are being replaced by a more militant demand for change and reform.

And since power is never relinquished without a fight, the backlash to this movement is also equally gaining ground mostly in the form of radical, nationalistic Hindu parties. Demands for affirmative action & social justice is met with arguments of meritocracy, highlighting inequality is met with need for nationalistic spirit of unity, demand for religious freedom with fears of proselytizing and claims of "historical" wrongs, police brutality with need for security and war of terror, and when all else fails plain denial works just fine. Even today Indian census deliberately avoids gathering crucial caste/religion related data or in many cases just refuse to count key minorities.

India has a long road to reach the point where an individuals "karma" is not predestined at his/her birth rather a choice available equally to all. Rather than seeing identity politics as regressive, it should remind us of the inequalities. And till caste determines an individuals destiny, caste based politics will continue to play a big part in Indian elections.

The uniqueness of India is that this battle will happen using ballots and not bullets..mostly..hopefully!!!

My recommended reading...

Shakespeare & Banking Regulation

[Via Dani Rodrik]

Dani Rodrik writes...

A single loan requires not one but two terms to be negotiated, and that one may become much more important than the other in certain situations was clear enough to Shakespeare four hundred years ago. Wrote Geanakoplos:

“Who can remember the interest rate that Shylock charged Antonio? But everybody remembers the pound of flesh that Shylock and Antonio agreed upon as collateral. The upshot of the play, moreover, is the regulatory authority (the court) decides that the collateral level Shylock and Antonio agreed upon was socially suboptimal, and the court decrees a different collateral –a pound of flesh but not a drop of blood.” Thus did the The Merchant of Venice end happily, not with a cramdown, but with very different terms if the loan were to be foreclosed.

[Via Economic Principals]

For at least a century, he noted, economists have been accustomed to thinking of the interest rate as the most important variable in the economy – lower it to speed things up, raise it to slow them down. Yet especially in times of crisis, collateral demands – alternatively, margin requirements, loan-to-value ratios, leverage rates or “gearing” – become much more important.

Central banks, therefore, should rethink their priorities. The Fed should learn to manage system-wide leverage, he said, reining in on it in ebullient times and propping it up in anxious times, in order to prevent the worst outcomes.

Kudos to RBI

Economist article raises questions on RBI/Govt's stance on the need for foreign banks, at the same time one has to credit RBI for NOT being asleep at the switch. It had raised provisioning for real estate loans way back in Apr 2006. To quote then RBI governor YV Reddy:

"It’s based on the feedback that there was a tendency of multiple acquisition of houses by the consumers which was increasing the risk profile of both the banks and the consumers... If the real estate market improves by way of scrapping of Urban Land Ceiling Act, rent control laws and low transaction cost... then we may look at reducing the risk-weight of real estate sector loans.”

In contrast to Greenspan's reluctance to recognize asset bubbles, RBI had been very vocal about asset bubbles and the risks they posed to banking system. Yet even they thought "developed" countries would be less immune.

According to Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan,

"The elevated realty prices along with non-transparency in the real estate sector may lead to an “asset bubble” and pose risks to the banking system. Moreover, real estate markets are characterised by opacity and other imperfections in developing countries. Such developments can easily generate bubbles in the real estate market because of problems in the elasticity of supply and information asymmetries.”

Even at the risk of giving into "consipiracy theories", it is difficult to ignore Simon Johnson's assertion that financial oligarchy in US led to the regulatory lapses and will block essential reform.

Saturday, April 11

Religion of Free Markets

Quotable quotes below from Dick Armey from Freedom Works that is organizing Tea Parties against taxes & bailouts.

Dick Armey:

"Markets will punish immorality"

"When you are dealing with the government, its like dealing with the devil, you're gonna be the junior partner"

No wonder right-wing folks also fervently believe in the Second Amendment, if you are going to trust markets to punish immorality, you better bear some strong arms!!