The hype around institutional investors is finally getting some attention..(lessons for India)

July 3, 2015

I mean it should not have taken so long for World Bank to figure limitations of institutional investors. Seeing and analysing their performances for instance in SE Asian countries (or Latin American or African ) should have given enough evidence that things are not as per expected. Infact far off it. But then it needed a crisis in their own homes to realise what is going on. Till 2007, even having such talks was just a crime.

WB’s leading finance scholars discuss the role of institutional investors. They say the expectations are way off the mark. The focus of the article is on institutional investors without specifying domestic or foreign. But is can easily be extended to FIIs as well:

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RIP: Mr. Surinder Kapur (who was part of an exciting phase of Indian business history)

July 3, 2015

Just got to know of demise of Mr Surinder Kapur, chief of Sona Koyo Steering.

Bhupesh Bhandari of BS pays a nice tribute:

Surinder Kapur died on June 30 in Munich after being ill for about a fortnight. He had sizeable business interests in Germany and had set up home in Munich. In the last few years, he would spend more and more of his time there.  He was humble and cheerful at all times. I always found it difficult to imagine him angry and dispirited. And he loved his family. Towards the end of March, he had sent me a link to the first YouTube video of his granddaughter, with a request to “like” it. Kapur’s large and serene farmhouse was a reflection of his urbane persona.

Kapur was a product of the Japanese wave of the 1980s. The then government, under Rajiv Gandhi, had taken the first tentative steps towards liberalisation by allowing in Japanese automobile makers. These companies decided to source components locally in order to keep their price tags low. Sensing an opportunity, Kapur met the bosses of Maruti Udyog, in which Suzuki of Japan had taken a stake, and R C Bhargava, who told him he could choose whatever he wanted to make so long as he would let Suzuki buy 26 per cent in his venture. Kapur chose to make steering systems and gave just 10 per cent equity in his company, Sona Steering, to Suzuki. (It was renamed Sona Koyo after Koyo of Japan acquired a stake in the mid-1990s.)

The entry of the Japanese automobile companies revolutionised manufacturing in the country. Earlier, Indian quality was poor, deliveries were shoddy and costs were high. This was unacceptable to the Japanese. To give credit to Indian businessmen, instead of complaining about it, they took it as a challenge and, in a few short years, they were churning out stuff that was almost as good as what was made anywhere else.

Several of them, in due course of time, became global players. Kapur was one of them – at the time of his death, he had manufacturing operations in India, Germany and the United States. Fuji Autotec, in which he had taken a strategic stake, has subsidiaries in Brazil, France, Sweden and the Czech Republic.

He took on to Japanese tech like no other:

Kapur was the biggest proponent of Japanese manufacturing practices in India. He worked with quality gurus like Yoshikazu Tsuda and consultants like Shoji Shiba. His relentless pursuit of quality made Kapur a highly efficient manufacturer of automobile components. He pursued global quality certifications with missionary zeal. He wrote a series of articles on the subject, under the head The Quality Conundrum, for Business Standard some years ago.

In the Confederation of Indian Industry, he was the strongest champion of total quality management, or TQM. Whenever a new concept was discussed, he would offer his company as the guinea pig. His team had no choice but to go through the drill. Kapur’s vision was to “create a company that India is proud of”.

He took to the Japanese way like fish to water. Apart from manufacturing best practices like Kaizen and JIT, he did not ignore the softer aspects of the Japanese work culture. It was not uncommon to find him outside office in company uniform. The only Japanese habit he didn’t pick up was golf, though he learnt the next best thing: singing in Karaoke bars.

In later years, Kapur became an ardent fan of German engineering excellence as well. Sona had the heart of a true multinational corporation.

There is more in the article. Amrit Raj of Mint also has an article on Mr. Kapur.

This was quite a phase for Indian business history. In his book The Maruti story, Mr. RC Bhargava narrates the tell of how Suzuki became a partner as a matter of luck and chance. It was hardly a preferred partner. How this chancy matter eventually set a process of innovation in the Indian auto industry is something we hardly appreciate. People like Mr. Kapur (along with many others) played a crucial role in this process. And not to forget, Maruti was a govt company which led the charge and change.


Book Review — The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF

July 2, 2015

It is amazing to read this book by Paul Bulstein on South East Asian crisis (and Russian and Brazil) and role of IMF/Washington to mitigate (actually worsen) the crisis. Why it is amazing is one can just change the country setting and some players (many players like Stan Fischer still remain) and you get a recipe for ongoing Euro and Greece crisis as well.

The book is like a breezy thriller on the 1997 crisis full of plots and sub-plots:

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A bank that takes Parmesan cheese as collateral..

July 2, 2015

Interesting article in HBSWK.

Nikolaos Trichakis of HBS has prepared a case on Italian regional bank Credito Emiliano which takes cheese as collateral:

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Understanding the central bank balance sheet – A handbook..

July 1, 2015

Garreth Rule of BoE has a nice detailed article on this.

The central bank’s balance sheet plays a critical role in the functioning of the economy. The main liabilities of the central bank (banknotes and commercial bank reserves) form the ultimate means of settlement for all transactions in the economy. Despite this critical role the central bank’s balance sheet remains an arcane concept to many observers. This handbook provides a useful framework for understanding the necessary details.

The handbook has excellent graphs and pictures to explain how central banks make changes in balance sheets.

This is another unfortunate development in eco teaching. There should be far more focus on reading balance sheets than just reading papers. Mon policy teaching barely covers balance sheets whereas they are central to understanding central banks. By looking at the balance sheet, one can figure out most of central bank operations without getting into complex math.

Really useful stuff..

How about outsourcing Indian eco policy to Moody’s (and likes)?

July 1, 2015

One is fed up with this kind of continuous eco(non)-sense dished in media. Just a month ago, as media celebrated one year of Indian government, they went over the top saying how much the govt has done. And now within a month they say we are disappointed with the pace of reforms.

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This October, Get Ready to Welcome 175 Kms of Railway Tracks Free of Human Waste

July 1, 2015

It is recommended that one subscribes to daily news from this site – They point to some good positive news from things that matter and not the artificial news we get from other sources.

Today’s edition has this news on cleanliness in train tracks and a stench free journey:

This October, it will be a year since the Swachh Bharat Abhiyaan was first launched by Prime Minister Narendra Modi. And as an anniversary gift, Indian Railways has come in with some great news.On the mission’s first anniversary, railway tracks, over a stretch of 175 km, will finally be free of human waste. This will be made possible with the installation of bio toilets on all trains running on two routes.

Thus, from October 2nd 2015, these two routes will become “zero toilet discharge” routes:

1. The 141 km Kanalus – Dwarka-Okha section
2. The 34 km Porbunder – Wansjalya section

This is a part of an endeavour undertaken by Indian Railways to make 375 kilometres of rail track free of all human waste discharge from train toilets, in the current fiscal year.

By March 2015, the railway department had already installed more than 17,000 bio toilets in trains, and is targeting more before the end of this year. This will mean that each one of about 40 trains which currently ply on the 375 km route will have bio toilets in their coaches. With the help of these toilets, waste is directly digested by specially developed bacteria which then leads to only a small amount of non-corrosive neutral water being discharged on the tracks in the end. The installation cost for four such toilets comes to around 3 lakh rupees and about 6,000 coaches are all equipped with these.

The current discharge of waste directly on the tracks leads to corrosion which in turn leads to crores being spent on replacement. With the requirements of our trains in focus, these green toilets have been designed by Railways along with the Defence Research and Development Organisation (DRDO).

Thus, we can expect the impossible-to-stand stench and the filth to be gone from at least a stretch of the 65,000 km-long tracks across the country. An important next step will be a responsible and mature utilisation of these toilets. When a cleaner toilet option in trains is finally being provided, it’s best if we grab it in a way that the process can be sustained for long.

Swachch Bharat or Clean India is easily the most important program launched by the new govt. Even for slogan sake, it has atleast led to some awareness and push for cleaning India. A clean India will kill many birds with a single stone. But then it has to move beyond slogan and generate some serious action on this front.

Now, this train program did not come in one day. It was already implemented in some select trains on an experimental basis. These things happen overtime in a continuous fashion. So it will be wrong to give credit just to this govt but to railways for trying given the various constraints it has. Now, this has to be implemented across the train routes.


Bombay HC allows Nestle to export Maggi noodles, India ban continues!!

July 1, 2015

This is an ironical news. India allows Nestle to export Maggi noodles, but ban on India remains.

In some relief to the Indian subsidiary of Nestlé, the world’s largest food maker, the high court here has allowed it to export Maggi noodles, even as a ban on selling the item within the country continues. A Bench comprising judges V M Ranade and B P Colabawalla said the company was free to export the noodles, subject to compliance with rules and health and food safety standards. The court will take up the matter again on July 14.

The relief for Nestlé India comes after the country’s apex food regulator, the Food Safety and Standards Authority of India (FSSAI), said it had no objection to the company selling the product abroad, though it stood by its decision to ban nine variants of the instant noodles in India, an order it had passed on June 5. The order had also sought Nestlé withdraw all variants of Maggi from the marketplace. This led to the largest product recall in India.

So are we made to believe that food quality standards are more stringent in India than other countries! This is obviously not true.  As Raamdeo Agarawal of Motilal Oswal says that Nestle’s reputation is 100 times more than India:

In an interview with ET Now, Raamdeo Agrawal, Joint MD, MoFSL, shares his views on Nestle. Excerpts:

ET Now: You mentioned Nestle in your book as well as one of those stocks you have studied. Do you have the courage to buy Maggi now, considering the kind of trouble it is in the country? Is this the time to be patient with the stock and say I believe in the valuations?

Raamdeo Agrawal: Patience and aggression to buy more.
ET Now: Really? Buy more Nestle at this point?
Raamdeo Agrawal: Yes. At the right price I will buy double.
ET Now: So you are not worried at all?
Raamdeo Agrawal: Not at all. Nestle’s reputation, worldwide, is at least 100 times more than government of India itself. Nestle bonds in Europe trade at negative yield. Government of India bonds trade at 7-8% yield. This is the kind of reputational gap. Today, Nestle is in trouble but it is still making about Rs 1,000 crore. Last year, they made Rs 1,000 crore profit. 10 years on, will it make 5000 crore or 500 crore profit? This is the question to be answered. If the answer to your question is that it will make 500 crore profit after 10 years; obviously, this is not the stock to be in. If they are going to make 5,000 crore profit in 10 years, then you should welcome the downturn in the stock to load up enough.

Hmm.. Am sure that if the Nestle crisis had erupted in US/Europe, Nestle yields would have risen sharply and India Govt would have higher reputation. The crisis in India has barely affected Nestle’s position worldwide. Another reason for low Nestle yield is monetary policy which has pushed yields to zero/negative levels. So much so for India;s emergence as a world economic power..

I don’t know but somehow I have still not got the Maggi crisis right. It perhaps came at a right time as India was increasingly tilting towards processed/artificial foods whereas other countries were looking at ways to rid of such foods. So, we in India needed to be warned against unhealthy practices. But for the crisis to take this dimension is quite amazing really given how lax our food standards are in India..

Lessons from the Indian currency defence of 2013…

July 1, 2015

Prof. Ajay Shah reviews the various measures taken in India’s currency defence of 2013. He looks at the impact of these measures on various markets and says it only led to more volatility.

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Kids create salt black markets in cafeterias due to Michelle Obama’s lunch rules…

June 30, 2015

An article (HT: Mises Blog) on unintended consequences and how even children understand basic economics:

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India: Building the Foundations for Robust Global Engagement

June 30, 2015

Title of an oldish paper (Apr-2015) by WPS Sidhu of Brooking India.

There is little doubt that if there is some policy taken really seriously by Indian PM, it is foreign policy. The kind of interest that has been generated over the various foreign tours of Indian PM and several discussion (a lot of hype though), has been seen after a long time in Indian policy.

The paper is a brief on the things needed to make this agenda more meaningful and result oriented:

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In peace or at war, family businesses promote families in a uniquely Indian way

June 30, 2015

Nice article by Shailesh Dhobal on Indian way of doing things. This one is on keeping families interested in their businesses:

A lot has changed with India Inc since the economy opened up two decades ago. The ways of doing business have changed to become globally competitive, and sources of finance, too, have diversified with huge pools of foreign, public and private capital owning a chunk of the big firms listed on the stock markets.

Yet, even a cursory reading of business newspaper headlines of the past fortnight shows how entrenched the old order is as far as families in business go. The Rs 9,000-crore Emami group junked its earlier idea of letting professionals pick successors from the promoter families and instead formed a family board to pick and groom one from the promoter families’ second generation to lead the firm in the future.

The Kapoor versus Kapur fight at YES Bank is playing out in public, with the High Court ruling that went in favour of the bank’s erstwhile co-promoter’s widow, Madhu Kapur, who happens to be promoter Rana Kapoor’s sister-in-law, only accentuating competing positions.

The news narrative at one of India leading food firms, the Rs 7,100-crore Britannia Industries, is how soon the promoter’s son, Ness Wadia, will assume a bigger managerial role at the biscuit maker. Or even at the country’s third largest software firm, Wipro, where Rishad Premji is reportedly being groomed for a role bigger than the one he currently handles.

And when a business scion does decide to take a different path, as Kamil Hamied of Cipla did by quitting the pharma maker recently to purse personal interests, sister Samina Vaziralli is quickly given an expanded role to scotch any rumours of succession plan gone awry. After a glorious three-decade-plus as chairman of the Hero group, when Brijmohan Lall Munjal does decide to hang up his boots, his son, Pawan Munjal, smoothly takes over as the chairman of the group. Yet, elsewhere, the father-adopted son battle over succession only gets uglier at the Rs 10,000-crore Chettinad group.

Now, it will be foolish to suggest that the families stay away from businesses when they still own almost two-thirds of India Inc’s wealth. And it is also true the capitalist system is based on the bedrock of perpetuating ownership.

The author then goes on to criticise the role of families in businesses:

But how about divorcing ownership from management? Yes, the debate is old but it is time to revisit it. There is one argument that separating the ownership from the management model does not work for an emerging market like India where the rules of the game are not well-defined. And more so, the firms are running all right, and if it ain’t broke, why fix it, goes another argument.


How about the pernicious influence that family-led management invariably brings out in the best of firms? When was the last time you heard an Indian firm sack its owner-manager, or his or her spouse, parent or progeny, who were involved in the business, even if mismanagement is proved beyond doubt? Maybe in some start-ups but rarely in an old, entrenched businesses. Surely, that can hardly be a case for promoting accountability or merit down the line.

And why should the majority shareholder get to pick his progeny as a successor to run the business? Isn’t it a ‘related party’ transaction, in principle, at least, if not in law currently? Why should management succession have a corporate governance carte blanche when all other related transactions of a firm – from sales, investments, loans or leveraging information – are under strict scrutiny and regulation?

Imagine if tomorrow one of the big family-owned firms in the country were to announce that the race for the top job is open for all, including non-family insiders. That will truly herald a corporate democracy. Well, the Tatas did that when a committee was formed to look for Ratan Tata’s successor, though finally the son of the biggest individual shareholder in Tata Sons, the group’s holding firm, was chosen to lead the salt-to-software conglomerate.

Not sure that the criticism is really right. Worldwide too, most companies are family owned as well. There are ways to hide ownership and that is what it is. And then despite separating management from ownership, latter continues to influence the decisions in a big way. Cometh a crisis in the firm, family calls the shots. And then in Asia, we value the family bit much more than the west. We are more comfortable to give businesses to progenies than to an outsider.

The issue actually is similar to debate we have on private vs public ownership. Based on Anglo Saxon dominance, we are always made to believe that private ownership is better than the public one. This is partly due to different history of Anglo Saxon countries and partly a creation of the media. The governments have played a much lesser role in Anglo Saxon world compared to other countries. So private ownership has traditionally played a larger role in these countries. But it is not that private ownership has not had its moments of failure, There have been quite a few but the attention is much more on public ownership failures.

The question is not private vs public or family vs professional,, but how to make the firm perform better given the constraints.

Another high profile banker falls off glory?

June 30, 2015

It was shocking to see Anshu Jain resign so quickly as a head of Deutche Bank. The Indian media had gone gaga over his appointment (as it always does) celebrating another Indian at the helm of global affairs.

And now there are reports that he was actually asked to go as he had misled the bank.

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Is the Greece crisis the Treaty of Versailles moment?

June 29, 2015

One does not know how to even sum up the Greece crisis. Despite nearly 5 years of Greece under stress, not only there is no solution. But it has only become worse overtime. All kinds of expertise is being offered and most is actually asking more questions than giving answers. Draghi magic is over and hard reality has sunk in.

The ongoing crisis has many narratives from history. The obvious one is Great Depression which has been an overkill. People have argued on both sides for stimulus and against stimulus and there are both +ves and -ves with each point. Then there are comparisons with 1907 panic and so on.

The Greece crisis and coming agreement is now being compared to similar such events.

In this vein, Prof. Amartya Sen has a piece comparing the upcoming agreement to the one held in Versailles in 1919 which sowed the seeds of second world war. He argues by forcing countries towards austerity and really harsh conditions, we could be in for trouble again. Prof Simon Wren Lewis says Amartya Sen is right.

What times we are living in. Anything can happen..

Growth and inequality: The contrasting stories of India and Brazil

June 29, 2015

Interesting article by Alexandre de Freitas Barbosa (University of São Paulo) and Gerry Rodgers  (Indian Institute of Human Development).

They say both India and Brazil were similar during their independence, but have gone in different directions:

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Book Review – Blood, Iron and Gold: How the Railways Transformed the World

June 29, 2015

A lot is being written on state of Indian railways and the need to change it. This book is a must read for those who are interested in railways beyond the usual LPG of Indian railways (liberalisation, privatisation and globalisation). Apart from many ways to figure economic and social history, one way s to pick history of some technology like railways in this case and see how it has evolved over the years. It tells you a lot about how things have transpired over the years.

This book is really an encyclopaedia on railways in just about some 300 plus pages. It hardly leaves a single country which built railways or a single technology which changed railways for the better (or the worse). The author even mentions the various railway stations built across the world which were showcased as a country’s strength back then (even now for that matter).

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Where did 3% fiscal deficit come from and how did it become so sacrosanct?

June 29, 2015

TCA Srinivasa Raghavan ponders over this question.

He starts with this interesting Churchill quote which actually applies to quite a few things in economics:

Never in the field of human conflict was so much owed by so many to so few,” said Winston Churchill in 1940 when a few hundred British fighter aircraft were fending off a few thousand German bombers.

In a like manner, where economists are concerned, never in the field of human endeavour has such a small group of intellectual charlatans inflicted so much damage on so many. Many examples of the harm they have done can be given. But here, let’s only examine the notion that the ideal level for a country’s is three per cent of its gross domestic product (GDP).

I have tried, for the last 25 years, with the futility of a fool, to find out why it is three per cent and not 3.5 or 2 or 4.1 or 5 per cent. Where did this three per cent come from? Who thought it up? What’s so special about it? Above all, who made it the prevailing orthodoxy? If someone knows, please let me know through the comments column on this paper’s website. I will be eternally grateful.

Personally, I think it was the (IMF), in the aftermath of the Latin American debt crisis in the 1980s, which invented this level. Before that it was generally agreed that government debt must not be “excessive”. But no number was put on the ratio. If it was, tell me and I will stand corrected.

IMF shares a blame for many a things wrong in world economy. Using their bully pulpit, they have forced all economic policy thinking on simplistic and homogeneous targets. (Despite this, IMF officials are much sought after and continue to drive policies worldwide). Same thing applies for inflation targeting as well. Where did the number come from? What started as an experiment in New Zealand Central Bank is seen as a gold standard for all monetary policy. Here also we have put all kinds of targets without really looking at the nature of the economy. But thankfully, unlike fiscal deficits where 3% is the standard across countries here inflation targets are divided into country-wise – developed country, emerging economy, developing country and so on.


The pressure probably came from American banks, which had been doing a lot of short-term lending to developing countries. They had burnt their fingers, hands and feet in Latin America. They realised then that they needed a benchmark figure that their loan officers could use. (The invention of that figure, by the way, was why the East Asian countries hid their short-term borrowing levels in the late 90s. As long as no one knew, the US and other banks would continue to lend.)

Simultaneously, the people who were manning the incredible financial globalisation that started in 1985 via the institutional investors also needed a number to look at. Thus, by the mid-90s a new notion of good and bad had been born. If a country was at or around three per cent fiscal deficit, it was good; if not, it was bad. This number became what body temperature is to a doctor. Borrowing countries had no choice in the matter. They either adhered to this norm or went with less and more expensive credit.

India, having taken a severe knock in 1991, accepted this number, not least because so many of its economists owed so much to the and its sister, the World Bank. 

Don’t get me wrong. I am not arguing that the fiscal deficit does not matter. I used to do that when financial globalisation had not assumed the scale it has now. But since it is a reality now, the deficit does matter. But why put such a low number on it when it constrains governments so badly?

It is useful to remind the regression-obsessed economists that it was Keynes who legitimised the idea of a budget deficit. Before that the orthodoxy demanded a balanced budget, that is, a zero deficit.

Moreover, Keynes never laid down a number. Nor did his academic followers, like Alvin Hansen, do that. All they said was that when demand is depressed, governments must spur it along even if it means running a deficit, even a very large one.

The whole idea always has been to constrain the government badly. First constraint the govt and then ask govt to do much more for the economy. This is classically happening in India currently.

He says the govt should read LK Jha instead. This is surprising as we hardly read any of these guys anymore. Indian history of economic thought is a banished thought. The whole obsession is to just follow what the western experts have said over the years (despite being wrong):

In 1981, fed up with what Raj Krishna had jokingly described as India’s “Hindu rate of growth”, the highly influential wrote a book (Economic strategy for the 80s) in which he said India needed to give up its obsession with more-or-less balancing the Budget. That recommendation could not be adopted during 1980-84 because of the huge IMF loan, of around $5 billion, India had taken in 1981. But 1984 was an election year and Indira Gandhi needed to spend more. So, India told the IMF that it would not use up the entire loan.

But while Gandhi wanted to spend more on giveaways, Rajiv who became prime minister after her assassination decided to expand the budget deficit – as it was called then – to spur growth. The results were dramatic. India finally broke out of the low-growth syndrome in 1986. But then a terrible drought in 1987 and a contrived political crisis intervened. The deficit continued to expand, but not for financing investments.

In 1991, thanks to poor management by Bimal Jalan, who was finance secretary during an unstable government in 1990, India went bust. Since then India has adopted three per cent as key to fiscal nirvana.But the time has come to give up this obsession. Jaitley should adopt five per cent as the floor level. Otherwise, there is little hope.

Where does 5% come from?

There is a need to rethink and rewrite this standardization of economics around macro targets. The whole pink media goes berserk if the targets are missed by a % or so. Whereas things like water, air, education etc targets are barely mentioned.

(And Bimal Jalan? Did I read that right? He seemed to have only grown despite poor management. And was recently the chair of expenditure commission as well..)



Book recommend: Long Walk to Freedom

June 26, 2015

Such books cannot be reviewed. Just recommended.

An autobio of late Neslon Mandela(some say ghost written by American Richard Stengel). It is a must read for all our politicians and policymakers especially in today’s environment where all humanity and humility has been lost. There is a strong belief amidst all these members of polity that they are here to change the world and so on. Here is a story of a person which just humbles you given the years of struggle and horrible experiences one has to go through in his fight.

The best part about the book is that it is a breezy read. Such books usually awe you and be preachy. This book is nothing of the kind and despite being 600 plus pages, is just so light.


Is Diaspora a Goldmine?

June 26, 2015

Prof Ricardo Hausmann’s latest piece is on role of diaspora. It is much more than remittances:

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Emergency’s 40th anniversary: Some links

June 26, 2015
  • Srinath Raghavan says Emergency was actually a blessing for businesses. They really liked the stable economic environment during the emergency. What was actually a tragedy for the political system seems to be a good thing for the economic system. Parallels for today’s times?
  • Kuldip Nayar never thought emergency could happen
  • GK Gandhi on majoritarianism and emergency
  • How some teachers from Gaya fought emergency
  • Ram Guha warns that too much centralisation and eulogising central leadership can lead to build up of emergency kind of situation:

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