As large number of people are no more marrying in the Latin American country, there is still the demand for being part of the celebrations.
There was a time when this blog used to get caught in the Prize fever. This time it did not even realise that this year’s award has been announced. Not sure whether this explains maturity of the blog or it has become too old to remember. It is though ironical to be distributing all these Prizes in economics given the state of economics around the world. Though this year’s prize is different.
This year’s Prize is an interesting one . Given to Prof Deaton for his work on “analysis of consumption, poverty, and welfare”. I mean till all this crisis, these terms had disappeared from economics lingo. No one cared much about these old historic economic issues of consumption, poverty, and welfare barring the development economists of course. Now because of inequality and Piketty people have again started to talk about these issues.
The Prize website poll says only about 30-35% knew about Prof Deaton’s work on the subject. His work is on three questions:
To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.
The work for which Deaton is now being honored revolves around three central questions:
How do consumers distribute their spending among different goods?Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.
How much of society’s income is spent and how much is saved? To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.
How do we best measure and analyze welfare and poverty? In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.
Just scroll the page for more resources..
Much of attention of technology in finance remains on banking. However, technology has played a much more significant role in shaping and changing capital markets. Right from trading to settling billions of transactions, it is being done is a jiffy and in a seamless manner. And then in investing too. One can just buy and sell financial securities in a much easier manner now (though this has made things riskier as well, but that is how it goes).
This piece by Dhirendra Kumar of Valueresearch is on how internet could change mutual fund investing in future. It is a much slower process now which keeps the “app” generation away. Interestingly, this time it is not the regulator but the funds which have opted for the slower process:
Even as the digital revolution is transforming every kind of commerce, investing in mutual funds seems firmly stuck in the early years of internet-enablement. Think of a youthful new investor, used to downloading an app or opening a website and getting everything done within minutes. Such an investor would be surprised to discover that face-to-face, physical verification and even paper forms are still the modus operandi for investing in mutual funds.
This seems to be the case because under the Prevention of Money Laundering Scheme, the onus of positively identifying its own customers lies with each business independently. They take the view that it doesn’t matter if someone has been biometrically identified by Aadhar, and has had an in-person verification for a bank account linked to that Aadhaar!No mutual fund will let you invest without such a process, even if you have an Aadhaar number and a netbanking-enabled bank account linked to Aadhaar. The surprising thing is that if you have these two, then you can start a new National Pension System (NPS) account and begin investing in it through an entirely online process.
But in mutual funds, no such thing can be done. Recently, in an interview with Value Research’s Mutual Fund Insight, I asked SEBI Chief UK Sinha why this was the case. His answer was a surprising one. He said that such a thing was possible and had been so for a year. However, mutual funds choose not do so.
Similar issues were seen earlier as well:
My mind goes back to 1992, when the IPO of Master Gain, a closed-end fund from the then Unit Trust of India unexpectedly got 65 lakh applications. These were paper forms which people queued up to first buy and then deposit. Most banking, cheque clearing, record keeping statements, unit transfers etc were all obviously paper-based and manual. A significant chunk of investors had long-running issues because of faulty records, signature mismatches and other problems. I know because I was one of them.
Even at the time, it was obvious that complete computerisation and networking was the only way forward. And yet, if you had told me back in the day that fully networked and computerised access to autorickshaws would arrive before it would for mutual funds, it wouldn’t even have sounded like a good joke. However, I’m sure that these days will soon pass. The kind of push that is now coming from customers as well as regulators for end-to-end digital flow for investing means that it won’t be long before the change arrives. SEBI has set up a committee under Nandan Nilekani to lay out a roadmap on the issue, and RBI is apparently onboard for bank KYCs being valid. Sinha believes that we are heading for a quantum leap in the way people get digital access to fund investing.
What is needed is a unified way for investors to start and access fund through a single interface for all funds. Of course, like all such changes, this will be disruptive for many who are part of the process now. There will no doubt be disintermediation, and there will be a levelling of the playing field between big players and small. No doubt, the big players will not like it and will resist it in some way. That’s where both customer pressure and regulatory push will play a role. The potential of the pie becoming larger should surely be the bigger attraction than fighting over slices of a smaller pie.
The point about digital transactions is not that they should be not just possible but overwhelmingly more convenient and substantially cheaper. If that is true then usage will explode. The benefits that will come through are enormous. It should be easy and quick to learn about mutual fund investing, choose an investment and then transact with minimal friction. The democratisation of investing that can come through such access can have a transformative effect on the whole activity of investing.
For all you know some funds are already on the way as some commentators have pointed. SEBI continues to do things without making much noise..
Actually more than these supposed changes, we need good cheap internet connectivity and proper electricity to run the show. In India’s app design city, we have neither of these two things..
Bibek Debroy’s latest column on Indian railways is again a great read.
This time it is on width of rail gauges. This blog woke up the importance of width of gauge via this superb book on history of railways. It was a major issue of contention amidst initial railway building nations.
He starts with a great story on how the gauge standard came into being which sadly is just a myth:
For the first time in nearly a decade, the Federal Reserve is considering raising its target interest rate, which would end a long period of near-zero rates. Like the cessation of large-scale asset purchases in October 2014, that action will be an important milestone in the unwinding of extraordinary monetary policies, adopted during my tenure as Fed chairman, to help the economy recover from a historic financial crisis. As such, it’s a good time to evaluate the results of those measures, and to consider where policy makers should go from here.
To begin, it’s essential to be clear on what monetary policy can and cannot achieve. Fed critics sometimes argue that you can’t “print your way to prosperity,” and I agree, at least on one level. The Fed has little or no control over long-term economic fundamentals—the skills of the workforce, the energy and vision of entrepreneurs, and the pace at which new technologies are developed and adapted for commercial use.
What the Fed can do is two things: First, by mitigating recessions, monetary policy can try to ensure that the economy makes full use of its resources, especially the workforce. High unemployment is a tragedy for the jobless, but it is also costly for taxpayers, investors and anyone interested in the health of the economy. Second, by keeping inflation low and stable, the Fed can help the market-based system function better and make it easier for people to plan for the future. Considering the economic risks posed by deflation, as well as the probability that interest rates will approach zero when inflation is very low, the Fed sets an inflation target of 2%, similar to that of most other central banks around the world.
How has monetary policy scored on these two criteria? Reasonable people can disagree on whether the economy is at full employment. The 5.1% headline unemployment rate would suggest that the labor market is close to normal. Other indicators—the relatively low labor-force participation rate, the apparent lack of wage pressures, for example—indicate that there is some distance left to go.
Not many will agree though..
What we usually know is being verified by numbers as well.
Barring Kolkata in the top 5 cities, growth of waste is more than growth of population. Bangalore tops both waste growth and population growth.
More than this, it is the growth of sheer inability to handle this tranisition. Even basics are not in place,,
First they say open up financial markets, move to full capital account convertibility etc., One of the advantages of this will be to allow domestic firms to borrow abroad, get cheaper funds, expertise an so on.
Chapter 3 of the October 2015 Global Financial Stability Report studies the growing level of corporate debt in emerging markets, which quadrupled between 2004 and 2014. The chapter finds that global drivers have played an increasing role in leverage growth, bond issuance, and corporate spreads. Higher leverage has been associated with, on average, rising foreign currency exposures. The chapter also finds that despite weaker balance sheets, firms have managed to issue bonds at better terms as a result of favorable financial conditions. The greater role of global factors during a period when they have been exceptionally favorable suggests that emerging markets must prepare for the implications of global financial tightening.
The second piece says:
Nice interview of later Prof. Stanley Hoffmann, a longtime , professor of international relations at Harvard University.
Michal Matlak: Europe is not in good shape.
Stanley Hoffmann: Any American newspaper will tell you this. Those poor Europeans, they don’t know what they are doing! I am originally from France, and I recently went back to see some friends. It looked perfectly normal to me. They are not exactly doing brilliantly, but the notion that the whole thing will collapse, that there will be no EU, is plainly absurd. There are ups and downs—this is a period of down, but it is not the end of the story.
This is big irony really. India is one of the highest (ok “the highest”) growing country in the world. But it feels like a recession here.
Good stuff on Europe, history, politics and so on..
Robert W. Fairlie of University of California, Santa Cruz asks this question in this paper:
Praveen Patil comments on the recent Jairam Ramesh book on 1991 crisis and changes thereon.
He wonders why people do not give any credit to then PM Narasimha Rao. The entire credit has been taken by then FM Dr. Manmohan Singh. All this is sop ridiculous as without the PM’s confidence, Finance Minister could have hardly done anything. Even the choice of a FM is made by the Prime Minister and as we know Dr Manmohan Singh was an unlikely choice:
How history was morphed to glorify Manmohan Singh as the sole architect of 1991 reforms while painting P.V. Narasimha Rao as a reluctant, indecisive and often communal Brahman.
Jairam Ramesh’s ‘To the brink and Back – India’s 1991 story’ is one such example of this intellectual snobbery
Q: Given the minority character of your government, do you feel confident as Prime Minister?
A: Yes, I do feel confident now. Although the responsibility is very heavy, the Congress party can discharge this very effectively. And the kind of response which the government has got from the people during the last three weeks has provided us greater confidence.
Q: Is it due to this that you have resorted to strong economic measures like steep depreciation of the rupee?
A: We mean business now. The country could not wait any longer. These decisions should have been taken long ago.
This is the snapshot of P.V. Narasimha Rao’s interview given to Prabhu Chawla of the Indian Express on 8th July 1991. The then Prime Minister of India, in this interview, comes across as an extremely confident leader who was aware of his historic duty to liberalize Indian economy, especially when he emphatically states, “We mean business now”!
Jairam Ramesh quotes this and another equally unequivocal interview given to K.K. Katyal of The Hindu a day before that, on 7th July 1991, in his book “To the brink and back – India’s 1991 Story.”
Yet, despite these publicly available proofs of Mr. Rao’s total belief in the reforms agenda, Jairam Ramesh presents a subtly contrarian picture when he writes that, “He (Rao) remained emphatic, although I very well knew, as did the Finance Minister, how deeply uncomfortable he was with the move (to devalue rupee), and had, in fact, tried hard to stop the July 3, devaluation”.
Essentially what Ramesh is telling us is simple – do not believe all the interviews, all the publically available records which forcefully state P.V. Narasimha Rao’s total faith in the reforms, but believe my own fantasies that he was a reluctant reformer.
This has been the intellectual snobbery of the last two and a half decades that India has lived with, wherein history has been subtly morphed to somehow glorify Manmohan Singh as the sole architect of 1991 reforms while trying to paint P.V. Narasimha Rao as this reluctant, indecisive and often communal Brahman.
Prime Minister Rao is that conjecture of India’s economic history whom everybody wants to forget by anointing a more pliable individual as the emperor of reforms. But alas, the decade of decay between 2004 and 2014 has put an emphatic full stop to any such effort and Jairam Ramesh’s latest attempt also fails to add any gloss to Manmohan Singh’s checkered CV.
Both Congress and Dr MMS are paying a huge price for this omission. They just could not carry forward the spirit raised by Narasimha Rao and ended up committing harakiri on several issues. This vacant space was ironically captured by BJP, the party which caused PVN huge heart burn during his tenure due to Ayodhya related issues. Even more ironically, BJP was once a party which believed in Swadesi and now stands for foreign participation in Indian economy.
Though, I have a different take on all this reform business.
In India it is all about who was behind reforms with hardly any effort to institutionalise the process. What we and our media wants is this one person who can take on the system and create huge noise in the process. The end result is all these ideas are just hinged on this one/few person/persons. Things are rosy till that person can push things and factors favor it. As tides turn, we are again lost.
The media and markets had created huge hype around Dr. MMS getting second tenure without the left in 2009. The equity markets had to be closed due to upper circuit. There was a feeling that father of 1991 is going to create another round of magic in 2009.
What unravelled eventually was just unimaginable. The father of 1991 became the father of 2012-13 crisis as well. We can blame the Gandhi family for destroying all this expectations but we still need to question why the chaos could not be prevented? He had all the team and all the economists around him. There was an Economic Advisory Council, Planning Commission chief, Honorary Personal Economic Adviser, CEA in Finance Ministry and what not. I mean you just name it and it was there.
One important factor is lack of team work and institutionalising the process. I mean whichever countries have developed, they hardly care about who was behind the transformation. What is more important is the transformation process and belief in its continuity.
So even this article should not just look to credit PVN but the entire team behind the process. There are many unsung people who must have contributed immensely in the 1991 proposals. But we hardly know about them.
These are lessons for current administration as well which are busy creating this entire hype around select individuals. The efforts should be made to make India a better place not glorify/blemish certain careers/CVs..
One could not help but smile at this article. Amazing double talk all this.
Indian PM’s cosying to top IT companies in the world has raised concerns not with PM critics but people from Indian silicon valley.
His warm hug of Facebook’s Mark Zuckerberg will perhaps be the most abiding image of Narendra Modi’s visit to the Silicon Valley. But that embrace, and what it conveyed, is now becoming the subject for an intense debate among techies here. Is Modi giving in too much to the Googles and Facebooks of the world, when there is so much technology talent within India? Is he taking the easy way out by handing out critical pieces of his Digital India vision to global incumbents rather than build domestic capabilities?
“When the government wanted to build a citizen engagement platform earlier this year, they depended on Google. Now when they want Wi-Fi in railway stations, it’s again Google. These are things that can be done by our companies, otherwise we will not be able to create our own digital industry. Remember, we are the people who built Aadhaar,” said an industry veteran who did not want to be named.
Nitin Pai, co-founder of Takshashila, an independent policy research and advocacy body that provides services for government agencies, NGOs and corporations, said Modi’s team should make a careful distinction between national interest and MNCs’ commercial interest. “Many MNCs have come forward to participate in Digital India initiatives. The government will have to look at offering sufficient incentives for innovation to domestic tech companies, many of whom are coming with innovative business models,” he said.
How things go in circles really. It is always a matter of huge debate in India that what is the stance of US Presidents on Indian IT industry. The same people would usually say let competition prevail and US policy should not inhibit free market forces. However now as Indian PM reaches out to global competition, there are calls for Swadesi.
This is just a brilliant and a must read book for those interested in Indian economy and business. It is written by Prof Dwijendra Tripathi (formerly of IIM-A) and Jyoti Jumani.The book balances breadth and depth really well and all in some 220-30 odd pages. It really is concise.
Prof Tripathi was a rare scholar as he studied business history of India. Economic history used to be far more popular and atleast is known as subject (if not taught). But business history is like this poor branch of economic history – mostly ignored. However, it is business history which connects the dots of economic development and its impact on businesses. It takes the discussion from markets to firms and makes things look more realistic. You start reading familiar names of various companies and how they responded to the changing environment.
The book gives a good overview of how business history has shaped in India:
The Concise Oxford History of Indian Business is an adapted edition of The Oxford History of Business. The author traces the transformation of the Indian business class from merchants to industrialists and, more recently, service providers. The focus of this volume is on the modern or that phase of Indian business in free India and response of Indian business to the call of globalization.
There is a good detailed review of the book here as well. It sums up whatever there is in the book. It saves a lot of my effort. Hence the title of the post has been changed from review to recommend.
Once a city of lakes too, Bangalore is struggling to maintain its lakes. The foam at Bellandur lake caused a huge outage on social media but hardly bothered the authorities.
This story on how the lake is used for garbage filling in the night is just amazing case of complete neglect and mismanagement:
HBS has a case on this. The key q is why do so many mobile money ventures fail?
In many emerging economies, the need to give people in poverty better access to financial services seems obvious. The mobile phone is a perfect vehicle, given their widespread adoption, even among the financially less well off. Designing a profitable solution for an unmet market need should be business strategy 101 for most entrepreneurs, so why have so many mobile money service offerings failed?
It’s a question being studied by Rajiv Lal, the Stanley Roth, Sr. Professor of Retailing at Harvard Business School. “You would think mobile money should be a hands-down success all over the world,” Lal says. “But 80 to 90 percent of mobile money operations are failures.”
His research shows that companies are starting their market analyses in the wrong places. “Mobile money does not solve the same problem for every country,” says Lal. “If you look at successful implementations, they all started with, ‘What problem can I solve?’ If you don’t identify the right problem, the rest of it will not go anywhere.”
Lal researched successful mobile money programs, and a few that flopped, to compile tips designed to help prospective operators—and perhaps entrepreneurs in other industries as well—take an educated shot at developing a winning service. He outlined his advice in a July working paper, Mobile Money Services—Design and Development for Financial Inclusion, co-written by HBS research associate Ishan Sachdev.
What are the lessons?
- Lesson 1: Work well with regulators
- Lesson 2: Keep services free
- Lesson 3: Get agents on board
- Lesson 4: Make customer registration easy
- Lesson 5: Earn consumer trust
- Lesson 6: Keep products simple
Similar to standard lessons on banking as well..
Well atleast Germans have a school of economic thought (called Ordoliberalism) and moreover there are scholars who believe and defend the same.
Michael Burda of Humboldt University Berlin has a piece speaking about three myths regarding the school:
Many analysts believe that German economists hold a very different view of macroeconomics. This column presents a personal view why this belief is wrong. The fact that Europe still consists of sovereign nations and that most Europeans still want to keep it that way informs much of what happens inside German economists’ heads
Myth 1: Economists in Germany fundamentally reject Keynesian ideas
Myth 2: German economists feed at the trough of ‘ordoliberalism’ and worship at the altar of supply-side policies.
Myth 3: Economists in Germany obsess over moral hazard and austerity
All three myths are kind of interconnected.
Nice interview of Patrick Barron of Mises Institute. Exposes all the fancy talk done by central bankers across the world:
Our guest this week is Patrick Barron, a professor of economics and a student of global currency markets. Patrick and I dissect the Fed’s big announcement this past week not to raise interest rates, and consider whether Janet Yellen and other central bankers really believe in what they’re doing.
Is it all just to save themselves from the judgment of history, by kicking the can down the road? Have they read, or even considered, Austrian arguments on money and banking? Or are they simply so wedded to Keynesian orthodoxy that they literally don’t know what else to do? And what type of precipitating events might spell the end of US dollar imperialism?
Most pessimists of a certain economy/economies have their day someday. So, time is ripe for China’s pessimists and they go abuzz saying “Didn’t I I tell you”? All this while those who built their careers over China’s optimism have been shrugged aside. How quickly the tides turn really.
Jim Chanos the China pessimst is one such fugure. In this interview, he calls the country as an emperor with no clothes. It is still not naked but is getting there: