I am away from Newswires for a while now and it is a relief.
Otherwise, how does one expect to react reading such statements from PlanCom chief Mr. Montek S. Ahluwalia. He reacted to the recent reading of GDP growth at 4.4%. It is lower than the shock India got in Q3 2008-09 during Lehman crisis.
So Montek says:
These are the words said by Dr Subbarao as part of his last speech as RBI Governor.
He says:
There has been a lot of media coverage on policy differences between the government and the Reserve Bank. Gerard Schroeder, the former German Chancellor, once said, “I am often frustrated by the the Bundesbank. But thank God, it exists.” I do hope Finance Minister Chidambaram will one day say, “I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists.”
:-). There is even a better quote on Bundesbank by Jacques Delors, one of the founders of Eurozone:
People have been blaming Sonia Gandhi for India’s decline.
Here is another column looking at Sonia’s role in decline of Indian economy. Did she destroy the India story?
Am not too sure. We tend to confuse economics with politics and believe good economics is good politics. But this is just an economist’s view of the ideal world.
Jayati Ghosh asks this question and answer really is “This time is different” (though she does not mention the four word deadly phrase).
She points India had this thing coming for a while now and is a surprise why experts missed it:
This was the question posed by Prof Robert Lucas decades ago.
Daniel Gros says we need to reframe the question:
Why does capital flow from poor to rich countries? This column argues that the direction of capital flows makes economic sense given savings behaviour. But the real puzzle is why savings rates are high in poor countries and low in rich ones.
The real puzzle is thus not where the investment goes, but the savings rates which are much higher in emerging economies, allowing them to finance their own development out of their own resources.
When Lucas wrote his seminal paper in 1990 the investment rate in emerging economies was much lower than today and they were running consistent current-account deficits – i.e. their investment rates exceeded their savings rates.
At the time puzzle was why there was not more investment in the capital-poor countries. Today the investment rate is more than 10 percentage points of GDP higher in emerging economies than in advanced economies. If their savings rate had remained unchanged emerging countries would be running very large current-account deficits and would thus be importing a lot of capital. However, their savings rates have increased even more than their investment rates and the real puzzle has become: “Why do poor countries save so much?”
Well, media clearly has picked up fancy things to continue its media hype. 100 days of new government is like a joke. Interestingly political parties have also taken the bait on this media hype.
So y’day, Congress completed its 100 days in Karnataka and the party has splashed its 100 day achievements across papers:
An interesting piece by Steven Malinga, senior editor of City-Journal.
He shows how several states in US have piled on debt using fancy accounting tricks, fancier bonds, circumventing law and so on. An interesting tale of states:
A much needed piece from Samir Arora. There is a need to keep looking at basics.
He says plenty of suggestions are floating to correct rupee depreciation. Apart from many suggestions, what is irritating is the different figures one gets on rupee depreciation for even similar periods. He says the problem is with the math:
Of all the boring and much-repeated suggestions, Here is a really interesting one from Jamal Mecklai.
He says the FM and RBi Guv should head to the much revered Tirupati Balaji Temple. Well it is not for offering prayers alone, but for helping INR:
An interesting piece by Amol Karhadkar on Cricinfo.com. (This case on impact of rupee on libraries was also a nice read)
He points how Indian players who play at IPL are losing out due to Rupee Depreciation. The players are auctioned in USD but get Rupees as per fixed exchange. This as part of their contract with the franchisee. However, the overseas players are paid based on floating exchange rates adding to the bills of franchisees severely. This is just like a Indian corporate which borrows abroad and is impacted as rupee depreciates. It earns in Rupees but has to pay in Dollars…
The usually good columns from Anurag Behar (CEO of Azim Premji Foundation) tell you a lot about India’s education sector which is in a pathetic shape. Again it is about extremes in India. On one hand fifth class students are unable to read class one texts and on the other hand one needs 100% to get admission into a decent DU college. Ironically many get 100% which is a joke.
Anyways his recent column is a delight to read in this really depressing economic environment. He does not really talk about woes of education but on the importance of having philosophers in education sector. By this he means educationists which have a broader mind-set and philosophy helps here:
RBI released the minutes of its TAC (informal MPC) y’day. Subba would be more confused after the meeting and perhaps would have thought it would have been better if I had not attended the same.
Earlier the views differed on how much to hike/lower rates. Now it is all over the place. No one is sure of what is to be really done.
Tracking TAC minutes released since Feb-11, one is likely to see how economic situation has changed in India in the last 2 years. The TAC members themselves have been caught off-guard over what has happened in Indian economy..
Interesting comparison of the policy frameworks in the two countries by Prof Rekha Jain of IIMA.
She points to the institutional differences between the two countries on spectrum allocation:
Brilliant column by the brilliant Niranjan Rajadhyaksha.
He points to India’s currency woes in 1920s (well Indians wanted rupee to depreciate against the wishes of Brits). Moreover, Ambedkar himself wrote on the issue and it has lessons today as well:
There has been some recent interest in how MIT shaped its economics department and the history of the program.
Here is an interesting paper by Pedro Garcia Duarte of University of São Paulo (FEA-USP). He adds to the history of MIT econ department by writing on its PhD program:
RBI’s policy continues to be chaotic and confused. It is not really sure what it was doing earlier. Just reacting to whatever is happening in markets.
All this while it has been sleeping on debt market woes. Now, it has suddenly woken up as news of Rs 45,000 Cr loss in bank’s bond market position started to float around.
So in its new measures (yet another new policy) it has decided to support bond markets. So has it given up on Rupee? In that case these recent measures will also fail as markets are tracking Rupee movement more than anything else.
It has taken two measures:
I am not too sure what happened in Mr. P Chidambaram’s (PC from hereon) earlier avatars as FM but have witnessed and analysed his two such avatars. First was in 2004-09 which was full of successes (thanks to global economy and previous govt efforts) and second one (from Aug- 2012 onwards) is full of challenges (thanks mainly to his own govt. efforts and star studded economists team).
In both periods what strikes you is how calm PC is with respect to opposition and nothing really angers/fazes him. Contrast this with earlier FM in UPA-2 who threw anger at smallest of hints.
However, one other thing strikes you is how RBI’s independence comes under a q-mark whenever PC is at helm. Like most finance ministers across the world and over time, PC also dislikes tight interest rates but makes it really obvious. The war with the central bank governor comes out in open and this leaves a bitter mouth in the taste.
It mentions the benefits of capitalism centred around the innovation idea. Capitalism helps provide more incentives to innovate and quotes nice examples from Pizzas to Pork.
Each year the glossy business magazine FastCompany releases a list of what it considers to be the “World’s 50 Most Innovative Companies.” This list is populated much as you would expect. In 2012 the leader was Apple, followed by Facebook, Google, and Amazon.com. Spot a theme? In the top 10, there are only two companies that are not primarily digital companies. One, Life Technologies, works in genetic engineering. (The other — try not to laugh — is the Occupy Movement. FastCompany describes them as “Transparent. Tech savvy. Design savvy. Local and global. Nimble.”) Not only are most of them digital firms, but they’re all flashy and unique, and they’re almost all household names.
Everybody from Forbes to BusinessWeek hands out most innovative company awards. They’re all pretty similar and predictable. But these lists have a perverse effect. They suggest that the great success of capitalism and the market economy is inventing cutting edge technology and that if we want to observe capitalist progress, we should be looking for sleek design and popular fashion. Innovation, the media tells us, is inventing cures for cancer, solar panels, and social networking.
Though, it basically is a one-sided view of capitalism.
Today is a Black Friday (or Red take your pick) for Indian markets. And who knows may be we have more of such days if the policy is so random.
As I said previously, the more India’s policymakers try the worse it gets. People feel there is some kind of panic brewing hence such random and quick measures.
Sensex is down by 770 pts, Nifty by 235 points, bond yields by nearly 30 bps (not yet markets closed; 10 yr at 8.80% compared to 8.50% closing on Wed) and the thing that started it all – Rupee touched all time lows of Rs 62 per USD (currently around 62.10).
India’s suffering from its own Sub-prime/Greece moment. What next from RBI/FM?
Much is being written on economic history from different angles.
Martin Ravallion of World Bank writes this piece on history of thought on poverty:
Poverty is in ascendency as a policy issue – but it has not always been that way. This column, based on the author’s “The Idea of Antipoverty Policy”, recounts how mainstream thinking until well into the 19th century saw little scope for fighting widespread chronic poverty. The revolution came with a deeper understanding of how market and governmental failures interact with inequality to both perpetuate poverty and retard development more broadly. New policies for fighting poverty emerged and now extreme absolute poverty is at an historic low. History suggests, however, that continued progress is not assured.
Useful read..
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