Archive for February 9th, 2015

The illusion of independent mon pol under flexible exchange rates

February 9, 2015

All wisdom gained during last 20-30 years of macro/monetary policy is being questioned. One such idea is working through the impossible trinity – where countries can choose two of the three things – independent mon pol, fixed exchange rates and open capital accounts. The best way for economies is to choose open capital accounts and independent mon policy and abandon fixed exchange rates (or choose flexible rates).

This was working for a while and seen as the new god standard.  Sebastian Edwards of UCLA says the standard is more of an illusion now:

Book Review — Rethinking the Developmental State: India’s Industry in Comparative Perspective

February 9, 2015

I just came across this book on India’s development and business history. It is written by Vibha Pingle and was part of her doctoral thesis.

The book is quite interesting as it takes a different approach. Usual development books are around agriculture, industry, poverty and so on. This one mixes India’s development (rather lack of development) policy with business development. More precisely, it looks at the role state played towards three sectors – steel, autos and computers.


Air travel in India it has changed over the years?

February 9, 2015

Aneesh Phadnis writes on this aviation history in India.


Is life insurance penetration low in India?

February 9, 2015

Nice piece by Harsh Roongta.

We actually need a better metric for insurance penetration. Current measure is too crude and shows insurance penetration has declined which is against conventional wisdom:

Tea demand continues to be robust, with per capita consumption growing from 690g per person in 2006 to 750g per person in 2013,” says a official. Why am I starting this personal finance article with an imaginary quote from the Tea Board? Bear with me for a minute and it will be clear to you.

“The penetration has declined from 4.6 in 2006 to 3.10 in 2013.” This or similar statements appear frequently in the media. I have found it strange, as it measures the life insurance premium paid as a percentage of gross domestic product (GDP). It is akin to the Tea Board official saying that the amount of money spent on tea as a percentage of the has come down. Whilst market forces decide on the price paid per kilogramme of tea, the Tea Board official is right in feeling satisfied that the per capita consumption has gone up, as his job is primarily in promoting the use of tea.

Contrast this with the statistics that the insurance sector or(Irdai) concentrates on – even the per capita consumption is measured in terms of premium paid per person. For the record, that has gone up from $33.2 in 2006 to $41 in 2013 (figures are from the Irda Journal). That’s a growth of around three per cent, probably just around the inflation rate for the dollar for that period. What amazes me is that nobody is focusing on the actual life insurance figure (called sum assured) and these figures are not directly available. For example, from data I could gather, the sum assured as a percentage of the GDP has remained rock-steady at 41 per cent from 2006 to 2013, despite the decrease in “penetration”. My attempts to get reliable data on sum assured per capita were not successful but crude calculations indicate it would have marginally crept up.

The total sum assured data was not easily available for 2014 but I have no doubt that it would also show some improvement, mainly due to the increasing emphasis on online term insurance. In any other sector, that would have led to some satisfaction and encouragement of the factors that led to this small improvement in “penetration”. But in this sector, the regulator has come out with rules that seriously impair the prospects of the online web aggregators which have led the online term insurance revolution. The misguided focus on the total premium paid, with no focus on the sum assured, is resulting in the slower “penetration” of life insurance in India.

Statistics fool us most of the time..

Transformative Rise of Austrian Economics…

February 9, 2015

Superb interview of Prof Peter Boettke of GMU.

One major loss of the economic teaching is this school is hardly taught. At best someone is going to mention it randomly or some book will have a box briefing about the school. It is a pity that with economists talking so much about free markets , do not give much space to the school which is freest of them all.

But then as Prof Boettke says, the school is finding a resurgence in popularity given massive failures of the current economic thinking. I mean it is not about figuring who is right and who is wrong. Students have to first know what the ideas of various schools are before they can decide the right and wrong.

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