Archive for April, 2015

How unchecked success leads to corruption/greed/failures – a case of Sri Lankan cricket

April 30, 2015

This piece in Cricket monthly magazine (requires free subscription) is on the famous number in cricket. One expert says it is 99.94, another says it 0 (duck), another points to 365 by Clive Lloyd and so on.

Vithushan Ehantharajah says it is 1996 when SL won the World Cup against all odds:

A “World Cup legacy” is a strange thing. It is a magnanimous yet malleable entity that can be forced into any shape to fit a particular narrative, often one of an everlasting love brought about through the healing power of sport.

It is, ultimately, nonsense.

The sight of Aravinda de Silva, sleeves billowing in the Lahore evening air for an unbeaten 107, taking Sri Lanka through to their maiden World Cup win, even now takes me back to 1996. I was crouched, battling with a cousin for floor space next to the radio, which was doing its darnedest to spit out what it could of this faint, long-wave broadcast. This isn’t a side-street cobbler in Jaffna, by the way – this is St Stephen’s Road, Ealing. “It really changed the fortunes for Sri Lanka cricket,” said de Silva, in an interview in 2013. By that point, he had taken on a number of roles within Sri Lanka Cricket, including chairman of selectors, in a period that saw the relationship between the country’s players and administrators at an all-time low.

The reason? Greed and corruption stemming from that World Cup victory. It was Sri Lankan cricket’s tipping point. The team members became marketable assets and there was money to be made. The board, run by volunteers up to this point, was suddenly part of a multi-million dollar organisation. Gradually the well-intentioned were eased out and the politically savvy, self-motivated moved in. They have yet to be displaced.

Almost 20 years on, there has been little drive or consistency from those on the countless selection panels and interim committees. They simply line their pockets, boost their profile and move on. Voting was often rigged for the highest bidders, and AGMs could be violent affairs, with intimidation frequently the strongest currency.

Financial impropriety meant the government had to step in and dissolve its own appointed interim committee, as the board found itself saddled with US$23 million of debt after the 2011 World Cup.

Prior to that competition, which Sri Lanka co-hosted, just as they had done in 1996, Kumar Sangakkara had offered his resignation as captain, having become disillusioned with tasks that included negotiating the contracts of other players and battling constant political interference. He eventually relinquished the role after Sri Lanka’s defeat in the final to India, but his gripes featured prominently in his MCC Spirit of Cricket Cowdrey Lecture at Lord’s, delivered later that year.

In 2012, Arjuna Ranatunga, the captain in ’96, condemned the state of the SLC after their first elections in seven years ended in controversy, with one of the two groups contesting withdrawing because of political interference in the process. During Ranatunga’s brief tenure as SLC chairman in 2008, he felt the effect of that interference when he was sacked by then sports minister Gamini Lokuge without any hearing.

Perhaps most galling of all is the transformation of Sanath Jayasuriya, Player of the Tournament in ’96. In 2010 he became an MP, representing the party of President Mahinda Rajapaksa, the United People’s Freedom Alliance – the same government suspected of serious war crimes within Sri Lanka by UN and human rights organisations. Jayasuriya was then appointed as national selector by sports minister and fellow UPFA member Mahindananda Aluthgamage. Since then he has been embroiled in countless disagreements with players, ranging from contract disputes to quarrels with Sangakkara and Mahela Jayawardene, who have used their profiles to aid the team over their national board.

The glory of that March evening at the Gaddafi Stadium inspired a nation. Unfortunately, it also created an administrative monster that shows no sign of changing its ways.

Legacies aren’t all they are cracked up to be.

Superb. We keep talking about similar things in most walks of life. Don’t let success get to your head.

Also, it reflects on the quality of cricket institutions in Asia and other countries. Asian countries which won the World Cups like India, Pakistan and SL all have seen mountains of corruption rising. Whereas countries like Australia have prospered with no such signs. Whereas it is mostly professional in Aus cricket governance., it is mostly corruption in Asian counterparts.

India has still managed to surge ahead given the huge population and craze for the game. They are bale to play the players and so on. Same isn’t the case with SL and with Pakistan it is a different story altogether..

 

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A whacky and fun filled blog on Indian economy

April 30, 2015

It is rare to get good blogs on Indian economy. And then to stumble on a good one which is humorous and whacky is like icing on the cake.

This blog called Manasiecon is one such blog. It is run by Prof. Manasi based at Pune.

Read this for intro:

…..I have a truly wacky, weird and fun family (including my husband, a consultant on company law and a rather inquisitive and sweet and troublesome 11-year old son) and an assortment of strange and wonderful friends, associates and students around me, the interaction with whom too culminates into “random thoughts” and mad articles. While these are not really economics oriented, they do take off on my innate sense of economics, which really pops up unexpectedly, in the strangest of circumstances.

So welcome to my blog….if you are the serious types, you really need to only read blogs/posts categorized as “Articles on Economics”. Don’t even attempt getting into my random thoughts.

For all others, enjoy!

🙂

Sample this for some of the posts:

Really interesting stuff..

 

WhatsApp turns into a trading platform..by guess whom?

April 30, 2015

By a group of Gujarati traders/farmers of course.

They know how to make money out of most things:

Rajkot-based agriculture entrepreneur Dinesh Tilva has turned popular social media app WhatsApp into a classifieds marketplace that allows farmers to trade goods such as grains, vegetables, seeds, irrigation equipment and tractors, among others. He moderates all the ads and broadcasts them to nearly 1,500 contacts in his smartphone. Most of these contacts are farmers, while some are traders of fertilisers, seeds, farm equipment, while a few are agents dealing in land and property.

“I started this about two years ago and now I am connected to nearly 1,500 farmers and traders. They send me a post and I broadcast it through WhatsApp,” Tilva says, adding that such is the flooding of posts that every morning he has to format the app. Farmers from across Gujarat, mostly from Saurashtra and central parts, find the system beneficial for them.

“This practice is very convenient for us. If we wanted to buy a Gir-breed cow, it usually takes an entire day to locate one and if it isn’t fit, you just waste the day. But now, we can see the picture of the cattle and decide accordingly. It saves time, energy and money,” says Jagani of Kuvadva village.  We get valuable information through this. It gives us the power to negotiate directly with the buyer or seller,” said Kher Vanrajsinh from Halvad, who recently posted an ad to sell 20 kg garlic.

Tilva says most farmers own entry-level smartphones which are compatible with WhatsApp. “Those who are unable to participate in the system are assisted by their peer or relatives,” says Tilva. Tilva has also installed the app on his desktop computer and says he is a one-man army and does not charge for the service.

🙂

Why have all these so called business schools? Students interested in business should be touring Gujarat instead and learning superb insights from them..

A new buzzword – frontier economies?

April 30, 2015

I was reading this recent post on capital flows from IMF in frontier economies. I assumed frontier economies to be another name for emerging economies. But no, it is a different class as explained here:

There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks. 

Get to know them  

The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.

Some also have been able to tap the international capital markets, such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Senegal, Tanzania, Vietnam, and Zambia. Their markets are, however, not as deep and liquid as those of the emerging markets, but compared to the latter, they offer higher returns and the benefits of a diversified portfolio.

Really? Another buzzword called frontier economies. IMF is another champion in all these naming gaming and creating buzzwords.

Further:

Many frontier countries are growing at a fast pace, in most cases helped by sustained efforts to achieve macroeconomic stability, and by building business-friendly institutions ( Chart 1). These economies have also made significant efforts to lower inflation through prudent fiscal and monetary policy ( Chart 2).

Most of these countries have made progress in strengthening their policy making apparatus, reducing excessive red tape and lowering trade restrictions. Reforms to change their economic structure have helped them unlock their potential, including  greater weight on the services sector, such as in Tanzania and Kenya.

In many countries, alleviation of their debt burden over the past decade has freed up money for investments in physical and human capital. Several countries received debt relief under the Highly Indebted Poor Country Initiative, but others reduced their debt outside this initiative, such as Kenya, Mongolia, Nigeria, and Vietnam.

These countries have deepened their financial markets at a fast pace—they offer more domestic financial services and products than their peers. Some have attracted international investor interest in their domestic bonds market and several have issued sovereign bonds in the international capital markets ( Chart 3).

Access to international capital markets means these countries can attract financing to address gaps in infrastructure, such as roads and railways, which could provide further impetus to growth. But as described below, market access also poses new financial risks that countries need to carefully manage.

Influences from outside their borders

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest in frontier economies.

The quest for resources by emerging economies has contributed to improved terms of trade and a surge in both domestic and foreign investment in resource-rich countries, such as Bolivia, Ghana, Nigeria, and Mongolia.

Domestic public investment has increased as the low debt burden, favorable external borrowing rates, and high commodity prices have increased access to private financing sources outside their borders. 

Just another group of countries which have shown some recent promise.  And all these are countries which soon are called lost ones as well..

How Irish cricket is trying to adopt the New Zealand model of cricket..

April 30, 2015

We usually see countries trying to adopt successful examples from other countries in all walks of life. In economics particularly, there is always so called best practices (which becomes s laundry list eventually) which leads to a great economy.

Same thing is seen in sport too. NZ cricket was the talk of the town this World Cup. In last few years, NZ played a brand of cricket  based on highly aggressive and attacking cricket. To see seven slips is such a rarity even in test matches but NZ had it in recent ODI world cup. They were expected to be finalists and they did become one without losing a match only to be overplayed by the awesome Aussies.

In cricket, we usually see teams adopting the highly successful Australian model. But here is this interesting article by Tim Wagmore on how Irish cricket is taking lessons from NZ cricket:

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Commodity prices: Over a hundred years of booms and busts

April 29, 2015

Nice article by Andrew Powell of Inter-American Development Bank.

He looks at this commodity price cycle from a really long historic perspective:

The many failures of measuring inflation using CPI

April 29, 2015

Mark Thornton of Mises Institute has a food for thought piece on the topic.

The Austrians have always questioned the obsession of using CPI to measure inflation which does not include asset and commodity prices. Central bank policies do not just influence price of goods and services but also price of all kinds of assets. The former are included in CPI (albeit selectively)but latter are not. This makes the whole analysis lopsided:

Austrians oppose the whole notion of trying to accurately measure“inflation” which mainstream economists see as a general rise in prices. (Austrians view inflation as a politically engineered increase in the money supply.) A few years ago, mainstream economists like Paul Krugman chastised the Austrians for the lack of anticipated price inflation in the economy. However, their mistake was a fixation on the Consumer Price Index (CPI). If you looked around at other prices in the economy you could see higher prices in just about every other market, such as commodities, oil, gold, producer goods, real estate, and stocks.

More recently, mainstream economists have returned to fears about there not being enough inflation, and their outsized fear of deflation. For them, their fear justifies Zero Interest Rate Policy (ZIRP) and Quantitative Easing (WE), but they fail to explain why we must have rising prices. When it comes to the cost of living, most people prefer falling prices to rising prices, a condition that typically characterizes a true free market economy.

Further:

The full impact of the central bank’s monetary policy is better described by adding consumer price inflation (higher prices) and the foregone price deflation together. The combined amount shows a truer picture of the negative impact the Fed’s monetary policy has on the typical wage or salary earner. Economist Mark Brandlyprovides an estimate of this damage to an economy that consists largely of workers on fixed wages.

He calculates what the CPI would have been between 1959 and 2005 if the money supply had been fixed. Using data on the actual money supply and actual CPI, he calculates that the actual CPI in 2005 was 6.7 times higher than the CPI in 1959. In the absence of increases in the money supply, however, he calculates that CPI would have fallen by 80 percent so that the actual CPI was thirty-four times larger than what the CPI would have been in the absence of the Fed.

What would this mean for the common man? Brandly provides a few estimates about what this world would look like in terms of the prices of goods the consumer would face today:

Let’s put this in everyday terms. Suppose these estimates represent the changes in the prices of goods such as hamburgers, cars, and housing. According to these numbers, a hamburger that cost 60¢ in 1959 would have cost $4 in 2005. If the money supply had been fixed, however, that hamburger would only cost 12¢ today. Similarly, a $20,000 car in 2005 would have cost slightly less than $3,000 in 1959. Again, without the monetary effect on prices, that car would only cost $600 today. The price of a $45,000 house in 1959 would have increased to $300,000 in 2005. With a fixed money supply, that house would cost $9,000 today.

Ultimately, however, “fixing” the CPI would accomplish little. The Fed would continue to do significant harm to the working class and enrich the wealthy and the political class. The Fed has destroyed the incentive to save and turned financial markets into crony casinos. Meanwhile, economic inequality is the worst in American history. The Fed has blown up enormous economic bubbles and they are stuck with seven years of ZIRP and are too afraid to change course for fear of blowing up the world economy. Tinkering with the CPI won’t solve these problems.

The biggest problem is we are not even made to question the efficacy of all these macro measures. Teaching of Austrian school are so important to keep in mind while approaching all these ideas..

Narrative roots of public policy

April 28, 2015

Ricardo Hausmann has a great piece. Behind any policy the re is some narrative which shapes the policy intent. What is behind the narrative? Ideology and history:

According to President Barack Obama’s narrative, the United States has always been about a steady march toward freedom and equality, from the War of Independence to the abolition of slavery and the empowerment of women, minorities, and other previously marginalized groups, such as gays and those with handicaps. To the extent that this narrative is inaccurate, it is aspirational.

It is the role of politics to create, sustain, and reshape this shared sense of self, of us (and hence of them). It is an illusion, but a socially created illusion. It is how Bavarians and Venetians in the 1860s, for example, became convinced that they were and had always been Germans or Italians. Likewise, only a new narrative – a new Geist – can persuade the British today that they are really Europeans.

Liberals, as the political scientist Drew Westen has explained, often refrain from the narrative of shared identity, perhaps owing to awareness that great crimes are often committed in its name. Hitler redefined the German Volk as the collective victim of an internal enemy that was tainting its blood – a type of narrative that, whether framed in terms of race, religion, or class, underlies genocide wherever it occurs.

But it was also a national “person” that Abraham Lincoln invoked in his Gettysburg Address. In just 272 words, Lincoln synthesized America as an ideal based on the proposition that all men are created equal. In this narrative, the Civil War was fought to ensure “that government of the people, by the people, for the people, shall not perish from the earth.”

As the philosopher Alasdair MacIntyre argued in After Virtue, narratives frame individuals’ moral choices. Likewise, narratives frame the choices that governments make. After his brush with Communists in Spain, George Orwell captured the essence of the narrative’s importance in his novel 1984: “Who controls the past controls the future; who controls the present, controls the past.

Superb. This is what sums policies most of the time- what is the narrative?

Could machines put Central Bankers out of a job?

April 28, 2015

Interesting post reviewing  a paper by Prof. Randall Kroner. He says technology could make jobs of banks and central banks irrelevant. So what Milton Friedman espoused technology can achieve:

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Elite univs are turning children into corporate stooges..

April 28, 2015

Interesting article by Bryan Williams.

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Paul Krugman’s Love Affair with France..

April 27, 2015

An article disputing Krugman’s assertion that austerity loving UK grew slowly that stimulus loving France.

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Noise around India’s shift to full capital account convertibility..

April 27, 2015

As ME was away, capital account convertibility issue again cropped up in discussions on Indian economy.  It is amazing how we make such noise around something whose benefits and risks have been overstated for such a long time.

Before we discuss the issue further, what exactly is a capital account and what is an open capital account? The expression comes from Balance of Payments of a country which represents the account of a country with other countries/institutions. So, we have a current account which records exports and imports of a country. Then there is a capital account which is a mirror image of current account. So, if there is a deficit in current account, one needs surplus in capital account to balance the payments (& vice-versa). Capital account shows all the inflows/outflows from other countries. Includes popular items like FDI, FII, External borrowings etc. etc.

So, if you open the current account it means that one can import and export freely from all countries with some basic regulations in process. In case of opening capital account it means you allow import and export of capital as well. So, one can buy Indian shares freely as Indians can buy shares of other countries freely. Likewise Indian companies can borrow freely from banks based abroad and foreign companies can borrow from Indian banks.

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Perhaps the media is getting a reality check over hype it created over Indian government..

April 27, 2015

As the one year review of the Indian government draws close, some previews are already doing rounds.

In this article, Mihir Shah says the media has perhaps been too kind to the new government. Talk about some one creating massive illusion and itself falling in it.

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Game of Thrones Economics: Why Doesn’t Westeros Have A Central Bank?

April 27, 2015

I have no idea about Game of thrones or Westeros.But this article on why there is co central bank in the game is interesting.

The Austrians would be happy seeing no such thing and attribute the success of the game for its absence. Whereas other schools might add that to spice the game, a central bank is a must…

Traditional stock broking firms react negatively to discount brokerages..

April 24, 2015

Interesting article. Financial broking/trading industry thrives on other companies competing with each other and coming out with new products/services. After all that is what leads to increase in earnings, potential growth etc. The whole idea is let markets function and pick winners and losers based on capabilities/capacities and so on.

But what about when it comes to competition in financial broking industry itself? Of course oppose it:

BSE Brokers’ Forum and Association of National Exchanges Members of India (ANMI), the two leading association of stock brokers, are divided over the idea of setting a floor brokerage rate.  BSE Brokers’ Forum has written to the market regulator, Securities and Exchange Board of India (Sebi), proposing a minimum brokerage rate as it believes discount-broking is distorting the market. ANMI says the charges should be market determined. At present, broking houses are free to charge any below an upper ceiling of 2.5 per cent.

“A cross-section of brokers is worried about the discount-broking model as it impacts them adversely. Several of them had written to take up the issue. Brokerage charged by firms is the smallest component of all levies and taxes, that also shouldn’t be taken away,” said Alok Churiwala, vice-chairman, BSE Brokers’ Forum.

“Prescribing a minimum brokerage rate may be counter-productive. Besides, brokerage rates have already come down a lot, so fixing a lower limit would be difficult. If there is a lower limit, it should come from broker consensus and not through regulation,” said Gopal Agarwal, president, ANMI.

Discount broking is a business model whereby brokers offer to charge only a flat fee (often less than the price of a packet of biscuits), irrespective of size of trade. The two most popular brokerages offering discount services are Zerodha and RKSV Securities.

Brokers are feeling the heat as more and more net-savvy investors prefer the low-brokerage model adopted by Zerodha and RKSV. The discount brokerage strategy often involves a web-based platform for users to trade on, without any research or advisory services. Clients are charged a flat fee for each trade irrespective of its value. Any additional service provided is paid separately by clients.

Why write to SEBI feeling heat from discount brokerages? Let markets and clients figure out whether discount brokerages are of any value or not. Traditional brokerages have picked pounds (not pennies) from clients for many years now. Has been a classic case of where are the customer’s yachts? High time customers get some value from discount brokerages as well.

Applying IO principles one can see the impact of competition right away. Brokerage houses charge above the marginal cost and earn a premium for their services. Discount firms might be just pricing at marginal cost or just slightly lower than MC just to capture the market and then increase it later to MC levels.

One could also model it as a game between incumbent and new entrant. Under such games what matters is the threat incumbent send to the new entrant. If the threat is credible and incumbent will fight the competition then new entrant stays away. If the threat is not credible then new entrant enters and tries to capture some market. In this case, traditional brokerage industry instead of competing is using their lobbying power and push regulator from dissuading the discount firms. It will be interesting to see how SEBI responds. Knowing SEBI it might just ask these firms to compete and let markets figure..

Waste Management lessons from an ITC project in Saharanpur..

April 24, 2015

The authors call it best out of waste.

Given rapid urbanisation and the increasing amounts of solid waste generated in India cities, there is a pressing need for effective waste management processes. In this article, Sourabh Bhattacharjee and Ujjwal Sinha, who have been associated with a successful waste management project in Saharanpur, provide an outline of the project and highlight lessons for other Indian cities. 

There are nearly 125,000 households in Saharanpur in the state of Uttar Pradesh and approximately 65 tonnes of waste is generated daily. In order to dispose of household waste in a safe and cost-effective manner, ITC Ltd. launched the Mission Sunhera Kal in October 2006, under its social development initiative. The project has developed a model that reduces the burden of land filling, and helps in recycling/ reusing of biodegradable and recyclable waste. It is implemented in collaboration with an NGO (non-governmental organisation) called Muskan Jyoti Samiti (MSK).

The programme covers nearly 17,000 households in Saharanpur. The model is one of door-to-door collection of waste4, six days a week. Each waste collector covers 225-250 households daily, between 7.30 am and 1.30 pm. They move around in a rickshaw trolley, carrying two plastic bags – one for recyclable waste and the other for biodegradable and non-recyclable waste5. Thus, primary segregation of the waste is done at the household level. Households are made aware of the importance and process of primary segregation through campaigns such as road shows, pamphlets etc., as well as day-to-day reminders by waste collectors.

To separate the non-recyclable and biodegradable waste, secondary segregation is done at the waste management site. The biodegradable waste is then processed to make organic compost, the recyclable waste is sold to private vendors, and non-recyclable waste is transported to landfills. Therefore, nearly 85% of the total waste is recycled or reused and only 15% (non-recyclable) goes to landfills….

Hmm..

Lessons for others:

‘Mission Sunhera Kal’ shows that cleanliness can be achieved in a cost-effective manner with a well-designed system for house-to-house collection of solid waste, which provides employment opportunities without putting undue financial burden on the local government body. The model is environment-friendly and economically self-sustainable, and easily replicable in cities across India.

  • The PPPP9 model, involving the community, local government bodies, and other stakeholders, is a key factor in the success of the programme in Saharanpur. MCs can either implement solid waste management on their own, or outsource the process to other organisations while limiting its role to monitoring and facilitation. Community awareness regarding the importance of effective solid waste management, environmental and health hazards etc. is central to the process, so that households are willing to participate by undertaking primary segregation, and pay user chargers for waste being picked up directly from them.
  • The model should be revenue-driven to make it economically sustainable in the long run. Money can be raised by either levying user charges on households, or through taxes. Sale of recyclable waste and manures are other key sources of revenue.
  • MCs generally pick up waste from community bins. However, the Saharanpur model promotes picking up of waste directly from the source (households) for greater cleanliness and hygiene in the community. This would require more human resources in the form of waste collectors, in addition to the street sweepers.

Trying to make Saharanpur livable using simple ideas..

Markets have shrugged off poor monsoons in last decade..hence no problem?

April 24, 2015

In Indian economy, stock markets are a test for anything and everything. Whether any policy/event is good or bad is justified by stock markets. Rest does not matter.

Once again, there are predictions that monsoons are likely to be bad this year too. Ideally, given the pathetic state of agriculture and farmers, one would expect markets to react negatively. But this is not how it has fared in the past. Infact, it has ignored the bad monsoons in last decade. But history cold be tested this time:

Markets gave double-digit returns in 3 of the past decade’s worst monsoon years but the resilience will be tested this time.  The stock markets have not always followed the same trend as the monsoons in the past decade. Returns have ranged from 13 to 81 per cent during times of rain shortfall in these years.

However, this seems unlikely to continue in 2015. The stress of two years of rain shortage, the attendant negative sentiment and some earnings pressure bodes ill for returns this year, say experts.  “There have not been two years of bad rainfall in a row. If the monsoons are bad this year as well, there could be a major problem even in the irrigated areas, as groundwater levels would have been depleted. The markets are likely to be impacted,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

“In 2009, Indian equity markets were in recovery mode after a major selloff in 2007-08, so the rise was off a small base. Similarly, the markets had begun to rise in 2003-04, after a long consolidation since October 2001. Now, we are sitting on a large base, with markets having risen to all-time highs. So, even a small negative trigger can play spoilsport, though, traditionally, the impact of deficient rainfall has not been very large,” said Deepak Jasani, head of retail research at HDFC Securities.

2009 was one of the best years in terms of market returns, despite a poor monsoon. The S&P BSE Sensex gave a return of 81 per cent. Two of the other worst monsoon years also saw double-digit returns, according to an analysis of data from the stock exchanges and monsoon data from a report by Edelweiss Securities.

The next worst year in rainfall was in 2014, at only 88 per cent of the long period average (LPA). The market returns were 29.9 per cent. The year 2004 saw rain at 91 per cent of the LPA and the market return was 13.1 per cent.

Only if markets had reacted negatively previously things could have been better in terms of our agri policy. That is how the country has been governed for many years now..

 

How are new institutions created? How are old ones reformed?

April 24, 2015

William Galston and Elizabeth McElvein of Brookings have written a fascinating paper on the topic.

They summarise the paper here:

First, William Galston and Elizabeth McElvein initially examine the nature of institutions and why reforming them is so difficult. They then analyze how institutional innovation can happen, honing in on “acute” vs. “incubated” innovations. Acute innovations, they write, tend to occur quickly; they are dominated by individuals who are close to the locus of decision-making; the generation of alternatives takes place within the decision-making process, not prior to it; and the level of partisan conflict is relatively low. Incubated innovations take place slowly, frequently over many years. Because of this long march from private research to public visibility, these innovations tend to get caught up in partisan politics.

…..

There is no single road to success for acute government innovations, Galston and McElvein conclude. Some reforms respond to acute problems at moments of crisis, while others seize windows of opportunity to address persistent problems. Some reflect the pressure of public opinion, while others are driven by consortia of insider experts and elected officials. And while every reform requires leadership, the locus of that leadership varies widely, from social movements and the private sector to the executive branch and Congress. Despite these variations, one fact remains immutable: the default setting of every form of government—and especially a constitutional republic with divided powers—is the status quo. Overcoming resistance and simple inertia is hard, all the more so because what is exists is real and familiar while the proposed change is imagined and novel, unfamiliar and therefore threatening. Although the details vary, it always takes energy and sustained commitment to move the status quo.

There is much variation for incubated institutional change, they find. Some new institutions—such as the CBO and the EPA— function well because their founding leaders define their mission and mode of operations in ways that make sense internally while building trust externally. Some succeed because their relatively narrow original mission persists unchanged for decades, as was the case with the FDIC. Other successful innovations begin with broader, vaguer missions but are flexible enough to shift with changes of leadership and circumstances. In its early decades, for example, the NSC reflected the differing operating styles of successive presidents as well as varying levels of presidential trust in the departments of State and Defense and in the intelligence agencies.

As these case studies show, Galston and McElvein argue, governing by crisis is expensive. Our inability to preempt failures of intelligence and financial oversight imposed costs measured in trillions of dollars for which we and future generations will pay. Looking forward, if we cannot figure out how to finance the maintenance and modernization of our infrastructure, efficiency and productivity will slow, and bridge and dam collapses will become increasingly regular.

Superb reading on how institutions are actually built/shaped…

When Peepli Live actually becomes alive..

April 23, 2015

The producers of the Hindi movie Peepli Live would have least imagined that their movie will actually become a reality someday.

It is tragic that it has indeed become a reality. In the movie the farmer Natha did not die but managed to escape all the tamasha. IN reality the script changed with the farmer Gajendra Singh Rajput actually  dying. The news channels are abuzz with each party blaming the other for the suicide by the farmer. I am not getting into all the allegations made by each party.

It is also comic as in how closely Peepli Live actually went around to forecast the kind of conversation our politicians are likely to have in such events. This clearly beats all projections our dalal street makes round the year.

What levels have we come to? On one hand our Prime Minister goes tom toming about India’s emergence as a global economic superpower. On the other we continue to have tragedies like these.

Rethinking macroeconomic policy…

April 23, 2015

Oliver Blanchard sums up the views on macro policy at recently held IMF/WB meetings.

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