Capital account convertibility and cooking..what is the connection?

Manasiecon blog keeps coming out with one idea after the other.

This time it is connecting capital account convertibility to cooking of all things. The idea is one can cook quite a bit in the limited time given we get the sequencing right. Same with capital account convertibility where sequencing is crucial to its success:

So, there I was, in the morning, cooking a special meal for my cousin, who was going to come over for lunch with me. She had sounded stressed on the phone and I was a bit worried as to what the reason could be. She had got married around 6 months back and sounded harried on the phone today.

Once she was settled, the whole thing came pouring out in a wail. “My God! How did you manage to cook this much food, tai? I take awfully long to cook…cooking those chapattis first thing in the morning really gets to me and then I get late getting to office or else, we are forced to eat outside. And then, the fights about how I am inefficient…will I get better with practice…what do I do? God, I am in so much trouble over these house keeping and cooking duties…”

Sigh. I listened her out. Does experience reduce the cooking time? Undoubtedly, it does. But what you really need, more than any other thing, is planning. So we got around to discussing the typical menu that would be required to be cooked in the morning. There are the chapatis and vegetables to go with it. Dal and rice. May be a quick salad on the side. For two people. That really shouldn’t take more than an hour.

“That’s impossible. It can’t be done in an hour.” But it can! Just plan the cooking in a specific assembly line fashion. “Assembly line, tai? You are SUCH a management faculty..,” she grinned at me.

Well, it isn’t really that tough, if you know the secret. The problem is not that she doesn’t know how to cook; the problem is that she doesn’t know what to cook first. She was getting the chapattis done first. I told her to instead set the rice and dal in the cooker first. Whilst it is cooking, cut the vegetables and set them cooking. By this time, the rice is done and whilst the vegetables are being cooked, finish off cooking the chapattis! That’s it! But if you start with the chapattis, when do you cut the vegetables? And that leaves no time for the rice. It’s really just the sequencing that does the trick.

Sequencing. The major tip for any reform. Get your sequencing right and you stand sorted. Whether its my kitchen or the country’s balance of payments. My mind automatically went to THE sequencing issue in economics currently: CAC. There’s so much talk about capital account convertibility in India. Should we open up the capital account? Undoubtedly, there are huge gains to be reaped from opening. The chief one being that we’ll get access to savings from the world over and that too at cheaper interest rates. At a time when interest rates are historically high and hurting the capex cycle of the country, you can imagine how tempting it would be to quicken the CAC process. However, opening up the capital account before other things are in place is like cooking the chapattis first; it’s a recipe for stress.

When you open the capital account, there’s dollar denominated debt that Indian corporate bodies will take. If the exchange rate depreciates suddenly due to whatever reason, just repaying the debt and/ or the interest at depreciated rates will cause huge financial pressure on the system. Thus, fair amount of stability in the exchange rate patterns and hence a fair level of build up in terms of FOREX is a necessary pre-cursor to CAC. There’s another very important point. This entire flow of funds will be carried out through the banking system. Unless the financial stability of the banking system is ensured, opening up the capital account would be hara-kiri of the worst kinds. And that is why we are seeing the RBI fret so much over health of banks recently.

So, the upshot is that capital account liberalization is not a stand-alone issue that policy makers decide to undertake. It has to be sequenced properly, after a reasonable amount of financial sector stability is ensured. Financial sector reforms before capital account convertibility. Rice, before the chapattis.

🙂

Well, really nice way to explain sequencing of reforms. Perhaps the best I have read. It is interesting to see how things like CAC have been made so complex where as one can just figure out key ideas from as simple things like cooking.

However, this only takes the story so far. A well planned lunch/dinner is usually great to savour. One cannot say the same for CAC as we have seen in recent years. Countries which were seen as benchmarks for CAC were seen bleeding big time. Then even a badly planned lunch harms just the people involved in the meal but even a well planned CAC could harm people who have not even heard of the term (global crisis impacted remote people mainly because of CAC).

In cooking terms, CAC looks good as when the food is hot and tasty (good times). CAC looks bad as when the food meant to taste good actually ends up being bad..