Soon economists may call the government to fix the economy, leaving the public confused..

Noah Smith has this interesting piece on changing discourse on economic thought. And that too amidst economists!!

Even more interesting is that they seem to be leaning more towards govt these days:

What does Keynes think on Britain exit from Europe?

For most, this would be a puzzle. How can Keynes have a view on Brexit which is a current issue? Was this an issue earlier as well?

But then this is an article by Soumaya Keynes. She is apparently a fifth generation Keynes and great great grandaughter of the great Maynard. This blog has neither an idea about Britain exit nor it is a topic of much interest. But was really excited to see a Keynes, (she is an economics correspondent with Economist) still writing on economic issues…

On 23 June, the UK will decide whether or not to leave the EU. While the general population is divided on the issue, the overall consensus among economists at a session on Brexit at the Royal Economic Society’s annual conference was that Britons should vote to stay in the EU. This column presents the views of the four panellists at the session on the trade implications and the economic and political economy costs of Brexit.

 

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Why getting a new banking licence is no path for easy money and is just a start of a rocky journey..

The association of banking with hype is as old as the banking industry itself. Pick up any book (old or new) on history of money and banking, and one comes across cases of several banks and bankers who created huge hype in their early years only to bite dust much later. Though, this is a story common across sectors but in banking the connect to hype is much stronger.

So when India have two new licences in 2014, as usual there was hype. As it gave more licences to small banks and payment banks, there was again more hype. One of the payment banks has already surrendered the licence, but there is hardly any mention of it.

This story of IDFC Bank and Bandhan Bank should be nothing new to those who have read a bit of history of banking:

Given IMF’s record, should we put too much faith in the Fund’s ‘economic expertise’?

AV Rajvade has a piece on this. It is actually amazing given mistakes of IMF, it remains as prominent a body as ever.

The author reflects on a recent IMF top brass visit and setting a regional centre in India. Indian PM in his speech praised IMF and must have been music to latter’s ears:

Types of cities/towns in India..

Swarajya staff lists the various types of cities in India. The original source is here:  Dutch Ministry of Economic Affairs.

The list has all those cities which have some potential or had some potential. What about several others which just emerged due to some force and are stuck in a rut? It is actually more of a fancy list. Infact barring  a few, most cities including the top metropolitan should be re-classified as places which need urgent attention..

Lower Brent prices and Saudi policy options: What’s shale oil got to do with it?

Prof Lutz Kilian had earlier also said shale oil has very little to do with low oil prices in recent times.

In his recent piece, he revisits the idea and looks at options for Saudi (and other oil producers as well):

The surge of Patanjali Ayurved in India’s FMCG industry..

I don’t recall something quite like this. The surge of Patanjali products in INdia’s FMCG industry is just such a crazy story. How the image of Baba Ramdev, a yoga guru first synched with the various products and then took off like a rocket is quite something.

As the article says, it is not very often you see analysts releasing reports of an unlisted company:

Italy: No country for young men (and women)

Prof. Paola Subacchi of University of Bologna has a depressing piece on state of affairs in Italy. Despite having a really young Prime Minister, he can’t hold on to talented young people:

Problems of plenty for the long legged country:

Over the last 20 years, roughly a half-million Italians aged 18 to 39 have moved abroad, especially to more economically dynamic European Union countries such as Germany, France, and the United Kingdom. And those are just the official figures; the actual numbers are probably much higher, possibly more than double. Why are young Italians so eager to leave?

It is not for lack of political representation. Since 2013, the share of Italy’s parliament that is under 40 has increased from 7% to 13%. Moreover, Italy now has one of the youngest governments among advanced countries (only France does better). And Prime Minister Matteo Renzi, at age 41, is Italy’s youngest prime minister ever.

Nonetheless, young Italians remain deeply dissatisfied with the state of their country and the economic opportunities it can provide. Indeed, despite Renzi’s promise to implement reforms aimed at rejuvenating the country’s economy and institutions – the platform on which he won power in 2014 – some 90,000 Italians under the age of 40 have since left.

Renzi’s message, while skillfully crafted and optimistic, cannot mask the harsh economic reality in Italy today. Most jarring, youth unemployment stands at 39% – one of the highest rates in the EU and well above the bloc’s average of 20%. With 26% of people under the age of 30 not in school, employment, or training – the second-highest rate in the EU, behind only Greece – structural youth unemployment will prove difficult to correct.

Even those who have jobs have reasons to be unhappy. According to Eurostat, Italy’s young people are among the most dissatisfied with their jobs, with many convinced that the best jobs are reserved for the well connected. And, indeed, corruption still poses a major challenge for Italy; Rome’s last two mayors, for example, were forced out of office for malfeasance. In last year’s Transparency International’s Corruption Perceptions Index, Italy was ranked 61st, trailing all other advanced economies.

Making matters worse, Italy’s economy has been stagnant for years.

How countries decline..

Bengaluru’s drying lakes and continuous decline…

Another article on Banagalore’s shocking decline.

It is a pity that most people still talk of the city in terms of youth , silicon valley, start-ups and  so on. There is hardly any discussion over such decline of a city which is responsible for changing India’s image. The city has paid a huge price  for this change of India image:

The wisdom of Indic Town Planning: lessons for upcoming smart cities….

Brilliant piece by Aravindan Neelakandan of Swarajya. Another case of we forgetting lessons from our own past. 

He draws insights from Prof Patrick Geddes, who had praised urban planning in temple towns of Madurai and Kanchipuram.

Though well aware of the grandeur and civilizational intelligence embedded in the traditional town planning of Indian temple-cities, Geddes was also for democratizing the spaces in harmony with ancient design. Thus in the context of Srirangam he observed that the old city should consciously enter a new phase of development which should be “in continuity and in keeping with the plan of its admirable historic development.” Thus he envisioned the temple-towers to become the seats of learning of ancient languages – Tamil, Sanskrit and Pali and also physical and social sciences. At the same time the harmonious development should “also let the poor, the humble castes and even the casteless be provided for well.” He considered that the development of cities in harmony with their original historic plans would halt “the worst of all India’s modern plagues – that of slumdom.”

As India moved towards building futuristic cities it becomes important that we remember the works of Patrick Geddes on ancient Indian town planning and their relevance to today’s human socio-cultural ecology. The Indian temple-city planning contains in it principles that can be used in building sustainable futuristic cities which take into consideration not just the economic and political dimensions of humanity but its biological, psychological, ecological and spiritual dimensions.

Fascinating to learn all this. Thanks Mr Neelakandan for these insights…

 

How India pledged gold during the 1991 crisis- an insider account..

Dr C Rangarajan, the deputy governor of Indian central Bank during 1991 was pretty much behind the whole episode.

He narrates the tale. This bit on logistics is typical drama from a Bollywood movie:

The entire episode was not without its drama. For example, when any commodity is sent out of the country, the nature of the commodity has to be declared. I spoke with the commissioner of customs and a special authorisation from the finance ministry was obtained to send the gold without such a declaration. As one of the consignments had an intermediate stopover, a sudden doubt arose whether this was covered by insurance. On a Sunday, I had the office opened to check the policy and was relieved to find that it had a “Vault to Vault” insurance cover. Finally, when the gold was moved from the vault of the Bombay office to the airport, the movement along the road was closely monitored. In the case of one large consignment, the bullion van had to stop because of a suspected tyre burst in one of the cars in the convoy. Fortunately, before much commotion could happen, the convoy resumed.

🙂

Nice bit from history..

Why savers have stayed away from stocks for two decades

Sucheta Dalal has been the perennial activist (and perhaps a lone one as well) for transparency in stock markets and increase participation of retail investor.

In this piece she laments that despite surge in middle class population, the small investor base has remained unchanged since 20 years.

Cholamandalam abandons its payments bank plans..

This banking development happened on last Wednesday just ahead of the long weekend. As a result, not much has been written.

Cholamandalam has surrendered its in principal approval of starting a payment bank:

Cholamandalam Investment and Finance Company has decided to abandon its plans to set up a payments bank. A company spokesperson said: “It is a decision by the board considering competition and other factors including long gestation period (for payments banks to become profitable).” The Murugappa Group company was one of the 11 firms that got in-principle approval from the Reserve Bank of India (RBI) to set up payments banks in the country.

According to Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services LLP, only those with strong backing of telecom bandwidth and technology would be able to sustain and survive in the payments bank space. There would be consolidation in the space over the next five years with only about five players staying in the field, he added.

Expressing surprise at the decision to pull out, a member of the RBI panel that picked players said a lot of thought had gone into the assessment of players. The prospective players had projected loss at least for five years.

Licences were given to players expecting losses for five years?

In times, when we are questioning all these losses of old banks, we are creating new banks knowing they will be loss making for atleast five years.  What if losses are for more years which can easily happen once interest rate cycle goes up. As the assets of these banks will be mainly invested in government securities, one could have large losses once rates go up.

In a way these banks will be like those infrastructure companies which have gestation periods. But these were expected to be smaller niche entities which should not have any such losses to begin with. There has been a lot of opaqueness towards allocation of these licences and one does not know the basis for allocations.

But then this dropping of licence by Cholamandalam should hardly be surprising. This blog had written about viability of payment banks ever since the idea has been promoted.

Firstly the idea is hardly anything new. Banks in early form were payment aggregators.  In India, the so called indigenous bankers were actually payment banks which facilitated payments across India using their hundi instrument. Most of these indigenous banks actually gave limited credit just like we expect from payment banks. The credit was restricted to big family banks which mostly gave loans to treasury of kingdoms.  The globally, as trade picked up one had multiple currencies/coins. A payment facility was needed to exchange all these multiple currencies and facilitate payments across trading networks. Bank of Amsterdam one of the earliest banks was started for the same purpose in early 17th century.

Second, these indigenised payment banks eventually lost business as British adopted universal coinage across the country in 1823. Then eventually joint stock banks came up with deeper capital which provided both credit and payments sidelining all these indigenous banks. Though, in rural  India these indigeneous banks and money lenders remained prominent as joint stock banks remained in top cities and locations.This was something which nationalisation attempted to change.

So now we see these payment banks making a reentry to plug that very financial inclusion gap which they were seen incapable of filling. These banks were seen as smaller players with low capital base. Earlier there were talks of integrating these indigeneous banks with the larger credit system of joint stock banks and cooperative banks. But this mission could barely succeed as the policy focus shifted towards banks to achieve social goals.

Then, earlier payment banks were mostly owned by families and ran operations via social networks. There was hardly anything like quarterly capitalism and non-stop reporting, The transaction costs were much lower and they could function much easily. They also were not supposed to invest in government bonds and so on. They ran the show mainly via their capital and took very little deposits.

This isn’t the case anymore. Today’s payment banks are seen as these niche players but regulators are going to treat them just like other big banks. They will have to pay off deposit liabilities and be mindful of asset base which will depend on all kinds of govt. policies. Then, they will be expected to do all kinds of reporting and monitoring which other big banks do as well.

Overall, it will be interesting to see how this idea from the past pans out in its new avatar. It might not be surprising to see them eventually being merged and then taken over by the same banks which they are expected to compete against..

 

 

What is it with Kerala and its lottery industry?

How history plays out for years/decades/centuries is just amazing. This is true even in things like finance. Historically, the region of Kerala has been famous for chit funds, which was nothing but a mutual lottery system. In this people would contribute a certain sum to a fund. The fund would then be lent out to a subscriber (or subscribers depending on the design of the fund) at some interest rate. The selection of the subscriber was mostly based on a lottery system.

This has been a way of financial intermediation in the region for ages. Even banks that came up in the region in 20th century offered these chit funds as a main way of business. They would mention the same in their Memorandum of Association. It took intervention from the regulator asking banks to stop chit fund activity. But chit fund activity continues to thrive in the region.

This chit fund activity has eventually shaped the lottery market in the state as well. This is a superb article by Arun Janardhanan on the thriving lottery industry in the state:

Ricardian equivalence and Fisher effect are actually misnomers..

This is a very important post  by Thorvaldur Gylfason, Helgi Tomasson and Gylfi Zoega. It is another strong reminder of what omitting history of economic thought has done to economics students. We are just being made to use certain terms without knowing whether they are actually true. Quite a few economics terms/relationships are actually weak when tested empirically. So, one should always be careful while stating them as some theory or facts which we often do.

The authors point to two such highly popular terms used by both econs and wannabe econs across the world- Ricardian equivalence and Fisher effect. In both these, even the authors on whom they are named had cautioned on the relationship. But, over time like we see in game of Chinese  whispers, these ideas have become distorted. The weak relationships showed by these two have become a matter of fact leading to all kinds of wrong policies:

Tirupati temple to deposit 2.3 tonnes of gold with PNB

Though for most this is just a news item but has interesting historical significance.

It is like the oldest form of bank depositing one of the oldest form of money (gold) with a modern bank. Tirupati temple to invest in Gold Monetisation Scheme just like Somnath temple did earlier. Tirupati temple opened a demat account earlier as well:

Another foreign mutual fund exits from India..

After Goldman and Nomura, JP Morgan too exits from the Indian MF market. It again takes me to the question asked earlier – Why do foreign MFs remain laggards in Indian markets? They are mostly launched amidst huge hype but just can’t match to the Indian peers and former is soon absorbed with the latter.

JP Morgan obviously lost a huge AUM due to Amtek Auto losses:

Modern misuses of Adam Smith with Laissez-Faire economics

Most of today’s economics students are victims of scrapping history of economic thought from our courses. Whatever little we know is just  picked from here and there. This just leads to incomplete and unbaked information which is even more dangerous as much of it is misconceptions.

Jag Bhalla has a reminder on associating Adam Smith with just Laissez-Faire economics. I mean this aspect is now much more of standard knowledge that Adam Smith was hardly just a free market enthusiast. He was more of a moral philosopher than really an economist. But then we continue to err and think Smith to be a Laissez-Faire economics man.

Bhalla points to a whole list of links where he points to these modern misuses..

Let’s make buses more dangerous so people will ride them..

Alex Tabarrok has a point about making public transport more worthwhile for people. Make it more unsafe..

The controversy about Aadhaar as a money bill…some historical perspective

Pratik Datta, Shivangi Tyagi and Shefali Malhotra give some historical perspective and to the recent controversy.