Archive for August, 2017

Infosys saga further dents image of corporate governance in India’s top firms….

August 18, 2017

Unbelievable scenes in the op echelons of India’s corporate sector. There is a simmering corporate governance crisis in firms that were once seen as Synonyms for ethical governance.

After the Tata Saga, comes the Infosys saga and this one is even more strange, The promoters of Infosys made big noises on how the firm will not be run by family members and will be run Professionally. However, in just a few years one of the promoters keeps looking for ways to come back to the firm.

Today morning Narayan Murthy’e leaked email to the Infosys Board said the current head is not fit to be a CEO but a Chief Technological Officer. There were accusations made by NRN earlier as well on governance issues in the Board.

Just a few hours ago the CEO Vishal Sikka resigned with a letter. To add to the fire, the Infosys Board lashed out at Mr Murthy and accused him as the reason for Sikka’s resignation:

It has come to the attention of the Board that a letter authored by Mr. Murthy, the Founder of Infosys has been released to various media houses attacking the integrity of the Board and Management of the Company alleging falling corporate governance standards in the Company. The Board takes great umbrage to the contents of the letter and places on record the following:



What are the moral limits of markets? Michael Sandel edition..

August 18, 2017

An alternate perspective from Prof Sandel. Persuasive stuff…

Why have a Museum of Finance? (Lessons for Museums of Finance in India..)

August 18, 2017

A nice piece (old piece in 2012) by Prof Richard Sylla of NYU in the Financial History publication released by Museum of American Finance.

He narrates several examples from financial history to show why a Museum of Finance is really important. These several examples show the importance and power of finance. Apart from this, these museums also shows importance of financial education which is poor amidst most people. A museum with right kind of communication technologies helps in many ways where dozens of government programs just fail.

In India, have seen three Finance Museums. The RBI Museum in Mumbai, the RBI Archives Museum in Pune and Corporation Bank Museum in Udupi. With RBI it is expected but to see Corporation bank having such a useful museum is quite surprising. It has amazing anecdotes which even likes RBI does not have in its resources. The unseen ones there is SBI Museum in Calcutta and former State Bank of Travancore which opened one just before it got merged with SBI.

So five museums of finance are there in India as per my limited knowledge and there could be few more. Five alone is an impressive number.

The problem with these Museums is that they do not communicate much with the outside world. They take their sole purpose as one of display and nothing else.

However, in museums like Museum of American Finance under whose publication Prof Sylla writes the idea is to reach across people:


One-way ticket: Gujarat crematorium offers smooth flights to heaven

August 18, 2017

The enterprising spirit of Gujarat knows no limitations.

In South Gujarat’s Bardoli (Sardar Patel fame), a crematorium has been designed like an airport. The idea is to convince the family/friends of deceased one that the life has not ended but the person has left for heavenly abode:

One is called the Moksha (salvation) Airlines and the other Swarg (heaven) Airlines, and both are promising turbulence-free travel topped with a smooth takeoff and perfect landing on arrival.

But the offers come with riders: The supposed plane rides are meant only for departed souls and the destination is wherever afterlife takes the dead.

Modelled on an airport, complete with departure and arrival lounges with two replica aircraft in attendance, the Antim Yatra (final journey) crematorium in south Gujarat’s Bardoli, some 300 km from the state capital Ahmedabad, is like no other in the country.

To be inaugurated by the end of October, the crematorium resembling an airport terminal is aimed at lessening the pain of bereavement, powered also by belief that the passage to salvation for the departed souls will be smoother.

“People are more than happy in accompanying you to the airport than to crematoriums. I want to ease the pain of people who lose their dear ones by making them believe that the soul has just begun a new journey,” said Somabhai Patel, chairman of the Rupaben Sitaram Trust that operates the crematorium.


Ladies of the Ticker: Pioneering Women Stockbrokers from the 1880s to the 1920s in New York..

August 17, 2017

George Robb (Prof of History at William Paterson University of New Jersey) has a nice piece:

During the late 19th century, a growing number of women were finding employment in banking and insurance, but not on Wall Street. Probably no area of American finance offered fewer job opportunities to women than stock broking. In her 1863 survey, The Employments of Women, Virginia Penny, who was usually eager to promote new fields of employment for women, noted with approval that there were no women stockbrokers in the United States. Penny argued that “women could not very well conduct the business without having to mix promiscuously with men on the street, and stop and talk to them in the most public places; and the delicacy of woman would forbid that.”

The radical feminist Victoria Woodhull did not let delicacy stand in her way when she and her sister opened a brokerage house near Wall Street in 1870, but she paid a heavy price for her audacity. The scandals which eventually drove Woodhull out of business and out of the country cast a long shadow over other women’s careers as brokers.

Histories of Wall Street rarely mention women brokers at all. They might note Victoria Woodhull’s distinction as the nation’s first female stockbroker, but they don’t discuss the subject again until they reach the 1960s. This neglect is unfortunate, as it has left generations of pioneering Wall Street women hidden from history. These extraordinary women struggled to establish themselves professionally and to overcome chauvinistic prejudice that a career in finance was unfeminine.


The first generation of women stockbrokers faced great resistance, but they chipped away at the old boys’ network on Wall Street that sought to exclude
and marginalize them. They carved out a niche for themselves as advisers and liaisons to women investors. They helped break barriers to women’s employment in brokerage firms, and they made it possible for women today to have greater financial opportunities.


What about women stock brokers in India? Is there any such history?

Sunk cost lessons from Ajay Devgn..

August 17, 2017

Amit Varma’s latest article on Housefull Economics:

‘Maine pyaar tumhi se kiya hai/ Maine dil bhi tumhi ko diya hai/ Ab chaahe jo ho jaaye/ Main duniya se ab na daroon/ Tumhi se main pyaar karoon.’ — Ajay Devgan in Phool Aur Kaante

Many years ago, at the tender age of 17, I went to watch the first-day-first show of Phool Aur Kaante in a theatre in Pune. We couldn’t get balcony tickets — who remembers ‘balcony’ in this age of the multiplex? — and had to settle for front-row seats in the stalls. It was horrendous — our necks would jerk from side to side during the fight sequences, and the film itself was awful. At the interval, my friend and I considered leaving. But we figured that we had paid for the tickets, watched half the film, and that effort would be wasted if we left now.

We did not know it then, but we were making the same mistake that Ajay Devgan made in the film.

In the song above, Devgan sings: I have loved only you/ I have given my heart to only you/ Now whatever happens/ I will not be scared of the world/ I will love only you. This is equal parts sweet, naive, and downright creepy in that typical Bollywood stalking sense. Devgan is saying that now that he has made the effort of giving his heart to the lady in question, he will stick with it and go all the way. He has committed the Sunk Cost Fallacy.

A sunk cost, in economics, can be defined as “a cost that has already been incurred and cannot be recovered.” We commit the Sunk Cost Fallacy when, by one definition, we “continue a behavior or endeavor as a result of previously invested resources (time, money or effort).” For example, the time, effort and money that my friend and I had spent in watching Phool Aur Kaante until the interval was a sunk cost. It was already gone. The only factor in our decision-making should have been whether we’d have a better time sitting through the rest of the film or going off and doing something else. (The good time we could have had elsewhere was, in fact, the Opportunity Cost of finishing the film.)

The Sunk Cost Fallacy is everywhere in our lives.

Superb as always…

What economists study: A guide for the curious

August 17, 2017
Christopher Snyder of Dartmouth College provides a guide:

When you meet someone at a cocktail party who learns you are an economist, the inevitable question follows, “What’s the stock market going to do?” That’s an excellent question. If, on the day I was born, my parents had invested $100 for me in Altria, the top-performing stock since then, I would be a millionaire.

Of course, most of us economists do not spend our time thinking about the stock market.

The press has its own view of what we do, not always positive, whether criticizing our inability to predict the future (Harford 2014), our lack of engagement with the real world (The Guardian 2017), or our preference for mathematics over people (Smith 2015). How do we, as economists, combat these negative stereotypes? Perhaps by explaining better the broader set of issues economists think about and how we think about them. I recently attempted this in a chapter (Snyder 2017) published in What Are the Arts and Sciences? A Guide for the Curious.

One short answer is that economics is the social science focusing on people’s material well-being, the ‘business side’ of life. How do people earn a living? What do they buy with the money they earn? What spurs the overall economy to grow?

While a starting point, the domain of economics has continued to expand, blurring any distinctions between it and other social sciences. For example, crime was once exclusively a matter for sociologists and corruption for political scientists. But economists realised that these social problems might respond to economic incentives, and left untreated could destroy a productive economy. In this way, the issues have become part of mainstream economics.

Nice bit..

Though he does answer the stock market question at the end:

Having patiently listened to your description of what you do, your audience may still expect an answer to the million-dollar question, “What’s the stock market going to do?” Recall the stock that could have made me a millionaire by now, Altria, the top-performer over the last several decades according to Siegel (2005). Are you curious what Altria makes? A good guess might be something high-tech, perhaps computers or pharmaceuticals.

Altria makes cigarettes. Until a recent spinoff, Altria was the parent company of Phillip Morris, manufacturer of Marlboro and other cigarette brands. With smoking on the decline in rich countries due to high taxes and restrictions, it is hard to believe cigarette manufacturing would be a good investment.

The surprising performance of cigarettes provides a useful economic insight into stock prices. It is tempting for average investors to think they can beat the market, but study after study shows this is generally not true. They are better off diversifying across many stocks and holding these stocks over the long term.


If Indian economy is indeed weak and needs deep rate cuts, why all growth projections show high accelerated growth?

August 17, 2017

Yesterday released MPC minutes were full of contradicting views. Some members believed that 7th Pay commission will lead to higher inflation, but one member said it will just be transient. Some expected farm Loan Waivers to have higher fiscal slippage but the same member said worries are overstated.

However, this one from Michael Patra who votes for Status quo summed up much of the ironies in projection industry of Indian economy:

44. I have consistently maintained that an inflation targeting framework has to be forward-looking. Setting monetary policy by looking over the shoulder at inflation prints of the recent past runs the risk of time inconsistency with respect to the target. A good example of forward-looking time-consistent monetary policy is the monetary policy committee’s (MPC) first decision in October 2016. In its resolution, the MPC presciently gave forward guidance: “It (the MPC) notes that the sharp drop in inflation reflects a downward shift in the momentum of food inflation – which holds the key to future inflation outcomes…”. Correctly anticipating recent inflation developments back in October 2016, the MPC took monetary policy action that was consistent. To reduce the policy rate now – when inflation is set to rise in a couple of months – will be inconsistent and will undermine credibility.

45. Households’ inflation expectations three months ahead and a year ahead have gone up! More than 70 percent of respondents expect prices to increase, with the sharpest rise expected in prices of household durable goods, followed by prices of services. It seems to me that households have completely discounted CPI inflation’s historic low. Professional forecasters, who are regarded as forward-looking, also see inflation rising over the rest of the year. In this context, I have also consistently held that in reading forecasts, it is the direction rather than the level that matters.

46. There are many moving parts in inflation’s near term path that need to settle. First, the increase of 106 per cent in house rent allowance for central government employees will feed into the CPI cumulatively – starting from July, it will likely reach its maximum effect in December. Given this incremental pattern of build-up, it could potentially stir up second order effects even as the first order impact is getting complete. Second, there is uncertainty around the inflationary impact of the roll-out of the GST – the release of pending price revisions; restocking after clearance sales; unwinding of arrangements that were made to prepare for initial difficulties in pass through of tax credits. My sense is that one-off inflation effects could emerge in the near months. Third, base effects will reverse and turn unfavourable from August – this should go to the top of the hierarchy of moving parts. Fourth, seasonal spikes in inflation-sensitive food prices are already in evidence. The question is: will there be spillovers that induce generalisation of the inflation momentum?

47. All these factors could come together in CPI readings from August. If that turns out to be the case, why not stay on hold now, watch the shape and slope of the upturn and if it is benign, deliver credible monetary policy that supports the economy? In the context of the latter, it is paradoxical that weak aspects of economic activity are widely cited, but every projection of growth – official; multilateral; independent – shows that it is expected to accelerate in 2017-18!


Reading recent MPC minutes: Does RBI follow lexicographic flexible inflation targeting?

August 17, 2017

RBI released the MPC minutes for its August 2017 meeting yesterday.

One of the members Prof Chetan Ghate first said though there are risks that inflation could again rise, subdued growth is a bigger concern. In the process, he remarked  something which caught my attention:

29. A lexicographic flexible inflation-targeting mandate requires monetary policy to now accommodate the objective of growth.

Lexicographic? It means the process of writing dictionaries where you move in hierarchy to compile the different words. So you follow the alphabetical order from A to B and so on to organise the different words.

This idea was used in economics to order preferences. So if you prefer A to B, you will always prefer a choice which offers more A even if the alternate choice has more items in total. So if bundle 1 has (5,6) of goods and bundle 2 has (4, 8) of goods, you prefer bundle 1 as it has more A despite Bundle B having more goods in total.

In terms of inflation targeting, we broadly had two types:


The 70 companies operating in India since before 1947

August 17, 2017

Another interesting compilation in Mint.

It lists 70 existing Indian companies that had their roots before 1947.


When an island in USA issued its own shell based currency..

August 16, 2017

Interesting bit from history of currency in US(HT: who else but JP Koning):

When the Depression and resulting banking crisis hit their community, the residents of the coastal town of Pismo Beach, California picked an unusual but logical medium of exchange. The pismo is a species of clam with a very thick shell, then found in large numbers along the California coast and prized as a food.

A town named after the bivalves suggests an adequate supply of their shells. Perhaps with tongue in cheek, the merchants and officials of Pismo Beach (who were often the same people) decided to make the best of a bad situation, and to make the humble clam shell into an object of trade. This they did. The Chamber of Commerce and no fewer than eleven merchants issued clamshell scrip.

Each piece was numbered, and each piece was signed on the front and on the back. As with the stamp notes of the Midwest, it was necessary to sign each clamshell on the back in order to keep it in circulation. No formal requirements may have existed, but informal pressure certainly would have endorsed the practice.

Restwell Cabins issued “notes” in three denominations: twenty-five cents, fifty cents, and one dollar. The larger the amount, the larger the shell. The issue may have been partly intended as a spoof, or for sale to tourists, in the manner of German notgeld around 1920. Redemption would never be a problem because collectors would want to keep these pieces in their cabinets or trade them with their friends.But it was also intended partly as a real, if unique, circulating medium. The

Restwell Cabins issue bore the motto, “IN GOD WE TRUST.” Each piece was numbered, and each was signed on the front and on the back. This specimen is dated March 8, 1933. This was in the middle of Roosevelt’s national banking holiday, and it is exactly the time when we might expect to see people take money into their own hands.


Why do regional parties work in some States and fail in others: Case of Karnataka..

August 16, 2017

Over the long weekend, Kannada film superstar Upendra recently decided to float his own political party.

The decision led to criticism as people of Karnataka have little appreciation for regional parties:


First create noise over Government getting bonanza from demonetisation, then create more when government does not get one…

August 16, 2017

This is with reference to the RBI transferring Rs 30659 cr of its surplus to the Government.

The experts and media say this has halved from previous two years transfer of 65000 cr. This is how the transfers have looked since 2000-01. The recent transfer of Rs 30659 cr is the fifth largest transfer in the period.


70 milestones in Independent India’s business history

August 16, 2017

Mint has compiled a nice snapshot of the 70 milestones in  Independent India’s business history.

 From the reassuring certitude of the five-year plans to the electrifying promise and reality of the Goods and Service Tax Act, the 70 years of independent India’s history have been defined by events that reveal a young nation in search of an appropriate development model.
Mint looks at 70 such markers that have led to an ecosystem in which India can vie for global economic leadership.
Nice bit.

70 Years of Indian Independence: The messy partition of the Reserve Bank of India

August 16, 2017

Anuj Srinivas has a piece on how RBI was pushed into managing Partition of the monetary union of the two countries. Though, this blog had also posted on the topic in the demonetisation period. Then JP Koning had pointed how State Bank of Pakistan continues to include IOUs from India in its balance sheet.

But Srinivas has some more interesting things to add especially the quotes from different parties. For instance, the issue of cash balances led to war of words between the two countries:

Eventually, when the dust settled, the last settlement to be decided was the distribution of cash balances: The Indian government’s cash balance at the time of the Partition were a little under Rs 400 crore and Pakistan’s share was fixed at Rs 75 crore, which was inclusive of Rs 20 crore made available to Pakistan as working balance on August 15, 1947.

The remaining Rs 55 crore owed to Pakistan would go on to become a divisive and controversial issue that would strain relations between the RBI and Pakistan.

“The bank’s functioning as banker to the Pakistan Government was smooth in the first four-and-a-half months, but in early January 1948 serious trouble arose on two very important issues raised by the Pakistan Government. The two issues were: (i) grant of accommodation to the Pakistan Government and (ii) transfer of Rs. 55 crores of cash from the Government of India’s cash balances with the Bank to Pakistan Government’s account,” the RBI notes in its history.

What had happened was that soon after the Partition, Kashmir started becoming a focal point of controversy, worsened after Pakistan’s invasion.

Much before the Pakistan government wrote asking for its due, the RBI governor tentatively reached out to the finance ministry in late 1947 over the question of transferring the remaining Rs 55 crore. In a telegram that reminded the Indian government that the cash balance could be transferred in lots of Rs 3 crore, Deshmukh prefaced his message by saying: “While recognising decision influenced by political considerations, I feel it is my duty to draw attention to considerations of currency which may not appear clearly to Government…”

The finance secretary’s reply was short and curt: the Indian government did not propose releasing any part of the cash balance at present.

Being put in a rather tricky situation, the RBI hesitantly pointed out to the Pakistani government while it would be possible to effect a ways and means advance of Rs 5 crore, payment of the remaining cash balance “appeared to be very uncertain in the light of pronouncements made on both sides”.

Believing that the RBI was trying to both apply limits on the ways and means advance and angered over being denied the remaining cash balance, Pakistan’s finance secretary sent off sharp reply to the RBI and Deshmukh:

“The Pakistan Government find it difficult to believe that a responsible institution like the Reserve Bank would wish to risk its reputation for fair dealing were it not for the interference of the India Government who are determined to strangle Pakistan financially and economically. In the circumstances the straightforward course for the Reserve Bank would be to inform the Government of Pakistan that it finds itself unable to continue as its Banker and currency authority, and to effect a division of the assets of the Bank forthwith.”

In a separate memorandum, Pakistan’s finance secretary also demanded that the RBI should transfer Rs 55 crore of cash balance to the account of the Pakistan government; otherwise, the central bank should not allow the government of India to operate their account without the Pakistan government’s consent.  “We hereby demand that the Reserve Bank should treat both Dominions on an equal footing in this respect”, the memorandum concluded.

What explains India’s stance? As Gopalkrishna Gandhi has pointed out, the government was worried. “Nehru and Patel favoured holding the amount back. Would Pakistan not use the money to purchase arms to use against India?” Gopalkrishna noted back in 2014.

Deputy prime minister Sardar Vallabhbhai Patel defended the decision in January 1948 by saying he had made it clear to Pakistani authorities that the Indian government would not “regard the settlement of these issues as final until agreement has been reached on all outstanding issues”.

Nice read..

After Partition, Sindhis Turned Displacement Into Determination and Enterprise

August 14, 2017

Two pieces on Partition and Sindhis. One by Saaz Agrawal in Wire  and Two by Aisha Nazim in Scroll.

Both pieces look at how Partition impacted Sindhis in different parts of the Indian sub-continent..

RBI’s new research series: Mint memos..

August 11, 2017

Today RBI announced a new research series and has a nice name to it: Mint memos. However unlike memo which is a short medium of communication and one would expect some gossip from Mint street, these are mini research papers. Quite like St Louis Fed’s Economic Synopses or Richmond Fed Economic Brief

The Reserve Bank of India announces a new series on its website called ‘Mint Street Memos’ (MSM). On navigating to the landing page of MSM, the viewer would be led to document/s that are in the form of brief reports and analysis on contemporary topics, prepared by the staff of RBI and Centre for Advanced Financial Research and Learning (CAFRAL), or drawn from one of the recent publications of the Bank with commentaries by the author/s. MSM releases will also feature salient facts, data and tables that are germane to the topic.

The views and opinions expressed in MSM series are those of the authors and do not necessarily represent the views of the RBI.

The first releases under MSM published today, cover “Demonetisation and Bank Deposit Growth” and “Financialisation of Savings into Non-Banking Financial Intermediaries”.

Hope this series continues…


India’s new regime of policies and regulation are a curious mix of modern motives and medieval methods…

August 11, 2017

Interesting piece by Andy Mukherjee:


Opportunity cost lessons from Gulzar/Kishore Kumar/Amol Palekar

August 11, 2017

Another interesting piece from Amit Varma on learning economics from Bollywood:

Aane wala pal/ Jaane waala hai/ Ho sake tho isme/ Zindagi bita lo/ Pal jo yeh jaana waala hai/ Ho ho.’ — Gol Maal.
‘The moment that is to come/ Will soon be gone./ If you can/ Live your life/ In this passing moment/ Ho ho.’ 

These words were written by master economist Gulzar, sung by policy wonk Kishore Kumar and acted out, with his customary charm, by polemicist Amol Palekar.

Bindiya Goswami goes visibly weak in the knees when the song begins, though we can’t see her knees, and even Utpal Dutt seems to have a bit of a man crush. The song was not a wasted effort — and in that sense, followed its own instruction.

Aane Wala Pal is a favourite of economists because it is such an eloquent poetic expression of one of the most important concepts in economics: Opportunity Cost. The one basic truth about this world, poets and economists have long bemoaned, is scarcity. Everybody can’t have everything, and choices have to be made. Opportunity Cost, in the words of economist James Buchanan, “expresses the basic relationship between scarcity and choice.”


Though, would want to keep economics away while hearing this wonderful song. It is important not to let economics mix with everything in life…

Language battles in India: Case for declaring Tulu as an official language

August 11, 2017

Language remains a huge unifying force for people. Recently, people in Bangalore opposed imposition of Hindi as Metro stations also had Hindi on the station name boards. This led to the boards being taken off and not the Boards will just have Kannada and English.

This successful movement has captured the imagination of the Western part of Karnataka as well.  People from the region are asking to include Tulu in the Eighth Schedule of the Indian Constitution. Currently, there are 22 languages in Indian Constitution.

Over the past few months, pro-Kannada campaign gained huge momentum in Karnataka after ‘Namma Metro Hindi Beda’ took Twitter by storm. Now, a youth group – Jai Tulunad, has started a campaign called Tweet Tulunad, demanding that Tulu be included as an official language in India.

On Thursday, to mark the third anniversary of the organisation, thousands of youth began tweeting from 6 am, demanding that Tulu be included in the Eighth Schedule of the Indian Constitution. With the hashtag #TuluTo8thSchedule, members of the organisation began tweeting aggressively, after which the campaign gained momentum.

The demand for inclusion is hardly new. What is interesting to note is that local people are saying how Kannada was imposed on the region:


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