Archive for July 5th, 2019

Why crisis in Syria forced Catholic Syrian bank to change its name

July 5, 2019

What is in a name? Lot, ask Banks (read my earlier article on how bank names have changed in India with time)

Shenoy Karun reports in Times of India how people linked Catholic Syrian Bank to Syria. It has Kerala customers who send remittances from abroad to their relatives. The moment foreign banks see Syria, they would raise concerns. Exporters and Importers also suffered as Letters of Credit were not given.

This has led the bank to change its name from Catholic Syrian Bank to its acronym CSB.

The bank was named Catholic Syrian Bank as it started to cater to the Catholic Syrian community. The bank has grown ever since and does not represent the community alone. But interestingly, it ended up changing its name for its connections to Syria..

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How Bengaluru’s Regal Watch Company has stood the test of time

July 5, 2019

Nice article in Hindu by Samagnee Baruah.

We often read about how big companies transform/die due to changing times. Little is written/known about smaller outfits.

The article talks about how this Regal watch company moved from being a manufacturer of watches to repairer of them:

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India $5 trillion-economy goal (reminds of BRIC report)

July 5, 2019

Suddenly, there is lot of talk about making India a $5 trillion economy. The focus of Economic Survey 2018-19 was around this theme.

Here is a Mint piece which says why this goal is a dangerous distraction. First, most people do not understand what 5 triliion means. Second, it is a much better idea to say you wish to improve lives of people.

a bevy of economists and analysts have started a “debate” on how best to achieve this target. Unfortunately, this is, in our judgement, an entirely misguided and problematic exercise.

The crux is this: The IMF’s projection and Modi’s goal for GDP is stated in terms of nominal US dollars. In other words, the size of India’s economy as measured by the value of the dollar that will prevail in 2024. While statistically valid, this is an economically meaningless construct, at three removes from what average Indians care about—real rupee GDP per capita. Ask: In 2024, will an ordinary middle-class Indian be revelling in the fact that his country’s economy is worth close to $5 trillion, or will he be asking what is the purchasing power of his own income in rupees? Clearly, the latter affects his and his family’s life prospects, not the former.

So, who gains from a $5 trillion economy? Evidently, large Indian multinational firms, or high net-worth individuals looking to invest abroad, or deep-pocketed foreigners looking to invest in India may benefit from India’s larger aggregate dollar footprint. None of this is of any concern to the well-being of the average Indian.

Not sure about the last para. If India becomes $ 5 trllion, people will benefit though the gains will be unequal.

Then they point how GDP calculations are problematic while looking at Dollar values.

In a way, the $ 5 trillion target reminds one of Goldman Sachs’ BRICS report released in early 2000s. The report argued how the BRIC economies (Brazil, Russia, India and China) will become leading economies of the world in terms of aggregate GDP. However, it one saw per capita GDP, the BRIC lagged way behind the developed world.

The report’s forecast obviously lost its way post-2008 crisis. Brazil and Russia ran into all kinds of political and governance problems. China after recovering from the 2008 crisis is seeing slowdown and a potential financial crisis. India is the loner here which has muddled its way out of the several crises though the brewing banking and non-banking crisis is testing the potential.

A better goal would be in terms of per capita and that too in national currency (in Rupees here) as people understand it much better.

Does Japan vindicate MMT?

July 5, 2019

Koichi Hamada, advisor to Shinzo Abe in this piece says Japanese economy has followed MMT but one has to be careful drawing lessons:

Some MMT advocates – including Stephanie Kelton, a former economic adviser to Sanders – point to Japanas proof that the approach works. Despite high public debt, its economy is steadily recovering, and standards of living are high.

Moreover, MMT advocates point out, Japan’s expansionary monetary policies – a central feature of Prime Minister Shinzo Abe’s economic-revitalization strategy, Abenomics – have not generated a much-feared surge in inflation. Even within Japan, some argue that there is no need for a consumption-tax hike to fund public spending.

But there is a serious problem with this logic: Japan’s government is not as heavily indebted as is generally believed. Though Japan’s gross debt-to-GDP ratio, at 240%, is the highest in the developed world, what really matters – for the government, just like for private firms – is the net debt-to-GDP ratio, which accounts for real and financial assets. And Japan’s public companies have very large real assets.

In fact, by this measure, Japan is about on par with the US, and doing much better than France and Germany, according to the International Monetary Fund’s October 2018 Fiscal Monitor report, “Managing Public Wealth.” Further challenging Kelton’s assessment, Japan’s primary balance has improved under Abenomics, thanks to its economic recovery.

This does not mean that MMT has no merit, in Japan or elsewhere. In its campaign to increase consumption taxes, Japan’s Ministry of Finance drilled into the public psyche the concept of “Ricardian equivalence”: a government cannot stimulate consumer demand with debt-financed spending, because people assume that whatever is gained now will be offset by higher taxes due in the future. (It was this campaign that drove the MOF constantly to advertise the 240% figure.)

MMT can challenge this strict Ricardian belief, drawing attention to the potential of deficit financing, say, to boost employment through targeted social spending. And, indeed, Olivier Blanchard and Takeshi Tashiro have already proposed using limited deficit financing to help bring Japan’s interest rates up to zero, at a time when the government’s borrowing costs are low and the effectiveness of monetary policy is weak.

Hmm….

MMT works but upto the point inflation comes back:

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When policymakers look at sky for clues: India’s “blue skies” vs World’s “no clear skies”..

July 5, 2019

The economic policymakers are increasingly looking up to the sky for guiding economic policy.

The Economic Survey for 2018-19 was all around the colour blue. The Survey points to Blue Sky thinking and even kept the colour of the survey as blue. The Preface explains:

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