Jun 162012
 

The last few weeks have been pretty gloomy if you have been following the Indian Economy. There has been a potential downgrade of rating, lower GDPfigures, lower industrial output, inflation seems to be up, interest rates are up, fuel prices are going up. And that is just the stuff we get to see – stuff that is out in the public space. Underlying all this is what is popularly called  policy paralysis. If it was paralysis it would be better because atleast then some level of status quo would be maintained. This was more policy yo-yo – confusion in terms of economic direction, chaos in terms of goals, too many people working at cross purposes,  too much grandstanding , too much ego and too much double guessing, too much dogma and too few conversations between opposing factions.

To top it all, as though behaviour like this can be topped, there is absolute non communication on any aspect of the economy by the person who is most likely to have an impact on a jittery market, a stressed out business class, and a nervous foreign investor – the Prime Minister. While various ministers have assured you that ‘all is well’ with the economy – it is a bit difficult, if not impossible to take them seriously. There were these slew of gloom and doom stories – the Economist, WSJ, Reuteurs and the rest all ran stories that asked some very critical questions, and rightly so, on the India growth story.For all intents and purposes this became the general perception about the economy

Democracy

This spending binge is not only misallocating resources, but also crowding-out private-sector credit. Over the coming year, the government will borrow around $110 billion to fund its revenue shortfall; it plans to front load most of the borrowing in the first six months. Since Indian banks are required to hold government notes, the success of the bond sale is guaranteed.

Wonky Economics

The Congress-led coalition government, with Brezhnev-grade complacency, insists things will bounce back. But India’s slowdown is due mainly to problems at home and has been looming for a while. The state is borrowing too much, crowding out private firms and keeping inflation high. It has not passed a big reform for years. Graft, confusion and red tape have infuriated domestic businesses and harmed investment. A high-handed view of foreign investors has made a big current-account deficit harder to finance, and the rupee has plunged.

 Lack of Business confidence (the S&P report, page 2)

Local business confidence in India has deteriorated for various reasons, including perceptions of “policy paralysis” within the central government. India was able to boost public and private investment in infrastructure in recent years, sustaining high GDP growth of around 8%-9% during the three years leading up to the recent global  slowdown (in 2008). However, a perceived slowdown in government decision-making, failure to implement

have all been blamed for the crisis. Unlike the west where the Government and various agencies speak in one voice to reassure the market and investors at large,  India has been true to form and has had everyone and their idiot cousin postulate on what is ‘wrong’ with the economy. That is everyone except those who should.

And suddenly that has changed. The last week or so there have been a set of articles and interviews by leading industry & business heads who are leading the fight back on behalf of India. While there is a lot that needs to be fixed in the economy it isn’t flatlining. The doomsayers may find support in those who oppose the government tooth and nail because it suits them to highlight what a terrible government this is (and it is). But, for a lot of us who have to run businesses, enterprises, attract investments, pay salaries, meet tax demands, a downward spiral based on a ‘tom tom’ drum effect is scary. It is not political brownie points to be scored, it is a matter of our own survival.

By no stretch of imagination are these people saying ‘problem, what problem?’ but they are far more measured in their view of the problems and possible solutions. After all, business leaders don’t want a loss in confidence in the economy either. Last week Aditya Puri of HDFC started the ‘let’s build back the confidence in India’ ball rolling. He said 

 If you sort out the issues on power, you don’t have to import iron ore, you sort out some of the issues on food, you sort out the issues on pricing of petrol…I strongly believe that India’s structural story is still intact.

Kochar and Kamat of ICICI, said something very similar

The issue is not being critical of the Government or wonder about the economy. The problem arises when that is the dominant narrative.  Kaushik Basu, the government’s chief economic advisor in today’s ToI

There is reason to believe that India today is caught in a pessimism spiral. When this happens — and this is well-known in psychology — we tend to filter information, picking up the bad news and overlooking the good. If we resist this propensity and do some serious structural analysis it will be seen that, while some missteps did occur and there is room for self-criticism, there is also reason to believe that the Indian economy has, over the last few years, deve-loped deep strengths which it did not have ever before. Hence, as far as medium to long-term prospects for the Indian economy go, we have reason to be upbeat

I am somewhat  upbeat. The prospect of a new finance minister or the PM taking over the  finance function, makes me hopeful of a lot of the plans my company wants to get operational . It has been a virtual standstill for the last one year in terms of people having the confidence to invest in new areas. It is different when you run a business, you are responsible for jobs and salaries and an economy with some measure of confidence is always better for a small business than an economy on the verge of a nervous breakdown.

Finally, by no stretch of imagination is India out of the woods. There needs to be well stated intent, clarity of purpose and decisive action. Forget elections, you can’t let down 1.2 billion people and their aspirations. IF the road to reform, and the road to recovery are not set upon immediately – we are heading towards chaos and turmoil – not just economic but political and social.

Some interesting data points can be found here.

Jan 282012
 

Ok. I am in Davos, where temperatures are sub zero, the world is covered with layers of snow and you can feel your teeth and eye lashes freeze. I am actually sure that my hair is frozen (yes, i know hair cannot freeze :D 0

 

 

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I have been at the IndiaAdda run by the India Brand Equity Foundation (IBEF), having conversations with Business leaders, Politicians and CEO’s from India and across the world on their perspectives on India and how they see her future. What has been impressive and uplifting has been the sheer optimism that I have heard here from various people across the board. And these are more than words, they are investment plans in India. I have been blogging about it here - do read and let me know what you think. Among the conversations:

Nick Talbot, Design Head of Tata Elexi on why he loves being in India and has such great optimism about the country.

Kathaleen Matthews, Exec VP the Marriot Group, talked about why her company is setting up a 100 hotels in India – especially in second and third tiered cities & towns.

 Baron Paul Buysse – has been visiting India for the last quarter of a century and loves the country, he talks about how a simplification of procedures will propel the country to the next level. You can hear the full conversation here :D

http://w.soundcloud.com/player/?url=http%3A%2F%2Fapi.soundcloud.com%2Ftracks%2F34790904&show_artwork=true

 

Dipak C.Jain, Dean Insead, spoke about how Brand India stands for Human talent. He sees a tremendous potential for quality higher education in India.

 Rick Goings – Chairman & CEO of Tupperware – spoke about how his company is empowering women in India, setting up manufacturing base in India and why with half a billion middleclass, he is upbeat about his company’s prospects in India.

and finally, Jyotiraditya Scindia – spoke about India and her skill base, and what his government is doing to ensure a pool of skilled talent

Mar 142010
 

My mother told me, a long time ago, never to debate religion or politics with strangers. i am breaking that rule tonight!

there is a panel discussion (more like panel typing) on “Challenging Left Liberalism” . It is being ‘held’ at the Offstumped Community Portal , and starts at 7 pm IST. the debate/discussion (i am hoping it is the latter’ will be between Swapan DasGupta, Kanchan Gupta, Ashok Malik & yours truly !!

Left Liberal is defined by the site as ” any ideology or policy that advocates all of below.” :

#1 Primacy of Individual over Community and the State in making Cultural Choice

#2 Illegitimacy of Community in making any Cultural Choice on behalf of Individual.

#2 Primacy of the State over Community and primacy of the Community over the Individual in making Economic Choice

#3 Illegitimacy of any autonomy to the Individual in making Economic Choice

#4 Illegitimacy of any autonomy to the State in making choices to preserve itself

I guess that this slicing & dicing would make Margaret Thatcher a somewhat left liberal :) the debate should be fun … do drop in !

Jul 092009
 

(Inspirations – a series that is  reproduction of interesting speeches and writings. It is not about a writer’s block – i keep battling those – but more because these are readings / writings that inspired me at a certain point in life – and they still resonate.)

It’s a bit difficult to study for a degree in Economics – in a place like London – and not get awed by the power of intellect of John Maynard Keynes.This is despite the fact that the time period in which I studied, was the time that Milton Friedman’sbrand of Monetarist economics was on the ascendant – pushed by his two powerful acolytes – Ronald Reagan and Margret Thatcher.

Did i favour one theory or the other – at that point of time? I really don’t think so – i was too young, and hadn’t had enough exposure to make an informed decision – on either. But, the idea of a totally free market with no checks and balances bothered me – even then. It wasn’t any great intellectualization on the pro’s and con’s of freedom – but more empirical than that – when the teacher left the class,  lots of students would cheat, when she was there only the most desparate would – therefore something without any checks seemed kind of dodgy to me then. But, vocalizing doubts gets you laughed at -  then, even more so, -silence is often the preferred option !

And, then I read John Maynard Keynes – not the boring stuff they taught at university – about National Income the multiplier and the rest, -that was stuff you had to imbibe, appreciate, write an exam – and, it was not the sort of stuff that inspired 18 year old. The essay i read by JMK wasThe End of Laissez Faire – a 1926 speech, which was then published as a pamphlet .  If i was to be honest – and if you can’t be honest on your blog, where else can you be? – i don’t think that i understood everything that I read then. Nor had I heard many of the names that he was referring to – this was before you could google names and appear intelligent in your bibliography :) But, when I read it and there was this intellectual click – eyes opened, brain began functioning and the works !! It was like revelation – i wasn’t anymore the outsider – the only one not enamoured by Thatcher in my class. One of the greatest brains that the last century had known, would have been appalled by her. And, not by her economics, but by her morality, or lack of !

it is amusing that the only primary copy that I can find online is on the panarchy website – a fact, I am sure, that that would have made him chuckle :)

What i admire is various strands that he weaves together to counter Laissez Faire as an economic policy. He begins by looking at the reason for its evolution & popularity .

First the corruption and incompetence of eighteenth-century government, many legacies of which survived into the nineteenth. The individualism of the political philosophers pointed to laissez-faire. The divine or scientific harmony (as the case might be) between private interest and public advantage pointed to laissez-faire. But above all, the ineptitude of public administrators strongly prejudiced the practical man in favour of laissez-faire - a sentiment which has by no means disappeared. Almost everything which the State did in the eighteenth century in excess of its minimum functions was, or seemed, injurious or unsuccessful.

Suddenly very boring economic equations had a background, Ricardo made sense and i understood that entire branch of economics that I used to see and go blank. Revelation i said, didn’t I ? I pulped on the linkages between Darwinsm and economic policy.

By the time that the influence of Paley and his like was waning, the innovations of Darwin were shaking the foundations of belief. Nothing could seem more oppose than the old doctrine and the new – the doctrine which looked on the world as the work of the divine watchmaker and the doctrine which seemed to draw all things out of Chance, Chaos, and Old Time. But at this one point the new ideas bolstered up the old. The economists were teaching that wealth, commerce, and machinery were the children of free competition – that free competition built London. But the Darwinians could go one better than that – free competition had built man. The human eye was no longer the demonstration of design, miraculously contriving all things for the best; it was the supreme achievement of chance, operating under conditions of free competition and laissez-faire. The principle of the survival of the fittest could be regarded as a vast generalisation of the Ricardian economics. Socialist interferences became, in the light of this grander synthesis, not merely inexpedient, but impious, as calculated to retard the onward movement of the mighty process by which we ourselves had risen like Aphrodite out of the primeval slime of ocean.

And, then this – which is something I have tried to follow all my life :

A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative – to know nothing but the present, or nothing but the past.

1926 – when he gave the speech was 3 years before the great crash – what he says is kind of prophetic.

Economists, like other scientists, have chosen the hypothesis from which they set out, and which they offer to beginners because it is the simplest, and not because it is the nearest to the facts. Partly for this reason, but partly, I admit, because they have been biased by the traditions of the subject, they have begun by assuming a state of affairs where the ideal distribution of productive resources can be brought about through individuals acting independently by the method of trial and error in such a way that those individuals who move in the right direction will destroy by competition those who move in the wrong direction. This implies that there must be no mercy or protection for those who embark their capital or their labour in the wrong direction. It is a method of bringing the most successful profit-makers to the top by a ruthless struggle for survival, which selects the most efficient by the bankruptcy of the less efficient. It does not count the cost of the struggle, but looks only to the benefits of the final result which are assumed to be permanent. The object of life being to crop the leaves off the branches up to the greatest possible height, the likeliest way of achieving this end is to leave the giraffes with the longest necks to starve out those whose necks are shorter.

Corresponding to this method of attaining the ideal distribution of the instruments of production between different purposes, there is a similar assumption as to how to attain the distribution of what is available for consumption. In the first place, each individual will discover what amongst the possible objects of consumption he wants most by the method of trial and error ‘at the margin’, and in this way not only will each consumer come to distribute his consumption most advantageously, but each object of consumption will find its way into the mouth of the consumer whose relish for it is greatest compared with that of the others, because that consumer will outbid the rest. Thus, if only we leave the giraffes to themselves, (1) the maximum quantity of leaves will be cropped because the giraffes with the longest necks will, by dint of starving out the others, get nearest to the trees; (2) each giraffe will make for the leaves which he finds most succulent amongst those in reach; and (3) the giraffes whose relish for a given leaf is greatest will crane most to reach it. In this way more and juicier leaves will be swallowed, and each individual leaf will reach the throat which thinks it deserves most effort.

This assumption, however, of conditions where unhindered natural selection leads to progress, is only one of the two provisional assumptions which, taken as literal truth, have become the twin buttresses of laissez-faire. The other one is the efficacy, and indeed the necessity, of the opportunity for unlimited private money-making as an incentive to maximum effort. Profit accrues, under laissez-faire, to the individual who, whether by skill or good fortune, is found with his productive resources in the right place at the right time. A system which allows the skillful or fortunate individual to reap the whole fruits of this conjuncture evidently offers an immense incentive to the practice of the art of being in the right place at the right time. Thus one of the most powerful of human motives, namely the love of money, is harnessed to the task of distributing economic resources in the way best calculated to increase wealth.

It would be logical to think, at this point, that he is advocating socialism or even protectionism – but he beleived them to be even more flawed than Laisse Faire

…..protectionism on one hand, and Marxian socialism on the other….these doctrines are both characterised, not only or chiefly by their infringing the general presumption in favour of laissez-faire, but by mere logical fallacy. Both are examples of poor thinking, of inability to analyse a process and follow it out to its conclusion. The arguments against them, though reinforced by the principle of laissez-faire, do not strictly require it. Of the two, protectionism is at least plausible, and the forces making for its popularity are nothing to wonder at. But Marxian socialism must always remain a portent to the historians of opinion – how a doctrine so illogical and so dull can have exercised so powerful and enduring an influence over the minds of men and, through them, the events of history. At any rate, the obvious scientific deficiencies of these two schools greatly contributed to the prestige and authority of nineteenth-century laissez-faire.

I criticise doctrinaire State Socialism, not because it seeks to engage men’s altruistic impulses in the service of society, or because it departs from laissez-faire,or because it takes away from man’s natural liberty to make a million, or because it has courage for bold experiments. All these things I applaude. I criticise it because it misses the significance of what is actually happening; because it is, in fact, little better than a dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding of what someone said a hundred years ago.

And finally, the argument against :

Let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded. It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately

His solution :

I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State. I suggest, therefore, that progress lies in the growth and the recognition of semi-autonomous bodies within the State-bodies whose criterion of action within their own field is solely the public good as they understand it,

I come next to a criterion of Agenda which is particularly relevant to what it is urgent and desirable to do in the near future. We must aim at separating those services which are technically social from those which are technically individual. The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the State does not make them. The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.

My third example concerns population. The time has already come when each country needs a considered national policy about what size of population, whether larger or smaller than at present or the same, is most expedient. And having settled this policy, we must take steps to carry it into operation. The time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members.

With Keynes coming back into vogue, post the mess that the US system created – and almost engulfed the financial systems of the whole world – this particular work of Keynes is worth reading. The point is not that Government get in and make soap or toothpaste or run airlines- but provide that which the market will not address – because there is no profit to be made ! From simple things like transportation to remote parts of the nation, to providing connectivity to the citizen in the back of beyond; from addressing issues like caste and poverty to addressing education in poverty stricken parts of the country; from building roads where no one can pay a toll – they can’t afford to – to providing access to finance for those who will not pass credit checks of private banks.

For those who use the name of Keynes for more State control or more protectionism – go back and read Keynes – he advocated neither. For, those who want to apply him as is – don’t be funny ! 2009 is not 1929 :( the world has changed. Adapt, interpret and apply his thought – not his recommendations, which were for a different era.

I for one, am not for the license raj, nor am I for absolutely free markets,but see a great private public partnership the way ahead.I believe that the State in a modern democracy – has to act as a Chairman. They really shouldn’t be getting involved in operational details – but set the agenda, delegate- outsource to private, Non Governmental or even atutonomous governmental agencies – and monitor, evaluage, correct or take corrective action, and deliver.  The government has to learn to be a good Manager. If the Governent were to get involved in operational details – nothing will move, there will be no progress. The Government shouldn’t do – it should get things done.

Jan 262009
 

The nationalization buzz - seems to be growing. i seem to be picking up the ‘n’ word everywhere i turn.

when banks or companies collapse due to mismanagement and tax payers money is used to bail them out, then the tax payer gets to own that part of the company. The Government essentially represents the taxpayer. the income from these shares in future years, hopefully goes to repay the debt.

maybe the new mantra ought to be “no tax money, without representation ” :)