From mining bitcoins to Qatari hostages to the tyranny of convenience to opoids – recent great reads

Andrew Sullivan’s piece in ‘New York Times Magazine’ on the Opoid crisis in America made for grim and sad reading. Of course, some of the causes he alludes to strike a chord even if it is hard to empirically verify them or establish them. You can read the article here.

A British-American friend responded thus:

It’s difficult to analyse how the US has got itself into this position. There are many factors, including a collective cultural desire to be anaesthetised from whatever is disturbing or difficult. That’s been made easier by having a medical profession that’s symbiotically in cahoots with the insurance industry, making the feeding of addictions a win-win situation for both sectors.  The human fallout is horrifying and there is probably not a family in the country that does not have someone who has been affected by this.

Reading this article (ht: Rohit Rajendran) in the ‘Politico’ magazine made me recall the movie, ‘It is a mad, mad, mad world’.  I think the movie came in the Sixties. The extent to which electricity is consumed to ‘mine’ bitcoins boggles the mind. More fascinating are the quarrels and the social effects it has caused. It is a good piece of journalism.

The article does a very good job of explaining what ‘mining’ bitcoins is about and what forms a block and a blockchain, etc. I get it (kind of). But, I really wonder if it can ever threaten the monopoly of the State on money. If it does, its issuers become an alternative State. If it does not, it is a fad and a bubble. As long as the number of bitcoins does not exceed 21 million of them, its artificial scarcity value can be maintained. If it is increased, then it would begin to create doubts in the minds of authorities. Read it here.

Srinivas Varadarajan shared the link to a very thoughtful article on the ‘Tyranny of convenience’. Some sentences that stood out for me:

Particularly in tech-related industries, the battle for convenience is the battle for industry dominance.

Convenience and monopoly seem to be natural bedfellows.

Today’s technologies of individualization are technologies of mass individualization.

Convenience is all destination and no journey.

Struggle is not always a problem. Sometimes struggle is a solution. It can be the solution to the question of who you are.

We give other names to our inconvenient choices: We call them hobbies, avocations, callings, passions. These are the noninstrumental activities that help to define us.

Rajesh Raman shared the link to a long story in New York Times on how members of the Qatari royal family were taken hostage and the dizzy geopolitical calculations behind it. Worth reading, if only to understand a bit of the conflicts between nations (or, tribes) in the Arab Peninsula.

I liked this blog post of MarkGB on the demonisation of Putin. There are no villains nor heroes but only an understanding of high stake games that nations play. I am yet to figure out why the West is hellbent on driving the Russians into the hands of China.

Soeren Kern has a detailed blog post on the political correctness behind unreported rape and assault cases in Germany. What is the rationale for the political correctness or squeamishness?


India at 2030: of possibilities and pitfalls

This is the draft of an essay I had submitted to ‘Industrial Economist’, a magazine published out of Chennai. The magazine celebrated its Golden Jubilee last week in Chennai. Surely a proud moment. They had requested me to contribute an essay on the above topic to the Golden Jubilee Special issue. Below is the original version I had submitted.


India’s challenge to achieving middle-income status is productivity.  Corporate governance is hurdle to higher productivity of labour and capital in the private sector. Government’s control and moralising mindsets are barriers to productivity in the overall economy. Both need to change for India’s potential to be realised, especially since easy growth-pickings such as growth in the global economy and in global trade, that was available to East Asia (first to Japan,  then to the Tiger economies and then to china), are not longer available.


India at 2030: of possibilities and pitfalls

On January 31, the Central Statistical Organisation in India released its first revision to India’s Gross Domestic Product Statistics. In the year ending March 2017, it projected that India’s nominal GDP stood at Rupees 152.54 lakh crores (or, Rupees 152.54 trillion). In the year ending March 2017, the average US dollar/Indian rupee exchange rate was 67.05. That translates into a nominal GDP in U.S. dollar terms of around 2.275 trillion. Now, if we simply assume that, over the next thirteen years, the India’s nominal GDP in rupee terms will grow at 10% per annum, then in rupee terms, the Indian economy will be 527 trillion rupees big. If we assume an average exchange rate of 60 rupees to a dollar, then, in dollar terms, the Indian GDP will be around 8.8 trillion. Many assumptions lie behind this estimate. Are they realistic or, are they conservative?

First, we have assumed a nominal GDP growth rate of 10%. Most of us know that nominal growth has two components – a real component and an inflation component. I had assumed a real GDP growth of around 6% per annum and an inflation rate of 4% per annum. The real GDP growth assumption of 6% is conservative if one compared it to the real GDP growth rate that China achieved in its growth years from 1979 for nearly thirty years. Based on official World Bank data, China’s nominal GDP growth averaged 16% per year between 1979 and 2009. Real GDP growth averaged 10%.

The three Ds and the Indian economy

As Ruchir Sharma had noted in an article, for Foreign Affairs last year, global economy is in the grip of three Ds – depopulation, deleveraging and de-globalisation.[1] That is one of the reasons China too has resorted to increasing reliance on debt, especially since the 2008 crisis. It has also launched the ‘Belt and Road initiative’ to put its domestic capacity to use and create growth opportunities for its industries and for the economy. However, getting growth back to levels seen before 2008 will not only be hard but may also be harmful. One needs to recognise and accept the hurdles that have come up before attempting to defy them. Countries, as much as individuals, need to be clear-headed about the factors that they can control or influence and the factors they cannot. They need to work on the former and wait for the right opportunities on the latter. Where does India stand with respect to the three Ds that Ruchir Sharma had identified? Answer to this question has a bearing on India’s economic growth and size potential in 2030.


The developed world’s population and labour force growth is slowing. Even India’s population growth rate has slowed. At around 1.2%, India’s population growth rate was lower by 0.1% than the global population growth rate in 2016. For the world and for India, population growth rate peaked in the Seventies. But, the world growth rate slowed faster than India’s.


De-leveraging is not India’s problem yet. Indian public debt – Union and State governments combined – at 68% of GDP is on the high side. Indian private non-financial sector (includes companies, unincorporated businesses and households excluding banks and other non-banking financial entities) has borrowed heavily from capital markets and form banks in the last fifteen years. This sector’s debt/GDP ratio was around 36.0% in 2002. It had risen to a peak of 62% in 2014. But, in the last four years, de-leveraging has been underway. The debt ratio has come down to 55.9%. India’s households have very low levels of debt by global standards. There is scope for them to catch up. Hence, despite the government’s high debt ratio, India’s overall debt ratio at 124% of GDP is on the lower side. Debt can be harnessed to boost growth.

However, India’s financial sector, dominated as it is by the government, is not in a position to provide debt capital. As long as banks remain under the control of the government, the government’s budget constraint will be binding on banks’ ability to raise capital. Without adequate equity capital, they cannot grow their assets, i.e., expand lending. The current crisis could have been an opportunity to pass the banking system on to private hands with safeguards and regulations for ensuring systemic stability and for ensuring that Indian banks did not repeat the mistake of their counterparts in the West. But, that opportunity has not been grasped yet. Crises are the best times to whittle down political resistance to fundamental changes that affect entrenched interests. Perhaps, in the unique Indian style, we might get there – a banking system that is not dominated by government shareholding – by stealth and in our own opaque and convoluted manner.


De-globalisation is a bigger threat than is understood. India routinely sets out export targets for the economy. Frankly, that is a futile exercise. Exports are determined by global demand and by the competitiveness of the goods and services that India seeks to export. The latter is in India’s control, to a large extent. The former is not. Hence, the government can set targets for improving the quality, indispensability and competitiveness of Indian exports and then hope that global buyers notice that. Unfortunately, one does not see targets in areas where the target-setter has influence. IN any case, despite setting such targets, India’s export performance has been disappointing in recent years. During the global boom era of 2003-2008, India’s exports rose briskly year after year. Since then, they have struggled.

According to World Bank annual data, after the global crisis of 2008, India’s export growth recovered to nearly 20% in 2010. Since then, the growth rate has been declining, contracting 5% in 2015 before posting a modest increase of 4.5% in 2016. This performance mirrors India’s yo-yo export growth record between 1975 and 1990, a period marked by government dominance of the economy, hesitant liberalisation, political uncertainty and fiscal imprudence culminating in the Balance of Payments crisis of 1990. The unimpressive export performance symbolises a much bigger problem with productivity and scale inefficiencies in India. They constitute a big risk for optimism on India’s aspiration to join the Economics Big League by 2030. We will deal with that later.

A reasonably large part of the problem lies with changing attitudes to foreign trade and imports along with changing attitudes to immigration.  Nations are becoming more protectionist and protective of their economies. Whether that is the correct attitude or not is a separate issue. The reality of these unfavourable changes globally, at the margin, and their adverse implications for India’s exports must be understood when we try to assess India’s growth prospects for the next twelve years. Even India is not immune to these trends.

Right after the Prime Minister’s speech at the World Economic Forum in Davos in January, the Indian government proceeded to increase import duties on several items in the Budget for 2018-19. U.S Trade representative has called the admission of China into the World Trade Organisation (WTO) in 2001 a mistake. America has imposed stiff duties on washing machines and steel items. Both America and the European Union refused to grant China ‘market economy’ status at the WTO. The American President walked out of the Trans-Pacific Partnership – a comprehensive trade and investment agreement among nations from Chile to Vietnam – soon after he took office in January 2017. There are rumours that he would pull America out of the North American Free Trade Agreement (NAFTA) that President Clinton signed with Canada and Mexico in 1993, coming into effect in 1994.

East Asian countries, led first by Japan and now followed by China, especially since 2000, had improved their economies and reached middle income status mainly due to strong export market performance. Emphasis on exports raises the bar on domestic manufacturers with respect to scale and productivity. Exports can easily add a percentage point or two to economic growth, making up for domestic slack. India, due to a combination of internal and external factors, is likely to miss out on that for several years, if not longer. Boosting export growth is not easy because India is simply not used to sustained high export growth. The culture of export reliance is missing. It takes years to form that habit. China is way ahead of India in this respect and it too is now vigorously competing to retain its market share amidst dwindling global growth and rising protectionism.

Srinivas Thiruvadanthai, Chief Economist at the Levy Forecasting Institute in New York, laid out the challenge that India faces in no uncertain terms[2]:

“India needs to brace itself not just for a flood of cheap imports from China but also a potential reversal in the long trend of globalization. Trump’s message on economic nationalism, hitherto banished from polite conversation, is likely to experience a revivalism across the world in the years ahead. As global trade shrinks, the positive-sum aspects of it will dwindle, making it harder to paper over the negative aspects of trade. A trade war is a distinct possibility. What steps India’s policymakers take to proactively address the challenge posed by China and a potential global trade war will be hugely consequential for its long-term destiny.”

In other words, boosting economic growth and export growth is as much a productivity challenge as it is going to be a political economy challenge for India. Is India’s statecraft up to it? It is beyond the scope of this article to go into the latter but we will examine the former as it is more important and has a direct bearing on domestic growth.

Internal Growth Barriers

The productivity challenge

In January 2018, credit-rating agency, Fitchratings published a report[3] on the growth outlook for developing economies including China. Among the economies it analysed, it placed India’s real economy growth potential at 6.7%. So, our calculations based on a growth rate of 6% is a tad conservative. That is as it should be. In these matters, Indian governments talk before the economy walks. It is better to be modest on matters that are largely outside one’s control. Despite putting India at the top of the pecking order on potential growth (the growth rate that the economy is capable of generating), Fitch analysts noted two big concerns. One is that India’s labour force participation rate is rather low. Far too few women are in the labour force and there is also a problem with skill endowments of youngsters that prevent them from being absorbed into labour force. The second concern is India’s abysmal Total Factor Productivity Growth.

TFP is the extent of economic growth (or, output growth) that is not explained by growth in inputs. If we define output (or, production) growth as a combination of input growth (the more inputs one uses, the more output one generates) and productivity growth. So, TFP growth is the output growth rate that is over and above the growth rate in inputs. India’s TFP growth rate was 0.6% in the last several years. Fitch notes, “Sluggish TFP growth in a low income per capita country such as India (which has the lowest GDP per capita in our sample of countries covered in this report), which has more room to play catch up, is all the more disappointing.”

Disappointing export and productivity performances signal the formidable underlying challenges that India faces or has failed to tackle adequately in the last few decades. The factors that have led to this sluggish TFP growth are many. Not only labour laws and regulations and hiring practices but poor education and inadequate skilling hold back labour productivity. Corporate governance as much as government approvals and clearances holds back capital productivity. The private sector is diffuse and it is difficult to offer a template to all of it. I will confine myself to what policy can achieve to overcome India’s productivity barrier to economic growth.

The psychological challenge

Clearly, India has come a long way since the 1990s. Economic growth rate had picked up. Per capita income growth had picked up. Literacy rate has climbed. Infant mortality rates have declined. Life expectancy has improved and the poverty rate has declined. Nominal per capita income is around Rupees 10,000.00 now. All these have been accomplished without taking recourse to too much of debt (unlike China) and within a noisy, often disruptive and dysfunctional, democratic political setup. That is the good part. The not-so-good part is the fact that GDP growth rates and per capita income growth rates have slowed in recent years. Savings and investment rates have declined.

Some of this slowdown is due to global factors and slowing population growth, etc. But, throughout this essay, we had emphasised that individuals, institutions and governments must focus on their spheres of control and work on improving outcomes within those spheres. The Indian government embarked on economic liberalisation in the 1990s. But, their commitment to liberalisation has not been steadfast. Since 2004, it may even have reversed. Control instincts usually triumph over the instinct to let go. There is an atmosphere of distrust and mistrust between the governing and the governed. Governments have not delivered to the degree promised or is possible on health, education and infrastructure. That is a breach of contract.

The Comptroller and Auditor General of India in its report on the finances of the Union Government (Report No. 44 of 2016-17) noted that over the last ten years, the Indian government had collected around 840 billion rupees of education cess. But, this amount has not been earmarked in the Public Accounts of India and nor has any appropriate scheme notified to make use of the amount collected for education. Essentially, it is backdoor taxation or cheating of the public. To offset that, the government exempts the vocal classes from certain taxes or raises the tax threshold. The tax base shrinks. Others feel persuaded to evade. It is a downward spiral.

The government has to take the initiative to break this spiral of lack of trust in the society and in the economy. It has the instruments and the authority to verify. So, it can trust. The public does not have the tools – beyond the democratic elections once in five years – to hold the government accountable for its promises. Hence, the onus is on the government to trust and let go. It is the control mindset, blended with a moralistic attitude towards economic activity that obstruct creation of capacity and scale in the private sector. I may be accused, legitimately, of oversimplifying. But, the important role of government and regulatory attitudes towards size in keeping India’s potential economic growth and productivity improvement down cannot be understated. In listing the ‘Six Big Economic Mistakes’ of the present government, I had identified ‘anti-big’ bias as one of them[4]. The second chapter of the Economic Survey 2012-13 has a detailed analysis of how India’s laws and regulations constrain economic growth[5]. The Economic Survey of 2017-18 also refers to the anti-capital bias that has crept into the Indian public and political discourse constraining policymaking.[6]

A more vivid demonstration of that occurred recently when the Government defended the re-introduction of the Long-Term Capital Gains tax in India for gains in the stock market in the budget for 2018-19. The bureaucrat defended the tax saying that the stock market gains did not need any effort. In an era of abundant liquidity and herd-like investing, that might be true but policymaking cannot be guided by such intrinsically dismissive attitude towards such an important part of the modern economy (whether we like it or not).

It is not feasible to go into the depth of these arguments given the space constraints in this essay. The short point is that limits on India’s growth placed by low productivity could be a manifestation of psychological limitations. It is neither easy nor correct to draw a one-to-one correspondence between personal and public morality. The more the Indian policymakers are freed of their inherited, acquired and cultivated psychological shackles, the more the Indian economy will be able to break free of its growth shackles. If that happens, a USD9.0 trillion economy by 2030 will be a floor and not a ceiling for India.

[1] ‘The boom was a blip’, Foreign Affairs, May/June 2017 (

[2] ‘Trump’s Trade War On China And Lessons For India’, Swarajya, January 23, 2018 (

[3] ‘Investment and Demographics Key to EM Growth Potential – Medium-Term Growth Potential in Emerging Economies’ Fitchratings, January 2018

[4] ‘The government’s six big economic mistakes’ MINT, September 25, 2017 (

[5] ‘Seizing the Demographic Dividend’, Chapter 2, Economic Survey 2012-13, Government of India

[6] See paragraphs 1.27-1.29, Chapter 1, Economic Survey 2017-18, Government of India

Plenty of poverty – Congress’ analysis of India’s economic situation

The Congress Party has done a feisty analysis of India’s economic situation. The author of the document has used strong language that attempts to make up for the lack of substance in it.

More importantly, in terms of its own prescription, the document is eloquent on principles. But, the accompanying document, ‘Draft resolution on employment, agriculture and poverty’ gives the game away in the sense that it is not even old wine. It is stale wine or worse, a toxic brew. It is unsustainable and contains internally consistent prescriptions. Indeed, the specifics contradict the principles in the Economic Situation analysis.

(1) Let me start from the bottom. The document concludes on a sensible note. Well, half of the last paragraph was sensible:

Sustained economic growth is the path toward becoming a middle-income developed country. It is the path to lifting the poor out of poverty. It is the path toward creating a large, vibrant and productive middle class. It is the path to creating wealth and generating government revenues that will enable the State to spend adequately to attain social and redistributive justice.

Fair enough. But, the proof of the pudding is in the eating.

(2) Now, the fourth sentence of the last paragraph is this:

Such sustained economic growth can be achieved only if the country can be rescued from the hands of incompetent economic managers and entrusted to those who have for many years nurtured the economy and guided it on the path of all-round economic development.

That is pushing things a bit. The country voted to remove incompetent economic managers in 2014 and the problem with the present government is that they never realy understood the gravity of the outcomes that incompetent economic mismanagement had left behind.

When Pramit Bhattacharya of MINT wrote a piece on the jump in India’s ‘Misery Index’ in recent months,  I wrote him a mail as follows:

UPA II had a direct hand in the misery index spike. To what degree, it applies to NDA-II?

Even if one points to demonetisation and GST. Could GST have happened any differently in India, under any party?

Not a challenge to you or to any one but sharing some loud thinking.

NDA’s ‘incompetent economic mismanagment’ is one of errors of omission rather than commission. Yes, we will come to demonetisation later.

Those of you who have not seen Pramit Bhattacharya’s article, here is the ‘Misery Index’ chart. It takes into inflation, real rural wage growth and non-food credit growth. Despite poor ‘rural wage growth’ since 2014 as the Congress Party’s document claims, the composite index was declining until recently since 2014.

The misery spiked up between 2006 and 2010 and after a brief rest, began to move sharply higher from 2012 until 2014.

India_Misery Index_27022018

(3) The document makes a somewhat strange statement on the Modi government’s attitude to the public sector:

The Modi government, keeping with its track record of hollow slogans and promises, indulged in a rhetoric of privatisation but instead has created an opaque and inefficient public sector.

The Modi government had forsworn privatisation. So, that is a wrong statement. It did not engage in a rhetoric of privatisation. But, quite how it created an opaque and inefficent public sector is asserted with the following illustration:

This is most manifest in its handling of the Gujarat State Petroleum Corporation (GSPC) issue where, in order to hide the shenanigans of GSPC, it coerced a navratna public sector company – Oil & Natural Gas Corporation (ONGC) — to take over GSPC. This is a prime example of the shabby treatment of the public sector that the Indian National Congress condemns.

I do not know much about the context either to rebut or to agree with the above. But, this is Standard Operating Procedure for all  goverments cutting across party lines in the country, including in States.

(4) On inequality, the document states the following:

Recent research by economists Thomas Piketty and Lucas Chancel has documented that individual income inequality in India has widened significantly in the last three years.

One small problem: Piketty and Chancel paper only analysed data up to 2014. The UPA was in office between 2004 and 2014 when inquality in India widened big time. It is somewhat amusing to see the criminal accusing the plaintiff of committing the crime.

See the chart below on the rise of the networth of India’s billionnaires relative to GDP and judge for yourself:

Networth of India's billionnaires relative to GDP

Source: ‘India 2039: an affluent society in one generation’. You can download the report from here or buy it from

The bottom 90% saw their wealth decline and the wealth share of the top 1%, 5% and 10% increase during the UPA years. Their share of wealth has declined since 2014. The wealth of the bottom 90% has grown much faster than the wealth of the top 1% since the Modi goverment came to office.

Pl. see my blog post on this, published today.

(5) The Congress Party document claims that some economists have written on the disparity between different States. Well, Praveen Chakravarty, its head of Data Analytics has written quite often about and sometimes, in association with Prof. Vivek Dehijia.

Again, the issue is not new nor is it unique to India. For example, the document cited above ‘India 2039’ had commented on it:

Spatial differences have risen sharply in the past 20 years, across different states and between rural and urban areas. The ratio of per capita product between Gujarat and Bihar went from about two times in the late 1980s to almost four times the mid-2000s. Such spatial inequalities rose as some regions took off faster than others, in part because of the removal of the spatially equalizing industrial policies of the licensing system. But powerful influences from economies of agglomeration and institutional divergence also cause spatial differences to persist. This is particularly problematic in India because lagging regions include such populous and politically important northern states as Bihar and Uttar Pradesh.

Notice the reference to the ‘past twenty years’. It is not a phenomenon that arose under the NDA government of 2014!

In any case, see here for a scholarly rebuttal of the tendency to stoke fissiparous tendencies by referring to inter-State disparities.

(6) For a ‘too clever by half’ statement in the document, this one is declared the winner:

This was despite the fact that global economic growth has been robust during the Modi government’s tenure while there was a severe global financial crisis in 2008 during the UPA tenure.

It was in the context of India’s export performance. The document asserts that India’s exports rose from USD64.0bn in 2003-04 to USD314bn in 2013-14 despite poor world growth in 2008 (?!) and that India’s exports have stagnated since then despite robust world economic growth.

According to World Bank data, world GDP growth (in constant 2010 dollars) averaged 2.9% between 2004 and 2014. If we exclude the data for 2009, it averaged 3.4%. Before the crisis of 2008-09, world growth had averaged 4.2% and including the slowdown in 2008, the average drops to 3.7%. Thanks to massive fiscal and monetary stimulus, global growth rebounded to 4.3% in 2010 and to 3.2% in 2011. This is the global backdrop for export performance during the UPA regime.

After NDA came to office, we have data for 2015 and for 2016. It had averaged 2.65%. This is World Bank data.

According to IMF data (GDP growth in constant prices), global growth averaged 4.03% between 2004 and 2014 (both years included) and if one excluded 2009, it averaged 4.46%. Between 2015 and 2017 (both included), it had averaged 3.4%. Data for 2017 must be an estimate.

Modi government’s demonetisation and the introduction of Goods and Services Tax might have had a hand in the export growth slowdown but global growth picked up only in 2017.  In any case, to blame the government (or to credit it) for export growth may be a good political argument but a poor economic argument. To be sure, governments can hurt export performance but cannot do much to help it. World growth did much to flatter India’s economic performance between 2004 and 2007.

(7) On education, the document states this:

The Indian National Congress reaffirms its conviction that the State has to play a critical role in ensuring that every Indian receives high quality primary education and healthcare.

Well, I did not have to look too far for a stinging rebuke. It came from this incisive comment by Ms. Geeta Kingdon in ‘Times of India’. The header of the article sums it up all:

When ideology overcame sense: RTE imposes a bureaucratic, grotesquely inefficient regime starving our children of good education.

The first paragraph rams home the point again:

It is no hyperbole to say that the well-intentioned Right to Education (RTE) Act, 2009, has been a disastrous experiment. Contrary to its avowed intent, its effect has been to deprive millions of children of their right to education by closing down schools.

I will leave you, dear reader, to read the rest of the article. It is well worth it. Yes, the current NDA government has been guilty of retaining it. That is what we meant by referring to their ‘error of omission’ earlier.

But, sometimes, mistakes cannot be undone without paying a political price. That the NDA government has not been willing to pay the price for the future intellectual growth of India’s children and for the country’s future economic growth is a separate issue.

(8) On the measurement of job creation in India using data available from enrollment into the Employees Provident Fund Organisation, Employee State Insurance Corporation and the National Pension scheme, the document has this comment to make:

Hiding behind a façade of compromised research claiming that the economy generates more formal sector jobs than any other country in the world!

A critique of the work by Pulak Ghosh and Soumya Kanti-Ghosh appeared in THE HINDU. It was written by Praveen Chakravarty and Jairam Ramesh. The authors responded persuasively. I wrote a rejoinder too for MINT.

The Congress Party’s MP Rajeev Gowda had written this in December 2016:

If one needs to look at empirical data for jobs numbers, one indicator is provident fund (PF) registrations. Most permanent salary-paying jobs in the formal sector entail PF payments to employees. The UPA-1 period had an increase of nearly two million PF registrations compared to less than a million during the NDA-1 period. [Link] (ht: R. Jagannathan of Swarajya)

That is what Ghosh and Ghosh had done! They had taken care to avoid overestimating and, if anything, they had erred on the conservative side. Their figures are gross of retirement.

(9) Commenting on real economic growth in the NDA period since 2014, the document states the following:

The 7 per cent growth rate (under the new methodology) flaunted by the government may, according to many economists, be equal to 5 per cent under the old methodology.

I know for a fact that the input for this statement above came from research that I had done and shared with friends.  But, in that research, I had also pointed out that,  by the same token, the economy grew at 2% and 3% in 2011-12, 2012-13 and in 2013-14! More than lending respectability to economic growth post-2014, the new methodology adopted by the Central Statistical Organisation vastly overstated growth between 2011 and 2014.

(10) The document has this to say on demonetisation, tax terrorism, etc.:

The Modi government’s economic policy of shock and awe has severely dented business confidence. Millions of small and medium businesses have been hurt by sudden radical announcements such as demonetization and a steady dose of tax terrorism unleashed by the government.

Finance Minister Arun Jaitley used to accuse the previous UPA  goverment of tax terrorism. But, it has come back to haunt him. That is one of the single biggest failings of this government. It had done nothing to dismantle it and may even have reinforced it. Then, again, it only underscores the point that this government has been walking the path that the Congress-led government had trodden. That is a mistake.

But, the government had also removed the favourable tax treatment afforded to investments coming via tax havens. That is a very big reform. Naturally that does not find a mention in the Congress party document.

Quite possibly, one of the authors of the document that we are discussing here, ‘The Economic Situation’ is Praveen Chakravarty. Well, this is what he had to say about the Modi government ending the favourable tax treatment to investments originating in Mauritius. He co-wrote it along with Dr. Ajit Ranade:

Many governments in the recent past have grappled with this challenge, and mostly ended up with “consequence management” rather than tackling the problem at the root. To understand the true magnitude of this achievement and its profound impact, it is important to look back and understand the structural damage that this treaty had inflicted on India’s economy and tax structure over three decades. [Link]

Damage inflicted over three decades (Congress governments have been in office for the most part)…. true magnitude of this achievement…. H..mmm. Times change!

(11) On demonetisation, the NDA government botched up a good idea through poor execution and through unimaginative tax amnesty schemes. It was too focused on catching the wrong guys that it took its eyes off the hardship it was causing the rest of the country. Further, its policies on the funding of political parties through bearer bonds and the introduction of the new 2000-Rupee note are inconsistent with tall claims on morality, on eliminating black money and corruption. Infusing public policy with excessive morality has been one of the big mistakes of the present NDA government.

The two errors of commission of the present government are the execution of demonetisation and the infusion of excessive morality into public policy to the detriment of overall public good.

See my article on the six big economic mistakes of the NDA government published in September 2017.

(12) Notwithstanding all that I have said in (11) above, I must comment on this observation of the document on demonetisation:

The Indian National Congress re-states its conclusion that the “demonetisation” experiment of November 2016 will rank as one of contemporary India’s most ill-thought and reckless economic misadventures.

H…mmm. Really? What about the Land Acquisition Bill? Has the Congress Party forgotten the criticism of N.C. Saxena, one of the members of the National Advisory Council, under the UPA government?

Or, its disastrous farm loan waiver in 2007 that did not really help the farmers but hurt the banks alright?

(13) It must take tremendous chutzpah for the Congress Party to talk about non-performing assets in the banking system. Much of it was created during its time in office. In fact, cronyism that emerged in that period was one of the reasons, according to the Economic Survey of 2017-18, that delayed the resolution of the problem. Yes, the Modi government had underestimated the problem of NPA in the banking sector. But, that again, is more of an error of omission than commission.

(14) The Economic Situation document talks of low ‘Minimum Support Prices’ to farmers, etc. But, had the government been generous, the document would accuse the ruling party of hurting urban poor through higher food prices. The UPA government did that rather well. An intelligent document will discuss policy trade-offs and offer solutions. India cannot boost farm income while not letting farmers sell whenever, wherever and at whatever market determined prices. Freedom to farmers means that India should re-think its inflation targeting monetary policy framework. The Congress document is silent on that.

(15) On Aadhaar, on the Goods and Services Tax (GST), the document chastises the government for being intrusive and for tardy implementation respectively. This piece in ‘Business Standard’ is a thoughtful critique of the mandatory Aadhaar requirement.

But, all Opposition parties have the luxury of hindsight and lack of accountability. It is very difficult to say if the Congress Party would have implemented either differently.

(16) On the introduction of the GST, the Congress Party claims that it mooted the idea in 2006. That is a bit brave but not true.

Check out this article in ‘Indian Express’ on the 17-year journey of GST:

When Yashwant Sinha was Atal Bihari Vajpayee’s Finance Minister, a decision was taken to put an end to the sales tax war among states, and to have uniform floor rates for sales tax of various commodities with effect from January 1, 2000. More importantly, to monitor implementation, Sinha proposed the creation of an Empowered Committee of State Finance Ministers in 2000, which was approved by Vajpayee. West Bengal Finance Minister Asim Dasgupta headed this Committee — a nod not only to his impeccable credentials, but also to efforts at building a consensus and at signalling cooperative federalism. [Link]

(17) Having dedicated its Economic Situation document to a critique of the BJP-led NDA government, what does the Congress have to offer?

There is the resolution on Agiculture, Employment and Poverty Alleviation. See it here. It is about loan waivers for small and marginal farmers, about Minimum Support Prices and about a 5% cess on the top 1% richest Indians for a National Poverty Alleviation Fund.

The only way to square the fiscal circle is to tax and drive out the rich.

At the ‘Rising India’ summit, Ruchir Sharma had this to say

Sharma said since 2014, 23,000 millionaires have left India. In 2017, 7,000 millionaires left this country—the largest number in recent times—compared to 4,000 in 2016. “In absolute terms, this is still behind China. But as a share of total millionaires living in this country, this is the largest compared to any nation in the world,” he added.

Sharma said some may some may say this is a good thing as India is driving away the most corrupt from the country, but there is a side effect. “At the end of the day, you need your own domestic people to invest in this country. Foreign investment is needed, but it is the domestic investors who make a nation going forward,” he added. [Link]

The Congress, if it returned to office, will probably ensure that there is no rich left in India to make investments and generate employment. Who will top up its National Poverty Alleviation Fund then?

In short, there is plenty of poverty in the Congress Party documents – poverty of imagination, aspiration and of truthfulness.

World Bank comment on India’s GST

I read the news-story in MINT on World Bank comments on India’s Goods and Services Tax. They are well made. The full World Bank report is here. Nothing new and the discussion on GST is from p. 108. The MINT story has summarised that portion well.

This table and the chart from the World Bank report on GST rates in the world is rather useful:

World Bank_Highest GST rates around the world

World Bank_Highest number of GST rates in the world

I recalled what I wrote in November 2016 after demonetisation was announced:

(6) Further, with the eventual design of the GST looking more complicated than originally envisaged and with the timelines getting shorter, uncertainty could be compounded. That risk is non-trivial.  That is why GST should have been more concerned with simplicity, ease of use and implementation rather than revenue considerations. Bold thinking was always needed and more so, in the light of this announcement.

(7) In other words, a lot of learning is required of private sector participants to adapt to the new regimes – GST and de-monetisation. It will cause dislocation and uncertainty while learning happens and, two, it takes time. [Link]

Frankly, most of the comments I had made about demonetisation then have stood the test of time.  A personal vindication but not for the nation, however.


Political funding in India

Extracts from an interview with S.Y. Quraishi, former Election Commissioner in India:

Electoral bonds, as announced by the Union Finance Minister, hold the promise of making political funding transparent, which has been a long-standing demand of the Election Commission (EC). Do you think electoral bonds are the solution?

When the Finance Minister began his Budget speech, he said without transparency in political funding, free and fair elections are not possible. This was music to my ears. But what he offered was just the opposite. So far, all donations above ₹20,000 were disclosed to the EC. It is, of course, a different matter that political parties accept donations in crores and convert them into cheques of ₹20,000 — and this is more than 75% of all collection of political parties where sources are unknown. Now, with electoral bonds, 100% source will be unknown. The government has decided to give precedence to the donors’ wish to be anonymous. There was a CII (Confederation of Indian Industry) report of 2015 which said that donors want anonymity for two reasons: one, other parties would make a beeline for their donations, and two, fear of political reprisal from those not getting the donation. The real reason probably was that they don’t want the quid pro quo to get known. Finally, the donors’ desire for transparency has got preference over citizens’ desire for transparency and the people’s right to know, which is more important in a democracy and critical for the fairness of elections. I must add, however, that there is one good thing about electoral bonds: cash transactions will not happen as people will have to buy bonds through the bank.

The government, and not the public or even the EC, would know who is giving what, right?

Yes, absolutely. And it is the government which can harass the donor more than any political party out of power. Reprisal, if any, can come only from the government. The government has empowered itself to know exactly who is giving what to whom. This is not what we in the EC were expecting and striving for.

Is the removal of the 7.5% cap (based on profits over three years) on corporate donations a good idea?

Not at all. The cap existed for a good reason — that the companies should not start influencing political processes. Now companies can exist just to run India’s politics. That is what crony capitalism is, and now it has been legalised. Billionaire-run companies will run Indian politics. The government has created a Frankenstein’s monster for itself. Nobody is in power permanently. Therefore, instead of thinking of long-term national interest, short-term political interest has been given precedence.

Has there been any reprisal against a donor in the past?

The solution lies in having a National Electoral Fund, where companies can donate without indicating preference for any political party and thereby avoiding the reprisal they claim to fear. The fund can be distributed transparently on the basis of actual performance. I have given a formulation: for every vote cast in favour of a candidate, ₹100 can be given. If 55 crore people cast their votes, the National Electoral Fund distributes ₹5,500 crore among parties/ candidates.

Will that money be enough for political parties?

I would say more than enough. The basis of my argument is that between 2009 and 2014, the total donation shown by all political parties was ₹4,000 crore. With all their efforts at blackmailing, arm-twisting and corruption, they got ₹4,000 crore. Here they get ₹5,500 crore with dignity, by cheque, based on their performance, on objective criteria. And this is one figure which cannot be fudged. All political parties have been demanding an end to electoral corruption, and state funding of elections. We are opposing state funding of elections as that will be impossible to monitor, and suggesting state funding of political parties, [which is] easy to monitor. There will be no scope for fly-by-night political parties. They will have to first perform in an election before they receive any funds.

His points about the bearer bonds are very well made. The purpose of transparent political funding is for the public to know who is contributing to whom and what effect it would have on policymaking. The proposal made in the budget in February 2017 was exactly the opposite of what was needed. Actually, it makes a mockery of the claim made by this government that it had taken the battle against corruption forward in a big way.  The full interview is here.

He is in favour of simultaneous elections, in favour of proportional representation and also dismisses concerns over Electronic Voting Machines. In any case, after the results to the by-elections in UP and in Bihar, resistance to EVM will be hard to sustain for political parties.

The real ‘Suit boot ki Sarkar’ party

​I do not know how many of you have been following the 84th Plenary Session of the All India Congress Committee (AICC). The Party may have passed a resolution


The draft proposal for the same is available at the Party Website.

​​This is the URL:

There is an English version and there is a Hindi version in this document. Both are in the same document. The English version runs to 8 pages. The remaining 11 pages are the Hindi version.

In page 6, I found the following quote:

The wealth of the richest 1% has gone up by 73% while the wealth of the bottom half of the population has grown by just 1% during the BJP regime.

Unfortunately, for them, it is verifiable and it is totally wrong. In fact, embarrassing for the Congress Party.

For example, the total wealth of the bottom 90% shrunk in India between 2010 and 2014 at a CAGR of 3.75% in USD terms. It has risen at a CAGR of 12.4% between 2014 and 2017.

​Yes, rupee crash vs. USD played a big part in that contraction between 2010 and 2014.​ But, that is part of the story of economic mismanagement – double-digit inflation, current account deficit, fiscal deficit and its monetisation, etc.

Funnily and more importantly, the rupee crash against the US dollar in 2013 did not stop the wealth share of the top 1% rising at a compounded annual rate of 5.8% between 2010 and 2014. 

So, the differential in the growth rates of the wealth of the top 1% and that of the bottom 90% was 9.5% between 2010 and 2014, in favour of the former!

But, the differential in the growth rates of the wealth of the top 1% and that of the bottom 90% was 4.0% between 2014 and 2017, in favour of the latter!

Notice that median wealth per adult – a  better measure of wealth inequality than mean wealth – declined between 2010 and 2014 from USD1300.0 to USD1006.0 (a big drop) and has since improved to USD1295.0 in 2017.

​​​Between 2014 and 2017, the rupee has remained stable or even slightly strengthened. The story of 2013 may well be repeated this year or next even if not of the same magnitude.

But, the statistics included in that Draft Proposal is about the actual data of the past and not about the future.

On that basis, it is wrong. Very wrong.

India_Basic Statistics on Wealth and Distribution of Wealth

Bottom-line: The share of the top 1%, 5% and 10% in the total wealth in India increased in the UPA II years and they have declined in the NDA years.

Quite the opposite of the message that the Congress Party wants to send.

Overheating prices and cooling activity in America

313,000 Non-farm payroll (NFP) jobs added (seasonally adjusted). Without that, it is more than a million! Plus, upward revisions to jobs added for Dec. and January. Average Hourly Earnings rises more slowly than expected. Bond markets were confused but stock markets were elated. They have drunk the Kool Aid and are still drinking.

But, the report was not all that it was cracked up to be.

In the last six months, the U.S. economy added 1.369 million. Multiple job holders in these six months went up 655,000. That is 48%.

In the last one year, U.S. non-farm economy added 2.232 million jobs. Five categories contributed 62% of these jobs:

Administrative and Waste Services: 276K

Health Care and Social Services: 377K

Food and Drinking (part of retail) service: 251K

Construction: 254K

Manufacturing: 224K

The first three of them are low paying categories, for the most part.

Bulk of the employment creation, as per the Household Survey, happened for both Blacks and Whites and not for Asians. In terms of education, those with education above High School and no college and those with a Bachelor’s or more split the employment generation. Surprising that wages did not rise faster despite a big rise in the jobs for educated people. I thought that the unemployment rate for the educated had bottomed at 2.1% in January. It is true. It jumped to 2.3% in February but that is because more of them joined the labour force and quite a few found jobs too.

U-6 unemployment rate remained unchanged at 8.2%. It had bottomed out at 8.0% in October. Frankly, I think the labour market peaked in October. It is a lagging indicator. The economy might be on borrowed time. Just a hunch. Non-defence capital goods orders excluding aircraft peaked at 9.9% annual growth in October 2017. It had revived with the arrival of the new President. Now, the growth rate has slowed to 6.3% (y/y).

Atlanta Fed GDP NOWCAST forecast for Q1 was dropped to 2.5% from 2.7% after the release of the NFP report. But, the trimmed PCE inflation rate had risen to 2.67% in January, courtesy of Federal Reserve, Dallas, besting the previous (recent) peak of 2.62% in April 2016.

The 16% trimmed CPI inflation rate courtesy Federal Reserve Bank of Cleveland had hit 3.5% in January 2018, slightly besting the January 2017 number. Does not look like it is a January thing because Jan. 2016 number was 1.92%.

The ‘Underlying Inflation Gauge’ (UIG) of the Federal Reserve Bank of New York was nearly 3.0% in January, increasing at the second decimal place at a faster rate than in December 2017. See here.

There is overheating evidence in the real economy and it has been there in financial markets for a long time, however. Time for Jerome Powell to walk the talk and raise rates by 50 basis points in the March FOMC meeting.

On Friday night, saw this interesting piece by the folks from the Economic Cycle Research Institute (ECRI). They called for a recession in 2015 that did not materialise. May be, they are right now.