Per capita debt: Gujarat vs. India

There is a tweet from the Office of RG that the debt of each Gujarati is Rupees 27,000 crores. It is impossible. May be, it is reported wrongly. [Link]

The tweet is here.

But, if one did the math, the amount is Rupees 26,922.68 per Gujarati. That is based on media reported figures for Gujarat debt. As per media reports, the Gujarat State debt is Rupees 182,000 crores. The population is 6.76 crores in 2017. The answer is clear.

If one went by official figures, official figures are available only for March 2016 debt and that was Rupees 173,681 crores. 2016 population was 6.634 crores. So, per Gujarati ,the debt was Rupees 26179.50 in 2016.

By comparison, when UPA took office, the GoI internal debt per Indian was Rupees 15264.95 and in March 2014, it had gone up to Rupees 42261.38.

Union Government debt per Indian had almost trebled in a decade. That is 10.7% CAGR.

The relevant underlying figures are:

Internal debt in March 20104:  Rupees 1,718,832.75 crores
Population in 2004:                  112.6 crores

Internal debt in March 2014: Rupees 5,468,622.11 crores
Population in 2014:               129.4 crores

The debt figures are from Union budget documents. The population figures were taken from the output to a simple internet search query.

Australia ‘chooses’

Just minutes after reading this blog post at, I came across this Editorial in South China Morning Post that is disappointed with the new foreign policy white paper from Australia. The Editorial writer (s) appears particularly miffed that the white paper uses the term, ‘Indo-Pacific’ rather than ‘Asia-Pacific’. Interesting times. It is important that the logic of inexorable rise of China is challenged. Good that Australia is waking up. The White Paper can be downloaded from here.

Some key observations that I noticed through a quick keyword search on ‘Indo-Pacific’ and ‘India’:

We define the ‘Indo–Pacific’ as the region ranging from the eastern Indian Ocean to the Pacific Ocean connected by Southeast Asia, including India, North Asia and the United States.

The starting point is to be clear about the kind of Indo–Pacific region we want. We set out our vision for a neighbourhood in which adherence to rules delivers lasting peace, where the rights of all states are respected, and where open markets facilitate the free  flow of trade, capital and ideas.

Our alliance with the United States is central to Australia’s approach to the Indo–Pacific. Without strong US political, economic and security engagement, power is likely to shift more quickly in the region and it will be more difficult for Australia to achieve the levels of security and stability we seek.

To support a balance in the Indo–Pacific favourable to our interests and promote an open, inclusive and rules-based region, Australia will also work more closely with the region’s major democracies, bilaterally and in small groupings. In addition to the United States, our relations with Japan, Indonesia, India and the Republic of Korea are central to this agenda.

The Indo–Pacific democracies of Japan, Indonesia, India and the Republic of Korea are of first order importance to Australia, both as major bilateral partners in their own right and as countries that will influence the shape of the regional order.

India now sits in the front rank of Australia’s international partnerships.

We strongly encourage India’s strategic engagement with East Asia and the United States. We will work with India in the East Asia Summit (EAS) and build on the growing strategic collaboration between Australia, India and Japan.

The dreaded ‘C’ word

Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained. [Link]

Ms. Janet Yellen, the soon-to-be-former Federal Reserve Chairperson, delivered a brief speech to the Joint Economic Committee of the U.S. Congress. The above sentence is an extract. She had used the now infamous ‘contained’ word. Ben Bernanke famously said that the housing bubble was contained.

I think it makes sense for those who follow central banks to follow the blog of MarkGB.

Down and Under now?

These two headlines pretty much summarise the story of the Australian housing bubble:

  • Value of nation’s homes equivalent to four times the economy
  • Risk that ‘a minor shock could become far more significant’

But, the full story is well worth a read. The charts are great (ht: Rohit Rajendran). Do not miss noticing how big the housing bubble in New Zealand too is.

The Australian Government announced a Royal Commission to inquire into the conduct of its banks. The Bloomberg story on it lists the following ‘triggers’ for it:

The main opposition Labor party has for months been demanding a royal commission into the finance industry, amid a string of scandals ranging from misleading financial advice, attempted rate-rigging and alleged breaches of anti-money laundering laws. Pressure was growing on Turnbull to hold an inquiry, with some lawmakers in his Liberal-National coalition threatening to force a vote in parliament next week. [Link]

The Opposition leader well captures the ‘capture’ here:

Opposition Leader Bill Shorten said Mr Turnbull had spent 601 days fighting Labor’s call for a royal commission into the banking and financial sector.

“It says everything about Turnbull’s values and priorities that he only agreed to Labor’s royal commission when the banks told him he had to,” he said in a statement.

“He ignored the pleas of families and small businesses, he rejected the words of whistle-blowers. But when the big banks wrote him a letter, he folded the same day.” [Link]

The goose is beginning to get cooked well ‘Down Under’, regardless of the convincing win for Australia in the first Ashes Test at Brisbane.

A distracted post

I saw the link to the story in FT Alphaville about smart phones and their impact on productivity.  We should not be surprised at all. The evidence is in front of our eyes, as we walk on the road, as we drive, etc. Almost everyone is distracted, to the detriment of not just productivity but of safety. The FT Alphaville story is here. The original blog post is here. The original post is worth reading for it teases out other dimensions of what it means to be part of the distracted generation.

Izabella Kaminska had written in 2014 about supermarkets, big data and manipulation of human preferences. That link appeared in the post above. I quickly glanced through it. Helps us to focus on how powerless we are and how little influence and control we have over our own lives and choices. It is as much a spiritual realisation as it is a consequence of modern technology! Humans have unleashed a Frankenstein monster on fellow humans. Quite likely they did not intend it that way since they are not in control themselves! So, who really drives this? Perhaps, no one. Once we set down on a path of ‘conquering’ everything that we viewed as obstacles, this ought to be a logical conclusion?

In case you are too distracted to read ‘Thinking Fast and Slow’, please do watch Dan Ariely’s TED talk. I had posted that several times. But, worth reiterating.


Congress and the BJP are making India lose

(1) Two days ago, TCA had a piece in BS asking Rahul Gandhi to step down soon. Not a bad advice, in my view. Well, actually good advice. Soon, the newspaper wrote an edit criticising the Congress leader’s anti-business rhetoric in the Gujarat campaign.

This must worry Indians beyond partisan politics. It is not time to gloat that Rahul is helping BJP win or stay ahead in the race. His campaign, just as his remarks on ‘Suit boot ki Sarkar’ did, would propel a policy race to the bottom. Further, it tells us that the Congress has not gone beyond sloganeering and has not absorbed any lessons from its disastrous rule from 2004 to 2014 (and earlier too).

India needs to grow the pie and help the poor get out of poverty. India needs to deal with criminals-promoters and yet make way for entrepreneurship and competition. India needs to collect taxes but also make the tax system and rates reasonable. India needs to enforce laws but laws should be transparent, clear and be made clear and accessible to the public.

In other words, India needs leaders who understand the need for a multiplicity of approaches, interventions and seemingly contradictory thinking. It is only ‘seemingly’. There is nothing really contradictory about them.

The Congress leader has given us no hint that he understands this and, unfortunately, increasingly, nor has the BJP.

Therefore, the question really is if both of them are making India lose.

There is a race to the populist bottom that both the parties are practising. Now, Arun Jaitley is defending that the Insolvency and Bankruptcy Code does not reward capitalists. On that note, actually, this government has done quite well. Perhaps, according to Andy Mukherjee, too well. But, I disagree with Andy Mukherjee and agree with Sunil Jain and Debashis Basu. The government has done the right thing.

However, in the light of the (wrong and unjustified) criticisms that it is soft on capitalists, the government may go overboard with either even more anti-business policy decisions or seemingly pro-poor and pro-farmer policies or both.

Separately, in the light of what I wrote in MINT on Tuesday about how solar panels are being deliberately reclassified as ‘DC generators’ and charged customs duty, the PM’s appeal for investment into India is amusing.

(2) THE HINDU has featured an article by a writer who has raised the red flag on the ‘bail-in’ clause in the new Financial Resolution draft bill that has gone to the Parliament select committee.

It is an enabling provision and the government and the regulator will decide on which creditors would be ‘bailed in’ and in what amounts, etc. There is a long way to go but uncertainties have cropped up. The article in THE HINDU engages in needless fear-mongering. Two friends have raised the issue with me and asked me to study it and recommend whether they should pull their deposits out of the banks!

I did spend some time on it last night and find that there is no immediate concern but there is plenty of scope for mischief and uncertainty. Those who wish to assuage themselves should check out and peruse the documents here, here and here. These two documents might be useful too.

(3) For the future of India, there is a latent need for a genuine centre-Right/Right discourse. BJP is nowhere near that. As I wrote some seven months ago, there is single party rule in India when it comes to economic policymaking. But, I doubt if the people of the country too are ready for a centre-Right/Right discourse. By and large, people do not appreciate – yet – that the populist discourse and policies are superficial and short-term with deleterious long-term consequences.

The state of the political and policy discourse on either side of the aisle should worry Indians – a lot.

Corporate shenanigans

We had learnt of the gaming of emission tests by Volkswagen. In fact, the charge was made against other German car makers too. In August, all of them agreed to update their software. Of course, we know enough about financial institutions. They gamed everything – interest rates (LIBOR), exchange rates, option prices and precious metals. The saga is endless. See the more recent story about Wells Fargo (a great read) and also note that Australia is appointing a Royal Commission to inquire into the conduct of its banks.

Some think that central bankers – deliberately or not – are gaming the stock market. But, they are public institutions. Let us stick to the private sector.

We learnt of Kobe Steel and now there is another Japanese firm in this inglorious list.

It is quite disappointing that Japanese and German firms are part of the unfolding story line on corporate immorality. Firms in both nations have done a lot of work to acquire reputation for quality. It is sad to see them undo the hard work.

Without moral foundations, a market economy is meaningless.

Democratic non-accountability of Central Banks

There has been a hiatus in blogging in the last one week. I went to Chennai for a Board meeting on Monday and Tuesday last week. Returned to Singapore to move houses on Thursday. Still settling in, in the new abode. Hence, the relative paucity of blog posts. Not that the world was any poorer, on account of it.

I just finished teaching my last class at the Singapore Management University for the M.Sc. in Applied Finance 2017-18 cohort. I taught one section. The course is Advanced Economic and Quantitative Analysis. The economics bit is disproportionately bigger in my class.

(1) I had just finished telling the students of the importance of behavioural insights and of the way brain functions for successful investing that I came across this excellent post by Jason Zweig.

The post is about the investment folly of Sir Isaac Newton. He had a well diversified portfolio until the temptations of the South Sea bubble did him in (circa 1720):


Newton appears to have lost as much as 77% on his worst purchases, or at least £22,600, estimates Prof. Odlyzko. That’s the equivalent of £3.1 million, or nearly $4.1 million, in today’s purchasing power. Overall, he lost at least a third of his account value.

Prof. Odlyzko finds that the words often attributed to Newton were ascribed to him years after his death, so the great man might or might not ever have said that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” [Link]

(2) His (Zweig’s) best books to read (for investors) is worth taking a look too.

(3) I was just lecturing the class today about the unintended consequences of unconventional monetary policy. Couple of hours later, I was trying to catch up with Tim Price’s blog, ‘The price of everything’. Thanks to this post, I stumbled upon a letter by Baroness Ros Altmann. The letter is worth reading in full. I post two paragraphs here:

Quantitative easing artificially boosts asset prices but with assets so unevenly distributed, the wealthiest and older households become even wealthier, while QE-induced house price inflation and rent increases have further disadvantaged non-homeowners and the young. Such social, distributional — and political — side-effects of unconventional monetary policies are routinely overlooked.

If politicians announced tax changes to enrich the wealthiest groups and redistribute away from young to old there would be a voter backlash. But disguising such fiscal measures as monetary policy has achieved similar impacts without democratic accountability. [Link]

I am glad to note that someone of her reputation in the City and a former Minister said something what needed to be said – of the absence of democratic accountability of monetary policy. May be, it is all a brilliant plutocratic strategy. They lose the most when financial assets crash because they hold them the most. Commoners hold bank accounts. So, when the crisis of 2008 struck, they conceived of this wonderful idea of QE with a vengeance! That is a possibility.

Just as one thought that the pendulum was about to swing back from capital to labour, they ensured that not only that did not happen but also that the pendulum swung further in their favour!

In an earlier longer piece for FT, she had mentioned that QE had robbed pensioners of their incomes, something that OECD too had documented in its Economic Outlook published in June 2016. This is what she wrote:

In 2008, a £100,000 pension fund would have generated a life-long annuity income of around £7,900 a year from age 65. But today, that £100,000 fund would only generate around £5,000 a year — a 36 per cent fall, leaving pensioners permanently poorer. [Link]

(4) Lastly, close on the heels of his piece in ‘Project Syndicate’, Dani Rodrik has a longer piece in ‘The Boston Review’. He writes about neo-liberalism and this sentence made my day because that is what I tell my students all the time:

Good economists know that the correct answer to any question in economics is: it depends. [Link]

Come to think of it, ‘it depends’ applies to most social phenomenon. It is not that there are no ABSOLUTES that are context-invariant. But, they are a lot fewer than we think.

(5) Finally, a blog post by MarkGB (ht Tim Price) in which he takes apart a piece by Martin Wolf defending central bankers is worth reading. I am providing a short extract:

There are 255 million Americans of working age. Of these, 102 million are not employed.  This represents 40% of the working age population, up from 35% at the millennium.  Of those, the percentage of unemployed males in the core group of 25 to 54 is at record highs. Meanwhile the percentage of Americans over 55 who are still in work is soaring…again arse about face…

Of the 153 million Americans who are employed, 26 million are in low wage, part time jobs. Of those, 8 million hold multiple jobs.  10 million people classify themselves as ‘self-employed’, which includes a large number who are barely scraping by.  A further 21 million people work for the government, jobs that generate no revenue, which are therefore funded by private sector taxes.

Jim Quinn of ‘The Burning Platform’ summarises it thus:

“When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?”

So: there are a lot more people available in the labour market than is suggested by the BLS.  So then the question is this: Why aren’t businesses hiring them? Why do employment surveys consistently quote employers ticking the box that says ‘hard to find workers’?  [Link]

The post by Tim Price that features the above is also a useful read.

Who will ‘burn the house down’?

My friend and co-author Gulzar Natarajan has a lengthy and detailed post on few very important and thoughtful articles and reports that have been doing the rounds in the last week or so. His post is  very comprehensive.

I have the following comments on his blog post. It is a slightly expanded version of the comment I left on his post.

I am pleased to see that you had linked to the perceptive essay by Jonathan Rothwell in NYT on the elite interests that have gamed the system and the rules in their favour. Rothwell may be making one mistake, however.

In his long essay and in his tweets, he is dismissing the role of technology and globalisation in the extremely distorted income distribution. But, they were the pursuits and priorities of elites who gamed the regulations (as per his own analysis) to pursue technological upgradation and globalisation that delivered profits. So, they did contribute to the problem of inequality because they were ‘elite’ projects. Some of the domestic factors he lists could be more important but it would be hard to dismiss technological progress and globalisation as inconsequential for in-country rise in inequality in the developed world. In this regard, the review of the book, ‘Captured Economy’ is worth a read. It is well written.

As we discussed bilaterally, to a degree, the recommendation of the Mckinsey Global Institute (MGI) on more digitisation and more technology to restore the ‘glory’ of U.S. manufacturing (mind you, the ostensible problem they were dealing with was the declining labour share of income) vindicates Rothwell above!

MGI report notes that the labour share of income in the U.S. had dropped from 59.8% in 1970 to 55.6% in 2015 and that manufacturing contributed 68% to this decline. But, the solutions they propose, even if they restore the glory of U.S. manufacturing somewhat, might actually further erode labour income share if machines and robots replace workers while only requiring and paying some highly skilled workers and fewer of them. On paper, that might boost labour share of income but the median worker pay will not have improved. Even now, the decline in the U.S. labour share of income will be far pronounced if financial services workers are excluded.

One does not identify the decline of the manufacturing as a principal contributor to the decline of labour share of income and proceed to give solutions that might worsen the situation further. At the very least, there should be a debate/discussion in the report on the consequences of their proposals for the labour share of income. But, I had not read the full MGI report but only the Executive Summary. May be, the full report has such a discussion. The full report and the Executive Summary can be found here.

Further, although Tony Rothman in ‘Project Syndicate’ focuses more on customer convenience and the ‘ends’ of technological upgrades being lost (motion is not progress) in the welter of mindless ‘improvements’ and ‘enhancements’, that too is part of the problem.

As you conclude, the solution is to ‘burn the house down’ completely. But, that leads us to a cul-de-sac. In the Seventies, the pendulum swung (the house was brought down, as it existed then) due to a combination of factors:

  • Excessive abuse of labour power;
  • Economic misery – stagflation
  • The turning of the intellectual tide in favour of rules over discretion, Disgust with politics as usual (Nixon’s impeachment, Ford’s pardon and Carter’s perceived or real ineffectiveness)
  • Rise of alternative leaders who were not exactly perceived ‘extreme’ like in the case of Donald Trump

May be, I am missing out some.

But, if we try to develop a comparable checklist now, we do have

  • Excessive abuse of the power of capital by capitalists
  • Instead of stagflation, we have extreme inequality
  • There was disgust with politics as usual – it is demonstrated in the multiple political election and referendum results across Europe and the United States

But, what is missing are these two,

– There is intellectual resistance to changing the status quo – many would lose out on their personal perks and influence. Notice how many are writing as boldly as Dani Rodrik is writing. Very few. Those who do are not deemed ‘mainstream’. For example, the monetary policy establishment has managed to brand even the BIS and folks like William White and Claudio Borio, et al, as ‘extreme’ or ‘fringes’.

The ‘99%’ is unable to mobilise and have a sane leadership with clarity of purpose and goals as capitalists on either side of the Atlantic were able to achieve in the Seventies.

Usually, crises help overcome all these drawbacks and throw up policy and personnel (leadership) alternatives. One thought that the 2008 crisis would do that. To a degree, it has. It has cracked open the door. But, the door is still being manned and protected well, despite cracks in the door and in the castle.

Perhaps, it needs another crisis to ‘burn the house down’ as you put it. Or, may be, somewhat less dramatically, as Mark Klieman had written (tweeted by Jonathan Rothwell),

a political strategy capable of mobilizing forces proportionate to the massive task at hand. [Link]

The travails and the triumph of Blackpool

This morning, as I was waiting for my turn in the Purohits’ house in Singapore to perform the rituals for one’s departed elders on the New Moon day, I caught up with Sarah O’ Connor’s piece in FT on the coastal town of Blackpool in UK Northwest.

It is a great article in many respects. Some commentators in FT have identified the reasons. It is honest journalistic work; told with sensitivity and with no ideological baggage – one way or the other. There is no air of superiority; there are no lazy ‘I know it all’ prescriptions. The journalist lets the protagonists speak. It is their voices that come through. Ms. Sarah O’ Connor – take a bow!

Further, as several have written, these are the kinds of stories that keep the faith in FT hanging by a thread. They are the antidotes to having ‘free lunches’ and reading other worthies who forget what they themselves wrote earlier or have become so blatantly one-sided that they should add disclaimers about their ideological leanings and personal prejudices.

At least, the FT Editor cannot claim now not to know what clicks with its readers and what they expect of it.

There are many statements made in the article – either by the journalist or by the people of Blackpool – that are worthy of reflection. They make for ideal seminar topics as some of them are rich and are eternal public policy questions. I capture them below with some comments/thoughts preceding them, with the full realisation that opinions an interpretations of the quotes can and will be different.

This is a wonderful doctoral dissertation topic

Well there’s 5,000 new jobs in London every week, and people seem to find it perfectly easy to move 600 miles from rural Romania to take one of these jobs, so why can’t you move 200 miles from Blackpool?’ — it’s true but it sort of ignores the social context.

This lays out how difficult it is to address root causes and why GPs cannot be held responsible for addressing root causes. But, symptomatic treatment is supposed to help buy time for addressing the root causes.  An analogy is QE and zero or negative interest rates. But, they have become the only treatment and for ever!

 Well, yeah, that’s what medicine does, it treats symptoms. Setting a bone doesn’t get to the root cause of a broken leg — if you wanted to get to the root cause, your job would be to remove the slightly wonky paving stones that drunk people fall over on the way out of pubs on Friday night.” Rajpura argues that the ultimate answer is to tackle the mental health equivalent of the wonky paving stones. He believes that, in places such as Blackpool, we sometimes end up medicating economic and social problems.

This is the holistic understanding that policymakers should have. Indeed, even ordinary citizens should remember. The answer to health issues may lie in non-health aspects and medication may only be a part answer:

 [That’s because] 80 per cent of health is determined outside the health service; it’s things like whether you’ve got a job, whether you’ve got a decent home, whether you’ve got social connections and friends.

This is about synergy, information sharing, shedding egos and breaking down silos and it is about walking around and seeing what is there in one’s environment. Sometimes, answers are right under our noses but we become so engrossed in our own little world that we fail to notice the answers around us. Holistic thinking, approach – all those lessons are implicit in the statement below.

Last but not the least, it is about how various government welfare (or even private) initiatives must work together, learn to appreciate the inter-linkages and co-dependencies between each other.

 Rajpura wants to make all these social groups, charities, health services and council services aware of each other, so that GPs have more options when a patient such as Phillips sits down in their examination room.

WoW! Ronald Reagan and Margaret Thatcher (and even Ayn Rynd?) would feel vindicated. This is one of the many evidence of a non-doctrinaire and non-ideological reporting that Ms. Sarah O’ Connor has done in this piece. There is something to be said for taking charge and not depending on the welfare state to do its work for you. The question is about lending a helping hand without making the beneficiaries getting addicted to it. Addiction to welfare and doles is as harmful (to oneself and to the society and to the nation’s coffers) as addiction to drugs are. At least with the latter, the damage is somewhat confined to fewer set of people. The statement below goes to the heart of the challenge: how to help in need; for how long; how much; when to withdraw and how not to stifle humans’ innate survival and fighting instincts.

In any case, Dean Baker, Larry Summers and Paul Krugman should read this article.

“Places like Blackpool have suffered deep budget cuts since 2010, putting public services under pressure. But, says Tracy Hopkins, chief executive of Blackpool Citizens Advice, “It’s led us to be more creative about the solutions. There’s really positive things that have come out of — dare I say it — austerity.

What a brilliant articulation of a public policy goal?! Perhaps, it should be the only goal? Get out of the way; provide or enable the infrastructure to be provided and provide an insurance role – whether it is health or harvest or price realisation or access to credit – step in and provide insurance, when the so-called market mechanism is indifferent or insensitive or simply cannot provide it.

 The state’s “fundamental purpose” is to provide people with insurance against macroeconomic risks they can’t avoid, she says. “And it hasn’t been working since the early 1980s. 

As is evident from this long post, it is clear that Sarah O’ Connor has achieved the purpose of writing – making readers think or rise to the challenge of thinking! Congratulations and may we read more such stuff from her.

Finally, if we are ready to criticise the newspaper (FT) for all the other stuff it has been peddling for the last several years (including its continued backing for ultra-loose monetary policies that is part of the problems faced by places like Blackpool), we should not hesitate to praise it for publishing pieces like this too.

FT too can and should take a bow! Congratulations.