Truly ‘Being Sattva’

Conscious Business

My friends Subba and Renuka Vaidyanathan have created an outstanding yoga and retreat center called BeingSattvaa in Ubud, Bali. I have conducted retreats there myself twice and it’s been fantastic in every way.

Yesterday Subba was telling me the situation there with Covid 19. Even though Bali has almost no cases, tourism has pretty much completely stopped. This has badly hurt the island where almost 80% of the economy is tourism based.

Since Beingsattvaa is making no revenue, they had a difficult decision to make regarding retaining staff or letting them go at this time. Instead of getting trapped by this dichotomy, Renuka and he decided to do something they don’t teach you at Business School: they made a determination to not let anyone go and asked each of their staff to write their own paycheck!

I found this decision so wise, brave and compassionate. So trusting. The result is that the staff is treating the property like their own. Everything is super well kept. They are aware of the economic situation and are voluntarily taking as much of a pay cut as they can. I was moved to hear about this. It seemed like an amazing example of conscious business.

Subba is an expert in the Yoga Sutras of Patanjali. I asked him what advice the Yoga Sutras have for the present times. He said it would have to be the most oft repeated phrase of the sutras: Ishwara Pranidhana. Which roughly translates to surrender to the larger intelligence of life. I could see that he is doing this so beautifully. Instead of worrying about his business, he using this time to serve others with his knowledge through online meditation classes and other creative initiatives.

I felt like sharing this as it moved me. Next time you are planning on going to Bali, be sure to check out BeingSattvaa – one of the finest eco-tourism resorts in the island.

May all of us learn something from this example and lead with compassion, trust and vision. All will turn out for the best.

– Nithya Shanti [Link]

It is our small good fortune that we know the couple and the spiritual teacher who posted the above story.

The husband-wife team of Subba and Renuka, the promoters of ‘Being Sattva’ a holistic resort in Bali, live in Singapore. We know them. They are both alumni of the IIM ecosystem in India. One is from B and one is from A, I think.

The gentleman who posted the FB post below is Nithya Shanti, ex-Buddhist monk and spiritual teacher. A cheerful young man. I know him quite well too.

The story above is relevant not just for businesses but for all employers.

Enjoy the weekend!

Quest for jobs

The project that started in 2018 finally attained its logical conclusion two days ago. On Wednesday, Carnegie India published the joint paper that Gulzar and I began writing last year on how to view entrepreneurship as an answer to India’s job creation.

We dispel some myths along the way that India’s MSMEs are its strength. We see them more as a reality to live with – especially the micro-ones. They are subsistence enterprises.

The small and medium enterprises have to be allowed to grow. We outline some policy measures. The more often that I read it, the more I am pleased with the practical and pragmatic suggestions we have made. They are not dramatic and headline grabbing stuff but they are likely more effective.

A colleague asked me if we had used a Research Assistant to collect and compile so much of information. I proudly answered her that it was all our effort! No external assistance.

The full paper is available here. It is an easy read. has published excerpts [Link]

Tim Taylor, Managing Editor of the Journal of Economic Perspectives has written a detailed blog post on it. He had also commended our ‘Can India grow?’ book, when it was published in November 2016.


In this regard, it is encouraging to note that employment in India’s factory sector had grown at nearly 5% in 2017-18. This is based on provisional tables from the Annual Survey of Industries 2017-18. You can see the provisional tables here and the important Table 7 here.

How to place this near-5% growth in jobs in the factory sector? Pramit Bhattacharya’s article in Mint helps us place this growth estimate in context:

The latest numbers on annual growth of workers (4.8%) and managers (4.5%) do not qualify as a boom. The last factory jobs boom India witnessed was in the 2004-08 period, when the blue collar workforce grew at an average annual pace of 8%. In the four years leading to fiscal 2018, the average growth rate was much more modest at 4%.

However, the boom phase was preceded by a sharp contraction in the factory workforce in the years leading up to the boom. In four of the five years between fiscal 1999 and fiscal 2004, the factory workforce actually shrank in size. As a result, a part of the boom that followed merely replenished the diminished stock of workers across India’s factories.

It is an encouraging sign that we do have the capacity to generate manufacturing jobs. It shows that if we do really take a sledgehammer and a scissors to all the ‘Unease of Doing Business’, India can dispel the myth of ‘premature industrialisation’.

The policy proposals we had identified are our important contribution to India’s quest for jobs.

Is India creating jobs?

The controversy over how many formal sector jobs does India crate in a year will never die down or will never be allowed to die down because it is a useful political football. It is up to the rest of us to sift the facts from polemics.

In October 2017, Mahesh Nandurkar of CLSA wrote a good piece on corroborating the jobs number by analysing the job creation by the 900 Indian companies that CLSA tracks. The numbers were healthy and lent credence – at least partially – to official claims.

In April, the Employee Provident Funds Organisation began releasing monthly data on EPFO joiners and leavers, etc. In May 2018, Mahesh wrote this piece in ‘Business Standard’. He writes:

If one reasonably extrapolates the latest available i.e. 2012 NSSO data, India’s total working population would be 500 million; of which 220 million is farm sector and 280 million is non-farm. Of the non-farm population, 70 million is formal and the rest is informal. Assuming similar proportions, of the 10-11 million new jobs needed per year, the number of formal jobs needed would be about 2-3 million/year.

Interestingly, he lists the job-creation incentives that various State governments have provided. Actually, that is sensible. A.K. Bhattacharya had, recently, listed state governments’ reform measures on land and labour.

Recently, several Indian state governments, such as Jharkhand, Gujarat, Andhra Pradesh, Karnataka and Madhya Pradesh have announced significant employment-linked incentives for garment manufacturers, considering labour intensity associated with the segment. These states offer employee cost assistance, covering up to 75 per cent of labour costs for a garment unit for as long as seven years. Jharkhand government, for example, has introduced a policy to give wage compensation of Rs 7,000/month (vs minimum wage of about Rs 8,500/month) for a period of seven years for every new person employed by a garment firm. Besides, there is a one-time support of Rs 13,000/ person as cost of training an employee that is granted. Similarly, the Gujarat government has introduced a policy for garment firms whereby the state government would provide up to 50 per cent of wages for a period of five years as payroll assistance.

He says that these schemes would have had the effect of formalising informal jobs and, in that sense, they are not new jobs. Pulak Ghosh and Soumya Kanti-Ghosh had addressed this partially by omitting all new EPFO joiners above the age of 26, in their study. May be, that is not enough and that divining job creation from EPFO records might still overstate true job creation. So, Mahesh says that one has to wait for at least two more years before EPFO data become a reasonably stable and reliable source for new job creation.

We must remember that Ghosh and Ghosh have also excluded EPFO joiners based on amnesty schemes and have excluded all those who had a single break in contribution in the data. Yet, as Mahesh says, State governments’ special job creation incentives might be one-off or non-continuous sources of job creation. To that extent, EPFO data might overstate true job creation.

That said, he says he would end with his favourite anecdote. It is an important one:

Currently in India, about 22 million new cars and two wheelers are sold every year. About 40 per cent of these sales are replacement demand. After removing the replacement demand, about 13 million first time car/two wheeler buyers are entering the market. If employment creation is such a big issue, where are these 13 million people coming from?

Employment creation in India

Apparently, Surjit Bhalla and his co-author (Tirthatanmoy Das) have put up a paper on the website of the Economic Advisory Council of the Government of India on job creation in India in 2017. They estimate it to be 22 million jobs. That seems to be on the high side. Commentators have their knives out to attack the estimates. The protagonists and the antagonists are politically motivated. I am yet to read their paper. But, I have seen two critiques. One by Professor R. Nagaraj and the other in Hindustan Times which was supposedly second of a five-part serial on Indian labour market.

Professor Nagaraj analyses the claims of Bhalla and Das in four dimensions. The third dimension is that of generating formal employment estimates from the data provided by the Employee Provident Funds Organisation (EPFO). Prof. Nagaraj’ critique is stale and wrong because of the work of Pulak Ghosh and Soumya Kanti Ghosh had taken them into consideration in coming up with their conservative estimates of formal job creation from EPFO data. They have excluded EPFO enrolment through amnesty. They have excluded those who were above 25 years of age. They have dropped those where even one contribution was missed. I have written about their work here and here. That Prof. Nagaraj rehashes the same critique is a reflection of both sloppiness and bias.

Key sentences in this piece tell me that the authors are offering opinion and not analysis. Pulak Ghosh & Soumya Kanti Ghosh’ estimates based on EPFO were conservative and passed the test of rigour. These authors, when discussing their work, say that Ghosh & Ghosh were criticised. They leave it at that. Criticised by whom? For what? and how rigorously? Were the criticisms correct and reasonable?

That throwaway line dilutes the seriousness with which one should take the entire piece although one cannot and does not rule out political and, otherwise,upward bias in the work of Bhalla +1.

The first part is here (can be safely skipped) and the third part is by Manish Sabharwal. Those who have not read Manish’s articles on Indian labour market before can find them all neatly recapitulated in that piece.

Socialism defined by rage to replace Capitalism defined by greed?

I think it has become important to re-interpret Adam Smith or interpret him correctly. About eleven days ago, this blog had posted about an article in Aeon on the visibly famous Adam Smith for his ‘invisible hand’. It turns out that he was not a big fan of ‘Invisible hand’ and certainly, not in isolation or independent of social norms and values. The blog post had also referred to a review by John Kay of a book by the British Conservative MP Jesse Norman.

It turns out that a good summary of his book is provided by Jesse Norman himself in an article he had penned for FT in June this year (ht: Gulzar Natarajan).

He wants to dispel five myths or point out five facts about Adam Smith and his famous work, ‘The Wealth of Nations’ (a short hand, no doubt):

(1) ‘Wealth of Nations’ is important because Smith is the first person to put markets at the centre of economics.

(2) “Markets are living institutions embedded in specific cultures and mediated by social norms and trust.” (verbatim quote from Jesse Norman’s article)

(3) What matters to a market economy is not empty rhetoric but the reality of effective competition and its most important feature is that companies internalise their costs. Something that banks are terribly adept at passing on, for example. Privatisation of gains and socialisation of losses is the anti-thesis of free markets.

(4) “Markets constitute a socially constructed and evolving order that exists and must exist not by divine right but because it serves the public good”. Again, a verbatim quote. This is important because once imperfections – that exist – are allowed, many of the supposed benefits of free markets (for public good) disappear.

(5) “Both individual markets and the free market order itself rely on the state.”

These five key aspects or elements of a market order are very important for its very survival and existence. Slowly,  the ‘capitalism defined by greed’ is being replaced by ‘socialism defined by rage’. It will be hard to choose between the two as to which is the bigger evil. Very hard.

Bagehot has a timely warning on the leftward lurch in British politics:

The compensation of the average boss of a FTSE 100 company increased by 11% in 2017, to £3.9m, while the pay of the average worker failed to keep up with inflation. Banking in Britain is a game played by insiders who enjoy a large implicit subsidy from taxpayers, who have to bail them out if they get into trouble. The same banks have little connection with the real economy: only about 10% of their lending is to businesses outside commercial property. Global companies such as Amazon and Google get away with paying little tax by the ruthless use of tax havens and transfer pricing.

No political party or leader in the world is able to convince or persuade businesses to understand that capitalism without conscience is a crime. By the time they realise it, it may well be too late. The world is responding or reacting, accordingly.

Reuters has a story out on the popularity of the incarcerated Brazilian leader Lula da Silva. It is unlikely he will become President. But, his party candidate might win, under his blessing or on ‘imported popularity’. But, PT, unlike in 2002-08 will be clearly Left-oriented.

In South Africa, there is fear about takeover of land from white farmers. Most of the media report might be slanted and that the South African government might be pursuing reasonable policies. Or, may be not. But, it may well be impossible to divine the truth for quite some time. Headlines mention the Zimbabwe parallel, of course. See here for the issues at stake.

Summary: Land can be taken over without compensation but such takeover can be challenged too in courts.

In America, Bernie Sanders and Elizabeth Warren are the most popular Democratic party leaders. Alexandria Ocasio-Cortez, the young democratic socialist firebrand ousted established Rep. Joe Crowley in the New York House Democratic primary in June.

These are enough warning signs. Capitalists must admit to their follies and reform themselves.

Higher taxes for higher incomes and for capital gains are in order. Higher wages are in order too. The march of artificial intelligence that takes away jobs and psychological security must be slowed and reversed, if possible. Eroding self-worth lowers life expectancy and the living begin to live unhealthily too.

If capitalists fail to read the tea leaves correctly and ignore warning signs, it may be too late. They may be swept away and the world will have replaced one form of lawlessness with another.

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.

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]