Liked or eyebrows raised

(1) Last six words of this article are unfortunate. No reasonable person has said that the payroll data released by EPFO in India has settled the jobs debate. Those data are only the beginning of the journey to get to reasonably reliable formal job creation data sometime in the future.

It is a lesson for all writers, including me. We want to end with a flourish. Therefore, we tend to resort to hyperboles. Better to end on a sober and mature note.

(2) No comments required:

Foreign direct investment is usually perceived as long-term strategic and stable investment reflecting fundamental location decisions of multinational firms. Such investment is often thought to bring job creation, production, construction of new factories, and transfer of technology. However, a new study (Damgaard and Elkjaer 2017) combines detailed statistics on foreign direct investment published by the OECD with the broad coverage of the IMF’s Coordinated Direct Investment Survey and finds that a stunning $12 trillion—almost 40 percent of all foreign direct investment positions globally—is completely artificial: it consists of financial investment passing through empty corporate shells with no real activity. [Link]

(3) Unlike in the case of Brexit, the force behind Italian parties that have come to power are the youth of Italy because they felt betrayed by the traditional parties. Could be behind paywall.

(4) India’s Chief Economic Advisor is leaving in two months’ time. Didn’t know that he is expecting a grandchild in September. On the whole, he has every reason to be satisfied with the job he did. He did make the annual Economic Survey a lot more interesting and readable. I am glad that I had a discussion with him in February for the Chennai International Centre and that it went down very well with the audience that day.

(5) Arvind Subramanian and his colleague from the Ministry of Finance wrote about revenue collection under India’s Goods and Services Tax and States’s share for ‘Indian Express’. They are happy with what they see. Chances are high that it gets only better. They are right to suggest that the cesses should go; excluded commodities be brought under the tax and that the rates can be lowered too. They don’t say so directly, however (‘scope for revisiting rates and cesses’ is what they write).

(6) Just saw the breaking news in FT that Atul Gawande has been appointed to chief executive of a venture between Amazon, JPMorgan and Warren Buffett’s Berkshire Hathaway to tackle US employee healthcare. Good choice.

(7) Sathya Nadella, CEO of Microsoft has sent a mail to his employees about the American immigration policy that is separating children from the adults who cross into the United States illegally. It has stoked a fierce backlash. I also happened to see this blog post last night. For some context, see this.

(8) IMF had a working paper published in March 2018 on the distribution of gains from globalisation. Some important conclusions:

The regulatory and economic dimensions of economic globalization contribute to increasing inequality.

Increases in foreign direct investments are significantly associated with rising inequality. For other globalization indicators, notably trade, there is no significant evidence for such an association. This supports the view that it is capital flows rather than trade flows that tend to drive the inequality-increasing effect of globalization.

These studies suggest that greater openness to foreign capital flows may exacerbate unequal financial access and can increase the likelihood of financial crises that raise income inequality. [Link]

Finally, the authors point out the impact of globalisation is non-linear. It is substantial and more positive if existing levels of globalisation are low; not if they are already high.

That is a favourite of mine. Relationships in economics are both asymmetric and non-linear. ‘Asymmetry’ (positive but not negative and vice-versa) and ‘non-linearity’ (like the example given above) are two different things.

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Is there a problem for MSME in Tamil Nadu?

Andy Mukherjee has a useful ‘warning’ piece on the potential for India’s sub-prime. We have seen this movie elsewhere in the world and hence, early warnings are fair game. But, disappointing that he engages in a bit of hyperbole, with respect to GST and its impact in TN.

He cites a statistic that TN’s registered Micro, Small and Medium Enterprises (MSME) are down by some 20%. It is true. The information is available here.

Now, this note has no information on why registered MSME’s in Tamil Nadu have declined. We do not have a breakdown of which category of MSME have declined and which of them are GST paying and which have found it difficult to handle GST and hence, closed down.

If their only financial viability case was tax evasion, then I am not even sure if one needs to blame GST introduction for it – messy or orderly implementation of GST is immaterial.

As to the causes behind the reduction in the number of MSME units, there is a news-article in http://www.thenewsminute.com which cites a former President of the Tamil Nadu Small and Tiny Industries Association making some comments about the causes of this decline. To be fair to him, he cites delayed payments by big corporations for goods supplied by MSME as a major issue and not GST.

We know that it is an endemic issue and that is why the answer lies in Factoring and Receivables Exchange being made compulsory for big buyers. Receivables Exchange has to become active and MSMEs have to get working capital released as soon as possible. They do not have money, time and energy to keep chasing dues from big buyers. What big corporate buyers are doing is unconscionable.

Also, if we cast a glance at the MSME statistics, there is an unusual jump in the number of registered MSMEs from 2015-16 to 2016-17. It almost doubled in one year. Something that has not happened before in the data for ten years that the table in pages 3-4 presents. So, may be, there was some problem with the data and the data for 2017-18 is more accurate than the one for 2016-17 and that some cleaning up of the data has happened. In other words, there are myriad possibilities.

In fact, a ‘Times of India’ report on the same matter hints at data issue, citing a Tamil Nadu Government official:

A state government official, however, sought to brush it aside as a case of misinterpretation of data. “If you look at the number of units registered under the Udyog Aadhaar Memorandum (UAM), which is a kind of re-registration of existing units under the new system, it has shot up. This fact was not properly highlighted in the policy note. Further, these are dynamic numbers that keep changing,” a source in the state government told TOI.

Tamil Nadu started the UAM implementation from January 21, 2016. The number of MSMEs in the state has shot up, with nearly 5.27 lakh UAMs filed in Tamil Nadu as on March 31, 2018. As against 1.42 lakh registered MSMEs in the state as on January 21, 2016, it shot up to 2.67 lakh units for 2016-17 and stood at 2.18 lakh units at the end of 2017-18, indicating a drop of nearly 50,000 units. [Link]

The article in ToI cites one more businessman who cites high wages in Tamil Nadu as an additional challenge for MSME in Tamil Nadu.

Causality is important but it is also hard to establish. One has to tread carefully and with rigour. Else, we may expend precious energy finding solutions for non-problems while ignoring the real problems.

So, attributing the decline in Tamil Nadu registered MSMEs to the ‘tardy’ implementation of GST may be a leap (of logic) too many.

But, let me be clear. Warning of real estate loans to ‘sub-prime’ borrowers and their securitisation, even if it appears somewhat premature now, is the right thing to do and Andy has done well to do that. Credit cannot be a substitute for employment and income. The United States and other countries have done that before and the results have not been pleasant. So, Andy’s warning matters regardless of the interpretation of the data with respect to Tamil Nadu.

What is the right lens for viewing India’s inflation?

My friend Srini Thiruvadanthai had flagged this speech by Prof. Pulapre Balakrishnan in 2014.  The lecture delivered on the occasion of his receiving the Malcom Adiseshiah award in 2014.

He makes useful points and it is a useful read but his points are not terribly novel. That India’s inflation is primarily caused by agricultural supply shocks and food prices and that they influence both growth (negatively) and inflation (positively, ie., higher) is not particularly new. It may be called ‘structuralist’ as opposed to ‘monetarist’, etc. That is ‘Economistspeak’. In plain English, agricultural supply factors explain India’s relative stagflationary experience compared to the West.

Frankly, a truly structuralist explanation was given by Nageswaran and Natarajan (2016): ‘Can India grow?’ [Link]. Of course, I am tooting my own horn here.

Second, his puzzle as to how potential growth could decline at the same time as actual growth was declining can be addressed by the fact that he is documenting: public sector capital formation.

Third, he is relatively less critical of UPA II (and UPA I which sowed the seeds) policies for the decline in public sector capital formation than he should be.

Fourth, if the NDA government had tried to increase public sector capital formation – as it has – while keeping up government welfare expenditure – as it has – then it explains its faith and reliance on tax terrorism and, even to some extent, demonetisation.

What are the answers to agricultural negative supply side shocks – if they are as correlated with India’s growth slowdown and inflation acceleration – the lecture is silent on those. I think Nageswaran and Natarajan (2016) is a better attempt at identifying (if not answer) the structural impediments to economic growth in India – both in agriculture and in industry.

Given his ‘structural’ view of India’s inflation, he wonders if conventional monetary policy framework, ‘inflation targeting’ was appropriate for India. ‘Inflation targeting’ works for normal economies where inflation is caused by excess cyclical growth in aggregate demand. Of course, we have different problems with an ‘inflation targeting’ regime but he raises the question – that others have raised before and after him too – of the suitability of the ‘inflation targeting’ regime in the Indian context where inflation is thought to be caused by agricultural supply shocks and where it does not arrive via the standard excess cyclical aggregate demand growth.

An important question is if the structural view of Indian inflation – the agricultural supply shcok induced view of inflation – is correct. Is it really an agricultural supply issue or is it an intermediation/rent-seeking behaviour? That is the question.

So much has been written about the difference between the farm-gate price and the retail price in India, with a good portion of it being deadweight loss (lost in transit – rotting, stolen, etc.) But, more important than that, is it really the intermediaries who are contributing to the structural view of inflation? If so, is it right to call it an ‘agricultural supply shock’?

If it is wrong to call it as such, then why is it wrong to apply standard monetary tools to combat it? After all, if financing costs are made higher, will the intermediaries not find it difficult to buy and hoard and hence, be forced to release supply to the market?

In sum, I am challenging the ‘structural’/agricultural supply shock view of India’s inflation. Pl. feel free to tell me the chinks in the argument and point to any research that delves into this issue.

Land acquisition in India

It is five years since the UPA government passed its Land Acqusition Bill. I don’t think there is any systematic study of its impact on costs and delays, etc.

A ‘Financial Express’ story says that it is hurting infrastructure. A story in ‘Indian Express’ published two months earlier, tries to paint a different picture.

A Reuters story from last year cites a joint secretary in the department of land resources  (which Ministry?) saying that acquisition takes almost five years (59 months).

Does anyone know of any formal study on this issue?

What do the four years since 2014 mean for 2019?

It is about two weeks since the National Democratic Alliance (NDA) government completed four years. I had written my own evaluation, together with Ajit Ranade for MINT. Many thought that it was a balanced critique. Coalitions involve compromises. So, both of us accommodated each other’s points of view on some aspects. But, predominantly, we converged in our assessment.

Our article had a very brief critical comment on demonetisation. Personally, I have a nuanced take on it. It was motivated for the wrong reasons. However, the verdict on its impact will change depending on the horizon over which we evaluate it. Take bank nationalization for example. It certainly helped the government to take financing to rural areas. The benefits exceeded the costs in the first twenty years (1969-1989) of nationalization, perhaps. In the next twenty-five years, the costs have vastly exceeded the benefits. We are still cleaning up after the biggest saga of non-performing loans. So, the judgement on bank nationalization – over forty-five years is different from the judgement one would have had after the first twenty years. I feel that it would be the reverse with demonetisation.

For now, the judgement is bound to be mixed to negative. The fact that we still have the 2000-Rupee negates the corruption argument. Political funding through anonymous bearer bonds with the identity of the donor known to a very few negates transparency and sets back the cause of integrity in public policy. So, as an anti-corruption and as an anti-terrorism initiative, it has question marks hanging over them because the seriousness of these goals have been diluted by subsequent government actions. But, demonetisation might have set in motion some other big and irreversible trends towards digitization, towards tax compliance and towards formalization whose impact will be felt later and in a big way.

Few days ago, Shekhar Gupta, formerly with the Indian Express, India Today and now the promoter of print.in, had published an interesting piece. I read it in ‘Business Standard’. It was a good piece in the sense that it contains important warnings that the Bharatiya Janata Party (BJP) leadership would do well to reflect upon.

One of the better critiques I read on the fourth anniversary of the government was written by Shankkar Aiyar for Bloomberg Quint.

I read the four-part evaluation of the NDA government’s policies on agriculture by Ashok Gulati, the agricultural economist and his co-author. While it is clear that the farmers are unhappy and that the NDA government has been blamed for it, it is really the case that not too many in the world and in India surely have answers for the financial viability of farming except through heavy subsidies. The lag between market signals and production decisions, the role of the weather and climate change and the fact the demand for food is income-inelastic make farming inherently a difficult economic proposition. In India, several other factors compound it – poor reach of irrigation, dominance of intermediaries, fragmented land holdings, excessive extraction of groundwater and application of fertilisers resulting in diminished soil fertility, etc.

The four articles actually show us that the NDA government had much better answers than its predecessors for farm sector woes. It relaunched crop insurance. It tried to create a national agricultural market. These two help farmers with two key requirements – one is risk management (crop failure, etc.) and the second is price discovery and remunerative prices. On the distribution side, the government had promised to unbundle the Food Corporation of India and immediately appointed a Committee to recommend actions.

The execution on crop insurance and on the national agricultural market was in the hands of states and they have muffed it. One of the four articles mentions that several states have not paid their insurance premium subsidy dues to the insurance companies for 2016-17 even now! The dominance of the middle men continues with unreformed or half-reformed Agricultural Product Market Committees.

Mr. Gulati and his co-author in their four-article series have mentioned more than once that the Union government should have or could have tried to move the reform process forward at least in BJP-ruled states, given that the BJP is in power at least in twenty + states. I agree with that very strongly. That missed opportunity is not just with respect to agriculture. In education, in labour (some modest labour reforms have happened in BJP-ruled states), there could have been a serious push to set the agenda for other States through initiatives and pilots in BJP-ruled States. That is a big missed opportunity.

Some of the government’s critics point to the fact that the economic growth numbers are overstated. That is true. But, that is a problem of the Central Statistical Organisation and not that of the government. I do not think it is mala fide because, more importantly, there is a more egregious overstatement of GDP growth from 2011 to 2014 too. The Bank Non-Performing Assets (NPA) numbers are telling their story. Industrial production growth (or, the lack of it) tells its own story.

Tax terrorism has continued and may have expanded. Even the government’s supporters have conceded that.

Of course, on the credit side of the ledger, there is Jan Dhan Yojana and Direct Benefit Transfer using Aadhaar. Then, there is infrastructure push. Goods & Services Tax (GST) and the Insolvency & Bankruptcy Code (IBC) implementations are good and they will be very important. Cooking gas connections to women, last-mile electricity to villages and Swachh Bharat must count too.

Good chance that a Congress-led Government would have done GST and IBC too but then, there is an equally good chance that the initial design and starting troubles with both would have been the same. That has to do with the nature of the political process in the country.  See the excellent interview by Arvind Subramanian in ‘Finance & Development’ of the IMF.

In his article in ‘Business Standard’, Shekhar Gupta notes that the election to 2019 might be more open than it was a year ago. But, the prospect of a return to 2004 or the 1996-98 days must make many Indians nervous. There is a feeling that coalition governments have worked well for India. I have to say that the evidence is very mixed or unconvincing.

In general, in the last thirty five years, India, at the level of the Union government, has had roughly six years of good governance: 1984-86, 1991-93 and 2002-04. I very much doubt that they were due to coalitions.  Some point to the first NDA government (1998-2004) and the UPA government in its first terms for evidence that coalition governments resulted in better governance. I beg to differ. My recollection of the first UPA government was that it was held to ransom by the Marxist Communist Party on almost everything it tried to do. Then, I do recall a Minister who was a fugitive from law. Not many reasonable people disagree on the overall disastrous rule of UPA II and not just with respect to the economy.

UPA-1 basked from the growth effects of NDA government policies and infrastructure push, global boom and capital inflows. Their incompetence and venality of the first term showed up in the second term on top of the consequences of the second term venality and incompetence. The most egregious example is banks’ NPA. We are still grappling with them.

The first NDA government did well in its last two years due to infrastructure reforms, privatization, global and Indian economic recovery and corporate balance sheets being in great shape after being put through the wringer. It had nothing to do with coalition.

After 2019, if there is a coalition government – whether or not the Coalition is led by the Congress or supported by it – there is a very high chance of it being fiscally ruinous. Fiscal irresponsibility and imprudence are not just some economists’ fancy pet peeves or themes. They are directly responsible for higher inflation.

This government has been, until now, a model of fiscal virtue. Government market borrowing including from Small Savings Schemes has hardly budged in the first four years. They had gone up by 9 times from 2005 to 2014!

Of course, the NDA Government has probably botched its copybook with farm loan waivers and it had managed to achieve the revised fiscal deficit target for 2017-18 only by postponing payment to Food Corporation of India – similar to what UPA did between 2013 and 2014. NDA had to make good UPA’s fiscal numbers and the oil price crash helped them do that, hugely.

So, how do I pull all of these together and summarise?

(1) The NDA Government has been somewhat more efficient and reasonably less corrupt than the two UPA Governments.

(2) The Congress or the Opposition will take off from where they left off in 2014. That will be quite a setback for the nation and not just with respect to the economy.

(3) The NDA Government has done quite a bit to boost the long-term growth potential of the economy. That is the big difference and clincher for me. The UPA government – in the two terms – managed to pull India’s economic growth potential down considerably. From around 8% in 2006, it had dropped to 6.5% by 2013, as per IMF estimates. Some of the policy decisions that the NDA government had taken will actually lift India’s potential growth up in the years to come.

If only the NDA government had thought of their role as doing precisely that – how to enable the potential growth to keep rising – then, they could have done much more.

But, what they had done on lifting India’s potential growth – in spite of their failures mentioned here and in spite of a sluggish global growth environment and rising hostility to globalisation of which India was a beneficiary – is a big contrast to what happened in the ten years between 2004 and 2014.

Some would mock the silence of this post on social issues that many are agitated about. Two reasons explain my silence. Most of the outrage is manufactured around election time and built on dubious claims. It is hard to separate the truth from propaganda and noise. Second reason – and this is the important reason – is that democracy is very active, vigilant, vigorous and healthy when a so-called ‘Hindu-Right’ (this government has not been pro-Hindu nor has it been an ‘Economic-Right’ government as is conventionally understood) government is in office in this government.

Come to think of it, lifting economic growth potential is one of the most secular things any government can do.

Foreign donations to Indian political parties

An email group that I am part of had an animated discussion on how the NDA government in India had opened the floodgates for all and sundry foreign donors to political parties merely because the BJP wanted to regularise a donation that it might have received from a foreign source. Not only that, the BJP went back and amended the relevant section or clause all the way back to 1976.

Well, the truth is somewhat anti-climatic. It had only amended a clause that deemed Indian companies majority-owned by foreigners as a ‘foreign source’. Everything else about foreign sourced donations remains unchanged.

Take these lines for example from an article that does not seem very well disposed towards the BJP government:

Tellingly, they recently collaborated to insert an unobtrusive clause in the latest annual budget that has the effect of absolving both from any prior violations of rules restricting foreign political donations. [Link]

These lines appear in the article that reviews two books on India. The lines are a perfect illustration of the sloppiness that has  characterised the discussion on what the BJP-led NDA government had done with respect to political donations from ‘foreign sources’.

Look at the header in a story that appeared in ‘BusinessLine’:

BL Headline

That is both over the top and wrong or grossly misleading. But, in reality this is what had happened:

(1) A Delhi High Court Ruling in March 2014 found the two major political parties – BJP and Congress – guility of violating the provisions of FCRA, when they accepted donations from Vedanta. The petition was moved by the Association for Democratic Reforms and they were represented by Prashant Bhushan, in this particular case. [Link]

(2) Then, in order to nullify the court ruling, the BJP government, along with the budget for 2016-17, had sought to retrospectively amend the applicability of FCRA for political donations from foreign sources up to 2010.

Source: same as above.

(3) The ‘BusinessLine’ article with the header featured above gives the exact wording as per the Finance Bill:

Entry number 217 in Part XIX of the amendments in the 2018 finance Bill (Amendment to the Finance Act, 2016), which reads : “In the Finance Act, 2016, in section 236, in the opening paragraph, for the words, figures and letters ‘the 26th​ ​
September, 2010, the words, figures and letters ‘the 5th August, 1976’ shall be substituted,” said the amendment. [Link]

However, it is interesing that when I saw the Finance Bill tabled in the Parliament along with the Budget, these are the wordings I found:

It is proposed to bring the said amendment with effect from the 5th August, 1976 the date of commencement of the Foreign Contribution (Regulation) Act, 1976, which was repealed and re-enacted as the Foreign Contribution (Regulation) Act, 2010. [Link – p. 99/102 – right column, penultimate paragraph]

May be, BusinessLine saw the Finance Act text because once the Bill is passed by tthe Parliament, it becomes an Act.

(4) Prospectively too, the FCRA provision will not be applicable to foreign sourced donations for politcal parties. That was ensured by the amendment to FCRA moved with the Finance Bill 2016:

Under the proposed amendment—part of the budget proposals presented on 29 February—a donation by a company which has majority foreign ownership will no longer be treated as “foreign source” as long as it conforms to the sectoral foreign investment cap and conditionality. [Link]

(5) This is from the Finance Bill 2016

Clause 233 of the Bill seek to amend the Foreign Contribution (Regulation) Act, 2010 so as to insert a proviso in sub-clause (vi) of clause (j) of sub-section (1) of section 2 of the said Act providing therein that notwithstanding the nominal value of share capital of a company exceeding one-half per cent at the time of making contributions such company shall not be deemed to be a foreign source, if the foreign investment is within the limit specified under the Foreign Exchange Management Act, 1999 or the rules or regulations made thereunder. [Link]

(6) The ‘clarification​’ made by the Finance Bill 2016​  allows for funding made by Indian subsidiaries (of foreign companies) ​ to be treated as ‘non-foreign sourced’ even if the majority ownership (above 50%) is with the foreign parent company, as long as the investment is wthin sectoral caps for foreign investments for that sector.

(7) If we go to the FCRA 2010  (2) (1) (j) (vi) – which is what was amended by the Finance Bill 2016 and again by the Finance Bill 2018, it is clear that a company under the Companies Act 1956 was deemed a ‘foreign source’ if it was majority held by a ‘foreigner’ with foreigner being defined elsewhere in the section. See here.

Now, this has been amended such that an Indian company incorporated under the Companies Act will not be deemed ‘foreign source’ even if more than 50% is held by ‘foreigner’ as long as the investment by that company is within sectoral caps, etc. This amendment has been made effective retrospectively from 1976.

(8) But, this amendment does not facilitate Indian politcal parties collecting donations from totally foreign sources. The amendment is only with respect to Indian companies that were deemed ‘foreign source’ earlier. To be very clear, the amendment and its retrospective effect are specifically ONLY with reference to Section 2(1)(j)(vi) – definition of ‘foreign source’​ with respect to a company​ – of the Foreign Contribution Regulation Act, 2010.

(9) ​The Government of India press release provided a clarification as well to reiterate this aspect but it is clear that this was done specifically to regularise past donations by Indian subsidiaries of foreign companies with majority held by foreigners and to facilitate such donations in future too.

(10) Now, let us evaluate the decision by the government:

Together with bearer politcal donation bonds that was part of last year’s budget proposals (2017-18), donations to political parties have become a lot more opaque and non-transparent and now with donations by an Indian​ ​ company which has majority foreign ownership will no longer be treated as a ‘foreign source’, the wellspring of corruption from ‘political funding’ has become incrementally more rejuvenated, with this retrospective and prospective amendment. To be clear, the wellspring has always been existed. That is why the Congress Party did not criticise the BJP for this amendment. At the margin, BJP has rejuvenated and not depleted that wellspring. That is a disappointment for many.

(11) I​t is not a blow in favour of probity and integrity in political funding for sure. But, it is not as ‘open-ended’ invitation for foreign influence as many have alleged.​

It is possible that this distinction was a bit blured in people’s minds while discussing this matter.

However, making it easier for Indian companies majority-owned by foreigners does not necessarily advance the cause of sound public policy. Further, bearer political donation bonds being made through banking channels does not help either. In general, the idea behind making political funding transparent is for the public to know who is donating to whom so that public policy decisions can be understood and evaluated better.

In sum, the BJP has lost an opportunity here to really burnish its reputation for anti-corruption and to stop foreign influence-peddling into Indian domestic affairs.

The ‘new world order’ – not releasing anytime soon

This article in http://www.atimes.com is an interesting read. It is true that much of what is written there is not that widely reported in the Western media, if at all. Of course, the author does not hide his own bias. He wants the Western (or, US-led) order to be replaced. He gleefully cites Kishore Mahbhubani who sees the last 200-250 years of Western dominance as an aberration. Some others would see it as a regime shift that has lasted only 200-250 years as opposed to the 1800 years of Asian (China and India) dominance of global affairs. Which of these two world views will prevai is the question of and for the 21st century. It is not surprising that the comments below Escobar’s aticle too reflect this defining struggle of the 21st century.

To a large degree, the question of the balance between capital and labour is also bound up with the question of global dominance between the West and the East. Western dominance was built on the strength of capital, technology and scale. The Great Plague led to shortage of labour and excessive labour costs and hence, the West ended up with the steam engine and turbines and the industrial revolution, not to mention the rise of modern artillery, weapons and sea voyages with military and commercial goals. The Industrial Revolution facilitated much of that. Several other social changes followed too in its wake – the rise of women as key members of the labour force, smaller families, urbanisation and the demographic trends that we witness today.

In the previous eighteen centuries, labour-rich China and India dominated and technological development was not a necessity. The Great Plague did the trick for technology. Accidents of history shape history and society.

I am not sure – and I am just thinking aloud here – if the question of East or West and Capital or Labour can be resolved independently of each other.

That said, there is an interesting game afoot and it is evident in this open invitation from Russia to Europe to rise to the challenge of replacing the U.S. dollar:

Yet the clincher in terms of possible game-changing relations between Russia and Europe came from Finance Minister and first deputy Prime Minister Anton Siluanov: “As we see, restrictions imposed by the American partners are of an extraterritorial nature. The possibility of switching from the US dollar to the euro in settlements depends on Europe’s stance toward Washington’s position.”

So once again the EU was on the spot – on both crucial fronts, Iran and Russia. Siluanov left the door wide open: “If our European partners declare their position unequivocally, we could definitely see a way to use the European common currency for financial settlements, such as payments for goods and services, which today are often subject to restrictions.” [Link]

I am not sure if the Euro or the Eurozone is ready for this challenge. It has existential challenges. I do not have to remind you of that. Italy offers that reminder well enough. That said, the developments here need to be watched carefully, closely and continuously. The current unipolar position of the US dollar can be tenuous.

Equally, it is possible that Mr. Mahbhubani is guilty of hyping the end of the Western dominance. That is, he could be way too premature here. The East is not one monolithic bloc. Indeed, it may be a case of China vs. the Rest in Asia itself.

To see that, read this article that puts a different spin on the keynote speech of the Indian Prime Minister at the Annual Shangri-la Dialogue in Singapore. This is a pushback to Mr. Escobar’s thesis. Indeed, the author tries to pour cold water on the conclusion that the Indian PM Modi sided with China and cold-shouldered the United States in his speech at the Shangri-la dialogue.

By the way, in case you have some doubts as to which Mr. Escobar is taking in the West vs. East debate, you do not have to wait too long to have your doubts resolved. This article by him on India’s relationship with Iran should remove your doubts.

For me, I am a sceptic of the hypothesis that the West is done and over with; that the East is ready and that all that is required of the West is to roll over and play dead. There are far too many holes and one-sided assumptions in these multi-layered hyptheses.