The Value of a Mentor

I’m in the process of arranging mentorships for the BSc students at the Gokhale Institute, in part because our internship plans went out of the window, and in part because I know I would have liked a mentor at that age (wouldn’t we all?). There were some doubts and misunderstandings about how a mentorship works when contrasted with internships, and what follows is therefore addressed to the students – but hey, maybe others will also find value. So here goes:

Imagine that you, as a 19 year old, were asked to mentor a student currently in the 10th grade. You’ve been through the grind, you know the pain of writing the 10th board, the 12th board, and the pressure of not just doing well in those damn exams, but also choosing the appropriate field of study. You’re bursting with advice and counsel, positively bristling with tips and tricks… except that student from the 10th grade doesn’t know what this mentorship is about, what mentorships in general are about, and what is expected of him/her. It’s kinda like that, except you are in the place of that 10th grade student. And your mentor waits for you to get started, and you wait for the mentor to get started… and whoops. We’re stuck.

A mentor falls somewhere in the middle of the prof-buddy spectrum. Less authoritarian than a professor, and more knowledgeable and experienced than a buddy. You can’t exactly be Jai-Veeru, but it’s not like your mentor is Thakur either (if you didn’t get those references, go watch Sholay. Right now. Kids these days, I tell you.)

Your job, as a mentee, is very simple. Ask questions. Learn as much as you can about your mentor – who they are, what they have done, what their area of expertise is, where they have worked in the past and where they work now – and then ask them questions about all of this.

The idea is to get a compressed version of their lives, so that you can do two things in your own life. One, they’ll tell you about things they learnt on the job – you learn now, rather than later. Second, you get to avoid the mistakes they made.

No question is too outlandish, no query too “stupid”. Your mentors have been in your place, and they’ve experienced the nervousness you are feeling now. So don’t worry about appearing not quite tuned in, because that’s ok.

But given that they’ve chosen to take time out of their busy schedules to speak to you and guide you, it does make sense to follow through on their advice when it comes to reading, viewing or listening to their recommendations – that’s a given.

And a word of caution – sometimes these things don’t work out, and that’s ok. Maybe you are not suited to their personality, or vice versa. Maybe you just don’t gel, maybe there are misunderstandings. And that’s totally fine, because why expect mentorships to not be like the rest of your life? Sometimes things don’t work out, and that’s cool.

But when they do – and you may have to take a little bit more effort than usual to make sure they do – then you may have that most precious of gifts: a person who is older to you, more accomplished than you, and a person who has decided to look out for you, for life. Job references, recommendation letters, career advice, putting in a quiet word for you – all of these are things you can count on for life, because your mentor has also become your friend.

That, more than anything, is the greatest thing to come out of a successful mentorship, and I speak from experience on both sides of the table. Get yourself a mentor, and cultivate that relationship.

It is, without a shadow of a doubt, the best investment you will ever make.

Daaru in times of the lockdown

Simran, a student at the Gokhale Institute asks a series of question about the topic du jour:

I had a query in regard to the news that have been doing rounds  – “Why did government order opening of wine shops?”

She asks other, related questions further on in her email, and I’ll get to them, but let’s go with this first.

Now, I am not privy to the decision-making process of either the state or the central governments, but there are two immediate responses that come to mind about the why: one, there is certainly demand for it!

And two, revenues *should* go up with the sale of alcohol. The reason I say should is because there have been arguments made about how the tax that the state government collects is when the distributor sells to the retailer, rather than when the consumer buys from the retailer. I am unable to find a report online of this nature, but I have certainly heard that argument being made. And that as a consequence, opening up liquor shops won’t have that much of an impact on government coffers, because tax has already been collected.

Very briefly, this argument doesn’t hold for at least two reasons. First, because although it is true that part of the tax that is paid is in the nature of an excise duty (that is, taxable when it leaves the manufacturer’s location), there are a whole host of other duties, taxes and cesses that are charged in addition. For instance, did you know that if you raise a glass in Uttar Pradesh, you are doing your bit to take care of abandoned cattle? Other states also impose other taxes – demand, as we are seeing right now, is fairly inelastic, so of course you should expect governments to tax as much as possible.

Second, and to my mind more importantly, never confuse stocks with flows! Forgive the pun, but once alcohol sales start flowing, the chain of taxation will kick into gear at all points. As per this report, all states and union territories put together expected to earn INR 1,75,000 crores (or thereabouts) from the sale of alcohol last year. The flow (and forgive the pun again) is important!

So, simply put, it is about the money.

Simran further goes on to ask:

The Delhi government announced a 70% ‘special coronavirus tax’ on alcohol.

Charging such a huge tax from a daily wage earner does sound cruel. Government claims that the tax will dissuade the poor from drinking but past reports claim that habitual drinker will never quit and this will just shrink the quantity of food he and his family consumes.

I was wanting to delve deeper into this topic –
Alcohol and its effect on poverty or is it
Poverty and its effect on consumption of Alcohol.

A series of tricky questions indeed! Let’s get to them one by one:

  1. I can think of at least two reasons behind the Delhi government’s decision. First, the high price might deter at least some folks from queuing up, and second, revenues will go up. Unfortunately, these reasons are contradictory! If crowds go down because of the high prices, surely revenue cannot go up at the same time? The answer, as any econ student will tell you, lies in computing the elasticity of demand for alcohol. See this video, for instance, on the topic.
    ..
    ..
    Will the habitual drinker quit with such high prices under these circumstances?
    ..
    ..
    Honest answer: who knows? You can spend the rest of your lives drawing diagrams and scribbling questions, but at the individual level, we simply don’t know. There are too many variables for us to get a reasonable answer (changes in income, length of the lockdown, the level of desperation for alcohol, the urge to stockpile in face of an uncertain future, for starters). The habitual drinker will certainly think twice, but beyond that nothing useful can, or should, be said. That is my opinion. It is not quite the same topic, but read this article, written by Banerjee and Duflo (and read both of their books!)
  2. I have only glanced through the two links I am sharing here, but hope to read them in more detail later. The first is an exercise in calculating the price elasticity of demand for households in India, and the second is a collation of a lot of studies done on the topic, but it deserves its own separate point…
  3. … not least because writing this blog post helped me learn about the existence of the Institute for Alcohol Studies! (Dear folks at the IAS, let me know if you are in need of test subjects). They have a page on the impact of price on alcohol, and worries about conflict of interest aside, the report that alcohol is relatively price inelastic.
  4. Both studies report much the same thing, although of course a whole host of other factors also come into play (level of education, extent of addiction being just two obvious ones). But long story short, for a one percent increase in price, you should expect demand to go down by less than one percent.
  5. But that still doesn’t answer Simran’s question: does poverty cause one to consume alcohol, or does the consumption of alcohol cause poverty? My honest answer is that we simply can never know for sure, and it is probably both, but hey, nothing should get between a tricky, potentially unanswerable question and econometrics! Knock yourself out!

 

Thank you for the questions, Simran! I enjoyed answering them 🙂

 

A query on a column by Ajit Ranade

Shashank Patil, enthusiastic asker (it is my blog, and I say that it is a word) of questions, sends in this article, and asks the following questions:

  1. What are the possible difficulties with this?
  2. How does this weigh in with any other choice?

This promises to be a fairly long post, and for the sake of knowing where we are at any point of time, I am going to divide it into three major sections:

  1. The need for the stimulus
  2. Show me the money!
  3. What is the best choice out of all the options available?

The need for the stimulus

There’s four things that go into adding up our GDP: consumption, investment, government expenditure, and net exports (net simply means we deduct the rupee value of all of our imports from the rupee value of all of our exports, over one accounting year). But be careful, calculating GDP is surprisingly complicated!

During these times, good luck getting C, I and NX to be anything remotely related to good news, and so we’re almost certain to not have great GDP growth, or even growth at all. Unless el sarkar steps in. So when we ask for a fiscal stimulus, we’re basically saying the other components of GDP are near comatose, so government spending will have to take up the slack.

Maybe the government can build out way better health infrastructure than we have at present, like Andy Mukherjee says. Maybe we can provide clean drinking water, along with a whole list of excellent suggestions made by Shankkar Aiyyar. Direct money transfers to the poor is another idea. But for all of this to happen, we need to start at the basics: where is the money?

The government didn’t have enough money before the pandemic hit (that’s what a fiscal deficit means), and the problem is way worse now: much more money needs to be spent, and not enough money is coming in by way of tax revenue.

Ergo, all of the columns about how to raise the money that will need to be spent.

Show me the money!

There’s three ideas that I have liked so far:

  • Deepak Shenoy talks about a realignment of the liabilities side of the balance sheet of the RBI unlocking about INR 400,000 crores (thinking about numbers as big as this is an invitation to a migraine, but this is 4 trillion, unless I am mistaken. Please let me know if I am!). Let’s call this the DS method.
  • Andy Mukherjee talks about the government selling stakes in PSE’s (that’s Public Sector Enterprises). The details matter in this case: the sale will be to an SPV (Special Purpose Vehicle), which will finance the purchase by issuing bonds. When markets recover, sell the stake, and redeem the bonds. Method AM.
  • And finally, Ajit Ranade offers a pani puri instead of a puchka. That is to say, the same idea as Andy Mukherjee, but with a twist. Instead of the government stakes in PSU’s (undertaking, instead of enterprises) being sold to an SPV, he suggests selling it to the RBI as a repo transaction. That is, sarkar sells to RBI and gets money, but also gets to buy back the shares at the same amount plus an annualized interest rate of around 3%. That’s where the name repo comes from: short for repurchase. And yes, method AR.

What is the best choice?

So maybe this is just me getting old, and therefore more conservative, but I’d rank Deepak Shenoy’s suggestion third. There are two main reasons, although there are others. First, the RBI already gave out some cash last year (and Deepak Shenoy himself has a most excellent article about it. Link 3 in this post, and the others are worth reading too, especially number 5.  Bookmark CapitalMind.in if you haven’t already!). Second, maybe it makes sense to keep some of our powder dry, for who knows what other horrors wait for us in the future? If, god forbid, two years down the line we need more help, it would be better to use the DS method then – because good luck trying to convince folks of the value of PSU stakes after more two years of this.

Let me be clear: I am not saying that this will continue for two years. I’m saying we should be prepared.

Now, in a straight fight between AM and AR, well, which self-respecting Maharashtrian will pick puchkas over pani-puri? I’d plump for Ajit Ranade’s method, and for the following reasons:

  1. A repo transaction is likely to withstand market volatility better than being dependent on an SPV, especially one that may be exposed to currency risk.
  2. This sounds way more operationally feasible than the AM method. Launching an SPV might be possible right now, and you may even get a decent response because god knows markets will be looking to park funds right now – but like I said, I’m getting old, and would prefer a more conservative route.

And so Shashank, the answer to your question is that Ajit Ranade seems to be onto a pretty good idea, in my opinion. Which is not to say that the others aren’t, of course – but hey, if I didn’t force myself to choose, and write about my choice, how else to fill out a lockdown afternoon?

But on a more serious note, the “how” doesn’t  really matter as much as the when. And the correct answer to that question is “yesterday”.