Month: June 2021

What Have State Legislatures Been Up To Last Year?

First off, have you heard of PRS Legislative?

PRS tracks the functioning of the Indian Parliament and works with MPs from the Lok Sabha and Rajya Sabha across political parties and MLAs from various states. PRS provides a comprehensive and credible resource base to access Parliament-specific data, background information on Parliamentary and governance processes and analysis of key legislative and policy issues.

https://www.prsindia.org/aboutus/what-we-do

If you are a student of the social sciences in India (and who isn’t), this is a wonderful resource. It was started in the year 2005, and has provided stellar service to students of India for a very long time. See this, for example, if you are starting out in the study of public finances, or pretty much anything from this page.

But today’s post is about a specific report published by PRS recently: the Annual Review of State Laws 2020.

The Constitution of India provides for a legislature in each State and entrusts it with the responsibility to make laws for the state. They make laws related to subjects in the State List and the Concurrent List of the Seventh Schedule to the Constitution. These include subjects such as agriculture, health, education, and police. At present, there are 30 state legislatures in the country, including in the two union territories of Delhi and Puducherry.
State legislatures also determine the allocation of resources through their budgetary process. They collectively spend about 70% more than the centre. This implies that much of what affects citizens on a regular basis is decided at the level of the state. For a detailed discussion on the budgets of all states, please see our annual State of State Finances report.
This report focuses on the legislative work performed by states in the calendar year 2020. It is based on data compiled from state legislature websites and state gazettes. It covers 19 state legislatures, including the union territory of Delhi, which together account for 90% of the population of the country.

https://prsindia.org/policy/analytical-reports/annual-review-of-state-laws-2020

Tucked away under these paragraphs is a short one that will bring a wry smile to any Indian researcher’s face. It speaks about how information (and data) from India’s state legislature’s is hard to obtain. That, trust me, is putting it mildly.

Consider this:

The crowds that throng Mantralaya in Mumbai bear testimony to the fact that, apart from opacity in rules and processes which inhibit the common citizen getting her work done, there is still a lack of access to the right information and to the right persons in government who can and ought to meet the expectations of the common woman/man. The Maharashtra government website is woefully inadequate when it comes to informing the citizen about the procedures she should follow to get a particular work done. The website is focused more on putting forth not-so-useful information on departmental activities rather than on the steps needed to secure a particular benefit or license. Government departments need to focus on online processes for securing permissions, with human
interface being kept to a minimum.

https://puneinternationalcentre.org/wp-content/uploads/2019/10/Progressive-Maharashtra-Policy-Roadmap-2019-24-1.pdf


Please read the whole thing, pp 26-37 in this document, to get a sense of what needs to be done for a state like Maharashtra. Leave aside the question of the other states in the country!

But when a person who has definitely not left aside the question of the legislatures of the other states in the country takes note of the PRS’ annual review of state laws, it certainly behooves us to pay close and careful attention.

To return to PRS, the annual review has not been done in the best of times. After all, 2020 saw the first wave of the pandemic, though, in principle, meetings can also be virtual. As a benchmark, the Parliament met for 33 days in 2020. Pre-2020, these 19 states met for an average of 29 days a year. In 2020, they met for an average of 18 days. Before the pandemic, 29 days in a year? Had it not been for this report, I would have expected the number to be much higher.

https://indianexpress.com/article/opinion/columns/reforms-and-public-expenditures-lets-not-forget-to-scrutinise-states-7351650/

… and Bibek Debroy’s take on the report is not encouraging. Not, I hasten to add, a criticism of the report itself. Rather a criticism of the subject of the report: the state legislature and the job they’ve done this past year.

Source: https://prsindia.org/policy/analytical-reports/annual-review-of-state-laws-2020

Read the whole report, please, but this chart is perhaps the most instructive:

Source: https://prsindia.org/policy/analytical-reports/annual-review-of-state-laws-2020

3 out of every four bills that have been passed in state legislative assemblies were passed not more than one day after they were introduced. That, if you ask me, is too little debate.

There is a lot more at the link, of course – please do read the whole report. And if you’re looking for additional reading, this speech by Bibek Debroy would be a good place to start.

The Via Negativas of Public Policy

I learnt of the phrase by reading Taleb:

[I]n practice it is the negative that’s used by the pros, those selected by evolution: chess grandmasters usually win by not losing; people become rich by not going bust (particularly when others do); religions are mostly about interdicts; the learning of life is about what to avoid.

https://fs.blog/2014/01/a-wonderfully-simple-heuristic-to-recgonize-charlatans/

And it is wonderful advice of course, always worth keeping in mind: sometimes the best way to learn is by cutting out the bad parts, rather than trying to add in new good ones. There is merit to both, of course – cutting out the bad and adding in the good. But maybe cutting out the bad ideas first is a, er, good idea?

Losing fat before adding muscle is one way to think about it.((I’m good at spouting theory, not so good at the practice!))

And so also with public policy! Pranay Kotasthane, co-author of Anticipating the Unintended, has a lovely video out on this topic:

Definitely worth a watch, and while I am tempted to list out the eight, I won’t – for at the margin, some of you might be tempted to not watch the video 🙂

But I’ll militate against the spirit of this post, and add one of my own to the list that you’re about to learn: time.

I think a student of public policy ought to avoid short-termism. Fancy pants speak that simply means don’t just think about the short term benefits, but also worry about the long term consequences.

Unfortunately (public policy is hard!) policies have a way of sticking around for long after they’ve outlived their usefulness, but that’s a story for another day.

For the moment, please watch the video 🙂

The TALISMAN Heuristic

Thinking about real world problems is impossibly hard. Any story you tell yourself about the world is necessarily an abstraction.

What does the world abstraction mean? The Merriam-Webster dictionary tells us that “from its roots, abstraction should mean basically “something pulled or drawn away”.” So when you tell yourself a story about the world, you are pulling something, or drawing something away from reality.

What are you drawing away from reality? The parts of reality that seem important, interlinked and informative to you. So for example, when you wonder why the prices of onions are so damn high, you try to “pull” out of our reality those parts that you think will help you explain why the prices are so damn high.

Now, you are the captain of this ship – the one that is about to undertake this intellectual voyage of discovery. You are free to taken on board any parts of reality that seem relevant to you. Unfortunately you cannot take on all of reality, because then, hey, you aren’t pulling or drawing something away from reality. You’re trying to take on all of reality! And that is difficult impossible to do.

So you might choose to take on weather patterns, inflation, and the part of the country that you live in. These might help you arrive at a way to think about this specific real world problem: what is causing the prices of onions to be so high? Could be, you think to yourself, because of unseasonal rains, could be because of high inflation and it could be because you live in a tony part of a town/city that tends to have high prices of vegetables.

Congratulations, you’ve built a mental model! Don’t worry (yet) about whether the model is correct or incorrect. Don’t worry about whether you can gather the data required to test out your model. Don’t worry about whether the model will work next year, or in another part of the country. You’ve fashioned for yourself a story, and the story goes like this: x is seen in the world because of y. Specifically, high onion prices are seen in your world because of the weather, because of inflation and because you live in (say) Pune.

Savor this moment of victory, for we’re about to add in some complications.

The first complication is that you haven’t taken into account everything that influences the prices of onions. Maybe there’s a transporters strike? Maybe there’s been a pest attack on onion crops? Maybe a restaurant in your area has purchased an unusually large quantity of onions just a little before you went out to buy onions? Maybe the vendor was in a bad mood, and is charging you high prices for no good reason?

Some of these questions make sense, others do not. My point is that once you start to think about the problem in greater detail, you might realize that there are many other things apart from your three factors, that at least have the potential to raise onion prices.

But pah, you say to yourself. By this logic there will be no end to this exercise. You have, you tell yourself, chosen the factors that are likely to explain most of the increase in prices. Sure, you say to yourself, there are other causal factors out there. But these three? These, you aver to yourself, do most of the heavy lifting. And so you have chosen to “pull out of”, or “abstract away from”, reality these three alone.

A good modeler always bears two things in mind, therefore: her skill is about identifying((and then verifying – this exercise us economists call econometrics, and we get very excited about it)) the factors that are most important. But a good modeler also always worries about whether she has missed an important factor. A good modeler therefore always walks that painfully thin line between certitude and hubris. And this is hard.

But now we’re faced with a new problem. Of the three factors that we have chosen, which is the most important? Is it all about weather, and not at all about inflation and location? Or is it almost entirely about inflation, and not so much about the other two? Or… you get the drift.

Which, finally, brings us to the point of this essay: The Truth Always Lies Somewhere in the Middle. Corner solutions aren’t impossible – it is certainly possible that it is only the weather that is causing the prices of onions in your neighbourhood to be so damn high. But I would say that it is unlikely. Location almost certainly is an influencing factor. And so also is inflation.

In fact, it’s worse, because for reasons discussed above, the truest shape to surround The Truth is some impossibly complicated polygon. We’ve chosen to abstract away from this polygon only three factors, and so we have the luxury of thinking about where The Truth might lie in this triangle.

But even in this simplified model, we should fight the urge to corner The Truth into a single vertex. It’s almost always more complicated than that.

  1. Is Thai cuisine good or bad?
    If you were to ask me, good! But are there Thai dishes that I don’t like? I should be clear: this is not a dish I have eaten, but I (unfortunately) have a mental bias against even trying this dish. Given what little I know of Thai cuisine, the loss is almost certainly mine – but hey, it is what it is.
    So is Thai cuisine good or bad? If you were to ask me now, after that last paragraph, almost entirely good.
    You see how what I choose to abstract away from reality helps me learn more about where The Truth might lie?
  2. Is Sachin Tendulkar a great batsman?
    In my opinion, almost definitely so. Now, I’m a Sachin acolyte. But even I, a rabid Sachin fan if ever there was one, know about his fourth innings average. I know that McGrath got the better of him in ’99 and (sigh) ’03. And so on and so forth. So on the Great-Not Great spectrum, I would place him very very close to the Great end of the spectrum.

Reasonable people can and should disagree about where on the spectrum The Truth lies. But a discussion becomes impossible, and therefore counterproductive, if you insist on clinging to just one tiny little dot in reality called Great (or Not Great).

This applies to economic models, political leaders, vaccination policies, American Presidents – and Thai cuisine and Sachin’s greatness, and everything else besides.

The Truth is mostly unknowable (and that is bad enough). But for us to have the hubris to think that we can pin it down to just one part of a binary is an extremely dangerous thing, and I think we would all do well to try and not fall into that error.

What explains the title of this post?

Well, I have Aadisht to thank for it. He has noticed, as perhaps you have, my tendency to use this phrase quite often in my posts here: The Truth Lies Somewhere in the Middle. Now, the abbreviation of this phrase doesn’t exactly roll off the tongue easily. TTLSITM isn’t likely to win me any marketing awards, alas.

But consider this magnificent wordplay:

Truth Always Lies Inexorably Somewhere in the Middle of Assertion and Negation

That’s a talisman I’m very happy to claim ownership of!

There just remains the small matter of deciding upon a suitable compensation for Aadisht’s time and expertise. But if you think about it, the idea was mine, and it was just the acronym formation that he contributed.

So between refusing to even acknowledge his contribution and giving him all the credit…

On The Optimal Incentivization of Bureaucracy

Incentives matter. That is how I (and every other economics professor lucky enough to teach principles of economics) begin my classes every year.

Consider these sentences:

The central tasks of a modern state can be placed in three broad categories — maintaining the rule of law, providing public goods to citizens and using fiscal tools to redistribute income.
…
…
An efficient bureaucracy is essential for a successful state.
…
…
The efficacy of a bureaucracy is dependent on the incentives or disincentives that individual civil servants face when they take decisions.

https://www.idfcinstitute.org/knowledge/publications/working-and-briefing-papers/bureaucratic-indecision-and-risk-aversion-in-india/

Bureaucrats, policymakers, students of public policy and us professors should read this excellent paper. But if you are a student of economics, just beginning your journey in the Dark Arts, you should definitely read this paper.

Why? Three main reasons:

  1. It is a wonderful way to understand why incentives matter
  2. It helps you understand why government offices (and their cousins) function the way they do
  3. Trying to understand the Indian economy without understanding this aspect of it is an impossible task.

The paper is titled “Bureaucratic Indecision and Risk Aversion in India”, and is freely available here. The authors are Sneha P, Neha Sinha, Avanti Durani, Ayush Patel and Ashwin Varghese. It is an extremely accessible paper, in the sense that there are hardly any pre-requisites for you to read it in its entirety, and if you take notes, the paper is guaranteed to leave you with a ton of reading material. All those are the cherries on top: the biggest advantage is that you get a much better understanding of why the Indian bureaucracy is the way it is, and what could be done about it.

Here are my quick reflections after having read the paper:

  1. If you are a student reading this paper, you might enjoy encountering prospect theory at the outset. Again, it is a great way to connect the dots between what you learn in a classroom and its real life application. (There’s further reading, if you are so inclined)
  2. The second section is (to me) the meat of the paper. The title is “The Causes of Bureaucratic Risk Aversion”, and the authors list out 12 in all. These are grouped under three separate headings. As a mnemonic for myself, I think of them as Structure, Culture and Nurture
    1. Structure is Organizational Design: whether through over-monitoring, not enough discretion being given, an overload of bureaucratic responsibilities, the typical bureaucrat simply doesn’t get the time, the bandwidth or the incentive to not be risk averse. In plain simple English, the authors are saying this: if you or I had been a bureaucrat, we would have done exactly the same things that our bureaucrats have been doing for years. And this is so because like our bureaucrats, we too would have responded rationally to the operating structure we are a part of. It is not the bureaucrats that need to be changed, in other words, it is the organization design of bureaucracy that needs to change. Or that is my understanding of the first half of this section.
      But when it comes to structure, the latter half of this section speaks about the way candidates are selected, about how they are trained and mentored and about how they are (under)paid. Each of these are important to understand, and I especially liked how benchmarking and comparisons were made using examples from Singapore, Malaysia and Indonesia. Speaking of which, please read Gulzar Natarajan on entrepreneurship as a desirable trait in a bureaucrat, and please see this website from Malaysia.
    2. Culture is Institutional Norms and Culture: Please (pretty please!) read the whole section. It is an eye-opener. Plus, it is full of delightful nuggets. For example, I learnt by reading this section that the Official Secrets Act doesn’t define what a secret is, but forbids government employees from revealing them.
      The authors say that accountability to process, rather than outcomes is a problem. Now that gives me a delightful problem to mull over for a long time to come. How to reconcile this point (which is, I think, fair and valid) with this post (which also, I think, is fair and valid? Thoughts and suggestions welcome!
      Shleifer and Vishny (1993) and Becker and Stigler (1974) are two papers cited in the last part of this section, and as a student, they are absolute must-reads.
    3. Finally, Nurture is Political Pressure: This section is about your political boss (or bosses, in some unfortunate cases). Anybody from the corporate world will immediately draw the link between this and the dreaded “dotted line manager”. Similar problem, and similar outcomes.
  3. What can (and should) change is what this concluding section is about.
    1. I loved the idea of linking public sector salaries to private sector wage levels (although as statistician I can’t help but think about how that might actually work in India)
    2. The Committees timeline is wonderful for students, in the sense that gives you a quick way to understand what has happened in this space since independence, and the enthu-cutlets can dramatically expand their “To Read” list.

As additional reading, should you have the appetite for it, here is what I would recommend:

  1. All posts tagged “Bureaucracy” from Gulzar Natarajan’s excellent, excellent blog.
  2. An old, tangential but delightful read: English August
  3. Ch06 of this year’s Economic Survey

For The Love of Physics, by Walter Lewin

If you just can’t wait, around the 25:00 minute mark or so. But please, watch the whole thing, and read the book too.

On The History of Public Health in India

The responses will keep you busy for days, if not weeks. This tweet, and the responses to it, are an excellent argument for why Twitter is such a valuable resource for all of us.

Does Language Matter?

When you’re appearing for an interview, how important (or not) is your grasp of the English language?

  1. It is a factor, but it shouldn’t be the only one. I have worked with colleagues while in the analytics industry who couldn’t speak English very well – but their knowledge of their domains was far better than mine would ever be.
    Being insanely good at your core skill set is more important then being good in English. Being insanely good at English is not as important as being good at your core skill.
    But that being said, being 8/10 in both is best of all.
  2. Being good at communicating well is different from being good at English, and many people do not appreciate the difference. Here’s the non-negotiable bit: you should be able to explain yourself clearly and concisely. Given the world that we live in, it is best if you can do it in English. But no matter what language, clarity of thought and expression is table stakes.
  3. In an interview, my recommendation to candidates is that they state up front that they are not as conversant in English as they are in x/y/z language. And to state that they’re trying to get better at it, but it is an ongoing process. Think of it this way: if they are going to reject you for not being good at English, how does it matter whether you tell them or not? And if they aren’t going to reject you for your English, your candor and honesty is a plus for you.
  4. But to go back to pt. 1, being good at your core skill becomes even more important. For example, if you are applying for a job in the analytics industry, your knowledge of statistics and econometrics must be beyond reproach. Your knowledge of R or Excel or whatever must be beyond reproach.
  5. If you want to get better at English, I have three suggestions for you:
    1. Translate English reports (try the executive summary of a World Bank publication, if you want me to give you something to get started with) into whichever language you are comfortable with. You learn how to write professional English through this exercise (if only indirectly), and you add a line to your resume. There is no downside!
    2. Read this essay, not more than one paragraph on any given day. Read that paragraph thrice in one day, but never more than a paragraph a day. Don’t worry about how long it takes, but savor each sentence. Only try translating it once you’ve read the entire essay at least thrice. Your English will improve, but so also will your thinking and your writing, regardless of which language you end up using. Again, there is no downside.
    3. Force yourself to write ELI5 summaries of topics from your core skill. For example, explain what the Gaussian distribution is, and why it matters, to a 5 year old using simple English. Absolutely no downside!
  6. Bottomline: when the corporate world is telling you that it wants you to be good at English, it is really saying two things. First, it wants you to be a good communicator. Second, it wants you to be reasonably good at the English language. Trust me, the requirements are in that order. Trust me on this too: I know a lot of folks who are good at the second bit, but not so much at the former. (Hell, I’d put myself in this category).
  7. Bottom bottom line: practice becoming better at communicating clearly. That is much more important.

Asking And Answering Important Questions

Shruti Rajagopalan asked a very important question on Twitter earlier this week:

I’m writing this post on Sunday evening, which is when Shruti asked this question (and you, of course, are reading it today) but so far, there haven’t been any encouraging responses to her query, save for this one:
That would be this report, and I don’t think it was recommending large purchase orders or calling out Prime Minister Modi’s incoherent vaccine policy. This is the entire paragraph on vaccination:

Vaccines: The Committee recommended that a vaccine should pass all phases of clinical trials before it is made public. Further, it recommended that the whole population should be vaccinated. In this regard, the Committee suggested that: (i) the cost of the vaccine should be subsidised for weaker sections of society, (ii) the cold-storage system across the country should be upgraded, and (iii) vaccines should be administered as per the World Health Organization’s strategic allocation approach or a multi-tiered risk-based approach.

https://www.prsindia.org/sites/default/files/parliament_or_policy_pdfs/Report%20summary%20COVID.pdf

Long story short, the answer to Shruti’s question is: nobody. None of us were prescient enough in 2020, and that is a failure on our part.

What Shruti is really asking for is this: who is India’s Alex Tabbarok?

Why do I say this? Because Professor Tabarrok was recommending/demanding large purchase orders…

We don’t want to find ourselves with a working vaccine but too little manufacturing capacity. From an economic point of view, it would make sense to install enough capacity so that everyone in the U.S. who wanted could be vaccinated within a month. Normally, new vaccines cannot be produced so quickly and in sufficient supply. Each step of the manufacturing process must be verified and tested, and inputs to the process may face their own supply chain bottlenecks. Just as shortages of swabs and reagents delayed the rollout of testing, shortages of glass vials, bioreactors or adjuvants (a substance that increases immune stimulation) may delay vaccines. For want of a vial, the vaccine could be lost. To stand a reasonable chance of having a substantial supply of vaccines in 2021, we need to plan for capacity and reinforce supply chains now.

https://www.nytimes.com/2020/05/04/opinion/coronavirus-vaccine.html

…on the 4th of May. That is the 4th of May 2020.

He had a post praising the idea of advance market commitments (AMC’s) out in February. Again, 2020.

And while the first excerpt up above was a plan for the USA alone, he and his collaborators expanded upon this plan, outlining what a globally coordinated plan may have looked like:

I’ve been working with Michael Kremer, Susan Athey, Chris Snyder and others to design incentives to speed vaccines and other health technologies. AcceleratingHT is our website and now features a detailed set of slides which explain the calculations behind our global plan. The global plan is similar in style to the US plan although on a larger scale. The key idea is that the global economy is losing $350 billion a month so speed pays. One way to speed a vaccine is to invest in capacity for 15-20 vaccine candidates before any candidates are approved, so that the moment a candidate is approved we can begin production (one can store doses in advance of approval). Most of the capacity will be wasted but that is a price worth paying. As Larry Summer says if you will die of starvation if you don’t get a pizza in two hours, order 5 pizzas. Human challenge trials are another way to speed the process.
A global plan is ideal since there are significant benefits to coordination. If each country invests in vaccines independently they will each choose the vaccine candidates most likely to succeed but that means all our eggs are a few baskets. There are over 100 vaccine candidates and they have different scientific and production risks so you want to choose the 15-20 which maximize the probability of success for the portfolio as a whole. To do that efficiently you need countries to agree that ‘I will invest in lots of capacity (more than I need) in candidate X if you invest in lots of capacity (more than you need) for candidate Y’, even knowing that the probability that X succeeds may be less than that of Y.

https://marginalrevolution.com/marginalrevolution/2020/05/acceleratinght.html

The website AcceleratingHT provides many more instances that reinforce my point, and as a student, reading the material there is genuinely useful.

A while ago, I wrote a post for students who want to work in the field of public policy. Alex Tabbarok’s work this past year is a great example of what that advice might look like in practice.

I do not know who India’s Alex Tabbarok is in 2021 – there may not even be one. But as a student, the correct question to ask is this:

What do I need to do to acquire the ability to be ahead of the curve when the next crisis comes around?

Here is my list in response to that question:

  1. Read, and write. Everyday, read and write. If you are a student of the humanities (and if you think about it, who isn’t?), you should be reading and writing everyday. It compounds, trust me.Don’t be afraid
  2. Learn the art of working backwards from the solution you want to get to. In this specific case, if you want the world to be vaccinated by the end of 2021 (let’s say), then begin by asking yourself what needs to be done to get there, but in reverse.
    7 billion vaccines will be needed – which are the manufacturers that are most likely to supply them – what do they need to get the job done – how can we get them what we need – what are the regulatory, financial, supply-chain-related hurdles they will face – how can these be removed – and so on…
    My point here is not the specifics of the exercise, whether in the case of vaccines today or something else tomorrow. My point is to learn and apply the art of working backwards from where you want to eventually be. I don’t know what you’re supposed to call this in consultant/management speak, but for starters, read about the game 21 flags in The Art of Strategy.
  3. Learn the art of being unafraid to ask big picture questions. Whenever you get that feeling of “Surely somebody somewhere must have thought to ask this question already?” – especially if you have been serious about pt. 1 above – ask the question. Repeatedly, furiously and publicly.
  4. Consume as much content as you can about crisis management from the past. (I’m working on this for my own self, and recommendations are welcome)
  5. Do not be afraid of putting out your potential solution out there. Your worst case scenario is that it is a wrong solution. As a society, we’re still better off rejecting wrong solutions than waiting for the perfect one. For rejecting a solution as being the wrong one forces us to learn more about the problem at hand.
  6. Most difficult of all: once you have offered a solution, remember that your job is to solve the original problem. Your job is to not defend your solution at all costs. This is hard.

Understanding Fiscal Policy (3/3)

You might want to read Monday and Tuesday’s post before you begin in on this one.

In today’s post, we conclude by thinking through the section titled “Making Space While The Sun Shines“

  1. I’ve used the analogy of a human body throughout this little series, and I’ll press the point a little further here.
    One major problem that crops up when treating a seriously ill patient is about both the strength and the duration of the dosage. How much should the dose be per day, and for how many days should the patient take the medicine?
  2. Similarly, when it comes to fiscal policy, how much is enough? What if you give too little of a push? Then the recovery is anemic. What if you nudge a little bit too much? We’re back in 2011-2014 territory – and please do read The Lost Decade!
  3. Which is where this section of the article becomes really important: there is no model, anywhere in the world, that tell you what to do now. That is a strong way to put it, but let me be clear: there is no model anywhere in the world that will tell you what to do now. The cause of this current crisis, the crossroads at which the Indian economy found itself before this crisis, the uncertainty about how this crisis will play out and eventually end, and the uncoordinated global response(s) to this crisis all put together mean that we economists don’t know for sure how much fiscal policy is too much. We don’t know for how long we should keep the fiscal stimulus going. We’re, as it were, flying blind.
  4. What Sajjid Chinoy is saying, however, is this: whenever you cross a certain threshold of the vaccination drive, you need to start the process of unwinding the stimulus. That is what this excerpt means:
    ..
    ..
    “Counter cyclicality must be symmetrical: supporting activity in times of a shock, but then quickly retreating to create space when vaccinations reach a critical mass and the recovery becomes more entrenched.”
    ..
    ..
    Will this actually happen? For India’s sake, let us hope so. Our track record is less than encouraging in this regard.
  5. Familiarize yourselves with the great r>g debates. In this decade, they’re going to matter.
  6. Familiarize yourselves with the meaning and the importance of the primary deficit.
  7. Familiarize yourselves with the what the phrase “dual mandate” means when it comes to monetary policy.
  8. Pts. 5 through 8 are hopefully going to be areas that you will cut your teeth on if you join the market as a macroeconomist over the next five years. Hopefully because if we are still on pts. 2-4 until that point of time, this pandemic will obviously still be with us.
  9. But if it has gone by then, (god, I hope so!), managing the recovery and its aftermath will the macroeconomic challenge of this decade.

Understanding Fiscal Policy (2/3)

This post should be read as a continuation of yesterday’s post.

What are the things to keep in mind when talking about fiscal policy for India in 2021? Sajjid Chinoy mentions two, and we’ll deal with the first of these in today’s post. It is called “Recalibrating To New Realities“

  1. Sajjid Chinoy first points out the fiscal deficit situation. Please, whether you are an economics student or otherwise, familiarize yourself with the budget at a glance document. My take on the fiscal deficit for the FY21-22 is that there is no way on earth we’re going to be able to stick to the budgeted 6.8%. Tax revenues will be lower, borrowing will be higher, and I’m not buying the INR 1,75,000 crores disinvestment target. I hope I am wrong!
  2. He recommends not cutting expenditures even if budgeted revenues don’t materialize, and expanding MNREGA funding – and I completely agree.
    We’re getting into the weeds a little bit, but he also speaks about cash transfers instead of MNREGA given the pandemic, and I agree there too. Effectively, he is saying that people might not choose to apply for work because of the fear of getting infected, so drop the cash for work requirement: just transfer.
  3. “Double down on achieving budgeted asset sales targets, because this will provide space for more debt-free spending.” is one of his recommendations. I agree with the message, but find myself to be (very) cynical about the likelihood of this happening. We haven’t managed to meet these targets even once, and were off by an impossibly large magnitude this year, so I don’t see this happening. Again, I hope I am wrong.
  4. I’m paraphrasing over here, but the implicit request by the author is to keep capital expenditure sacrosanct (because of the multiplier effect). The implicit bit is the corollary: if sacrifices must be made, it is in revenue expenditure. The cynic in me needs to be reined in, but I’ll say it anyway: good luck with that.((Let me be clear, I agree! I just don’t see it happening, that’s all))
  5. Finally, he makes a request of monetary policy, that is acts as a complement to what is written above. That is, monetary policy should not worry about inflation too much this year. It is more complicated than that, of course, but that’s a separate blogpost in it’s own right.