10 links to awesome sauce sources about GDP

  1. For a truly fun, positively mind boggling application of GDP, try the Gapminder website. It is a LOT of fun, and a truly useful way to make sense of the world around you.
  2. The Marginal Revolution University is the place to go to for engaging videos on hajjar topics in economics. Over time, they’ve built up a truly useful repository, and you really should check it out. We’ll be giving multiple links over time, but to begin with, try this video about GDP.
  3. Need data on GDP for various countries but not sure about where to get it? The World Bank World Development Indicators are your friend in need. Click here to visit the page for GDP in particular, and if you are a data nerd, you’ll have a lot of fun.
  4. Another source would be the IMF database, or the World Economic Outlook database.
  5. If you want in depth data about Indian GDP in particular, you should visit the RBI database on the Indian economy. It won’t win any awards for user-friendly design, but it gets the job done.
  6. If reading really isn’t your thing, you might want to listen to an interview of Diane Coyle, by Russ Roberts on his podcast, EconTalk. Simply download the mp3 file, and listen at your leisure.
  7. If you really want to learn about GDP and India, there are two must read PDF’s. The bad news is, there is no TL;DR and they’re really long, and not exactly entertaining. Still, if you want to think through all of the issues that are involved in counting out India’s GDP, then reading the Sources and Methods and Changes in Methodology and Data Sources in the New Series of National Accounts are must reads. Not page turners, you understand, but must reads.
  8. If you haven’t had your fill of thrillers based on GDP, take a look at the guidelines set up for countries who want to report their national accounts.
  9. If reading long boring documents, published by the Indian government or otherwise, is not your thing, then you might want to read a book written by  Diane Coyle. It’s called  “GDP: A Brief but Affectionate History” and it really is worth your while.
  10. If you’ve stuck around till now (we hereby declare you an honorary nerd) you deserve to be rewarded. The Angus Maddison database, ladies and gentlemen, if ye olde GDP be your thing.



What You Need to Know About the 7th Pay Commission

The government has recently decided to go ahead with the recommendations of the Seventh Pay Commission. So far, so familiar. But what exactly does it mean for all of us? How many people does it impact, and in what fashion? If you had questions of this sort and didn’t know whom to ask, well, read on!

7th Pay Commission FAQ


  1. What is the VIIth Pay Commission?
    It’s a body appointed by the Finance Ministry, under the Department of Expenditure, and this has been happening since independence, at a 10 year interval, give or take a few years.

    This commission has the responsibility of taking a look at the payments, allowances and pensions made to government employees (or to call it by the all too cute name our government chooses to give it, PAP) and figuring out how much of revisions need to happen, and why. It’s also supposed to tell us about whether the recommendations are actually possible or not.
  2. So what are these guys saying this time around?
    That beginning this year, we need to dole out ₹1,02,000,00,00,000 in extra payments, out of which roughly 40% will be an increase in pay, 30% will be an increase in allowances, and the rest will be an increase in pension payouts. (Source)
  3. That sounds like a lot. Do we have that kind of cash lying around?
    Short answer, no.

    To finance the Indian government’s expenditure this year, it was slated to borrow ₹533,904,00,00,000 (source)*. Technically, this includes provisioning for implementing the 7th Pay Commission recommendations, but that’s a lot of borrowing (about 3.5% of our nominal GDP for this year).

    On the other hand, the answer to question 2 is built on an annual appreciation of 3% per year in PAP, and that’s hardly an unfairly large amount. Plus, the report mentions that if India grows at around 7.5% per year, the additional burden on the government won’t be all that much.
  4. By the way, how many people does the Government of India employ in the first place?
    If you define an employee of the Indian government as being a person who holds a civilian position with the GoI, and whose salary is paid out under the Consolidated Fund of India, then there are almost 40,00,000 employees of the Indian government.

    Roughly half of India’s population is of working age, for a rough and ready benchmark.
  5. Will inflation increase in India as a consequence of the 7th Pay Commission being implemented?
    From the point of view of theory, yes, it should. It probably won’t be dramatic or backbreaking, but yes, it will have an impact. How much will be the rise is the million dollar question, but here’s the thing – we’ll never know. You can’t say, “Well, check how much inflation was before, and how much it is after, and attribute the difference to the 7th Pay Commission”. And the reason you can’t say that is because too many other things are changing in the economy at the same time. So we’ll never know the actual impact it had on inflation in India, and we must make our peace with that fact.


Got other questions? Want more data? Shout out to us in the comments below!

*Update: For reasons we honestly can’t figure out, the INR symbol doesn’t show up the way it should on certain browsers. Our apologies.


Why We Shouldn’t Be All That Worried About Rexit

It’s number three on the list now of exits that world can’t stop talking about, behind the two exits that Britain managed from one kind of Euro or the other, but it still is big news here in India: Is Raghuram Rajan leaving the RBI in September the end of civilization as we know it?


Short answer: no.


Having never met Mr. Rajan, we can’t be sure about this, but we’d bet on he being horrified at the very idea of any single person (including himself) being the sole reason behind an institution’s efficient functioning. The Reserve Bank of India is the apex body when it comes to monetary policy in India, and has been ably served by many individuals in the past and the present, and that is only likely to continue in the future. So no, he leaving the RBI is not the end of civilization as we know it. It’ll be kind of like MS Dhoni leaving the Indian cricket team. Not great news, but not a disaster either.


On the other hand (I love counting the number of times we economists use that phrase. You should try it sometime – fun game), that does not mean that Raghuram Rajan leaving the RBI is good news. Especially if there is some truth to the rumour that he had to go because he was not afraid to speak his mind. He, and anybody else, ought to be judged for what they do in their job, and anybody who argues that Mr. Rajan was not good at his job is also likely to think that Grand Masti is good wholesome cinema.


On the parameter of doing his job well, Mr. Rajan excelled himself.


He was appointed to tame the beast called inflation, and he has managed that in style. This is not the place to go into the details, but whatever steps he took clearly worked. And as he himself mentioned in his statement regarding his decision to not continue as RBI governor, he would have liked to finish working on the agendas he had initiated. From that perspective, he not being around to see the job through is bad news for both the RBI and for India.


But it’s not as if we don’t have other people eminently capable of doing the job of being the Governor of the RBI.


To go back to the MS Dhoni analogy, sure he can’t be replaced, and it’ll be a sad day when he hangs up his boots. The new keeper (and the new captain) will take a while to kick rear ends as expertly as Dhoni used to, but they have the ability.


And that’s our point: it’s bad news, but it ain’t the end of the world.

Five things Udta Punjab teaches you about economics

First things first: if you haven’t seen the movie yet, you should really go this weekend. Really good performances all round, and Alia Bhatt in particular is in a not-to-be-missed role.

Now, you might think that Udta Punjab is about one thing, and one thing only.

Charlie Sheen Drugs
Source: giphy

But for folks like us, we couldn’t help but take a look at an alternate angle: economics!

Source: giphy
Source: giphy

Here are five ways in which you could try and claim that watching the movie was like learning economics in college.

  1.  If you want to build a business empire, choosing a product that has massively inelastic demand really, really helps
    source: giphy
    Source: giphy


  2. A high volume, high margin business necessarily involves a monopoly. Competition will likely be, well, eliminated.
    Source: giphy
    Source: giphy


  3. Politicians know. And they’ll want their cut. Money talks.*

    Source: giphy
  4. Truly effective reform of anything, anywhere can’t happen unless it begins from within. That applies to this movie, to people’s movements, or to countrywide reforms. Top down approaches tend to not work.

    inner peace
    Source: giphy
  5. And finally, you’d think people would have figured this out by now, but if it needs to be said, we’ll say it: suppressing censorship never works.

    Source: giphy

*Yeah, ok, you didn’t need to watch this movie to know that.


Why is your Android phone never up to date? 

If you own an Android phone, it ain’t running the latest and greatest version of Android. What I just said is almost certainly true, because as of June 2016, just about 10% of all Android users were on Android M. It’s been a year since M was launched, they’re already out with a preview version of N, and yet only 1 in 10 users are anywhere close to up to date.

Why should this be so? Why haven’t all phones updated to the latest version? It’s presumably better, more stable, packed with the newest features and what not, and well, I want! So gimme already!

The reason your phone hasn’t updated to the latest version, and probably won’t update at all after a couple of years is because your phone manufacturer finds updating your software a very expensive, time consuming affair. And the reason it is expensive is because the software on your phone has been customized by your manufacturer. It isn’t what Google calls “stock Android”.

Stock Android is easier to update because there hasn’t been that much tinkering around done with it. But with every layer of customization (TouchWiz by Samsung, Sense UI by HTC and so on), you add a level of complexity that makes software updates more difficult to manage.

So why customize in the first place, dammit? Two words: product diversification.

Essentially, your phone manufacturer wants you to think that the phone you just purchased is like no other in the market. And all phone nowadays come with more or less the same features at a price point: you know that at the 15,000 rupee mark you’re going to get so much memory, such and such camera, this chipset, that screen definition etc. So what’s different: unique version of Android!

It’s like a car that’s priced around 5 lakh rupees. Since you, I and everybody else knows more or less what to expect, the salesman is going to try and convince us that the extra cup holder at the back is the one unique feature that should totally make us buy his car. TV’s that have OLED panels, washing powders that have active atoms, water that has more oxygen (that one’s my favorite, by the way. Screw chemistry!) – these are all examples of companies trying to convince you that this is the product you’ve been waiting for all your life.

So why the need for product diversification? Because “itna paisa mein itna ich milenga”. You’re not willing to pay more, as a consumer, for a product that other companies offer you at a lesser rate. So build the same thing as your competition, but try and convince the consumer that it’s different.

That’s product diversification, and it explains why your phone will almost never be up to date. So why build the same thing as your competition? Two words: perfect competition. And that’s what we’ll talk about in our next post!

Housing prices decoded

In the previous post, we learnt about how governments sometimes have a say in what the price of a particular good is eventually going to be. However, in the case of other goods simple market forces determine the price.

Market forces refer to the forces of supply and demand, which we spoke about in the previous post. In this post, we’re going to speak about how those forces actually work in practice.

Most of us have in reading for a while about how real estate prices in some (but not all!) parts of the country have either been flat or falling. Now, in a nation of 1.3 billion people, less than half of whom stay in cities, that doesn’t really make sense. India’s growing steadily richer, more people are moving to the cities, and so more people should demand housing. More demand = higher price, right?

Well, most of the times, yes. But it turns out that in certain parts of India (parts of Pune, Gurgaon, Noida and Bangalore are good examples right now) many more apartments are for sale than there are buyers right now. And in particular, it turns out, there are many more “luxury” apartments for sale than there are buyers. So yes, there is strong demand, but there is stronger supply.

So apartments remain unsold, and that results in the kind of gimmicks and price discounts that you see builders resorting to these days. How do such situations tend to resolve themselves? Well, in any one of three ways: either builders reduce the price to entice more buyers to come into the market, or over time, more buyers enter the market in any case, or both.

This process isn’t always smooth of course – but that’s part and parcel of living in the real world. The real lesson of this blog post is actually quite simple: a change in the price of a particular commodity could be because of changes in supply, or changes in demand, or both.

And since real markets are always reacting to new information and since buyers and sellers are always adjusting to new information on a real time basis, it becomes quite difficult to figure out whether the price change is only due to supply or demand. When you add the government to the mix, as in the previous post, the situation becomes very messy indeed.

But that’s what makes economics so fascinating! Teasing out these effects (increased supply, reduced demand, government interventions) and therefore reasoning out your best response as a producer or consumer is an endlessly fascinating game that, if played well, can end up enriching you quite considerably. Try thinking about other markets this way: cellphones, college fees, the price of tur daal – and see where you go with your analysis.

Supply, demand… or both?

Who decides the price of petrol?

It doesn’t matter when you’re reading this article. You’re likely pretty pissed because the government has gone and raised the price of petrol again. Or you’re pissed because crude oil prices are low (so you hear), but the government hasn’t reduced the price of petrol just yet. One way or the other, you’re pissed.

In this blog post, we’re going to unravel the mysteries of the pricing of petrol. What “should” the price of petrol be? How is this price “arrived at”? And finally, is everything priced the same way as petrol?

The price of anything is really dependent on two things. How much of that thing is the market willing to supply (and sellers will want to sell more if the price is high and rising), and how much is the market willing to demand (and buyers will want to sell more if the price if low and falling).

The price of a particular thing is simply the point at which these two factors (supply and demand) happily coexist. So if the price of petrol is too low, sellers don’t see the benefit of going through the whole routine of drilling for oil, extracting oil, refining oil and transporting oil. If the price is too high, you’re not going to want to tank up just so you can go on a weekend trip out of town. And so the price settles at a level that allows for happy coexistence of supply side factors and demand side factors.

Or at least, that’s how it is supposed to happen in theory. What happens in practice, here in India, is that the government decides what the price of petrol should be, on the basis of primarily one factor: on the price at which we import crude oil from abroad. The higher the import price, the higher the likely price of petrol.

What complicates the issue is the fact that the pricing of petrol is seen as such a politically sensitive issue. Keep it too high, and governments might lose the next election – and which is why governments in India like to meddle in the pricing of petrol, and have sometimes kept it artificially low in the past.

However, artificially managed prices have a nasty way of blowing up in your face. The folks you import from aren’t going to offer you a discount just because you are selling petrol cheaply. In other words, if the government is buying at a high price and selling at a low price, it must make up the difference by paying for this subsidy.

How high is this subsidy in India’s case? Well just this year, we’re slated to spend about twenty-six thousand crores on our petroleum subsidy. Fun challenge: try writing that number down, commas and all.

And that’s just this year! The government’s been subsidizing petrol for years! So, in a nutshell: the government decides the price of petrol in India, and does so for political reasons. But the price of those decisions, at the end of the day, must still be accounted for.

In the next post, we’ll look at how the price of other things materializes. Real estate, for example – that’s a good place to start.

In the meantime, let us know what you think by dropping a comment below.