All of the best about *that* match

Siddharth Monga on Cricinfo

Slightly delirious, if you ask me, but given the circumstances, who can blame Sharda Ugra?

Vivek Kaul pours cold water on this being the rebirth of Test cricket, as only a finance/econ writer can – but a genuinely fun read nonetheless.

Sambit Bal, to end on as perfect a note as we started.

The title of the post is edited (it originally read as “five of the best”) – but here’s more to add in:

Sidvee, being Sidvee. Self-recommending, as they say. (There’s a post about reflections on this essay next week, plijj keep an eye out for it)

Girish, along similar lines.

Greg Baum, gracious as ever.

And a request: send more along! Happy to read as many as you can send, and add all of them in here. Whatay repository this has the potential to be!

Sidvee was kind enough to send along this Twitter thread by @_ImPK. It is ridiculously, impossibly good. Please see the whole thread, for it contains much more – I have only listed here articles from that list that are about the Brisbane test. Thank you, Sidvee and @_ImPK!

Bharat Sundaresan, who points out that this time, it was the Aussies looking at the Indian team in awe. I watched the ’99 series, so I cannot tell you how much this means to me.

There was a point, while watching this match, when – and this is true – I was on a Signal call with a friend who is in Atlanta. He shared his screen with me on the call, because Sony Liv (eff you, Sony Liv, eff you) was on the blink here. Among other things in this post by krtgrphr, this resonated so much.

Geoff Lemon, over in The Guardian.

When Ian Chappell says he’s never seen the likes before, that’s saying something.

Heroes assembled, indeed. Vinayakk Mohanarangan over at Scroll.

Niyantha Shekhar Dunkirks her way through the match. And it is every bit as spellbinding as the movie. For a cricket fan, it’s even better.

For these times, this series. Barney Ronay in The Guardian.

Pant had nine successive scores of 25 or more in Australia heading into the Brisbane test, Rohit Sankar informs us. He does much more than that, of course.

Jarrod Kimber points out that the person who’s been on our screen the most during the series is probably the physio, and it’s not even hypoerbole. (I’m joking, Mr. Pujara, I’m joking.)

Only Prem Panicker can combine Simon Barnes, western novels, and a reference to Horatius in a piece on a cricket match. The Getafix of cricket writers. He’s got one more piece out, but it is behind a paywall, and I cannot read it. But it is Prem Panicker, so sight unseen.

Again, I’m a glutton for more, so if you find more pieces, please, send them along. Thank you.

End of the week reading list: 6th Nov, 2020

The NYT comes up with a lovely selection of Agatha Cristhie novels. Light Diwali vacation reading if you are new to her works, perhaps?
(Also, every time I am reminded of this book below, I feel this urge to apologize to that one friend I inadvertently revealed the ending to – so once again, I’m really sorry!)

That would be “The Murder of Roger Ackroyd,” the story of a wealthy man slain in his study less than a day after the woman he hoped to marry commits suicide. Although — as Hercule Poirot discovers — the dead man’s assorted friends, relatives and servants have reasons to wish him ill, “The Murder of Roger Ackroyd” will still leave you reeling. When you find out who the murderer is and begin leafing through the pages, looking for missed clues, you’ll realize just how completely Christie snookered you.

https://www.nytimes.com/2020/10/25/books/best-agatha-christie-books-murder-mystery.html

On the race to redesign sugar:

As public opinion turns against sugar, food companies have outdone one another in pledges to cut the quantities of it that appear in their products. Pepsi has promised that by 2025 at least two-thirds of its drinks will contain a hundred calories or fewer from added sweeteners. A consortium of candy companies, including Mars Wrigley, Ferrero, and Russell Stover, recently declared that by 2022 half of their single-serving products will contain at most two hundred calories per pack. Nestlé has resolved to use five per cent less added sugar by the end of this year—though, as of January, it still had more than twenty thousand tons of the stuff left to eliminate.

https://www.newyorker.com/magazine/2020/09/28/the-race-to-redesign-sugar

A short (and delightful) history of mashed potatoes:

During the Seven Years War of the mid-1700s, a French army pharmacist named Antoine-Augustin Parmentier was captured by Prussian soldiers. As a prisoner of war, he was forced to live on rations of potatoes. In mid-18th century France, this would practically qualify as cruel and unusual punishment: potatoes were thought of as feed for livestock, and they were believed to cause leprosy in humans. The fear was so widespread that the French passed a law against them in 1748.

https://www.mentalfloss.com/article/627023/mashed-potatoes-history

The excerpt below was an excerpt in the post I am linking to (if you see what I mean), but well worth your time, the entire blog post:

70% of us think that the average household income of the top 1% is more than ₹2.5L. In fact, a majority of us guess it is more than ₹5L. Similarly, a majority of the respondents assume that the average income of the top 10% of households is more than a ₹1L… We think of the top 1% as super-rich people. A majority of the respondents estimate that all of the top 1% have 4-wheelers. And 70+% feel that at least 90% of the top 1%-ers have 4-wheelers.

http://gulzar05.blogspot.com/2020/09/more-india-middle-class-facts.html

Robin Hanson wonders about taking rest:

While we seem to “need” breaks from work, many of our break activities often look a lot like “work”, in being productive and taking energy, concentration, and self-control. So what exactly is “restful” about such “rest”?

https://www.overcomingbias.com/2020/11/why-do-we-rest.html

India, Bangladesh, GDP. Sigh.

When I explain GDP to folks unfamiliar with the concept, I often use the analogy of marks.

“Do you”, I intone in the most professorial voice I can muster, “remember how many marks you scored in your math exam when you were in the 4th grade?”

The point behind asking that question is to help the class realize that there were many other things going on in their life in the 4th grade. The measurement of how well you did on the specific questions you were asked in that test on that day do very little to show you how much math you actually learnt that year. Leave alone, of course, the question of how little the math test had to do with all of what you learnt while you were in the 4th grade.

A similar point was made about GDP recently, in the Business Standard:

Take GDP first. In India, we don’t measure the output of 65 per cent of the economy and make only well-informed guesses about the remaining 35 per cent.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

That’s exactly right, of course. You shouldn’t obsess over GDP numbers, much like you shouldn’t obsess over grades. But we do obsess over both!

And the analogy between marks and GDP works really well especially now, because when it comes to GDP, we now have a Sharmaji ka beta in the neighbourhood.

Hello, Bangladesh.

About two years ago, India’s Home Minister Amit Shah spoke of “infiltrators” who were hollowing out the country “like termites”. A Minister from Bangladesh retorted that Shah’s statement was “inappropriate”, “unwanted”, and “not based on information”. The IMF’s recent per capita GDP projections for South Asian countries show that the alleged ‘termite factory’ is shining — Bangladesh, which has been doing better than both India and Pakistan on social and human development indicators for several years now, is also beginning to march ahead on the economic front.

https://indianexpress.com/article/explained/an-expert-explains-how-bangladesh-has-reduced-gap-and-is-now-projected-to-go-past-india-6906206/

In much the same way that you shouldn’t compare marks obtained by students, you really shouldn’t compare GDP per capita between nations.

But (and you knew there was a but coming along, didn’t you), as I also say in my classes – what else you got, eh? It’s all well and good to say we shouldn’t, but it’s not like we have readymade alternatives. And if you take the GDP factory away from us economists, how do we fill our days?

TCA Srinavasa-Raghavan, in the same column cited above, has three answers:

Only three things: Food inflation, because it has a direct bearing on welfare; foreign exchange reserves, because they serve as a powerful signalling device to foreign investors and sellers of goods; and the revenue deficit. These are the only things the Centre has total control over. In determining all other indicators, the states play a big role.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

Read the whole article (which, I’m sorry, may well be behind a paywall). I don’t necessarily agree with all of it, about which more below, but the point that GDP is overrated as a useful barometer for the state of the economy is a point I agree with wholeheartedly.

TCA’s suggestions about what is to be used instead (food inflation, the revenue deficit and forex reserves) are worth considering, but there is a long list of alternatives that have been suggested. Here is just one example:

Provincial officials have long been suspected of overstating growth. Adding their figures together suggests that China’s economy was $364 billion bigger in 2009 than the total in the national accounts. Mr Li preferred to track Liaoning’s economy by looking at other indicators: the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks.

https://www.economist.com/asia/2010/12/09/keqiang-ker-ching

Other folks may come up with other things to use as a proxy for measuring the state of the economy, but really, it is the old story of the six blind men and the elephant all over again. Whatever you use will give you only a limited picture. That’s just the nature of the beast.

Worse! Whatever you agree to measure instead of GDP immediately becomes susceptible to Goodhart’s Law:

In a paper published in 1997, Anthropologist Marilyn Strathern generalized Goodhart’s law beyond statistics and control to evaluation more broadly. The phrase commonly referred to as Goodhart’s law comes from Strathern’s paper, not from any of Goodhart’s writings:

When a measure becomes a target, it ceases to be a good measure.

https://en.wikipedia.org/wiki/Goodhart%27s_law

(Emphasis added)

So sure, you could ask that food inflation, revenue deficits and forex reserves be the target. But it’ll just be cobras or rat tails all over again.

So GDP, whether you like it or not, whether its measurement is favorable or not, is not going to go away anytime soon, whether in India or elsewhere.

Consider the concluding paragraph from a column in the Livemint yesterday by R Jagannathan:

This does not make GDP calculations worthless, but the real focus should be on sectors. More than macroeconomics, sectoral understanding and microeconomics ought to be central to policy-making. Future GDP will best be estimated as a sum of its parts, and not as a whole extrapolated from numbers in the more visible parts of the economy.

https://www.livemint.com/opinion/online-views/the-fallacy-of-equating-growth-with-the-pursuit-of-higher-gdp-11603811210462.html

Yes, well, sure. Absolutely.

Now if only we could figure out the how.

Inflation: Oh ’tis problematic. Or is it?

A student messaged last week, asking some questions about inflation and its measurement in India. In particular, they wanted to know about food and its impact on inflation right now.

Well, outsourcing is always and everywhere a good idea, and Vivek Kaul had already answered the question at great length:

What this means is that, despite the end consumers of food paying a higher price, the farmers are largely not benefitting from this rise in food prices, given that they sell their produce at the wholesale level.
This difference can be because of a few reasons.

a) A collapse in supply chains has led to what is being sold at the wholesale level not reaching the consumers at the retail level, thus, leading to higher prices for the consumer.

b) This could also mean those running the supply chains hoarding stuff, in order to increase their profit.

Having said that, the former reason makes more sense given that stuff like vegetables, egg, fish and meat, etc., cannot really be hoarded. Also, hoarding stuff like pulses, needs a specialized storage environment which India largely lacks.

https://vivekkaul.com/2020/10/13/10-things-you-need-to-know-about-indias-high-inflation/

The entire article is worth reading (and so is subscribing to Vivek’s blog, so please do so!). And if you think 2020 isn’t depressing enough already, do read this article, also written by him. A short excerpt follows:

To conclude, the Indian economy will contract during the second half of the financial year. There is a slim chance of growth being flat for the period January to March 2021. Inflation, even though it might come down a little, is likely to remain high due to the spread of the covid pandemic. Hence, India will see conflation through 2020-21.

https://vivekkaul.com/2020/09/15/conflation-contraction-inflation-is-here-and-it-will-stay-this-year/

From a reading-the-tea-leaves perspective, it would seem the RBI actually isn’t that worried about inflation right now (and rightly so!). Here’s an excerpt from an excellent newsletter, Anticipating the Unanticipated that makes this point:

But the RBI wants to signal it is willing to live with inflation running above ‘comfortable’ level in the coming days. The MPC report last week claimed almost 80 per cent of the increase in inflation beyond the 4 per cent target can be attributed to supply chain disruptions and increase in fuel prices. This it believes is a short-term phenomenon and inflation will be in the 5 per cent range next year. This is underlined to give comfort to bond investors to buy government securities without the fear of a near-term interest rate hike to contain inflation. Further, the other step announced by RBI in extending the HTM (hold-to-maturity) limits by another year to March 2022 is to protect any bondholder from the volatility of prices and booking losses on account of it. The overall RBI signal is it doesn’t want the worry of rising inflation and a consequent rate increase to come in the way of growth. It’s focus now is on improving the transmission of rate cuts to the borrowers to stimulate growth.

https://publicpolicy.substack.com/p/77-the-inflation-conundrum-

… and here is Anantha Nageswaran making the same point, but by utilizing a different analysis:

This exercise generates the hypothesis that there is little or no intersection of the household inflation expectations formation and the monetary policy regime. Two, high inflation expectations peaked in September 2014. Similarly, the current high inflation expectations should peak as supply disruptions ease. So, in my view, RBI is betting correctly that the rate of inflation would ease and project policy on hold for the next few quarters. Three, inflation generation process should matter only to the extent that it affects medium-term output and employment generation. For now, other indicators suggest that it is not as disruptive as it was in 2011-13. Therefore, there is no need to turn it into a fetish. The new MPC and the central bank have done well and done good. They should be pleased.

https://thegoldstandardsite.wordpress.com/2020/10/14/the-inexplicable-16-inflation-rate/

And for the data nerds among you, here is the Inflation Expectations Survey of Households by the RBI (do keep in mind the point Ananta Nageswaran makes about trimmed means in his article). Note that currently at least, not too many people seem to be too worried about persistently high food inflation.

Side note: Jason Furman’s podcast with Tyler Cowen contained this interesting snippet:

FURMAN: GDP could be more meaningful if we measured it better. The inflation rate gets harder and harder to measure over time. So I think the one that probably has deteriorated in meaningfulness is the measure of inflation. Number one, we don’t measure it well, and number two, it’s low enough that it’s hard to get that excited about it.

COWEN: Is that a quality-of-goods problem? Or how we do chaining over time? Where are we going wrong in measuring inflation?

FURMAN: Just more and more of the economy is in areas that are harder to measure the quality of, healthcare being the most notorious.

https://medium.com/conversations-with-tyler/jason-furman-tyler-cowen-economics-b3e6d73dfd0f

I’ve said it before, and I’ll say it again: macro is hard.

Finally, here are past EFE articles on inflation.

Notes on being Aatmanirbhar in Agriculture

The full title of the article is “Aatmanirbhar in agriculture will require incentives for export of high-value agri-produce” and it has been written by Ashok Gulati.

One may ask: What does Aatma Nirbhar Bharat mean? Is it self-reliance or self-sufficiency in all essential items?

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

If you are confused about the difference between self-reliance and self-sufficiency, here is Swaminathan Aiyar in ET:

Self-reliance means making your own economy strong and strong does not mean giving it crutches like protectionism. That is the wrong way. Self-reliance means we say, look I am uncompetitive because I have relatively high cost of land or labour, high interest rates, high electricity rates and high freight rates. If I get all these down, I become more competitive. So if you are going in that direction, India will become strong and competitive. It will be able to trade in the world and we will not have a trade deficit problem. So the correct self-sufficiency means you strengthen your economy by making it more productive and more low cost. It does not mean you make it high cost by putting up tariffs. Therefore, protecting your least productive industry is the wrong direction.

https://economictimes.indiatimes.com/markets/expert-view/govt-needs-to-understand-the-difference-between-self-sufficiency-and-self-reliance-swaminathan-aiyar/articleshow/76710928.cms?from=mdr

The consensus among economists seems to be that we should be targeting self-reliance rather than self-sufficiency, but I would say that it is one thing to debate which to aim for without being explicit and crystal clear about what each of these terms mean.

You might want to read this Wikipedia article about the issue. Also, a request: if any of you have articles about the distinction, and any clear articulation about India’s policy stance in this regard, I would love to read it.

It is presumed that for a large country like India, with a population of 1.37 billion, much of the food has to be produced at home. We don’t want to be in a “ship to mouth” situation, as we were in the mid-1960s.

https://indianexpress.com/article/opinion/columns/atma-nirbhar-bharat-scheme-agriculture-narendra-modi-govt-covid-19-6491672/

You might want to read about the following if you are unfamiliar with our “ship to mouth” situation: the sorry saga of the PL480 scheme and India (two separate links)

In the mid-1960s, if India had spent all its foreign currency reserves — the country had about $400 million — just on wheat imports, it could have imported about seven million tonnes (mt) of wheat. Today, India has foreign exchange reserves of more than $500 billion.

ibid

A question that is rarely asked – or at least, not asked as often as I would like it to be asked – is how did we get to a stage where we have more than $500 billion in reserves? We must have earned it, we obviously can’t print dollars. Which begs the question, how did we earn it? Two things: we depreciated our exchange rate, and we exported a helluva lot more post 1991. Self-sufficiency, in other words, tends to not work well!

Chart from the IE article

Agri-exports have been subdued for the last six years or so, and we have yet to recover the peak of the ear 2013-2014. As Ashok Gulati mentions in his article, that year’s performance has not been bettered since.

What do our exports look like currently?

Marine products with $6.7 billion exports top the list, followed by rice at $6.4 billion (basmati at $4.6 billion and common rice at $2.0 billion), spices at $3.6 billion, buffalo meat at $3.2 billion, sugar at $2.0 billion, tea and coffee at $1.5 billion, fresh fruits and vegetables at $1.4 billion, and cotton at $1 billion.

ibid

Of which, Prof. Gulati picks rice and sugar for analysis – $8.4 billion worth of exports in total. Now, here is where all of what you may have learnt in microeconomics starts to make sense.

Think of a farm producing rice. The production function will tell you that you produce rice by combining inputs to produce output. What inputs? Labor, land – but also water and fertilisers. And the problem with fertilisers and water is that it is heavily, heavily subsidised in India.

Again, microecon 101: whatever isn’t priced tends to be overused, and that too indiscriminately. So what happens when you export more rice and more sugar every year? Well, to export more you have to produce more, and to produce more you have to use more inputs, and when you use inputs inefficiently, you end up exporting that input in larger quantities than is optimal.

Or, the simple version: we are exporting a lot of our water when we export sugar and rice. We’re also polluting our rivers and our soil, but that’s a story for another day.

But more importantly, it is leading to the virtual export of water as one kg of rice requires 3,500-5,000 litres of water for irrigation, and one kg of sugar consumes about 2,000 litres of water. So, in a sense, the two crops are leading to a faster depletion of groundwater in states such as Punjab, Haryana (due to rice) and Maharashtra (due to sugar). Thus, quite a bit of the “revealed comparative advantage” in rice and sugar is hidden in input subsidies. This leads to increased pressure on scarce water and a highly inefficient use of fertilisers.

ibid

What about the other side of the story – which is the big ticket item when it comes to imports of agricultural goods?

On the agri-imports front, the biggest item is edible oils — worth about $10 billion (more than 15 mt). This is where there is a need to create “aatma nirbharta”, not by levying high import duties, but by creating a competitive advantage through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches.

ibid

And within oils, Prof. Gulati recommends increasing our productivity in oil palm:

This is the only plant that can give about four tonnes of oil on a per hectare basis. India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil. But it needs a long term vision and strategy. If the Modi government wants “aatma nirbharta” in agriculture, oil palm is a crop to work on.

ibid

And on a related note, you may want to read this article from Scroll, an excerpt from which is below:

It is now clear that, in the face of rising demand, domestic production will remain way under 10% in the years to come. That essentially means that India will continue to import palm oil in various forms. However, the dynamics of imports is not just dictated by demand but also geopolitics. For instance, diplomatic tensions with Malaysia led the Indian government to discourage imports of refined palm oil from the Southeast Asian nation, resulting in a precipitous fall in recent months.
Domestic palm oil processors, such as millers and refiners, also routinely demand restrictions on imports so they can protect their margins. The Solvent Extractors’ Association of India recently presented the government with a list of demands that would favour local processors. This puts further price pressures in Malaysia and Indonesia, making it more difficult to green the palm oil supply chain.

https://scroll.in/article/967186/as-worlds-largest-importer-of-palm-oil-india-has-a-duty-to-push-for-ethical-production-practices

Thinking Aloud About Uttar Pradesh

Until very recently, I used to teach a course called Contemporary India. The program in which I used to teach this course is suspended temporarily, for it was designed for American students who would spend a semester studying in India.

One of my favorite classes in that course was about India’s demographics. It was one of my favorite classes because I got to show three slides in it. These slides were nothing but screen-grabs from an excellent feature that the Economist magazine had published a while back. Note that the content requires Flash, and it therefore probably will not work in our modern browsers. But the slides I speak of are presented below.

The first of these shows each state in India mapped to the country that is closest to it in terms of economic output:

The second shows each state as mapped to the country that is closest to it in terms of economic output per capita:

And finally, we have the third chart: each state in India being represented as a country that is closest to it in terms of population:

Each chart is worth more than a few minutes of your time. Note how Maharashtra is like Singapore, Sri Lanka and Mexico respectively, for example, when you make comparisons in terms of economic output, economic output per capita and population respectively.

My favorite thing to point out, especially to my American students, used to be how all of Canada’s population could fit inside Kerala. India is truly a mind boggling country!

But, Uttar Pradesh. That is what we’re going to talk about today. This is a mind boggling country (not a typo. It really is a country. If it were a country, it would be the fifth most populous country in the world. Yes, really).

It has, as this article points out, about 10 percent of India’s districts. One out of every seven Lok Sabha MP’s comes from this state. One out of every six Indian is from the state of Uttar Pradesh. Yogi Adityanath is the chief minister of Uttar Pradesh, but he is responsible for the same number of people as Imran Khan or Jair Bolsonaro. It, to put it mildly, is a truly large state.

And the article that I linked to in the paragraph above makes a point that is worth thinking about: is it too big?

Shekhar Gupta recommends carving up the state into five separate states, and before you scoff at the idea, consider the facts once again: should one chief minister be responsible for the governance of the fifth most populous country in the world?

And the problem isn’t just about population, it is also about national level politics. Or rather, about a problem that nobody wants to think about with any level of urgency.

Here’s the problem: how many people should a Member of Parliament in the Lok Sabha represent? Ideally, it ought to be India’s population divided by the number of elected representatives in the Lok Sabha. But obviously, in a country of India’s size and complexity, that isn’t always possible.

Here’s Ajit Ranade from two years ago, writing in the Livemint:

We may desire “equality” of constituencies, but economic development and demographic patterns do not develop uniformly across the country. Some states have achieved zero population growth while others still have very high fertility rates. This pattern too has a north-south dimension. It is as if the economic centre of gravity is shifting south and the political centre of gravity is shifting north.

Here is what he means by that: in the year 1976, we passed a law that effectively froze the number of seats in India’s Lok Sabha, per state. That number was frozen on the basis of the 1971 census. And from 1976 until the year 2000, we decided to not do anything about it.

And then, in the year 2000, we made the problem worse. Here’s Ajit Ranade again:

In 2000, another amendment postponed the day of reckoning to 2026. Thus, only after 2026 will we consider changing the number of seats in Parliament. Till then, everything is frozen as per the 1971 census. Remember, in 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion. The great apprehension is that redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states.

https://www.livemint.com/Opinion/7unVzUcfBJxbHHaiRpenmK/India-should-begin-discussing-the-delimitation-question.html

It is not just the fact that Uttar Pradesh is too big from an administrative viewpoint, and that it contains too many people for it to be administered as one state in a country. It is not just the fact that it is far too important a state in the political calculus of India.

It is the fact that it is about to get a lot bigger, a lot more complex, and a whole lot more important in about five years from now. Why do I say that, you ask? Well, for all of the reasons above, but also for the chart below:

Here’s Shekhar Gupta, from the article I referred to earlier:

Twenty crore people, divided over 75 districts spread over 2,43,000 sq km, is too much to govern for one government, especially when run entirely by one individual, which is the norm in our states now. Similarly, 80 seats in the Lok Sabha is too much power for one state in a federal republic. It is more than Gujarat, Rajasthan and Karnataka put together. It is politically distortionary. Especially when UP’s politics is so internally divisive based on caste and religion that the incentive for improving social indicators is poor.

https://theprint.in/national-interest/uttar-pradesh-is-indias-broken-heartland-break-it-into-4-or-5-states/458552/

When you think about that excerpt, and think about the point Ajit Ranade makes in his article two years ago, you realize that we need to start talking – soon, and a lot – about what is to be done about Uttar Pradesh.

I would love to read more about this. If any of you reading this have reading material to share, I would be very grateful indeed. Thank you.

Notes on “Re-aligning global value chains” Part II

Yesterday, we took a look at how China makes it difficult for supply chains to move away from that country. That happens through a combination of mind-boggling scale and efficiency, coupled with astute moves up the ladder in terms of no longer dealing with just cheap manufacturing. Think robotics, app development, advanced and skilled manufacturing units. After that, the gravity model takes over, and well, good luck moving out of China.

Today, we ask the following question: let’s assume that all that is somehow put to the side, and a country is looking to move out of China. What are the chances this firm will come to India?

Again, we’ll use Gulzar Natarajan’s excellent article as the basis of our discussion, and foray into other parts of the internet. Let’s begin:

First, a quote from within Gulzar Natarajan’s post:

“Nomura Group Study found that in 2019, out of the fifty-six companies which shifted their production out of China, only three of these invested in India; while 26 went to Vietnam, 11 to Taiwan, and 08 to Thailand. In April 2020, Nikkei noted that out of the 1,000 firms which were planning to leave China and invest in Asian countries, only 300 of them were seriously thinking of investing in India.”

300 out of 1000 isn’t great, you might think, but it’s not bad, surely. Well, read again: it’s “seriously thinking”, not actually relocated. If you want to take a look at action, not thoughts, it is 3 out of 56. About 5%.

Why?

Let’s begin with this tweet:

And here’s (to my mind) the most interesting quote from within the editorial:

“The situation is far worse when it comes to comparisons with China in the EoDB. It takes double the time to start a business in India as compared to China, around six times as much to register property and double the time—and also in terms of the value of the contract—to enforce a contract. And, this is without even looking at the policy flip-flops that this newspaper catalogues diligently.”

The real measure of success when it comes to the Ease of Doing Business ranking is not how far we’ve come, but far we have to go. And it’s going to be a long haul.

This article, which I got from reading Gulzar Natarajan’s post, is instructive in this regard.

Sample this:

““Navigating labour laws is a total mine-field because interpretation is left to the courts and the officers and can be done in more than one way and removing an incompetent worker is not easy,” Gopal said. “I can get a divorce faster than removing a factory worker for non-performance.” In Karnataka, an employer would have to give three warning letters, a show-cause notice, have two inquiries — one external and one internal, and then terminate an employee only if the charges are proved to be serious. “Theft is considered serious but if an employee is lazy and doesn’t perform, that may not be taken as serious,” Gopal says. “In one’s own company, one cannot hire and fire.””

This article is just about furniture, but there are similar problems in every single sector in India.

To which, usually, there are two responses:

  1. Yes, but we have to start somewhere, don’t we?
  2. Yes, but we’re so much better than we were before!

Yes, sure, in response to both of these statements. But keep in mind that firms who are looking to move here are not going to ask if we’re better than we were before. They’re going to ask if we’re better than our competition today. Are we better than Vietnam, for example? What about Bangladesh? And if the answer is no, why should firms come here?

For our domestic market isn’t (yet) a good enough answer, unfortunately.

Our domestic consumption wasn’t large enough or lucrative enough for firms to locate themselves here before the pandemic – it’s obviously reduced since then.

And bureaucracy (not to mention bureaucracy-speak!) has gone up:

“On Sunday, for instance, the home ministry issued a clarification intended perhaps to limit the numbers of those who would be allowed to travel to their villages to a category called ‘genuine’ stranded migrants. The letter from the Centre to chief secretaries in the state administrations reads: “The facilitation envisaged in the aforesaid orders is meant for such distressed persons, but does not extend to those categories of persons, who are otherwise residing normally at places, other than the native places for purposes of work, etc. and who wish to visit their native places in normal course.”

I think I am reasonably good at English, but I still don’t know what this means. Even if I were to understand it, I do not know how I would go about implementing it! And that’s me, a guy who teaches using the English language for a living, and writes a blog in the English language. What chance does a manufacturer have? What chance does a non-Indian manufacturer have?

Government, in plain simple terms, has to get out of the way. Unfortunately, we seem to be heading in the opposite direction.

R Jagannathan writes in the Livemint:

“Companies compete, while governments can only enable. Governments cannot create global champions, though mercantilist countries like Japan, South Korea and China did do so at one point. What governments can do is create an enabling policy and regulatory environment that fosters economic growth and lets companies scale up. Airtel and Reliance Jio did not emerge as India’s two big telecom survivors because the government anointed them as winners. Nor did TCS, Infosys and Wipro become global outsourcing giants because of the government. They became global biggies because the policy environment for their growth was positive both in India and abroad.”

I might wish to disagree with parts of that excerpt (Studwell alert!), but I am in complete agreement with the broad message:

“The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.”

As of now, though, the lock is far too rusty, far too old and far too much like a pre-1991 model.

An update to fixed income markets, courtesy Vipul Singh Chouhan

Vipul Singh Chouhan, who I had the privilege of teaching about six years ago or so, has forgotten more about fixed income securities than I’ll ever know. Immediately after posting the previous post, I messaged asking if he would like to add to the list.

What follows are his recommendations, lightly edited for the sake of clarity. Thanks a ton, Vipul!

  1. Factsheets of all the Mutual Funds released on a monthly basis. I’ve linked to the Morningstar website, but I believe this is available through multiple sources. Here’s an actual factsheet, pulled out completely at random.
  2. Vipul recommends that you keep a close eye on the commentary of the Debt CIO on the current situation of the fixed income markets. See this, for one example.
    Specifically, Vipul recommends you try and get answers to the following questions:

    1. What are they holding?
    2. In what proportion?
    3. In what maturity bucket?
    4. What is the credit rating?
  3.  It doesn’t end there! After getting to know about the credit rating of a structure, read it.  For example, let’s say a particular CMBS (Commercial Mortgage Backed Security) is rated AA+ by India Ratings, go to the website and read the entire two page rationale. Then go and read rationales for similar CMBS structures – peer review, if you will. Poke around! Compare and contrast! Find faults!
    This next paragraph is quoted verbatim:

    “Pester someone like Ashish sir and tell him “Sir in my view this should be AA and not AA+, pls correct me if I’m wrong”. Take feedback from him and improve your analysis on a continuous basis. “

    Well, please don’t take up Vipul on this suggestion quite literally, but don’t ignore the larger point, which is that you must find for yourself a mentor in the subject area you are trying to learn more about, and bug that mentor about learning more. I assure you, this is a vastly under-rated, and under-exploited skill. By me as well, to be clear.

  4. Learn to look for patterns, and learn to connect the dots. This is easier said than done, and you need to bury your nose in these reports for weeks on end, but eventually, you’ll “get a feel” for what you’re looking for. Here’s an example from Vipul:

    In the fact sheet, find patterns, let’s say investment grade AUM has increased in the last few months, while the credit risk AUM has nose dived. Explore the internet for reasons.

    Maybe that didn’t make sense to you. Well, look up the terms and phrases, try to make sense of them, and then ask your mentor the question. The question should never be, “What is XYZ?”. It should be, “I didn’t understand this term, so I looked it up, and here is what I specifically don’t understand about XYZ.” Asking the right question is a great skill!

  5. Again, a straight quote, unedited:

    Among the various structures, which MFs buy what: LAS, CMBS, Corporate guarantee, Letter of Comfort, DSRA guarantee. Understand each in detail. Which structure is preferred by which issuer and for what reasons. Pros and cons of each structure.

  6. With regard to that last point, if you want to really be a part of the industry,  learn each of those terms, once again with a weighted average of research online and follow-up questions with your mentor. The internet will tell you what the terms mean, and your mentor will tell you why it matters. Both are important, and in that sequence.
  7. Vipul recommends that you browse RBI site regularly. Specifically, whether you understand the reports or not, look out for data on the following:
    1. Outstanding G-Secs
    2. Primary auctions of CMBs (s is small, not to be confused with the CMBS mentioned above)
    3. SDLs,
    4. T-Bills. 
  8. Government Securities Market for Beginners: A Primer, which I myself hadn’t read until now (Thanks Vipul!)
  9. And finally, FIMMDA for corporate bond spreads and base yield curve.

Akash (and anybody else interested in this topic), this should keep you busy for days on end. My thanks to Vipul for taking the time to respond so quickly, and for sharing a most excellent set of links 🙂

Notes from an excellent blogpost by V Ananta Nageswaran

I mean, the simplest thing to do would be to go read the post in its entirety. The notes that follow are my way of reinforcing the key messages for myself, but perhaps they will help you as well.

This piece has five messages. One is that the best way to attract businesses is not to repel them explicitly. Second, it makes the case for a bold but transparent fiscal support. Third, it offers suggestions on how that money could be spent and four, it reminds experts that doomsday scenarios for India are not pre-ordained. Finally, it is important that the government channels the Covid crisis to usher in a decade of better growth than the previous one.

With regard to the first point, about not repelling businesses:

  • The blog post emphasizes the need to facilitate clear instructions for businesses. The key message is that clear communication is always important, but it is literally a life-saver in these times. If you need to issue a clarification, you failed. It is that simple.
  • A related point in this regard comes from an excellent newsletter that is equally worth reading in its own right. Facilitating business also means not throwing out the baby with the bathwater:
    ..
    ..
    “Now let’s look at why this is a policyWTF. India’s economy is facing a severe demand + supply shock. Of particular concern is the unavailability of domestic capital for long-term projects such as infrastructure (one of the reasons for this is covered in the India Policy Watch section below). Without long-term investment, India cannot achieve sustained economic growth. And without sustained economic growth, India’s geopolitical options get majorly constrained. An economically strong India becomes an ideal counterweight to China for the US and also an ideal market for excess Chinese capital. In contrast, a weak economy will eventually be forced to throw its economy open to the highest bidder at any point of time (ask Pakistan). Given this key national interest, making it difficult for Chinese investments to find their way into India is extremely counterproductive.”
    ..
    ..
    To be clear, this is not the point Ananta Nageswaran was making, but the point that Pranay and A.N. make stems from the root principle that in these times, we need to facilitate business, not hamper it. It can be hampered by a variety of things: unclear communication, blanket bans, or something else.

Now, on to the second point:

However, for a country with a young demographic and a potential for economic growth to exceed the cost of capital in the medium to long-term, the cost of excessive caution and prudence would be higher than the cost of excess action now. This would be so in the medium to long-term even if the short–term costs of excessive fiscal activism appear higher. One such fear is the fear of credit-rating downgrade. That reputational risk must be accepted and ignored, if it materializes. Rakesh Mohan, the former Deputy Governor of the Reserve Bank of India, had the right attitude towards them. In an interview for CNBC TV-18, he is reported to have observed that the credit rating agencies should have been the first ones to be put on the lockdown globally. He is right.

There is a time to worry about rating agencies, rising rates of borrowing, crowding out and profligacy. This, however, is not that time. We can err on the side of doing too little, or too much. There will be errors, we just need to choose which. I agree with A.N. – more is infinitely more preferable.

Suggestions on how money can be spent, which is the third point:

  • Asset sales, by Andy Mukherjee (link gotten from within A.N.’s post)
  • Building out health infrastructure, by the same author (and the same source for the link as above too)
  • Shankkar Aiyyar has an article on BQ that finds mention in A.N’s post, and also has this excellent, excellent analogy:
    ..
    ..
    “Epidemiology tells us vulnerability to Covid-19 rises with pre-existing conditions. This is true for economies too. India’s economy, frail from co-morbidity, tripped from slowdown to lockdown.”
  • And Vikram Chandra on Twitter has some suggestions:
    ..
    ..


    ..
    ..
    Note that the list isn’t (and can’t be) exhaustive. But these are all extremely good suggestions!

Fourth, we need to keep reminding ourselves that it’s not all doom and gloom, health-wise and economy-wise, or as A.N. puts its, “experts are poor at predicting”. (Ahem)

And fifth, the bottomline from his blog-post, which I quote in its entirety:

“Finally, that persuades me to throw the ball to the government to play. In times of crises, society looks for guidance and leadership from the rulers. This is time-tested. Therefore, the onus is on the government to demonstrate clarity in thought and purpose in action. India began the last decade badly and ended it with more questions than answers. An encore will be a tragedy. India should do whatever it takes to avoid it.”

 

 

Talking Macro With Prof. Parchure

Dr. Parchure is the officiating director at the Gokhale Institute of Politics and Economics, where I work. He was also my guide during my PhD saga (there is no other word for it), and has forgotten more macroeconomics than I will ever learn.

Tomorrow, at some point of time, I and Dr. Parchure will be sitting down – at our respective homes, of course – for a chat about what India can do when it comes to macroeconomic policy after the worst of the corona virus lock-down is over.

First things first: health comes first, and that’s a non-negotiable. There’s no version of this story in which we can discuss trade-offs about “getting things back to normal” so that “the economy isn’t destroyed”.

As Russ Roberts puts it:

So we’ll be talking tomorrow about an as yet unspecified date in the future, where India might not be as mobile and social as she was before, but not as locked-down as she is right now. But when that day comes, what should macroeconomic policy look like?

Here are two articles that I will be basing this discussion on:

  1. Ira Dugal’s take on India’s monetary policy.
  2. Ananth Narayan’s take on India’s fiscal policy.

Please read both, and don’t worry if you don’t get some details. Just power through both write-ups regardless.

Here are some aspects that I will definitely be asking questions about tomorrow:

  • The advisability of giving a monetary and fiscal stimulus: everybody seems to be taking it as a given (myself included). But is there a case to be made for limiting it, if at all?
  • That out of the way, should both fiscal and monetary policy be wheeled out simultaneously? Either ways, why?
  • What are the major tools in the monetary policy toolbox? Which of them will give the most bang for the buck? Which should we be holding back for later, and why? What mistakes should we be guarding against?
  • Ditto for fiscal policy.
  • What would Keynes have advised? I have this book in mind when I ask this question.
  • What episodes, in 20th century macroeconomic history, have parallels we can learn from? If there are none, are current macroeconomic models good enough to handle such scenario? If not, how might they be updated?
  • If you, Dr. Parchure, were in charge of things – interpret that as you being given carte blanche to handle India’s economy, no questions asked – what would you do? What are the political realities that in reality will stop some of these solutions from being implemented?

I’ll be sharing this blog post with Dr. Parchure, but in the meantime, if you have any questions that I have missed, please let me know in the comments, or email me.

The conversation will be up on YouTube tomorrow at some point of time.

Stay home, stay safe!