India’s Demographics and the Total Fertility Rate

For many, many years, this was my slide on India’s TFR in lectures I used to give on India’s demographics:

Wikipedia (Old data)

What is TFR? Here’s Wikipedia:

“The total fertility rate (TFR) of a population is the average number of children that would be born to a woman over her lifetime if:

  1. she were to experience the exact current age-specific fertility rates (ASFRs) through her lifetime
  2. she were to live from birth until the end of her reproductive life.”

Hans Rosling had a better, more intuitive term: babies per women. Here’s an excellent chart from Gapminder, although ever so slightly outdated:

Click here to see the original chart, and please press on the play button to see this change over time

Here’s the excellent Our World In Data page about the topic, and here’s a lovely visualization of how the TFR has changed for the world and for India over time (please make sure to “play” the animation):

(I hope this renders on your screens the way it is supposed to. If not, my apologies, and please click here instead)

But now we have news: India’s TFR has now slipped below the replacement rate. Here’s Vivek Kaul in Livemint explaining what this means:

The recently released National Family Health Survey (NFHS-5) of 2019-2021 shows why. As per the survey, India’s total fertility rate now stands at 2. It was 3.2 at the turn of the century and 2.2 in 2015-2016, when the last such survey was done. This means that, on average, 100 women had 320 children during their child-bearing years (aged 15-49). It fell to 220 and now stands at 200.
Hence, India’s fertility rate is already lower than the replacement level of 2.1. If, on average, 100 women have 210 children during their childbearing years and this continues over the decades, the population of a country eventually stabilizes. The additional fraction of 0.1 essentially accounts for females who die before reaching child-bearing age.

https://www.livemint.com/opinion/columns/the-women-who-went-missing-in-our-demographic-dividend-11652200177580.html

And here’s the breakup by state, updated for the latest results:

By iashris.com – https://indiainpixels.xyz, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=112844699

Of course, as with all averages, so also with this one: you can weave many different stories based on how you slice the data. You can slice it by urban/rural divides, you can slice it by states, you can slice it by level of education, you can slice it by religion – and each of these throws up a different point of view and a different story.

But there are three important things (to me) that are worth noting:

  1. The TFR for India has not just come down over time, but has slipped below the global TFR in recent years.
  2. This doesn’t (yet) mean that India’s population will start to come down right away, and that for a variety of reasons. As Vivek Kaul puts it:
    “So, what does this mean? Will the Indian population start stabilizing immediately? The answer is no. This is primarily because the number of women who will keep entering child-bearing age will grow for a while, simply because of higher fertility rates in the past. Also, with access to better medical facilities, people will live longer. Hence, India’s population will start stabilizing in around three decades.”
  3. The next three to four decades is a period of “never again” high growth opportunity for India, because never again (in all probability) will we ever have a young, growing population.

Demography is a subject you need to be more familiar with, and if you haven’t already, please begin with Our World in Data’s page on the topic, and especially spend time over the section titled “What explains the change in the number of children women have?”

Why Is Reading the News Online Such a Pain?

Livemint, Hindu Business Line, Business Standard, Times of India, The New York Times, The Hindu, The Washington Post, The Economist, Bloomberg Quint and Noah Smith’s Substack.

These are, as of now, my sources of news online that I pay for.

There are other newsletters that I subscribe to and pay for (The Browser is an excellent example), and I read stuff published in other newspapers too, but I’m restricting myself to only the current news sources that I pay for. I would like to subscribe to the Financial Times and to Stratechery too, but my budget line begins to cough firmly and insistently at this point, more’s the pity.

But here’s the thing: reading news online sucks.


Some are worse than others, and I’m very much looking at you, Business Standard. Their app is a joke, and the number of times one has to sign in while reading the paper on a browser isn’t funny. Some are, relatively speaking, better. The NYT website and app are both pretty good, as is the Economist. But still, it isn’t friction free, and there really should be a way to get the user experience to be better than it is right now.

And more than better, a more urgent word is uniform. Here’s a simple use case: let’s say I want to read articles on the current lockdown in Shanghai. I have to go to each website, and either run a search, or navigate to the appropriate section. But on each website, the search button will be located in a slightly different place, with a slightly different user experience. Each website while have their own navigation system. Each website will have different ways to filter search results.

Some will allow you to copy excerpts, some won’t. Some will allow clips and force an appendage at the end (“Read More At XYZ” – I’m looking at you, ToI). But by the time I finish visiting the third website to read about the topic I wanted to – current lockdowns in Shanghai – I’m pretty much done out of sheer exasperation.


It shouldn’t be this hard!

Workarounds kind of exist. For example, I can add the RSS feeds to Feedly, or any other feed reader of your choice. If you’re not familiar with Feedly, or RSS readers in general, here is an old post about it. But the reason I say kind of is because most (if not all) newspapers will not provide the full article in the RSS feed. You have to click through to read the full thing.

Not much use, is it?

Which, to be clear, is entirely understandable. User tracking, ads, and all the rest of it, I get it. But it does mean that Feedly isn’t a great way to keep track of all these articles in one place.

What I would really like is an app/service that aggregates all news sources in full in one place, and allows me to sign in to premium news sources via that app/service.

Does such a service exist? Or are there workflows that solve this problem?

Please, do let me know!

The Vajpayee Moment in Telecom, IO and Porter’s Five Forces

Vijay Kelkar and Niranjan Rajadhakshya had on op-ed out in Livemint recently on the mess in the telecom sector, and their suggestions for (at least partially) resolving it:

It has been about a year since the Supreme Court instructed telecom companies to share not just their core telecom revenues with the government, but also to take into account promotional offers to consumers, income from the sale of assets, bad debts that were written off, and dealer commissions. The apex court has allowed the affected telecom companies to make a small upfront payment and then pay their excess AGR dues to the government in ten annual instalments, from fiscal year 2021-22 to 2030-31, in an attempt to ease their immediate burden, which has raised concerns about the financial stability of Bharti Airtel and Vodafone Idea. Analysts estimate that the extra annual payments by all telecom firms could be around ₹22,000 crore a year.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

Their suggestions for the resolution of this problem involve the issuance of zero-coupon bonds by the telecom companies, along with an option for the government to acquire a 10% equity stake. As always, please read the whole thing.


Now, this may work, this may not work. The more I try to read about this issue, the more pessimistic I get about a workable solution. But we’re not going to get into the issue of finding a “workable” solution today. We’re going to learn about how to think about this issue.

That is, what model/framework should we be using to assess a situation such as this? Kelkar and Rajadhakshya obviously have a model in mind, and they hint at it in this excerpt:

There are three broad policy concerns that need to be addressed in the context of the telecom sector: consumer welfare, competition and financial stability. Possible tariff hikes to generate extra revenues to meet AGR commitments will hurt consumer access. The inability to charge consumers more could mean that the three-player telecom market becomes a duopoly, through either a firm’s failure or acquisition. The banks that have lent to domestic telecom companies are also worried about their exposure in case AGR dues overwhelm the operating cash flows of these companies.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

So a solution is necessary, they say, because we need to have a stable telecom market that doesn’t hurt

a) the consumers,

b) the current players in this sector and

c) the financial sector that has exposure in terms of loans to the telecom sector

To this list I would add the following:

d) make sure the government doesn’t get a raw deal (and raw is a tricky, contentious and vague word to use here, but we’ll go with it for now)

e) make sure new entrants aren’t deterred from entering this space (if and when that will happen)

f) suppliers to the telecom sector shouldn’t be negatively impacted

In other words, any solution to the problem must be as fair as possible to all involved parties, shouldn’t change the status quo far too much in any direction, shouldn’t hinder the entry of new competition, and should give as fair a deal as possible to consumers.


Take a look at this diagram:

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis#/media/File:Elements_of_Industry_Structure.svg (Credit: Denis Fadeev)

Students who are familiar with marketing theory are going to roll their eyes at this, but for the blissfully uninitiated, this is the famous Five Forces Analysis.

Porter’s Five Forces Framework is a method for analysing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis

Michael Porter’s Five Forces Framework can be traced back to the structure-conduct-performance paradigm, so in a sense, it really is an industrial organization framework:

In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior on a continuum between competition and monopoly, including from government actions.

https://en.wikipedia.org/wiki/Industrial_organization

The point is that if you are a student trying to think through this (or any other problem of a similar nature), you should have a model/framework in mind. “If I am going to recommend policy X”, you should be thinking to yourself, “how will that impact Jio? Airtel? Vi? How will that impact government revenues? What signals will I be sending to potential market entrants? Will consumers be better off, and if so, are we saying that they will be better off in the short run, or on a more sustainable basis?”

Now sure, the diagram doesn’t include government, but the Wikipedia article on the Five Forces does speak about it later, as does the excerpt above from the Wikipedia article on Industrial Organization. More importantly, this framework gives one the impression that we’re dealing with a static problem, with no considerations given for time.

I would urge you to think about time, always, as a student of economics. Whether it be the circular flow of income diagram, or the five forces diagram, remember that your actions will have repercussions on the industry in question not just today, but for some time to come.


So whether you’re the one coming up with a solution, or you’re the one evaluating somebody else’s solution, you should always be evaluating these solutions with some framework in your mind. And tweaking the Five Forces model to suit your requirements is a good place to start!

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.

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.

A query on a column by Ajit Ranade

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

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

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

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

The need for the stimulus

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

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

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

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

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

Show me the money!

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

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

What is the best choice?

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

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

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

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

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

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

 

 

 

Econ101: Policy Responses to a Pandemic

If you haven’t played it already, go ahead and give this game a try: The Fed Chairman Game. I have a lot of fun playing this game in class, especially with students who have been taught monetary policy. It usually turns out to be the case that they haven’t understood it quite as well as they think the have! (To be clear, that’s the fault of our educational system, not the students.)

But the reason I started with that is because the game always throws up a scenario that mimics a crisis, and asks you what you would do if you were the Chair of the Fed.

In this case, policymakers the world over are now staring at a very real crisis, and they need to be asking themselves: what should we do?


 

There are two broad answers, of course: monetary policy, and fiscal policy.

The Federal Reserve has cut interest rates to zero, and while it has other tools to stimulate the economy, a crisis like this requires fiscal as well as monetary responses. The legislation passed thus far has been important, but another round of fiscal policy will be required immediately to fully address this crisis.

A robust fiscal response can provide income support to households, ensure broad and continuous access to safety net programs, provide incentives for employers to avoid layoffs, provide loans to small businesses, give liquidity cushions to households and firms, and otherwise stimulate the economy.

That’s a write-up from Brookings. The specifics follow in that article, but the article makes the point that more of the lifting will need to  be done by fiscal, rather than monetary policy. And that is true for a variety of reasons,  which the article does not get into, but long story short – fiscal, more than monetary.

But, ok, fiscal policy of what kind? Should we give money to firms or to workers? Here’s Paul Krugman with his take…

And here’s Alex Tabarrok with his response:

So what’s the correct answer? Well, as we’ve learnt before, and will learn again, macro is hard! In an ideal world, all of the above, but as is manifestly clear, we are not in an ideal world. If we must choose between giving money to firms or to people, to whom should we give it? My opinion? People first, businesses second. This is, of course, a US centric discussion, what’s up with India?


 

Here’s, to begin with, a round-up from around the world – you can search within it for India’s response thus far.

Calls are getting louder for governments to support people and businesses until the new coronavirus is contained. The only questions are how much money to shovel into the economy, how to go about doing it, and whether it will be enough.

Already, officials from Paris to Washington DC are pulling out the playbook used in Asia for slowing the spread of Covid-19: they’re restricting travel and cracking down on public gatherings. While those measures have the potential to reduce deaths and infections, they will also damage business prospects for many companies and cause a synchronized worldwide disruption.

Here’s the FT from two weeks ago about the impending slow down:

Venu Srinivasan, whose company TVS is one of India’s largest makers of motorcycles and scooters, said the business had lost about 10 per cent of production in February owing to a lack of Chinese-made parts for the vehicles’ fuel injection system. He added that TVS has now managed to find a new supplier.

But Mr Srinivasan said he was bracing for India’s recovery to take longer than anticipated. “One would have expected a V-shaped recovery, but instead you have an L shaped recovery,” he said. “It’s been the long haul.”

R Jagannathan in the LiveMint suggests this:

This is how it could be designed. Any unemployed urban youth in the 20-30 age group could be promised 100 days of employment and/or skilling options paid for by the government at a fixed daily rate of ₹300 (or thereabouts, depending on city). At an outlay of ₹30,000 per person annually, the unemployed can be put to work in municipal conservancy services, healthcare support, traffic management, and other duties, with the money also being made available for any skill-acquiring activity chosen by the beneficiary (driver training for Ola-Uber, logistics operations, etc). All companies could be given an opportunity to use the provisions of the Apprentices Act to take on more trainees, with the apprenticeship period subsidized to the limit of ₹30,000 per person in 2020-21. If the pilot works, it could be rolled out as a regular annual scheme for jobs and skills. Skilling works best in an actual jobs environment.

 

He also mentions making the GST simpler, which the Business Standard agrees with:

Certainly, the rationalisation of GST will also affect government revenues. However, a simpler and more transparent system would allow greater collection and reduce evasion. The government will receive a windfall this year from lower crude oil prices. The moment to move on the structural reform agenda is now. The GST Council has done well to address the inverted duty structure in mobile phones. Further rationalisation will give confidence to the market that the government is serious about reforms. It was promised that GST would remain a work in progress, and that the GST Council would act often to improve it. So far, however, the changes have been marginal and haphazard. A more structured and rational approach, which outlines a quick path to a single rate, would pay dividends for the economy in the longer run. It would also be an effective way to manage the immediate effects of a supply shock such as is being caused by the pandemic.

Also from the Business Standard, a report on the government now considering (not happened yet) relaxing bad loan classification rules for sectors hit by the corona virus. That’s pretty soon going to be every sector!


 

Assorted Links about the topic – there’s more to read than usual, please note.

Here is Tyler Cowen on mitigating the economic impacts from the coronavirus crisis.

Here’s Bill Dupor, via MR, about the topic:

First, incentivize behavior to align with recognized public health objectives during the outbreak.

Second, avoid concentrating the individual financial burden of the outbreak or the policy response to the outbreak.

Third, implement these fiscal policies as quickly as possible, subject to some efficiency considerations.

Again, via MR, New Zealand’s macro response.

Arnold Kling is running a series on the macro response to the crisis.

Claudia Sahm proposes direct payment to individuals:

This chapter proposes a direct payment to individuals that would
automatically be paid out early in a recession and then continue annually
when the recession is severe. Research shows that stimulus payments that
were broadly disbursed on an ad hoc (or discretionary) basis in the 2001 and
2008–9 recessions raised consumer spending and helped counteract weak
demand. Making the payments automatic by tying their disbursement to
recent changes in the unemployment rate would ensure that the stimulus
reaches the economy as quickly as possible. A rapid, vigorous response to
the next recession in the form of direct payments to individuals would help
limit employment losses and the economic damage from the recession.

Here are the concrete proposals, the entire paper is worth a read:

Automatic lump-sum stimulus payments would be made to individuals
when the three-month average national unemployment rate rises by
at least 0.50 percentage points relative to its low in the previous 12
months.
• The total amount of stimulus payments in the first year is set to
0.7 percent of GDP.
• After the first year, any second (or subsequent) year payments would
depend on the path of the unemployment rate.

 

Macroeconomics IS HARD!

Economics in the times of COVID-19, there is already a book. I learnt about it from Tim Taylor’s blogpost. I have not read the book, but will soon.

The NYT, two weeks ago, on the scale of the problem facing policymakers.

 

The Return of Protectionism, Writing Better Papers, 100 True Fans, Corona Virus and Classics on the Kindle

Five articles that I enjoyed reading this week, and figure you might as well.

 

Vivek Dehejia raises an uncomfortable question: are we more protectionist now than at any point of time since 1991, and examines some of the possible impacts.

Even the most well-inclined observers can no longer palm-off previous tariff increases by the current government as mere one-offs or aberrations. It is abundantly clear now, unfortunately, that the government of Prime Minister Narendra Modi, in its second innings even more than the first, has abandoned an almost three-decade commitment to trade liberalization, going back to the initial liberalization impetus of 1991. Notably, even governments that did not further liberalize, at the very least refrained from sliding back into protectionism. No more, though—we are now witnessing a more or less explicit embrace of import substitution, which had been thought abandoned in 1991 and beyond.

Useful advice for writing academic papers on development better. Even if you don’t write these yourself, this article might have useful advice about selecting which ones to read.

You win or lose your readers with the introduction of your economics paper. Your title and your abstract should convince people to read your introduction. Research shows that economics papers with more readable introductions get cited more. The introduction is your opportunity to lay out your research question, your empirical strategy, your findings, and why it matters. Succinctly.

Some years ago, Kevin Kelly wrote an article called 1,000 true fans (he does a lot else besides, by the way, and learning more about him is worth your time). Li Jin has written a follow-up piece that I hope rings true in the years to come.

Today, that idea is as salient as ever—but I propose taking it a step further. As the Passion Economy grows, more people are monetizing what they love. The global adoption of social platforms like Facebook and YouTube, the mainstreaming of the influencer model, and the rise of new creator tools has shifted the threshold for success. I believe that creators need to amass only 100 True Fans—not 1,000—paying them $1,000 a year, not $100. Today, creators can effectively make more money off fewer fans.

I have so far resisted linking to or speaking about the Corona virus, primarily because I don’t know enough about the topic to speak responsibly about it. That, I’m sorry to say, hasn’t changed, but reading this article was helpful for me, and hopefully is for you as well!

The next two months will be critical, and it is important for all of us to do everything in our power to minimize viral spread. The simple stuff includes washing hands more frequently, greeting others without handshakes, getting a flu shot (if you haven’t already), and cleaning and disinfecting frequently touched objects. All of these actions are recommended by the CDC. Hopefully, through behavioral changes such as these, we will be able to keep R0 below 1 and prevent this virus from becoming a pandemic.

A random question asked in class this week spurred this search, and maybe you find this list useful yourself? I certainly did! Free classic literature on Kindle.

On India’s Constitution, Part II

I fear I have taken on more than I can handle, by starting the process of teaching myself more about India’s Constitution.

I started in the previous month with what I thought would be a rather more simple question: how did the constitution start off? What were its founding principles, its aims, its intentions? Why were these the principles, aims and intentions?

Well, if this is indeed a rather more simple question, I fear many more Mondays in the months years to come will be devoted to the entire task I have set myself: to learn more about India’s constitution.

But hey, the one thing we have is time!

So allow me to indulge myself, and devote one more Monday to the topic we covered in January 2020: understand better the founding of the Indian constitution, before moving on to other topics related to it.

I’d recommend you begin by watching this video of a speech given by Rohinton Nariman in the year 2013. It is nearly fifty minutes long, but all of those fifty minutes are worth your time. In my case, I ended up watching it twice, and if only I had time, I would watch it again. It raises many, many questions that make me want to learn more – and that is a good thing.

Here are just five things that I wanted to learn more about:

  1. B.N. Rau and the travels that he undertook before writing the Constitution,
    ..
    ..
  2. The city of Danzig and the freedom of movement
    ..
    ..
  3. The (to me, frankly amazing) right to property and its understanding and implementation in an Indian context
    ..
    ..
  4. Dr. Ambedkar’s opinion about having no axe to grind as a member of the constituent assembly. It is a great way to start thinking about public choice theory, if you ask me
    ..
    ..
  5. And how difficult the United States of America and even more so, Australia, have made the process for amending the constitution.

And believe me, I have cherry picked these five, more or less at random. There’s so much more to think about!

Second, in the post I wrote in January, I spoke about wishing I could learn more about how the constituent assembly was formed. Reading this article helped me understand that the people who wrote the constitution (the members of the constituent assembly) also were the people who ratified it!

An even more important point to note is that the Constituent Assembly was deeply involved in the drafting the Constitution itself. It met over 11 sessions and 166 days between 1947 and 1950 to discuss the Constitution. In contrast, in the US, there was a very clear separation between the drafting of the Constitution (done by the Philadelphia convention – a central body with representation from each state), and the state-level ratification conventions, which voted on it later.

This separation meant that the ratifiers did not have their hands dirty in the document, with the exception of a small minority of members who were a common presence in both conventions. They had no emotional stake in the Constitution draft and could vote on it independently. It was up to the drafters of the Constitution to convince them of this document. This is what necessitated the “Federalist Papers” – a remarkable exercise in marketing the newly proposed law of the land.

No such marketing was required in India, given that the ratifiers were the drafters too.

Useful more for trivia buffs (and I enthusiastically plead guilty to the charge) than perhaps for the topic at hand, but an informative read nonetheless is this rather long article in Scroll. On the history of constitutionalism in India:

Knowing only too well that Englishmen only counted as knowledge what Englishmen declared to be so, when Rao wrote to Napier in March 1872 to decline the seat on the Viceregal Council, he appended the relevant sections from Bowring’s Eastern Experiences, adding that nothing could be more interesting than participating in the development of “something like a constitution” wherein “a Native Administration” might be brought under “a system of fundamental principles, derived from the advanced political wisdom of Europe” albeit “carefully adapted to the conditions of the Native society”.

I am somewhat ashamed to note that it took my reading of this article to know what I should have been aware of in any case, given that I teach at the Gokhale Institute of Politics and Economics:

The most vocal was Rao’s sometime protégé and collaborator, Mahadev Ranade, whose essay, “A Constitution for Native States”, which was published in the Quarterly Journal of the Poona Sarvajanik Sabha, generated much debate and discussion. It eventually prompted a series of remarkable works detailing indigenous forms of constitutionalism.

The most prominent of these works was Kashinath Telang and Ranade’s Rise of the Maratha Power, which carefully explained how much Shivaji’s success owed to the ‘constitutional’ nature of his rule (and concomitantly, how much Maratha decline owed to Shivaji’s descendants departing from such constitutional rule).

And finally, two book recommendations, with the caveat that I myself have as yet not read either. They’re both by the same author, who is currently coordinating with the Hindustan Times to publish a series on the same topic that I am writing about on these pages:

The two books are India’s Founding Moment, and  The Indian Constitution (Oxford India Short Introductions Series). As I said, I haven’t read them myself, but did purchase them today. Why then do I recommend them? Well, one, the relevance to the topic is obvious, but also, this article from Livemint a long time ago really helped.

 

The Constitution is inevitably shaped by and shapes politics. How it does so is a question far too ambitious for my book. But something I do try to gently do, wherever I could, is suggest how certain legal decisions were shaped by the political circumstances as well as how our overemphasis on politics has prevented us from appreciating the legal significance of particular aspects of our Constitutional law.

The good news, for me, is that I get a month to try and read these two books before I tackle the subject of the Indian Constitution once again.

Once again, a tip of the hat by way of thanks to Murali Neelakantan for helpful recommendations, and a request to my readers to help out along similar lines.