Forgotten lessons of Economics

Pranab Mukherjee, the finance minister, last evening again repeated a falsehood in the hope that if you repeat a false statement enough times, it will appear to be true – he mentioned that if inflation were to be tamed, growth would have to come down.

This reflects the lack of ideas that the government has in increasing production. Supply side issues abound. Complex land laws prevent quick transactions relating to land, and create an artificial scarcity that raises land prices beyond what any legal economic activity can support. Poor legal administration increases the cost of all economic transactions, while raising the cost of credit. Bureaucratic delays and complex compliance prevent entrepreneurship from flourishing without flouting some arcane rule. Tax compliance is reliant on interpretation of officials empowered to harass the tax payer without adequate redressal mechanisms. All this leads to large scale unemployment, resulting in corruption and an environment where government appears to don the role of a “largess distributor” rather than that of a servant of society.

Other capacity building measures – good quality and high availability public health system, and education systems are conspicuous by their absence. Instead, the economic survey and planning commission – the economic “think tanks” of the government – continue to propagate irrelevant ideas of increasing foreign investment limits in health insurance, and in multi-brand retail.

One has to only look at the disaster that the USA is heading towards in its Medicare and Medicaid programs to see the problems that arise from unrestrained private sector growth in health insurance, and from a patent law that protects corporate profits over the need of human life. The economic rationale for foreign investment in multi-brand retail is even less obvious.

A government that is mired in corruption, increasingly dependent on the support of regional parties for its existence and devoid of any ideas on how to progress India’s aspirations is going to present challenges to India achieving its true potential. If India does well inspite of these challenges, one has to believe that there is a God somewhere – more importantly someone who has Indian citizenship!! 

Anna Hazare - India's greatest hope

The fast that Anna has undertaken has focused the attention of the nation on the greatest internal threat - that of corruption. The popular response that this has generated can only restore faith in India's democracy. There is one aspect which I find very puzzling. In countries like Egypt entrenched autocracies needed popular movements against them to change. In India, we can simply vote them out. Why is the people movement not focused on demanding that their representatives take the lead in Parliament in championing the Jan Lokpal Bill - the focus of current attention. Instead, the focus seems to be on ignoring the political class.

A true reflection of the maturity of Indian democracy would be to have each constituency summon its representative and question him on his stance on the bill and demand that he support it. I think that would make it difficult for any government or party to NOT pull in the same direction.

Another possibility would of course have been for the "honest" PM to accept the demand to set up a committee to evaluate the bill. However, that would require a thinking man - and a leader, something this country certainly lacks. 

"Inside Job" - a must watch

Last week, I had the occasion to watch "Inside Job" a documentary on financial sector meltdown in the US - and its consequential effects on other economies. First, it is great to see Sony release a movie such as this in the mainstream theaters. Second, it emphasized yet again (as if reiteration was at all needed) that when confronted with self-serving greed, a system supposedly working on "self-regulation" is destined to fail.

The fact that the "freedom of markets" has been taken to an extreme - and needs urgent correction is there for all to see. Painfully, the lobbyists are so strong that the system continues - in fact becomes worse as the "solutions" turn out to be even sillier than the cause.

"Too big to fail" has now translated into "Even bigger" - rather than regulatory action breaking up large companies posing systemic risks into smaller entities that can be regulated better, the reverse has happened. The industry has managed through fear and favour to lobby the regulators and law makers from passing any laws that curtail the industry's ability to cause another catastrophe.

One hard hitting fact that emerged was the lack of intellectual integrity in the so-called thought-leader academic institutes. Leading academicians - deans and professors from Harvard and Columbia were filmed acting like petty thieves caught with their hands in the till. They apparently found nothing wrong in writing research as original work - where the recommendations benefited clients who paid for the research - and these august institutions apparently have no policy to avoid this conflict of interest.

In essence, one comes away from the movie - more than a little disgusted with the worshippers of the mammon - and of the antics of the "intellectuals" in business schools. Is it any wonder that with ethics such as theirs, the students have no compunction in causing misery to the millions in the real economy - so long as they get their bonus.!

Japanese earthquake - lessons for India

The earthquake, followed by the Tsunami in Japan has been devastating. In the words of PM Naoto Kan, Japan is facing the "worst crisis since WWII".  Despite extremely strict building norms, over 10,000 people are feared dead.

What initially started as one nuclear power plant shut down, has now (as I write this) extended to three - Fukushima (now in its third day), Onagawa, and Tokay No2 plant. Japan is the only country to have suffered a nuclear explosion. A nuclear power plant in Japan would necessarily have followed the strictest possible building norms. Besides, Japan is anyway an earthquake prone area - and even regular buildings are constructed to withstand the earth shaking. Despite this, nuclear power has again proven to be risky and dangerous.

Imagine the consequences in a country like India - where building norms are generally lax, and casually enforced. Add to that the lack of liability of foreign suppliers, and a high density of human population - with minimal emergency systems - and you get a potent recipe for disaster. Recent reports suggest that the Buoys that were floated as part of India's early warning Tsunami system are already part of the inventory of  junk dealers.

Someone needs to ask - do we REALLY need those nuclear reactors - just so that some multinational can grow rich? After the fiasco of the CVC, perhaps this is another policy where the PM needs to admit to the mistake of his decision.

India's strategic loss

My first post in the new year, from a new location - Hyderabad (I should now rename the blog perhaps) has to do with some sad news - the passing away of K. Subrahmanyam – regarded as the father of strategic planning on issues regarding defence and foreign affairs. Unfortunately, I had no interaction with him – except for reading most of his columns appearing in the press – where he was a prolific contributor.

Subrahmanyam – a one-time nuclear hawk – inconsistently supported the nuclear deal that India signed up with the US – a move I would ascribe to advancing age, and a lack of appreciation of the economic realities of the new world. That opinion notwithstanding, I always found his writing to be interesting and well informed. While his insights were called upon by many governments – the Congress government, and the NDA, they were not always taken to their logical conclusion - many of the recommendations of his report after the Kargil war remain unimplemented.

In his demise, India has lost a strategic thinker who had the best for India at heart. May his soul rest in peace.

Integrity Dr Singh?

The CVC is appointed over the protest of the Leader of Opposition. The person has been chargesheeted in a case. And is one of the persons responsible for the 2G scam. The Supreme Court questions how the person can be investigating cases of corruption. The CVC still occupies office, though there is just a chance he may resign.

The election commissioner was appointed while there were allegations of having received money in a charity run by him, from ruling party members.

Raja was finally ousted by pressure from the parliament - and is now being investigated.

His boss - Dr. Singh, continues in office, unscathed and unaffected - constitutional propriety be damned.

Teesta Setalvad is now being investigated by a sessions court for filing false affidavits. A Delhi court had to instruct the Delhi police to file an FIR against Arundhati Roy and her separatist supporters - over-ruling the objections of the police that no case was needed. For this government, Kashmir is not a problem, the government is busy finding and prosecuting "saffron terror".

Various government banks and bankers were found to be taking bribes, and are now being investigated.  Rumours abound that the aviation minister and his party boss have shareholding in two major private aviation companies - companies that he is supposed to regulate, and who have increased airfare by well over 100% in the past one year. Kalmadi roams free - the Rs70,000 crores that were spend to host the CWG remain to be investigated.

Government lies extend to economic growth figures. Gross fixed capital formation for the first quarter this year have been revised from 7.6% to 18.9% (because a new set of inflation deflators are being used) !

Indian defence is in tatters - the latest wikileaks quoted the USA ambassador as estimating that India's "cold start" military doctrine is now in cold storage !

Sometime earlier this year, a movie called LSD made waves. It could describe the operating motto of the Singh government. But Dr. Singh is an honourable man.

Hounding wikileaks

The Chinese government is often lectured for being secretive, of suppressing dissent . So are governments in several other parts of the world - Burma and Iran to name a few. Apparently, this same standard should not be applied to diplomatic missives - or so the US government would have you believe. Disclosing what goes on behind the diplomatic curtain is a crime !

USA government now wants to file a criminal case against Wikileaks founder. Paypal has stopped accepting payments to support the site, and google has stopped offering the site which it hosts. Both these service providers disclaim any pressure from the government. How believable is that?

Eventually, what matters is that ALL countries look after their own interest (and that usually means the interest of the government in power). So take the justification for the action against wikileaks - the assertion that this puts people at risk - for what it is - protestations of a government caught lying.