When Bulls meet - Shit happens

The "Market Summit" organized by ET the last weekend revealed yet again the inability of public debate in India to rise beyond cheerleading. Despite some interesting panelists, the discussion remained largely mundane and predictable. Surprising for such a panel, many arguments were simply wrong:

Chris Wood mentioned that inflation in India was good because we need some parts of the world to grow. Whatever happened to growth with moderate inflation - the mantra the fueled the US markets for most of the nineties? Besides, why is inflation needed for growth? Is anyone making a case that India is a "full employment" economy?Inflation is BAD for the poor - who make up large portions of the Indian population, and a government that does not focus on this is hardly managing the economy sensibly. Clearly a case of poor economic argument.

Rakesh and Shankar Sharma mentioned that the Indian economy did not receive a stimulus. Rakesh even made a suggestive statement that with the youngest population in the world, the Indian economy did not need one. Unfortunately, this is completely contrary to facts. The past three years has seen double digit fiscal deficits (just add centre and state. If you take off-balance sheet items, its positively scary). The government expenditure has been well above trend. Importantly, the stimulus continues unabated - with inflation running in high double digits and interest rates low, we have negative interest rates prevailing - which even the RBI has been constrained to comment on. If this is not the largest stimulus imaginable, I am not sure we are on the same page with regard to basic definitions.

A subdued Sameer Arora did make an attempt to inject some balance in the "debate". However, in today's youthful India, it seems that voices of balance can hardly get airtime.

Update on Defence and related issues

An update on current status of defence, nuclear deterrent and our neighbours:

Pakistan receives latest F-16's with night fighting capabilities

NSG Update from Vardarajan - US attempts but fails to stop ENR technology transfer to non-NPT countries (INDIA)

K Subrahmanyam points out China is the main proliferator - an interesting analysis

An old post from Dr. Jeffery Lewis where he seeks to make out that Indian strategists support signing CTBT - Interesting but treat with circumspection

Af-Pak - the new US FAK-AP

One organization in the US that is taking the "short term" view is certainly the white house. With its Af-Pak policy predictably falling apart, and with their self-imposed deadline of 2011 to exit Afghanistan fast approaching, the US government is creating a new breed of armed goondas to manage law and order. As Chellaney points out here this too shall end in tears - except that these may involve Indian lives as well.

Keynes - dead but not buried

So. now Krugman has almost started to rant. Miffed that his generally "economically correct" arguments against austerity are seemingly falling on deaf ears, Krugman has upped the ante - he now wants all to believe that economic policy should be driven by near term factors - and in the long(er) term we are all dead.

This is dangerous thinking. On this logic, his support for climate change would seem ridiculous - after all near term pain is apparent - why take it for long(er) term benefit - when we are all dead. This same argument is what prevented the US Fed from taking away the punch bowl when the party was getting raucous. Now that the participants are suffering a hangover, the "nobel" prof would have you believe that the best antidote is more of the punch bowl. Exactly in what condition that needs to be taken away remains unanswered - just not NOW.

India announces green flag for future nuclear disasters - freedom from prosecution

Twenty three years, thousands dead, an absconding American and no one in jail. This summarizes the outcome of the long lasting case against Union Carbide - the judgement of which was pronounced today. The facts are undisputed - US company UC had an accident in its plant in Bhopal which killed approximately 6x the number of people that died in 9-11. It took 23 years to establish the fact and send NO ONE to jail. Not surprisingly, the US CEO is an absconder, refused to stand trial in India, and was not even NAMED in the judgement. No doubt another case of US-India partnership that Secretary of State Hillary Clinton alluded to a couple of days back

If anyone doubts that imperialism survives as economic coercion, the tenor of the above statement will clear such doubts. Clinton applauds India for its help "shape the Copenhagen Accord and pledged to lower its greenhouse gas emissions intensity by up to 25 per cent" - a position which has the potential to make India's own growth more expensive - and is at variance to its own, well argued, earlier position that India did not need to make any commitments of this nature. 


Another pat on the back - "During Prime Minister Manmohan Singh's visit to Washington in November, he and President Obama launched the partnership to advance clean energy" - translated, this means a large contract to buy nuclear reactors from the moribund US nuclear industry. 


To buy the nuclear reactors, India will need to pass a bill that will allow US suppliers to go scott free in the event of an accident. Clearly, the US had learned from the UC disaster. Equally, our rulers continue to treat Indian lives as dispensable - sitting at the "high table" of nuclear trade (wonder where this mythical table is) is worth some sacrifices to Dr. Singh.

FDI in retail - liberalization or suicide

Apparently, the government is again contemplating FDI in retail sector. Since the Left parties are opposed to it, it has become fashionable for the "young" and "progressive" to pooh pooh the concerns and recommend this as a measure of India's "opening up". Surprisingly, the proponents of liberalization (assuming such are in a majority) do not themselves seem to have confidence in the businesses they recommend - witness the abysmal (single digit) ownership of equity of Indian companies among the Indian public. The pity is, that most such free-market proponents are unknowingly acting as lobbyists - for free. The foreigners know better - atleast they demand a price to lobby! Remember Enron?

So what is at stake here? A Wal-mart is almost the size of Indian retail industry, yet employs only 5% of the people retailing in India supports. In a country where job creation significantly lags additions to the labour force, any sensible government (other than one bought out by lobbyists) will have to wonder as to the pay-off of this "liberal" policy.

Even assuming that we accept that law of the jungle should work and only the strong should survive - what exactly is the argument for "foreign" ownership? Do Indian entrepreneurs not have the skill or risk taking capability to set up and run retail businesses - there is after all no bar on them doing so. So why this shrill demand for opening up to foreign investors?

The few companies that have ventured into retail have yet to generate economic return on capital. Stripped of accounting shenanigans, no company in the business has generated a return that meets its cost of capital. On the other hand, many "innovations" of "organized retail" - extending credit, home delivery etc. are already offered by the friendly neighbourhood retailer. Clearly, the only way that "organized retail" will complete is by adopting competition destroying methods of discounting and taking upfront losses - leveraging their ability to raise "free capital" from the stock market. Consumers will suffer int the longer term as cartels forces prices up once the small retailer is driven out of business. Is this what "free markets" are supposed to foster?

Good for the market - terrible for the country

A recent development in the stock market has the potential to harm India and Indians in the long term. The irony is that this is a result of "progressive policies". The development in question is the acquisition of Nicholas Piramal's pharmaceutical business by Abbott. In itself, the acquisition raises few issues. However, it portends a resurgence of multinational pharma companies in the Indian market, with consequent detrimental effects to the lives of Indians.
 
I have long been opposed to so-called "Intellectual property" - which, in my opinion, is just the latest way to exploit the poorer sections of society. Especially after physical assets/resources required for human existence have been captured by the "developed world". Using the power of lobbyists and under the guise of IP, poor countries like India have been forced to accept product patents. With this come expensive, and unaffordable medicines, and usurious health insurance costs - social costs we could do without.

India shook off its dependence on foreign medicines and developed a thriving domestic pharma business when it abandoned product patents and recognised only process patents. Consequently, Indian pharma industry today is well developed, with excellently developed chemistry skills and low cost production - benefitting not only Indian patients, but those around the globe - including those in "regulated" markets. This is now set to change - with India having succumbed to political pressure and signed up for product patents a few years ago.

Surprisingly despite countries like the USA drowning in health care costs, so-called free marketeers continue to push the case of "IP"  - and poor countries like India acquise. If the above seems overly leftist (after all the patent laws in India do offer compulsory licensing and price setting by the government) - well, read this