May 16, 2009

Bring out the Champagne with a dash of Sedative

Filed under: Governance,Politics — Bottom's Up @ 12:05 pm

In an election where the choice was one of going for the least of all evils, the people of India has chosen magnificently. As someone who had become more and more cynical with the direction the people (and hence leaders) of India were taking her, this writer is truly delighted.

There are some trends here which are truly causes for hope. Of course the assertion that this is a mandate for a stable Government indeed has elements of truth to it. The communists , the Mayawatis  and the regional parties which were seen as either not up to the task of providing a stable Government or simply too disruptive and untenable for a stable Government have lost heavily. When it comes to the communists, it probably has been the major reason after their repeated rants of anti-Americanism and rigid stands on issues such as the nuclear deal. Similarly, Reddy’s huge win in the Lok Sabha elections in Andhra but few gains in the assembly elections point to the same trend. Maharashtra may fall in this bucket too. All of this, particularly the strong contrasts in Andhra, definitely speaks highly of the astuteness of the Indian voters.

A second trend is a vote for Governance. A careful look shows that despite its loss, the BJP did not really lose as much in terms of seats overall as the third front.It did do badly in places such as Rajasthan where its Governance was bad, but in other places where its Government did a good job such as Gujarat, it maintained and even expanded its lead. The Governance reward trend is true across parties and regions. Nitish Kumar has made a clean sweep in Bihar. HIs strength is that he is not only able to tap into identity polictics (a necessary evil in Indian politics) but he has not forgotten to follow it up with Governance. His was definitely not a big party though it had allied with the BJP. Similarly, in the former BJP stronghold of Delhi, again a performing Government of Sheila Dixit has been rewarded. On the other hand, the extremely poor levels of Governance in UP by Mayawati have been punished. This and stability allowed the Congress to make huge gains in UP. This focus of the voters on performance is probably one of the nest news of this elections and hopefully will serve to incentivize more state Governments to do their job.

A third trend that is being pointed out is one of this being a vote against extremist. I do not believe that as a first order effect this was important. For example. Gujarat is a prime example where extremism did not play in the equations and it was all about Governance. Nor did Modi’s presence in Maharastra for campaigning either help or hurt. Similarly, in many places where the BJP had won in the past, it continued to maintain its hold. However, there are two second order effects. In an era of coalition politics – something which is expected to be around – most regional parties were unwilling to touch the BJP with a nine feet pole. Their extremist tendencies cost them heavily in terms to getting allies at a time when they really needed allies. Though it may be partly opportunism on the part of Nitish, this may also play a part in his parting ways with the BJP. Another effect of its extremism was its inability to expand its base. To that extent, in the current political climate, Hindutva just did not fly beyond the established base. Again Maharashtra is a prime example where the Congress had a Government which is terrible but still won. It does mean that the BJP, if it needs to continue to be a national party and gain allies, needs to shed its extreme image and become a true center right party. Of course, when it comes to communal issues, things can quickly change.

All said and done, blunders and lack of a strategy by the third front and the BJP definitely played their part in the win of the BJP. However, it was as much a mandate for a party that was reatively (and I use ‘relatively’ strongly) better at providing Governance and stablity. Kudos to the Indian voter. However, with good news always come some bad. We are definitely looking at a stable Government and also promising trends in the attitude of the Indian voters. However, the BJP continues to look just as confused as it always was. This could mean that they decide to go further to the hard right, choose new leaders more alignemed with the new sangh and end up becoming even more marginalized. If this happens, the Congress would become the only dominant party in the country and after the era of the Indira Gandhi debacles, we know where that could lead.  Thus, this writer hopes that the BJP takes the right lessons and comes back as a stronger, more moderate opposition to the Congress. A second cause of worry is what this means for inner party democracy. The lack of inner party culture has grown over the years and the rise of Rahul Gandhi – the Congress is already attributing the entire UP success o him, a questionable claim – would do nothing to change that. The return of Mamata Banerjee, the win of the Congress in some places such as Maharastra despite non Governance are also unhealthy outcomes. Hopefully some of these fears will be assuaged with the rise of better oppositions.

For now though, given the cirstances and the options in front of the Indian voter, this is the best possible outcome. If this is not cause enough to bring out the champage, then nothing is.


February 1, 2009

Looking Within

Filed under: Politics — Bottom's Up @ 2:08 pm

Democracy may be a lot of things, but at a basic level, it is the will of the majority. A discussion on how to avoid it’s pitfalls and to give everyone a say is a tricky topic in itself and for another day. However, democratic nations elect leaders who reflect their values. Granted, nations and peoples can be fooled from time to time, but this state of ignorance can only persist for so long.

Thus, when George Bush got elected the first time,  it was not such a big deal. Within a short time, it started becoming obvious that the administration was one of mismanagement and in many cases surreptition. Still, in 2004 the President was re-elected by the American people. Again, many reasons are given for this – the lack of viable alternatives, the belief that he was good in the things that mattered, etc. However, the bottom line was that many people were pro a hawkish non negotiable foreign policy. People were pro life and pro the economics of his day. Bush was a reflection of what the American people wanted – and it was reflective in 2004 as it was in 2000. Only by 2008, when people started seeing the error of the things they wanted their leader to do did things change. Thus the state of ignorance ended, a time of reflection and redemption arrived and people voted for a change in policies. Whether Obama is anything new or an exemplification of redemption, only time will tell. The important thing to note is that people realized the problems with their ways or priorities and voted to change their leader.

Now, let’s look at India. In India, in terms of leader we do not have a viable option. The Congress is a model of nepotism, corruption and an attitude of inaction and lethargy when it comes to Governance. The BJP on the other hand is hawkish but like a little child – immature and obstinate. It’s just as corrupt and exemplifies intolerance. Both share methods of division along various lines to stay in power. After the Mumbai attacks, people raised their voices in anger against the Government and it’s ineptitude. Pakistan was not on the people’s radar, though the policy of terrorism from across the border was not new. This writer had hoped at that time that it was our moment of reflection and maybe redemption. Alas, that was not to happen. In time, we are back to blaming Pakistan more and more and reducing our demands from the Government. We have again slipped into our comfortable chalta hai zone. While Pakistan has been less than helpful in it’s cooperation, the Indian Government has been very ineffectual in it’s handling of the diplomacy and issues. It has looked weak, more like a mock Government.  At the same time, the problem is as much of our internal systems being a mess when it comes to national security. The Congress Government has been and continues to be a bunch of blundering buffoons.

Why is this so? Why do, when we look at the upcoming elections, we see only jokers and incompetent leaders as options? Why is it that all our leaders are so bad? The take of this writer  is that they are a reflection of our value system and unless those values do not change, we will continue to come back to this. A few moments of anger would not change anything. We as a nation routinely indulge in corruption and nepotism. We have no qualms about bribing a Government officer. It’s one thing to bribe an officer when there is no other option – say you need to get your legally obtained, VAT paid raw material in your business cleared but you just cannot unless you pay a bribe. But what about the TC who we give a bribe to for a better seat on the train. Or paying bribes to customs officials at airports to bring in goods without duties. Or the atrociously large number of people who do not pay taxes or steal electricity. If we are corrupt, we would care less if our leaders are corrupt. Thus we have Jayalalitha and Laloo and Mayawati as our leaders. Or take accountability. When we as a nation consider nepotism as a fact of life, why would we object when a Shivraj Patil,one of the worst home ministers ever, continues to stay in power only because of nepotism. Only when disaster struck was he removed. Our leaders do not pay a price for such behavior since we do the same things and thus do not care enough to punish them for those detrimental traits.

Only if we as a nation first change our own attitudes towards our role in building a comunity, when we espouse values of righteousness and society, will we expect the same from our leders. And only when that happnes will come our time for redemption. Till then, Pakistan will have to do as our favorite topic of criticism. After all its easier to blame the other than to blame the mirror.

September 28, 2008

The Perils of Fair Value Accounting

Filed under: Business,Economics — Bottom's Up @ 12:40 pm
Tags: , ,

Any new student of accounting gets bewildered by the historical cost concept. The premise of this being that long term assets should be reported on the books at the value that they were bought at (apart from depreciation etc). The most commonly used example is that of land – land is usually reported on the books in the US system at the cost at which it was bought at. Land being such, usually appreciates and thus in the course of time, the value on the books ends up being being below the market value and firms are forced to report less assets than they have.

However, in recent years, firms have been allowed to report financial assets at market values instead of historical costs. For sometime this was considered a good idea, but in recent months has become the cause of much debate thanks to the credit crisis. The Economist last week had a great article on problems related to the same. An interesting point that the Economist brought out and which this writer was not aware of was

Today the treatment of a financial asset is determined by the intention of the company. If it is to be traded actively, its market value must be used. If it is only “available for sale” it is marked to market on the balance sheet, but losses are not recognised in the income statement. If it is to be “held to maturity”, or is a traditional loan, it can be carried at cost, subject to impairment. This is a dog’s breakfast. Different banks can hold the same asset at different values.

Noe this is indeed terrible. A big part of the problem recently has been one of the adverse selection problem. The only way around adverse selection problems is to reduce the level of assymetric information when it comes to dodgy products. Of course, this is easier said than done.

UPDATE: Justin Fox of Time has an interesting update on what’s happening on this front currently.

September 27, 2008

Will it always depend on the stars for the dems?

Filed under: Politics — Bottom's Up @ 2:37 am
Tags: ,

Life was bad for Barack Obama. Sarah Palin was the latest offshoot of America’s obsession with celebrity and had quickly bumped Mr Obama off the covers of Time and Newsweek as he duly observed on Letterman. Then fortunes changed and America’s misery became his godsend. Thus for the last one week, it has been rise rise and more rise on the polls for him. The impressive Nate Silver on 538 gives him a very sound chance of winning now.  All said and done, and as long as Russia does not sell some nukes to Iran while Chavez and Raul hold a carnival on the waves of the next big hurricane in the gulf in the next few days, chances are that the dems may actually win, $700billion or not. We’ll see how the dollar does when we get there but a pint would be a nice celebration on the 4th. Or he may not and we will drink to forget the pain while anticipating four years of funny faux pas a la Mr Bush by Ms Palin.

However let’s look at how we will get there. In a year when by all benchmarks, the democrats should win easily, they’ll barely win. Or not. The popular vote would be very close to 50%. Isn’t this the year of the democrats when America’s standing in the world is probably as low as it has ever got, the economy at home is terrible (to use a mild term), the war and everything the republican establishment has been a debacle and a lot of corruption and mismanagement dogs the GOP. Instead, we have a crazily close race. Granted that McCain’s biography makes for impressive candidacy. Granted that there may be some of the Bradley Effect on show. Granted that the women vote is a little chaotic thanks to the Clinton tussle. Granted Obama’s experience runs a little thin. But this should still be the year of the democrat and none of this should matter enough. Especially if there is a solid base. And that is the big if.

Starting with Nixon’s astute observations of the silent majority and the honing of this idea to perfection over the years, Republican strategy has rested on the three pillars of social conservatism and religion, fiscal conservatism and hawkish foreign policy. The democrats on the other hand provide a socially liberal agenda and economic equality on their menu. The republican base is thus defined by either folks who are very religious, reasonably rich or the military types. The democrats offer little to the military hawks if that’s all they care about. The rich again care about their money most, they can always fly to Europe for their next abortion. Neither of these is that large in numbers. That leaves the folks who form the silent majority – most of these are either the rural libertarian types characterized by the south and the midwest or the lower middle class characterized by union workers.Both these groups tend to be less affluent and highly religious. However, the rural folks tend to do their own thing and many times do not care much or need much of the government. They tend to form a solid base for the republicans. On the other hand, the dems cater to the union types. Unfortunately for them, while their socialist ideas do appeal to this crowd, their socially liberal agenda does not appeal to the religious sensibilities of these voters. Thus instead of having a solid base among these voters, we have a case where these voters relate to some values from the democrats and some from the republicans, forming a good swing vote for the democrats to lose and the republicans to win. Thus in a year when things are going well for the GOP, there is no way they can lose. In years when things are not so great such as 2004 and now, they can still put up a darn good fight and maybe even win.

This problem simply arises because the vote bank the liberals cater too is just not that solid. To the poor and less educated, liberal ideals just do not appeal as much. Nor do environmental concerns and such. While the dems are dogged by other issues and the perception of condescending city boys, the primary reason I think is just this. The dems need to cater thei union base and make it stronger. Opposing everything that the GOP promotes is not the way to go. Compromises can be made on smaller things so that the essence of their big issue values still remains. Thus the democrats can go easier on say gun rights – allow guns while setting up programs for better training. Reach an agreement on gay rights so that they get similar privileges without giving it the exact same status as marriage. This would still be a step forward. Talk tough on foreign policy, the GOP does not do more than that either. The key is compromise. A combination of populist economic policies along with a not so far left social agneda will serve them much much better. Thus Nancy Pelosi must go. Also, use the four years in between to drive home these messages. Do a rebranding of the party – air commercials during non-election periods highlighting their makeover. Only then would we see a lot more blue states on the map instead of purple. But then, maybe I would be more red than purple by then.

August 20, 2008

When Purple Words Cry Out In One Voice

Filed under: Foreign Affairs,Media — Bottom's Up @ 12:18 am
Tags: , ,

Being someone who loves reading the news and the countless views that come with it, I can safey describe myself as someone who is in love with the business of dissemination of news. And while it may have its warts and Media Bias is but a fact of life, the simple way to get around it is to read the publications hated by the liberals as being too conservative and then those by the conservatives as being too liberal and one stops seeing the blacks and whites. Of course, gray is usually less sexy but more interesting than the visuals the color may bring to mind on first thought. Which brings me to my current kvetching – the times when one has to look beyond the liberal and conservative publications and actually dig for the true story. Two very recent instances come to mind.

Take for example the failure of the most recent offering of Doha round of trade talks. Most of the western media talks about how India and China torpedoed the talks. That the failure was due to the lack of agreement on something not as critical as safeguards under the conditions of excessive imports in the agriculture sector. However, little was said about why India’s minister Kamal Nath was treated as a hero on returning home after the talks. The usual suspect on offer was protectionsim. Sure, India wanted to protect its farmers. It is an election year in India too, farmers are committing suicide and inflation is sky high. However, little was said about the chief complaint of the Indian farmers and thus the politicians. This was the subsidies offered by the US to its farmers. Business Week cited this only as an after thought. The Economist, one of my favorite publications and usually a lot more astute, did not do much better. Its only today that I saw something in the FT which touched upon the heart of the matter as far as the Doha Round was concerned.

The US role in the failed Doha trade talks illustrates the collapse of American leadership. Here, the US has been the central spoiler, refusing to cut its trade-distorting subsidies significantly even though they are universally recognised as intolerable. Its latest offer was to cap them at $14.5bn (€9.84bn, £7.76bn) but that well exceeded current payouts, estimated at $9bn. With only 2m farmers in the country, the US still attacked India for asking for an enhanced “special safeguard mechanism” to be used in case of an import surge, when India has far smaller, often subsistence, farms and nearly two-thirds of its population in rural employment.

Yes, it is true that a lot of the current mess in the Indian agriculture sector is thanks to little infrastructure for modern agriculture (a majority of it is still rain fed), poor availability of credit, an inefficient and corrupt public distribution system among others. Still, the anger over  subsidies is a thorny political issue and one that any Indian politician would not agree to unless he has something to show for it and thus India’s adamance on sticking to its guns in the recent talks. Of course if one went purely by western media reports, one would think it was very simple issue of India and to an extent China trying to bully the rest into agreeing to some unreasonable demands. And then there is Mr Barack Obama, the supposed messenger of change, who continues to support the farm bill and inadvertently big agri.

The other instance where the liberal and conservative media both have failed to cover the issue properly is that of the current mess that is Georgia thanks to Russia. No doubt that Russia has done something which is wrong. To further its global ambitions, it has made the people of Georgia suffer. Whatever may be its actions, this is not something to be justified. And yes, we have heard a lot about this and about what Russia’s intentions are. However, how much have we heard in the western media of the failure of American and European diplomacy. It does not take a lot to figure out that Russia was a wounded giant. And that if angered, there is little anyone would be able to do about its actions, as one sees now. And that Putin and Co. have expressed the desire to take Russia to its former ‘glorious’ heights. However, while I wont claim to have read everything that has been written about the issue, what I have seen is mostly a lot of flak for Russia but few words about the failure of Western Diplomacy – a failure which is quite big and reeks of an establishment out of touch with realities.

Where any sane person group of diplomats would have tried to make Russia a part of their group, give them some harmless importance instead of alienation and thus temper their hurt and pride. And before one starts crying foul on appeasement, one needs to remember that giving someone respect deservedly (they are after all a powerful nation and also economically relevant) is not the same as appeasement. Instead our geniuses, deluded by some cold war syndrome,  decide to take the fight to Russia – encircle it through NATO at its borders, arm its neighbours and other such faux pas. At the same time, they continue to  treat Russia as an outsider. The results are for all to see – the western diplomats have come out looking helpless and full of empty words. G. W. Bush has been reminded that he cannot bully Russia and the big losers have been the people of Georgia. Nor has it helped make the world any safer. The same policy is being suggested again and again when it comes to China. One just has to listen to Mr Foriegn Policy – John McCain – who in a supposedly important policy speech said as much, that Russia and China need to be isolated. Hopefully economics in a globalized world will not allow another occurance of bipolarization in the world. Multi polarization is the worlds safest bet. But instead the media has said little about this. After all maybe the media needs to be patriotic and not come out looking like its justifying Russia’s actions.

August 9, 2008

Some More on Pigovian Taxation of Oil

Filed under: Economics,Governance,Politics — Bottom's Up @ 2:15 am

Business week has a nice article, which after everything is said and done, ends up advocating for some sort of Pigovian Taxation on Oil.  Something a lot of analysis against taxation of oil misses is the simple fact that at the moment there is no economic cost associated with polluting the air (through the use of oil et al). Thus if everyone is sharing the common resource which is our atmosphere, some economic cost should be associated with its use/misuse, i.e. the Pigovian Tax on Carbon emission. That is unless you are one of those who believes the earth to behave like a perfect black body which radiates all the heat entering its atmosphere back into space almost instantly, green house gases be damned.

While I am no tree hugger, I am one of those who is happy everytime the price of oil rises – demand reduces, alternatives become affordable and our moronic politicians in Washington see a little more reason to look at that crazy little thing called public transport. Thanks to this article, I feel much less of a tree hugger and in esteemed company.

Also, Greg Mankiw explains here why that absurdity of chopping off the pinkie of the invisible hand aka Windfall Profits Tax is hardly Pigovian. I wonder how much part Jason Furman, a former student Prof Mankiw’s and one of the top people along with Prof Goolsbee on Obama’s economic team, played in this policy. But then, polictics can make even economists change their belief – give the people what they want!

The Basics of the Falling Dollar

Filed under: Economics — Bottom's Up @ 1:42 am

A nice article by Martin Feldstein covering in very simple language why the dollar needs to continue to fall, and more importantly the considerations including the price of oil and domestic inflation which would affect how much the dollar needs to fall.

Also, I would think it would be interesting to see which way the dollar curve goes in the initial period after the new president is elected. On one hand, Obama is expected to work towards ending a resource sapping war in Iraq which is steadily adding to the deficit and so would be good news for the dollar. On the other hand, his populist promises and Big Brother spreading the money love all over the place wont bode well for inflation and the deficit.  Instead, one would think a republican would be good. While Wall Street would prefer a republican, John McCain would love to continue his war and start a few more if he can help it, and cares trifle little for the economy at home. Now since the people who would affect the dollar are not on Wall Street but probably somewhere close to the Birds Nest stadium, it would depend on what they think of John McCain.

July 23, 2008

The Mess of the No Confidence Motion

Filed under: Governance,Politics — Bottom's Up @ 12:28 am

The UPA has just finished with a victory in the no confidence motion against it on the supposed issue of the Indo-US nuclear deal. Amid cries of Singh Is King, various issues are currently coming to mind and each of them adds to my disgust with our great leaders and my depression with Indian governance.

  1. The UPA Government has not disclosed all the details of the deal and time and again has not officially given any explanation on why the issues raised by the left about the 123 agreement and the Hyde Act are not pertinent from a legal and national security point of view. I still have not heard whether we will be able to have any nuclear tests in the future after this agreement and if not, why that is not important. What should have happened is that when there is so much controversy, the Govt. should have invited some leaders of the opposition and various other parties and addressed their concerns in a transparent and (semi)public debate on the issue. I do not say a debate of the full house for the simple reason that we have so many morons as the last few days have shown that no debate would have been possible with over 500 members. I do realize that there would have been some security concerns which may not have been possibly disclosed publicly, but than those aspects could have been handled better than what was done. Also, the UPA made the stupid mistake of trying to sell the deal as the kill all of India’s energy security concerns. The deal would help the energy problems and at a time when we would need all the help we can get, 6% nuclear power would definitely help. This was what the Government should have stressed upon instead of saying that the deal would solve all our problems.
  2. The communists showed their ideological obsession at the expense of rational decisions in the interest of the country. Thus their biggest problem was that the deal was with the US. As a result they failed to focus on the issues of importance and kept harping on their anti US rhetoric. Plus the ego issues of Mr. Karat. A person with such ego issues should never be given so much power. Maybe the communists would learn something from this. At a time when both the UPA and NDA are pro business and as so often happens in such cases, the poor get sidelined, the communists can play a good role of watching out for the poor and making sure bad slips do not happen. Unfortunately, they are too busy talking playing ideology while doing Nandigram.
  3. The BJP is supposedly a right wing party. They are supposed to be more attuned to national security reasons. Thus in a deal such as this, they should have been the first to appreciate the unspoken foreign policy and security aspects and should have shown a pro deal attitude. If something was bothering them, they should have been interested in a vibrant debate and a proclivity in favor of completion of the deal as opposed to scuttling the deal. Instead what we saw was them wanting to not let the Congress get any recognition for the deal and for this they have been more than ready to sacrifice the interest of the country for petty political gains. This was obvious when last few days they kept saying that they would want to go back and revisit the deal themselves. Also, using the deal for petty politics was quite obvious too from the fact that Mr. Advani’s speech hardly touched upon the deal but on everything else. Disgusting behavior by a party that claims to be a security obsessed right wing party!
  4. While calling for a no confidence motion on the Government when it has only about 100 days to go anyways is bad politics, Mr. Advani did raise some pertinent points. The performance of the UPA government has been poor at best. Little has been achieved on its CMP; the Bharat Nirmaan scheme is hardly a resounding success so far. While inflation may not necessarily be all the Governments doing, the way they have handled the inflation management has hardly been of any use or rationality with the rupee still tracking the weakening dollar and not appreciating. On the reform front, little has been done to implement recommendations such as those in the Rajan report (though I wonder how much the communist parties have played a hand in this). Infrastructure development has not exactly been stellar either. And worst of all has been foreign policy and security. The danger of terrorism has increased and trifle little has been done to catch the culprits or make the country safer. Kashmir is a mess as always and little has changed barring the fact that whatever little has improved there is mostly because the Kashmiris are getting tired of the militancy. The North Eastern states continue to be neglected and treated as second class citizens. Appeasement politics still rule. Internationally, China has continued bullying us while we have continued appeasing them. Little has been done in using this juncture where Pakistan is weak to gain any benefits from them. The Africa debacle where we woke up too late to China for resources is well known. Little progress has been made with other countries both east and west of India. The concerns of importing illegal immigrants and fundamentalism from Bangaladesh continue to grown. Much as we would like to believe, India has little to show for the hyped new power status when it comes to international diplomacy.
  5. The gadha trading (horse trading of our gadha leaders) that has been going on obviously is a shame on the leaders of the country. It is also quite obvious that both sides are deep in the dirt on this. The same way SP leaders migrated to the BSP, NDA leaders abstained and came to the side of the UPA. Shits high on the ceiling and there is an absolute lack of moral high ground of either side. However, the display of cash in the Loksabha was an utterly stupid and thoughtless move on the part of the NDA. This directly hurt the prestige of the country and in the end achieved nothing. The same attention on the issue could have been brought in much more sensible and ways less detrimental to the prestige for the country. Instead what we have now is a utter mockery of democracy in the country. In their moment of desperation after realizing they were not going to win this one, they tried to pull off this stunt and get the vote delayed – an attempt that thankfully did not work. Another thing that is being said is that the gadha trading was shocking to the public. I believe there was hardly anything shocking except for the tamasha in the Loksabha. The people of India are quite well aware of this kind of nonsense and the last few days had made it even more obvious to everyone that shady crap was happening.
  6. The media in India is quite superficial and hardly fulfills the function that its supposed to. This is quite obvious from the fact that not one major media house – TV or print – took the efforts to analyze the finer aspects of the nuclear deal and provide an unbiased and educated analysis of the issues in the deal. All we had were partially informed opinions and columns by either of the political groups. The media thus utterly failed as a source of educated and informed content. A thorough analysis by the media would have gone a long way in clearing all the confusion and taken away the ability of the political parties to score cheap points. But then the media is market driven, we have enough idiots who prefer news in the form of a melodrama with music playing in the background a la Aaj Tak to really have a sound media. While the market is there for educated responsible journalism, the market is bigger for dumb news and the lure of money coupled with limited resources of the media houses means we get moronic news coverage.
  7. The rise and continuous rise of local parties is a big concern. Equally importantly, the importance of the cow belt in country politics and their playing a highly disproportionate role vis a vis their contribution to the country’s growth and prosperity is an even bigger concern. I think it’s high time the country started thinking of amendments to the constitution to make changes such that only parties with a nationwide presence should be able to rule from the center. This of course should have to go hand in hand with more power over their own affairs to the states – especially fiscally. Bad states can get relief from the center once in a while but definitely a progressive state should have the right to use its own fiscal resources instead of subsidizing economically backward states like the cow belt. Of course, utilization of their natural resources by say Jharkhand should help Jharkhand too. To each his own. Also, such amendments should help reduce the ability of corrupt junk politicians like Mayawati and Mulayam Singh with their uneducated cow belt concerns to not have a say in issues such as national security and national trade. Of course they do provide lighter moments like Mayawati talking about Izzat when she has scores of corruption allegations against her and then saying that the UPA and NDA conspired to not allow her to become a PM since she is a dalit.

Of course the mess in the current state of affairs is not exactly a close ended blame. Democracy always throws up leaders of the populace which the populace deserves. So long as Indians continue to sit by the sidelines and let the same people rule, so long as we continue to vote along the lines of caste, religion and language and so long as we do not bring out leaders to account; little will change and the mess will continue. The UPA will just be replaced by the NDA or vice versa.

June 29, 2008

Capital Inflows In China

Filed under: Economics — Bottom's Up @ 11:47 am

This article on capital inflows in China touches upon issues relevant to the conditions in India too.The issue is that the differential in interest rates between dollar and yuan results in inflows. To maintain the exchange rate, the PBOC sterilizes the yuan and this results in more money in the market and thus inflation. Recent appreciation in the Yuan has fueled more appreciation expectations resulting in exacerbation of inflows. The solution as per the article is to do a relatively larger appreciation of the Yuan which would suck out excess money from the market and also subside future appreciation expectations.

Coming to India, the current rate after the latest hikes is 8.5%. This is a substantial differential with respect to the dollar at 2%. On the top of it, with the WPI sitting unpretty at 11%, the need of the hour is to raise this even further to counter inflation problems. Now raising interest rates is a good thing (though the mismatch between repo and reverse repo rates is not). Thus while rates are being raised to counter inflation, this would increase inflows. With the current policy of sterilization, this would be counterproductive and work to raise inflation. In recent times, the RBI has increased the cash reserve ratio (CRR)  a little to tackle the issue (something which China is doing too) but they can do this only so much. Thus unless the RBI changes its policy and starts letting the Rupee appreciate, it will be not very effective in countering inflation. In a normal scenario this would all be good if the RBI just listened. However, with investors starting to get a little bearish about emerging markets, the demand for the Rupee may go down. On the other hand, with recent corrections in the Indian equity markets, FIIs may not feel as bearish after all.

The Future Of Energy

Filed under: Economics — Bottom's Up @ 10:39 am

The Economist has a very well written Special Report on the future of energy. My only gripe – they did what they themselves call a cop out on the issue with nuclear energy, the treatment/storage of spent fuel.

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