The article below, which is not inaccurate, is from the *Asian Age*/*Deccan Herald* of 4 December.
There has been a Lok Sabha TV interview, 1 on One with Paranjoy Guha Thakurta, aired on Sunday 9 Dec 10 pm, repeated Monday 9 am.
There has been an interview with GDI Impuls banking quarterly of Zurich published on 6 Dec 2012.
And there has been an interview with Delhi’s Sunday Guardian weekly newspaper dated 16 Dec 2012.
From Facebook, April 27 2011:
Subroto Roy reflects on what the role is of a Finance Minister/Treasury/Exchequer head: it is to be, at least, the Chief Financial Officer of the country.
And what does a good CFO do?
Preserve, if not enhance or at least not worsen, the “financial condition” of the entity in his charge, namely, the asset/liability, income/expenditure, and cashflow positions, plus the goodwill etc.
Of course the financial condition of a country’s Exchequer depends on the financial condition of each and every public entity that adds up to the whole (and less directly on the financial condition of private entities).
Good Finance Ministers should definitely stay away from TV (waffling on endlessly on TV trying to explain one’s economic model is a sure sign of an incompetent FM), probably stay away from most conferences, their favourite word has to be “No” or perhaps “No, I’m sorry”, their resignations need to be typed, signed & ready in their desk-drawer, only needing to be dated at the top. The same a fortiori for Central Bank heads (except for the ready-resignation part).
Florence Nightingale (1820-1910) revolutionized nursing by implementing her slogan “Whatever else hospitals do, they should not spread disease”.
Economists and Finance Ministers should seek, at least, at a minimum, to do no harm.
From Facebook:
Subroto Roy reads that Dr Kaushik Basu, Chief Economic Adviser to the Finance Ministry of the Manmohan Singh Government, has “expressed great confidence in the fiscal health of the economy” and says to Kaushik:
Dear Kaushik,
Apropos your reported predictions, I have had to say at Facebook:
Subroto Roy is appalled the GoI’s Chief Economic Adviser has declared (as the PM and the PM’s Chief Acolyte had declared in earlier months) that prices are trending downwards stochastically but amused that at least a stochastic (“fluctuating”) trend got mentioned.
Governor Subbarao has been set a small challenge the other day to release asap for public scrutiny the comprehensive macroeconomic model he says he believes the RBI has — which may be hard if no such model may exist at the RBI. Nor does your Ministry or anyone else in New Delhi have such a model. So what is the Government’s precise scientific basis for predicting a slowing of inflation? Nothing at all?
The Government needs to begin to try to understand that inflation does not slow down in circumstances where real public debt per capita and money supply have been growing exponentially for decades — to the contrary, inflation tends to rise to dangerous heights! Debauching of fiat money would hardly have been allowed if the rupee was a hard currency because we would have seen an honest exchange-rate crashing through the floor with this kind of inflationary finance the Government has given us over the decades. There is, sad to say, zero chance of the rupee becoming a hard currency that all one billion Indians may feel confident about so long as such inflationary finance continues unabated.
Cordially yours
Suby
From Facebook:
Subroto Roy says to Kaushik: Dear Kaushik, Buffer-stock interventions are *microeconomic* in nature, and won’t do to control the *macroeconomic* phenomenon that is inflation. Get government accounting straight (and clean), try to raise government productivity *drastically* and try to *understand* the fiscal situation and *hence* the monetary situation. Feel free to email or phone. Cordially, Suby
Last year I wrote but happened not to publish this brief article which may be relevant today.
Climate Change Alarmism: The real battle is against corruption, pollution, deforestation, energy waste etc
Subroto Roy
May 28 2008
Like the AIDS epidemic that never was, “climate change” is on its way to becoming the new myth sold by paternalist governments and their bureaucrat/scientist busybodies to ordinary people coping with their normal lives. E.g., someone says, without any trace of irony: “Everyone in the world should have the same emissions quota. Since Trotsky’s permanent revolution is unfortunately on hold at the moment, and the world still happens to be partitioned into nations, once the per capita quotas are determined they would have to be grouped on a nationwide basis”.
Trotskyism will have to be made of sterner stuff. Canada’s Lorne Gunter (*National Post* 20 May 2008) reports that Noel Keenlyside, the principal scientist who suggested that man-made global warming exists, has now led a team from the Leibniz Institute of Marine Science and Max Planck Institute of Meteorology which “for the first time entered verifiable data on ocean circulation cycles into one of the UN’s climate supercomputers, and the machine spit out a projection that there will be no more warming for the foreseeable future.…” Oops! So much for impending catastrophe. Rajendra Pachauri himself has in January “reluctantly admitted to Reuters… that there has been no warming so far in the 21st Century”.
Mr Pachauri had earlier gone on Indian television comparing himself to CV Raman and Mother Theresa as an Indian Nobel Prize winner — in fact, Al Gore and the 2500 member “UN Intergovernmental Panel on Climate Change” chaired by Mr Pachauri shared the Nobel Peace Prize last year. Now the prediction from that UN “Panel” of “a 0.3 deg C rise in temperature in the coming decade” has been contradicted by Noel Keenlyside’s own scientific results. Gunter reports further that 2007 “saw a drop in the global average temperature of nearly 0.7 deg C (the largest single-year movement up or down since global temperature averages have been calculated). Despite advanced predictions that 2007 would be the warmest year on record, made by such UN associates as Britain’s Hadley Centre, a government climate research agency, 2007 was the coolest year since at least 1993. According to the U. S. National Climatic Data Centre, the average temperature of the global land surface in January 2008 was below the 20th-Century mean for the first time since 1982. Also in January, Southern Hemisphere sea ice coverage was at its greatest summer level (January is summer in the Southern Hemisphere) in the past 30 years. Neither the 3,000 temperature buoys that float throughout the world’s oceans nor the eight NASA satellites that float above our atmosphere have recorded appreciable warming in the past six to eight years. Climate alarmists the world over were quick to add that they had known all along there would be periods when the Earth’s climate would cool even as the overall trend was toward dangerous climate change.”
Honest government doctors know that the myth that HIV/AIDS can spread at Western rates in a society as conservative and sexless as India’s has diverted vast public resources away from India’s numerous real killer diseases: filariasis, dysentery, leprosy, influenza, malaria, gastroenteritis, TB, whooping cough, enteric fever, infectious hepatitis, gonococcal infection, syphilis, measles, tetanus, chicken-pox, cholera, rabies, diptheria, meningococcal infection, poliomelitis, dengue and haemmorrhagic fever and encephalitis. Candid environmentalists similarly know that obsessing about climate change distracts from what is significant and within our power to do, namely, the prevention or at least regulation of the pollution of our air and water and prevention of the waste of energy using policies appropriate for a myriad of local communities and neighbourhoods.
The pollution of India’s atmosphere, rivers, lakes, roads and public property is an unending disgrace. Pollution and corruption are mirror images of each other: corruption is to steal something valuable that belongs to the public; pollution is to dispose private waste into the public domain. Both occur conspicuously where property rights between public and private domains are vague or fuzzy, where pricing of public and private goods and services is distorted, and where judicial and legal processes enforcing contracts are for whatever reason weak or inoperable.
Walk into any government office in India and lights, fans, ACs may be found working at top speed whether or not any living being can be seen. A few rare individual bureaucrats may be concerned but India’s Government as a whole cares not a hoot if public electricity or for that matter any public funds and resources are being wasted, stolen or abused.
At the same time, private motorists face little disincentive from pouring untaxed “black money” into imported gas-guzzling heavy automobiles regardless of India’s narrow roads and congestion. There are no incentives whatsoever for anyone who does not have to do so to want to bicycle or walk to work. The “nuclear deal” involves importing “six to eight lightwater reactors” on a turnkey basis; like the Enron-Dabhol deal a decade ago, it makes no financial sense at all and will make even less if the rupee depreciates anytime in future. Our government policy is in general invented and carried out regardless of technical or financial feasibility; the waste of energy and pollution of the environment are merely examples of the waste of resources and abuse of public property in general.
Someone says “The North”, mainly the USA, “is primarily responsible for climate change”. He may mean Western countries have contributed relatively more pollutants and effluents into the world’s waters and air which is probably a good guess since the West has also contributed more to the world’s scientific, industrial and agricultural progress in general over the centuries.
But to think human beings today understand the complexities of climate and its changes adequately enough to be able to control it is a fatal conceit. Philip Stott, emeritus professor of biogeography at the University of London, is among many scientists who have challenged “the key contradiction at the heart of the Kyoto Protocol, the global climate agreement – that climate is one of the most complex systems known, yet that we can manage it by trying to control a small set of factors, namely greenhouse gas emissions. Scientifically, this is not mere uncertainty: it is a lie…The problem with a chaotic coupled non-linear system as complex as climate is that you can no more predict successfully the outcome of doing something as of not doing something. Kyoto will not halt climate change. Full stop.” (BBC 25 February 2002). For Indian foreign or economic policy to waffle on about climate change is as ineffectual and irrelevant as for the Indian Finance Minister to waffle on about AIDS.
From Facebook:
Subroto Roy can only sigh at the fact that while he has had to struggle for 35 years trying to grasp and then apply serious monetary economics to India’s circumstances, the RBI Governor & his four Deputy Governors appear blissfully innocent of all Hicks, Tobin, Friedman, Cagan et al yet exude confidence enough to “Waffle Away!”
see also
A Small Challenge to the RBI’s Governor Subbarao
April 21, 2010
The Hon’ble Gov of the Reserve Bank of India Shri D Subbarao
Dear Governor Subbarao,
You said yesterday, April 20 2010, that the Reserve Bank of India has a macroeconomic model which it uses but which you had personally not seen.
I have given two lectures at your august offices, one by invitation of Governor Jalan and Deputy Governor Reddy on April 29 2000 to address the Conference of State Finance Secretaries, the other on May 5 2005 to address the Chief Economist’s Monetary Economics Seminar. On both occasions, I had inquired of the RBI’s own models by which I could contrast my own but came to understand there were none.
If since then the RBI has now constructed a macroeconomic model of India’s economy, it is splendid news.
May I request the model be released publicly on the Internet at once, so its specifications of endogenous and exogenous variables, assumed coefficients, and sources of time-series data all may be seen by everyone in the country and abroad? Scientific scrutiny and replication of results would thus come to be permitted.
I would be especially interested to know the demand for money function that you have used. I well remember my meeting with the late great Sukhamoy Chakravarty on July 14 1987 at his Planning Commission offices, when he signed and gifted me his last personal copy of the famous Reserve Bank report by the committee he had chaired and of which he told me personally Dr Rangarajan had been the key author – that report may have contained the first official discussion of the demand for money function in India.
With cordial regards
Subroto Roy
From Facebook:
Subroto Roy must ask Dr Manmohan Singh’s Government how it sees India’s “aam admi” coming to benefit by the United States Polo Team welcoming India in 2010 in the world championship polo matches on the DC National Mall, as has been very kindly reported by Mr and Mrs Tareq Salahi following the “Sensational Night honoring India”.
From Facebook:
Subroto Roy wonders if India’s most eminent academic economist and India’s most eminent government economist have either of them ever said anything that any member of any audience could ever have found at all disagreeable….
(let aside falsifiable in the sense of Karl Popper)
(… except that I have of course disagreed with both…)
From Facebook:
Subroto Roy is amazed that business-cycle theory and history — always a most difficult, subtle and confusing part of economics — has now become child’s play for everyone except himself, and even the most dimwitted commentator claims to know that China and India were down last month but now seem up and similar profound truths….
In response to my “Nandan Nilekani’s Nonsensical Numbering”,
Friendly Critic says:
I don’t think registering everyone in the country is such a bad idea. It may be difficult. But the post office reaches letters to anyone in the country, even the homeless. I don’t think it is doing anything wrong.
I replied:
The post office reaches letters to those with an address.
Friendly Critic replied:
You are mistaken. It reaches letters to beggars, addressed to the nearest pan shop. To repeat, I do not think it is wrong to register all residents; there are some good uses for it. If it is all right to enumerate residents once every ten years, there is nothing wrong in maintaining a continuous inventory. Only the British have an aversion to doing so, on grounds of piracy. But even their electoral registers are based on enumeration. And to attack Nilekani simply because he has taken on a job offered seems excessive to me.
I replied:
Thanks for this correspondence. We may be slightly at cross-purposes and there may be some miscomprehension. Of course if a beggar has a pan-shop as an address, that is an address. But we are not talking about the efficiency or lack thereof of our postal services.
We are talking about the viability and utility of trying to attach a number, as an identification tag, to every Indian — for the declared purposes of (a) battling absolute poverty (of the worst kind); and(b) battling terrorism and crime.
Many Indians have passports, driving licenses, Voter cards, PAN numbers, mobile numbers etc. I am sure giving them a Nandan Nilekani Number will be easy. It will be, incidentally, lucrative for the IT industry.
It will also be pointless to the extent that these people, who may number into the hundreds of millions, are already adequately identifiable by one or two other forms of photo id-cards. (By way of analogy incidentally, Americans used to cash cheques at supermarkets using one or two photo ids — but the Social Security Card or number was not allowed to be one of them as it had no photo.)
Neither of the two declared objectives will have been explicitly served by giving Nandan Nilekani Numbers to those already adequately identifiable.
My point about incentive-compatibility is that the intended beneficiaries in any program of this kind (namely the anonymous absolute poor) need to have clear natural incentives to participate in order to make it work. Here there are none. Taking the very poorest people off the streets or out of their hamlets to be interrogated, photographed, fingerprinted and enumerated against their will, when they may have many more valuable things to be doing with their time in order to survive, is a violation of their freedom, privacy and dignity. Even if they submit to all this voluntarily, there are no obvious tangible benefits accruing to them as individuals as a result of this number (that many will not be able to read).
If those already adequately identifiable easily get an NNN (at low cost and without violation of indvidual freedom or dignity), while those who are the intended beneficiaries do not do so (except at high cost and with violations of individual freedom and dignity), that would enhance inequality.
Because such obvious points have failed to be accounted ab initio in this Big Business scheme paid for by public money, I have had to call it nonsensical.
I was very harsh and did not beat about the bush in my Sep 23-24 2007 article in The Statesman “Against Quackery” when I said in its subtitle
“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms”.
I said inter alia
“WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason. The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc….Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it. …Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991. The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size….Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.”
Days after the article appeared there were press reports Dr Singh was murmuring about quitting, and then came a fierce speech in Hindi from the Congress President saying “enemies” would receive their dues or whatever – only to be retracted a few days later saying that no more had been meant than a local critique of the BJP in Haryana politics! (Phew! I said to myself in relief…)
All this is constructive and positive, late as it is since Sonia Gandhi and Manmohan Singh both became heavy-duty Congress Party politicians for the first time a dozen years ago.
I was privileged to advise a previous Congress President in his last months from September 1990 as has been told elsewhere. And six years before that I had said:
“….….The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. …The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.” Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. . . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges…. When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing.” A few months ago was the 25th anniversary of this statement… ! 
Yes Prime Minister, having an effective and efficient judiciary is indeed a premier public good and one that has failed to be provided to India’s people from Nehru’s time and through Indira’s. I managed to persuade Rajiv about it completely. Might I next be so bold as to draw attention as well to the paragraphs of the 2007 article that followed?
“Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods. Government accounts: Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.”
Subroto Roy
Kolkata
“Pork barrel politics” has been known as a concept in America and other Western countries for more than a century. India is clearly playing catch-up here but advancing quickly. The so-called “second fiscal stimulus” announced yesterday by Dr Manmohan Singh’s chief economic policy aide no longer makes any pretence of any engagement with serious public finance economics at all and is instead a plain bill of rights for lobbyists, especially organised business (and with it, organised labour).
In fact New Delhi’s way seems to be for organised lobbies to deal directly with the higher bureaucracy with executive political approval or acquiescence; pork arising from legislative politics may be secondary.
Now “pork” is too ugly a term for our Indian sensibilities and not many people eat any in the country (though, believe it or not, pork-production literally speaking is still the recipient of a government subsidy!). So we do need a nice preferably vegetarian name for “pork-barrel politics” Indian-style. “Tel” or “oil” may provide some ideas, and as a rough approximation I would suggest “Teli politics” or “Oily politics” but suggestions are welcome.
There are groups in America known as “Porkbusters” :
Any similar resistance in India responding to our version of pork-barrel politics might have to be called “Tel busters” or “Oil busters” or just “Detergents”.
And finally, since there has been a complete takeover of the economic policy process (and the mainstream media) by organised business lobbies, are we going to be perhaps seeing next a formal Bill of Rights for Lobbyists?
Subroto Roy, Kolkata
I have published about a half dozen or more articles, mainly in The Statesman‘s Editorial Page, on the India-US Nuclear Deal, e.g. “Imperialism Redux”14 March 2006, “Towards an Energy Policy” 2 April 2006, “India’s Energy Interests” 27-28 August 2006, “Need for Clarity”, 19 August 2007. One of my main complaints has been that the Prime Minister and his acolytes seem to have failed to do a proper cost-benefit analysis of the whole thing. The same currency-risk that made the Dabhol-Enron project instantly unviable is also faced a fortiori in the idea of importing nuclear fuel and reactors. The Finance Minister and Finance Secretary who failed to calculate that currency risk in the former project, and hence caused its failure, have now failed again as PM and Planning Commission chief while advocating the latter project. Is the Indian rupee destined to depreciate in the long run? Of course it is: just look at the long run trends and compare our money supply growth rates and inflation rates with those of the USA or EU. The cost of imported nuclear power in India must be recalculated under different scenarios for the exchange-rate of the Indian rupee including e.g. a 20% depreciation.
It is not as if the Government of India is ignorant of what Cost-Benefit Analysis is supposed to be! For example, look up
“*Ministry of Personnel, Public Grievances and Pensions* * *THE INDIAN ADMINISTRATIVE SERVICES (PROBATIONERS’ FINAL EXAMINATION) REGULATIONS, 1955* * *In pursuance of rule 7 of the Indian Administrative Service (Probation) Rules, 1954, the Central Government, in consultation with the State Governments and the Union Public Service Commission, hereby makes the following regulations, namely* *1. Short title:- These regulations may be called the Indian Administrative Service (Probationers’ Final Examination) Regulations, 1955.* *2. Definition:- 2(1) In these regulations, unless the context otherwise requires,-* *(a) `Academay’ (sic) means Lal Bahadur Shastri National Academy of Administration;* *(b) [ ];* *(c) `Director’ means the Director of the Academy; and * *(d) `Schedule’ means a Schedule appended to these regulations.* *2(2) All other words and expressions used in these regulations and not defined shall have the meanings respectively assigned to them in the Indian Administrative Service (Probation) Rules, 1954.* *3. Final examination.- 3(1) Every probationer shall, at or about the end of the period of training in the Academy appear at a final examination.* *3(2) The examination shall be conducted by the 4Director in the manner laid down in these regulations….4. PUBLIC ADMINSTRATION AND MANAGEMENT* *Essentials of Administration-Organisational Structure of Governments, Role of Civil Servants, Administrative Ethics and Accountability, Delegation and Decentralisation-District and Local Administration-Personal Administration, Police Administration-Jail Administration Panchayati Raj Administration- CalamityAdministration-Administration of Development and Welfare Programmes- Budget and Role of Audit and general financial principles-Role of District Officer/SDO-Conduct of Elections.* *Management and Organisation* *Behavioural Science Motivation, Leadership, Decision-Making, MBO, Management of Conflicts, Management of Change ,Transactional Analysis, -MIS-O&M & Work study-Pert-CPM, Time Management Methodology of Presentation of a subject-Financial Management Capital Budgeting, Discountal Cash Flow, Ratio Analysis, Project Formulation, Cost benefit Analysis, Project Evaluation Interpretation of Balance Sheets….” (emphasis added)
How come there has been none with the India-US nuclear deal then? I think we need a new more comprehensible term for Cost-Benefit Analysis, and that should be, most simply, its Hindi/Urdu equivalent: “Nuksaan-Faida Analysis”.
What is the estimated Nuksaan?
What is the estimated Faida?
How do they compare? It all becomes so much easier!
Subroto Roy
Growth & Government Delusion:
Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State
By Subroto Roy
First published in The Statesman, Editorial Page Special Article,
February 22 2008, http://www.thestatesman.net
P Chidambaram, Montek Ahluwalia and Manmohan Singh, like their BJP predecessors, delude themselves and the country as a whole when they claim responsibility for phenomenal economic growth taking place. “My goal is to continue to maintain growth but at the same time the government reserves the right to make rapid adjustments depending upon the evolving international situation” is a typical piece of nonsensical waffle.
Honest Finance Ministers in any country cannot take personal responsibility for rates of economic growth nor is any government in the world nimble, well-informed and intelligent enough to respond to exogenous shocks in a timely manner. The UPA and NDA blaming one another for low growth or taking credit for high growth merely reveal the crude mis-education of their pretentious TV economists. There are far too many measurement and data problems as well as lead-and-lag problems for any credibility to attach to what is said.
Per capita real GDP
Indian businessmen and their politician/ bureaucratic friends seem to think “growth” refers to nominal earnings before tax for the corporate sector, or some such number that can be sold to visiting foreigners to induce them to park their money in India: “You will get a 10 per cent return if you invest in India” to which the visitor says “Oh that must mean India has 10 per cent growth going on”. Of such nonsense are expensive Davos and Delhi conferences made.
What is supposed to be measured when we speak of economic growth? It is annual growth of per capita inflation-adjusted Gross Domestic Product (National Income or Net National Product would be better if available). West Germany and Japan had the highest annual per capita real GDP growth-rates in the world starting from devastated post-War initial conditions. What were their rates? West Germany: 6.6 per cent in 1950-1960, falling to 3.5 per cent by 1960-1970, and 2.4 per cent by 1970-1978. Japan: 6.8 per cent in 1952-1960; 9.4 per cent in 1960-1970, 3.8 per cent in 1970-1978. Thus, only Japan in the 1960s measured more than 9 per cent annual growth of real per capita GDP.
Now India and China are said to be achieving 9 per cent plus routinely. Perhaps we are observing an incredible phenomenon of world economic history. Or perhaps we are just being fed something incredible, some humbug. India’s population is growing at 2 per cent so even if the Government’s number of 9 per cent is taken at face-value, we have to subtract 2 per cent population growth to get per capita figures. Typical official fallacies include thinking clever bureaucratic use of astronomically high savings rates causes growth. For example, Meghnad Desai of Britain’s Labour Party says: “China now has 10.4 per cent growth on a 44 per cent savings rate… ” Indian savings have been alleged near 32 per cent. What has been mismeasured as high savings is actually paper expansion of bank-deposits in a fractional reserve banking system induced by runaway government deficit-spending in both countries.
Real economic growth arises from spontaneous technological progress, improved productivity and learning-by-doing of the general population. World economic history suggests growth occurs in spite of, rather than due to, behaviour of an often parasitic State. Technological progress in a myriad of ways and discovery of new resources are important factors contributing to India’s growth today. But while the “real” economy does well, the “nominal” paper-money economy controlled by Government does not.
Continuous deficit financing for half a century has led to exponential growth of public debt and broad money. The vast growth of bank-deposits has been misinterpreted as indicating unusual savings behaviour when it in fact signals vast government debt being held by nationalised banks. What Messrs Chidambaram, Ahluwalia,Manmohan Singh, the BJP et al have been presiding over is annual paper-money supply growth of 22 per cent! That is what they should be taking honest responsibility for because it certainly implies double-digit inflation (i.e. decline in the value of paper-money) perhaps as high as 14 or 15 per cent. If you believe Government numbers that inflationis near 5 per cent you may believe anything.
The mainsprings of real growth in the wealth of the individual, and so of the nation, are greater practical learning, increases in capital resources and improvements in technology. Deeper skills and improved dexterity cause output produced with fewer inputs than before, i.e. greater productivity. Adam Smith said there is “invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many”.
Consider a real life example. A fresh engineering graduate knows dynamometers are needed in testing and performance-certification of diesel engines. He strips open a meter, finds out how it works, asks engine manufacturers what design improvements they want to see, whether they will buy from him if he can make the improvement. He finds out prices and properties of machine tools needed and wages paid currently to skilled labour, calculates expected revenues and costs, and finally tries to persuade a bank of his production plans, promising to repay loans from his returns.
Overcoming restrictions of religion or caste, the secular agent is spurred by expectation of future gains to approach various others with offers of contract, and so organize their efforts into one. If all his offers ~ to creditors, labour, suppliers ~ are accepted he is, for the moment, in business. He may not be for long ~ but if he succeeds his actions will have caused an improvement in design of dynamometers and a reduction in the cost of diesel engines, as well as an increase in the economy’s produced means of production (its capital stock) and in the value of contracts made. His creditors are more confident of his ability to repay, his buyers of his product quality, he himself knows more of his workers’ skills, etc. If these people enter a second and then a third and fourth set of contracts, the increase in mutual trust in coming to agreement will quickly decline in relation to the increased output of capital goods. The first source of increasing returns to scale in production, and hence the mainspring of real economic growth, arises from the successful completion of exchange.
Risk and enterprise
Transforming inputs into outputs necessarily takes time, and it is for that time the innovator or entrepreneur or “capitalist” or “adventurer” must persuade his creditors to trust him, whether bankers who have lent him capital or workers who have lent him labour. The essence of the enterprise (or “firm”) he tries to get underway consists of no more than the set of contracts he has entered into with the various others, his position being unique because he is the only one to know who all the others happen to be at the same time. In terms introduced by Professor Frank Hahn, the entrepreneur transforms himself from being “anonymous” to being “named” in the eyes of others, while also finding out qualities attaching to the names of those encountered in commerce.
Profits earned are partly a measure of the entrepreneur’s success in this simultaneous process of discovery and advertisement. Another potential entrepreneur, fresh from engineering college, may soon pursue the pioneer’s success and start displacing his product in the market ~ eventually chasers become pioneers and then get chased themselves, and a process of dynamic competition would be underway. As it unfolds, anonymous and obscure graduates from engineering colleges become by dint of their efforts and a little luck, named and reputable firms and perhaps founders of industrial families. Multiply this simple story many times, with a few million different entrepreneurs and hundreds of thousands of different goods and services, and we shall be witnessing India’s actual Industrial Revolution, not the fake promise of it from self-seeking politicians and bureaucrats.
Maharashtra Govt Finance 2004 Table
Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution
first published in The Statesman April 24 2007, Editorial Page
www. thestatesman.net
By Subroto Roy
Mr Percy Mistry, according to the World Bank’s official chronology, worked there with Moeen Qureshi, and S Javed Burki. Mr Qureshi was doyen of Pakistani bureaucrats in Washington and something of a king-maker back home, briefly becoming Pakistan’s PM himself; Mr Burki briefly became Pakistan’s Finance Minister and is an author in the book Foundations of Pakistan’s Political Economy created by WE James and myself in the 1980s in the USA. Although Mr Mistry claims no special expertise about India’s monetary economy or public finances, he was appointed by Finance Minister P. Chidambaram to head an official committee that has given an opinion on a crucial monetary issue facing the country today, namely, the rupee’s convertibility. Mr Mistry apparently authored the report but resigned before its release, making it unclear who is responsible for its contents.
Mr Mistry has glossed over India’s present fiscal circumstances, said nothing of the limitless waste, fraud and abuse of the public purse the Sonia-Manmohan Government have been indulging in (like their Vajpayee-Advani predecessor) yet declared the rupee should be freed in 2008 ~ telling Business Standard a convertible rupee will allow people like “Ratan” and “Kumar” to raise capital in India for their foreign purchases, and not have to go to London as they must do now, poor things. All this in a report purporting to be a plan to make Mumbai an “international financial centre”, which is a different subject altogether.
Mr Mistry thus becomes a certifiable member of the “Dream Team” of Dr Singh, Mr Chidambaram, Mr Montek Ahluwalia, Mr Deepak Parekh and their big business/big labour/big media friends across political parties. Dreaming involves constructs in which normal logic and facts have no place. In the waking world, India is a labour-rich, capital-scarce country where wages are lower and interest-rates are higher respectively than in labour-scarce, capital-rich Western countries; hence India will be importing not exporting capital. In the real world too, Mumbai is not an off-shore island-resort outside India (like the so-called SEZs are going to be from a legal standpoint) but happens to be located in Maharashtra, whose public finances urgently require hard investigation and sober thought.
Now there used to be a “Bombay State” coinciding with the old Bombay Presidency plus “princely states” plus Marathi-majority districts of MP and Hyderabad and excluding Kannada-majority districts to Mysore. On May 1 1960, after much agitation, this became the new States of Gujarat and Maharashtra. There was talk of making Bombay city a Union Territory but the Marathis would have none of it. In fact, within a few weeks, Maharashtra reverted to calling itself “Bombay State” and it was not until the end of the year the Government of India officially declared it must be called Maharashtra.
The same quest for, or confusion about, cultural and political identity continues in recent times and may be at the root of the Shiv Sena’s erratic political behaviour which rocks Maharashtra politics so frequently. “Bombay” may be “Mumba Bai” or “Mumba Devi” but it had not been a Marathi town any more than Calcutta had been a Bengali town. Bombay’s traders and businessmen descended there while it developed after the decline of Surat, where the British initially came to trade in the 17th Century. Modern Bombay retains some of its “all-India” character and even today you cannot make money in its markets unless you speak Gujarati. Marathi-speakers have tended to wish Maharashtra was “Maratha-rashtra” reminiscent of the great Shivaji Bhonsla (1627-1680) but others have read the name only as “Great State”.
This continuing identity crisis had its most devastating costly impact through the Dabhol-Enron fiasco. As recently as March 4 2007, Chief Minister Vilasrao Deshmukh said frankly “We could not generate a single megawatt of electricity in the last 10 years due to the Enron issue”, adding demand for electric power had been growing in the State at 10% per annum.
Indeed, before the 2005-2006 nuclear or any other deal could be contemplated with the Americans, the US-India Business Council, the American business lobbyist (and recent guest and soon-to-be host of the CPI-M’s Buddhadeb Bhattacharya), insisted India pay up fully for the Dabhol-Enron fiasco. Maharashtra and its sovereign guarantor the Government of India, duly paid out at least $140-$160 million ($14-$16 crore) to each General Electric and Bechtel Corporation in “an amicable settlement”. It was only then that Dr Manmohan Singh could be hosted in the White House and in turn play host to President George W. Bush.
Without entering the intricacies of the fiasco, it may be still asked who was responsible. And in retrospect the finger must point both at the Mahajan-Munde BJP/ Thakeray-Joshi Shiv Sena, and at the Sharad Pawar Government and Manmohan-Montek Union Finance Ministry at the time. The BJP-Shiv Sena declared an intent to “throw Enron into the Arabian Sea” and thus vitiated the atmosphere with the Americans. Americans are shrewd and practical people in commercial matters and accounted for such contingencies in their deal-making, tidily earning their money anyway, winning the arbitration awards in due course. Maharashtra’s identity confusion was exemplified by Rebecca Mark having to visit Bal Thakeray before a policy flip-flop could be permitted.
If the basic technical cause Enron’s electricity became too expensive was that it was denominated in dollar prices and the rupee depreciated rapidly during and after the deal-making, then the financial responsibility for the fiasco must be ultimately traced to India’s Finance Minister in the early 1990s, namely Dr Singh, and his chief acolyte and Finance Secretary Mr Ahluwalia. Maharasthtra is not a sovereign country, and it was the Union Finance Ministry’s responsibility to oversee the necessary cost-benefit and project appraisal analyses, and these if properly done would have accounted for exchange-rate depreciation scenarios. It is no wonder the World Bank later refused to finance the project because they had done their studies better. The same kind of cavalier unprofessional attitude in spending scarce foreign moneys earned by India’s public has been displayed now more than a decade later by the Manmohan-Montek duo, though on a vastly larger scale, in regard to the planned purchase of nuclear reactors from Russia, the USA etc on a turnkey basis.
Maharashtra may be a Great State but its public finances are in as great a shambles as any other. The table for 2003-2004 (before the Enron payments were made) reveals the very high continuing public indebtedness, and the same pattern as the budgets of West Bengal and Uttar Pradesh described in these columns earlier. A closer look would reveal, e.g., that Rs 814.36 crore (Rs. 8.14 billion) were spent in collecting Rs1,205.97 crore. (Rs. 12.05 billion) of “Vehicle Tax”! There is much that Mumbai’s and Maharashtra’s and India’s citizens have to ponder over and act upon before serious thought can be put to restoring the integrity of India’s money. In that process, those who have been part of the problem are unlikely to be part of its solution.
Govt. of Maharashtra Finances 2003-04
EXPENDITURE ACTIVITIES: RsBn (Hundred Crore)
governance & local governance 18.19 2.58%
judiciary 2.96 0.42%
police (including vigilance etc) 19.81 2.81%
prisons 0.86 0.12%
bureaucracy 27.97 3.97%
collecting land revenue & taxes 42.25 6.00%
government employee pensions 26.36 3.74%
schools, colleges, universities, institutes 93.74 13.31%
health, nutrition & family welfare 23.42 3.33%
water supply & sanitation 10.22 1.45%
roads, bridges, transport etc. 12.96 1.84%
electricity 16.96 2.41%
irrigation, flood control, environ, ecology 70.79 10.05%
agricultural subsidies, rural development 41.30 5.86%
industrial subsidies 2.60 0.37%
capital city development 6.25 0.89%
social security, SC, ST, OBC, lab.welfare 25.40 3.61%
tourism 0.89 0.13%
arts, archaeology, libraries, museums 0.75 0.11%
miscellaneous -0.47 -0.07%
debt amortization & debt servicing 261.03 37.07%
total expenditure 704.22
INCOME SOURCES:
tax revenue 285.52
operational income 35.49
grants from Union 22.70
loans recovered 4.82
total income 348.53
GOVT. BORROWING REQUIREMENT (total expenditure minus total income) 355.70
financed by:
new public debt issued 317.02
use of Trust Funds etc 38.68
355.70
from author’s research and using C&AG data
Waffle but No Models of Monetary Policy:
The RBI and Financial Repression (A Stock Market on Steroids)
by
Subroto Roy
First published in The Statesman, Perspective Page, October 27 2005, http://www.thestatesman.net
If the average Indian citizen feels flummoxed at hearing all the fancy words from official spokesmen and the talking heads on TV and the expensive pink business newspapers — words like “credit offtake”, “liquidity”, “reverse repo rate” “medium term”, “inflation mandate” etc — there is help at hand. It is as likely as not that the purveyors are as flummoxed themselves even while they bandy these terms about in what has been passing for monetary policy in India in recent years. No one has any reliable economic models backed by time-series data to support all the waffle.
Here is an example.
The Government (and specifically the department of the Finance Ministry known as the RBI) will have us believe that the decline in the value of money that has been occurring in India has been at less than 5% per annum. According to official figures, the average Indian’s purchase of consumable goods and services (food, housing, clothing, transport etc) has been costing more every year by merely 5% at the very most. “What you can buy for Rs. 1000 in one year, you have to pay just Rs 1050 to buy the next year” is what the Government will have us believe. But is anyone’s personal experience of the diminishing value of the domestic currency in India consonant with what official spokesmen say inflation happens to be?
You may well reply that you cannot quite recall what Rs. 1000 bought for you last year. Precisely so. Nor really can anyone else — and that mutual collective loss of memory on the part of the public is something that India’s Government (like many other governments across time and space) has been literally banking on!
Consider a few very simple calculations. Suppose a citizen earns an annual income of Rs. 100,000, and an honest Government told him/her to pay total taxes (from both income and expenditure) of 10%. Clearly Rs. 90,000 would be left for the citizen to spend on his/her various choices of consumption or saving afterwards. If the citizen could assume the value of money was constant (inflation was 0%) then this Rs. 90,000 in one year would buy the same amount of goods and services the next year. But instead we may be living in a political system where the Government officially taxes very lightly, and then dishonestly taxes very heavily by reducing the value of money invisibly, i.e. by inflation. The Government may make the official tax-rate 8% and the actual inflation-rate 15%. The citizen who has Rs. 100,000 will then pay Rs. 8,000 in nominal taxes, but the Rs. 92,000 that is nominally left over for his own consumption and savings, will be made to decline by a further 15% every year.
I.e., a further value of Rs.13,800 (15% of Rs. 92,000) would effectively disappear as an invisible tax from the household budget due to the decline in the value of money, without the household being any wiser. In real terms, the household would have only Rs. 78,200 left.
Where would that extra value disappear to? Clearly, the beneficiary of this invisible extraction of real resources from household budgets would be the only entity that is able to compel the decline in the value of money, namely, the Government, which holds monopoly power to print the pieces of paper (at zero cost) that we call “money” and which we are forced by circumstances to use to expedite our real transactions of goods and services. Roughly speaking, that is how the Government’s own budget deficit gets financed in India.
I.e., the Government of India has its own (massive) expenditures — not merely on things like roads and bridges and military tanks and submarines, but also on ministers and bureaucrats’ wages etc., besides enormous interest payments on past debts incurred by the Government. If the expenditures exceed the visible revenues raised from taxation, as they have done by perhaps 40-50% or more every year for several decades, then the difference gets bridged by printing more paper money over which the Government has had a monopoly.
In India, a total of perhaps 18 million people work in all branches of government and a total of perhaps 12 million people work in the entire organised private sector. That makes 30 million people — with 4 dependants each, that accounts for perhaps 150 million people in the country. That leaves another 850 million people in our population of 1,000 million. Everyone, whether in the 150 million or the 850 million, rich and named or poor and anonymous, has had to use for his/her real transactions of goods and services the paper that the Government produces as money. By causing a decline in the value of this paper every year by x%, everyone who holds this paper, as well as assets denominated in this paper, suffers an invisible taxation of x% without quite realising it. The real revenue the Government of India extracts in this way is what has allowed it to balance its own books.
Furthermore, in the Indian case, what is said to be the inflation-rate and the actual inflation-rate experienced by ordinary people, may well be two different things. The wage-bill of those 18 million people employed by government agencies are linked directly to what official spokesmen say the inflation-rate is, so if the actual rate being experienced was higher and was announced as such, so would have to be that wage-bill and public expenditure! Official spokesmen may tell us the decline in the value of money has been merely 5% or less a year, so what cost Rs. 1000 last year costs Rs. 1050 this year, but as a matter of plain fact, the average citizen’s experience (and memory) may well tell him/her something different – e.g. that what cost Rs. 1000 last year, is in fact costing Rs. 1100 or Rs 1150 or Rs 1200 this year.
So much for the value of money. Now turn to interest-rates.
Here too, the average citizen need not be a rocket-scientist to know that relative to the Western countries, India is labour abundant and is capital scarce. Roughly speaking, that means we have relatively more people and fewer high-rise concrete buildings than the West does. Where then would you expect wages (the price of labour) to be higher, in the West or in India? Clearly in the place where labour is more scarce, namely, the West. And where would you expect interest-rates (the price of capital) to be higher? Clearly, where capital is relatively more scarce, namely India. Such was clearly the case between 1864 and 1926 (Fig. 1). Calcutta bank interest-rates were uniformly higher by about 2-3% than London bank interest-rates (in an era of zero inflation). But something wholly different occurred in the pseudo-socialist India after Independence. E.g., for the years 1975-1992 official Indian interest-rates (adjusted for inflation) were uniformly lower than those in world capital markets represented by the USA (Fig. 2). That remains true today. Not only have the higher wages of the West been attractive to Indians, so seems to be the higher real rates of return on capital! Hence everyone who could fled India – exporting their adult children and their savings abroad , leaving future generations of the anonymous masses with larger public debts to pay the bills in due course. There has been a flight of skilled labour and as well as capital flight from India — are foreigners going to come when they can see the Indian “elite” has fled? Official real interest-rates in India today may well be negative if inflation is properly measured, which would explain the Bombay stock-market boom the same way an athlete can perform better when on steroids.
Of course in the unorganised capital markets, actual real rates of return have always been higher in India than in the West and remain so. Just ask anyone in the unorganised capital markets how much he has to pay to rent machinery on a daily basis e.g. in the building or construction trade in an Indian city or small town or village. He will quote you rates of 2% or 5% or 10% — per day. Hence there is a massive distortion between what is happening in the unorganised capital markets all over the country and the official money markets the RBI believes itself to be presiding over in Bombay. Until the RBI starts to tell us frankly about this phenomenon, which is known to economists as “financial repression” and which has been caused by runaway Government spending programmes in India for decades, the average citizen may discount all the talk about a few basis points changing here and there on this or that nominal rate, in our pale imitation of what we think the US Fed or the European or British central banks do as policy. The truth is the RBI has never been allowed to model itself after those institutions. Instead, India has had nationalised commercial banking whose pampered inefficient management and staff have allowed the holding of massive amounts of government debt as assets in their balance-sheets, all denominated in an inconvertible controlled currency, and all presided over by a “one-tier” central bank patterned on the old Gosbank of the former Soviet Union, completely subservient to the dictates of the runaway spending that this or that particular set of politicians in power may demand. If there are dreams to be dreamt by honest economists in India, it would be for all that to be made to change.
