Assessing Manmohan: The Doctor of Deficit Finance should realise the currency is at stake

Assessing Manmohan:

The Doctor of Deficit Finance should realise the currency is at stake

by Subroto Roy

First published in The Statesman, Editorial Page Special Article, April 25 2008,

The best thing that may be said of the Manmohan Singh premiership is that when it began in May 2004, it seemed, for a short while, refreshing in comparison to the dysfunctional arrogance and brutality displayed by its predecessor. By the last months of the Vajpayee-Advani Government, there were party appointees who had ended all pretence of purportedly Hindu values and were raking it in shamelessly. The Golden Rule of Democracy is “Throw the rascals out”, which is what Indian democracy upheld as it has done time and again. By 2009, India’s electorate will have the chance to decide whether the incumbent government deserves the same fate.

Lok Sabha

Manmohan Singh was seriously discussed as the Congress’s putative nominee for PM as early as 2001. The idea brewing at the time with the party’s next generation of wannabe leaders (in their 50s and 60s, where Manmohan was near 70) was that they needed to maintain good relations with the Great White Queen and wait out one term of an inevitable Singh premiership before having a shot at the top job themselves.

What is surprising is Dr Singh appeared never to feel it necessary to educate himself privately on how to retool himself for the necessary transformation from being the archetypal bureaucrat he had been in his working career to becoming the national statesman he wished to be after retirement. It is doubtful, for example, if he ever stood in front of a mirror and practised an extempore political speech in Hindi in preparation for the highest executive post in the country, let aside writing a clear-headed, original vision or mission statement of substance as to where he wished to lead it. As Narasimha Rao’s Finance Minister, he could meekly take orders from his PM; it seemed he wished to continue in the same mode even when PM himself.

Jawaharlal Nehru is supposed to have been a hero of Dr Singh’s ~ but Nehru was a thorough parliamentarian, among the finest anywhere, and someone who always respected the Lok Sabha immensely. Dr Singh, after he lost to VK Malhotra for the South Delhi seat in 1999, made not the slightest effort to enter the Lok Sabha again, even when the Akalis indicated they might not oppose him in a Punjab contest. When asked specifically at a large press conference about not entering the Lok Sabha, Dr Singh murmured words to the effect he had better uses of his time ~ a display, if anything, of the misplaced arrogance of many New Delhi academics and intellectuals. Dr Singh may be the first PM in any parliamentary democracy never to have won a seat in the lower house nor felt a need to do so.

Dr Singh’s bureaucratic expertise assisted him well in the first national crisis that came his way, which was the Tsunami of 26 December 2004. There appeared to be an air of efficiency about the Government’s response and he seemed in his element as commander of bureaucratic forces while working with Pranab Mukherjee in enlisting the military. George W. Bush (not a great geographer or historian) was apparently impressed to see on a map that India had naval forces deployed as far as the Andamans.

By 2005 though, Dr Singh’s bureaucratic mindset had its negative impact. Montek Ahluwalia had been his Finance Secretary when he was Finance Minister. Mr Ahluwalia’s spouse had been a main supporter of Dr Singh’s unsuccessful Lok Sabha attempt. During the Vajpayee Government, Mr Ahluwalia remained a Planning Commission Member for several years before moving to Washington. With Dr Singh as PM, Mr Ahluwalia returned from the USA in mid 2004 to become Deputy Chair at the Planning Commission. Simultaneously with his return, the idea that the American nuclear industry would like to sell “six to eight lightwater reactors” to India arose.

That is as much as is presently known in public. Dr Singh and Mr Ahluwalia may in the national interest want to frankly and precisely explain to the Indian people the full story of the sudden origins of this idea. Certainly, none of the lessons of the Dabhol fiasco a decade earlier seemed to have been learnt, and the Maharasthtra Government (and hence the Government of India) ended up paying some $300 million to General Electric and Bechtel Corporation for Dabhol before any nuclear talks with the USA could begin. Nor had any serious cost-benefit analysis been done or discussion taken place comparing nuclear energy with coal, hydro and other sources in the Indian case.

Indian foreign policy became frozen in its focus on nuclear negotiations with the USA, swirling around Dr Singh’s fife-and-drum welcome at the White House and President Bush’s return visit to India. At the same time arose the issue of Paul Volcker’s UN committee mentioning the name of India’s foreign minister. As The Statesman put it, regardless of the latter’s involvement, “the damage to India’s diplomatic reputation in the world” was done and it was inevitable a new foreign minister would be necessary. After dilly-dallying and much 10 Janpath to-and-fro, Dr Singh followed Nehru’s mistake of becoming his own foreign minister. The idea was that this would be temporary but it became almost a year.

Instead of transforming himself towards Indian political statesmanship, Dr Singh advanced other retired bureaucrats’ ambitions on similar career-paths. Foreign policy went out of the MEA’s control and seemingly into the control of the new “National Security Adviser”. Dr Singh, sometimes with MK Narayanan beside him, travelled a large number of countries from Brazil to Finland and Uzbekistan to South Africa and Japan. Dr Singh also found time and willingness to accept honorary degrees from British and Russian universities during these short months.

While Dr Singh seemed thus preoccupied, two of India’s main neighbours underwent massive democratic revolutions (leave aside magnificent Bhutan). Nepal’s people practically stormed their Bastille while Dr Singh and Mr Narayanan visited Germany to discuss BMWs. Pakistan’s democratic forces could hardly believe the cold indifference shown to them by a New Delhi merely following Bush’s support for Pervez Musharraf. While Pakistan and Nepal, and to lesser extent Bangladesh, saw movements towards better governance, Sri Lanka descended towards civil war ~ India’s PM remained obsessed with the magic wand that the nuclear deal was supposed to be.

Inflation

Then suddenly the magic vanished ~ Dr Singh seemed to finally come to a silent private recognition that the economics of the nuclear deal simply did not add up if it meant India importing “six to eight lightwater reactors” on a turnkey basis from the USA or anywhere else. Dr Singh seemed to come out of his self-imposed trance and return a little better to reality. By the time he visited China, although he was as deferential to Hu Jintao in his body language as he had been to Bush and Musharraf and even accepted an indoor guard of honour, he also seemed willing to stand up for India. The Arunachal visit was a reality-check.

Now there is inflation ~ and one year left in the UPA’s term. What the country needs is tough sensible macroeconomics and clean public finance. A pandering profligate budget in February was not a healthy sign. Instructing Mr Ahluwalia to close down the Planning Commission and make it a minor R&D wing of the Finance Ministry would be instead a good step. Instructing the RBI to clean up its bureaucratic wastefulness and prepare itself for institutional independence from the Finance Ministry would be even better. Getting proper financial control over every Union and State government entity spending public money and resources would be most important of all. Such major institutional changes in the policy-making process are what an economist might expect of an economist prime minister who wishes to lead India in the 21st Century. India’s currency is at stake.

(See also:  “The Politics of Dr Singh”, May 2006; “Mistaken Macroeconomics”, June 2009, etc.)

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Indian Inflation: Upside Down Economics from New Delhi’s Establishment

Author’s Note: Articles of related interest include “Against Quackery”, “India’s Macroeconomics”, “Fiscal Instability”, “Indian Money and Credit”, “Indian Money and Banking”, “The Dream Team: A Critique” etc.

Indian Inflation: Upside Down Economics From The New Delhi Establishment

By Subroto Roy

First published in two parts in The Statesman, Editorial Page Special Article, April 15-16 2008, http://www.thestatesman.net

Suppose there are only three real goods and services in the economy, and their prices per unit expressed in terms of money were Rs 3, Rs 2, Rs 6 respectively. If those money prices per unit doubled to Rs 6, Rs 4, Rs 12 respectively, we would say inflation of 100% occurred during the relevant time-period. If the prices had gone instead to Rs 4.50, Rs 3, Rs 9, we would say inflation was 50%, and so on. Notice the ratios between the three prices have remained the same in these examples; i.e., while the money prices of the items have changed, relative prices between them remained constant. In reality, there are many hundreds of millions of differentiated real goods and services in any economy though the logic stays the same.

Decline of money
It is well within living memory that the monthly salary of a Government of India Joint Secretary was Rs 3,000. Middle class parents would wed their daughters respectably to a groom earning such a figure. A Joint Secretary today makes 20 times as much and Rs 3,000 is made by his driver or children’s nanny whose equivalent back then made perhaps Rs 150 per month. The relative distance between the Joint Secretary and his driver has not decreased but the absolute amount of rupees made by each has been multiplied by a factor of 20. That indicates the fall in the value of rupees or rise in prices of goods and services relative to rupees during that period.

One reason this has happened is that the monopoly issuer of rupees, namely the Government of India, has vastly enlarged the stock of rupees present in the economy, both paper-notes and bank-deposits.  Inflation, strictly speaking, is uniform decline in the value of money or, what is the same thing, uniform increase in all rupee prices, including wages, with relative prices constant. The time-period could be a year or even a month; “hyperinflation” may start to be defined if the value of money falls at more than 10% per month.

The main problem with inflation is that rupee prices never expand uniformly and hence some classes of people gain unexpectedly while others suffer catastrophe. E.g., all those with debts expressed in rupee terms pay back less in real terms while their creditors go bankrupt. Those with fixed or slow-changing incomes (like old people, unorganised non-unionised workers etc) and those with paper assets (like currency rather than land or jewelry) are all made worse off by inflation. Unionized workers, like Government employees, do very well from inflation relative to others in society as their compensation is inflation-indexed. And the Government of India itself, as the largest debtor in the economy, gains massively from inflation; indeed, printing more paper is a standard way for all governments around the world to reduce their real debts by subterfuge.

The farmers at Singur or the SEZs who hand over their land for paper rupees from the Government will find the value of that paper declining and the value of that land rising over future years ~ which may help explain the recent keenness of city-people to take over rural India.

Rupee prices are one key variable that tend to expand via inflation with expansion of money stock. The other main change occurs in real income through growth. The Joint Secretary and his driver both use colour TVs for entertainment and gas-stoves for cooking these days; their earlier counterparts would have used transistor radios and coal-fired ovens.

To that extent, we have superior standards of living than we did in the past. There has been enormous technological progress, mostly through spontaneous learning and productivity increase, and that leads to vastly greater commerce and transactions between people, hence greater income and wealth through specialization. The vastly increased volume and value of commerce requires more money to expedite its turnover.

India’s money stock in recent decades has been growing at no less than 15% per annum, most recently reaching an all-time high of 22% per annum last year. Even if current Government estimates of growth of real income at some 9% are taken at face-value, that may mean growth in all rupee prices, i.e. inflation, near 22-9=13% per annum. TV economists parrot Government WPI inflation at 5% per annum, and now newspaper headlines are screaming WPI inflation is at 7.4% ~ more realistically, the decline in the value of India’s paper money has likely been in double-digits for years.

Paper money is a peculiar thing as it has no intrinsic value ~ even a hair pin or shirt-button has more usefulness as such. Paper money derives whatever value it has only because each of us in the economy believes everyone else will accept it in transactions in payment of wages or to purchase food and other items with.

Gold standard

The currency note in your pocket may carry the signature of the RBI Governor and his “promise to pay the bearer” the face-value ~ as if he is going to pay you its equivalent in gold held by the Government. But this is open humbug, a childish fiction. In 1931 the British pound, and the Indian rupee which linked to it at the time, went off the “gold standard” and there has been no backing of the Indian currency with gold ever since then.

In a pure gold standard, gold is money ~ interchangeable in the sense the central bank guarantees it will exchange gold for the paper it issues at an announced price. If that price changes up or down, there is devaluation or revaluation of the currency with respect to gold (depending on how you count it).

A gold exchange standard is similar except gold is not used as money and central banks of nations guarantee the announced prices of their paper moneys with respect to gold in transactions with one another. In the dollar exchange standard (or Bretton Woods system from 1944 to 1971), the US Government alone and uniquely undertook to guarantee the price of the dollar at $35 a troy oz of gold in transactions with all other central banks. That was the underpinning of the international financial system until Richard Nixon “closed the gold window” on 15 August 1971 because the US had largely financed the Vietnam War through money-creation, and other countries’ central banks (like France) had accumulated large dollar-balances.

The “gold standard”, “gold exchange standard”, and “dollar exchange standard” are all examples of “fixed” exchange rate systems which came to end in 1971-1972. The price of gold at $35 an oz was obviously unrealistically low, and it shot up at once, and has even reached $1000 an oz recently. Since 1972, the Western world has been on “floating exchange rates” where currencies find their own values and gold is merely one asset among many. Fixed exchange rate systems can lead to speculation, runs against currencies and the irresponsible international export of inflation which floating exchange rate systems tend to avoid because there will tend to be market-determined movement in the exchange-rate instead.

Elite capital flight

India today has neither a proper fixed nor a proper floating exchange-rate system but instead continues a system of highly discriminatory exchange controls. Twenty or thirty million people in our major cities know how to use the present system well enough to exchange their Indian rupees for as much as US $200,000 per annum to send their children and relatives settled abroad as foreign nationals. Plus Indian corporations have been allowed to convert rupees to buy sinking foreign companies. Foreign-currency reserves have vastly climbed too as domestic Indian companies have been allowed to incur foreign-currency denominated debt. Hence the thirty million special people are rather cleverly able to borrow foreign currency with one hand and then transmit it abroad with the other.

The net result is a clear policy of government-induced elite capital flight, unprecedented in its irresponsibility anywhere in world economic history ~ signed, sealed and delivered by the Montek-Manmohan-Chidambaram trio now just as Yashwant-Jaswant-KC Pant and friends had done a little earlier. The Communists would only be worse, as their JNU economists renounce all standard textbook microeconomics and macroeconomics in favour of street-shouting instead.

Outside the thirty million Indians with NRI connections, the average Indian today is disallowed from holding foreign exchange accounts at his/ her local bank or holding or trading in gold or other precious metals freely as he/she may please ~ the physical arrest of Mohun Bagan’s hapless Brazilian footballer by our inimitable Customs officers the other day reveals the ugliness of the situation most poignantly.

Every TV economist in Delhi, Bombay and Kolkata now seems to have a solution about India’s inflation and all sorts of fallacious reasoning is in the air. Some recommend the rupee appreciating or depreciating ~ as if anyone in the country has the faintest idea how elastic imports, exports and capital flows may be in fact to changes in the (controlled) exchange-rate. The Finance Minister and PM keep saying inflation is being “imported” because international commodity prices are high ~ someone should explain to them inflation is “imported” when fixed exchange rates allow transmission through the price-specie flow mechanism, and that is far from being India’s main problem. The extra-constitutional “Planning Commission” has, we may be thankful, remained silent about inflation, and seems to have abandoned earlier misconceptions about using forex reserves for “infrastructure”. The UPA Chair, we may be thankful, also has been silent and admits innocence of all economics, implicitly trusting her PM’s wisdom in all such matters instead.

What no one wants to talk about is the hippopotamus that is present in the room, namely, the chronically diseased state of accounts and public finances of the issuer of India’s paper-rupees, the Union Government, as well as the diseased accounts and finances of more than two dozen State Governments that are subservient to it. The macroeconomic and fiscal policy process that the Congress, BJP, Communists and everyone else in the political class in New Delhi and the State capitals have been presiding over for decades is one that turns normal economics upside down.

What happens in the West is that an estimate of technological progress and population growth is made by policy-makers, then an “acceptable” or “unavoidable” or “natural” rate of inflation is added (the figure of monetary change needed for efficiency in the real economy so relative prices adjust to equilibrium in response to demand and supply changes), then a monetary growth target is set, to which the fiscal authority ~ i.e. the legislature handling the Government’s budget ~ must adjust taxation and spending plans accordingly.

What has been happening in India every year for decades is that each of some two dozen state legislatures runs up a large deficit, which are all added up and passed on to the “Centre”; the “Centre” and its “Yojana Bhavan”, at the behest of every conceivable organised interest-group with access in Delhi especially government unions and the military, runs up its own vastly larger fiscal deficit, and then this grand total of fiscal-deficits is offered to the Reserve Bank at the end of a loaded pistol ~ to pay for one way or another via new public debt creation and money printing.  Subtract the WPI rate from the Money Supply Growth rate and government spokesmen and their businessmen friends then exclaim that the economy must try to reach the difference as its “warranted” growth rate! It is all economics upside down from people who have either learnt nothing significant in the subject or forgotten whatever little they once did.

Fragile financial state

The net result has been a banking system (mostly nationalized) in which the asset side of banks’ balance-sheets is made up almost entirely of rather dubious government debt, interest payments on which are received every year from fresh money-printing. The liability side of those balance-sheets consists of course of customer-deposits. In this fragile monetary and financial state, a government-induced capital flight has been allowed to continue under pretence of liberalization ~ with Indian companies being allowed to borrow from foreign markets many times their domestic rupee-denominated net worth by which to acquire ailing foreign companies and brands. Furthermore, there has been a massive fiscal effect as vast new Government spending programs ~ like buying foreign aircraft carriers, fighter-jets or passenger aircraft or writing off farm loans ~ come to be announced and absorbed into expectations of future inflation. A monetary meltdown is what the present author cautioned against in 1990-1995 and again, publicly, in 2000-2005. Economics, candidly treated, tells us not only that there is no such thing as a free lunch but also that chickens come home to roost.


Two cheers for Pakistan!

Two cheers for Pakistan!

by Subroto Roy

First published in The Statesman, Editorial Page Special Article, April 7 2008, http://www.thestatesman.net

A century has passed since British rulers in India like Curzon and Minto became self-styled interlocutors between Muslims and Hindus of the subcontinent. Up through the 19th century there had been no significant national political conversation between India’s main communities. The “Chief Translator” of the High Court in Calcutta was highly prized for his knowledge of Sanskrit, Persian and English because at least three different sets of laws governed different people in the country. Maulana Abul Kalam Azad wrote of his experience in the Bankim-inspired revolutionary societies of Bengal who treated him with extreme suspicion because they could hardly believe a Muslim wanted to join them as an anti-British rebel.

Jinnah vs Azad

Then came MA Jinnah, Iqbal, Rahmat Ali and others, initial creators of Pakistan whether through greater or lesser motives. Azad, Zakir Hussain, Sheikh Abdullah and other Muslims were equally firm the Pakistan idea was not only bad for India in the world it was bad for Muslims in particular. The Azads condemned the Jinnahs as greedy megalomaniacs, the Jinnahs condemned the Azads as minions of the Hindus. Larke lenge Pakistan, marke lenge Pakistan, khoon se lenge Pakistan, dena hoga Pakistan was the mob-cry during the bloody Partition, while the British, weakened by war and economics and bereft of their imperial pretensions, made haste to leave “this beastly country” to its fate ~ rather hoping the bloodshed would be such someone might hire them to stay on.

Certainly, having used the Indian Army for imperial purposes in the War, Britain (represented locally by a series of smartly dressed blundering fools) behaved irresponsibly in not properly demobilizing that Army during a period of intense communal tension. There were no senior Indian officers ~ KM Cariappa became a Brigadier only in 1946, Ayub Khan was a Colonel under him. Then there were the fatuous “princes” the British had propped up in “Indian India”, few being more than cardboard creatures. Among them was J&K’s ruler who was a member of Churchill’s War Cabinet and had come to harbour illusions of international grandeur. Once J&K’s Muslim soldiers returned to their Mirpuri homes, Jammu and Punjab were in communal conflict, months before the decision that Pakistan would indeed be created out of designated areas of British India just before British India extinguished itself. Army-issued Bren guns came to be used by former soldiers in communal massacres of the convoys of refugees going in each direction.

Part of the problem over J&K since then has been that it seems a dialogue of the deaf. Pakistanis since Zafrullah Khan claimed it was communal violence against Muslims in Jammu and Punjab that prompted the Pashtun invasion of Srinagar Valley beginning 22 October 1947; Indians have always claimed the new (and partly British-officered) Pakistan Army organized and instigated the invasion, coinciding with the planned takeover of Gilgit.

As in all complex moral problems, there was truth on all sides though no one doubts the invasion was savage and that the Pashtuns carried off Kashmiri women, Hindu, Muslim and Sikh. J&K descended into civil war, Abdullah’s secularists backed by the new India, Ibrahim’s communalists by the new Pakistan. Field Marshall Auchinlek, who commanded both Indian and Pakistani armies, had the decency to resign when he realized his forces were at war with one another. That J&K could not be independent in international law was sealed when the 15 October 1947 telegram sent by Hari Singh’s regime went unanswered by Attlee. The tribal invasion from Pakistan caused the old State of J&K to become an ownerless entity in international law, whose territories were then carved up by force by the two new British Dominions (later republics) and the result has been the “LOC”.

ZA Bhutto was perhaps Pakistan’s only politician after that time. The years between the assassination of Liaquat Ali Khan and the rise of Bhutto saw Pakistan’s military begin its liaison with the Americans ~ from the US Ambassador’s daughter marrying the Pakistan President’s son to the leasing of Peshawar’s airfields for U-2 flights over the USSR. Yet Bhutto’s deep flaws also contributed to the loss of Bangladesh and to brutality, supported by the Shah of Iran’s American helicopters, against the Baloch.

Bhutto’s daughter now may have succeeded in death where she could not in life. Like Indira Gandhi, there seemed a shrill almost self-sacrificial air about Benazir in her last days, and, like Indira, her assassination caused all her countrymen including her enemies to undergo an existential experience. Perhaps the public death of a woman in public life touches some chivalrous chord in everyone.

Benazir’s husband was transformed from seeming a rather dubious self-seeker to becoming a national leader of some sobriety. Her old adversary Nawaz Sharif, brought to power by one Army Chief and removed by another, is now a constitutional democrat – seemingly adamant that there be the Rule of Law and not of generals. Most of all, Benazir’s death seemed to completely shut up that most loquacious of Pakistanis: Pervez Musharraf. Musharraf seemed stunned and promised free, fair and transparent elections; though no one believed he would deliver, he somehow did. He would like now to be a senior statesman though it seems as likely his countrymen will not forgive his misdeeds and instead exile him to America.

Afghanistan

Pakistan’s main international problem is not and has never been J&K. It has been and remains its unsettled western border and identity vis-à-vis Afghanistan (as India’s problem has been the eastern border with China). Dr Khan Sahib and Khan Abdul Ghaffar Khan knew this but they were not allowed to speak by Pakistan’s Kashmir-obsessed elite. Zaheer Shah’s Afghanistan was the only country that voted against Pakistan joining the UN sixty years ago.

The present author has said before that Osama bin Laden may well be safely and comfortably in the deserts of North Africa while NATO and the Americans raise hell in Afghanistan and Waziristan pretending to look for him. It is not in India’s interest as it is not in Pakistan’s interest that Western militaries, who seem to have nothing better to do, brutalize Afghans of all descriptions in the name of nation-building or fighting “terrorism”. Afghan nation-building can only ultimately come from the Afghans themselves, no matter how many loya jirgas it takes. What Pakistan dislikes emerging from New Delhi is the sometimes rather supercilious and ignorant condescension that our officialdom is infamous for. Instead, with a new, seemingly clear-headed and well-intentioned Government in Pakistan elected for the first time ever, it may be time for all good people in the subcontinent to raise a glass of fruit juice and say “Two cheers for Pakistan!”

List of Works

August 3 2009 update: Please see Thoughts, words, deeds: My work 1973-2010

Taxation of India’s Professional Cricket: A Proposal

Tax professional cricket: Hockey’s debacle shows the distortions in India’s sports markets

by

Subroto Roy

First published in The Statesman, April 1 2008, Editorial Page Special Article http://www.thestatesman.net

All cricket involving professional international-level players, whether Indian or foreign, that comes to be broadcast to Indian audiences or played before Indian spectators, deserves to be subjected to a new, severe, discriminatingly specific excise-tax. Cricket below professional international level would be unaffected. Revenues received by the Union or State Governments from a new “International Cricket Tax” should be specifically “earmarked” to subsidize other sports as heavily as possible. Individual Indian athletes, gymnasts, swimmers, archers etc. as well as Indian teams in soccer, hockey, rugby, volleyball and other sports would be encouraged and enabled to train or compete at sporting events around the world using revenues raised from taxation of professional international cricket involving India. Had our Ministry of Finance or any other New Delhi ministry any serious sense of the economics of public finance, they would have proposed such a simple device of national policy years ago, certainly after the Hansie Cronje gambling scandal broke.

National policy

The distortions of our sports markets have come to be highlighted today by the collapse of Indian men’s hockey coinciding with Indian men’s cricket ballooning from a little international success and a lot of greedy consumer-fed wealth. The public is hardly aware of it but Indians have in fact done very well recently in several international sports ~ especially women’s and men’s boxing, women’s weight-lifting, athletics, archery, table-tennis, swimming, women’s hockey and men’s soccer. Yet youngsters around the country face extremely distorted decisions between investing their time and energy in any sport other than cricket ~ on the outside chance they might hit gold like a Sachin Tendulkar or MS Dhoni or Irfan Pathan and improve their families’ material well-being for ever more, rather like buying a winning lottery ticket.  As a general rule, the structure of economic incentives should be such that a physically talented 10 or 11 year old male or female child should be indifferent between choosing among different sports in which to specialize, cricket being one possibility. Physical fitness through sport along with proper nutrition for all children in the country needs to be the general national goal.

Notwithstanding its virtues, joys, pleasantries and sportsmanship, cricket cannot be considered a nation-building sport for India’s masses. Cricket in England and the West Indies has long declined in face of more vigorous mass sports like soccer and basketball (“West Indian” athletes emigrating to North America). Australia and New Zealand love cricket but they tend to love and excel in many sports and cricket to them is just another ~ if cricket suddenly vanished they would merely move more towards rugby, swimming, tennis etc.

In India, Pakistan, Sri Lanka and Bangladesh as well as South Africa and Zimbabwe, cricket does have some political nation-building role via the secular symbolism involved in choosing a representative national team on merit ~ but that still does not make cricket the single most suitable sport for mass physical or moral upliftment among scores of millions of poor children.

Cricket is similar to baseball and American football in requiring quite a lot of equipment per player; in requiring relatively high technical specialized training (opening batsman, spin-bowler, pitcher, quarter-back); and in not providing all who play it a “total body workout” within a short length of time. One may need to be fit to play cricket but playing cricket in and of itself is not the best route to physical fitness.

Professional international cricketers thus need to be provided with a lot of support ~ gyms, massages, fitness sessions, physiotherapy etc. Field games like rugby, soccer, hockey or basketball do provide “total body workouts”, do not require nearly as much equipment per player and call for much less technical specialized training.

For sake of national policy-making, relevant comparisons should not be made at first class or professional levels but rather on the level of school playing fields, village playgrounds or urban parks and open spaces on any bright day where a bunch of lads have nothing better to do than create a game for themselves. In India as around the world, all that a dozen or more lads need to make a game of it is a ball that can be kicked between them. America’s inner cities have a single basketball hoop around which a game comes to be played.

The high life-time earnings of professional international Indian cricketers arises ultimately from television advertising of mass consumer goods and services ~ aerated sweet drinks, mobile telephone services, chocolates, potato-chips, soaps, shampoos, detergents etc. There is in general nothing wrong with such outcomes of a free process of contracts. The late libertarian philosopher Robert Nozick in Anarchy, State and Utopia gave a classic case of the great basketball player Wilt Chamberlin earning a vast income and wealth because very large numbers of people were freely choosing to part with their money to watch his genius at play.

America, however, has had a long history of sports during which sporting markets have become very competitive in the economic sense. Indian cricket reveals monopolistic trends. Selection at national level, hence to an international professional career of about a decade or so, contains a strong random or arbitrary element to it. At the same time, since the early 1990s professional cricketers in India (unlike those in other countries) have refused to gracefully retire even after poor performance and have had to be chucked out after titanic political struggles that sometimes find mention in Parliament. There is hardly any of the “free entry” or “free exit” that define competitive conditions in an industry.

India’s international cricketers play under India’s Flag and sing the Indian National Anthem; the economic externalities involved are so obvious and the monopolistic or cartel power of Bombay’s cricket and TV businesses so severe that even nationalization of the sport at professional international level might have been considered ~ except for the sheer incompetence our government displays at handling any nationalized industry properly. Thus taxation of cricket and earmarked transfer of those revenues to other sports in India may be the most effective way to move towards a proper structure of incentives.

Sin taxes

Though our Finance Ministry seems quite unaware of it, excise taxes are supposed to be “sin taxes” only ~ e.g. on tobacco and alcohol to try to reduce their consumption and, if demand is inelastic, to extract as much revenue as possible out of them to put to healthier purposes. One reason consumption of professional international-level cricket in India has become unhealthy has undoubtedly to do with the gambling that takes place behind the scenes on innumerable aspects of the game. Placing a severe “sin tax” on professional international cricket will reduce its consumption and hence reduce the gambling deriving from it too. Even the masses who do not gamble but merely watch it on TV for vicarious pleasure and entertainment may need a jolt to prevent addiction. The way to implement a severe discriminatory tax on professional international level cricket in India may be by government control or nationalization of the public arenas in which it comes to be played as well as of course control of the television-broadcast rights. One of our many problems has become that our politicians and senior bureaucrats long to mingle freely with big business and cricket and Bollywood icons themselves; amidst all the glamour and fun that they would much rather be part of, they are unable to think about the public interest less obscurely than they might have done.