L K Advani Mantra: Physical and social, that is second to none

BJP Prime Ministerial Candidate L K Advani says: 

• “India won swaraj in 1947, thanks to the struggles and sacrifices of crores of patriots. But, even after 50 years, we have not yet succeeded in transforming swaraj (self governance) into su-raj (good governance). By good governance I mean adherence to suraksha (security), samruddhi (prosperity) and shuchita (probity in public life).”  
  
• There is no better way of understanding and experiencing India than road travel. It was agonising for me to see, in large tracts of our country, the lack of the most basic necessities of economic growth and social progress. 
  
• However, every once in a while, I also saw symbols of development that radiated hope. For example, after travelling on excruciatingly bad roads for several weeks, my yatra suddenly encountered a beautifully laid highway, a 200-kilometre-long stretch from Sambhalpur to Rourkela in Orissa. Built and maintained by Larsen & Tourbo (I was struck by its corporate slogan “We make things that make India proud”), this was one of the first experiments of PPP in road construction in India. “
  

Socialist India wasn’t interested in individual enterprise in a free market.

Socialist India wasn’t interested in individual enterprise in a free market. 

Imbalance is the balance: real vs money and balance of payment

Kaushik Das has good piece in today’s Mint emphasizing the real sector and money growth but what will never happen is what he is also concerned about it. He says in an economy the “...M3 growth should equal nominal gross domestic growth (GDP) growth (ex ante Real GDP growth plus ex ante inflation) after factoring in the income elasticity of demand for M3 growth”.  

The same logic goes with the countries balance of payment which is not balanced.

Probably I am mad when I read the history of Indian Economic Thought………

I read an interesting excerpt from Patrick French’s biography of V S Naipaul. Mr V S wrote in the 60s which Patrick says “After nearly a year of travel and enquiry in India for the book, Vidia returned to London and wrote a letter to Moni Malhoutra, an IAS officer with whom he had stayed in the district of Faizabad, UP:” 

V S letter: "The point that one feels inescapable is the fact of India's poverty; and how deep is one's contempt for those Indians who, finding no difficulty in accepting one standard in India and another outside it, fail to realise this, and are failing to work night and day for the removal of this dreadful insult and humiliation.... The lavatories at Palam (airport) were literally covered with shit and the aerodrome officer could only speak of the shortage of staff (i.e. sweepers). I wonder, wonder if the shitting habits of Indians are not the key to all their attitudes.... So goodbye to shit and sweepers; goodbye to people who tolerate everything; goodbye to all the refusal to act; goodbye to the absence of dignity; goodbye to the poverty; goodbye to caste and that curious pettiness which permeates that vast country; goodbye to people who, though consulting astrologers, have no sense of their destiny as men.... Not only must caste go, but all those sloppy Indian garments; all those saris and lungis; all that squatting on the floor to eat, to write, to serve in a shop, to piss.... Probably I am mad. But it seems to me that everything conspires to keep India down." 

Mr V.S was “Aged barely 17, he had written to his sister Kamla, then studying at Benares Hindu University: "I am glad you told off those damned inefficient, scheming Indians. I am planning to write a book about these damned people and the wretched country of theirs, exposing their detestable traits. Grill them on everything." Now it was time for Vidia to write that book, to grill them on everything:An Area of Darkness was the result, offering a passionate analysis”

Who toed whose line?

T. C. A. SRINIVASA-RAGHAVAN asks perhaps good question “Why is it that if India has an approach to something, Indian economists wait for it to be validated by the West before they accept it? Indeed, why do they attack the Indians who advocate that view before such validation is bestowed by the West? I genuinely believe that the Finance Ministry, which funded the Mistry report, and the Planning Commission, which funded the Raghuram Rajan report, have some serious explaining to do. As indeed do the economists who toed their line and kept up LeT like attacks on the RBI.”

I also hunch that partly or fully TCA knows the answer as his is a veteran of Indian economist’s views. But there are groupism views in India like he has been advocating Dr Reddy rule of Central Bank. 

At least it is not surprising me when he says "approach to something" and “they will land you in trouble” when ourselves prepared to land in trouble like the one ‘socialism’.

Never thank an economist.........

In 2005, I bought the book of Professor Amartya Sen’s “The Argumentative Indian: Writings on Indian History, Culture and Identity” but never crossed beyond the introduction for no reasons but for his muddled arguments which I read (reading even now) elsewhere. But I have read Mr Ramchandra Guha’s review with interest in the Economic and Political Weekly, October 8-14, 2005. 

Now there is one more review by Lalit Deshpande who writes:

• “I was quite intrigued by the reactions of several friends of mine to The Argumentative Indian. Many had started reading it but only a few could sustain their interest to the end. Those who, having started it, kept it away .for later reading found it repetitive and often detailing arguments too familiar to be rehearsed by a laurite. While some repetition was unavoidable, given the nature of the book, I should hate to think that the disappointment of my friends was widely shared. 
  
• Guha describes Sen as a Bengali cosmopolitan, Indian liberal, left-wing democrat and a broad-minded economist. I wouldn.t be surprised if, armed with Guha.s certification and Sen.s defence of multiple identities, some member of the SP (a flock of birds with saffron feathers), suspending temporarily his participation in the construction of the Temple, rushed to Harvard to put Sen on a head-shrinker.s couch for multiple personality disorder!” 
  

I have no doubt I will not read Lalit’s 17 page review titled “Thank You, Professor Sen” in the Indian Journal of Human Development, Vol. 1, No. 2, 2007

Omkar prescription for painoeconomy

Economist Omkar Goswami writes: 

• “On the last Friday of 2007, the BSE Sensex closed at 20207. That evening, at a swish Mumbai restaurant called Indigo, a young investor banker triumphantly told me, “20,000 is just a half-way house to 40,000, which will happen sooner than you think.” On 26 December 2008, also the last Friday of the year, the Sensex closed at 9,329 — almost 54 per cent below the level a year earlier. Instead of doubling to 40,000, it had more than halved; and quicker than the young banker could have thought. 
  
• Only traitors questioned the sustainability of our dazzling growth trajectory. “What’s 9 per cent?” you were told with barely hidden contempt. “Why shouldn’t we get 10 per cent? Or 11? Or even 12?” Today, these self-same alpha males speak of cutting investments, slashing costs, conserving cash and ‘right-sizing’ — the euphemism for firing people. 
  
• There is nothing to indicate that Japan has learnt the lessons of 10 years of inaction. 
  
• There are solutions. The immediate ones are monetary. Why can’t the cash reserve ratio be brought down from 5.5 per cent to 2 per cent? Or even zero? Why should banks earn 5.5 per cent by parking their money at the RBI? Why shouldn’t this reverse repo rate be slashed to 2 per cent? And the repo to 4 per cent? These measures will create more liquidity and force the banks to lend. To put a lid on monetary expansion because of inflationary fears is absurd in a situation where commodity prices have crashed everywhere. 
  
• Plan to ride out 2009 by gritting your teeth and working harder than before. Things should turn for the better by January-March 2010”.
  

Nonsense stimulus

Every time depression invent new stimulus which have no clear indication to combat demand deepening path. 

Madan Sabnavis disproves the stimulus theses. 

• “Let us go back to the rudimentary text book where output is the sum of C(onsumption), I(nvestment), G(overnment), E(xports) and I(mports). This holds for any sector. The table shows that consumption growth does not have a strong relationship with industrial growth — which means that we need more of the other factors to help in growth. Government expenditure also does not impact industry in the same year — this means that all the fiscal stimulus packages would really take time to work out as the impact is indirect. Trade however is significant.
  
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• Therefore, the primary factors are really investment and foreign trade growth. Further, the growth in capital issues, foreign investment and the Sensex are not associated with industrial growth. This means that the rate of change in these variables is not correlated with the industrial growth rate. 
  
• Given this picture, how can we relate the present circumstances with the industrial scenario? On the supply side, we have witnessed growth in bank credit rising and imports, which means that industrial growth has taken place up to October. Sentiments are low as gauged by FII, FDI and capital market indicators. There is a shoulder shrug as far as investment is concerned as we do not have clear indications — bank credit partly reflects growth but lower capital issues could negate this performance. The government stimulus package does not appear to have the strength to change things, nor would private consumption. As exports growth is not too impressive, the demand stimulus would not be there. The imports route will work provided the demand is there, as imports only talk of the supply side”.
  

Surjit S Bhalla expansion

Surjit S Bhalla asks few questions in BS that the starter has to think and do home works to get answer so consider some of them; 

“…..when everyone has been proven wrong, let us assess what some of the maestros have said, and done. Internationally, the clever people were baying for Bernanke's blood, stating that it was a huge mistake to not let Bear Stearns fail; a mistake because of the principle of moral hazard (didn't you know that Wall Street does not learn a lesson when 95 percent of its wealth is wiped out?). 

This "intellectual" non-market pressure was an important component in the US Fed making its first mistake through this financial crisis which started in August 2007 — and what a mistake it has been. It has brought not only the US but the international banking system down. Jobs, and not necessarily of those belonging to Wall Street, are being lost by the millions, and growth is negative. What price moral hazard? I can't help thinking, and believing, that a market participant would never have advocated the arrogant bureaucratic/academic demand for letting Lehman fail. 

It was less than two months ago that several non-market experts were claiming that the RBI was way behind the curve; eg Ajay Shah argued for more monetary tightening, in September, because the highest interest rates in the world were too low to combat imported inflation! (Wall Street Journal Online, Sept 2, 2008). Others echoed with similar sentiments. This was near universal conventional wisdom of leading investment firms, policy makers, pink paper experts, business TV anchor, academics — is there anyone left? If these gentlepersons were in the market, they would readily admit that they were horribly wrong.  

As of October ’08, the consensus was that India would have a double digit fiscal deficit, and that the oil deficit would account for 2 to 3 percent of GDP. But all of the fundamentalists (the moral hazard, monetary and fiscal, RBI/MoF and the IMF types!) were also forecasting a global growth slowdown of historic proportions. The fundamentalists forgot to note that low world growth, and WTI oil price below $65 for the Oct ’08-March ’09 period would mean an off-budget contribution of the oil deficit to be close to zero percent of GDP”.

Is Indian Economy is in senile?

It is unfortunate (not the stupid, economies) that the Indian economy begun to decline in its widely measured Gross Domestic Product (GDP) growth to 9% in 2007-08 (and projected to 7.7% for 2008-09) after reaching a peak of 9.6% in 2006-07 in recent years and the average growth during the last five years was 8.8% which is historically high compared to any other five year period in the history of Indian economy.

Certainly, everything is not senile but few things which are signals to determine the slowdown of economy. It comes not only in terms of decline in industrial growth during August as slow as 1.3% but also the export growth which has been hit now severely as the global importing countries demand’s declined significantly due the financial crisis in US and EU. What is not understood was that how the US consumers were spending beyond their means and encountered the bust? Why their demand had has declined? Finally how the late awaken Indian economy climes to be a strong and the fastest growing economy (forget its “democracy”) in the world when its own ingredients are in senile.

The below are the list of article which gives answers to the above questions. These are in some way best article to understand the issue. I have also posted these article time to time.

Vernon Smith’s in WSJ  on There's No Easy Way Out of the Bubble

Donald J. Boudreaux in Forbes on Free Market To The Rescue

Russell Roberts in Forbes on Organic Market

T T Ram Mohan in ET article on Crisis: Don't blame it on subprime loans