ARCHIVED POSTS
PANDEMIC OR PANDEMONIUM
In March, the World Health Organization (WHO), a notoriously inefficient and corrupt organization, declared the COVID - 19 virus (also called the corona virus) to be a global pandemic-- an indication of its possible contagion. The WHO pronouncement expectedly created pandemonium. The timing of its various pronouncements raises concerns but I'll leave that for [...]
A NATIONAL LOCKDOWN IS BAD POLICY
For those of you who are mathematically inclined the spread of a virus follows what is called an asymptotic distribution. It grows exponentially at first and then the rate of growth slows down and the virus dies. Every virus known to mankind follows this distribution. There is a reason for this. A virus is [...]
Is India headed for a recession
A question I get asked often these days is this: Is India headed for a recession? The standard definition of recession is a drop in GDP for at least two consecutive quarters. In other words, negative GDP growth rates and a contraction in the economy, signified by a decline in real income, employment, industrial [...]
LOOTING THE RBI
The Reserve Bank of India (RBI) has three main areas of responsibility. It is a banker of banks and is responsible for maintaining public confidence in the banking system. It is also the government’s banker, responsible for managing the country’s money supply--printing new money, destroying old bills, etc. In this role, it helps to [...]
SHOULD INDIA BORROW OVERSEAS?
In the 2019 budget, the FM announced that the government would increase its borrowing in the international market. This was being done to avoid the "crowding out" effect—a phenomenon where the government borrows money that could otherwise have been borrowed (and used more productively) by the private sector. The ubiquitous Pareto principal, also called [...]
ROUGH TIME FOR INDIAN EQUITY MARKETS
The 2019-20 budget is done and dusted. As with most Indian budgets, this one too was a big yawner except in its implications for the stock market. Any prediction about the direction of the Indian stock market must be laced with caution. It is a market driven by a small universe of stocks. Although [...]
STATE-SPONSORED OR MARKET DRIVEN CAPITALISM
Mr Modi will encounter a tough economic climate in his second term. The combination of heightened expectations and a weaker global economy will act as headwinds. Plus, he can no longer deflect the blame to past leaders. A hodgepodge of government schemes, without a clear underlying philosophy, will only expand the reach of the [...]
MODI HAPPENED AT THE RIGHT TIME FOR INDIAN DEMOCRACY
Truth is not the first casualty of war alone; it is the first casualty of populism Today’s world is being increasingly shaped by charismatic leaders. In the US, Europe, and more recently in India, Indonesia, Philippines, Brazil and Turkey, we see the rise of populist leaders who claim to champion the cause of [...]
INDIA’S GDP GROWTH: FACT OR FICTION
“A single lie discovered is enough to create doubt in every truth expressed.” Recently there has been much debate about the Indian economy. Surveys conducted by government agencies such as the National Sample Survey Office (NSSO) and data collected by reputed private agencies like the Centre for Monitoring the India Economy (CMIE) show a [...]
INDIA’S FIRST REAL ESTATE INVESTMENT TRUST (REIT)
Stable, liquid and transparent financial markets are a necessary condition for the growth of a modern economy. An economy grows by developing new products and services and incubating new ideas, and this requires capital. Financial markets (also called capital markets) provide a marketplace where savers can find those who need money for new products. [...]
CONTRADICTORY MOVES IN INTEREST RATES
There are broadly two kinds of pension plans. In defined benefit plans, the employer guarantees a fixed (defined) pension benefit to the employee upon retirement. The risk associated with investing the pension corpus is borne by the employer. In defined contribution plans, the contributions made by the employee are defined but the retirement benefits [...]
ABOLISH THE ANGEL INVESTOR TAX
We live in the age of entrepreneurship. The vast majority of products, services and technologies we use today come from new start-ups, and over 70 per cent of global employment is attributed to these new-age entrepreneurs. It is vital for policymakers to understand how this ecosystem works and how to incentivise it to generate [...]
RBI’s INDEPENDENCE AT STAKE
The Ministry of Finance and the Reserve Bank of India (RBI) are engaged in a dangerous game of chicken. Game theory tells us that "winning" or playing such a game to its conclusion is not in the best interest of either player. The consequences will be devastating for the country’s shaky banking system and [...]
VALUE DESTRUCTION IN STATE RUN BANKS
Who pays when you make a mistake? You do. Who pays when the government makes a mistake? Yes, Still you…..Anonymous In a bizarre move the government, which controls seventy per cent of all bank assets in India through state-controlled banks, decided to merge three banks into a larger entity. Two smaller banks, Vijaya Bank [...]
PEOPLE’S FIGHT AGAINST GOVT. CORRUPTION
There is an important and growing trend in democracies around the world. Public outrage over governmental corruption is toppling more and more leaders. In the last six months alone, leaders from Malaysia, Spain, South Africa, Armenia, Peru, and Slovakia have been forced to resign on charges related to corruption. In the past five years, [...]
INDIA’S LOST DECADE
Countries pass through stages on the road to economic prosperity. Economist W.W.Rostow postulated five such stages of economic development: the traditional society, pre-take-off, take -off, drive-to-maturity, and period of mass consumption. The year 1991 was a watershed point in India’s economic history. It marked a distinct move away from socialist economic policies and an [...]
INDIA’S ATLAS SHRUGGED
It is estimated that since 2014 about 23,000 millionaires have left India to settle in other countries (Morgan Stanley). The vast majority of them weren't tax evaders or bank looters running away from the law. They were the risk takers, wealth creators and employment generators that built this country's industry. And despite all the [...]
TIME TO SELL STOCKS?
In an article dated May 31st, 2017, I wrote that the Indian stock market had room to run on the upside and that a 20% increase over the next two years was highly probable. I mentioned two things that would bring an end to this bull run: a declining currency, and disappearing liquidity. Since that [...]
WATERING DOWN EMINENCE
What comes to mind when you hear the word “eminent” ? Most reasonable people would associate eminence with someone that has attained a level of achievement far beyond others through years of hard work, has a proven and demonstrable track-record of excellence and has unquestioned integrity. Think Abdul Kalam, Mother Teresa, Sachin Tendulkar, Lata [...]
NOT HEDGING OIL PRICES IS REALLY DUMB
Governments and bureaucracies were never designed to produce strategic thinking and efficient outcomes. Decision making requires courage, and when the primary objective is self-preservation, courage takes a back seat. As a small-government libertarian I don’t expect much from governments or their bureaucracies, but sometimes even I am shocked at their level of incompetence and [...]
WHAT MODI CAN LEARN FROM TRUMP
The New York Times (NYT) is as rabidly anti-Trump as any other newspaper in the world. So recently (June 1, 2018) when the NYT carried an article claiming that “we ran out of words to describe how good the job numbers are” it was the strongest endorsement of Mr Trump’s economic policy that has [...]
POOR PLANNING SCREWS UP THE AIR INDIA DEAL
Recently the government put Air India up for sale. Predictably, they made the terms of the deal so onerous that there were no bidders. Not only is this an embarrassment for a government already reeling from complicating and destroying a good tax like GST, but, sadly, it also reduces the market price of a [...]
POLITICS AND INDIA: A DEEP EMOTIONAL CONNECT
India will hold its national elections in the next 12 months. Indians love their politics and emotions are sure to get charged up. The evening news will be full of shouting matches, charges and counter-charges, lies, promises, and the obligatory fake news. There will be political discussions on social groups and disagreements will flare up [...]
TIME FOR INDIAN VOTERS TO WAKE UP
Governments never learn--only people learn. Voting, therefore, is a right best exercised by people who have taken time to learn about the issues It will soon be election time in India--a season for meaningless rhetoric and false promises. Politicians will outdo each other in making irresponsible statements about a lot of things. A big [...]
INDIA NEEDS LEADERS NOT POLITICIANS
We need leaders not in love with money but in love with justice. Not in love with publicity but in love with humanity. Leaders who can subject their particular egos to the pressing urgencies of the great cause of freedom…..a time like this demands great leaders. — Dr Martin Luther King, Jr. As India [...]
INDIA NEEDS A STRONGER RUPEE
Since January 2018 the Indian Rupee (INR) has depreciated almost 6% against the US Dollar. Over the last seven years, the INR has depreciated 35% against the USD in nominal terms. The Rupee is now grossly undervalued and this has serious repercussions for the country’s growth. A weak Rupee makes imports more expensive, and [...]
DOES INDIA’S SHAME-BASED CULTURE ENCOURAGE WRONDOING?
The recent rape and brutal murder of an 8-year old girl in Kathua ( Jammu ) have been universally condemned. What is equally shocking is that many politicians and lawyers whose oath of allegiance is to fight for justice came out in support, not of the girl and her family, but the alleged killers. [...]
SKILLING MODERN INDIA’S WORKFORCE
Education and skill development fulfil two goals simultaneously: an economic goal to provide businesses with a skilled workforce necessary to enhance productivity, improve competitiveness and increase economic growth, and a social goal of creating employment, reducing poverty and inequality and helping people realize their potential. Traditionally, education and skills-development policy have largely been driven [...]
MORE SELF-RESPONSIBILITY, NOT MORE REGULATIONS
You signed on to Facebook, voluntarily. You posted information on it freely. You liked other people’s posts and commented on them willingly. You connected with friends and updated your information and activities on Facebook without any coercion, and you were free to stop posting information whenever you wanted. It was your choice to keep [...]
INCOME INEQUALITY: FACTS AND FICTION
There is a world of difference between treating people equally and attempting to make them equal It appears fashionable these days to blame capitalism for all that ails modern society including inequality, environmental problems, global warming, extinction of animal species, unemployment, healthcare costs etc. Everything miserable is somehow caused by capitalism. One thing is [...]
INDIA NEEDS PRINCIPLES NOT POLICIES
I hate watching evening debates on Indian television. Besides the uncontrolled shouting and the lack of intelligent and respectful discussion, it is always a slugfest about policies and rarely about principles. Most Indians would be hard-pressed to identify the set of principles that guide the different political parties. Election manifestos are a worthless listing [...]
CRYPTOCURRENCIES: MONETARY FUTURE OR FAD
Imagine a world with no controls on how you exchange money with people. There are no global boundaries on where goods and services are produced and you can use a ‘global currency’ to purchase anything anywhere without the help of a third party and no transaction costs. And since the currency is not controlled [...]
MOODY’S HELPS MODI
Various Indian governments have been pushing the global credit rating agencies (CRA’s) to reexamine the country’s credit rating given its clean seventy-year credit history and recent economic growth. Last week Moody’s finally relented and raised India’s sovereign credit rating by one notch from Baa3 to Baa2. What does this mean and what is the [...]
INDIA’S BIGGEST PROBLEM: BIG GOVERNMENT
November 8th, the “ anniversary ” of demonetization, was also a day that hazardous airborne pollutants crossed critical levels in Delhi. One event caused enormous economic damage because of needless government intervention in economic activity, and the other caused great environmental damage because of government apathy and indifference. What a poignant reminder of the [...]
LAISSEZ FAIRE–LESSONS FOR INDIA’S BIG GOVERNMENT
Even Mr.Modi’s most ardent critics will acknowledge his immense enthusiasm and self-belief. But it is his misguided belief that he can somehow “fix” the economy that may be responsible for India’s current economic issues. The economy is a complex, dynamic and fast evolving ecosystem with millions of stakeholders each with their unique set of [...]
REFORMING INDIA’S WELFARE SYSTEM
Most countries provide some form of welfare assistance to those who are less fortunate. And while there might be disagreement on how to deliver such aid or even who should receive it, few dispute the principle of a basic safety net. India’s current welfare system suffers from two major inefficiencies: High bureaucratic costs associated [...]
ECONOMIC FREEDOM–INDIA’S PATH TO PROSPERITY
Economic freedom is the bedrock of modern capitalist societies. It is based on personal rights, voluntary exchange, and open markets. The link between economic freedom and prosperity has never been clearer. The chart below shows the results of a study of more than 150 countries over a twenty year period conducted by the US-based [...]
I AM A LIBERTARIAN–ARE YOU?
Libertarianism is the philosophy of liberty--of personal, political and economic freedom. The modern concept of liberty emphasizes the right of individuals to live as they choose, to speak and worship freely, to own property, to engage in commerce, and to be free from arbitrary arrest or detention. A free person is free to do [...]
10 WAYS TO GET THE ECONOMY MOVING
There are reports that the government is contemplating a Rs. 50,000 crore stimulus to boost the economy. The notion that governments need to stimulate aggregate demand when the economy slows down was first proposed by economist John Keynes in the 1930’s. This Keynesian approach to fighting economic downturns by increasing government spending has been [...]
CAN MODI TRANSFROM INDIA
Mr. Modi came to power with the promise of being a transformational leader. But most of his recent “big bang” ideas have been anything but transformational. Transformational ideas should not be confused with governance. Building 10 Km of new roads a day, constructing toilets, providing infrastructure for power and clean water--these are all [...]
INDIA’S NEW RULES ON HIRING
No relevant background for the job, no problem. India has set a precedent by being the first country to make it illegal for employers to ask for a candidate’s experience, track record, or background during an interview. Henceforth, all candidate names will be put in a box and a random draw will determine who [...]
RAM MANDIR OR BABRI MASJID
Recently a friend of mine lost her mother. The 'chautha' meeting was atypical of a Hindu-family prayer meeting. There was a Muslim muezzin, a Sikh granthi, a Hindu bhajan singer and a Catholic priest, each of whom delivered a beautiful chant and sermon to honor the dead. It was the most heartwarming and beautiful [...]
HOW MODI CAN TRANSFORM INDIA -4
Dear Mr. Modi: In the first three parts of my letter to you, I argued that the principal cause for many of India’s problems was a big government that tries to do too many things as a result of which it ignores the things it should be doing. Eventually, the government does nothing well. [...]
HOW MODI CAN TRANSFORM INDIA – 3
Dear Mr. Modi: (Part 3) In Part 1 of my letter, I analyzed four of your recent decisions to illustrate the sizeable expansion in the power of government under your administration. In Part 2, I outlined the primary reason for your recent policy failures: focusing entirely on the immediate visual effects of a policy [...]
HOW MODI CAN TRANSFORM INDIA –2
Dear Mr. Modi: ( Part 2) Over the last three years, we have been witness to a great increase in the power and reach of the state. Recent decisions of your government ( outlined in Part one of this letter ) are a dangerous display of the encroachment of state powers into the private [...]
HOW MODI CAN TRANSFORM INDIA –1
Dear Mr. Modi: Your commitment to making India great is unquestionable. Your tireless promotion of Brand India is unparalleled in Indian politics. And your effort to run an honest government is commendable. Your energetic leadership and international appeal have brought India glory and investment capital. For that this country will owe you a debt [...]
GDP: AN ABSTRACT CONSTRUCT
We all want economic progress. But how should we measure economic progress? In last week’s newsletter, I used the analogy of a factory producing widgets to illustrate the concept of GDP. In simple terms, the GDP of a country measures the wealth being generated by its citizens. The larger the GDP, it is assumed, [...]
INDIA’S FALTERING ECONOMIC GROWTH
India’s GDP growth has declined now for four consecutive quarters. Total GDP ( Gross Domestic Product) has dropped almost 3.1% since the 4th quarter of 2016. Future GDP will likely get worse as the complete effects of demonetization play out. It is important to read GDP numbers with a grain of salt since they are [...]
WILL THE MARKET’S BULL RUN CONTINUE?
The Indian stock market has had a good run. Stock prices have more than doubled over the last ten years. How long will this bull run last? I spent fifteen years as a Global Investment Strategist and a Hedge Fund manager. Those long, fourteen hour days, pouring over copious amounts of data from dozens [...]
RANKING INDIA AGAINST OTHER COUNTRIES
How does India stack up against other countries on attributes like economic freedom, ease of doing business, corruption, educational opportunities, environmental sensitivity, liberty, individual rights, and happiness etc.? Comparison of countries across a whole host of attributes has now become easier. There are about 170 global indices that provide easily understandable quantitative ratings of government [...]
THE POWER OF FREE MARKETS
“The record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.” ( Milton Friedman, Nobel Prize-winning Economist) One of the most compelling arguments made [...]
WHAT RIGHTS DO WE HAVE ?
When most of us think of “rights,” we imagine the things we are free to do, like make our own decisions, practice our religion, speak our minds, travel without limitations, or engage in the free exchange of goods and services. We assume that nobody can stop us from doing these things. When we study [...]
SWACHH BHARAT: SOLUTIONS
The only way to solve India’s waste management problems is by getting the government and local municipalities out of the waste management business and creating incentives for private companies to bring in cutting-edge technologies to collect, transport, segregate, recycle, reuse and dispose of waste. A formalized waste management industry built by private entrepreneurs, backed [...]
SWACHH BHARAT: PROBLEMS
Almost three years ago the then newly elected Prime Minister Mr. Modi used the bully pulpit of his office to address a vital cog in India’s development. In his first Independence Day speech he openly mentioned how dirty India was and announced the Swachh Bharat (Clean India) campaign. Much credit goes to Mr. Modi [...]
THE SIZE OF GOVERNMENT IN INDIA
The underlying cause of most problems in India is big government and the excessive reliance on the government to solve problems. This dependence allows people to shift responsibility from themselves to the government. A vicious cycle is thus created. Big government creates dependence, which reduces personal responsibility resulting in indiscipline, which then allows [...]
WHAT JAITLEY SHOULD HAVE SAID IN HIS BUDGET SPEECH
Madam Speaker: For almost 70 years, Finance Ministers have come to this august body and said: “ the government will do this, and the government will do that.” As a result of this ever-increasing involvement, the government has gotten bigger and more expensive to maintain. Running the government machinery today consumes about 20% of [...]
GST TAX: A GOOD TAX POLICY BOTCHED BY THE GOVERNMENT
The ability to simplify means to eliminate the unnecessary so that the necessary may speak….Hans Hoffman In a World Bank ranking on the ease of paying taxes, India ranks at the very bottom --172 among 190 countries. India also ranks at the very bottom in the percentage of voters that pay taxes--less than 7%--lowest [...]
RECALIBRATE CAPITALISM SUGGESTS INDIAN MINISTER
At the World Economic Forum in Davos, India’s Commerce Minister Nirmala Sitharaman, made a preposterous statement. She suggested that the world needs to do a “reality check” and that in countries where capitalism and democracy co-existed, it was “time to pause and recalibrate”. Now, Ms. Sitharaman is no ordinary citizen. As Commerce Minister of [...]
ELIMINATE BLACK MONEY BY ABOLISHING INCOME TAX
Here is a radical proposition. Abolish all current taxes in India: by all I mean all the 50 or so different direct and indirect central and state taxes that exist in India. No income taxes, no corporate taxes, no capital gains taxes, no service tax, no excise tax. Replace all these taxes with one [...]
GOING CASHLESS: THE DANGER TO LIBERTY
As demonetization unravels into a spiraling disaster the government is looking for new narratives to justify the policy. The latest justification that it will enable a quick transition to a cashless society seems to be gathering steam but it too is baked in fallacy. It is disappointing that the opposition is so intellectually depraved [...]
MODI’S INTEREST RATE MANIPULATION: BAD ECONOMICS
Almost all government programs are started with good intentions, but the results are always the opposite of the intentions of the well-meaning people who originally backed it. – Milton Friedman (Nobel Prize, Economics, 1976) In a free ‘laissez-faire’ market, the interaction of supply and demand leads to price discovery. The market automatically adjusts supply and [...]
A NEW TAX POLICY FOR INDIA
Taxes distort economic choices and impede economic growth. Empirical evidence shows that a tax increase of 1 percent lowers real GDP by 1.5 percent after two years. But they are also necessary to fund government spending. So, the issue is how to maximize revenue collection at the lowest possible disruption to the economy. A [...]
GET GOVERNMENT OUT OF SPORTS
The Niti Ayog, the government’s premier think tank, recently unveiled a plan called First Play which lays down a strategy for getting India 50 medals in the 2024 Olympics. For a country that won just two medals in 2016, and a grand total of 23 medals over the last 70 years, this goal seems to [...]
TRUMPONOMICS/ INDO-US TRADE
Donald Trump will soon become the most powerful man on earth. The rhetoric of the campaign is over, and while it is hard to say exactly which one of his many promises will eventually become a reality, one thing is for sure: Trump represents a radical change from the past both in persona and [...]
THE BLACK MONEY BOGEYMAN
Much has been written about demonetization and the impunity with which the elected leader of a country destroyed the currency of the fastest growing economy in the world. How can a rational and intelligent leader, who got elected on a platform of development, make a decision to undo the very development that he so [...]
DEMONETIZATION: A RECKLESS GAMBLE
When people start losing faith in the currency, it marks the start of the nation’s decline Thomas Jefferson Mr. Modi’s decision to demonetize the currency was a bold move. But it was not the right move. And while we can applaud the need to be bold and to think out-of-the-box, many big bang [...]
TAX TERRORISM: THE 21ST CENTURY WAR
A wise and frugal Government, which shall restrain men from injuring one another, but shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned... this is the sum of good government...Thomas Jefferson The power a government derives comes [...]
INDIA’S TSUNAMI: A BANKING CRISIS
All big disasters start off as small events. Hurricane Katrina was a small ripple in the South Atlantic Ocean before it killed 2,000 people in New Orleans ten days later. Research conducted by a group of scientists who replicated avalanches using sand grains found remarkably that it is always a small perturbation in one grain [...]
INFLATION TARGETING IN INDIA
The Reserve Bank of India (RBI) has several roles. It is the banker’s bank and is responsible for maintaining public confidence in the banking system. It is also the government’s banker and is charged with managing the country’s money supply--printing new money, destroying old bills, etc. But its primary role is to be India’s central [...]
OPEN LETTER TO MY KASHMIRI FRIENDS
It is sad to see the current state of affairs in this beautiful land of your birth, Kashmir. An entire generation is being lost, manipulated by devious people whose only interest is to benefit from chaos. And while your children are being lured into violence, theirs live safely outside of Kashmir. The sad fact [...]
THE URI ATTACK: A CHESS GAME
The recent attacks on Uri by Pakistani trained terrorists is part of a strategic chess game that has been slowly playing out over the last decade, but one that has been ramped up recently in moves made by the Modi government. A little history first on how we got here. There are 2 [...]