- Credit Suisse has got a Permission to open One Branch in India. [also see]
- Some good news on IIP measurement in the offing. Also see this editorial in the Financial Express on this.
- Jessica Wallack in the Financial Express on the recent attempts at changing rules on education.
- Ashok Khemka in the Financial Express on subsidised petroleum products.
- Benchmark's exchange traded fund (ETF) on the Hang Seng index at NSE.
- Nirvikar Singh in Mint on the FSDC.
- In Mint, Manas Chakravarty has written about a paper by Ayyagari, Gopalan, Yerramilli about the stock market reaction to announcements of projects as seen in the CMIE Capex database.
- China is building a Monetary Policy Committee (report by Andrew Batson in the Wall Street Journal).
- Nelson D. Schwartz in the New York Times on speculators.
- Long Euro, says Martin Feldstein.
- In an article Why Do Jews Succeed?, Jerry Z. Muller says: much of success in a capitalist society is based on cultural and historical factors that produce qualities such as innovativeness, willingness to tolerate risk, and willingness to defer gratification through savings and education. It makes us think about the pockets of India which do best at fostering risk-taking, innovation, saving and education. I also wonder whether one more factor that helps success is discrimination. Condoleezza Rice (a black woman) has described her upbringing as one in which she had to be twice as good. This is, of course, not a sufficient condition, but under the right circumstances (e.g. Indians and Chinese in Malaysia) it can help.
Tuesday, March 30, 2010
Monday, March 29, 2010
On this website, for each series, there is a technical note showing the work done in seasonal adjustment. There is an RSS feed and an email update. There are downloadable .png / .pdf files which can be used directly, and csv files which can go into your software. There is a report.pdf which is a self-contained document which can go into a printer or an e-book reader, and there is a web page which gives you the picture in a browser. Most important: the website is updated every monday.
With many series, Radhika Pandey (who leads the work) has been finding that the null hypothesis of no seasonality cannot be rejected. Earlier, these series were being kept out of this web page. But it's increasingly clear that the more useful strategy for these series is: to have a technical note for these series as well, so that external users can see the steps that led to this conclusion, and to then proceed with the use of non-seasonally adjusted (NSA) data for the purpose of computing month-on-month changes. Radhika is increasingly moving in this direction.
Sunday, March 28, 2010
Economists have been arguing that the creation of knowledge responds to the inputs going into it. And there is no question that the number of people engaged in knowledge professions today is greater than ever before in human history. Information technology has added strength to this pursuit, amplifying what a puny unaided human mind could do on its own. Earlier, the West dominated the production of knowledge; now we have phenomena like R&D labs in India giving a new kind of low cost production of knowledge, and increased opportunities for risk-taking in research. These factors should increase the pace of progress in creating knowledge. It should take us closer to the scenario where the 21st century will be even more exciting than its predecessor in terms of creating new knowledge.
But I find myself in 2010, nervously looking around, and wondering if we are actually doing better.
From 1900 to 1910, here are a few of the great things that happened:
- In 1900, Max Planck proposed quantum theory, Hilbert posed his 23 problems, and Louis Bachelier was the first financial economist.
- In 1901, Marconi did the first wireless trans-atlantic transmission.
- In 1902, the first car ride from San Francisco to New York took place, and the Wright brothers flew the first plane.
- In 1903, construction of the Panama canal began.
- In 1905, Einstein wrote four papers.
- In 1906, Mahatma Gandhi coined the phrase satyagraha, and the first `vitamins' were discovered.
- In 1908, the first oil was extracted from the Middle East, and Henry Ford sold the first Model T.
Or is that all sorts of wonderful things have been going on and it is my lack of knowledge? E.g. if I had lived in 1905, I might not have heard about Einstein's four papers.
If it's not just me, and the pace of progress has slackened: Why did we not get amazing progress from 2000 to 2010, despite the expansion of inputs into the systematic quest for new knowledge? Are we hitting diminishing returns; are we in the sad stage of adding decimal places to fundamental constants? Is our production function faulty?
In economics, we seem to be finished with a first cut of a conceptual framework, and now the real challenge lies in how the rubber hits the road, in taking the framework to the messy reality and seeing what works and what doesn't. Nobody believes a theory paper, except the guy who did it; Everyone believes an empirical paper, except the guy who did it. Today, when I face a paper, I first jump ahead to the empirical stuff to see whether the data and the estimation strategy persuades me, and then if it makes sense, I curiously look at the conceptual framework and theory. It is a time to work in the trenches, dealing with messy reality, and not a time for elegant conceptual frameworks.
I remember noticing the May-June 1973 issue of Journal of Political Economy, where there is a pair of papers which appear back to back: Risk, Return, and Equilibrium: Empirical Tests by Fama and MacBeth, followed by The Pricing of Options and Corporate Liabilities by Black and Scholes. One has already got a Nobel prize and I suppose the other will get one too. JPE today does not seem so grand.
Friday, March 26, 2010
Some of these were unsurprising. E.g. the recent column on the FSDC at #1 is to be expected, given the topicality of the subject. But some remarkably old stuff is high up - e.g. #4 (1999) and #5 (1997). So web dissemination does give shelf life to some of these.
After a sharp peak (over 100 reads in five days) it drops off rapidly to 20 reads at #15, and after that there is a long tail, giving the overall value of 2534 reads overall.
Thursday, March 25, 2010
- Taxi companies in Bombay: an episode in India's urban transportation
- What does it mean when a million people apply for a thousand jobs?
- The joys of central planning
- Implications of ETF on the Hang Seng index that's traded in India
- How efficient is the traditional Indian family-run business?
- New sources of financing for microfinance assets by Nachiket Mor.
Tuesday, March 23, 2010
The best thing that you can ask for, in getting around a city, is a comprehensive underground metro system, where a tube station is at worst 200m away from wherever you might be. There is no city in India that has this. While the Delhi Metro is very impressive, it is still not aiming to intensively criss-cross the city in this fashion (a walk of no more than 200m to the metro station from any point, i.e. a grid of lines which are no more than 400m apart).
The next best thing you can ask for is: well functioning taxis. A good success story in India is the black/yellow taxis of Bombay. They are ubiquitous, can be hailed down on the fly, will charge you by the kilometre, and the meters are not grossly off. I am not aware of any other city in India where taxis work like this. But the quality of vehicles is atrocious, and the customer experience unsatisfactory.
Air-conditioned taxis were tried in Bombay but collapsed into the wrong equilibrium. Customers came to believe that the meters were tampered with, so there were few customers, so the only way to make ends meet for the provider was to tamper with the meters, and so on. Somehow, the law enforcement, which went into ensuring veracity of meters of the traditional black/yellow taxis, did not come about with the blue taxis.
So it was a big step forward when the Maharashtra government setup a policy framework for corporations to setup a fleet of taxis, as is found in most good cities outside India. These are high quality vehicles. The Transport Department of the Maharashtra government, through its RTOs and the Weights and Measures Department, takes responsibility for ensuring that the meters are not tampered (and this is easily verified by the corporations operating these fleets, thanks to GPS and GPRS). Access through call centres and the Internet makes it easy to call a cab. In addition, as the number of taxis per city builds up, it becomes feasible to just step out into the street and grab one.
The place where I noticed this change the most was at the domestic airport. As a traveler, an incoming flight would bring me to the Bombay airport. I would then walk to a dedicated bay which could hold two taxis at a time, and grab a Meru. This would take me anywhere, with metering by the kilometre, and no fuss. It was just great.
This worked so well, it took away business from the traditional black/yellow taxis. There were bays for 20 traditional taxis and 2 Merus at the airport, but customers would line up for the Merus while the traditional taxis stood around without customers. Bombay unfortunately has a trade union of taxi owners. They created a ruckus about this, engaged in a little violence, and pressurised the local government and the airport. In a sensible market economy this should have been no issue. Violence should have been dealt with by the police. Meru's services should have continued to make progress regardless of what the incumbent felt.
The authorities buckled and Meru was evicted from the airport. That is, the 2-bay which they had earlier been given was taken away. So the traveler could no longer step out of the plane, step out of the terminal and grab a Meru.
To me, these events symbolised the governance problems of India. Here you had a very nice new piece of infrastructure. The incumbent (black/yellow taxis) should have lost market share when the new technology came in, and that creative destruction was taking place just fine. But the incumbent then engaged in hooliganism. The forces of law and order did not work effectively in blocking small-scale violence at the street level. The authorities did not have the spine to think about what was best for the users of the airport. The rule of law was not strong enough for Meru to enforce its rights as a legitimate taxi operator authorised by the government - the 2-bay which had been promised to them was taken away. It was a black mark for the quality of governance in Bombay and in Maharashtra. A very nice initiative that had improved the airport lay in shambles.
I single out Bombay and Maharashtra here because Meru is also operating in a few other cities, and this kind of collapse did not come about in any of those cities.
In recent weeks, Meru has comprehensively solved this problem. Here are the steps that I went through a few days ago:
- As I was stepping out of the plane, I called 4422-4422
- At the menu, I punched 5: a hotkey which says that I have just come in at the domestic airport.
- The call centre employee asked me which airline I had come in from. I named the airline, and they then knew which terminal I was at.
- Immediately, the call centre employee said: ``Your car is number 9152'' and hung up.
- This call was at 00:27 and it lasted all of 37 seconds. (If you don't have a cell phone, there are telephones inside the terminal where this call can be made).
- At 00:29 I got an SMS giving me details about the car.
- At 00:32 the driver called me and said he's waiting for me.
- I stepped out of the terminal and the car was waiting to pick me up, alongside the private cars that had come to pick up other travelers.
Not yet fully plugged in
These new facilities are not yet properly in place ubiquitously. A few examples:
- At the Delhi airport, the airport penalises users of Meru with a charge of Rs.80. The Meru arrangement there is not as frictionless as that in Bombay. And, they use the same rigid zone definitions of the traditional pre-paid taxis, which isn't relevant in this new setting.
- Every Metro station in Delhi should have an associated bay for taxi pickup and dropoff. So far, that hasn't been a part of DMRC's planning.
- At the international airport in Bombay, there is no access to Meru.
So it seems that a lot has yet to be done to properly integrate taxi services into multi-modal urban transport.
Monday, March 22, 2010
At the same time, this is hard to reconcile with the picture one gets from private recruiters, who say that it's hard to recruit fairly minimal levels of skills when paying the market price.
The metaphor of market efficiency is useful in thinking about this. Suppose there is a liquid market with many buyers and sellers. Suppose supply and demand clear and the price of the widget is Rs.100. Now suppose you step into the market and offer to buy at Rs.101. In an efficient and well functioning market, you should be deluged with a very large number of sellers trying to sell to you at 1% above the fair market price. Conversely, if you step into the market and try to buy the widget at Rs.99. Nobody should be willing to sell to you at this price. A dramatic shift in the number of bids that you get -- from zero at Rs.99 to a deluge at Rs.101 -- is the hallmark of an efficient market.
I think this is a useful way to think about what is going on with government recruitment. As a thumb rule, researchers like Lant Pritchett and Jeff Hammer believe that in rural India, for junior positions, the government overpays by 3x. Also see Wage differentials between the public and private sectors in India by Elena Glinskaya and Michael Lokshin, in Journal of International Development, 19(3), page 333-355, 2007. Some anecdotes are illuminating:
- I quit the Ministry of Finance in 2005 and roughly a year later, I bumped into a person who had been my driver while there. He said that he's set himself up to collect the wage of the driver from the government, but has recruited another driver to go to work to do the actual work of driving. He was pocketing a neat profit out of this because the government's price of a driver is roughly 2x the price in the private labour market.
- Policemen are apparently poorly paid but with ubiquitous corruption and outright shakedowns being run by the police, the true income of a policeman in India is massive. I bumped into a young fellow on the beach in Goa a few weeks ago. He makes a living helping tourists do stretching exercises on the beach. A full 25% of his monthly income is paid to the local policemen as protection money.
Junior clerical staff in PSU banks reap a bonanza because they're overpaid (when compared with the market price of clerical staff) and get job security for life. The NPV of that job is very high.
There is a risk aversion dimension also. People with high risk aversion might particularly favour these public sector jobs because they are both high wage and low risk.
In this environment, when the government advertises for 50 policemen, what do you think would happen? In an efficient market, a large number of suppliers of labour would see that there's an opportunity to sell their services at much, much more than market price. There should be an outright deluge of job applicants.
The phenomenon of a million applicants showing up for a hundred positions is a reflection of civil service wages and job security being way out of line with what is found on the private labour market, and not a reflection of large scale unemployment in India. If anything, a very big deluge of applicants is a reflection of a rational information-rich environment where many individuals are able to access information and act on it.
The price of copper is roughly Rs.350 a kg. If the government put out a tender offering to buy 1000 kg of copper at thrice this price, and if this was an information-rich environment where a large number of suppliers became aware of this high-profit opportunity, then the bids which should show up should be for a million tonnes. This is what we expect in a rational and efficient market. The fact that a million kilos of potential sellers are chasing procurement of a thousand kilos does not in any way suggest that there is excess capacity amongst copper producers.
Saturday, March 20, 2010
|22 March||Nirvikar Singh in Mint.|
|19 March||Jayanth Varma in the Financial Express.|
|16 March||My column in the Financial Express.|
|11 March||M. K. Venu in the Financial Express.|
|10 March||Slideshow by K P Krishnan at the 6th Meeting of the NIPFP DEA Research Program, and a debate between Indira Rajaraman and M. Damodaran in the Business Standard.|
|9 March||Monika Halan in Mint.|
|8 March||An editorial in the Business Standard.|
|3 March||Dhirendra Swarup and Pratip Kar in the Economic Times, and Krishnamurthy Subramanian in the Financial Express.|
|28 February||An editorial in Mint.|
|27 February||Ila Patnaik in the Indian Express and Monika Halan in Mint.|
|26 February||My blog post immediately after the budget speech.|
|19 February||An editorial in the Economic Times.|
|19 January||Monika Halan in Mint.|
- Jayanth Varma on what the Financial Stability and Development Council (FSDC) should emphasise.
- An editorial in Indian Express on inflation targeting for RBI.
- Ashish Rukhaiyar in the Business Standard on the footprint of Nifty.
- Akshay Bhawani Singh in the Business Standard on the difficulties that afflict India's attempt at opening up the business of container trains to the private sector.
- S. Subramanian on the controversy about the Indus script.
- Arun Venugopal in the Wall Street Journal on Bollywood movies about Islamic terrorists.
- Amit Agarwal on Delhi Metro in Google Maps.
- Asli Demirguc-Kunt on thinking about financial policy after the crisis. Also see Are all the sacred cows dead? Implications of the financial crisis for macro- and financial policies by her and Luis Serven.
- Currency spat reveals a nervous Chinese autocracy by Sebastian Mallaby in the Washington Post.
China's problem of shifting away from the present monetary policy framework and institutional arrangements is actually not that different from what India faces. While India looks good today in having got to significant exchange rate flexibility, they have done better on building the PBoC in terms of clarity of mandate, conflicts of interest and staff quality.
Vladimir Sorokin in the New York Times on how Led Zeppelin II turned him into a dissident in the Soviet Union.
- A note of caution for anyone who wants to do economic policy.
- A great opportunity for bright young people in India with an interest in computer technology.
Friday, March 19, 2010
The statement says:
In the Third Quarter Review of Monetary Policy in January 2010, the Reserve Bank had raised the CRR by 75 basis points in two stages. This reflected the growing confidence in the economy and the risk of supply side inflation spilling over into a wider inflationary process. However, the policy rates were left unchanged as it was felt that the recovery was still to fully take hold and that pre-mature tightening might undermine the recovery process. Subsequent developments show that the recovery is increasingly taking hold. On the other hand, inflationary pressures have accentuated and have been spilling over to the wider inflationary process. The recent industrial production data suggest revival of private demand, which could potentially add to inflationary pressures.The three-month moving average of seasonally adjusted IIP does indeed show a robust number of 20.9%. I am personally skeptical about what is going on there, given that the level of seasonally adjusted IIP capital goods jumped from 440.4 in November to 623.4 in December. This kind of jump has pretty much never been seen before. It shows up in statistical tests as an outlier. So it could be that something remarkable is going on, or it could be a mistake in measurement. Given the difficulties and non-transparency of IIP measurement, I would lean towards the latter.
Headline WPI inflation on a year-on-year basis at 9.9 per cent in February 2010 has exceeded our baseline projection of 8.5 for end-March 2010 set out in the Third Quarter Review. Year-on-year WPI non-food manufacturing products (weight: 52.2 per cent) inflation, which was negative (-0.4 per cent) in November 2009, turned marginally positive (0.7 per cent) in December 2009 and rose sharply thereafter to 2.8 per cent in January 2010 and further to 4.3 per cent in February 2010. Year-on-year fuel price inflation also surged from (-)0.8 per cent in November 2009 to 5.9 per cent in December 2009, to 6.9 per cent in January 2010 and further to 10.2 per cent in February 2010. With rising demand side pressures, there is risk that WPI inflation may cross double digits in March 2010.The RBI statement does well to discuss WPI non-food. (The most useful thing to look at is WPI minus food and minus fuel). However, the right measure of what is going on now is the point-on-point change in seasonally adjusted levels. The year-on-year change (used above) is the average of the changes of the last 12 months, which is not a good way to make policy today. The datedness of information is accentuated by the fact that data for February is being used to make a decision in end-March.
It makes more sense to use point-on-point seasonally adjusted data, and to avoid food and fuel. The picture we see is quite striking: while the year-on-year change of the WPI (overall) is 9.89%, the latest value for the three-month moving average of seasonally adjusted WPI (manufacturing) is just 4.69%. Further, this is overstated because it contains sugar and food processing, both of which are showing high inflation.
The most sensible measure to look at is seasonally adjusted core inflation (i.e. WPI ex food and fuel). The second best, which is available at our website, is seasonally adjusted WPI Manufacturing.
The inflation scare is considerably overstated owing to the disproportionate attention being paid to old information (i.e. the use of year-on-year changes in prices) and to food and fuel (as opposed to core inflation).
Inflation is very important. There are few things that matter more for business cycle stabilisation than achieving low and stable inflation.
But we need to measure inflation correctly, and have an analytical capability for forecasting inflation. And, we need a well developed bond market and banking system for RBI to have a significant influence upon inflation. Until financial reforms are undertaken, RBI's actions lack teeth.
Thursday, March 18, 2010
Tuesday, March 16, 2010
Monday, March 15, 2010
Here's a quick status report of this work:
- The key methodology paper is forthcoming: Testing, Monitoring, and Dating Structural Changes in Exchange Rate Regimes, in Computational Statistics & Data Analysis, Volume 54, Issue 6, June 2010, pages 1696--1706. If you don't have access, here is a preprint.
- The R package fxregime has the full code. While this package has been in development for a long time, it is now at version 1.0-0 which is our way of saying it's ready for use. You can do the full analysis of any currency series -- testing, dating and monitoring for structural change in the exchange rate regime -- using this package.
- An application paper on China and India: The difficulties of the Chinese and Indian exchange rate regimes, in European Journal of Comparative Economics, 6(1), June 2009.
- An application paper where the dates of structural change of the exchange rate regime are used in an analysis of firm data: Does the currency regime shape unhedged currency exposure?, in Journal of International Money and Finance, 2010 (forthcoming). If you don't have access, here is a preprint.
Saturday, March 13, 2010
`Repec' is very nice public domain effort in economics which is building up a database of papers in economics. They have a series of email alerts for New Economics Papers (NEPs) where an editor examines the flow of papers and picks a few in a field. I am the editor for the NEP on international finance, so please do subscribe to this as a mechanism to track the literature in this field. They do both RSS and email alerts.
You might also find it useful to setup an RSS or email subscription to the blog through which NIPFP working papers are announced.
Friday, March 12, 2010
In a news item today, I saw Domino's say that they have 300 branches in India and will go up to roughly 500 in three years. With RBI giving out permissions for all foreign banks (put together) to open 18 branches in India a year, this means we'll soon have more outlets of Domino's in India than all foreign banks put together.
Thursday, March 11, 2010
A few years ago, when Percy Mistry's committee was working on the MIFC report, I used to joke that of the two great industries in Bombay, movies will make it first to international customers. A few days ago in the New York Times, Anupama Chopra has a story showing that some action on that front is now visible.
Winning on a global scale in finance and in movies has some common features : it involves raw materials like human capital, top end computer technology, freedom of speech, openness to other cultures, a large home market, the natural opportunities of connecting up with the disapora, and Schumpeterian creative destruction.
With all these in place, Bombay's movie industry is nicely globalising itself. Finance requires all these - and that bodes well for BIFC. But finance requires a few more things. It requires sophisticated financial regulation, and a sound macroeconomic policy framework. It requires that the government get out of producing financial services just as the government does not produce movies. India has a tonne of work to do on these.
Tuesday, March 09, 2010
Wednesday, March 03, 2010
Tuesday, March 02, 2010
- Vikas Bajaj in the New York Times on privatisation in India.
- I had recently written a blog post on India's foolishness on visa rules for people coming into conferences. Siddharth Varadarajan has a great opinion piece on this in the Hindu. In sensible countries, there is no such thing as a `visa for the purpose of attending a conference'. It's just called a tourist visa.
- An editorial in the Wall Street Journal on India's success on establishing a private sector with competition in mobile phones.
- Swaminathan S. Anklesaria Aiyar in the Economic Times on what the budget speech should say. Also see Ila Patnaik in Indian Express on the roadmap, and in Financial Express on expenditure. Writing in the Business Standard, Sanjaya Baru is also optimistic about what Pranab Mukherjee will be able to pull off.
- An extremely insightful conversation on charges of ETFs (in the comments to this post). This is the sort of thing one hopes for in blogs.
- Give financial sector a Financial Stability Board, in the Times of India.
- Bibek Debroy in Indian Express on India's license-permit raj of exchange controls.
- I was at IFMR recently: did a talk on distribution of financial products, and looked at the `KGFS' idea on increasing outreach of financial products.
- Sanjeev Sanyal in Business Standard on the outlook for Bombay.
- Andrew Jacobs in the New York Times on new developments in the Chinese end of India's tiger extinction problem.
- John Gravois on remittances.
- We in India can look at the brainpower in the Chilean cabinet with wonder and envy.
- Catherine Rampall in the New York Times, reviewing Capitalism and the Jews by Jerry Z. Muller, which made me think about the different story of business-oriented ethnic groups of India.
- Robert Litan on financial innovation.
- Tarun Ramadorai in the Financial Express on hedge fund regulation.
- Alessandro Beber and Marco Pagano, on voxEU, analyse the global evidence on bans on short selling in the crisis. Hopefully we will learn the lesson for the next crisis.
- One of the great achievements of monetary policy reform in recent decades has been the establishment of executive Monetary Policy Committees (MPCs) which use formal voting mechanisms through which the policy rate is modified in order to achieve an inflation target, on a regular meeting cycle, with full transparency about how each person voted and why.
Writing on voxEU, Tim Besley and Andrew Scott emphasise the role of `fiscal councils' where some (but not all) of these ideas are deployed into fiscal policy.
- I find it interesting to look at how the army of a great power works. See Elizabeth Rubin in Time magazine on Robert Gates (the US defence minister), and Chris Wilson in Slate on some remarkable soldiers. I suppose journalists like Elizabeth Rubin and Chris Wilson are also integral to being a great power.
- Interesting new things in the world of trading and exchanges, all from the Financial Times: Size of share orders cut in half on global markets and Small orders breed dark pools and higher costs by Jeremy Grant, Markets: Ghosts in the machine by Jeremy Grant and Michael Mackenzie, and lastly New US options exchange battles for market space by Hal Weitzman.