Major achievement in higher education in India

The Financial Times ranking of global MBA programs places ISB at #20 in the world. I believe this is the first time an Indian MBA program has made it into a good rank by world standards. (There is no other Indian MBA program in the top 100). I also suspect this is the first time an Indian university has figured with a decent rank in any global ranking (is that correct?).

This achievement reminds us of how a radical break with the past - i.e. internal mechanisms which look more like international universities and less like Indian universities - can yield major success in six short years. I think ISB features very important institutional innovations that should be increasingly transplanted into other Indian universities.

Debt management office; easing financial repression

An editorial in Business World reminds us of the importance of translating the budget announcement last year - about setting up a Debt Management Office - into reality. It also talks about easing financial repression and going further beyond the FRBM target to get to a fiscal deficit of zero. On the latter subject, you might like to read this.

Price limits for small IPOs?

Susan Thomas says, in Economic Times, that price limits do not help small IPOs. I think that many old-fashioned folk find price limits reassuring because it is felt that the government is in control of the price.

Should RBI cut rates?

In continuation of the discussion on RBI cutting rates, the situation has changed because the US Fed cut rates. One unexpectedly large rate cut of 75 bps has taken place. What is more, the derivatives market suggests that more rate cuts are in store. Look at these probabilities:

This influences monetary policy in India and China. In both cases, pegged exchange rates induce a loss of monetary policy autonomy. Upholding the exchange rate peg will require cutting rates. In India's case, there is a large interest rate differential that (in any case) needed narrowing. See an edit in Indian Express and Omkar Goswami in Business Standard. In the Chinese case, the game of sterilised intervention - which used to be profitable since local Chinese rates were lower than the return on US treasuries - is now starting to cost serious money.

So expect moves in monetary policy amongst the peggers (though not the floaters, who have monetary policy autonomy) in response to the decisions of the US Fed. News begets news and volatility clusters.

Media and ethics continued

See People's media by Pratap Bhanu Mehta in Indian Express on 23 Jan, and the comment by Jayanth Varma on the previous post.

Murky ethics on the part of the media, and the firms they cover

Bennett Coleman, a very big media house, is onto difficult ethical terrain with a concept of `private treaties'. Here, they get invested in some companies, and then these companies get favourable media treatment. Their media outlets trumpet these stocks, hopefully a good IPO takes place, and Bennett Coleman makes a good return on their portfolio. The expectation of free advertising and glowing editorial treatment probably leads to their purchases of these stocks getting done at bargain basement prices.

See:

• A good story by Archna Shukla in Mint,
• A great editorial in Business Standard,
• A feature in The Hoot.
• Salil Tripathi at the SAJA Forum.

Sucheta Dalal says:

MoneyLIFE has in its possession a document to prove that journalists are being designated as champions for PT clients to tailor editorial coverage to enhance the value of these companies and TOIs investment. An e-mail by The Economic Times editor, Rahul Joshi (dated 29 November 2007), says, At ET, we are carving out a separate team to look into the needs of Private Treaty clients. Every large centre will have a senior editorial person to interface with Treaty clients. In turn, the senior edit person will be responsible, along with the existing team, for edit delivery. This team will have regional champions along with one or two reporters for help - but more importantly, they will liaise with REs (Resident Editors) and help in integrating the content into the different sections of the paper. In this way, we will be able to incorporate PT into the editorial mainstream, rather than it looking like a series of press releases appearing in vanilla form in the paper. He then goes on to name the PT champions for each region, who will advise the regional editorial chief to carry stories about PT clients. He also designates trouble shooters in each region, probably to ensure that no PT client is offended with negative coverage.

It reflects poor ethical standards on the part of Bennett Coleman to do such a thing. First, a question of fact: Do good papers in the world, such as New York Times, have private equity portfolios where editorial coverage and advertising are bartered in return for shares? Compare and contrast against the soul-searching that the New York Times has institutionalised on far more subtle kinds of conflicts of interest. I am curious about the role that law can play here. If the New York Times embarked on such a thing, would it be outright illegal? If it was not outright illegal, what else might go wrong for New York Times if they did such a thing?

The only saving grace lies in the fact that Bennett Coleman has put up their hall of shame, of firms who are willing to cooperate with such a scheme, on the web. Some names in there make no sense - e.g. I can't see how they can get a fabulous return on an investment in ISB. But many are recognisable targets of laudatory coverage.

I have often felt that in order to become a well functioning market economy, there has to be a culture of high ethical standards, a sense that certain things are just not done. While ethical standards require legal foundations, there is something about ethics which goes well beyond law. A go-getting atmosphere, where all kinds of behaviour is welcome, is a highway to becoming a banana republic. You may like to see something that I wrote in 1997, about how an atmosphere of low ethical standards induces entry barriers and hampers competition.

While there are signs of progress on the economy as a whole, in recent years, the scale of corruption in India associated with real estate and natural resources appears to be straight out of your worst stereotypes of a banana republic. CEOs have an incentive to do bad things: e.g. the stock market likes electricity generation projects which have locked down coal supplies, which favours entrepreneurs with a gift for manipulating the government. Ministers are rumoured to have become like Bennett Coleman, asking for shares in return for unethical actions. With natural resources and land, we are experiencing the well known pathologies of the `resource curse'. The only saving grace for us is that by now, the real estate and natural resource related sectors are a small part of the economy.

I'm not one of the proponents of the view that blogging fundamentally changes mainstream media. But in this one respect, I can see that it helps. The rise of the Internet in general and blogs in particular has helped to reduce the mindshare of Bennett Coleman. Blogs have helped make such murky practices more visible.

When a powerful urge to do good crowds out hard thinking

Stephen Dubner and Steve Levitt have an article in The New York Times that reminded me a lot about the pitfalls of public policy in India.

When a powerful urge to do good crowds out hard thinking, the results are often different from what might have been intended. Their article has two interesting examples:

• The `Americans With Disabilities Act' in the US involves all kinds of privileges for disabled people. E.g. it allows a patient to place the costs of a sign-language interpreter on the doctor. A paper by Acemoglu and Angrist found that when the law was enacted in 1992, employment of disabled workers went down sharply. Employers were concerned that the law would limit their ability to discipline or sack disabled people who happened to be incompetent, and chose to avoid recruiting them in the first place.
• The `Endangered Species Act' in the US allows the notification of `critical habitats' for endangered species. As a consequence, when a landowner feels that endangered species are possibly inhabiting his privately owned forest land, he often takes care to raze the trees to make sure that he is not expropriated. This leads to more habitat destruction, not less. They describe the cactus ferruginous pygmy owl, studied in a paper by List, Margolis and Osgood: landowners near Tucson, Arizona `rushed to clear their property for development rather than risk having it declared a safe haven for the owl'.

As Dubner and Levitt summarise:

So does this mean that every law designed to help endangered animals, poor people and the disabled is bound to fail? Of course not. But with a government that is regularly begged for relief these days, from mortgage woes, health-care costs and tax burdens and with every presidential hopeful making daily promises to address these woes, it might be worth encouraging the winning candidate to think twice (or even 8 or 10 times) before rushing off to do good.