- 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
Interesting readings
Monday, March 29, 2010
Developments at cycle.in
The macro/finance group at NIPFP has been maintaining a website titled Tracking and researching the Indian business cycle at http://www.mayin.org/cycle.in. At present, this has a dataset with seasonally adjusted monthly and quarterly data. This is a big step forward for tracking Indian macroeconomics, since month-on-month changes show what happened in the most recent data while year-on-year changes are (on average) 6 months late by virtue of averaging the latest 12 values of the month-on-month change.
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.
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
This century and the last one: A report card for the first 10 years
by Ajay Shah.
When we look back at the sweep of history, the 20th century stands out. It stands out as a time of immense progress in our knowledge, a time of great carnage, and the time when the great debate about socialism and the market economy ended. I think it was Arthur C. Clarke who said that one of two things will come next: either we will look back at the 20th century as the most amazing time when everything happened, or the pace of change will further accelerate thus making the 21st century even more incredible than the one that went by. (Does someone know the exact quote?)
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
The shelf life of newspaper columns on the net
Over the years, I have written quite a bit in the media, and all of it is up on my MEDIA page. I recently looked at the logs of my website and it shows 2534 reads in 5 days, or 21 reads an hour. The top 25 articles are as follows:
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.
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
To the anonymous participants of great discussions
In recent months, the discussions that have sprung up around some of the posts on this blog have been quite interesting:
- 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
Taxi companies in Bombay: an episode in India's urban transportation
by Ajay Shah.
The problem
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.
The solution
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.
The collapse
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.
Resurrection
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
What does it mean when a million people apply for a thousand jobs?
Several economists have commented on the remarkable and relatively new phenomenon that's seen in India, where a government agency (or a state owned enterprise) advertises (say) 100 job openings and gets a million applications. This is generally interpreted as a problem, as a reflection of the very high extent of unemployment amongst the educated in India.
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:
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.
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.
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