Sometimes we witness something which at first glance appears quite ridiculous. The nationalization of Indian banks by Mrs Indira Gandhi was one such act. There was no real need to do it except some political reasons for the same (more on this here and here too). No doubt, this was unnecessary and could have been easily accomplished by regulating the banks well. But this perhaps suited the the very short term political objectives of a cornered politician namely Mrs Gandhi.
However history has given this a new twist. For reasons beyond the ken of the originators of the idea of bank nationalization, it has turned out to be a sublime idea. Through the nationalized banks, the Indian government controlled flow of credit, consumed much of the credit itself and choked the Indian economy. So much so that in the early 1990s, the Credit Reserve Ratio (CRR) and the SLR (Statutory liquidity ratio) was a combined 53% (up from 27% at the time of independence and 32% at the time of bank nationalization.(Chronology of CRR / SLR changes Source: RBI website)
This was patently ridiculous at the normal level of analysis but it accomplished many things which Mrs Indira Gandhi never could have visualized. India entered the credit based growth game too late and hence the credit fueled bubble that has propelling the world economy since the collapse of Breton Woods did not affect the level of credit and loans in India. The low home loans to Nominal GDP ratios is instructive in this regard. Even today it is only 8 % of India. This is very low in comparison to Western countries and developed Asian Countries like Singapore (54%), Korea (36%) or other European countries such as Germany (47%) or UK (85%) or the US at 77%.
This has definitely saved us from the mad consumption fulled economic rise and the implosion that is happening/will happen in these countries following the collapse of credit availability If you wake up too late and run a race where people are running very fast for a long time ( albeit in the wrong direction), you will be the last in the race. The upshot of this means when the reality of credit filled booms and busts sinks in we would have run the least distance in the wrong direction and be in the best position as we are in now in 2013!
This is the sublime effect of bank nationalization.
We maybe witnessing another ridiculous/sublime convergence today. The Food Security bill which is being pushed through now could have such effects. It is being pushed through at this time because of political compulsions rather than national compulsions. There are a hundred other ways to ensure that all people have food but none of those will make the Opposition look in bad light and the ruling Government look in good light. Thus the nation will have its Food Security bill.
This decision is ridiculous because it assures food to farmers, whose precise job it is to provide food to others in society. Arguably, this violates the basic social compacts in society. This will drive out many marginal farmers from farming and could reduce incentives of many farmers to produce food, as food is to be given to them at such low rates. We could see substantially higher food prices as a result. Once food prices go up usually there is incentive for marginal farmers to produce food but under this system, if food is made available to them at ridiculous prices along side assured income from employment guarantee schemes - they may just decide it is not worth sweating it out in the sun. Already most of the farming families have partly diversified out of farming. This will expedite it a full diversification out of farming for those who own small and marginal farms. Thus increasing food prices may not lead to increasing food production but will lead to increasing consumption as the food is sold at heavily subsidized prices.
Thus it is likely to be a ridiculous outcome but there are likely to be many unintended outcomes. Increasing food prices will shift a lot of the economic power from the cities to the villages. This could reduce migration, improve opportunities at the village, modernize the village as the increasing affordability will quickly lead to urban facilities being available at rural areas. This is already happening in many states but it will happen faster and in all states including states like Bihar where this transformation is in its infancy. There is no magic bullet like prosperity to solve many problems. No doubt it will cause new problems but these problems of plenty are likely to be a welcome situation than a large part of the country languishing helplessly with very little choice. If this prosperity arrives, the farmer will be an empowered decision maker and his political choices may be pro-development rather than poor thereby destroying the pro-poor political model of the political agents who bring about this prosperity.
It could reverse the catastrophic loss of income earning power of land brought about by Mr. Jawaharlal Nehru's Green revolution wherein the production went up with increasing cost of production thereby reducing the profits/surpluses of farmers drastically. The Green revolution ensured the country gained everything and the farmer nothing.
It could make India a net buyer of food when the Common Agricultural Policy (CAP) of Europe and the US Food policies may be on their last legs. It could alter the relative price of food with respect to services, energy and manufactured goods and practically everything else. This could make India's economic and social position very strong as a very large number of people are dependent on farming or are living in areas where farming is the main economic activity. This could also cause a shake out in the cities as it may be very costly to live in the cities. Land prices may become more affordable in the cities.
Who knows it may be the magic bullet on our march to superpower-hood. This could be the sublime aspect of the Food security bill.
Should we welcome it or not ?
Tuesday, May 7, 2013
Tuesday, April 30, 2013
Lot of bad news is good news - Narada speak
We are always open to listening to good news and avoid bad news. This is perhaps because we like to have pleasant immediate consequences and are not really bothered about consequences of consequences (c-of-c) or the sconsequences of consequences of consequences (c-of-c-of-c)
Sometimes bad news especially when it is big, has some wonderful c-of-c or c-of-c-of-c especially when they push any phenomenon to a tipping point which creates real change in society.
For example, the news about the editing of documents by the Law minister is definitely bad news for the country but it has ended up exposing the working of the CBI comprehensively and, perhaps, may pave the way for CBI to become a truly independent body.
Today, I heard another piece of very bad news. There are now month/s long coaching classes that are being held to help students "crack" the aptitude tests of companies like Infosys, Persistent etc. At one level, this is bad news but at another level this is good news as the companies are going to be flooded with successful candidates who know how to "crack the exam" but do not have the real skills for which this test was a proxy measure. This is going to create a tipping point for the companies, who are going to be sorely disappointed by their picks and be forced to come up with a better way to measure students' abilities.
I once read a story in Narada Purana in which a sage asks Sage Narada why he goes on instigating people with an evil bent of mind. Narada's answer was simple "It is only when the cup of evil if filled to the brim that the wicked attract punishment."
I have learnt from personal experience that to look at the good news embedded in bad news requires a training of the mind - to suspend the usual way of looking at immediate consequences and look to downstream consequences. In this state, a lot of bad news begins to look really good and not enough of it doesn't look good because it causes no change in the system. Paradoxical !
I confess, I too tend to keep falling back into the immediate evaluation state but it takes continuous effort to change the way we look at things.
In these times where there is no shortage of "bad news", I welcome you to try and look at reality in this way to see where there may be positive change and where the new opportunities may lie.
Sometimes bad news especially when it is big, has some wonderful c-of-c or c-of-c-of-c especially when they push any phenomenon to a tipping point which creates real change in society.
For example, the news about the editing of documents by the Law minister is definitely bad news for the country but it has ended up exposing the working of the CBI comprehensively and, perhaps, may pave the way for CBI to become a truly independent body.
Today, I heard another piece of very bad news. There are now month/s long coaching classes that are being held to help students "crack" the aptitude tests of companies like Infosys, Persistent etc. At one level, this is bad news but at another level this is good news as the companies are going to be flooded with successful candidates who know how to "crack the exam" but do not have the real skills for which this test was a proxy measure. This is going to create a tipping point for the companies, who are going to be sorely disappointed by their picks and be forced to come up with a better way to measure students' abilities.
I once read a story in Narada Purana in which a sage asks Sage Narada why he goes on instigating people with an evil bent of mind. Narada's answer was simple "It is only when the cup of evil if filled to the brim that the wicked attract punishment."
I have learnt from personal experience that to look at the good news embedded in bad news requires a training of the mind - to suspend the usual way of looking at immediate consequences and look to downstream consequences. In this state, a lot of bad news begins to look really good and not enough of it doesn't look good because it causes no change in the system. Paradoxical !
I confess, I too tend to keep falling back into the immediate evaluation state but it takes continuous effort to change the way we look at things.
In these times where there is no shortage of "bad news", I welcome you to try and look at reality in this way to see where there may be positive change and where the new opportunities may lie.
Why this blog ? About me.
Why this blog ?
The modern Western way of making a society fulfill its goals and becoming happy was to increase the amount of economic activity as measured by a figure called the Gross Domestic Product. This is not working - these societies are neither happy nor are they able to increase their GDP ( without resorting to accounting sleight of hand).
Their modes of living also leave much to be desired. Children and elders have a very difficult time. The institution of family is weakened substantially by the social trends since World War 2. The natural resources for India and China to emulate the West and be "happy" are simply not existent on this planet.
We should undoubtedly take what is useful from them but we cannot follow their model blindly. The world does not have enough resources for countries with out population to aspire for such goals. The environmental and societal damage, we have caused trying to emulate the West is already becoming very difficult to bear. While, as a society, we have endured much difficulties in the past millenium, I sincerely doubt if our current one has the patience and endurance to go another 50 years in this direction and put up with the difficulties it will entail. It requires a fortitude and a belief in karma and rebirth which is rapidly becoming alien to a society which wants to live in the now.
We need our own model of living - which will blend the best of the East with the best of the West. At the same time there is no point in getting bogged down in negativity.
Undoubtedly, there is too much negativity in speech, though and action in our country today. We need to find ways to convert our negativity into a form of fuel for positive change. So the more negativity in society, the more fuel we can find for change.
Many times I have been discussing many ideas connected with this topic with people. One of them, Tarun Malaviya , has been telling me for many years to write a blog to release these ideas into the blogosphere so that these ideas may spread and if found useful ones by others may find its rightful owners and come to life. Today I met another person Amit Paranjpe who managed to convinced to blog within 5 minutes.
So with many thanks to Tarun and Amit, I begin my blog.
The topics I like to blog are related to Virtue/Truth/Honour, Success, Pleasure and Liberation (Dharma, Artha, Kama and Moksha respectively) - the four aims of life in the Hindu traditional thought. I guess pretty much most topics are covered.
The geographic layout of cities have changed. Your neighbours may have very little common with you except a wall ! I am hoping that this blog will help me to reach out to more people and develop these ideas.
About me
I am an alumnus of IIT Madras and IIM Ahmedabad. I have been a professional working in field of finance and investment for two decades. I was born and brought up in Chennai and now reside in Pune.
I have various interests in topics such as Indian music, Ayurveda, Astrology, Design, Business, Investing etc.
The modern Western way of making a society fulfill its goals and becoming happy was to increase the amount of economic activity as measured by a figure called the Gross Domestic Product. This is not working - these societies are neither happy nor are they able to increase their GDP ( without resorting to accounting sleight of hand).
Their modes of living also leave much to be desired. Children and elders have a very difficult time. The institution of family is weakened substantially by the social trends since World War 2. The natural resources for India and China to emulate the West and be "happy" are simply not existent on this planet.
We should undoubtedly take what is useful from them but we cannot follow their model blindly. The world does not have enough resources for countries with out population to aspire for such goals. The environmental and societal damage, we have caused trying to emulate the West is already becoming very difficult to bear. While, as a society, we have endured much difficulties in the past millenium, I sincerely doubt if our current one has the patience and endurance to go another 50 years in this direction and put up with the difficulties it will entail. It requires a fortitude and a belief in karma and rebirth which is rapidly becoming alien to a society which wants to live in the now.
We need our own model of living - which will blend the best of the East with the best of the West. At the same time there is no point in getting bogged down in negativity.
Undoubtedly, there is too much negativity in speech, though and action in our country today. We need to find ways to convert our negativity into a form of fuel for positive change. So the more negativity in society, the more fuel we can find for change.
Many times I have been discussing many ideas connected with this topic with people. One of them, Tarun Malaviya , has been telling me for many years to write a blog to release these ideas into the blogosphere so that these ideas may spread and if found useful ones by others may find its rightful owners and come to life. Today I met another person Amit Paranjpe who managed to convinced to blog within 5 minutes.
So with many thanks to Tarun and Amit, I begin my blog.
The topics I like to blog are related to Virtue/Truth/Honour, Success, Pleasure and Liberation (Dharma, Artha, Kama and Moksha respectively) - the four aims of life in the Hindu traditional thought. I guess pretty much most topics are covered.
The geographic layout of cities have changed. Your neighbours may have very little common with you except a wall ! I am hoping that this blog will help me to reach out to more people and develop these ideas.
About me
I am an alumnus of IIT Madras and IIM Ahmedabad. I have been a professional working in field of finance and investment for two decades. I was born and brought up in Chennai and now reside in Pune.
I have various interests in topics such as Indian music, Ayurveda, Astrology, Design, Business, Investing etc.
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