Indian Economy - News & Discussion 27 May 2012

[Austin]

Food security Bill likely in next session, says Thomas
Rajasthan natives bat for holistic food security bill

[RamaY]

I will keep repeating JNUnomics and Lefist-nonsense, because I have nothing original to say...

<snip>

1. If you think NREGA is a useful program and it made tangible contributions to Indians and Indian economy, please provide the proofs and evidence you demand from others. I will be glad to apologize for my ignorance.

2. If you think NREGA is a bad program then please shut up, instead of wasting others time. Just post the JNUnomic/Leftist/DDM articles you like, so it adds to our database.

3. If you think NREGA is a bad program, but it is OK for GoI to waste Rs 50,000 Crores/Yr, then please explain why it is ok to waste 5% of total tax revenues or 15% of total planned expenditure, instead of doing something else. Perhaps, this will be some original thoughts/ideas you can contribute to this forum.

[RamaY]

UPA wants to sell everything in India

But Left will support UPA only because BJP is communal. Left would rather have some foreign country/corporation own India but not Hindu-majority.

[nachiket]

UPA wants to sell everything in India

But Left will support UPA only because BJP is communal. Left would rather have some foreign country/corporation own India but not Hindu-majority.

The Left had made the exact same argument when the NDA was in power and they were selling government stakes in PSUs. They called it "selling the family silver" IIRC.

The fact is that neither disinvestment in PSU's nor allowing FDI in more sectors amounts to "selling out" anything. This is a tired old argument that Indian politicians especially the commies have been making for decades. One would think that people would have realized that they were spouting nonsense when they had run the country into the ground by 1991 by stifling investment and private enterprise. Or at least after seeing the improvement in India's fortunes after the "evil" foreign capital and the "big bad corporates" had been allowed in. Yet we continue to see the same hackneyed arguments repeated ad nauseam. And people continue to buy the "FDI==foreign country owning us" BS.

And I'd rather not have the Left support any party in power, doesn't matter if it is the Congress or BJP. Any government supported by the left will be as damaging to the economy as the UPA-I was. It is a different matter that the UPA-II somehow managed to be even worse than the UPA-I even without having to rely on commie support.

[arnab]

1. If you think NREGA is a useful program and it made tangible contributions to Indians and Indian economy, please provide the proofs and evidence you demand from others. I will be glad to apologize for my ignorance.

2. If you think NREGA is a bad program then please shut up, instead of wasting others time. Just post the JNUnomic/Leftist/DDM articles you like, so it adds to our database.

3. If you think NREGA is a bad program, but it is OK for GoI to waste Rs 50,000 Crores/Yr, then please explain why it is ok to waste 5% of total tax revenues or 15% of total planned expenditure, instead of doing something else. Perhaps, this will be some original thoughts/ideas you can contribute to this forum.

Well I thought my views were clear, but not apparantly to comprehensionally challenged folks. NREGA is as bad as all the other subsidy programs (like tax expenditures) provided by GOI. The latter are of a far greater magnitude than NREGA, yet NREGA gets far more attention than the other entitlement programs by some folks on BRF. This is presumably because a lot of folks on BRF are beneficiaries of these entitlements but don't like to see it that way. So they have convinced themselves that the entitlements they receive from GOI are not entitlements at all but their rightful due. I was just changing that perception Hope this clarifies

[RamaY]

BRF is an ignorant forum and i am the new prophet with revelations onlee....

Snip

I will tell you a secret. My great, great, great grand father left his yindoo brothern to the Islamic wolfs who converted them to be Muslims who later formed Pakistan. My great grand father was a raja-bahadur and owned a British principality. My grand father was a INC politician who sided with JLN, and my father was a JNU-economist turned NGO founder and made lot of money conveting hindus in christianity. I am a yindooo fanatic who want to genocide the Adharmics.

Your missing/separated uncle, boot licker of 2G die-nasty, BRAman called this forum a hindutva forum. I am surprised you still came visiting us.

Yes, all of us here are beneficiaries of tax expenditures because your slave masters set the income tax at only 32% and not 400% that the commie gods ordained them to. How stupid of them.

I am sad that your forefathers are not on the right side of the history and you had to live off of NREGA program reading commie history. But I cannot help you because I am a manuvadi castiest.

Go cry somewhere (there is a place called Pakistan Defense Forum for people like you) where you can find other south-Asian losers who cry on Indian Majority.

[arnab]

BRF is an ignorant forum and i am the new prophet with revelations onlee....

Snip

I will tell you a secret. My great, great, great grand father left his yindoo brothern to the Islamic wolfs who converted them to be Muslims who later formed Pakistan. My great grand father was a raja-bahadur and owned a British principality. My grand father was a INC politician who sided with JLN, and my father was a JNU-economist turned NGO founder and made lot of money conveting hindus in christianity. I am a yindooo fanatic who want to genocide the Adharmics.

Your missing/separated uncle, boot licker of 2G die-nasty, BRAman called this forum a hindutva forum. I am surprised you still came visiting us.

Yes, all of us here are beneficiaries of tax expenditures because your slave masters set the income tax at only 32% and not 400% that the commie gods ordained them to. How stupid of them.

I am sad that your forefathers are not on the right side of the history and you had to live off of NREGA program reading commie history. But I cannot help you because I am a manuvadi castiest.

Go cry somewhere (there is a place called Pakistan Defense Forum for people like you) where you can find other south-Asian losers who cry on Indian Majority.

Saar this is getting more bizzare by the minute. Now you are equating the fact that I proved 'tax-expenditures' are same as other subsidies to my being anti-hindu (Even Zia Ul Haq came up with a better referendum option than that).

p.s. Incidentally the 'Indian majority' don't get the benefits of the tax expenditure subsidies because most of their incomes are below the tax thresholds. So if anything - you should think my views are 'pro majority'

[pentaiah]

Big reforms again: Cabinet clears FDI in insurance, pension

That is disaster, there is so much money to be made in Insurance, actually in 2009 IIRC BRF meeting in Hyderabad I brought up this discussion of Insurance with Hari Seldon ji of course we both had scotch but was very constructive discussion. Proof 26% by volume, we said we need second round to completely round up the looming disaster if Insurance is opened up.

Apna paisa leke upun ko Cho&^% banake gora walah lootega...

[Hari Seldon]

That is disaster, there is so much money to be made in Insurance, actually in 2009 IIRC BRF meeting in Hyderabad I brought up this discussion of Insurance with Hari Seldon ji of course we both had scotch but was very constructive discussion. Proof 26% by volume, we said we need second round to completely round up the looming disaster if Insurance is opened up.

Apna paisa leke upun ko Cho&^% banake gora walah lootega...

Aye, sir. Fond memories of the 'spirit'ed discussions at that meet are there. Second round definite ga kavali. Its been a while since we had a BR meet done in Hyd now. Where's Jagan garu, whose visits typically prompt the meets to happen?

[kmkraoind]

NSE crashed with a whooping 1000-point drop for a minute, before trading was stopped. Wondering what might be the reason for this flash crash.

[Pratyush]

Well I thought my views were clear, but not apparantly to comprehensionally challenged folks. NREGA is as bad as all the other subsidy programs (like tax expenditures) provided by GOI. The latter are of a far greater magnitude than NREGA, yet NREGA gets far more attention than the other entitlement programs by some folks on BRF. This is presumably because a lot of folks on BRF are beneficiaries of these entitlements but don't like to see it that way. So they have convinced themselves that the entitlements they receive from GOI are not entitlements at all but their rightful due. I was just changing that perception Hope this clarifies

NERGA, is a program that is currently paying people, for doing nothing. It is one thing to provide work to needy people in order to stablise incomes, in times of natural calamities.

It is another to pay people to do nothing. Which is what NERGA is doing today. That is the reason why it is wrong.

[arnab]

NERGA, is a program that is currently paying people, for doing nothing. It is one thing to provide work to needy people in order to stablise incomes, in times of natural calamities.

It is another to pay people to do nothing. Which is what NERGA is doing today. That is the reason why it is wrong.

sorry saar it is an 'employment guarantee scheme'. it is paying people to be employed (what it is acheiving in practice is ofcourse a different matter and no different from say the (in)famous hospital in Kolkata called - 'Advanced Medical Research Institute' (AMRI) - which does no research but basically has added the tag 'research' to its name to qualify for GOI tax concessions on 'research related expenses'.)

[Aditya_V]

NSE crashed with a whooping 1000-point drop for a minute, before trading was stopped. Wondering what might be the reason for this flash crash.

If Only I could have Borrowed INR 20 Lac Bought at those levels sold later today and return the INR 20 Lacs., could have made 7-8 lacs in a day thus reducting my housing loan significantly

[Pratyush]

sorry saar it is an 'employment guarantee scheme'. it is paying people to be employed (what it is acheiving in practice is ofcourse a different matter and no different from say the (in)famous hospital in Kolkata called - 'Advanced Medical Research Institute' (AMRI) - which does no research but basically has added the tag 'research' to its name to qualify for GOI tax concessions on 'research related expenses'.)

Boss, in the olden days the scheme used to be kicked off during times of distress, in order to benefit people who were in need of Jobs stabilizing incomes and preventing starvation.

Today the scheme is merely a scheme representing political expediency. With the hope that it will pay dividends in the coming elections. The corruption and other evils are a direct result of this thinking.

The present GOI has taken welfare economics and turned it into welfarewad.

[vishvak]

Nifty drops 900 points to 4888 in freak trade

Cash prices were frozen for some time because the index hit the lower circuit filter.
..
"It is hard to put a rational explanation... This is something to do with programme trade of FIIs," Saurabh Mukherjee of Ambit Capital said.

"Some punching error might have taken place which has resulted in the sport Nifty coming down... The Nifty is not even moving, which show some technical error... It is for the exchanges to answer,"

Technical error.. Perhaps the least the exchanges could do is to freeze the FII programmes.

From Freaky Friday: 10 answers on NSE's flash crash

Why did the markets fall sharply?
The NSE attributed the sharp drop in cash market to erroneous orders, which resulted in multiple trades at low prices. "The market circuit filter got triggered due to entry of 59 erroneous orders which resulted in multiple trades for an aggregate value of over Rs. 650 crores," NSE said in a statement.
..
Who was to blame?
A single dealer terminal at Emkay placed 59 erroneous orders for an institutional client, resulting in trades worth over Rs. 650 crore. Emkay, a financial services firm founded 17 years ago, closed out all the positions from the misplaced trades, the NSE clarified later, adding the firm had been "disabled" from trading, without giving further details. Emkay Global shares plunged 10 per cent.
..

Read all onlee.
Emkay Global's bad orders trigger brief halt on NSE
International onlee, but NSE gets bad day and "retail investors who trade daily may have suffered losses today", "All Nifty-50 stocks plunged during the freak trade. For example, Reliance Industries shares plunged 20 per cent", and so on and on.

[shyam]

Sounds like someone is testing how Indian market responds to flash crash events.

Penalty for such events should be high. SEBI should permanently revoke the license of trader "Emkay Global" citing sheer incompetency in managing trades, in addition to a huge fine. Let it close down.

Emkay Global shares plunged 10 per cent.

This is nothing....

[Theo_Fidel]

Boss, in the olden days the scheme used to be kicked off during times of distress, in order to benefit people who were in need of Jobs stabilizing incomes and preventing starvation.

One clarification. The money for the NREGA was always there in the various middle men related corrupt schemes. The original idea was to close all these programs and transfer the money directly to the poor. But that seemed too much like a give away, hence the NREGA which asks for some manual labor in return.

Without the NREGA the money would have been given directly to the folks, which I actually support. In return we could have asked for things like better hygiene for women, better girl child protection, education, esp. adult re-education, etc similar social reform programs.

This is where the Jean Dreze type charalatans displayed their woeful incompetence. They have no clue what they are doing.

[pgbhat]

Breaking the Silence ---- Pratap Bhanu Mehta

THE TOPIC OF EQUALITY IS A DIFFICULT one in any society; it conjures up a complex of hopes and fears. The greatest modern theorist of the psychological burdens of equality, Alexis de Tocqueville, proposed that societies that enshrined formal political equality would find it difficult to talk about real inequalities, because formal equality allows us to throw a veil over deep social inequalities. But in India it is a particularly difficult subject to discuss. The experience of inequality—and its associated indignities—is commonplace and visceral. To confront it fully is so existentially disturbing that it is often kept at bay by a whole series of interdictions and stratagems.

For those at the bottom of a deep well, the mere act of looking up at the heights to be scaled can be dispiriting; for those at the top, the act of looking to the depths at which human beings are confined is likely to cause vertigo. The net result is a taciturn avoidance played out in Indian homes and streets. It is not that the poor are not aware of the deep indignities they experience or the chains that bind them. It is not that the privileged are not aware of their deep complicity in a disfigured social system of inequality. But any frontal representation of this reality is more likely to induce an intellectual and moral paralysis.

Powerful representations of this reality—like the astonishing literature produced by Dalits—are politely acknowledged, but rarely internalised in our consciousness. When books like Katherine Boo’s Behind the Beautiful Forevers, or even Hollywood entertainments like Slumdog Millionaire, enter middle-class consciousness, they cause discomfort. This is not because they remind Indians of something we had forgotten, but because they represent an assault on the elaborate psychological fortifications we have constructed to cope with a reality we know all too well. It is precisely because the indignities associated with inequality are so widespread that we find it hard to talk about them. But the avoidance has created a self-perpetuating system, which is rarely frontally challenged. Everyone hopes the system will change, but absolves themselves of the responsibility for bringing about that change.

[Austin]

Without the NREGA the money would have been given directly to the folks, which I actually support. In return we could have asked for things like better hygiene for women, better girl child protection, education, esp. adult re-education, etc similar social reform programs.

This is where the Jean Dreze type charalatans displayed their woeful incompetence. They have no clue what they are doing.

In India its better to give Food , Health Care , Education benefits to the needy than to directly give money to them , there is far bigger scope of corruption with direct money transfer and the chances people who get it would misuse money is also quite high.

May be they can try with partial compensation with money and see how it works.

[krishnan]

LPG price hiked by 12...petrol price to go up too

[chetak]

Boss, in the olden days the scheme used to be kicked off during times of distress, in order to benefit people who were in need of Jobs stabilizing incomes and preventing starvation.

One clarification. The money for the NREGA was always there in the various middle men related corrupt schemes. The original idea was to close all these programs and transfer the money directly to the poor. But that seemed too much like a give away, hence the NREGA which asks for some manual labor in return.

Without the NREGA the money would have been given directly to the folks, which I actually support. In return we could have asked for things like better hygiene for women, better girl child protection, education, esp. adult re-education, etc similar social reform programs.

This is where the Jean Dreze type charalatans displayed their woeful incompetence. They have no clue what they are doing.

Theo_Fidel ji,

Is the eyetalian who brought in the belgian any less "charlatan" or "woeful incompetence"???. Together they have managed to rape the economy of the country, destroyed the growth and furthered the evil designs of "furriners" AKA our nuke power programs. Do you not see an agenda here?

Is there any other country in the universe where two naturalized "citizens" have been allowed to wreak such vengeance? Will such white trash even be tolerated elsewhere?

[nakul]

When it comes to building roads for everyone, these people are woefully short of money. Infrastrucure expenditure is what drives growth. Instead of spending there, they will hand out money for votes. When it comes to real spending, the NREGA types will lift their hands in the air saying that we have to raise prices of essential commodities since the fiscal situation is bad. Essentially, the poors votes' are bought on others' money by increasing the prices of petrol, diesel & LPG.

[chetak]

Shree robert vadra has just weighed in on facebook

Claims that he can handle the negativity.

[Pranay]

http://www.nytimes.com/2012/10/06/busin ... cqEMaaeRTg

Posting the article in full. For those not aware of him - look him up on "The Inside Job"...

As Its Economy Sags, India Asks a Critic to Come Home and Help Out

NEW DELHI — In April, the economist Raghuram G. Rajan gave a speech to a group of graduating Indian students in which he criticized the country’s policy makers for “repeating failed experiment after failed experiment,” rather than learning from the experiences of other countries. A week later, he assailed the government again, this time in a speech attended by Prime Minister Manmohan Singh.

But instead of drawing a rebuke from India’s often thin-skinned leaders, he got a job offer. In August, Mr. Singh, who has frequently sought Mr. Rajan’s advice, called and asked him to take a leave from his job as a professor at the University of Chicago to return to India, where he was born, to help revive the country’s flagging economy. Within weeks, he was at work as the chief economic adviser in the Finance Ministry.

Analysts say the appointment of an outspoken academic like Mr. Rajan, along with the recent push by New Delhi to reduce energy subsidies and open up retailing, insurance and aviation to foreign investment, signal that India’s policy makers appear to be serious about tackling the nation’s economic problems.

Mr. Rajan has advocated changing India’s financial system, which is dominated by state-owned banks, by among other things loosening government restrictions on foreign banks and other financial institutions. He has also been critical of the country’s crony capitalism, likening its business tycoons to Russia’s oligarchs. He has argued that India needs to build stronger, impartial agencies to make the allotment of licenses and natural resources more transparent.

And India might finally be ready to make such changes, he said in an interview in his office here.

“I believe that one of the virtues of a functioning democracy is that they prevent things from getting too bad,” he said. “When things get bad, democracy creates the space to make improvements.”

Economists say Mr. Rajan, and his boss, the recently reappointed finance minister, Palaniappan Chidambaram, face daunting challenges in their effort to revive the slowing economy, which is expected to post growth of 5.5 percent this year, down from an average of 7.7 percent a year over the last decade. The credit rating agencies Standard & Poor’s and Fitch Ratings have warned that they may downgrade India’s sovereign debt to junk status if it doesn’t bring its ballooning budget deficit under control.

Many of the government’s proposals, including reduced subsidies for food and fuel, are deeply unpopular. Moreover, the governing alliance, led by the Indian National Congress Party, recently lost its majority in the lower house of Parliament, which will make it hard to enact legislation.

“Most emerging market governments only carry out reforms when they have their backs to the wall,” said Ruchir Sharma, an executive at Morgan Stanley and author of the recent book “Breakout Nations: In Pursuit of the Next Economic Miracles.” “The government is under siege and they are reacting to that.”

Though Mr. Rajan’s current post does not carry any executive authority, his return to India has attracted attention because many policy analysts consider him to be the leading candidate to take over the top job at India’s central bank, the Reserve Bank of India, next year when the current governor, Duvvuri Subbarao, retires.

Mr. Rajan, 49, became famous in the economics profession for his prescience in warning about the growing risks in the financial system at a Federal Reserve conference in 2005, three years before the failure of Lehman Brothers. He argued that innovations and deregulation appeared to have made the global financial system riskier, rather than safer and more stable as many economists and top policy makers like Alan Greenspan then believed.

The son of an Indian diplomat, Mr. Rajan grew up around the world and in New Delhi, earning degrees from prestigious Indian universities before studying economics at the Massachusetts Institute of Technology. His first big policy job came when he was appointed the chief economist of the International Monetary Fund. Since 2008, he has been an external adviser to Mr. Singh, who is his highest-placed champion in India and who also asked him to lead a committee to propose changes to the country’s financial system.

Mr. Rajan has made no secret of his distress with the slow pace of change in the country in recent years. But friends and associates say he believes that policy makers now feel under pressure to speed up the country’s transition to a more liberal economy because growth has slowed sharply ahead of the next national election scheduled for 2014.

“At the end of the day, he sees a window here,” said Kenneth Rogoff, an economist at Harvard University who was Mr. Rajan’s predecessor at the International Monetary Fund.

Mr. Chidambaram, the finance minister, said he had come to expect unvarnished advice from Mr. Rajan. “I’ve known Raghu for quite some time,” he said, “and when he joined the office here I told him one thing: ‘You are the adviser. You just tell us the truth.’ I think Raghu will do exactly that. He will tell the people of India the truth."

In the interview, Mr. Rajan said he and Mr. Singh had discussed his return to India for several years. While he dismissed the speculation about the Indian central bank job, he said he saw his new position in the government as an “open-ended opportunity,” not a short-term stint. He says he put aside plans to write a book on democracy and capitalism to take his new job.

He is committed to teaching classes in the fall quarter in Chicago but plans to move to India full time in December. His wife and his son will join him at the end of the school year; he also has a daughter in college.

“I feel I owe something to the country,” he said. “Also, I think the chance of even having some small influence that helps, that is multiplied by 1.2 billion lives, it’s such an immense opportunity.”

Mr. Rajan said he would like to focus his efforts on three big themes: liberalizing India’s financial system; making it easier to do business, particularly for entrepreneurs and manufacturers; and fixing India’s dysfunctional food distribution system, which wastes a lot of food even as many of the country’s poor are malnourished.

But the Indian bureaucracy’s resistance to new ideas, which he highlighted in his April speech, may well stymie Mr. Rajan, just as it did his predecessor, Kaushik Basu, an economist from Cornell University who was recently appointed the chief economist of the World Bank.

Mr. Rajan needs to learn quickly “on the job in a situation where learning is not very easy,” said Rajiv Kumar, who heads the Federation of Indian Chambers of Commerce and Industry and is a former Indian government economist.

Mr. Rajan said he understood the risks but believed that India’s policy makers had been more open to change than many critics acknowledged. He pointed out that despite significant initial opposition, including from the central bank, Indian officials have adopted many of the proposals from the committee he led, including allowing Indian banks to open branches in most of the country, though not in big cities, without the Reserve Bank’s permission.

“The message from our report is that nothing in India will get done immediately,” he said. “It’s by the time your report gets forgotten, becomes part of the woodwork, that it really starts having an effect.”

[Pranay]

The Raghuram Rajan speech at ISB... Sorry, for the length...

http://www.isb.edu/Gradday2012/RaghuramRajan.Shtml

Indian Governance and Change


Mr Chairman, Mr Ajit Rangnekar, the faculty and staff of the ISB, parents and family members of the students, and dear students: Thanks very much for inviting me to speak today. First, congratulations to all of you who are receiving diplomas today. Congratulations also to your teachers, family, and friends who can see the fruits of their support in your diploma. You graduating students deserve the confidence that many of you feel because if you can survive the rigors of an ISB education, you can survive anything in the real world.

Unfortunately, the last hurdle in that education is to survive my speech. Worse still, I have a monopoly over your time conferred upon me by the school, where I can say what I want and you have no choice but to listen.

Chicago Nobel Laureate, Ronald Coase, would say that if we could create a spot market where you get together a collection to bribe me to cut my speech short, and I left with the money, the world would be a better place for both of us.

However, there are transactions costs in setting up that market, including the possibility that I might still inflict the speech on you even after you pay me, simply because I am attached to my duty as speaker, or because I love the sound of my own voice. We need an outside enforcer for the contract – perhaps Mr. Godrej might consent to step in?

Before the murmurings about crass economists willing to sell their souls for money get too loud, and before journalists with their great originality in inventing names start writing about ISBgate, let me tell you the serious point in all this.

Markets and competition don’t appear by magic, they have to be nurtured through appropriate regulation and enforcement. And because self-regulation by interested parties is ineffective in a variety of situations, it is appropriate for an outsider to undertake the regulation and enforcement. Typically, that outsider is the government. And the central focus of my talk will be on whether the government in India is performing its appropriate role.

India has achieved much in the two and a half decades or so since you were born. There is so much to celebrate, whether it is that we appear to have moved away from the Hindu rate of growth of 3.5 percent or whether it is that so many millions of Indians have moved out of debilitating poverty into a life of modest comfort – and yes, despite all the furor over the Planning Commission’s poverty line, we have brought down poverty.

You graduating students have far more opportunities, a much wider choice of careers, and far better salaries than we had when I graduated 25 years ago from a Well-known Institute of Management in Western India. India has come a long way, and we should justifiably be proud.

Just look around you. I was involved with this school right from the very cold February in Chicago over 15 years ago when it was first conceptualized by Rajat Gupta. Success has many fathers and I am proud to claim some portion of paternity, however small it may be.

The dedicated top-notch global faculty, the excellent staff, the magnificent architecture, the superb facilities, they all come together in the quality of education the ISB has imparted, as evidenced by you students, who are second to none in the world. All this was made possible by a small dedicated band, many of whom are on the board today. This school is an example of what we can do as a nation when we put our minds to it.

But even though there are many more such examples of achievement in India today, such as the New Delhi Metro or India’s success in milk production, we should also be realistic about India’s deficiencies. Even as the world becomes more competitive, India’s star has dimmed in the last few months, as our governance is besmirched by corruption scandals and our macroeconomic health has deteriorated.

Our politicians seem unable to come together to vote for growth-enabling reforms, even while they are willing to join hands in every populist vote. Coalition dharma seems to fail us only when steps to sustain growth have to be taken. Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.

We must remember that the history of development is replete with countries that grew strongly for a while, only to stutter and stop as their government and their people started taking growth as their birth-right. Somewhat paradoxically, it is only when we are paranoid about sustaining growth that we will continue achieving it.

A key factor in our ability to rebuild business confidence and resume growth will be the quality of our regulation and our governance; our soft infrastructure so to speak. And the deficiencies here are even more alarming than the inadequacies of our roads, rail, ports, and airports that we are in the process of addressing.

The government does too much of what it should not do, too little of what it should do, even while being capricious and unaware of its limitations. Unfortunately, the private sector has not earned the trust of the broader public, so it is hard to make a strong and persuasive case for change to the voters. This is where you, tomorrow’s leaders of our country, can help.

Let me elaborate. Start first with what the government does too much of. In the early post-independence years, with private sector capacity limited, government forays into steel making, heavy electricals, and even electronics may have been useful, and even critical for our subsequent growth. Some of the top talent in our private sector firms today began in public sector entities like Bharat Heavy Electricals or State Bank of India.

Yet given the growth of capabilities in the private sector, there is really no reason for the continued government presence. Indeed, government ownership hurts public sector firms – low salaries at the top and continuous interference impedes the ability of these firms to attract talent in an increasingly competitive environment, while over-employment at the bottom hurts efficiency.

The natural reaction of the government is to protect its progeny by giving them special privileges. But this tilts the playing field against the private sector. An Air India, which is on continuous and interminable life support from the taxpayer can charge whatever prices it wants and offer whatever service it has the inclination to provide for it has no need to make a profit.

State ownership in many areas no longer serves the public interest, and the only reason it continues is because it serves the many vested interests that benefit from the status quo – the public sector workers who have cushy undemanding safe jobs, the unions who enjoy the power, the occasional corrupt executive who rakes in bribes, and the minister who enjoys the patronage.

Incumbents in the private sector are not blameless either; It is no secret that for a long time, the government’s willingness to keep air fares high so that inefficient Air India would lose less money, allowed private competitors to make a killing even while they could rely on the government to keep out entrants. It is only recently that they have begun complaining about a more aggressive state airline driving them out of business.

What ought to be done about state owned enterprises? Some would say, “Do nothing”, there are more important problems to fix. Yet our most pressing problem is coal, and at the center of it is the public sector coal monopoly, Coal India. Similarly, we are the world’s largest arm’s importer, and one reason is the failure of our public sector defense establishments to deliver on important weapons systems despite decades of development.

Fixing the public sector – that is, making the well-performing do even better while forcing the poorly performing to shape up, even while leveling the playing field with the private sector -- has to come back on the table as a matter of urgency.

Privatization has fallen into disrepute, because the public does not trust the government to sell firms fairly to new private owners. Minority share disinvestment is no answer for it preserves all the ills of government ownership while allowing the state-owned firms more resources that the government can influence. No private owner would be allowed to get away with the kind of exploitation of minority shareholders that the Government of India indulges in. No wonder many public sector firms trade at a significant discount in the market.

We need to bring more radical solutions back on the table. For many of these state-owned firms, we need to first break them up if they are monopolies, strengthen corporate governance and oversight, then return these firms to full broad-based ownership through a public offering. I will call this “publification”, a contorted but precise term, for it puts them back to work for the public rather than for narrow interests.

Clearly, not all public sector firms need the medicine of publification, and there is a need to experiment with what works. But the sooner we stop treating the public sector as untouchable holy cows, to be tethered and milked but not liberated, the better for our growth.

Even while the government needs to get out of activities where it is holding back growth, it needs to play a stronger role in creating a fair, transparent, competitive market that will allow our citizens to make informed choices.

Take, for example, healthcare. As M.I.T researchers Abhijit Banerjee and Esther Duflo (2009) indicate , India has a public health care system that looks like a model for developing countries. The average household is within 2 kilometers of the nearest public facility, the facilities are fully staffed, and the rates they are required to charge are far cheaper than private providers.

Yet the system fails to deliver, literally – a survey they conducted in Udaipur finds that public health sub-centers were closed 56% of the time during regular hours because personnel were absent. This is not to take away from individual dedicated public servants that each one of us knows, but it is a shocking fact about the system as a whole.

Most households prefer therefore to see private providers. Private providers spend more time with patients; Even if it is an alarmingly low median of 4 minutes, this is double the time a public provider would spend, if one is lucky enough to catch them at work. The problem is that many private providers, especially the ones seen by the very poor, are quacks who tend to overprescribe so as to cover up their deficiencies.

Fully 68% of visits to a private facility end up in a patient getting an injection, and 12% in their getting put on a drip. Such over-prescription not only does the patient harm if she is misdiagnosed, it also makes antibiotics ineffective in the population. In the competition between the uncaring public sector and the unqualified private sector, it is the citizen’s health that suffers.

Would it not make sense for the government to give people more meaningful choice by forcing more transparency and disclosure on private sector providers? Should we not know if the “doctor” we go to actually has a medical degree? Should not the unqualified be prohibited from prescribing injections and antibiotics?

The government has an important regulatory role to play. Unfortunately, all too often, relying on the government to regulate simply increases bribe-taking without any improvement in quality. I will come shortly to why there is hope this will change.

But first, two other problems with government. It is capricious. The ideal government would set the rules of the game, and allow an independent judiciary to settle disputes. It would change the rules only when they are clearly broken, and rarely, if ever, with retrospective effect.

The key concern with the Vodafone controversy is not the government’s right to change the law prospectively if it believes it was poorly written and allows an unintended loophole. It is not even the government’s right to change the law retrospectively if it believes that everyone knew what was intended. The concern is that it intends to change the law retrospectively after the Supreme Court upheld Vodafone’s interpretation of the law.

What is the point of having an independent judiciary to interpret the law and adjudicate disputes between government and business if the government has no need to obey it? A government that changes the law retrospectively at will to fit its interpretation introduces tremendous uncertainty into business decisions, and it sets itself outside the law.

India has missed a golden opportunity to show its respect for the rule of law even if it believes the law is poorly written. That is far more damaging than any tax revenues it could obtain by being capricious.

And finally, our government is often unaware of its limitations. There is a lot we could learn from the rest of the world. China does not feel threatened by new information – it gets the best experts in the world to offer it advice, then it picks what it is persuaded by.

Yet Indian administrators, apart from a few open-minded ones, feel threatened by new ideas. India is sui generis they maintain – that is, it is in a category of its own. So it has nothing to learn from the outside, from the Indian diaspora, or even from its own private sector.

Whether this is a matter of convenience, allowing administrators to pursue their vested interests, or whether it is intellectual laziness, is unclear. Nevertheless, we keep repeating failed experiment after failed experiment, ignoring what has worked around the world.

A convocation speech is not the place to dwell on gloom and doom, and I think there are well-grounded reasons that matters will improve. I want to focus on three: history, information and technology, and young people like you.

First, history; India is not unique, neither uniquely good nor uniquely bad. In the late 19th century, the United States was as badly misgoverned as we have been at our worst. Bankers routinely bribed entire legislatures for the licenses to set up, while businessmen sabotaged rival pipelines or steamships. Tammany Hall practices would make the Organizing Committee of the Delhi Commonwealth Games seem like the Sisters of Charity.

The United States changed – there is still corruption but it is typically not organized, in-your-face, and routine.

In part, political patronage became less important in the United States as growth created private sector jobs. But also a free “muck-racking” press exposed corrupt government and business practices, empowering progressive reformers and improving the quality of government services. And new and effective government services such as unemployment insurance reduced the need to go to one’s patron for a handout. So growth and democracy helped create a virtuous circle that improved public governance.

India seems to be poised at a similar stage, and the revelations by the CAG and in the press in recent months should be taken as a sign of the capacity of the system for self-diagnosis and healing as much as it is of the corruption within.

There are areas still immune to press scrutiny – such as the activities of powerful industrialists who can withhold advertising rupees – but even this, I am confident, will change.

Second, information and technology are making it easier to keep a check on the government. Official disclosure, as embedded in the Right to Information Act, has been an important step forward by the current government. The private and NGO sector can also get into the act.

How hard would it be to collect and publicize “reviews” of the experience patients have with different medical practitioners in a city so that the incompetent and unqualified can be shunned? How hard would it be to shame government administrators?

Indeed, Swati Ramanathan of Janaagraha has started a website on the prevalence of bribes intending to do precisely this. Crowd-sourcing monitoring can be a way of improving governance, and while there is some obvious scope for abuse, it can be controlled. The possibilities for social entrepreneurship in India are near unlimited, and I am sure many of you will play a role in such ventures in the years to come.

Similarly, the best way to empower the poor so that they can discipline government providers is to give them cash or vouchers that they can spend on the provider of choice, even while providing them more information on their choices.

And the best way to change the incentives of those manning government dispensaries or teaching in government schools is to tell them that they will not have a job if they do not attract customers. It is high time we included the poor in deciding their own destiny – perhaps that is what the “inclusive” part of inclusive growth should be about.

All this, of course requires technology. Technology to inform people about the performance of providers and to enable them to share experiences, technology to create unique IDs, technology to transfer cash directly to bank accounts, mobile payments to spend the money easily, etc. And fortunately, technology is not something we lack in.

But perhaps most important of all, we have young energetic entrepreneurial people like you, who are dissatisfied with the status quo and want change.

Today, we are probably the country with the greatest difference between the age of its political leaders, whether in power or in the opposition, and the average age of the population. This must change. We need a new generation of leaders, not necessarily just the sons and daughters of politicians, but self-made people who bring energy and ideas to leadership, leaving the old discredited slogans behind.

Nations become great when they become self-confident, when they acquire the collective belief and will to succeed. As the cities of India become the centers of its political strength, they will look to people like you. I am confident you will not disappoint.

A self-assured India, brimming with ideas and energy, can play an enormously positive role in the world. We could offer an alternative view of development, one of the first developing countries to grow rapidly even while being a vibrant democracy, with an economy that has cutting edge innovative companies even while providing bottom-of-the pyramid services.

We could teach both the West and the rest, even while learning from them, as we did in the historic past when we were a global broker of ideas. We could be a voice for good in the international arena, where all too often we are either silent or simply trot out old tired visions.

You have the capacity to make all this possible. But first you have to expand public trust in the private sector by the way you conduct business, increasing your market share by building a better, higher quality, cheaper product rather than by securing underpriced public resources through underhand means or inflicting a government protected monopoly on your customers.

Pioneers from the private sector, many of whom are on this school’s board, started on this track decades ago. You must build on their work.

This then is the message I want to leave you with. India and the world are changing, and probably for the better. You will be able to help shape the world and your place in it. By all means set yourself ambitious goals.

But remember that, as both ancient Indian philosophers and modern day behavioral psychologists say, the achievement of narrow personal goals -- greater wealth, rapid promotion, or increasing renown – rarely brings you anything other than brief pleasure.

I don’t claim to know the secret of happiness, but this seems obvious – if you like the journey, if you get pleasure from the work you do, it matters far less when, or indeed whether, you reach your destination. You have far more control over the journey you choose.

And often the most enjoyable journeys are those where your goals are broader and where you take others with you, especially others who could not make it without your help. In doing so, you will make this world a better, and more stable, place.

Let me conclude. You have been very patient in listening to me, despite your lack of choice. Thank you! I wish you good luck in your future endeavors and hope they are crowned with success.

[kish]

India’s top 15 cities with the highest GDP


City GDP Population
1. Mumbai $209 billion 14 million
2. Delhi $167 billion 16.3 million
3. Kolkata $150 billion 4.5 million
4. Bangalore $83 billion 8.5 million
5. Hyderabad $74 billion 6.8 million
6. Chennai $66 billion 8.9 million
7. Ahmedbad $64 billion 5.5 million
8. Pune $48 billion 4 million
9. Surat $40 billion 4.6 million
10. Visak $26 billion 1 million
11. Jaipur $24 billion 3.1 million
12. Lucknow $22 billion 2.5 million
13. Nagpur $15.1 billion 2.5 million
14. Indore $14 billion 2.3 million
15. Patna $10.5 billion 1.6 million

It is disappointing to see Chennai with 3rd highest population, but 6th largest GDP. Just goes to show the political mismanagement happening in the state for decades.

[RamaY]

So the top 15 cities contribute ~1tn economy, while having 10% of the population?

If not for T movement and INC mismanagement for past 3 years, Hyderabad would have been in 2nd place by now.

It is the ideal city to be the new capital of India.

[shyam]

^^^ assertion based on what data, RamaY-ji?

Indraprastham was the capital city of Bharatham for thousands of years, is the capital of India, and will remain so in the future too. Other small time capitals will come and go.

[Rishirishi]

why is 5.7 % growth considered bad? India has grown over 7% per year in the last decade. Now there are financial crisis and 5% + growth can be all that bad. Still one of the fastest growing economies of the world?

Have I missed something?

[Singha]

every reduction in 1% growth delays the movement of millions of poor to middle class by many years.
unlike the west we have many such basic problems like millions of poor and infra issues to resolve.

[Pratyush]

Am surprised to see Kolkatta in that list where it is. Is like they have added a 100 billion to its actual number.

[Rupesh]

^^^
Also Kolkata's population is reduced by 10 million

[Austin]

India’s top 15 cities with the highest GDP


City GDP Population
1. Mumbai $209 billion 14 million

Think those figures might also include personal wealth of Ambani , Tatas , Birla etc .......for that that kind of money we have extremely poor infra for the huge population we cater too.....Mumbai would just be a dot on the map compared to say delhi which far bigger probably the smallest city in that list

[Suraj]

GDP would be annual economic output, not accumulated personal wealth . So the sum of their net worths don't really have much to do with Mumbai's annual GDP, except for the incremental economic output from their business entities that any wealth gain on their part is associated with.

[member_23677]

GDP would be annual economic output, not accumulated personal wealth . So the sum of their net worths don't really have much to do with Mumbai's annual GDP, except for the incremental economic output from their business entities that any wealth gain on their part is associated with.

Are the income of Ambanis and such counted in Mumbai's revenue or are they avoided?? Impressive statistic from Mumbai

[Aditya_V]

That list will be Skewed based on where HO's especially where Service Tax and IT is paid from, Like All Indian Banks have HO in Mumbai, Microsoft India in Hyderabad and so on. It is an indication of actual strength of these cities. For India to prosper not greater than 300- 350 Million should rely on AGriculture, I see Indian Urban population growing to about 70% of India's population by 2050 for which we will need Mega cities and related Infrastructure, especially we need Nuclear power big time.

[Austin]

That link says those GDP figures are based on 2008 stastics so for 2012 the figures could be higher ..its possible other cities might have surpassed Mumbai ?

[Pratyush]

Absence of reforms will slow growth: Chidambaram

This is correct. But the question is where was this wisdom for the last 8 years when your govt was running the economy into the ground.

[vera_k]

That link says those GDP figures are based on 2008 stastics so for 2012 the figures could be higher ..its possible other cities might have surpassed Mumbai ?

Not yet. The 2025 projection was that New Delhi would surpass Mumbai, but even then the two cities would be within 10% of each other.

Projected nominal GDP in 2025

1. New Delhi - $211B
2. Mumbai - $193B
3. Bangalore - $129B
4. Kolkata - $113B
5. Pune - $94B
6. Surat - $84B
7. Chennai - $77B
8. Hyderabad - $74B

[RamaY]

So Hyderabad is not growing at all (after inflation?) from now to 2025?