Olympic medals

Reams have been written about the stellar performance of countries such as China and the US at the Beijing Olympics and the lacklustre performance of others, including India. Economist Gary Becker highlights the determinants of Olympic success in his blog, based on a journal paper:

The article "A Tale of Two Seasons: Participation and Medal Counts at the Summer and Winter Olympic Games", published in 2004 in the Social Science Quarterly by Professor Daniel Johnson of Colorado College and a co-author, examines the determinants of how many medals were won by different countries in the summer and winter Olympics since the end of World War II. Their regression analysis shows that two very important variables are the total population and per capita incomes of different countries. Also important are whether a country has an authoritarian government-such as communism- a country's climate, and whether a country is the host country for a particular Olympics. These five variables taken together predict closely the total number of medals won by different countries in the winter as well as summer Games.

Rising interest rates? Not to worry!

Most forecasters have lowered their forecasts for Indian economic growth for 2008-09. The RBI thinks growth will end up slightly under 8%. The PM's Economic Advisory Council projects growth of 7.7%. Many investment banks think growth will be even lower.

These forecasts rest on two things: the adverse global economic environment and lower global growth; and rising interest rates in response to inflationary trends.

Yes, weaker global growth will moderate India's growth but higher interest rates, I think, are not such a big worry. This is the subject of my ET column, Interest rate rise not a big worry.

Why do I say this? Briefly:

• Lending rates have risen but remain below levels in the nineties.
• Corporate leverage is much lower than in the nineties, so higher interest rates do not threaten corporate profit to the same extent
• Consumer borrowing has been impacted but housing demand should revive once property prices correct
• Banks' capacity to make loans remains unimpaired despite four years of rising interest rates. Even NPA levels in the aggregate are not a problem because five years of high growth are causing past corporate NPAs to revive, far from adding to fresh NPAs in a big way.
  

Novel on Zia ul Haq's death in air crash

I've just finished reading A case of exploding mangoes, Mohammed Hanif's novel based on the mysterious air crash that killed Pakistani rules Gen Zia ul Haq. Also killed in the crash were a Lt Gen in the army and the US ambassador to Pakistan. Hanif is a former air force office now residing in the UK.

It's a terrific read, a thriller of sorts. Hanif is South Asia's answer to John Le Carre, I daresay. The story cuts between the interrogation of a suspect in the assisination plot and Zia's own life in the months leading up to the crash. The protagonist, an air force officer, wants to assasinate Zia in reprisal for the murder of his father, a former Colonel in the Pak army.

Col Shigri was a key figure in the funneling of arms and money to the Afghan militia in their war against the then Soviet Union. The sums involved were large and a good deal went into the pockets of Pak army men. Shigri inteferes- and is found hanging in his own house. For the record, his death is described as a suicide.

The novel shows that the CIA wanted Zia out of the way and ambitious army officers were eager to carry out its bidding. It shows that the US diplomat's death in the crash was the result of a mishap but probably the sort of price that people in Washington are willing to pay when they want a job done. A Major Kiyani figures prominently in the story- I wonder if that is the present Chief of the Pak army.

Zia's paranoia makes for hilarious reading. The novel is tightly written, with a wry humour that never fails to find its mark. The murky goings-on in the Pak army are well chronicled. I said to myself after reading the novel: if a former Pak air force officer can write with such ironic detachment and so well about his country and the armed forces, there must be something very right with that country. Pakistan a failed state? No way, if this novel and its author are anything to go by.

Raghuram Rajan Committee

The Raghuram Rajan committee on financial sector reforms, constituted by the Planning Commission, submitted its draft report sometime ago. I have a critique of the banking sector reforms proposals contained in the report in EPW (Aug 9-15, 2008).

A few things I would like to highlight:

• The report does not recommend privatisation on all public sector banks. It is rather more cautious than, say, the Percy Mistry report. It urges experimenting with sale of a few under-performing PSBs to foreign banks.
• On opening up to foreign banks, the committee does not favour a level playing field with domestic banks right away. It wants abolition of branch licenses for domestic banks, followed by extension of the same to foreign banks with a lag of a couple of years or so.
• It prefers reform of PSBs through overhaul of governance. But some of its proposals, such as the government not appointing top management and leaving this to an independent board, are unlikely to fly. With good reason. 'Leave it to an independent board' sounds very lofty but it risks creating a dangerous governance vacuum where we can least afford it- the banking sector. And now is the not the time to be singing the praise of independent boards in the financial sector-see what has happened to some of the best known names worldwide in the sub-prime crisis.
  

Changing face of the Indian bureaucracy

I must thank Abi of Nanopolitan blog for pointing me to this article by S Narayan, former finance secretary, on how better representation for the backward castes is turning out to be a force for good in the Indian bureaucracy. I get a chance to meet several bureaucrats and I keep asking them: is there any truth to the contention that the bureaucracy is going to the dogs, thanks to reservations?

Generally, what I hear is that there is nothing wrong with the candidates selected- they may not speak immaculate English and you may fault their accents but they have competence and motivation, alright. The problem is that political interference has increased. This will happen regardless of who gets into the services.

I have every hope that reservations at IITs and IIMs will achieve the same thing that Narayan suggests it has acheived in the bureaucracy: making the corporate world more representative of and responsive to the large mass of Indian people, instead of being elitist in character. The price that critics say we pay- dilution of standards - is, even if it is true (I have never bought this), small compared to the benefits in terms of social harmony and equity.

Here is an excerpt from Narayan's article:

The character of the All India Services has changed in my lifetime, and in my view, the new entrants are far more representative of the aspirations of the “inclusive growth” view. Bright and hard-working, yet from families that know the meaning of hardship, these are the youngsters most likely to be able to administer from the heart, not just from the book. I have also seen a complete social transformation in the composition of the services, a transformation, though painful, which has brought up people much more representative of the diversities in our society. In the South, especially in Tamil Nadu, it has taken almost 70 years to get here, and I do believe that the rest of India must follow, and it may perhaps take far less time. Though one had to compete all the harder to succeed, I am a strong votary of affirmative action to provide preferential opportunities, especially education, to those who don’t have them.

I can hear sceptical readers wondering: Will the new dispensation be ethical and fair? I cannot say. When I teach these students, I see the core of goodness and fairness—what the real world of politics and bureaucracy will do to their hopes and aspirations is yet to be seen. I like the fact that the collector’s office is not a mysterious, forbidding place for citizens — that they can see their own kind sitting there. Will he be fair? As in economics, the laws of supply and demand will operate. Let’s hope the citizenry wants fair deals — I am sure that the new class will deliver.

Zardari's mental health

FT carries a story about the man who aspires to become president of Pakistan:

Asif Ali Zardari, the leading contender for the presidency of nuclear-armed Pakistan, was suffering from severe psychiatric problems as recently as last year, according to court documents filed by his doctors.

The widower of former prime minister Benazir Bhutto was diagnosed with a range of serious illnesses including dementia, major depressive disorder and post-traumatic stress disorder in a series of medical reports spanning more than two years.

......In court documents seen by the Financial Times, Philip Saltiel, a New York City-based psychiatrist, said in a March 2007 diagnosis that Mr Zardari’s imprisonment had left him suffering from “emotional instability” and memory and concentration problems. “I do not foresee any improvement in these issues for at least a year,” Mr Saltiel wrote.

.....Mr Hasan, a long-standing political ally and friend of the Zardari/Bhutto family, told the Financial Times on Monday that Mr Zardari had subsequent medical examinations and his doctors had “declared him medically fit to run for political office and free of any symptoms”.

“You have got to understand that while he was in prison on charges that were never proven, there were attempts to kill him,” Mr Hasan said. “At that time, he was surrounded by fear all the time. Any human being living in such a condition will of course suffer from the effects of continuous fear. But that is all history.

'Azaadi' for Kashmir

Arundhathi Roy has created a stir by supporting Azaadi for Kashmir. Some columnists have done likewise. This seems a cute, liberal thing to do. Without pretending to be an expert on Kashmir, let me highlight a few issues:

• Would a move to allow Kashmir to secede be without implications for the rest of India? What would it mean for the principle of secularism and for the fate of Muslims spread over India?Partition was followed by a holocaust. Will this not be seen as a partition-like move?
• Can an independent Kashmir maintain its independence for long given the interest of every single power in the area? Pakistan would fish in troubled wars; so would Iran, Afghanistan, China, Russia. India and the US would not be able to hold aloof. Kashmiris, who detest India's presence, will find themselves sitting on a veritable tinder-box.
  
• What would be the basis for the economic viability of a an independent, landlocked Kashmir?
  
<>I doubt that western opinion favours the creation of another Muslim state in a highly combustible zone of the world. Because of its location,because of the interest of every power in the area in the state, western opinion would view Kashmir as having the potentialf for becoming another Iraq or Afghanistan- perpetually on the boil thanks to warring factions serving as proxies for various competing powers.

Autonomy and self-rule must seem preferable options once you consider the implications of 'azaadi'.

No caste please, we're Indians

Outlook magazine carries a story on how an attempt to carry out a caste census is being stonewalled by private sector companies.

When the OBC quota controversy flared up, people questioned the basis for the 27% quota, saying there was no data to back it up. At the time, it was pointed out that there has been a marked refusal on the part of successive governments to collect the data in the first place. Ok, what is past is past, but surely there is merit in trying to see whether quota policy rests on a sound basis of data? This is what the Outlook story says:

<> The Karnataka State Commission for Backward Classes (KSCBC) is embarking on a massive caste census for the first time since Independence. Besides covering 1.18 crore households across the state, it will also look at the private sector—which is where it runs into resistance. The commission has written to 176 companies, including IT majors like Infosys, Wipro, Dell, Yahoo, MindTree, Sun Microsystems, IBM and HP, asking them to furnish "religion and caste-wise information" of employees But the response has so far been cold. KSCBC wrote to the companies in March this year and set a May 15 deadline for submission of data. But, as a KSCBC official pointed out, "Only 11 companies have provided information, 18 letters were returned undelivered, and three companies have written back that they are unable to furnish the data." Last fortnight, the commission sent out reminders to as many as 154 companies

The report points out that opposition to the survey is not confined to the private sector- many in government would rather not have the facts coming out. Because then we will know who has benefited so far and who hasn't.

Russia sends a warning to the west

The west has rushed to condemn what it regards as Russian bullying of Georgia. I refer to the recent hostilities between Russia and Georgia over Georgia's province of Ossetia which harbours a large Russian population. Russia will not accept Georgia trying to ride roughshed over the province and thinks it has every right to protect the interests of Russians there.

The west is outraged. But, as Kishore Mahbubani points out in the FT, not the rest of the world, including India and China. Mahbubani is dean of the Lee Kuan Yew School of Public Policy in Singapore, a former minister in the Singapore government and a well regarded commentator on international affairs.

Indeed, most of the world is bemused by western moralising on Georgia. America would not tolerate Russia intruding into its geopolitical sphere in Latin America. Hence Latin Americans see American double standards clearly. So do all the Muslim commentaries that note that the US invaded Iraq illegally, too. Neither India nor China is moved to protest against Russia. It shows how isolated is the western view on Georgia: that the world should support the underdog, Georgia, against Russia. In reality, most support Russia against the bullying west. The gap between the western narrative and the rest of the world could not be greater.

The lesson from the Russian intervention, Mahbubani says, is that the world is not going to watch while the west tries to lord it over. Moreover, the west must make up its mind where the primarily challenge to the west lies- is it Islamic militancy or China?

Western thinkers must decide where the real long-term challenge is. If it is the Islamic world, the US should stop intruding into Russia’s geopolitical space and work out a long-term engagement with China. If it is China, the US must win over Russia and the Islamic world and resolve the Israel-Palestine issue. This will enable Islamic governments to work more closely with the west in the battle against al-Qaeda.

RBI proposes, Finance ministry disposes?

The RBI wants to bring down growth in banks' commercial credit in a bid to slow down growth in money supply. Money supply has been growing at over 20% against the RBI's target of 16.5-17%. The RBI has raised interest rates but commercial credit has been growing at 24-25%, against the RBI's target growth of 20%.

Many think this is because public sector banks have not been aggressive enough in raising their lending rates, thanks to interference from the finance ministry. The ministry, they say, wants to sustain growth and it wants to keep home loan borrowers happy as elections loom, so it gets PSBs to refrain from raising rates as much as they should.

I am not so sure. I examine this whole issue in my ET column, Is finmin foiling RBI? and find that there isn't a strong enough case for this view.

There are just a couple of points I would like to add. One, the finance minister asking banks not to hike rates on home loans of upto Rs 30 lakh is not such a bad thing. A rise in home loan rates, as I mention in my column, may push many borrowers into default. Also, a sharp drop in home loan demand will affect a whole range of industrial sectors to which banks are exposed. So, in trying to extract better returns on home loans, banks may end up shooting themselves in the foot where corporate borrowers are concerned.

It is in the collective interest of banks not to raise home loans. But no bank on its own has the incentive to maintain home loan rates on its own- some other bank will then try to produce better returns by raising interest rates. In other words, we have what is called a "coordination failure". For the ministry to step in and provide coordination is appropriate.

The second point is that commercial credit growth is one element in high growth of money supply. A more difficult problem is the rise in forex reserves. There isn't much the RBI is able to do about this, so we can't expect a deceleration in commercial credit alone to bring down the inflation rate.

Creating world class universities in India

Dinesh Mohan, Professor at IIT Delhi, has an excellent piece in Business Standard on where India stands in the business of creating world class universities. The Shanghai Jiao Tong University's latest academic ranking of world universities confirms what we already know: we have been left far behind in the race.

In the top 500 universities in the world, India has only two: IIT Kharagpur and IISc, both ranked in the lowly range of 303-401. China itself has 18 universities in the list. Predictably, the US tops the list with 159, all of Europe has 210. The US has 9 of the top 10 (the tenth is Oxford) and 17 of the top 20. In academics, as in defence, it is a superpower.

The methodology, Prof Mohan points out, is sufficiently sound to command respect. The motivation behind the exercise was to figure out where China stands and what it needs to catch up. Prof Mohan highlights a number of interesting findings:

• A vast majority .... are large public universities enjoying liberal funding. Even in the USA, where many private universities exist, over 70 per cent of the universities making the list for engineering sciences are state funded. Even in the private universities, a significant proportion of research funding comes from the public sector. In the middle and low income countries, only state-funded universities are able to do any scientific research of any consequence.
  
• The age of specialised institutions like IITs, IIMs and IIITs seems to be over. A great deal of modern research involves interdisciplinary work and that is why such institutions are the exceptions.
• The kind of people who take up research and teaching jobs in any country come from middle and lower middle class family backgrounds. They are the ones who look for security in a job and work hard. Those who have spent money on education or taken loans are unlikely to take teaching jobs. We will have to reverse the trend of rising costs of education and give liberal scholarships even for living expenses.
• Our public sector institutions like the railways, NTPC, ONGC, DRDO, municipalities, BIS, building and road departments, etc. must put in place policies to hire such people (people with Master's and Ph D degrees) and give them meaningful jobs to do.
  

The bottomline? Forget the notion, currently popular, that in order to create world-class universities, we need government to get out of education. Forget also the notion that private institutions, motivated by profit and charging appropriate (that is, sky-high) fees will do the trick. Think again about the notion that you need fabulous pay packages in universities in order to attract talent- no, the types who are attracted look for job security, decent pay and a supportive environment.

We need to strengthen the IIT-IIM model and give it wider application. At least where the IITs are concerned, fees remain reasonably low and affordable and they must remain so. Improved governance at generously funded state institutions and inclusive, affordable education are the key to creating world class universities. In short, the drift towards privatisation, higher fee and higher pay packets for faculty as the answer must be checked before it is too late.