Wednesday, March 22, 2017

New perspective on the Great Calcutta killings of 1946

Calcutta (as the city was then called) descended into an orgy of what has been perceived as communal riots in 1946. The killings were seen as an important factor that made Partition inevitable- it seemed to suggest that Hindus and Muslims would find it difficult to live together in one country.

It was fascinating, therefore, to get a quite different perspective on the killings in a book on the subject reviewed recently in EPW. The author contests the idea that the killings were primarily communal in nature. Rather, he's inclined to give more weight to the famine of 1943 inflicted - that's the right word, as it was entirely avoidable in terms of the supply of and demand for foodgrains- on the city by the British.

The author of the book, the reviewer points out, is of the view that the scorched earth policy pursued by the British following the threatened invasion of Bengal by Japan in World War II was by far the more important factor in fuelling the rights. The British emptied the rural areas of foodgrain stocks to prevent these from falling into Japanese hands. They also destroyed transportation by boats by impounding the boats, again to prevent these from falling into Japanese hands. Both these resulted in an artificial scarcity of foodgrains in the countryside. ( I have read elsewhere that inflated estimates of food output caused the British to export large amounts to support the war in other parts of the world).

Calcutta was treated differently because it was the epicentre of the war effort in the region. Workers had to be fed in order to maintain production for the war, so ration shops were set up to ensure availability of food. The two factors together- scarcity of food in the countryside and relative abundance in Calcutta- caused people to flock to Calcutta putting enormous pressure on those staying in the city for long. It was the battle for territory between those resident in Calcutta for long and the migrants that primarily resulted in riots, the author contends, the riots were not communal in origin.


This communal single-mindedness that Das speaks of in the Great Calcutta Killings, Mukherjee shows, is simply not borne out by the historical record. Instead, the violence was chaotic and driven by a range of factors. First, the fact that British targets came under attack in the bedlam has fallen through the cracks in this rush to prise a communal angle from the violence. On Chowringhee, the Main Street of White Calcutta, several European shops and business were plundered, as was an Enfield motorcycle showroom on Park Street. The Statesman House, which housed the main newspaper of White Calcutta, also came under attack but was saved by prompt police action. In Dharamtolla, a Bata showroom, a Czech company, was similarly saved from the mob by the police.

Does widespread looting—of European and Indian targets—fit the mould of the crowds having a sense of “moral duty”? Again, here the looting has been explained in terms of Hindus looting Muslim shops and vice versa—a theory little backed up by data. In the chaos, very little of who attacked whom was actually recorded. Driven by a concurrent cloth famine, cloth merchants were targeted. And of course, the authorities were wary of food stocks being ransacked, so the civil supplies department was heavily guarded. Given this data, Das’ dismissal of the riot having an economic component falls under heavy strain.

This indeed casts new light not just on the Great Killings but on the Partition that followed. The author also suggests that Bengal PM Suhrawardy has been unfairly maligned. Britian's role in bringing about the Partition of India is far greater than one had thought.

This communal single-mindedness that Das speaks of in the Great Calcutta Killings, Mukherjee shows, is simply not borne out by the historical record. Instead, the violence was chaotic and driven by a range of factors. First, the fact that British targets came under attack in the bedlam has fallen through the cracks in this rush to prise a communal angle from the violence. On Chowringhee, the Main Street of White Calcutta, several European shops and business were plundered, as was an Enfield motorcycle showroom on Park Street. The Statesman House, which housed the main newspaper of White Calcutta, also came under attack but was saved by prompt police action. In Dharamtolla, a Bata showroom, a Czech company, was similarly saved from the mob by the police.
Does widespread looting—of European and Indian targets—fit the mould of the crowds having a sense of “moral duty”? Again, here the looting has been explained in terms of Hindus looting Muslim shops and vice versa—a theory little backed up by data. In the chaos, very little of who attacked whom was actually recorded. Driven by a concurrent cloth famine, cloth merchants were targeted. And of course, the authorities were wary of food stocks being ransacked, so the civil supplies department was heavily guarded. Given this data, Das’ dismissal of the riot having an economic component falls under heavy strain.
- See more at: http://www.epw.in/journal/2017/8/book-reviews/revisiting-our-narratives-great-calcutta-killings.html#sthash.1VAOCo0Y.dpuf

This communal single-mindedness that Das speaks of in the Great Calcutta Killings, Mukherjee shows, is simply not borne out by the historical record. Instead, the violence was chaotic and driven by a range of factors. First, the fact that British targets came under attack in the bedlam has fallen through the cracks in this rush to prise a communal angle from the violence. On Chowringhee, the Main Street of White Calcutta, several European shops and business were plundered, as was an Enfield motorcycle showroom on Park Street. The Statesman House, which housed the main newspaper of White Calcutta, also came under attack but was saved by prompt police action. In Dharamtolla, a Bata showroom, a Czech company, was similarly saved from the mob by the police.
Does widespread looting—of European and Indian targets—fit the mould of the crowds having a sense of “moral duty”? Again, here the looting has been explained in terms of Hindus looting Muslim shops and vice versa—a theory little backed up by data. In the chaos, very little of who attacked whom was actually recorded. Driven by a concurrent cloth famine, cloth merchants were targeted. And of course, the authorities were wary of food stocks being ransacked, so the civil supplies department was heavily guarded. Given this data, Das’ dismissal of the riot having an economic component falls under heavy strain.
- See more at: http://www.epw.in/journal/2017/8/book-reviews/revisiting-our-narratives-great-calcutta-killings.html#sthash.1VAOCo0Y.dpuf

This communal single-mindedness that Das speaks of in the Great Calcutta Killings, Mukherjee shows, is simply not borne out by the historical record. Instead, the violence was chaotic and driven by a range of factors. First, the fact that British targets came under attack in the bedlam has fallen through the cracks in this rush to prise a communal angle from the violence. On Chowringhee, the Main Street of White Calcutta, several European shops and business were plundered, as was an Enfield motorcycle showroom on Park Street. The Statesman House, which housed the main newspaper of White Calcutta, also came under attack but was saved by prompt police action. In Dharamtolla, a Bata showroom, a Czech company, was similarly saved from the mob by the police.
Does widespread looting—of European and Indian targets—fit the mould of the crowds having a sense of “moral duty”? Again, here the looting has been explained in terms of Hindus looting Muslim shops and vice versa—a theory little backed up by data. In the chaos, very little of who attacked whom was actually recorded. Driven by a concurrent cloth famine, cloth merchants were targeted. And of course, the authorities were wary of food stocks being ransacked, so the civil supplies department was heavily guarded. Given this data, Das’ dismissal of the riot having an economic component falls under heavy strain.
- See more at: http://www.epw.in/journal/2017/8/book-reviews/revisiting-our-narratives-great-calcutta-killings.html#sthash.1VAOCo0Y.dpuf


This communal single-mindedness that Das speaks of in the Great Calcutta Killings, Mukherjee shows, is simply not borne out by the historical record. Instead, the violence was chaotic and driven by a range of factors. First, the fact that British targets came under attack in the bedlam has fallen through the cracks in this rush to prise a communal angle from the violence. On Chowringhee, the Main Street of White Calcutta, several European shops and business were plundered, as was an Enfield motorcycle showroom on Park Street. The Statesman House, which housed the main newspaper of White Calcutta, also came under attack but was saved by prompt police action. In Dharamtolla, a Bata showroom, a Czech company, was similarly saved from the mob by the police.
Does widespread looting—of European and Indian targets—fit the mould of the crowds having a sense of “moral duty”? Again, here the looting has been explained in terms of Hindus looting Muslim shops and vice versa—a theory little backed up by data. In the chaos, very little of who attacked whom was actually recorded. Driven by a concurrent cloth famine, cloth merchants were targeted. And of course, the authorities were wary of food stocks being ransacked, so the civil supplies department was heavily guarded. Given this data, Das’ dismissal of the riot having an economic component falls under heavy strain.
- See more at: http://www.epw.in/journal/2017/8/book-reviews/revisiting-our-narratives-great-calcutta-killings.html#sthash.1VAOCo0Y.dpuf

Tuesday, March 21, 2017

Indian army's deployment in Kashmir

About a third of the Indian army - or nearly half a million men- is bogged down in Kashmir. The army sees this as helpful to keeping the forces combat ready. An article in EPW points out, however, that there are significant negatives to the army's deployment in Kashmir.

One, army excesses sully the army's name.

Two, the infantry gains in importance at the expense of other arms- witness the supercession by General Rawat of seniors with a distinguished record in other arms (although this may not be the only reason for the supercession).

Three, the need to contain China, given that a significant chunk of the army is tied up in Kashmir, has necessitated creation of fresh divisions. This, in turn, has led to revenue expenditure eating into capital expenditure and coming in the way of the army being able to implement its Cold Start doctrine- a quick, short war on the Western front- in retaliation for cross-border terrorism practised by Pakistan.

Four, the expansion of the office cadre has been fuelled mainly by recruits from UP, Uttarakhand and Haryana. This has implications for the overall composition of the army. The article also mentions that these are areas in which aggressive nationalism has wide acceptance and those joining the army would not be exempt from these influences. This could have implications for the army' s overall philosophy.

Army deployment in Kashmir, the author argues, has thus had a corrosive act on the army. But the big question which such analysts are not able to address suitably is: can we afford to pull the army out of Kashmir given that we have not been able to make much headway either with the people of Kashmir or with Pakistan?



North Korean flash point

North Korea was flagged among the foreign policy priorities for President Trump. The advice was well-placed. Tensions in the Korean peninsula have been rising, with North Korea testing long-range missiles and the US responding with a sophisticated air defence system for South Korea.

Among the options being considered is all-out war, aimed at taking out North Korea's nuclear armoury. The argument is that North Korean leader Kim Jong Un is crazy. As an article in the FT points out, he's a rational leader focused on survival. It's the war option that is crazy:
The North Korean nuclear and missile programmes are widely dispersed, including underground and underwater. It is unlikely that the whole programme could be destroyed in a single wave of strikes, which would immediately raise the prospect of nuclear retaliation by the North. Even if the US was miraculously able to take out the whole nuclear programme in one swoop, the North Koreans still have formidable conventional artillery. They could launch devastating barrages aimed at Seoul, the South Korean capital, a city of 10m people 35 miles from the North Korean border. Japan would also be vulnerable to missile strikes, as would US bases in the region. 

...  the better route, in the long run, would be to search for a deal that freezes the country’s nuclear programme, in return for economic assistance and a guarantee that the US will not seek to overthrow the regime. 
And what if such a 'grand bargain' can't be struck? Well, it would be best for the US to live with a nuclear North Korea, as it has lived with a nuclear Russia. The alternatives are too horrifying to contemplate. 

Thursday, March 16, 2017

Demonetisation and other forecasts: the pundits got it wrong

Well, it doesn't look as though the Indian economy has collapsed after demonetisation. The impact on GDP growth for 2016-17, as estimated by the CSO and the RBI, is less than 50 basis points. We will, of course, know for sure after the Q4 numbers are out.

Demonetisation is one of many glaring instances of pundits having got things wrong. Some of the others are: the potential impact of Raghuram Rajan now staying on as RBI governor, Brexit and Trump's victory.

More in my BS column, Lean times for pundits.

The article is behind a pay wall, so the full article is reproduced below:

Following the demonetisation move last November, the pundits -- academics, economists, media commentators and others -- were quick to pronounce judgment: Narendra Modi had blundered. 

The withdrawal of high-denomination currency notes, they said, had caused enormous economic hardship. The prime minister should have known better. He should have consulted experts before embarking on such a radical measure. Mr Modi would pay the price in the state elections that were to follow.

It’s now clear that the pundits got it wrong. Demonetisation did not work against the BJP in the recent polls and may have even contributed to its huge victory in UP.
Some pundits argue that it was the political narrative of demonetisation that mattered, not the economic content. Demonetisation did cause hardship to the poor. But they didn’t mind because they could see that the rich would suffer more.   

One can go along with this view if the hardship amounted to putting up with long lines in banks. But not if the hardship meant a sharp slowdown in economic growth and losses in jobs and incomes. When people lose their jobs in an economic slowdown, they don’t go out and celebrate because multi-millionaires have lost even more on the stock exchange! 

The truth is simple enough but the pundits don’t seem to get it. Demonetisation has not derailed growth as much as they had predicted. Two agencies respected for their independence and professionalism, the Central Statistics Office (CSO) and the Reserve Bank of India (RBI), have estimated the impact of demonetisation on the gross domestic product (GDP) growth for 2016-17.  

Using the Gross Value Added (GVA) approach, the RBI estimates the impact on the GDP growth at 33 basis points in its monetary policy statement of February 8. Again, going by GVA, the CSO estimates the impact at 30 basis points in its second advance estimates released on February 28.  
Economists may have difficulty in accepting these numbers but bankers seem to think they reflect the ground reality. Bankers did not see any significant increase in stress in their loan book in respect of large corporates and small and medium enterprises. They say that some stress was evident only in respect of micro-enterprises. Repayments of agricultural and micro-finance loans were surprisingly resilient. 

Many of those who had warned that the third quarter (Q3) numbers for 2016-17 would show up the impact of demonetisation have since changed their tune. Wait for the Q4 numbers, they say.  We’ll know soon. In the meantime, we have the recent election results to go by. Voters don’t seem to have found the short-term costs of demonetisation very steep. And they believe the PM when he says it will deliver long-term gains.

This is not the only glaring instance in recent times of the pundits having got things badly wrong. In June 2016, when Raghuram Rajan announced that he would not seek a second term as RBI governor, the Modi government drew a barrage of negative comment. The pundits warned that India’s image abroad would be badly dented, foreign investors would flee, the combination of Brexit and Rexit could cause a currency crisis, the RBI’s autonomy was in peril… some of us may have been pardoned for supposing that the end of the world was in sight. None of these dire outcomes has materialised.  

Our pundits are in good company. Following the British vote on Brexit, many foreign commentators predicted a sharp slowdown for the British economy and enormous uncertainty for the world economy. Among the doomsayers was Mark Carney, the governor of the Bank of England (BoE).
Ahead of the vote on Brexit, the BoE issued warnings about the potential effects of a vote for Brexit. After the vote, it moved to cut interest rates and boost stimulus measures to contain the adverse impact. Mr Carney has since revised his forecast for 2017 upwards. The world economy is also doing better than was forecast in 2016. Nobody talks about the impact of Brexit any more.

Then, we have the Donald Trump phenomenon. The liberal media in the US did its damndest to stop Mr Trump in his tracks in the run-up to elections. They forecast ruin for the US economy and the world at large given his hostility to some aspects of globalisation. Paul Krugman famously wrote that the stock market would “never” recover from a Trump victory. The Dow Jones Index went on to touch an all-time high after Mr Trump won. 

In all these cases, the pundits got it wrong because many were hopelessly prejudiced. They did not like Mr Modi, so they were quick to fault demonetisation and the exit of Mr Rajan. They did not want to see the European Union unravelling, so they viewed Brexit as a disaster for the UK. They hated Mr Trump as an individual (and favoured Hillary Clinton), so they predicted a setback to the US economy. By forsaking objectivity in assessing policy outcomes, the pundits have ended up undermining their own credibility and standing.


Saturday, March 04, 2017

India's twin balance sheet problem

High corporate debt and a high level of bad loans at banks are stifling private investment and growth. How did the twin balance sheet problem come about, how has its impact been relatively muted compared to that in other countries and how do we get out of it? The latest Economic Survey has a chapter on it. My analysis and comments in EPW.

Thursday, February 23, 2017

India's private universities fail to make a mark

Shiv Nadar, Aziz Premji, O P Jindal, Munjal, Bennett.... we have quite a few universities started by private industrialists. Yet, none has made a mark thus far as a quality institution, notes Anjuli Bhargava in BS.

That's true of professional colleges as well. There's no engineering institution that can match the IITs, hardly any that match the IIMs and the AIIMS or even other prominent government medical colleges.

Why so? One reason that Bhargava mentions is the lack of high quality admission standards. Indeed, many of these universities go all out to woo student candidates, something no self-respecting institution would do. Another is that they are far too focused on hardware and too little on software, namely, faculty and research. And a third is that promoters run them as they do their own businesses- by calling the shots and not giving enough leeway to professional educators.

I guess all of this is true. But another crucial factor is that most private universities have a profit motive in mind- they are looking for returns, preferably quick returns. Whereas the striking thing about private universities in the US and some other places is that these are non-profit in orientation and are sustained by large endowments.

No educational institution that aims to generate surpluses out of its operations- mostly running degree programmes and, in some cases, consultancy and executive training- can be expected to produce high quality in the long run. There's a view that, ever since the IIMs have been left to set their own fee, they too are focused on revenue generation. Their reputation was built in a period when they were sustained by government funding and did not have think about surpluses.

Worldwide, the combination of quality and access is possible only when there's a large element of subsidy built into higher education. In India, it's public universities that conform to this model. The worry about IIMs now must be whether they will end up in the same bracket as private universities.

Friday, February 17, 2017

Budget for FY 2017-18

I was amongst those who produced instant wisdom on the budget this year- wrote up my piece by 5 pm after the budget speech was announced. Quite an experience because it was hard to access the details until about 2:30 pm at the finance ministry website, perhaps due to the heavy load on the server.

To do justice, you need to have the budget estimates for the previous year, revised estimates and budget estimates for the current year on a spreadsheet. This is next to impossible when you are writing to a tight deadline.However, one can get a sense of whether the budget got it right on the whole.

Here's my analysis in the Hindu, A budget few can quarrel over.

Thursday, February 16, 2017

Can a public asset reconstruction company resolve India's bad debt?

I have a piece in Business Standard today.

Since the article is behind a pay wall, it's reproduced in full below:

The Economic Survey has proposed a Public Asset Rehabilitation Agency (PARA) – a so-called “bad bank” – for tackling bad loans in the Indian banking system. We already have several Asset Reconstruction Companies (ARCs). So what’s new?

PARA will be much bigger in scale and will have substantial government equity. Besides, a big chunk of bad loans relates to valuable projects in infrastructure and related areas. Many of these projects need to be completed through further infusion of capital from promoters. Some of the debt has to be written off and some restructured in order to restore viability.

The existing ARCs are just not equipped for such a role, at least on the scale required. They are mainly in the business of effecting recoveries through liquidation of assets.

The Survey argues that leaving it to banks to resolve bad loans has not worked. At public sector banks (PSBs), management is unable to write off debt for fear of inviting investigation. In many bad loans, several banks, public and private, are involved. This gives rise to problems of coordination. Banks can’t agree on the write-off required in a given case.

Transferring some of the biggest bad loans to a well-capitalised PARA could help resolve the coordination problem. As the government stake in PARA will be 49 per cent, managers can resolve loans without fear of inviting scrutiny.

This sounds fine — until you get down to the details. One challenge is the prices at which bad loans will be sold to PARA. Determining the market prices for bad loans is not easy. Getting banks to agree on a sale price could pose its own problems of coordination.

If the sale of bad loans to PARA were perceived to be under-priced, PSB management would be exposed to the wrath of the CAG, CVC and CBI. If they were over-priced, private investors in the proposed PARA would begin to fret.

The challenge of writing off debt remains. Managers at PARA may be able to exercise their discretion a little more freely. But the government is ultimately accountable for decisions taken by an entity in which it is the dominant investor. Every resolution will be closely watched. Expect howls of “scam” to be raised given that high-profile corporates are involved.

The Survey estimates that of the top 100 stressed debtors, 10 would need debt reductions of 51-75 per cent and 57 would need reductions of 75 per cent or more! Over 40 per cent of the debt is owed by companies with an interest coverage ratio of less than one. As the top 50 companies in this category owe an average of ~20,000 crore, the write-offs required are of staggering proportions.

Unlike many of the shrill critics of the public sector, the Survey doesn’t see recapitalising PSBs as throwing good money after bad. Even more striking, the Chief Economic Advisor doesn’t believe that finding the necessary capital for PSBs is a big deal- he thinks it’s “the easiest part” of the loan resolution problem. (“Rehab for the balance sheet”, <i>Indian Express<p>, February 8). Only, the Survey doesn’t favour promising large infusion of capital to PSBs <i>before<p> bad loans are resolved. This, it believes, would create incentives for unduly large write-offs.

So, none of the issues associated with bad loan resolution in the present scheme of things goes away with the creation of PARA: Coordination amongst banks; large write-offs and the potential for controversy; and the substantial capital that would have to be infused into PSBs.

If anything, we stand to lose two advantages we have with the present system. One, banks’ intimate knowledge of projects and hence the ability to arrive at the right resolution. Two, banks’ ability to use the leverage they have with large corporate groups to ensure that they restore viability to troubled projects within the groups.

If the primary motivations for PARA are to have the right incentives for write-offs and to get resolution going, there’s a simpler option: create an oversight mechanism for vetting bad loans. The Survey mentions that the Banks Board Bureau has created such a mechanism — we don’t know whether it’s operational. We need to merely strengthen the mechanism by getting one created through an Act of Parliament.

In sum, it’s not clear that setting up a new agency is a superior way to address the issues that bedevil bad loan resolution. Giving PSB management statutory backing to resolve bad loans and the capital infusion to cover write-offs could achieve superior outcomes.

Still, there’s merit in trying out competing models. Let’s walk on two legs: facilitate better resolution under the present system and set up PARA as well by transferring loans amounting to, say, ~1 lakh crore. Let’s see which model does better. There could be useful lessons to be learnt.