Tuesday, September 20, 2016

Rhetoric over Uri attack

The sound and fury over the attack on the army camp in Uri is understandable. The loss of soldiers' lives has been heavy and tragic. But the rhetoric and the jingoism evident in the media make little sense. It's important to underline two key points.

First, as an editorial in today's Business Standard points out, there have been lapses on the part of the security forces. The infiltrators were able to cross the LOC and they were able to get into the camp quite easily. Among other things, it points to unsatisfactory vigil at the border. This is not just a matter of equipment or terrain, although these factors do count. BS makes the point that the border is porous because there's laxity on both sides. And the laxity is on account of the thriving drugs trade. Smugglers are able to move in and out because sections of the establishment make this  possible. And once you relax the vigil for smugglers, the jihadis get their opportunity. So it's no use simply pointing the accusing finger at the Pak army.

Secondly, all talk of retaliation is futile because the international community at large and especially the US will not take kindly to a military strike, as ambassador M K Bhadrakumar points out. The writ of the US runs across the world and the Indian establishment has cosied up to the US in recent years. The question of any major military action on India's part without US approval does not arise. And hostilities with nuclear Pakistan is the last thing the US wants today:
...despite the government's sustained public diplomacy to create an impression in domestic opinion that its foreign policies have burnished India's international standing and image and so on, in reality, India's actions -- especially any military moves -- will come under close scrutiny and be weighed in terms of international law and the United Nations Charter.
The bottom line is that the present ruling elites dare not think of crossing any 'red line' that Washington demarcates.
The US State Department, in a series of statements, has distanced Washington from the Indian positions with regard to the situation in the Kashmir valley, India-Pakistan tensions and Balochistan.
Conceivably, the Americans have cautioned our leadership already against making any precipitate military moves. The kind of brazen military adventures that many self-styled Indian defence analysts are espousing will not get Washington's approval.
As the Barack Obama administration tiptoes toward the lame-duck period, the last thing Washington wants as legacy is an India-Pakistan conflict.......
.....If the Americans do not want a war between India and Pakistan or any precipitate Indian military moves that violated international law, Modi cannot act otherwise.The umbilical cord that ties the Sangh Parivar and our ruling elites to the US establishment may be invisible, but remains robust.
So that's it- the rhetoric and sabre-rattling on our part will remain just that. The media pundits can rant as they much as they want. Perhaps the saner course for us is to simply put our house in order first.

Monday, September 12, 2016

Tread warily on labour reforms

India's labour unions fired a warning shot across the bow of the government on September 2 by having a mammoth all India strike. They were relaying their concerns about the proposed reforms in labour laws and other issues such as privatisation and FDI.

The way people go on and on about our labour laws one would think that simply by allowing hire and fire we can generate massive employment. The academic literature on the subject is by no means as clear cut as that. India's labour laws are not more restrictive than that of France and you can't say that France has not developed manufacturing over a century.

When you begin to look closely, you find that not hiring labour often has to do with other factors such as tax incentives for capital, which makes it worthwhile for business to substitute labour with capital. In the present context, we have serious issues constraining private investment, such as weak global demand, high interest rates, high leverage in industry, etc. Tweaking labour laws isn't going to help. On the contrary, by provoking a labour backlash, it might make things worse. It would also cost the ruling coalition dearly at the hustings.

More in my article in the Hindu today, Labour's love's lost.

Friday, September 02, 2016

Do we need universities?

I know that's hardly the right question for somebody sitting in an elite educational institution to ask. And it may sound dumb coming from anybody- who could argue against higher education? But the case needs to be made rigorously. Tim Harford, the undercover economist, takes a look at the pros and cons.

Pro: a recent study suggests that universities boost the growth of economies in the region:
Valero and Van Reenen find that universities do indeed seem to boost the income of their region. Double a region’s count of universities — say from five to 10 — and GDP per person can be expected to rise by 4 per cent. Double the university count again, from 10 to 20, and that’s another 4 per cent on GDP per person. Neighbouring regions also benefit. This is not a trivial effect.
Con: a degree from a reputed university is no more a signal of talent. You got into a good school, so you must be worth something. It's not that you have learnt something at the university that is useful at the workplace:
....undergraduate degrees have no value to society: they enable employers to pay higher wages to smarter workers, but lower wages to everyone else — and in order to enjoy these higher wages, smart people must waste time and money going to the trouble of acquiring a degree. Everyone might be better off if the whole business was abandoned.
In other words, as we at B-schools understand very well, universities, more often than not, are about placement, they are not about learning. But one mustn't carry this too far. What people learn at engineering and medical schools is, indeed, of value. To put it differently, you may start off as a trainee at a company without any B-school degree and rise to become CEO. But it's doubtful that somebody can simply land up at a hospital and be trained to become a doctor.

Thursday, September 01, 2016

Coal scam and HC Gupta

H C Gupta, the former coal secretary, has drawn enormous support from the IAS association, assorted bureaucrats and the media in connection with the many CBI cases he's facing. He's an upright man, everybody says, the last person to use his position to make money for himself. His is a case of how the Prevention of Corruption Act can be used to harass an honest, retired bureaucrat.

As this article in Scroll.in points out, the issue is not just whether Mr Gupta made money out of the allocations are not. The issue is whether he was party to a seriously flawed process, whether he abetted wrong decisions on the part of higher-ups:
From all accounts, Gupta is an honest and upright officer. But when the coal scam was underway, what was needed from him was more than personal incorruptibility. He needed to hold his responsibility to the country higher than what the functionaries in the Congress seemed to have been telling him to do....

....The Screening Committee that Gupta headed disregarded its own internal comparisons of all the applicants, as a Central Bureau of India official had pointed out. Subsequently, as we know, several of the files pertaining to the allocations went missing as well.
In other words, Gupta is not in the dock because he made recommendations that benefitted some companies. He is in the dock because he cannot explain why those companies were chosen. He cannot explain those decisions because he is not the one who made those decisions to begin with. Politicians, especially from the ruling Congress Party, influenced the allocations, this reporter was repeatedly told while covering the coal scam.

The charge against Mr Gupta, then, appears to be that he looked the other way. Bureaucrats are riled because that's precisely what many of them are required to do- in order to move up the ladder, if not to keep their jobs. It frightens them that something that's considered routine now in the bureaucracy- looking the other way- can bring retribution down the line.

And why single out bureaucrats? In PSUs, in private sector companies, indeed, in every organisation, safety, comfort and prosperity lie in looking the other way, not raising the voice of dissent. People know that wrongs are being perpetrated but they rationalise their silence by telling themselves that they are not profiting directly from questionable decisions. (They do profit indirectly because the reward for keeping silent is that you get your promotions and bonuses).

The amendment that bureaucrats want now in the law against corruption is that they can prosecuted only if they are shown to have derived a personal benefit. If they did not uphold or defend the public interest, that's fine. Politicians may well be inclined to oblige them because otherwise the basis of the neta-babu nexus gets broken. Without pliant bureaucrats who will not stand in their way, the netas cannot make hay.

It will be interesting to see how Mr Gupta's case plays out- and whether the amendment sought by the bureaucracy will be forthcoming.


P2P lending: early warning signs

A storm has erupted over P2P (peer-to-peer) lending in China, FT  reports.

P2P platforms offer higher returns for savers. They do so in two ways. First, they identify borrowers who are willing to pay high rates because they do not have access to formal lending channels. Secondly, they reduce the intermediation cost- there are no branches and large staff that these platforms have to pay for. These platforms claim to have evaluated borrowers by using big data.

Alas, matters are not that simple:
Within the past year, ordinary Chinese people have fallen victim to scandals in which online financial platforms have disappeared with billions of dollars, provoking angry protests on the streets.
In February, more than 20 people were arrested for their involvement in Ezubao, a “complete Ponzi scheme”, that allegedly took more than Rmb50bn ($7.6bn) from investors, China’s biggest case of financial fraud to date. A month later, a court in southern China jailed 24 people for defrauding about 230,000 investors of nearly Rmb10bn in a similar scam.
In response to such problems, the regulator last week issued rules forbidding online lenders from accepting deposits or guaranteeing principal or interest on loans they facilitate. It also capped borrowing at Rmb1m for individuals and Rmb5m for companies.

One of the China's best known businessman calls P2P lending a "scam".  Looks as though those who think banks will disappear because of the arrival of such platforms need to wait for a while.