Winners' curse in India's 3G auctions

I had meant to flag this article earlier but it escaped me. There is great jubilation over the Rs 70,000 crore the government is set to rake in from 3G auctions. Some people even think this makes amends for the telecom minister not having earned enough from the award of telecom licenses earlier.

Sumit Majumdar, writing in TOI, highlights the downside. One, the firms may go broke after having paid through the nose, so we will not see enough investmen in 3G infrastructure. Two, the firms that have bid may forfeit their security deposits and walk away from 3G in which we will need a fresh round of bidding. Three, the companies may be forced to charge consumers steep prices. He sums up the implications:

The diffusion of a 21century radical infrastructure which could be both a positive and disruptive influence for propelling Indias badly-needed knowledge revolution for the masses will not happen.Since the impact of general-purpose technologies at the individual level is profound,because of changes in the organisation of activities,the diffusion of a general-purpose technology such as 3G could have raised the return to cognitive skills and education.
The ability of 3G as a generalpurpose technology to have a phenomenal capacity to transform Indian society can be on hold.India can lose a golden opportunity to transform its society via a knowledge revolution using 3G technology.Indias 3G spectrum auction is fantastic for the exchequer but a fiasco for the common man.

A first for an Indian lady academic

Gita Gopinath becomes the first Indian lady to become a full professor at Harvard's Economics department, ET reports:

Before joining Harvard in 2005, she was an Assistant Professor of Economics at the University of Chicago's Graduate School of Business.

Prior to that she completed her Ph.D. in Economics from Princeton University.

Born in Calcutta, Gopinath has studied at the University of Delhi.

Greek rescue: It's the banks, stupid

The Greek rescue is more about rescuing foreign banks with exposure to Greece than about rescuing Greece itself. Foreign banks' exposure to Greece is estimated at 76 bn Euro. A Greek default would mean a loss of upto 70% or 53 bn Euro. If other countries such as Spain and Portugal were to default, banks' losses would increase.

The 750 bn Euro rescue package is intended to shock and awe. But this is hardly the 'cost' of the rescue. The cost of the rescue, assuming the guarantees in the package are all invoked, would be the difference in the market rate of interest and the rate of interest charged on the package- approximately 4%. This amounts to 30 bn Euro, which is less than what banks would lose on Greek debt alone. That's the maximum cost that taxpayers outside Greece will pick up.

As for Greece and other troubled economies, there will be huge adjustment costs. For Greece, fiscal consolidation of 11% over a three year period. Thus, the so-called rescue places the burden of adjustment overwhemlingly on Greece and other economies. Why? So that again there can be a massive bail-out of private banks using public money. The markets don't think will work because they don't think this sort of burden will be acceptable to the people of those countries.

The more sensible course would be to restructure debt and accept losses on bank exposure to government debt. Some of these losses could be made good by the governments concerned. This course would distribute losses more evenly and make for smoother adjustment.

More on this in my ET column, Why the Greek rescue won't work

Why single out Goldman?

My earlier post on the fraud case against Goldman has drawn some strong responses. I can understand the anger against firms such as Goldman. But it cannot be that Goldman becomes a target because it has been more successful than others. The case against the integrated investment banking model, with its potential conflicts of interest, has not yet been made.

An article in FT points out the pervasiveness of the practices that form the basis for the present against Goldman.

Of the banks that dominated the market a few years ago, why would the government target the only one to survive the crisis financially intact? It is not because Goldman was unique. In Abacus 2007-AC1, Paulson & Co, a hedge fund, suggested securities for the deal and also bet against it in a swap with Goldman. That feature is not uncommon. According to a recent report from ProPublica, there were 26 deals in which Magnetar, a hedge fund, both sponsored CDOs and bet against them. (Magnetar says these deals were perfectly legal.) They were arranged by Citigroup, Credit Agricole, Deutsche Bank, JPMorgan Chase, Lehman Brothers, Merrill Lynch, UBS and others (not Goldman). There are hundreds of non-Goldman CDOs that no one has yet investigated.

.....More fundamentally, if the other big investment banks had made similar “net short” trades in 2007, there would not have been a financial crisis. Bear Stearns, Lehman Brothers and Merrill Lynch collapsed because they took massive positions in the opposite direction. Given the cost of government bail-outs, why chastise the only prudent investment bank?

I am no unabashed admirer of Goldman. But it is hard to resist the impression that Goldman is being targeted because it survived and remains profitable. That is quite ridiculous.

Goldman in the cross-hairs

I can't comment about the merits of the particular case in which SEC has brought allegations of fraud against Goldman. But the broad case about investment banks having to make disclosures of all kinds of positions- their own and their clients- is, I am afraid, rather weak.

I would go along with Blankfein that when Goldman sells a package of securities to qualified investors, it is for them to take a view on the attendant risk. What view Goldman or any other clients should not be of interest to them.

I dilate on the Goldman case in my last ET column, Gunning for Goldman.

I find my sentiments echoed in an FT piece. The author suggests Goldman is becoming a scapegoat for others' failures:

......my unease has to do with the possibility that Goldman has become a scapegoat for millions of homeowners and investors psychologically unable to admit at least partial fault for succumbing to the madness of crowds and lure of easy money. The one investment bank that hedged appropriately and enjoyed a hugely profitable rebound is an obvious target. “The idea that Wall Street came out of this thing just fine, thank you, is something that just grates on people,” said Senator Ted Kaufman. Goldman may or may not have done anything illegal, but most Americans do not give them the benefit of the doubt.

Interestingly, the author asks whether the firm's Jewishness is stoking prejudice:

In Goldman’s case, some even wonder whether the group’s perceived Jewishness has infected legitimate criticism of it with centuries-old prejudices against a group with a long history of being scapegoated. Michael Kinsley, writing in AtlanticWire, cites echoes of the infamous blood libel. New York Times columnist Maureen Dowd earned rebukes from theologians after writing that “blood-sucking banks” like “Goldmine Sachs” were “the same self-interested sorts Jesus threw out of the temple”.

Nitin Nohria, HBS Dean-designate

The process adopted for the selection of Nohria as Dean, HBS, is interesting. Harvard President Drew Faust consulted a 12-member advisory committee of faculty from HBS and three other academics from Harvard. Around 30 other members of HBS also shared their views with her. Faust also spoke to Harvard alumni and figures from the world of business. It is interesting that faculty at HBS itself had a dominant say in the selection of the Dean.

I have wondered why it is that academics, who are employees of an institution, are consulted when it comes to selecting a leader. In the corporate world, you don't select a CEO by soliciting the preferences of VPs and GMs. I guess the reason is that academics are best motivated only when they have a clear sense of ownership in the institution. They can't be given this sense through stock options. Instead, they are giving a say in decision-making in administrative as well as academic matters.

Stefan Stern, writing in the FT blog, thinks that Nohria's appointment may have to do with his focus on ethics and his questioning the traditional b-school focus on shareholder value:
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Together with his colleague Rakesh Khurana, Prof Nohria has challenged the orthodoxy that claimed there was little wrong with the conventional MBA syllabus or with the approach taken by the élite business schools. Both of these things played a part in contributing to the over-confident mentality which dominated business and finance, and which led to the great financial crisis. By appointing Prof Nohria, Harvard University has signalled that it is not frightened of debate, or reform - indeed, it wants to play a leading role in both these activities.

Along with Khurana, Nohria has championed the equivalent of the Hippocratic oath for MBAs, whereby they pledge to commit themselves to a code of ethics. I don't see that the Hippocratic oath has done a great deal for standards of doctors, especially those who have invested heavily in capitation fees. So, I am not sure what such an oath will do for corporate managers.

I do believe that the MBA curriculum needs big changes. But not quite in the way it is suggested above. I cannot see much purpose in loading it with ethics courses- and, certainly, I would question the presumption that faculty teaching such courses are any more 'ethical' than others. My own preference is for introducing more liberal arts courses and downgrading the repetition of 'hard' courses in accounting, finance, operations, etc

It will be interesting to see what changes Nohria rings in. As the FT blog points out, his expertise in organisational behaviour should be useful- there's a lot of 'behaviour' from colleagues he will have to take in his stride.

C K Prahalad

The business community in India was effusive in its praise for C K Prahalad. So were some commentators in the media. That Prof Prahalad, an alumnus and former faculty member of IIMA achieved fame and recognition, is something we should all be proud of. But what one missed was a serious and critical evaluation of his contribution.

Today's Business Standard editorial makes up for what was missing elsewhere. The edit makes three important points:

• Prahalad was good at articulating existing practices rather than predicting future trends. 'Core competence' had come into being at many MNCs long before Prahalad wrote about it. This stands to reason. That is what the case method that Prahalad was raised on at IIMA and HBS is all about.
  
• Co-opetition, taking the customer into account in designing products, is elementary marketing
• Bottom of the pyramid, his most famous theory, is not about making money from the poor, it is more about designing products for the lower middle class in the rural areas.
  

Let me add: BoP has little to do with poverty alleviation. Companies do little to alleviate poverty when they address the mass market, they only take care of their own shareholders. You alleviate poverty not by viewing the poor as customers but viewing them as producers and giving them purchasing power, a point that Aneel Karnani, Prahalad's colleague at Michigan, made in his devastating critique of the BoP thesis a few years ago.

The idea that we can leave it to companies to alleviate poverty can be dangerous because it provides another argument for government to vacate the space, something that neo-liberals would pounce on. Thank God, we are thinking in terms of right to education and right to food instead of embracing the BoP thesis.

The BS edit has a scathing finale:

Perhaps the best commentary on its (BoP's ) efficacy came from Praja, the BOP company Prahalad co-founded to provide a platform for common people to personalise their own experiences on the Internet. In 2002, the company was sold having made a $55 million loss and laid off one-third of its staff!

Must people abandon their critical sense in paying tributes to the departed? Whatever Prahalad's gifts of exposition, comparing him with Peter Drucker was quite a stretch.

Foreign universities' bill to bar for-profits

The foreign universities' bill to be introduced in parliament soon will bar non-profits, TOI reports.

This fine-print is the third restrictive clause the Union Human Resources Development (HRD) ministry has introduced in the Foreign Education Providers’ Bill, which aims to allow international universities to set up campuses in the country. The other two conditions include forbidding foreign universities from repatriating funds to their home country and setting up a minimum corpus of US $11 million.

I am not very sure that this is desirable. Agreed, one associates quality in education with non-profits. But, in India, we have a huge number of for-profits in various fields, notably engineering, management and medicine, which are non-profit on paper- these are the ones that charge exorbitant sums as capitation fee. Would it not be better to have a system where for-profits from abroad, with a transparent fee system, take on the covert for-profits in India?

Again, there are many institutions that generate substantial profit through hefty fees but plough them back into the institution. They are non-profits on paper since they are registered as Charitable Trusts. No point claiming the high moral ground when it comes to for-profit institutions from abroad.

Air India's woes

To many, Air India (which now encompasses the erstwhile Air India as well as Indian Airlines) sums up all that is bad about commercial enterprises run by government. It has made huge losses and people would say that is very typical of the public sector.

I argue in my ET column, Why Air India is in trouble, that this explanation does not hold nor is it true that Air India's losses are the result of the troubled merger between Air India and Indian Airlines.

The two basic reasons for Air India's mounting losses are huge investment in fleet expansion and high leverage arising from the failure to strengthen the two airlines' equity base before exposing them to greater competition. Needless to say, in government there are huge incentives for signing contracts for the purchase of aircraft.

There was talk of bringing on board some luminary from the private sector who would wave away Air India's problems. Now, the government has settled for high-profile businessmen and a foreign COO. Neither can make a big difference- N Vaghul, formerly of ICICI, was on the board of Air India for many years until it ran into its present crisis.

Tackling the Naxal problem

Congress General Secretary Divijay Singh has written the most insightful piece on the Naxal problem that I have come across so far. He is critical of home minister Chidambaram's approach and doesn't mince words saying as much.Which makes me wonder whether this is an attempt on the part of the party to rein in Chidambaram when he seems to have the overt support of the PM.

Singh's main points are:

• The Naxals cannot truly claim to espouse the cause of the tribals. They have had no difficulty making peace with businessmen and politicians- for a price. Even the mining interests, which are said to disrupt tribal life, have continued unhindered in Naxal areas
• Chidambaram is wrong in treating the Naxal problem entirely as a law and order problem- tribal issues need to be addressed
• We need to learn from the AP model of tackling Naxalism: development plus police action

Singh is spot on. Chidambaram has created a massive problem where none existed by setting an artificial deadline for solving the Naxal problem: two or three years. Setting such a deadline spells trouble because it means use of massive force with all its consequences- such as the recent killing of 76 CRPR jawans.

Why do we need to solve the Naxal problem in two or three years? There is nothing to suggest that the problem is of alarming proportions or is disruptive in any way. If that were so, it would have been reflected in national or regional economic growth. It hasn't.

In the urban areas, the mafia coexists with the forces of law and order. An equilibrium is established in which the mafia flourishes without in any way impinging on economic activity or even orderly life. The Naxals are a form of mafia in the tribal areas. We have put up with insurgency in the North-East for over 50 years. Where is the urgency to end the Naxal problem? Patience and perseverance are required, not trigger-happy solutions.

Chidambaram may be right in refusing to talk to the Naxals. But why is the government not talking to the tribals? We need to enter into a dialogue with them as to how they can participate in decisions that afffect their lives, whether it is mining or timber, and what is required by way of development assistance.

The use of massive force is misguided and it is bound to be counter-productive. Sending the CRPF or the army will only bring recruits from the tribals to the Naxals. The answer to insurgency within the country (as distinct from insurgency in border areas) is sustained police action. That is the lesson from AP. It was AP' s success that drove the Naxal leaders into Chhattisgarh and other parts of the country.

Some of these states are new and the police force may be underdeveloped. We need to enhance their capabilities. In AP, police officials were given huge war chests for developing informers. Intelligence was used to target the Naxal leaders. This method produced dramatic results. The Indian state has developed its own recipe for dealing with internal terrorism: encounter killings.

It defies imagination as to how an outside force, such as the CRPF, can tackle the Naxals. You need local contacts, you need to know the local language and you need to understand the terrain.

Chidambaram's technocratic approach is seriously flawed. Development and police action are the best answer to the Naxal problem, not overwhelming use of force. Patience is required. We must be willing to put in ten years of low key effort. This won't make for sound bytes on TV but it will produce results.

Finally, thank God, the suggestion to use the army and the air force has been shot down. Had it been accepted, that would have ended all our hopes of winning over the tribals and brought the Naxal problem into the cities.

Basel talks on bank capital

The one thing that is certain about international bank regulation is that capital requirements for banks will go up. The uncertainties are two: how much and over what time? We should have some idea by the end of this week when the Basel committee on banking superivsion meets representatives of banks to discuss possibilities.

One key item is the core capital requirement, currently pegged at 8%. In the wake of the financial crisis, one proposal was that tier I (which is half of core capital) should itself be 8%. This looks unlikely now given the resistance from banks.

Another item relates to liquidity. On this item, FT reports:

The liquidity proposals come in two parts: one, known as the Bear Stearns rule, requires banks to have enough liquid assets on hand to survive a 30-day crisis, while the other, nicknamed the Northern Rock rule, requires banks to have stable long-term funding, favouring deposits and heavily disfavouring wholesale sources. It is the latter rule that has attracted most criticism.

Good banks today operate with capital of 12-13%. We should expect this to rise to 15-16%. By what date? The earlier deadline for introduction of higher capital norms was end 2012. This may be pushed back or the introduction of new norms may be calibrated over time.

Sonia's tough line on RTI amendments

Sonia Gandhi has indicated her opposition to some of the amendments to RTI that the government is contemplating, TOI reports.

"It is important, therefore, that we adhere strictly to its original aims and refrain from accepting or introducing changes in the legislation or the way it is implemented that would dilute its purpose. In my opinion, there is no need for changes or amendments. The only exceptions permitted, such as national security, are already well taken care of in the legislation," she said.

Sonia Gandhi said the problem with the RTI Act is about "public lack of awareness of the RTI and the harassment of applicants" and "these problems need to be addressed."

Mrs Gandhi is right. One amendment that has been causing concern is giving the public information office the right not to respond to what he regards as "frivolous" applications. Another relates to keeping the higher judiciary out of the purview of the Act. The RTI Act is also in danger of being undermined by rising delays in disposal of appeals to the CIC. This needs to be addressed because information delayed is often information denied.

The RTI Act is revolutionary in its thinking and scope and will go down as one of the great achievements of UPA-I. The right to education and the right to food, now under consideration, will further bolster UPA's claim to standing up for the aam admi. In defending the RTI Act and in pushing for rights in other areas, Mrs Gandhi has displayed uncanny political instinct.

Foreign Universities: mentoring a better entry route

I said in an earlier post that I was sceptical about quality, foreign universities setting up full-fledged campuses in India. that is because the economics of higher education militates against their entry.

Quality comes from putting together the best faculty, infrastructure and students. If foreign universities are to maintain their standards in India, they will have to send some of their faculty to India. That would mean huge faculty costs. Quality infrastructure would also be expensive.

Put the two together and you have a high fee. If an MBA costs Rs 45 lakh in the US, it would cost around Rs 25-30 lakh here. If you spend Rs 45 lakh in the US, you can hope to recoup it in reasonable time because you will be earning in dollars. Recouping Rs 25-30 lakh in India is not as easy. So, a fee of this order will shut out the mass market and the best students. Schools charging such fees will be rich kids' schools. Then, you don't get a high quality of output.

It makes more sense for foreign universities to go down the mentoring route. I read that this is proposed for Yale's association with the 14 innovation universities planned. There are precedents for this- the setting up of IITs and IIMs.

IIMA benefited from a collaboration with HBS, the expenses being underwritten by the Ford Foundation. HBS faculty came in batches of about three at a time for about five years. The big gain was IIMA faculty being sent in batches of about six to the International Teachers' Programme at HBS for a nine-month stint. It got faculty who had joined from diverse backgrounds to get quickly acquainted with the course contents and pedagogy of a top b-school and it also made for a certain common approach and camaraderie amongst the early faculty. This is one reason why IIMA made a quick mark as an institution of excellence.

Faculty exchanges, help with the curriculum, governance structures and norms- these are areas where mentoring would make differenc. Foreign universities can earn fees and they have an opportunity to carry out India-related research. This makes more sense than foreign universities coming in.

More in my ET column, Foreign varsities as mentors.

Foreign bank licenses

Credit Suisse and ANZ have been given banking licenses, FT reports. The report also says that eight more banking licenses are to be awarded shortly, including to corporate groups, such as Reliance and Tatas, although a report in today's Economic Times discounts this possibility.

My own view is that both foreign banks and corporate groups can be licensed more freely for exclusively rural ventures. This mitigates regulatory problems and dovetails nicely with the overriding objective of achieving greater financial inclusion. More on this in my ET column, Let foreign banks into rural areas.

Foreign Universities' Bill

There are two issues about the Foreign Universities' Bill. Will it cause an influx of quality institutions from abroad? And should foreign universities be subject to quotas and other norms applicable to government institutions?

On the first issue, I agree with what many others have said. It is unlikely that we will have full-fledged universities with campuses set up by quality institutions. The economics militates against this possibility. Ours is a cost-sensitive market as so many foreign firms have discovered. Today, foreign car manufacturers all want to get into the small car segment. Volkswagen, Skoda, Ford all have launched small cars. Carlos Ghosn of Nissan says he would like to introduce a car that is even cheaper than Nano!

The same applies to education. To succeed, you need to be able to tap the mass market. I would say this is even more true of education than of manufacturing. Because you get the talent only if you tap the mass market. The secret of the success of IITs and IIMs is that they attract the very best- and they do so because they are affordable, despite the steep increase in fee at the IIMs in recent years. A high quality US school coming into the Indian market would be viable only at a steep cost. I would assume that an MBA fee would somewhere between the Rs 20 lakh that ISB charges and the Rs 45 lakh at a US school- say, Rs 35 lakh.

Now, somebody who can afford Rs 35 lakh will also be able to Rs 45 lakh and would prefer to go abroad and get the broader international exposure. Secondly, a price tag of that order automatically screens out the best talent in India. It will be a rich kids' school, which means its products will not be highly valued by the market.

It is striking that foreign universities have not taken off even in more affluent markets than ours- such as Singapore, China and Israel, as a very good story in today's TOI points out:

Singapore can justifiably boast about attracting some top-notch institutes — the University of Chicago, INSEAD, Tisch School of Arts, DigiPen Institute of Technology — but even today, the sector is undeveloped. .... This, despite the manner in which the country “courts the universities: the EDB played up Singapore’s cosmopolitan nature, and then used tangible material resources in the form of financial and other incentives,’’ observes Kristopher Olds, a professor at the University of Wisconsin-Madison who’s taught at the NUS for six years.

....The University of New South Wales (UNSW) also benefited from subsidies upwards of $80 million. Even so, within months of being set up, UNSW folded up citing its “unsuitable financial model’’. Three years ago, the John Hopkins Centre, which received $52 million in funding since its 1998 arrival in Singapore, also closed down as it did not meet the performance benchmark. And the UK’s Warwick University, which was to set up a full campus in the real sense of the term, backed out at the last minute.

The two universities that China can boast of are Nottingham and Liverpool - no great shakes, by world standards- and both have local partners, as required by law. Even Israel, with all its close links to the US, managed to attract only the low-grade institutions. We have to face up to the fact that no country has developed a great university sytem through imports. All great universities are home grown.

As for foreign universities being subject to quotas, well, since private universities in India are not subject to these, it's hard to see how we can impose these on foreign universities. Will the IITs and IIMs suffer as a result? Well, they haven't lost out in any way to domestic private institutions on this account, so quotas certainly won't be the reason for losing out to quality institutions from abroad- assume these come in in the first.

Shrinking CITI

Vikram Pandit told the US Congress that he expected to see Citigroup return to profit of around $20 bn by the end of 2011. He also proposes to sell 40% of Citi. In other words,Citigroup will shrink quite a bit even as it turns profitable. This is an acknowledgement that Citigroup is too big to be profitable, quite a reversal from the earlier credo that it could become more and more profitable through mergers and acquisitions.

Citigroup will be a leading case of a bank relinquishing size even without regulatory norms requiring them to do so- the proposed norms that would link bank capital to size have yet to be announced.

Separately, in an interview with FT, Pandit has spelt out what the focus of the restructured Citi would be:

The US consumer business is among Mr Pandit’s four priorities for investments once Citi stops losing money. The others are retail banks in emerging markets, the cash management unit and equities and commodities in the investment bank.

There is a bit of eastern philosophy in the interview for those interested:

"Doing the right thing for all our stakeholders – our clients, our shareholders but also other parts of society. We need to understand and embrace the responsibility that is put on banks by the general public

This belief was shaped by my Eastern upbringing, the belief that if you don’t do right now you will pay in the next life, and the importance I attach to reputation and credibility".

Pandit's remarks require a little tweaking. If he doesn't do the right thing, he and Citigroup will pay in this life, not the next.

MI 5 ex-chief criticises torture

British intelligence is exceptional in many ways- very effective, with a good international reach, especially in the Arab world, and with a good record of electronic interception. Another is that it has had women at the top- there was Stella Remington some years ago and, more recently, Dame Eliza Manningham- Buller, who headed MI 5. So, the more recent James Bond movies that have a lady as 'M' are not far-fetched. (If memory serves right, the original 'M' was Admiral Sir Miles Messervy).

Dame Eliza revealed recently that the UK government had protested to the US against the use of torture on suspects:

Asked if she had known of the use of waterboarding and other techniques of pressure while she was director-general of MI5, from October 2002 until her retirement in April 2007, she said she had done, and had disapproved. "Nothing - not even the saving of lives - justifies torturing people," she said. She added that "the Americans were very keen to conceal from us what they were doing" with suspects.

The ex-chief of MI 5 also took a swipe at the previous US administration:

"Bush, [Dick] Cheney [the former US vice-president] and [Donald] Rumsfeld [former US defence secretary] certainly watched 24 " - the Fox television drama that has run since late 2001 and features an agent, Jack Bauer, saving people and sometimes cities from terrorist destruction, often with the use of violence on suspects.

Dame Eliza's comments are refreshing indeed but one wonders what effect these would have on those in charge of security at the US. I can almost hear them saying, "We gotta cut back on intelligence-sharing with the Brits, can't trust these guys".

Stimulus withdrawal by stealth

Ahead of this budget, there was much debate on whether the fiscal stimulus given over the past two years should be withdrawn. In 2008-09, we had a stimulus of 3.5% of GDP; in 2009-10, there was a modest addition of 0.8%. This year, economists wanted the stimulus withdrawn but gradually.

The budgetary numbers make nonsense of this debate. The correct fiscal deficit, after taking into account the off-budget items, was 7.8% in 2008-09 and it declined to 6.9% in 2009-10. So the stimulus was withdrawn last year. Withdrawal by stealth, if you please. You might think that the stimulus withdrawal was greater this year because the fiscal deficit for 2010-11 is projected at 5.5%.

Not true, I argue in my ET column. The fiscal deficit measures the stimulus inaccurately. A more accurate measure would be changes in government expenditure net of centre's tax revenues. By this measure, the withdrawal of stimulus was greater in 2009-10 than projected for 2010-11.

Unknown to ecnonomists, most of the stimulus has already been withdrawn!

Budget discussion

I was on CNBC the other day. The topic was the post-budget impact on the economy.

Quote of the day

Martin Wolf in the FT:

India’s nominal GDP grew at an average rate of 14 per cent between 2004-05 and 2009-10. That makes deficits of 10 per cent of GDP quite sustainable.

Precisely the point I have been trying to make over the years. How come India's policy-makers and analysts don't get it and go on and on about fiscal consolidation?

Wolf, incidentally, goes on to suggest that the UK vacate its permanent membership at the UN in favour of India:

Exhausted by the burden of its pretensions, the UK should soon offer its seat on the security council of the United Nations to its former colony. Its condition would be that France does the same in favour of the European Union. Whether or not such enlightened statesmanship is forthcoming (presumably not), we are moving into the age of continental superpowers. Asia will be home to not one, but two, of them.