US's planned attack on Syria

Ok, if the Syrian government did launch chemical weapon attacks on its people, it deserves an international response. But here is a simple question: why is the US not willing to wait for the formal report of the UN inspectors, which, it appears, will be available in just four days' time. Note that the visit of the UN inspectors had the concurrence of the Syrian government. As usual, one must turn to Atimes for a dispassionate analysis of the unfolding situation.

In an companion piece, M K Bhadrakumar, the former Indian diplomat, argues that an American attack on Syria provides just the right argument for Iran to go ahead with its plans to acquire nuclear weapons.He also outlines the rationale for an attack that falls well short of being an all-out war:

In sum, the plan behind the "limited" attack is to degrade the Syrian armed forces. The political objective is clear. The Obama administration insists that it is not "regime change''. What it means is that the US and its allies would hope that coming under immense pressure of death and destruction, the Syrian armed forces might begin, finally, to begin to question President Bashar al-Assad's leadership quality, which, in turn, could lead to a coup against him that will not be a "regime change" and yet a sufficient-enough "regime change''.

A return to capital controls?

The government has repeatedly ruled out imposition of capital controls, other than the limited ones imposed thus far. But, the buffeting of emerging economies caused by the impending reversal of QE in the US does raise the question: should emerging economies start think of capital controls by way of putting the brakes on both large inflows and outflows? As an article in FT points out, simply having a floating exchange rate problem does not provide insurance against volatile flows:

In an excellent new paper presented at Jackson Hole, however, Professor Hélène Rey of the London Business School argued that a global cycle in credit and capital flows – driven by the US Federal Reserve’s monetary policy – means that even a floating exchange rate does not give a country control over its own destiny. The trilemma is, in truth, a dilemma. The choice is this: impose capital controls or let the Fed run your economy....... She recommended targeted capital controls, tough bank regulation, and domestic policy to cool off credit booms.

If emerging markets are not to be at the mercy of the Fed and if they are to avoid capital controls, then we need a substantive reform in the international financial system: a move towards an international reserve other than the dollar. This proposal, while talked of for years, has gone nowhere. So, it would be prudent for emerging economies to have counter-cyclical checks on capital flows in order to damp down excesses. If there can be counter-cyclical capital requirements for banks, why not counter-cyclical controls on capital flows?

Does falling rupee point to economic mismanagement?

There is renewed talk of a 1991-like crisis following the steep fall in the rupee in recent days. It's good that Kaushik Basu of the World Bank has joined D Subbarao and others in quashing such speculation, much of it coming from ill-informed corporate chieftains.

Many points have been made by way of dispelling such talk- notably, the fact that forex reserves are now worth 7 months imports (instead of a couple of weeks in 1991), India's low external debt, a vastly improved private sector. But, perhaps, the most compelling point to make is that one of the root causes of the 1991 crisis, a fixed exchange rate, is now missing. A floating rate is an automatic adjustment mechanism in the face of a widening current account deficit. When the current account deficit widens, the currency depreciates; exports should go up, imports should go down (although how much depends on elasticities of exports and imports) and the deficit gets bridged as a result.

This self-correcting process can come unstuck for two reasons: one, inflation rises as a result of depreication and renders domestic goods uncompetitive; two, as the current account deficit widens and inflation rises, foreigners lose confidence in the economy and decide to fee, so it becomes difficult to finance the current account deficit. This could cause the currency to go into free fall. Now, let's apply these principles to the current Indian situation.

It should be clear that it's okay if the rupee depreciates as long as there is orderly depreciation. How much should the rupee depreciate? Here, it's useful to go by the real effective exchange rate (reer). This is the exchange rate after factoring in inflation rate differentials between a given country and its trading partners. The reer of the rupee, weighted by trade with respect to 36 currencies, had depreciated by just 3% in June over the previous year. Over 2005-13, the depreciation was 6%. These are both well within the RBI's comfort zone of an annual variation of reer of 5%. If we factor in weak global trade, then certainly a case existed for a fall in the rupee before the recent decline to Rs 65 (and bounce-back to 63).

A second reason for rupee depreciation is that the Fed is poised to taper off quantitative easing. This will mean a reversal of the flows that came in flooding post the 2007 financial crisis. All emerging market currencies are getting beaten as a result; India is no exception.

Thirdly, as the RBI has indicated in its latest annual report, there is evidence that some of the decline in the rupee is on account of speculative trades- non-deliverable forwards (NDF)- being carried out by MNC banks in the overseas markets. They seem to have been selling short overseas and buying forward here.

Which part of the above can be said to constitute economic mismanagement? The current account deficit has grown wider for a number of reasons. Slowing global trade (no fault of the government); a fall in mineral exports because of a Supreme Court ban on mining in certain places (not much the government can do in the short-run); an increase in coal imports (partly because Coal India cannot expand mining because of environmental and forest area issues); and an increase in gold imports, thanks partly to sustained high inflation. Now, you could blame the government for some of the inflation because it did not contain the fiscal deficit in time. But much of the inflation is food-driven and there is not much the government can do about this either in the short-run (especially in so far as it relates to non-cereal food items).

In short, the government-bashing and talk of 'policy paralysis' we have seen are, in my view, overdone. Certainly, the government needs to do what it can to expedite clearances and see projects through to completion. But issues such as environmental clearance and land acquisition involve questions of trade-off between growth and equity that cannot be resolved in a hurry.

What does the new RBI governor need to do in this messy situation? The RBI must reverse the moves to tighten liquidity in recent weeks (some of this has just happened) and then try to ease interest rates. Further fiscal austerity must be avoided. A focus on fiscal and monetary policy to support growth plus Re depreciation plus a gradual revival in economic growth is what we must bank on.

More in my article in the Hindu, A new note on Mint Street.

Funds exiting the US too!

Everybody understands that emerging market currencies, including the Indian rupee, have tumbled largely in response to the expectation that the Fed will taper off quantitative easing (QE)in the months to come. With QE, the Fed buys long-term US securities; this increases money supply in the US, not all of which can be absorbed within the US. Much of it has been spilling into emerging markets. When QE is tapered off (that is, withdrawn gradually), US money supply will fall, bond yields will rise, thus pulling funds out of emerging markets back into the US.

So far, so good. But if US funds are heading back into the US, foreign funds, notably from China and Japan, are leaving the US, as an article in the FT points out. Foreigners have turned net sellers of US securities. Chinese and Japanese funds are exiting the US:

Net sales of long term securities in June came to $66.9bn. This is the biggest sell-off since August 2007 when foreigners sold $72.9bn of such securities as the credit crunch provided the curtain raiser for the financial crisis.

The focus of the sell off in June was primarily in the bond market where cumulative net sales of Treasuries and government agency bonds amounted to $95.2bn in the three months to the end of June. But equities were hit too. Net sales by foreigners of $25.5bn amounted to the second biggest disposal of the past 35 years, after the record sale of $39bn in August 2007.

Why are China and Japan exiting the US? Because they want to boost domestic consumption. This means a fall in saving and hence a fall in surpluses that can be exported to the US. If the Fed is tapering off QE and big investors in US securities, such as China and Japan, are exiting, then we should see a significant rise in bond yields in the US. That bodes ill for investment in emerging markets, especially emerging market bonds.

The Dawn on the LOC killings

In contrast to the jingoistic voices heard in the Indian media, particularly TV, the Dawn's edit on the subject is a model of restraint and sobriety:

In fact, the ‘peace process’ is not really there; India cannot put aside the 2008 Mumbai attacks and Pakistan has failed to rein in the militants. The latter are well-armed and well-funded and some of them have brought the two nuclear-armed neighbours to the verge of war twice since 9/11. Here lies the test for the two sides: will Islamabad and New Delhi hand the militants a diplomatic win by shying away from peace? On this point the two sides must be clear. 

....The 2003 ceasefire agreement has largely held but can be further reinforced and made durable given that there has been an increase in LoC tensions since January. And although the level of infiltration into India-held Kashmir has gone down considerably, Pakistan must make it a priority to cripple all attempts made by militants to sabotage peace efforts between the two countries.

Now you know why I am such a great admirer of the Dawn. I hope some day I will get a chance to go to Pakistan. If I do, I will make it a point to visit the office of the Dawn and tell the journalists there how much I have respected and admired their writings over the years. 

Bhagwati on Bhagwati versus Sen

Jagdish Bhagwati is at his polemical best in his piece in today's Business Standard. He points out the differences between himself and Sen, of course, but the the juicy bits are about the dirt that Sen's detractors (including the BJP) have dug up on Sen following his declaration that he didn't think Narendra Modi was PM material:

Having dragged himself into the political maelstrom, Mr. Sen now faces predictably gutter politics, as (I am told) lascivious photos of his actress daughter are now circulating on the internet. His appointment of himself as the Chancellor of the new Nalanda University and of an unknown academic as the Vice Chancellor at an astonishingly high salary has led to accusations of corruption. In fact, the former President of India Abdul Kalam  had written a letter saying, among other distressed complaints, that these functionaries would have to reside in Nalanda, which letter was suppressed and has now been released under the Freedom of Information Act. It now seems also as if Mr. Sen asked for and accepted a million dollars from BJP Finance Minister Yashwant Sinha for his new NGO, whereas I have not asked for a Rupee or received any financing from the BJP I am supposed by Mr. Sen’s media friends to be supporting. As Alexander Pope wrote, everything seems yellow to the jaundiced eye.

Bhagwati is scathing about those who contend that there are no basic differences between him and Sen:

Many argue that there are none (no differences). Montek Ahluwalia and Kaushik Basu from GOI have said so: but they are both bureaucrats and no one expects them to offer sincere opinions. Some also fall victim to the cultural tradition of obfuscation implied by Asti Nasti. Others feel uncomfortable challenging celebrities and are into the 'Sashtanga Pranam' mode which requires pretending that both sides are saying the same thing and are therefore both are right.
Surprisingly, the Finance Minister Mr. Chidambaram, who is a brilliant man with a gift for writing (I once released his book of essays written while he was out of power and said that he wrote so well that one wished that he was more often out of power!), has fallen victim to this fallacy. He is seduced by his cleaver phrasing, saying that Bhagwati has a passion for growth whereas Sen has compassion for the poor. But that is precisely where he goes wrong and where we must focus to put Mr. Sen in his place, which is certainly not on a pedestal.

I doubt that Basu, who is now Chief Economist at World Bank and was Chair professor at Cornell,  will like being labelled a 'bureaucrat'!

Indians on a house purchasing spree in UK

The Indian economy may be experiencing a severe downturn but that isn't hurting the money-bags. Wealthy Indians are buying up houses in Mayfair, an exclusive neighbourhood of London, the Economist reports, paying up to $5400 a square foot (Rs 33 lakhs). That would translate into a cool Rs 65 crore for a 2000 sq foot house. Not a big deal, considering that housing doesn't come cheap in India either and the prices in Mumbai would not be much lower:

Last year almost a quarter of the houses and flats that sold in Mayfair were bought—for up to £3,500 ($5,400) per square foot—by Indians, according to Peter Wetherell, an estate agent, making them the second biggest buyers after Britons. Russians and other Europeans, whose lust for prime London property is more often blamed for pushing up prices, were responsible for a similar proportion between them.

Early in the morning, St James’s Park resembles Lodi Gardens in Delhi or the Hanging Gardens in Mumbai, such is the procession of well-heeled Indians perambulating around it. They are overwatched from the Mall by the lavish quarters of a family of ex-India industrialists, the Hinduja brothers—bought from the queen and renovated at an estimated cost of £50m.

The Economist worries that while the Indian rich may be investing in property in the UK, they don't seem to be much interested in investing in business nor is trade with UK picking up. 

State is the primary driver of innovation

Everybody associates innovation with private entrepreneurship if not individual genius; the state is the great stifler of innovation. Rubbish, says a recent book reviewed in the FT by Martin Wolf.

It is known, but not widely recognised, that most of the great innovations of our time have come out of public funded research at private institutions, notably universities. The book goes further and contends that public institutions themselves have driven research in a big way :

Mazzucato notes that “75 per cent of the new molecular entities [approved by the Food and Drug Administration between 1993 and 2004] trace their research ... to publicly funded National Institutes of Health (NIH) labs in the US”. The UK’s Medical Research Council discovered monoclonal antibodies, which are the foundation of biotechnology. Such discoveries are then handed cheaply to private companies that reap huge profits.

A perhaps even more potent example is the information and communications revolution. The US National Science Foundation funded the algorithm that drove Google’s search engine. Early funding for Apple came from the US government’s Small Business Investment Company. Moreover, “All the technologies which make the iPhone ‘smart’ are also state-funded ... the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays and the latest voice-activated SIRI personal assistant.” Apple put this together, brilliantly. But it was gathering the fruit of seven decades of state-supported innovation.

This book, needs to be read with Chinese economist Justin Lin's book, which argued that industrial policy or targeting of particular sectors by the state, has played a key role in growth. What emerges is a different view of the state from what we have been asked to believe in recent years: the state as the primary engine rather than mere facilitator or provider of law and order and defence.

Wolf's conclusion is worth quoting and worth remembering the next time somebody brays about 'rolling back the state':

The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity.

Online education versus the traditional university

Peter Drucker once said, "Universities won't survive. The future is outside the traditional campus, outside the traditional classroom."

That was nearly two decades ago. And yet universities survive and prosper. Drucker saw the rising costs of university education as undermining the edifice of the university. He thought it inevitable that substitutes such as online education would displace the traditional university.

That hasn't happened.Why so? An article in the FT puts it down to vested interests in higher education:

Currently teaching is delivered in much the same way in schools as it was 50 or even 100 years ago. A single teacher talks to a classroom full of pupils, who work with textbooks, paper and pens. Few pupils are examined online. Libraries are still full of reference books but no tablet devices. Not only is this model out of date but in many countries, including Britain and the US, it is not proving effective – especially at teaching the skills employers want for the workplace.

....Unfortunately, the educational establishment, at both secondary and university levels, is too slow to change. I suspect that a resistance to new techniques of learning is partly about protecting jobs and defending senior staff whose skills are outdated. Why on earth do schools in Britain still put so much emphasis on teaching French? They should be teaching languages more relevant to the 21st century, such as Mandarin or Spanish. Why can’t schools equip pupils with up to date information technology skills? Perhaps their instructors are not up to the task – or possibly their processes are wrong.

Well, I am not sure that's the whole story. We need to be realistic about what can be taught online and what cannot be taught. Some basic courses, yes. A range of basic arts, science and management courses can be taught. But medicine or higher science or engineering? You need labs for all these.  You also need a fair degree of interaction between teacher and taught. And, yes, quality can be ensured only through rigorous exams that are difficult to operationalise on a mass scale.

There are other problems. Universities don't only teach. They are also into research (some would say of the leading universities that they are also into teaching). Is it possible to separate the production and imparting of knowledge? What would be the appropriate mechanisms for doing so? Can we researchers in specially funded institutions who do only research. And others at colleges who only need to teach. In the process, do we lose something? Finally, what about the benefits of student interaction on campuses, the advantages of networking etc?

We need to be realistic and walk on two legs, to start with. We need business models that will make mass provision of basic skills and knowledge viable through online education. Universities need to find a way to do this. However, it may be premature to think of online education as the only or even principal instrument of education, at least at the higher levels.

Last minute justice

There has been comment on the recently retired Chief Justice of the Supreme Court Altamas Kabir's delivering judgement on the NEET, the common entrance test for medical colleges, on his last day in office. The eminent lawyer, Raju Ramachandran, writes in the Hindu that this is by no means novel. There are several instances of judgements being delivered on the last day or close to the retirement of a judge.

The issue is not somebody delivering judgement on the last day or close to the date of retirement. When a judge takes up a case or is part of a bench that admits a case, he has no means of knowing when the case will conclude. The actual writing of the judgement, one would imagine, takes a few days and, therefore, the fact that a judgement is delivered on the last day need not detract from its merits.

The key issue, as Ramachandran points out, is whether judges have had adequate time to share views with each other. A judgement delivered on the last day of a judge's tenure would not be a problem if it has been preceded by adequate consultations amongst judges on a bench. That this does not happen very often is the real cause of concern. Ramachandran cites examples:

Kesavananda Bharati (1973) is the most celebrated case in Indian constitutional law. It is the majority opinion in this case which laid down the basic structure doctrine (that the power of Parliament to amend the Constitution did not extend to destroying its essential features). In his judgment, Justice Chandrachud (a ‘minority’ judge) wrote that the impending retirement of Chief Justice Sikri did not leave enough time after the conclusion of arguments for an exchange of draft judgments. Of the 13 judges who constituted the bench, he said that he had the benefit of fully knowing the views of only four of them.

.....Many years later, a nine judge Bench of the Supreme Court decided by a majority that primacy in the matter of appointments to the superior judiciary vests with the Judiciary and not the Executive (Supreme Court Advocates on Record Association, 1993). M.M. Punchhi, a dissenting judge, wrote in his judgment that he had hoped that some “meaningful meetings” would be held, so that the court could strive to reach a unanimous decision. He complained that he was “overtaken” when he received the draft opinion of Justice J.S. Verma for himself and on behalf of four others.

Ramachandran proposes some remedies. One, a permanent Constitution bench whose  composition would remain fixed for a full court term. Another is that, from about three months before their terms are ending, judges should stay away from "heavy" cases. Perhaps, one could also have a disclosure requirement for judgements delivered by a bench: the presiding judge must disclose whether the judgement has been preceded by exchange of views or consultations amongst the judges.

Why are American companies not investing?

Profits of American companies are at a record high; the cost of capital is at a record low. Yet American companies are not investing. The facts: pre-tax profit are 12% of GDP while investment is a mere 4%. Why? An article in FT attempts to shed light on this mystery:

• Excess capacity was created in the boom years and this effect has to wear off before fresh investment can begin (one notable area is housing)
• Excessive regulation is stifling investment (for example, the high costs associated with compliance).
• Profitability has been boosted by more use of IT, which replaces workers with computers. But this does not explain why higher profit is not being ploughed back into investment
• Investment is happening but it is intangibles such as brand-building, research and better organisation
• High profitability reflects rent from monopolies (Paul Krugman)
• Wall Street's focus on quarterly numbers means that it makes more sense to focus on cost-cutting and efficiency than on risky investment, especially when the economic outlook is murky
• Profits are being appropriated by avaricious managers rather than going into investments that would benefit shareholders

 None of these would explain the phenomenon fully but, together, they add up to a worrying narrative. As the author indicates, it's time for policy makers to get their acts together. 

Bailouts need not mean losses to taxpayes

When failed banks are bailed out, these are seen as losses to tax payers. This need not be so, as an article in FT points out. The US Treasury made a profit of $5 bn on its investment in AIG and another $4.5 bn on its investments in Citigroup and Bank of America. In the UK, the government has broken even on its investment in Lloyds Bank. It also cites instances where central banks that bought securities - whether of corporates or sovereigns- stand to make profit.

In other words, intervention to save failing banks not only prevents economic collapse but also ends up as gain for the tax payer over time. The operative expression is "over time". What is seen as a "bailout cost" is a cost only at the point of intervention. The case for public intervention to save failing banks is thus overwhelming.

Where do these profits come from? Well, in a financial crisis, assets tend to be hugely undervalued. There is enormous under-shooting in prices. The moment economic calm returns, there is a good chance that prices will move up.

This is not just a foreign phenomenon. The government of India ended up making a huge profit on UTI through SUUTI. Only, the gains did not accrue to the holders of UTI units who were fobbed off with securities carrying yields of around 6% because they were not given a call option on the government investment in SUUTI. The UTI "scam" in which  managers were said to have ripped off investors through bad investments has, in fact, turned out to be a bonanza for the government. So much for the "scam" of which the media had made an enormous hullabaloo at the time.

Does the RTI Act cover political parties?

Political parties are up in arms against the CIC judgement which says they are public authorities
and hence within the purview of the RTI Act. The public is infuriated that political parties should be opposed to the CIC order. It sees this as unwillingness on the part of the political class to practise transparency. Are political parties being unduly cussed in the matter?

People are entitled to their views on whether it is desirable to bring political parties under the purview of the RTI Act. The important question, however, is what the RTI Act, as it stands, has to say on
the subject. In other words, how sound is the legal basis for the CIC's judgement? An article
in EPW raises this question and comes to the conclusion that the CIC's judgement is rather infirm.

The author, Anirudh Burman, points out that the CIC gave three reasons in justification of its judgement: political parties “are continuously engaged in performing public duty”, receive sub-

stantial financing from the government and have important constitutional and legal rights and liabilities.". He opines that the the last reason given has no legal basis as "This criterion is
not present in the definition of “public authority”at all."

He then scrutinises the other two reasons. Can political authorities be said to be
"public authorities" because they perform public functions? He thinks not- nowhere in
the Act is a "public functions" test specified for determining whether an entity is a public
authority. Who can be considered public authorities is laid down down very precisely in the
Act. The CIC also refers to the fact that political parties are registered with the Election Commission
and argues that this makes them somewhat similar to entities to established by government.
However, there is a Karnataka High Court  judgement that ruled that goes against this stand.

What of the argument that political parties get "substantial financing" from government? The difficulty, Burman points out, is that the CIC has steered clear of defining what constitutes "substantial financing". He argues that unless it can be established that, without the support they receive from government, political parties cannot carry on with their activities, they cannot be
said to receive ""substantial financing".

It is important to distinguish between transparency in respect of funding of political parties
and the broader transparency required under the RTI Act. In respect of activities not related
to raising funds, Burman argues- correctly, in my view- that transparency may not be desirable
and may pose obstacles to their effective functioning:

First, as a body seeking to outdo other competing parties, a political party has the

right to keep certain parts of its activities hidden from public view.  .....Second, in light of the fact that the RTI creates this information asymmetry, theRTI mechanisms may become a tool of political warfare rather than a tool forpromoting transparency.

The danger is stretching the RTI Act to cover entities it was not intended to is that it may
end up discrediting the Act itself, quite apart from rendering the entire political class
hostile to it.In the process, a most valuable instrument of empowerment and the purpose
of rendering a whole range of public authorities accountable may fall by the wayside.

How IIM came to Ahmedabad

How an IIM came to be located in then obscure and small-town Ahmedabad and not in Bombay (as it was then called) has been much written about. The automatic choices were the two leading industrial cities of the time, Bombay and Calcutta. The latter got an IIM, the first to be set up; a few months later in 1961, the second IIM came up, not in Bombay, but in Ahmedabad.

The official version (which I have reported in my book on Ravi Matthai- IIMA) is that Bombay University dragged its feet over the idea as it not comfortable with an autonomous institution within its fold. Vikram Sarabhai, with the backing of industrialists in Ahmedabad, used his clout in government to claim the IIM for Ahmedabad.

In his memoirs (A book of memory), well-known pscyho-analyst Sudhir Kakar has a different story to tell. He contends that Sarabhai got an IIM created in Ahmedabad primarily in order to retain Kamla Chowdhry, an academic then working at ATIRA, with whom Sarabhai had a long and intimate relationship. (Chowdhry happened to be Kakar's aunt).

Chowdhry, Kakar says, began to get uncomfortable in the triangle that had Sarabhai and Mrinalini at the other two ends.  She began to toy with the idea of accepting an offer from DCM in Delhi which was similar to the work she was doing at ATIRA. Sarabhai "used every means at his disposal to persuade her to stay back in  Ahmedabad". He dangled the prospect of a directorship of a research centre on group dynamics, funded by an American foundation.

This didn't work out and three years later, Chowdhry envisaged a move to ASCI in Hyderabad or to Bombay University. This time, Sarabhai offered her a chance to work with a branch of UK's Tavistock Institute in Ahmedabad. This too did not happen.

Finally, as Kakar puts it, "To keep Kamla in Ahmedabad, Vikram Sarabhai successfully lobbied the Indian government to locate one of the two postgraduate institutions of management ....... in Ahmedabad rather than Bombay." Not only that, since Sarabhai and Chowdhry both had connections with Harvard, the original collaborator with IIMA, the University of California, came to be replaced by Harvard.

Kakar bases his narrative on the private papers of Chowdhry. The conclusion he draws is illuminating:

"The letters (from Sarabhai to Chowdhry) are also cautionary for any historian who still believes that decision-making in institutions, whether private or those of the state, is independent of the personality and the emotional needs of the actors, that the public record is sufficient to fully explain the course of a historical event......the location of the IIM at Ahmedabad rather than in Bombay and its collaboration with the Harvard Business School.... had as much to do with the demands of the relationship between Vikram and Kamla (if not more) as with the rational deliberations captured by the public record."

Hogwash on dilution of the IIT brand

A section of the media has gone to town on the subject of some 700 odd students turning down IIT offers. This is construed as a dilution in the IIT brand for whatever reason: poor quality of infrastructure and faculty at the newer IITs, the impact of quotas for SC/STs and OBCs, or the availability of other institutions that are better (although I would myself be hard put to identify these).

This is plain hogwash, as Dinesh Mohan makes clear in an article in BS. He points out a number of reasons why some offers may not be getting accepted:

Students have become acutely aware that all disciplines do not offer challenging or rewarding jobs after graduation (such as civil, production, textile, and many others). Therefore, some of them may prefer to go to an NIT closer to home that gives them an opportunity in a discipline of their choice. Studying at an IIT for undergraduate students can cost about Rs 20,000 a month, not a small amount for a middle-class family. Some of those declining may have opted to spend less by studying at a local NIT instead of a new IIT and save on hostel expenses.
A significant proportion of the students entering IITs know from day one that they are not interested in an engineering career, but do so under parental and societal pressure or a lack of choices for obtaining decent education. If there was a good supply of excellent liberal arts and science colleges with hostel facilities, applications to IITs may drop by a third. It is possible that some of those declining an admission to IIT have gained admission to good law schools, design schools or science colleges that have made a name for themselves in recent years.
Lastly, there would be a group of young men and women who would prefer to spend much more money and go to an institution in the US, Australia, Singapore or the UK, even a second-rate one, than take admission in a discipline and IIT location they don't like. Therefore, the fact that many applicants have opted out of the IIT system may be a good sign, showing that we have more choices and the system is maturing. It certainly does not reflect on the standing of IITs as academic institutions in India. 

The proposition that the entry of newer IITs is diluting the IIT brand would be strictly true only if the older and more reputed IITs fail to fill their seats because of a perception that IITs are not what they were. Nobody has argued that this is the case. We need data on how many seats at which IITs were rejected.

A similar apprehension was raised in respect of the newer IIMs. It's a fact that many of the new IIMs could not place all their students in the last round of Placement. Has this impacted IIMA, the market leader? Not one bit. IIMA achieved 100% placement. The newer IITs and IIMs will take a while to establish themselves. That is very different from saying that the IIT or IIM brand will go into decline because of them.

Incidentally, Dinesh Mohan's article last year on why the JEE should be abolished is also worth reading.

A bold blueprint for banking reform

Several committees have gone into the financial crisis and come up with prescriptions for avoiding such disasters in future. Except for a modest increase in capital requirements, some proposed restrictions on proprietary trading in the US and an attempt to ring-fence retail operations in the UK, we have not seen any significant reforms so far. Reforms that will radically change the way banks will be run.

It was a pleasant surprise, therefore, to see a report from UK's Parliamentary Commission on Banking Standards that squarely addresses basic issues in the functioning of the banks- the accountability of bankers, incentives in banking, the role of bank boards, culture and standards in banking, competitiveness in UK banking, the privatization of  RBS and Lloyd's, etc.

Anybody interested in the governance of banks should peruse this two-volume report- they are a terrific read. The reports have gone almost unnoticed in the Indian media. After going through them, I was left wondering how a parliamentary commission could have come up with such an insightful report where expert bankers, regulators and economists have fared not so far. I guess it's not a matter of knowledge but of intention or sincerity. Bankers have their own axes to grind when it comes to reform; they have been thwarting serious reforms since the crisis. Regulators and academics are prone to capture by business lobbies.

Politicians are not exempt from capture either. It's just that the public mood towards bankers is so sour, especially in the UK and the rest of Europe, that politicians cannot afford to ignore it. I have said this before and will say it again: there is accountability in politics in a way there isn't in the corporate world or amongst professionals such as lawyers, doctors, accountants and even academics.

I have analysed the report in an article in the Hindu, Making bankers pay for failed gambles. I have strongly recommended that many of the proposal for reform proposed by the Commission should be embraced by the RBI.

The electoral arithmetic of Modi's bid for PM

Ashutosh Varshney, professor at Brown University, has done the Math on what it would take Modi to become PM in this article in IE:

When the BJP won 182 seats in 1998 and 1999, it captured 25.6 and 23.7 per cent of the national vote respectively. In 2009, it won a mere 18.8 per cent (and 116 seats). Though, under certain exceptional circumstances, one can show that a party can win 180 seats in India's Parliament with only 18-20 per cent of the national vote, a more reasonable assumption is that 24-25 per cent of the national vote will, in all probability, be required for 180-plus seats. In short, Modi needs to raise the BJP's vote by 5-6 percentage points.
In 2014, the size of the electorate is expected to be a little over 800 million. Assuming a 60-62 per cent turnout, we will have roughly 500 million voters. A 5-6 per cent increase in the BJP's vote essentially means that Modi will have to deliver an additional 25-30 million votes .

Varshney is sceptical about Modi being able to bring it off in 2014:

Of the 500 million likely voters in 2014, only 150 million will be urban, and of these, only 90 million are in the west and north. The BJP has already won a lot of these votes in the previous elections. Can Modi really mobilise an additional 20-25 million votes from this northern and western pool, assuming he can get 5 million more elsewhere? 

The order is monumentally tall. Advani may well have the last laugh next year unless a broad anti-Congress alliance can be constructed. With urban India rising, Modi's power to pull votes could be greater in the 2019 or 2024 elections, but might fall well short in 2014.

Should industrial houses be given bank licenses?

Well, not in the first round at least. But not for the reasons that is often cited: the danger of inter-connected lending, that is, banks floated by industrial houses lending to companies within the group. This, critics, say could sink the banks if something goes wrong with the group.

I happen to think otherwise. I doubt that the reputed industrial houses would let banks floated by them sink: they have too much at stake. They will go all out to make a success of their banking ventures. However, while their banks will prosper, this will come at the expense of existing players, mainly public sector banks (PSBs). Does this matter? Yes, because it will create systemic risk in India banking. PSBs are in the forefront of financing infrastructure and agriculture, areas that badly need credit. Private banks, including those set up by industrial houses, will focus on a narrow set of corporates and high net worth individuals. This does little for the cause of financial inclusion.

More in article in Indian Express, Banking on inclusion.

Nilekani and Pai too to return to Infosys?

I had to pinch myself in disbelief when I read this report in IE:

The Street has welcomed NRN's return, confident it would boost employee morale, but analysts realise chances of him being able to turn around Infosys aren't very high. For one, NRN is 67 and has been away from an executive position for seven years, during which the environment has turned more competitive and Infosys weaker. With Nilekani and Pai at his side though, it could be a different story.

Modi in Uttarakhand: the bare facts

Gujarat CM Narendra Modi's visit to Uttarakhand predictably degenerated into slugfest between the BJP and the Congress. When Rahul Gandhi followed, the media tended to portray the two visits as  a competition for photo-ops.

Writing in ET, Madhu Kishwar has a different story to tell. It would appear that Modi was quickly able to mobilise a significant rescue effort targeting principally the large numbers of Gujarati pilgrims but not entirely excluding others. Here's a sample:

Modi arrived in Delhi late 17th night for a meeting with the Planning Commission on 18th when news of cloudburst and landslides was telecast on TV. He held an emergency meeting to take stock of the situation since he knew that thousands of Gujaratis are likely to be among the Chardham pilgrims . Right away, a camp office was opened at Gujarat Bhavan and the Resident Commissioner's team in Delhi was made responsible for coordinating with Gujarati pilgrims.
...On the 18th morning, Modi called Dr Pranav Pandya of the All World Gayatri Parivar to provide space and infrastructure in his Shanti Kunj campus for the relief centre proposed to be set up by the Gujarat government . He chose this campus because of his close knowledge of, and rapport with, this Gandhian institution that can house and feed thousands of people at a short notice.
It has a 2,000-strong community of swayamsevaks on the campus, plus 3,000-odd students of the Dev Sanskriti University. The campus also has a well-run hospital.
On the 18th evening itself, a set of computers with internet connections , telephone lines, television sets and all other paraphernalia required for Gujarat government's relief operation were set up. Therefore, when a team of Gujarat government IAS, IPS and IFS officers came, they could get going within minutes of reaching Shanti Kunj.
Team Gujarat had two officers from Uttarakhand - Assistant Director General of Police Bisht and Forest Service officer SC Pant - who had close knowledge of the terrain to guide both the stranded pilgrims as well as rescue teams on the safest possible routes to take. ADG Bisht went straight to Gupta Kashi from where the rescue operations are being launched.
A team of seven doctors trained in handling such emergencies, led by an orthopaedic surgeon, not only put in place an efficient first-aid service but are also attending to those severely injured.
 

It is open to people to come to their own conclusions on how much of a difference these efforts made, considering the large number of people left stranded in the region.  I do find it surprising, however, that the media did not think it necessary to bring the above facts to the notice of the public. We had swarms of reporters and TV crews in the region but at least I did not find any details of the contribution that Modi was able to make.

Kishwar concludes:

The Congress party is understandably upset because its chief minister has proved a disaster, its party machinery is in disarray, Congress Sewa Dal workers are nowhere in sight, Rahul Gandhi's Youth Brigade is clueless even in routine situations , leave alone know how to face a crisis like the Uttarakhand deluge.

That is the reality of the Uttarakhand relief operation led by Narendra Modi