Economics on a Chessboard

Hi All! The chess mania has come to India. Read how economics plays out its moves on the chessboard in my humour column Tweakonomics 2.0 in the Hindu Business Line at https://www.thehindubusinessline.com/opinion/economics-on-the-chessboard/article65722537.ece! Optionally, you can read it right here!

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It’s chess time in India, and how! You switch on the TV and they are showing you the checkered chessboard look given to the Napier bridge. A R Rahman appears in your FB feed on a chessboard crooning ‘Vanakkam, welcome to Chennai’! Newspapers contain manic analysis on the many moves that they think Carlsen must be contemplating, which ummm, in all probability, the man must not be contemplating. Think about it – had he been so predictable, would he be Carlsen? Insta is gramming about the new Chess Dance video, showcasing folk and classical dance forms on the chess board. Just a year ago, had you said ‘two-and-a-half’, any kid on the street would have completed the phrase by saying ‘men’. Now, the kid might just say ‘knight’.

Economists are also deeply influenced by the chess drama. After all, the current economic crisis looks exactly like a chess game with an aggressive Russian opening! Putin’s invasion of Ukraine is like sending the king’s pawn forward 2 places (1.e4). Sending pawn to E4 is an endeavour to attack and control the centre, which is often the objective in opening the game. ‘Best by test’ is how GrandMaster (GM) Bobby Fischer used to describe the move. Putin’s move may have been driven by a deep-seated political desire to restrict the sphere of influence of the Nato, but its economic fallouts have put the situation firmly within the ambit of economics. Or should one say gambit?

Perhaps Putin believes the traditional view that the player making the first move in chess (playing the whites) has an inherent first-mover advantage. After all, the statistics suggests that whites tend to win 52 – 56 per cent of the times. However, GMs have been increasingly challenging the first mover advantage. Hungarian GM András Adorján wrote the famous book ‘Black is Ok’ in 1988, following it up with the sequels ‘Black is still Ok!’, ‘Black is OK forever!’ and ‘Black is Back!’ recently. The message is loud and clear in the first book, and gets still louder and clearer and almost shrill in the sequels – there is no need for the second player to get unnecessarily worried. Interestingly, one of the most famous matches that Adorjan won was in the Chess Olympiad of 1978, the only Olympiad in which the Russians did not win a gold! Perhaps Zelensky has been reading up on Adorjan, and is creating a Ukrainian defence through unbalanced positions rather than by simply reacting so as to equalize.

On its part, the West has reacted to Putin’s move by introducing a counter-threat, answering expansionism with sanctions. Russia has defaulted on its international debt payments for the first time since 1998, since the US won’t permit it to pay its debt using the funds kept in US banks. Russian central bank assets stand frozen, and Russian banks have been removed from Swift, the international financial messaging system. This has had the impact of delaying payments to Russia for its oil and gas exports. Quite the Zwischenzug. That’s a chess move in which a threat is countered by an even more devastating threat, forcing the opponent to beat a retreat on the original threat and focus on repairing the damage that the counter-threat might entail.

Financial sanctions are being fortified by targeting Russian exports of oil and gas. US is banning all of oil and gas imports from Russia. EU will phase out its dependence on Russian energy products by end- 2022. A pawn storm on the cornered king.

In the meanwhile, as in many chess games, whilst the players execute their immediate strategies, unintended consequences abound on the board. The conflict has strained inflation levels across the globe, and no one remains unscathed. The Fed, on its own chessboard vis-à-vis Rest of World (ROW), has decided to go ahead with the destruction sacrifice. This entails sacrificing a crucial piece on the board in order to gain control over the squares where it potentially ruled. The piece being sacrificed is growth, and this is being done by assuming control over inflation by hiking interest rates. It looks like interest rates are the new pawns, only allowed to move forward. As the Fed keeps hiking interest rates, the Foreign Portfolio knights, bishops and rooks are moving backwards to the home ranks. ROW is left with only one strategy -mirror the Fed. As interest rates increase across the globe, there’s a check on growth – pun intended.

But this is probably where economics differs from chess. In chess, the objective of the player is to push the opponent into a checkmate. In economics, especially where growth is concerned, you have to think how not to check, mate.

The author is a brave economist trying to laugh against the odds.

Hurtling to 80 and beyond!

The Rupee valuation and Netaji’s weight have been both breaching the 80 mark. Clever Guptaji is worried about the former whilst Netaji is busy worrying about his weight. Read the conversation that never happened about hurtling to 80 and beyond in my humour column Tweakonomics 2.0 in the Hindu Business Line! Pasting it here for you! Enjoy!

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Netaji, realizing that he is now moving into morbid obesity, has recently started going to an expensive gym. Apart from the lemon water that he is forced to have every morning under the new regime, he also has been told to stay away from his favourite samosas (more like run in the opposite direction on countering them) and cut down chai from the usual 14 cups (with extra malai) to 2 cups of green tea. It is Day 3 of the new regime. Netaji is feeling distinctly disgruntled with life in general, and dietician in particular. Swearing under his breath, he laboriously clambers on to the weighing machine to find that his weight has actually increased from 79 kg to 80 kg. 

Netaji (exclaiming with disbelief): Now, how is that even possible! Imagine moving from 79 to 80 within 3 days!

Clever Guptaji (enters the office and thinks Boss is referring to the exchange rate, says brightly): 80 and rising! We aren’t stopping there, Netaji! Some actually predict touching 81 by end of September!

N (red with anger): What? Arre, these opponents of mine are now getting personal. Did they say that aloud on those TV shows?

CG (puzzled): Well, it’s all over the place, Netaji! Newspapers, radio, TV, social media. You name it, and it’s there!

N(suddenly indignant): Really, these fellows are totally out of control. But what I still cannot fathom is how I managed to breach 80! Is it oil?

CG (with admiration): Absolutely! You have absolutely hit the nail on its head. It finally comes down to oil, doesn’t it? As Putin invaded Russia, he created a huge commodity price hike on top of supply chains that were not yet fully functional after Covid. The surge in commodity prices have led to broad-basing of inflation in US and EU. The Fed has been showing pretty sharp response. It hiked the base rate by 75 bps in June, and Powell has been talking about another 75 bps in July again and possibly another 50 bps in September. That has got the investors jittery and they are moving out of non-dollar denominated investments – Asian stocks and bonds – into the dollar. And while you might be fretting about breaching 80, remember that we are still doing well due to all those measures being taken, right?

N (swelling up with pride): Arre Guptaji, I didn’t know you have noticed about the new set of measures! It involved spending fair amount of money, Guptaji! But then, anything to reign it in at 80!

CG (with further admiration): I must say, Netaji, you are top of things today morning! Yes, the RBI has spent fair amount of money- $50 billion to be precise- to support the Rupee. That’s why we are doing so much better than most of our Asian counterparts. Many of the South East Asian economies have been behind the curve in terms of adjusting their policy rates and their currencies show depreciation as well as volatility – South Korea, Philippines and Taiwan are in deeper trouble than you, Sir!

Netaji (musingly, to himself): I didn’t know these South Asian Netas have been battling obesity – that Taiwanese fellow who had come visiting last week seemed positively underfed! (Loudly, to CG): I always thought the Asians were lean, you know! I mean they don’t really seem to have so much of excess, ummm, reserves!

CG (earnestly): Oh no, Netaji! On the contrary, all emerging markets (EMs) have been very sensitive about maintaining an adequate reserve cover over the past decade. The Global Financial Crisis 2008, the taper tantrum 2013 and the Covid pandemic have all had one common implication – you need reserves to survive external shocks!

Netaji (looking affectionately at his reflection): Quite right, that!

CG (carrying on): So, once the liquidity conditions started easing up in 2020, the EMs built up good amount of reserves. And whilst there is volatility just now, that initial reserve position will help EMs to support the currencies over the next 6 months. Of course, one cannot quite predict how and when outflows will play out – see how investors ditched the Thai Baht last month!

Netaji (darkly): Don’t even mention the bhaat – I have also ditched it for 3 days now. My dietician goes on and on about how bhaat – rice! – is bad for my middle.

CG (stunned): Oh my God, have you simply been talking about your weight at 80 kg, Netaji?

Netaji (puzzled): Of course! What did you think?

CG (groaning to himself): Why did I even try a conversation with the man? Thinking that the Baht is bhaat – preposterous! Well, he totally needs to ‘Ringitt’ in!

The author is a brave economist trying to laugh against the odds.

Yoga Day at Central Banks across the Globe

Dr. Manasi Phadke

Hi folks! The International Yoga Day was celebrated at all Central Banks across the globe, and how 🙂 Read more in my humour column Tweakonomics 2.0 in the Hindu Business Line. See https://www.thehindubusinessline.com/opinion/yoga-at-central-banks-across-the-globe/article65554301.ece. Else, read it right here!

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When I was young, there was only one type of Yoga. It was called Yoga. It was practiced mostly by the elderly and was very Indian in its orientation. Now, they tell me that there are 13 types of Yogas. These are mostly practiced by Central Banks and are fairly international in their orientations.

At No. 1, we have the Vinyasa Yoga, wherein the poses and breath flow in one regular continuum, complementing each other and reducing sudden, abrupt departures from each other. Think Surya Namaskars. Optionally, you might want to think European Central Bank. The Bank has been ultra-careful in trying to build market expectations so that yields do not show abrupt departures from their regular trajectories. The ECB’s statement reads like a Vinyasa dream-package. ‘The Quantitative Easing will end on July 1, and will be followed by an interest rate hike of 25 bps on July 21. The next hike is to happen on 8^th September, but the size of the hike will be decided closer to date.’ Of course, this particular Vinyasa has been so behind the curve that one can’t help thinking – Is this Shavasana? Or have they fallen asleep?

We move over to Power Yoga, which is less Yoga and more workout, less mind and more muscle. Power Yoga is more active and is done at a quicker speed than Vinyasa. Just like the Fed. On 15^th June, the Fed increased interest rates by 75 bps, the biggest rise in rates since 1994. This was led by inflation quickening to 8.6 per cent in May and consumer sentiment surveys indicating all-time low sentiments due to higher inflationary expectations. On cue, retail spending in the US had also dropped. The Fed responded actively to the issue through an aggressive rate hike – an American Veerabhadrasana as opposed to the Shavasana in the EU.

And then we have the Iyengar Yoga, named after it’s founder B. K. S Iyengar. Use of props to hold the positions for a longer time is a characteristic of Iyengar yoga. The RBI specializes in this form. In the post-Covid phase, it has been particularly showing off its ability to hold on to its interest rate stance. The monetary policy announcement in April 2022 was the 11^th consecutive time that the repo rates were kept unchanged. Props used included Fixed Rate Reverse Repo (FRRR), which, according to the Governor, was expected to ‘impart flexibility to the RBI’s liquidity management framework.’

The State Bank of Pakistan (SBP, the Central Bank of Pakistan) seems to be practicing aerial Yoga, also called as anti-gravity Yoga. In this Yoga form, the practitioner uses hanging silk cloth props to achieve traditional yoga postures, especially those that involve a heads-down feat such as Shirshasana. Key economic variables in Pakistan certainly seem determined to achieve anti-gravity. The headline inflation is at an unbelievable 13.4 per cent and is only surpassed by interest rates at 13.75 per cent. The Pakistani Rupee has been trading at Rs.208 to the USD and seems fairly determined to achieve even better errr…heights against the dollar. The silken thread by which the country hangs is Chinese, and unpredictable.

In the meanwhile, the People’s Bank of China (PBC) has been practicing Yin Yoga. If Power Yoga is about vigour, Yin Yoga is about stillness. The US favours Yang (Power) Yoga, whereas the Chinese favour Yin. Yang Yoga strengthens major muscle groups, Yin Yoga focusses on deep tissues. This is done through holding postures that suit the practitioner for extended time-periods. Whilst the world is grappling with inflation and subsequent rate hikes every month, the PBC has actually been toying with accommodative monetary policy stance. Given lower inflation levels and relative steadiness in the currency, it’s a mercy that the Yins haven’t actually slashed their rates by 75 bps in a mad world.

Nah, they’ve left that to the Russians. Meet the Russian Central Bank, the current ace practitioners of Hot Yoga. Hot Yoga is practiced in hot and humid studios that are artificially warmed to exact 105 degrees Fahrenheit, allowing more blood circulation. However, Hot Yoga can spell real trouble, causing heat-related illnesses and dizziness in the practitioners. On June 10^th, just when the world was experiencing dizziness due to inflation, the Russians slashed policy rates to ‘pre-crisis levels of 9.5 per cent’ with possibilities of ‘further easing’ in the next few months.

The Sri Lankan Central Bank is into Hatha Yoga. Hatha Yoga advocates multiple tools – asanas, pranayama, mudra, kriya and mantras. The strategies of the Lankan central bank include steady interest rates and multiple negotiations with multiple donors. Take a deep breath. Its Yoga time!

The author is a brave economist trying to laugh against the odds.

Cereal Killers and Crime Detectives

Hi there, Readers! What would happen if the RBI were to call in the best sleuths to handle the new ‘cereal killer’ in town? This piece appeared in my column Tweakonomics 2.0 in the Hindu Business Line last month. You can see it at https://www.thehindubusinessline.com/opinion/worlds-most-famous-detectives-solve-the-inflation-mystery/article65404982.ece .Else, read on!

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There is a new cereal killer in town. Everywhere he goes, he leaves 10 bps of inflation behind. The RBI has become the new FBI, trying desperately to find the identity of the killer. After many unsuccessful attempts at nabbing him, the RBI decided to take advice from the world’s best brains on the matter. And it is thus that a slim man in a tweed suit and deerstalker hat strode into the RBI, as always, accompanied by Watson.

‘The CPI inflation is now breaching 7 per cent, Mr. Holmes’, a visibly disturbed RBI Governor began talking. ‘Another 10 bps will be simply intolerable! We have done everything in our power, including a 40 bps increment in repo and a 50 bps increment in the CRR. Please help us, dear Sir!’ Holmes stared at the roof, as if seeing inflation push through it. ‘The problem is in the supply side of the story, and you are attempting an arrest through demand modification. Interesting. And perhaps, there was too much of a lapse in changing the rates?’ One saw by the Governor’s face that his attention had been keenly aroused by Holmes. ‘You consider that to be important?’ he [Governor] asked. ‘Exceedingly so.’ The Governor paused and then said,’ Is there any point to which you would wish to draw my attention?’ Holmes looked at him in his eye and said, ‘To the curious incident of the MPC meeting in April 2022’. The Governor was puzzled. ‘”The MPC did nothing in the meeting of April 2022.’ ‘That was the curious incident,’ remarked Sherlock Holmes delicately.

The Governor sat up and said, ‘But how could we have possibly changed anything, unless, unless you are saying that you could have guessed even then who the culprit was?’ Sherlock was quick to reply, ’I have no data yet. It is a capital mistake to theorize before one has data. Think of the CPI. What do you deduce?’ The Governor cleared his throat. ‘In March 2022, headline CPI moved from 6.1 per cent to 7 per cent and the food inflation increased by 154 bps to 7.5 per cent.’ Holmes narrowed his eyes, his face suddenly hawk-like. ‘And who has the highest weight within the food group? You need to have your finger on the pulse of that dataset!  Elementary, my dear Governor’. ‘Pulse!’ said Watson suddenly. ‘Check whether pulse prices have risen by 10 bps!’

Just then, a little man with an egg-shaped head and an enormous moustache stepped into the room rather pompously. ‘My name is Hercule Poirot, and I am probably the greatest detective in the world!’ ‘Ah, M. Poirot! We have been searching for the culprit. Dr. Watson was suggesting we track pulse prices.’ Poirot said to Watson rather kindly, ‘The mind is confused? Take time, mon ami. You are agitated—it is but natural. Presently, when we are calmer, we will arrange the facts, neatly, each in his proper place. And then you will see. You need to have your finger not on the pulse but on the cereal. It is natural to think of tur, chana and moong, the old-time inflation-mongers. But the tur, he is innocent. And chana, he is still waiting in his field. It is that wheat who is causing this inflation issue here! Indian wheat, he is getting sun-burnt due to the harsh summer and then is also getting exported off, causing a pressure point in the country.’ Watson sputtered, ‘Wheat? M. Poirot, we are sitting in India, the quintessential roti capital. Wheat has been such a friend. How can he, errr, it cause inflation?’ ‘Every criminal is probably somebody’s old friend’, observed Poirot philosophically. ‘You cannot mix up sentiment and reason.’ The RBI Governor looked unhappy. ‘So should the Government stop wheat exports?’

A fluffy old lady in the window stopped knitting. It was Miss Marple, looking a bit dithery and flustered as always. ’It does seem to be the right thing to do, doesn’t it, to stop exports so that prices stabilize in the country. But then, you know, you land up killing off markets altogether as you are just responding to events all the time. Policy has to go beyond mere response, I feel.  Maybe the Government can focus on you know, increasing the yield of crops through tech interventions. I mean, there are these apps with scientific decision support systems. You must be thinking what a silly old woman I am..’ There was stunned silence. ‘On the contrary, dear madam! Intuitions cannot be ignored; they represent data processed too fast for the conscious mind to comprehend’, said Holmes.  Poirot looked at her in quiet admiration. ‘Tres bien,’ he said.

The author is a brave economist trying to laugh against the odds.

Nadal and the WPI

Ever thought what Rafael Nadal and the Wholesale Price Index of India have in common? Both look unstoppable at 14! Read more in my humour column Tweakonomics 2.0 in the Hindu Business Line at https://www.thehindubusinessline.com/opinion/nadal-and-the-wpi/article65508257.ece. Optionally, putting up the piece here!

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What does Rafael Nadal have in common with the Wholesale Price Index of India (WPI)? A lot! For starters, both have crossed the 14 mark, the former at Roland Garros, and the latter in India. Both have huge teams backing them to move away from 14 – errr, albeit in opposite directions. Aggressive Serbians put both into a tizzy! Fortunately for Nadal fans and unfortunately for Indians, both look fairly unstoppable at 14.

But that’s not all. The WPI is an index number that tracks the movement of prices of goods traded in bulk by wholesale businesses to other businesses. The index is released by the Ministry of Commerce and Industry monthly. It categorizes commodities into 3 main classes – i) primary articles, ii) fuel and power, and iii) manufactured articles. Primary articles are further sub-divided into food and non-food category. Food inflation is important enough to be tracked and published separately. The fuel and power group contains petrol, diesel and LPG. The manufactured goods group contains a variety of products such as Paper, Sugar, Fats, Textiles and Semi-Trailers and Rubber products. The inflation averaged across the 3 classes should give the overall WPI inflation in India. However, a simple average will not suffice! If the transaction value of manufactured articles is, say, double that of primary articles, then inflation in manufactured articles would pinch the industry lot more. The WPI inflation has to reflect this reality. Hence, each of the classes within the index is given a ‘weight’ based on the net traded value of the item in the base year i.e. 2011-12. For the WPI, the primary, fuel and manufactured groups have a weight of 22.6 per cent, 13 per cent and 64 per cent respectively. The overall inflation is calculated as a weighted average of inflation from all of the classes. In March 2022, when the WPI breached the 14 per cent mark, inflation of 34.52 per cent in the fuel and power group was the major trouble-maker. Primary goods inflation was relatively calm at 15.54 per cent.

Rafael Nadal too has a WPI – a Winner Potential Index. This index number tracks the potential that Nadal can win against any other opponents in a Grand Slam final at Roland Garros. The index, never released in the public domain, is a closely guarded number within Team Nadal. The index categorizes opponents into 3 main classes – i) primary challengers, ii) muscle and power, and iii) miscellaneous threats. The primary group is further sub-divided into pure brilliance and Roger Federer. Federer is important enough to be tracked separately. ‘When Federer has these patches of utter brilliance, the only thing you can do is try and stay calm, wait for the storm to pass. There is not much you can do when the best player in history is seeing the ball as big as a football and hitting it with power, confidence, and laser accuracy.’ The muscle and power group contains Novak Djokovich. The wily Serb flexes brain muscles as quickly as the rest of his body. ‘He is a machine. He’s doing very well mentally everything’. The miscellaneous group contains a variety of players such as Puerta, Söderling, Ferrer, Thiem, Stan Wawrinka and Ruud. The wins averaged across the 3 classes should give the overall winning potential for Nadal at Roland Garros. However, a simple average will not suffice! If a win against Roger Federer, say, requires double the effort and concentration and creates (considerably more than) double the cheer as compared to winning against another player, then this win would mean a lot more to Nadal. The WPI has to reflect this reality. Hence, each of the classes within the index is given a ‘weight’ based on the number of wins against the player as a proportion of total wins (14) till the current year i.e. 2022-23. Of the 14 wins of Nadal at the Roland Garros finals, 4 are against Federer, 3 against Djokovich and 7 against the others. Thus, for Nadal’s WPI, the primary, muscle power and miscellaneous threats have a weight of 28 per cent, 21 per cent and 51 per cent respectively. The overall WPI is calculated as a weighted average of wins from all of the classes. In 2022, it was Novak in the muscle power group who was seen to be the major trouble-maker at Quarter Finals. Challenges from the primary group were relatively calm, with Federer not playing in the French Open this year at all.

Forget the Russian conflict. Don’t worry about oil. Don’t even think about wheat. There are still two more Grand Slams left in this year’s season. Nadal is in top form. The RBI better watch out.

The author is a brave economist trying to laugh against the odds.

Wheat Nikala, Gaddi leke

Dear Reader,

Hi! Food inflation rages on in India – however, as always, this time too, it’s different! In a country that has been used to inflation coming in mostly from pulses, milk and meat groups, wheat inflation has come in as a major challenge. When roti becomes expensive, humour really becomes scarce. Read my column with some dark, wheat inflation humour on this issue. This piece appeared under my humour column Tweakonomics 2.0 in the Hindu Business Line. You can see it at https://www.thehindubusinessline.com/opinion/wheat-nikala-gaddi-leke/article65318051.ece Replicating it here for you folks – comments, discussions welcome!

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(It is Rabi harvest time in Punjab. One of the grains seems mighty chuffed and excited about life and is lustily singing ‘Main nikala, O gaddi leke’, much to the amusement of the other grains.)

Grain 1: Oye Wheat Paaji! You seem to be very happy! Ki gaal hain?

Grain 2 (in a sing-song fashion): Ek mod aayaa, main uthe dil chhod aayaa! Had you ever imagined, paaji, that our lives would also get a twist and that we would reach Egypt?

G1: Ki kehende paaye ho tussi! Are we really going to Egypt instead of that crowded, noisy mandi? How exciting! But how did that happen?

G2: Arre yaar, its because of that Russi Munda Putin. He suddenly decided to invade Ukraine. Now, Russia and Ukraine i.e. the Black Sea Mundas are famous grain farmers. Together, they produce 14 per cent of total wheat output of the world.

G1 (snorting): Hmph, usme kya hain ji? India also produces 14 per cent of the wheat output of the world!

G2 (condescendingly): Yes, but how much do we export? Well, you see, most of the wheat is used internally to feed our own 134 crore people. Whereas the Black Sea walas have it easy! Their population is about an eighth of the Indian population. So, they export most of their produce. With a 14% share in production, the Black Sea neighbourhood manages to have 30% of the share of global wheat exports. Black Sea wheat feeds countries such as Turkey, Egypt, Indonesia and many African countries. However, with the exact same 14% share in production, India barely has a share of 1% in global exports.

G1 (glumly): Yes, I haven’t really heard of any of our mates leaving the Indian shores. Nahi Paaji, we are neither exported nor sold, we are normally ‘procured’! Which is alright, provided they house us correctly, but alas! Our lot is often at the mercy of rodents and the rains. Then, if you are lucky at all and haven’t sprouted, shrunk or got a black eye, you are pushed into PDS. Hopefully you land up in a ration shop and aren’t siphoned off illegally enroute to the shop. And even there, we are mixed with stone and sticks and what not. Ah, the indignity!

G2 (earnestly): This is all going to change now, Paaji! In the current scenario, Ukrainian farmers have been unable to harvest produce this year. The sowing for next season also seems difficult. The Russians have had a good harvest, but they are facing sanctions. So suddenly, 30% of global wheat exports have vanished! And what does that imply? Wheat prices are through the roof, Paaji! This is one of those few times when the MSP is below the international wheat prices. India has wheat exactly when the world wants it, the soft Rupee is just perfect for us and we are going to Egypt, Indonesia and Turkey! Mein nikala, o gaddi leke!

G1 (light dawning in the eyes): Oh, is that why we are getting tested for quality? I mean, it was quite a pleasant surprise for me to be in a lab and see the inside of a moisture meter. Indian grains rarely get to do that. For the humble Indian grain, you see, the Arthiya is the lab. He samples a fistful of grain in his hands; his fingers are the sieve. He has insta X-ray vision to determine extent of damaged seeds. And his teeth serve as errr, the moisture meter. Eww!

G2 (haughtily): All this will change rapidly this year, Paaji! Of course, its not that easy to break into new markets. Now, Egypt is the major importer of wheat in the world. The bread subsidy program in Egypt which helps millions to fight hunger depends on imported wheat. Egypt has an import dependency of nearly 80% on Russia and Ukraine. No wonder, that the Egyptian officials have been floating global tenders to explore other options of sourcing wheat. This is the exact G2G opportunity that India must clinch!

G1 (suddenly depressed): You mean all these years we were being procured by the Indian agencies, and now we will be procured by the Egyptian agencies? So once we are tested and certified, we will get into swanky ships and move to Egypt, only to meet Egyptian rodents, Egyptian sticks and stones and Egyptian ration shopkeepers? And from what I hear, wheat doesn’t only excite rats into action in Egypt, it incites riots as well. Oh damn, I am already missing my noisy, crowded mandi!

(Labourers pack G1 into export gunny bags)

G2 (changing song): Ghar aajaa pardesi tera des bulaaye re!

The author is a brave economist trying to laugh against the odds.

A Surreal Discourse on India’s GDP Crisis

Hi folks! This article appeared in my humour column in the Hindu Business Line today. You can read it at https://www.thehindubusinessline.com/opinion/columns/a-surreal-discourse-on-indias-gdp-crisis/article32583709.ece. Else, continue right here! Keep thinking, keep smiling!

What would filmmakers, poets and the Gods have to say on happenings in the Indian economy?

The Indian economy contracted by 23.9 per cent in Q1 of FY21. While the news was expected, confirmation of the expectation led to the usual seismic shocks through the econ-scape of the country. The Government lost no time in declaring that the numbers would have been worse if not for their intervention. A super-steep V-shaped recovery was on its way! The Opposition was in top form, calling the Government ineffective and uncaring. The media simply exploded with anchors getting right into the debate of the shrinking GDP. So loud was the debate on news channels that the vibrations reached the heavens, disturbing the geniuses who were practising their art in peace.

The tragic hero of Indian cinema, Guru Dutt, sat up with a start. He had been following the story of the kaagaz ke phool, those Rs.20 lakh crore, rather with interest. “Oh no, don’t call it an Act of God, lady! After spending all that money, you get a 23.9 per cent contraction? The irony of it! We went into the severest lockdowns, overshot fiscal deficit targets, endured inflation to do what? To experience a GDP contraction together with being one of the biggest Covid hotspots in the world? Ah, humne toh bas kaliyaan maangi, kaatonka haar mila!”

“Wah wah, Dutt Miya, very well put!”, said Mirza Ghalib. “I would have put it a little differently, of course. One of the worst-performing major economies – Bade be-aabru hokar tere kooche se ham nikle! The Indian Fiscal Deficit in Q1 stands at Rs. 8.2 lakh crore, which is 103 per cent of the fiscal deficit budgeted for FY21. The Indian FM claims that had the Government not quickly ramped up its spending, the growth rate contraction would be much worse. What a Ghalib kind of a thought – ke yoon hota toh kya hota!”

“Hmm, the FM’s fiscal maths is going awry. But, although I am a mathematician, I think she will benefit reading more of my story books rather than my maths books”, said Lewis Caroll. “I must tell the Indian FM to read Alice in Wonderland. In that book, she will get all the stuff she needed – My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere, you must run twice as fast as that! What would say to that, Acharya?”

No, he was not referring to Viral Acharya, but Shankaracharya, who had come by to listen in to the discussions. “Brahman satyam, Covid mithya!” said the Acharya, causing a general furore in the gallery of the intelligentsia. “Really? Covid is an illusion, eh? How do you then explain the Covid research being done by the World Health Organization?” “WHO mithya, research api mithya! Don’t believe me?” asked the Acharya gently. “Ask Trump!”

That pushed John Maynard Keynes into action. American Presidents usually do. “Oh, when will Trump learn?”, he asked in despair. “In the long run, we are all dead. Haven’t I said that tirelessly? But the fellow is making sure that people will be dead in the short run itself! Oh, why can’t these people show some common sense?”

Right on cue, George Bernard Shaw started, “The Scotch and the Irish leave you close to tears. Well, in America, they haven’t used it for years!”

“You are damn right on that one, Shaw! Coming to the Indian FM, she needs to go Keynesian. Declaring Rs.20 lakh crore package, and then spending only Rs.2 lakh crore. I never heard of such stuff! The multiplier associated with Government capital spending is what she needs to get going on. Even if there is limited leeway in terms of how much one can spend, she can definitely reflect on the composition of spending. Get that infrastructure pipeline going!” Keynes was in sublime English form.

“Perhaps, two roads diverged in a wood”, began Robert Frost dreamily. “They took the one less travelled by”, he said when Keynes cut in cleverly. “Yes, but has it made all the difference?”

“Perhaps, they are also thinking of the long run. Mr. Keynes! Some of us do. It is also, errr, called far-sightedness, though some people like to call it monetarism”, said Milton Friedman in a dangerously silky tone. “Whilst advocating higher Government spendings, we tend to condone higher monetization. Sure, it is indirect monetization, but I have always maintained that policy needs to be judged by the results, and not by the intentions! Overly large fiscal deficits will imply loss of control over monetary policy, leading to price fluctuations in the long run. After all, inflation is always and everywhere a monetary phenomenon!”

“Absolutely!”, agreed Karl Otto Poehl, the Bundesbank monetarist. “Inflation is like toothpaste. Once it’s out, you can hardly get it back in the tube again. Be wary of too many of those notes!”

“Notes! Ah, music is not in the notes, but in the silence between!” sighed Mozart, prompting an icy silence between the economists. The bespectacled wise old man shifted, suddenly restless. What should I promise the bearer of my note, he seemed to be thinking.

Post-Covid Opportunities in Agriculture

post-covid-opportunities-in-agriculture-11-09-20Download

This presentation was created to support my talk at the Inaugural function of Economics Association, Department of Economics, Ramniranjan Jhunjhunwala College of Arts, Science and Commerce (Autonomous).

Students, I enjoyed the rather long interactions immensely! Here is the ppt, as promised!

Twists and Turns in the Bappa Value Chain

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Hi folks,

This article appeared in the Opinion Column of the Hindu Business Line today. You can also read it at https://www.thehindubusinessline.com/opinion/columns/twists-and-turns-in-bappa-value-chain/article32467636.ece.

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Come Ganesh festival in Maharashtra, and the lanes and bylanes of all cities and towns are transformed into a colourful display of Lord Ganesha idols. Traditional Ganapati Bappa idols made in a sleepy little town “Pen” are particularly in great demand during the season.

The Bappa value chain (clay-idols-traders-customers) offers interesting similarities with agriculture value chains, both in terms of issues as well potential solutions.

The two value chains

For both the value chains, production is not instantaneous and takes months to complete. The Ganesh festival is normally held in August, but idol-designing commences in previous September. Just as traditional bio-fertilisers got overwhelmingly replaced by chemical fertilisers in agriculture, clay from Gujarat has been replaced by POP (Plaster of Paris) from Rajasthan in the idol business. Artisans in Pen used to rub mica powder into clay in order to give the idol a soft glow — a USP of the Pen idols.

However, the same lustre was naturally available in POP, which was also far cheaper, sturdier as well as lighter to handle. The maximum business is generated by supplying 4-10 feet idols to Ganesh mandals. Clay idols of height four feet would weigh a hefty 100 kg, hence the acceptance for POP as a preferred material. Today, only about 5- 10 per cent of the idols are made using clay exclusively; Pen has thus pretty much become a POP town. The process from design to the final product takes nearly 7-8 months to complete.

From January onwards, traders from all over the State start visiting the kaarkhanaas (factories). They make an advance payment of 10 per cent and book their idols. Traders cater to two major segments — the retail customers and the Ganesh mandals. Whilst the former accounts for volumes, the latter accounts for value. Once the tempo carrying the idols is delivered to the destination, the travel cost and the remaining 90 per cent of the payment is made to the idol-maker. The risk of not being able to sell the idols now rests with the trader.

Uncannily, in both the value chains, producer share in the retail value has remained stuck at about 30 per cent. Farmers normally are reluctant to oversee marketing — who will harvest the fields if they are out in the markets the entire day? Ditto idol-makers.

They are so busy overseeing the final touch-ups and packing the delicate idols for travel that they’ve stayed away from markets. Typically, the cost of transportation of the idol to the destination and the day charges of the artisan travelling with the tempo account for about 20 per cent of the retail price. This implies that traders’ share is 50 per cent of the retail price.

Land is important to both value chains. The idol-making industry is space intensive — the average idol factory produces 15,000 idols. The idols dry out in the yards or makeshift sheds or even fields — unseasonal rains can be a disaster. From 2006 onwards, a huge land acquisition programme for the Maha-Mumbai SEZ commenced in Raigad. Overnight, the land rates in Pen had catapulted to nearly ₹15 lakh per acre. Even as an enormous amount of SEZ money entered Pen, the cottage industry lost two of its important supports — cheap land and skilled artists, who were unwilling to work as day labourers now. It is no wonder then that the idol industry started moving out in concentric circles around Pen to newer villages — Hamrapur, Joha, Dadar.

Covid impact

The idol-makers are in trouble, and that is an understatement. The Government of Maharashtra had allowed POP idols to be marketed for the Ganesh festival in 2020. Thus, huge amount of POP material was bought in October 2019 and idols were created. Traders had even pre-booked idols in January and February, when the Covid struck.

As the pandemic spread, it became increasingly obvious to Ganesh mandals that they may not be able to set up their usual pandals in August. Traders started cancelling orders and idol makers were left holding a huge stock of half-finished idols made from POP.

The Covid has also changed the retail customer significantly. Customers now want to carry out immersion of the idol at home, which suddenly increased the demand for small clay idols.

However, by the time the idol makers realised the changes in the demand profile, it was late April. There were transport and lockdown issues all over the country. They couldn’t get the clay from Gujarat to process the orders. Skilled artisans were not readily available due to the lockdown.

Thus, supply could not respond to increased demand. Traders have been buying clay idols off each other. Prices for clay idols increased, but the idol makers were already locked into a price with the traders and did not benefit from the demand-supply mismatch.

Fair trade initiative

The economic and ecological skewness in the Bappa value chain has to be corrected. Emulation of the “Fair Trade” movement could perhaps be a solution. A fair trade initiative requires all actors within the value chain to be committed to standardised norms of produce.

The Department of Industries, Government of Maharashtra, could initiate a dialogue between suppliers from Gujarat, idol makers from Pen, traders, consumer associations, environmentalists and the Maharashtra Pollution Control Board (MPCB) on acceptable material and colour standards of the idols.

Certification agencies need to be notified about the standards. All the idols manufactured by the fair trade partner artisans can then carry an “Eco Bappa” sticker with barcode. The barcode should enable a video clip with which the customer gets access to making of the Bappa. The customers agree to pay a higher price for the traceable, standardised and certified Eco Bappa.

Trader partners make sure that the artisans get a higher share in the higher price. The Government acts as an enabler and a branding partner. Agri-culture and Bappa-culture both need traceability, standardisation, certification and market connect to survive in a competitive world.

Learning Economics from my Lady Jeeves

Dear Reader,

Hi, this article appeared as my humor column in the Hindu Business Line. You can read it directly at https://www.thehindubusinessline.com/opinion/columns/manasi-phadke/learning-economics-from-my-lady-jeeves/article32414856.ece. Optionally continue reading here! Keep smiling, stay healthy!

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I am surrounded by people with deep gyan of economics. My household help, driver and gardener may not be able to offer much by way of helping, driving or gardening, but their command on economics could put those Nobels to shame. Yours truly, much to her discomfort, is often at the receiving end of such astonishing pieces of econ-gyan.

My household help, Mala, is one helluva woman. This Lady Jeeves of mine is in her mid-30s, athletic, giggly and extremely talkative. We go back a really long way and are friends. Mala talks to everyone in the locality, and I mean everyone! You need a doctor, watchman, wireman, odd-jobs man, a rented place, gas connection, an Aadhar card? Just ask Mala, and consider it done. She is the quintessential “fixer” for the locality, and is extremely adept at making business connections. What she is not too adept at, is cleaning the house. Let us re-phrase that — she is, err, bad at it. And like she informed me with elan the other day: “There are too many demands on my two hands. So, in those places where I know the women to be fussy, I don’t really waste my time sweeping and dusting too carefully. They will sweep the floor anyway! I tell you, Manasi tai (this bit was said with a dramatic philosophical poise) sweeping is less an act and more an art. The art of knowing your employer!”

My God, the woman has entered a game-theoretic relationship with me. She not only knows the strategies I can use, but also precisely which strategies I will use. Hence, the game of cleaning the Phadke residence is obviously at an equilibrium that she dictates — dirty. I can almost visualise John Nash beaming at his protege with pride from the heavens.

Tea parties

Mala is also the “brand influencer” for the local politicians. She hosts some political meetings at her place — “my tea is very famous!” — wherein the local wannabe politician gets to interact with people in her neighbourhood. “It is always a good idea to have these meetings in your home, Manasi tai!” she told me with a giggle. “Our bachat gat needs credit. The local politicians put in a word for us at the local branch. Our Ganapati mandals need funds for the processions and the prasad and the band-baaja. We need the money, and he needs the people. Tell me if you want to hold a meeting or two at your place”, she said, as I visibly balked at the idea. “We can call all your friends and get them loans, that too at cheap rates!” I wonder whether they will invite her to the next MPC meeting to discuss the transmission mechanism.

Mala’s family owns some land on the outskirts of the city. At harvest time, she sells me farm-fresh onions, beans and other vegetables at lower-than-market prices — it’s the optimal moonlighting strategy. All the houses she works at, and those places that she helped secure the Aadhaar card and gas connections, have now become her distribution network. “But we still have to go to the APMC! All these new laws are good, but what to do when the commission agent at the APMC is also your lender? Maybe I should invite him for a small political tete-a-tete,” she said with a wicked twinkle in her eye. Can lessons on political economy get any more real?

The real deal

I am missing her in the Covid phase; she has not yet joined us back. She enjoys chatting with me on the phone and often feels the compulsive need to teach me some economics. “Oh, we are all doing fine, Manasi tai”, she told me with aplomb when I called her. “But I tell you, the economy is on a slide.” As usual, I was at a bit of a loss on handling this interesting piece of information. I mean, I felt a little cornered and insecure.

I started to wonder whether she will give me any tips on reading RBI guidance better, when she broke into my thoughts with the usual giggle. “See, I work at two places — this clothes shop and Patanjali. It is a delight to work at the clothes shop, there are no customers at all! My broom has to barely move over the floor (admittedly her speciality, I thought broodingly). Sweeping is just a formality, Manasi tai! The shopkeeper glares at me, but he can’t cut my salary. Heehee! But Patanjali is a different story altogether. I tell you, all people in this country have started eating Chyawanprash and desi ghee due to the Covid. I keep sweeping, but the floor is as dirty as ever. When the sweeping becomes easy at Patanjali and difficult at the clothes store, that is the day when things will become better!”

Here we go: Mala landed up giving me insights on some of the weirdest and yet perfect leading indicators of economic growth. I am guessing she will be called to Delhi soon. Hoping she will need me as the junior economist on the team.

Analysis of the Economic Stimulus by GOI

Hi all!

Here is a presentation on the Analysis of the Economic Stimulus Package given by the GOI on the backdrop of the current Covid pandemic. This presentation was used to back my talks for a few webinars – uploading the presentation here on popular demand by students!

If you have any doubts, write in to me! Keep reading, stay safe!

analysis-of-economic-stimulus-package-by-goiDownload

‘Jab’ We Met!

Hi All! I re-commenced writing my humour column – Tweakonomics 2.0 – in the Hindu Business Line today! Here’s the first column “Jab” We Met – the economic sage of a nation wanting to get vaccinated 🙂 Well, browse through, keep smiling, stay safe!

You can see the column at https://www.thehindubusinessline.com/opinion/columns/a-derivatives-game-folks/article34772478.ece/amp/; else scroll away!

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The nation is in a tizzy to get vaccinated. Now, here is the situation that they taught us about – high demand and low, fractured supply. The situation, as per textbooks, leads to a price hike. The situation, as per life, has led to a tizzy. Imagine you are walking down the street (you can only imagine this in the current situation), when all of a sudden the house you are walking past emits whoops of joy, those shrieks of happiness and people running hither-thither. You can bet your life on this, one of those fellas in that house has got a confirmed booking slot. 

Now, the entire country has only one major pre-occupation- How to book a slot on the CoWin app. Opening up the 18-44 age group when there are not enough jabs for the 45 plus is a masterstroke by the Government to keep all the youth population of the country firmly at home. Well, you can’t go out even if you want to. Your eyes move away from the screen for just a second, and you have lost your booking. Imagine, just a month ago, mothers used to be screaming at youngsters in the house, “Beta, how much time are you spending on phone!” Today, the only thing they yell is, “Beta, back to the screen!” The poor twenty-year-olds are now to be found looking completely confused and bleary-eyed after having got their parents, friends of the parents, uncles, aunts and even friends of those pestilential relatives booked on the app. After this thing is over, we will have an entire youth populace having permanently moved away from screens forever. Bye-bye, digital craze. Master stroke by the Government again.

So, by now, the market has spawned some truly interesting solutions for the present ruckus. There are now websites on which you register yourself. The website will send you an alert when the booking slot at a location within your preferred pincode opens up. This is a derivatives game, people! The underlying commodity is the vaccine, for which the demand is greater than supply, but prices are rendered immobile due to Government intervention. So we now have a layered product, wherein the websites that give out these alerts have created a market without Government intervention for advertisement spaces! Advertisers, especially those connected to any ‘health’ product, are now falling over themselves to showcase their products on the websites which work the best. Obviously, there are a lot of startups creating slot-booking apps. There are also multiple videos being posted on how to register yourself on the CoWin, followed by how to register yourself on the app that will send you the slot booking notification. These videos are normally only played after those highly irritating, mandatory 25-second advertisements in which you are taught the many mercies of e-commerce websites, mediclaim, health insurance, turmeric milk, fortified Atta and obviously those germ-killing cleaning agents that leave 0.01 per cent germs wriggling menacingly at you after the rest have been nuked. How do I know all this? Sigh!

Given that we are talking about a country that is literally obsessed with tuition classes, it is only a matter of time before we get a super-layered derivative namely coaching classes, which will then teach entire populations about how to register themselves on an app that then gives them access to an alert. And then, of course, these coaching classes will have entrance exams wherein the aspirants will be checked for mental abilities, apart from which they will be put through a fastest finger first test. Lucky us! We will now have to enrol ourselves into the fastest finger classes, so that we can get entry into tuition classes, through which we will learn how to register on apps that then give us an alert about the slots getting opened up. Mind you, the alert is no guarantee of you getting the slot booked. Once the alert comes in, you need to have 3 laptops and 3 mobiles running and frenzied activity on the aforementioned fastest finger first skill. It is a matter of nanoseconds, people! We are now competing with those superhumans whose finger dexterity stands at 38 clicks per second.

No wonder then, that the jab is such a festival. It is only a matter of time before those apps will start offering add-on alerts on mobility, fashion and photo-ops together with the slot booking alert service. Youngsters, bored to insanity through home confinement, are looking forward to the many dating opportunities that the 2 jabs will offer. Some youngsters were even found suggesting that there should be 5 jabs to get completely and fully covid-proof. It is after all, ‘jab’ we met!

The author is a brave economist trying to laugh against the odds.