Putin, Politics and Philosophy :)

The opening scene is Kremlin, where a worried (but outwardly unrelenting) Vladimir Putin is thoughtfully buttering his early morning toast, hoping that the rouble will sort itself out on its own.

Obama (This does not have to be THE B Obama…its just that Putin’s best friend’s name is also Obama) : Vlady, its just a bad case of Murphy’s Law. Its just that the sanctions had to happen just when the Saudi buggers decided to keep the oil prices low. Effectively, that’s what we are. Russia falling butter side down.

Vlady: I just hate this thought stream because its too…karma, if you know what I mean? There is an equal chance of the toast falling butter side up, 50%, Murphy be damned.

Obama (Eating his eggs sunny side up): But Vlady, there’s no butter side up for us. The Sunni side up in the Middle East has made it a real tough egg…err…I mean, look at all the numbers; everything is against you. The inflation is hitting 9% and FOREX reserves are down to $400 billion, about $100 billion of debt maturing this year and sanctions on rollovers, hardly any exports, and the rouble..

(Just then the TV screens show that the rouble has hit a new low of 90 to a dollar and Vlady drops the toast)

Obama: OMG, that’s butter side down! I told you, Vlady, its butter side down.

Vlady: Oh heck. Don’t get so excited Oby. I just buttered the wrong side!

Enters Sigmund and looks with total fond approval at Putin and at his unabashed Freudian reasoning capacities. That’s the way the Freudians work: They reason in such a way that you can’t possibly disprove their reasoning.

Sigmund: Lie on the couch Vlady and tell me, what is it that worries you. Where id was, the ego shall be. But id is so small damn it, how did you fill its place such a super sized ego.

Vlady: Crimea has always been an integral part of Russia in the hearts and minds of people!

Sigmund: Oh, this is wonderful! Tell me Vlady, tell me, why do you think that Crimea belongs to the Russians?

Vlady: Because…it has always belonged to the Russians!

Sigmund: This is delicious. Yes, yes, I begin to see. The post hoc ergo propter hoc fallacy complex.

Vlady: Talk Russian, will you?

Sigmund: After this, therefore because of this.

Vlady: After this session, Oby, I swear I will therefore because of this man, kick you real hard.

Oby (disturbed): Guys, focus..don’t let your personal issues get Russia down. The principle of parsimony. Occam’s razor. Keep it simple folks..Vlady, you were saying…

Vlady: Everything is for the best in this best of all possible worlds. So, Crimea belongs to Russia!

Sigmund (impressed): I never thought I’ll see the day when politicians confound me with Leibniz. But my dear man, illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

Vlady: What the hell was that? Illusion? 90% of Crimeans favor secession. The referendum was absolutely in accordance with international law…ask Oby, I told his namesake as much on phone the other day but he wouldn’t listen to me. If he got the Nobel Peace Prize, I will get the Noble Piece Prize…because Crimea..belongs…to…Russia

Obama : Now, now, Vlady, don’t get all worked up. We’ve got’em anyways…and the sanctions too, by the way. Ok, ok, don’t look all fiery…what’s some sanctions anyways? But remember why I got Sigmund here…ask him about the lady. The German.

Vlady: Hmmm…I can’t understand her. She is such a quiet fighter, she is rather like me, but very different.

Sigmund: Ach so mein lieber mann…go on…tell me…who is this lady who entices you so..

Vlady: Entices, my foot. She is one hell of a problem, Angela. She has got the entire Eurozone convinced that sanctions against Russia are justified. Just a few days ago, the Polish Tusk…

Sigmund: Ah, my child…now I start seeing the pattern. When you visited the zoo in your childhood, you were threatened by the elephant.

Vlady (yelling): Oh, heaven help me! I am talking about THE Tusk guys! The Polish PM…can you believe that he had the guts to levy sanctions on me, the mighty Putin. Poland? Poland? Who is Poland? Nobody. Its not Tusk, its the Angelephant behind it. Otherwise would Poland have the guts to talk to RUSSIA? Me vs. Angela is guns vs. butter. And this moppet doesn’t blink at the sound of guns.

Sigmund: The great question that has never been answered, and which I have not yet been able to answer, despite my thirty years of research into the feminine soul, is ‘What does a woman want?

Vlady: Then get the hell out of here. I want a solution to the Euro stand off. And I don’t have thirty years…oh god, that’s already one day spent on psychoanalysis out of the two years in which I have claimed Russia regains her original avataar.

Obama: Vlady, India on line.

Vlady: Yes, let me chat up. By Jove, its good to hear a friendly voice. Earlier, of course, when I called in March to tell’em that now Crimea is ours because it was always ours, I was met by friendly silence. Now of course, there’s lot of noise. Yes, put him on…Krem cho?


This blog is dedicated to the MBA Finance batch 2014-16 for having encouraged my ramblings on philosophy and Russia with unabashed enthusiasm. The book “Plato and the Platypus walk into a bar” has changed me forever and this blog takes off majorly on the anecdotes in the book. I am indebted to you, Pranav, always, for having given me this delicious read.


A Ludd-ite and Dahl-ite econ mom..

Its been tough coming to terms with this one, really. Its a serious problem. I have always thought there could be a way around it, but increasingly, I realize that I can’t work around this one. Oh, no no no..so let’s face it…I …am..luddite.

Now that I have confessed (its a lot easier talking about things once you come out clean,eh?), let me tell you that I have always been one. Long long before Raghuram Rajan made it fashionable to be one (remember the most celebrated brawl in financial economics, when Larry Summers, in a fit of overconfidence in the financial innovations of which he was part, accused good ole governor to be one). Well, that was a turning point of sorts for me…because I had suddenly come across the one word that possibly fit my personality rather snugly, so nicely that I immediately thought that this is the right word for me.

Oh no no…don’t get me wrong. I was not keen on joining the Rajan club (though wouldn’t mind that, he he he), I am not talking about being the luddite economist..I am talking about being a total, total, total…luddite. One who doesn’t like technology, one who doesn’t take to it…I wouldn’t go so far as to say that I am against it. But I can do without it. Seriously. And rather happily. And my happiness, as my friends and family (and my rather geeky and totally non-luddite lil one) tell me, is my biggest problem. I am the only living relic of the 18th century, is rather their accusation.

So, in a fit of dare-devilry (I am subjected to these on and off) about a month ago, I declared to everybody that my New Year’s Resolution is to become ..uhh…tech savvy.

I regretted my words the moment I said them. Just the delight in everybody’s eyes told me that I had said something that would now be held against me every time I objected to stuff like TVs and Whatsapp and …just computers. Till date, my voice had that ring of conviction when I berated my nephews, nieces, and my son too for spending too much time on “gadgets.” “Read”, I would admonish and get looks of total disbelief and pity in varied degrees from the younger ones. The younger they are, from 22 down to about 16, the pity and disbelief grows. Between 16 down to 14, they are so busy whatsapping (or whatever it is that they actually do) that they don’t really react. Its rather like the anomalous expansion of water. Whilst the 22 year olds just kind of shrug their shoulders and get back to whatsapping, the 16 year olds actually snort and make audible dissent recorded and generally do stuff to make you feel old. The twelve year olds (that’s the greenhorn teenage category my son belongs to) try to control and not attack you physically. So well, now you can understand how much delight my unwary statement must have created in my family.

“You need like a new phone like immediately”, drawled my niece who like cannot like say like a single word like without like. Its the new thing with these people. They either whatsapp, or they like do the “like” talk. “Its all about internet presence maasi” informed another. “You are pathetically low profile on the net….in fact, its no profile”, he guffawed, unable to control the geek attack. “Facebook account, twitter, linkedin profile, a gravatar presence,…oh god, there’s too much to do in just a month,” said a third… and my mind was thrown back to the time I had heard the word “makeover” for the first time. “Wardrobe, cosmetics, hair, shoes, accent, poise” were the pre-whatsapp makeover words. Now, its about the e-poise. Oh damn, why did I say this, I was groaning internally, when, suddenly, my son piped up “Maa, lets get an iPhone.” Apparently the geek quotient varies directly to the price of the phone. I totally put my foot down on this one…I am NOT doing away with my phone. Its really old and dog-eared and looks quite ancient and I …love it. I am not doing away with myphone to get an iphone. Firstly, pant your way through the price. Worry about it (the phone AND the price too…price skimming, remember?) falling all the time. A scratch on the iphone means a scratch on your ego. And then, what in the world am I going to do with it anyway? Talk a bit, sms a bit (yeah, I still do it) and whatsapp a bit (see, I am not that bad), take photos and set an alarm for the morning. I’ll be damned if I am paying some crazy price for this.

There’s ummm…one more problem. I am not only a Ludd-ite…I am also a Dahl-ite…as in Roald Dahl? Charlie and the Chocolate factory, the giant peach and all of that…you may be wondering where Roald Dahl came in suddenly…you see, Roald Dahl used to be cursing television ALL the time. So do I…oh, I really really don’t like TV. And I just can’t stay away from books. In fact I am more Dahlite than luddite.

However, now, even some of the books have a reference to the TV patterns; after all, books automatically reflect the society and the tastes of the people. So, it was with a lot of interest that I read The Hunger Games by Suzanne Collins last week. Its gripping and despite the fact that its actually for a teenage audience, I found myself unable to keep it down. It probes a reality show wherein the contestants are left in an open controlled (by the game-makers) forest arena with only one task- stay alive. Even as I was reading it, I was forcefully reminded of the Lord of the Flies by William Golding, in which some children get stranded on an island and come to terms with their own deep rooted emotions of power hunger and control. Of course, in Golding’s book, the tussle is shown between the power hungry and the fair-minded, between dictatorship and democracy, between the two opposite sides of the human mind. The prize for winning? Life. In Hunger Games, the protagonist has to not only outfox the others in her race to stay alive, but she has to be into a mindgame with the audience which is watching her 24*7 and sponsors, who may send her survival gifts if she looks good enough while murdering the others.

Hmmm…for a person who cannot take reality TV at all (once my bhabhi forced me to watch that perverted Big Boss thing and I nearly threw up inside 12 minutes and took the next 12 days to recover…how can anyone watch it) and hardly any other type of TV too, I really appreciated this book. Its nice. So, I think I’ll change my new year’s resolution. I’ll become tech-savvy in couple of years. For now, let me just read some more.


On why India may be performing better on the corruption index

Hi all! Just read in the papers that the Corruption Index is out for 2014 and that India has bettered her score this year as compared to (the paper claimed rather gleefully) our not-so-friendly-neighbourhood. And that set off a lot of thoughts in my mind: both qualitative and as my training and profession unfortunately took over- quantitative.

On the qualitative side, a lot of papers that I had read about the issue right from classic Anne Krueger (the rent seeking one, 1974) to decriminalizing bribe “giving” by Kaushik Basu (whilst he was Chief Economic Advisor) to the rather wonderful reference to the “oligarchists” of India by Raghuram Rajan (whilst he was again the Chief Economic Advisor) started playing in my mind. The other part of this rather qualitative musing was image driven: the first image being the “I-am-Anna-Hazare” cap on the heads of quite a few young people, the Aam Admi Party’s high-on-emotion win in Delhi, the humble Zaadu becoming symbolic of lesser corruption (of course by now I associate the zaadu only with my household help on a holiday or Swachh Bharat), media reportings on the spectrum scams…

On the quantitative side, of course I was immediately crowded with thoughts as to how corruption can be measured. Its kind of interesting you know. Cos if you try to measure it using the number of scams that are uncovered by media, or the number of cases being tried for corruption, or by using proxies as to whether special courts exist in India for trying corruption related cases, or the number of business tycoons/ politicians serving a term in jail on account of corruption, then you are actually capturing the anti-corruption drives of the system, right? I mean, more is the number of scams getting uncovered and number of cases under trial and numbers of tycoons or politicos in jail, it means that we are getting to the root of the issue rather nicely, eh? So, corruption is something that does not lend itself to quantification easily…now this is a great problem when it comes to ranking countries based on corruption.

So my next stop was of course at Transparency International’s FAQs which answered how the Corruption “Perception” Index is created. What the Transparency International does is that it ropes in some international institutes of repute that have been working in countries or regions across the globe. These institutions could be banks or simply business intelligence units of journals/magazines that have cross country operations. Now the officials working in the different countries are asked to answer perception questions such as whether the Government is doing enough to control the “graft” menace or whether legal systems have been created to control the issue. It is also important to note that this index only captures the corruption related to the public sector. It is based on the perceptions supplied by these institutions that the index has been created. Now, given that there are so many perceptions that would be fed into this composite index, any change in any country would reflect very softly onto the country’s overall score. India’s 2012 and 2013 scores were at a constant 36, but have now moved up a bit to 38…the index moves from 0 (scarily high corruption) to 100 (fantastically low levels). But still, with 38, we are not even at half point, are we? The EU and Western Europe have an overall average score of 66, whereas Central Europe as well as Sub-Saharan Africa show low average scores of 33. The Asia Pacific as a region has an average score of 43, with India, at a neat 38.

Has the corruption level in India reduced? Well, given that the entire political system seems to have undergone a massive upheaval and that one of the key areas of concerns for the young voters was corruption, it does look like systematic public sector corruption has gone down. There are two reasons that I can think of.

First is largely that the public angst with corruption has been so high in the past couple of years that the brand equity of companies/ political parties/ Government departments/ bureaucrats associated with being just simple “clean” is extremely important to all players at the moment. How does this brand equity issue affect the “rent seeking” equation of firms? Let me firstly put this “rent seeking” in perspective for the uninitiated. As Wikipedia would tell you “Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of that which is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.” Rent seeking (originally coined by Anne Krueger and superbly applicable to India pre-reforms under the controlled industrial development that the License Raj created) has a cost-benefit balancing about it which is rather obvious. So long as the illicit payment that is done to the Government (which controls the land or mines or spectrum or any which resource you want to think of) is lesser as compared to the gains that the player (or payer!) accrues from the resource, rent seeking would be natural behavior for firms. However, in the past two years, the public outrage has created a new cost: the cost of getting caught in the act of rent seeking. Now, if caught, the brand equity suffers so very badly that the costs of rent seeking rise exponentially to make the activity err…less interesting…or just plain less affordable.

Second is the more cynical (and I seem to be unable to avoid this variety) thought that the set system has been replaced by- we do not know what – system. Now that is seriously interesting. So, you don’t really mind giving that bribe, but you don’t know which button to push, whom to talk to, which official calls the shots in the new hierarchy. Lack of “cronies” in a system that has largely run off a shudh-ghee-desi brand of crony capitalism is such a new phenomenon that no one quite knows how to deal with the damn thing.

In the meanwhile, the corruption index driven score for the country has improved and the new Government is basking in its clean image. Cheers to “Swachh” Bharat!

There’s room for a rate cut, Dr. Rajan

Hmmm…its that time of the year again. As the industry, bankers, credit rating agencies and the markets watch with bated breath, the RBI Governor will have to think of the changing economic scenario in Indian and take a call on whether the rates can really be cut tomorrow.

One of the biggest arguments in favour of the cut is that the inflation of the country seems firmly under control. Frankly, at a WPI inflation of 1.8% and a CPI inflation of about 5.5%, it looks like there is finally room for Dr. Rajan to switch to a pro-growth stance from the anti-inflation image he has favoured over the past one year. Agreed, the reduction in the inflation has largely come in from an external source: Declining oil prices. But it does look like the chances of oil staying at a range of $70-$75 are rather high and hence it looks like our inflation figures could continue to look benign in the medium term.

How much of an impact do oil prices have on the WPI numbers in India? Given that the fuel group carries a fairly good weight in the WPI, oil price softening will immediately impact the WPI. Whether it will be allowed to spillover into a CPI impact will again largely depend on how the Government is viewing the situation. I have a feeling though that given that the FM is sticking to his “sacrosanct” (and rather annoying, I must say, since it was an unrealistic target to set in the first place) fiscal deficit target of 4.1% of GDP and given that something like 90% of this target has already been met in the first 2 quarters, he is not going to be in a mood to quickly pass through the reduction in subsidies to the consumers in H2. So while we will see a softening of the crude to work its way into the WPI, it may not really help to reduce the CPI numbers.

Ok, so to come back to the point, when the crude prices go down by 30%, by how much do the Indian WPI numbers gain? I chose to do a simple regression here, to give me a basic understanding of how the causality works. So, I downloaded data on OPEC average annual crude prices and Indian annual WPI numbers from 2003 to 2013 and did some simple play with these numbers. Now, before I tell you the results, I already know that this exercise has not been checked for the non-stationarity impact, its constrained due to the lesser degrees of freedom it enjoys etc..I know. But I am just trying your average play-with-numbers-to-get-a-better-picture game. When I regress the numbers, I get an overall significant model and a goodness of fit of about 65%, which is decent enough for starters. The slope co-efficient is the pass-through number, that tells me that when the nominal price of crude in dollar terms goes up by a unit, the WPI in India seems to go up by 1.18 units.

Assuming that the nature of the relationship will hold for one more year, all we have to do is to forecast what the average crude oil prices could be in 2014-15 and voila! we should be able to understand the way the inflation will go led by the oil price reduction; other things blessedly, remaining constant. Now, I worked out three different scenarios for this year: Prices remain between $70 and $75, or they move to $75- $80 range or they push into the $80-$85 range. Frankly, there are reports that the prices could fall below $70, but I am sticking to the obvious ranges we have witnessed so far. Again, I really do not believe, given the global health numbers (The IMF forecast for world GDP growth rate 2014-15 is a morose 3.1%), that the oil prices can move beyond the $85 barrier. So, using these 3 scenarios, I worked out what the average annual crude prices would be for 2014-15 and used the regression equation to make a quick forecast of how the WPI numbers for India will look for the year 2014-15. Folks, the average WPI number shows a decline in 2014-15 over the 2013-14 level under all three scenarios, indicating the possibility of a deflation.

Now, that really means that India seems to be headed into a commodity deflation, led by oil price reductions. This very basic work is of course NOT taking into account the other neutralizing effects, such as the effect of the sub-normal kharif output on food inflation. Now given that we are looking at such benign inflation numbers, letting growth concerns take a priority position seems correct, especially since the newly out GDP data seems to suggest that Q2 has shown damper growth prospects as compared to Q1.

If the Government is serious about sticking to that fiscal target (and so far, it does seem to be), then Government spending cuts will have to be implemented in H2, oil price reductions notwithstanding. That could mean that the growth rates in H2 will also remain muted, unless we allow the private investment to come into its own, quickly.

If the RBI slashes the repo by 25 bps tomorrow, it will give that added sentiment jolt to the industry, which could drive investments in H2. There’s no time like the present, Dr. Rajan. Go for it.