Econ Mom talks Gauss to the anti-Maths son

“Ok, what are concurrent lines?”I asked for the third time. No answer. Because my lil one has these special Manasi filters fitted into his ears. These are specially designed filters that all pesky kids at age 11 are gifted by the Almighty himself. They are specialized cochlear implants, invisible to the human eye, made with the latest design and technology so that except for Mom’s ugly voice, ALL possible sounds, even those that are made at ultrasonic frequencies by interesting people such as Harsha Bhogle, M. S. Dhoni and best friends calling for playing gully cricket etc. can pass through..GGRRR…

“WHAT ARE CONCURRENT LINES???”I yelled to the living room in general, thereby jerking hubby out of his date with the World Cup final (the lil one, thanks to the filter, didn’t even notice that mom just brought the ceiling fan down), causing him to realize that there is this livid specimen of a wife in the same room and that too, one (wife, not room) filled with that zest for cracking upcoming Std. VI exams that he soooo cannot fathom. “Eh?” hubby started guiltily, “concurrent lines..are those, which are, well…concurrent” he concluded triumphantly. “But sweetheart (oh I hate it when he talks to me like I am in Std. VI), why do you need to know what are concurrent lines? I mean, this passion for Geometry at this age”…oh, gimme that geometry box, someone, quick…cos its got that divider in it with some seriously interesting jabbing possibilities there…hehehe..

With agility and speed that would have put the most acutest of angles to shame, I made my arm concurrently intersecting with the lil one’s arm and grabbing him, kicking and yelling, dragged him to his study table. There he sat, looking mutinously at me. “That’s the WC Final you just dragged me out from Ma…how could you?” Oh, yeah? “And that’s your Maths Final you are going to flunk tomorrow if you don’t pay attention. Yesterday, you drew a perpendicular bisector that was at 91.8 degrees, a whole 1.8 degrees extra, how could you, to the horizontal line. Alright, I want you to solve these 10 problems. NOW.” The lil one reacted pretty violently to the whole idea muttering something suspiciously like “Hitler.” Sigh. I let that pass. Doesn’t make sense to push him too much..

Who the hell created this new parenting mush anyways? Oh, I often think wistfully of those delicious old time tested methods of a good spank now n then to get things going….heeheehee..You know what Mommyhood is? Oh, never mind what they told you about it being the most uplifting feeling in the world, filled with moments of joy unparalleled. Its unparalleled alright, but most of the times, that joy bit is so not happening..Mommyhood…Its about identifying with Argus Filch (PERRFECT!) in every which way. Right from being the only confirmed Squib amongst the cricketing wizards to cleaning the muck in the castle ALL the time (GRRR) and feeling more and more happy at the thought of crazy punishments that can be meted out…heeheehee…yep…mommyhood is about feeling Filchy….

“Done…Can I go see the match now? “No.” I reacted reflexively. One of the golden rules of Filchyness. When kid says X, you say Not X on automode. “But mom, I HAVE to see the Aussies bat!” And, with that, he skipped away to the match, where Daddy dearest was waiting for some company. Oh, what a disaster! This child has solved 3 out of the 10 problems wrong. Am I teaching him Maths the wrong way? (That’s typical Mommy reaction too…GGRRR) Well, c’mon, that cannot possibly be the case. Maths cannot always be taught…

My mind went back to Carl Friedrich Gauss again…the mathematician? A child prodigy. No, actually an infant prodigy. “What’s a prodigy, mom?” That was the lil one, later that night when I was telling him the story. “Well, someone born with skills. Inherent, inborn skills. You don’t have to be taught things. You just know. That’s what a prodigy is”. I was amused to see the lil one green with envy. “Superwickedcool! He must have done Maths exams without preparation!” There are so many of those interesting stories around Gauss. It’s believed that he taught himself to read at age two (“Hmph”, lil one reacted, the sour grape), since there was no one around to teach him in his very humble background. And at the age of three, he apparently spotted a mistake in his father’s accounts. (Lil one was snorting in disbelief, but I pushed on bravely through the biography..)

Such a genius was Gauss at Maths that he used to solve everything the teacher said in a jiffy and then bother the other kids (“Heehee, thank God, the boy had atleast SOME fun..”). So, one day, when he was just seven years old, his teacher (must have been in a Filchy mood) told him to add up 1, 2, 3,…all the way to 100, thinking that that would keep him engaged for a while. But “5050” he piped up in the next few seconds and gave the superb solution that he got 50 pairs of numbers that added up to 101 (1 and 100, 2 and 99, and so on..) There are some anecdotes that he actually said something about “folding up” the number line to come to the solution! How lovely! I am smitten…folding up the number line!!!

Well, what unparalleled interests the man had! There was an Italian astronomer by the name of Piazzi who had spotted a celestial body which he christened “Ceres.” However, Ceres apparently suddenly disappeared! Gauss did the mathematical calculations that predicted when and where Ceres could be spotted next, and that too within only half a degree of error! “Yes, I knew it! Sign of genius, Ma..All geniuses do their geometry with a couple of degrees off!” Sigh.

It was Gauss at just 19 (I thought this would interest my lil one immensely, since we are currently struggling with geometrical constructions) who showed that the construction of a 17-sided regular polygon could be done with a compass and a straightedge (“Oh, it was HIM, was it…GRRRRR” Indignation. Anger. Red in the face). It is also said that he had requested that a heptadecagon be inscribed on his tombstone post his death. But the mason declined saying that a 17 sided regular polygon was too close to a circle to work so hard on it! As things happen, Gauss’s tombstone at Braunschweig has a pedestal in the shape of the heptadecagon…

“A 17-sided figure…and here you are, troubling me all the time with a simple angle-bisection, for heavens’ sake!” I grumbled to him once the story time was done. “But”, reacted the lil one cleverly, “could he play 3 boundaries and 2 sixes over the rooftop when team was 5-down? What a boundary I hit, Ma…You should have seen it. Half a degree to the left and I would have got caught. But total accuracy, Mom, total accuracy…that’s MY cricketing mantra..Oh, I am sure I would have beaten him at cricket” God, what is the world coming to? I was despairing when “Ummmm, mom? Did his mother teach him at home?” Well, Gauss’s dad was a gardener and his mother was illiterate. In fact so illiterate, that she never even recorded his birth date. She told him once later that he was born 40 days after Easter and Gauss actually worked out a formula to understand when Easters must have occurred in the earlier years and then got to his birthdate. “That’s no big shakes. Even I could have done it…Its only that well, I already know my birthdate!”

The Maths paper, as expected, was a disaster. “All because of you,” he reacted on coming back home. “Why couldn’t you be illiterate, eh?”


On Life, Statistics and Some Spectacularly Crazy Mathematicians

This blog is about random, independent and probably highly insignificant, non normal non-stationary statistical meanderings. The last I calculated it, the probability that anyone could finish reading such random stuff was about 0.00034.

So, there I was. In the midst of that terrific traffic chaos in Pune. 6:00 p.m. People, tired from the day’s work in office, wanting to get home. Mothers, with two little ones on scooty peps. School kids chattering dime to dozen on their bicycles, barely noticing the smog and laughing delightedly in a way that only a “school-is-over” event can bring on. In the rickshaw next to my car was an old man looking agitatedly at his watch and urging the rickshaw wallah to hurry. Hope nothing’s wrong, I thought. Hawkers selling roses and kiddie toys looking shrewd and snappy about the traffic jam; an extra 4 minutes at the signal means brisk business. The signal turned green. And the traffic moved.

In different moods and colors, to different destinations from different start points, with a sense of happiness and with irritation, the traffic moved as one. One rhythm, one direction, one sense of purpose. Radio Mirchi squawked “Traffic moving slowly and normally through Karve Road”…Eh? What was that? Normally?

Why is traffic normal, when there’s nothing normal about the individuals who are its components? A gentle tap on the window and I saw those twinkling eyes giving me my answer. Oh my God, are you really George Polya? Yes, he nodded at me gently. And then said the sentence that absolutely put to rest any doubt I could ever have about his identity. “I thought I am not good enough for Physics and too good for Philosophy. Mathematics is somewhere in between.” As Polya settled down in my car, his usual spry animated self, the answers dawned on my mind. The Central Limit.

I mean, look at all around you. You find those large number of random, independent variables, each with their own distribution, each going through the motions of love, happiness, stresses and tensions. People. Random variables. And yet, the summation of the populace, life in general, moving normally. Wow, I breathed softly, hats off! Polya, you crazy genius, in which fit of madness did you coin the words “Central Limit Theorem” to explain the most fundamental theorem in probability statistics. Its not just probability statistics; time and again I connect to the Central Limit and the Law of Large Numbers as theorems that hold the explanation to the process of life itself.

As life passes by, as the days go by, we find that we all tend to an average way of life, some average thoughts, some average standard of living. Sure, each person defines his own average differently. But the fact is that as the days collect into our kitty, we start living the Law of Large numbers. On a particular day, life may treat us rather well or unkindly; but the average life of the average person is on an average…average! How “mean”, you may well say, but there you are! Such is life; defined by the Law of Large Numbers.

I like to think of life as a time series; mostly non-stationary. It rejects almost all attempts to stationarize it. Should you manage to, it mostly turns out to be an ARMA process, part Auto-Regressive (anthropologists love to call this genes), part made up of a Moving Averages of past errors (and the psychologists call this environmental adaptation). Predicting the future (how rum is it that the master of forecasting should be named Box; this is one guy who is definitely out-of-box!) requires an artistic, atheoretical and unique approach and mostly is riddled with crazy levels of failure. And yet, most of us, wizards to muggles, want to study and understand the mad art and science of forecasting. They call it divination, and we, astrology. “Mars is bright tonight.” We try to fit patterns to the lines on the forehead and assess the statistical probability of combinations of stars creating situations of a particular type for us. By the way, did you know that the Ordinary Least Squares as a method of minimizing errors was suggested by Gauss in his work on movement of celestial objects? There you go. All statisticians have been enamored by it. The movement of the stars. Their effect on our lives.

Gauss. The other genius. He is always around in my life too. The Gaussian wrackspurt, if you will….

The other day in college, end-of-the-session babble broke out in the classroom as I wound up the discussion. And suddenly a student asked me a question. Such was the babble that I couldn’t really hear him. And merely guessing what he was saying, tried to give a rational answer to his question. His look told me that I had inferred wrong. A gentle tap on the door .“Inference. It always goes wrong when there’s way too much noise around you”. I swung around to see him walking into my class. The babble was still on; but my mind had turned into a silent zone. There was total silence. Till he decided to talk. Gauss. The Greatest Mathematician since Antiquity.

“To hear the question and give the answer: That’s estimation, my dear. But, to interpret the question correctly. Ah, that is the art and science of inference. If the model errors are too vocal, exhibiting auto-correlation or heteroscedasticity noise, the inference on the estimates goes wrong.”

How did you know, my mind was asking. How does the solution come to you…Does it come in a flash of lightning, or is it a slow, prolonged process.. “I have had my results for a long time: but I do not yet know how I am to arrive at them.”

A good poem and a rainy day. Can’t get better than that. A poem titled “Yevgeny Onegin”by Pushkin. Hmmm, on the continuation of life even as death takes us over individually. And what’s this? Markov’s commentary on Onegin? Andrei Markov. Really? I mean, could this be THE A. Markov? As in, the Markov chains guy? What in the world does HE have to do with Pushkin now? Quite a lot, as the story goes.

We go back in time to meet Pushkin and Markov. In the tsarist Russia of late 1890s. At that time, statistics had developed to a point where probabilities of sequences of events were being estimated as the product of the two events happening independently. So, if a day can be sunny or rainy, the P(Day is sunny) = 0.5 and P(Day is sunny when earlier day was sunny) = 0.5*0.5 = 0.25. But, events are usually dependent, aren’t they? So, if today is sunny, doesn’t it impact the probability of tomorrow being sunny? Isn’t it true that probabilistic chains necessarily need an intertemporal dimension? The probability of an event today HAS to depend on the event occurring in the most recent past, a little lesser into more distant past and so on. And therein lies the genesis of Markov chains.

Markov was a man possessed in proving the interdependence of chains of events in a temporal sequence. His choice of a sequence to prove interdependence? The poem “Onegin”by Pushkin. Oh, this is sublime!

He chose the first 20,000 letters in the poem arranging them without punctuation or breaks, counting 8,638 vowels and 11,362 consonants in the process. There were 1104 vowel-vowel pairs, wherein a vowel follows another. Now, if occurrence of a vowel in the sequence is independent of what occurs earlier, then, the P(vowel-vowel pair occuring) = (8638/20000) * (8638/20000) = 0.19. That implies that in 20,000 letters, such combinations should have occurred 3731 times, nearly thrice the 1104 number of times that they occurred!

Wow, wow and more wow! This necessarily means that independence of vowels stands rejected! Thus, letters in a word are NOT independent you see; there is an overwhelming tendency for vowels to alternate with consonants in a language! The same logic has hence been used in applications as diverse as understanding motions of gas particles to creating the Google algorithm.

Onegin may be a poem par excellence; but it will go down in the annals of history as the literary masterpiece that served as a workhorse for a uber creative mathematician. How befitting that Onegin should talk about continuity; because if there is one theme that Markov explored, it was one of continuity and interdependence…A gentle tap on my shoulder…I need to go. It’s Markov.

Econ mom on Cricket

This blog is not for men. Men are advised to read it at their own risk and refrain from making superior-toned comments on my cricketing worries. Women, the more sensitive hearted gender, God bless you! I am sure most of you totally agree with all my observations and share similar tensions whilst watching the crazy game called cricket.

I mean, fathom this. When the player in the slips catches the ball, it seems mandatory that he throw it into the air with a whoop and perform a celebratory dance by climbing onto the back of the nearest idiot who comes prancing to hug him. This is also exactly the time when the channels take us away from the mad hoopla dance (how disappointing!) to suggest either getting the house painted or some crazy beauty regimen that makes pimples disappear. Aaaaaaaaaaaaaarrgh! And I really want to see the expression of the fielder who is bearing the weight of the entire country’s expectations as well as of the guy in the slips on his shoulder. I have often thought of recommending to successive captains that he keep the lightest players in the slips. And some weight lifter Hulk kinda guy nearby. Its a win-win, I tell you. Hulk can intimidate the other team with sheer size. And can be sent off immediately for a weight lifting event post-match.

And the most important issue, and the one that truly worries me to death: What about the ball? I mean, irrespective of whether Clarke and Watson stay on the pitch or no, Newton always does. Sorry, let me explain. That ball, the one that the slip of the player in the slip didn’t let slip? He throws it up, right? As a part of the post-catch throw and dance routine. Well, so its going to come down at some point in time obviously…they never show it come down..and it worries me tremendously. I wish they would allow the house painting and pimple cures to be postponed till such a time that it came crashing down to some safe place, quite a way off from Hulk and Slip.

And this really huge question of the difference between the LB and the LBW. This crucial difference of the W can only be understood by those of the unfair sex, is my contention. I mean, my wisp of a son, just by virtue of being born as a male, knows this instinctively. And when, with my cricket watching cum commentary experience of so many years, I gasp, “OMG its an LBW”, comes the superior tone immediately “Gosh maa, how can you be sooooo uneducated? That was only a leg bye.” Now, I have a deep resentment for the name itself…how can you call it leg bye when the leg actually is giving the ball the royal bye. As a small kid, I used to initially think that the leg bye literally means that the leg is…you know, ….bye. Broken. And it used to worry me immensely. No, not only the fact that some guy had to sacrifice an entire limb for the nation; what used to worry me MUCH more was the completely business-as-usual approach of my elder brother and friends who used to be totally unmoved by the saga of such a huge sacrifice. Rude! And then my deep admiration for the Gavaskars and the Vengsarkars who used to keep playing gustily, without so much as a grimace…what bravehearts!

And then, my innocent mind used to spend a lot of time mulling about Umpires. Doesn’t the umpire get bored stiff? What a thankless job! Hold people’s hats and point a finger occasionally to the skies. Done. And to stand steadfast in that hot sun in the face of threatening faces and war cries of the bowling team, shaking your head sagely at’em. If I were to be the umpire, I would have made sure I would have dropped a spider or something into the hat of the next ugly who dared make threatening faces at me.

And this thing of banging fists with those of the other batsman after a 4 or a 6? This was so not around earlier in the gentleman’s game. Now, think about this reasonably. If I have just hit a boundary, I have saved myself the effort of running like the devil across the pitch, right? So, enjoy the break. Now the new style is that you go running across anyway, that too without fear of getting run out, in order to bash up the other guy’s fist. What if they get hurt, I always fret. And I really hope they won’t do some crazy cost saving on the design of that batting glove. The most cushioning goes on the fist, is the correct design strategy, says my womanly intuition.

And what do they speak about in that huddle, I wonder. When I was a real little kid, my brother had wickedly told me (looking back I realize it was quite creative of him…..grrrrrrrrr) that they say “Holi hain bhai holi hain. Boora na maano holi hain.” Even at age 6, this answer was so madly unacceptable that I looked askance at him for a seriously long time. But this information had come across with such a straight face, that I was forced into accepting it and I did so for a real long time. It was dad, in whom I confided worriedly, 6 years later, when aged around 12, that they should be getting more serious than singing “Holi hain bhai holi hain. Boora na maano holi hain” just before that crucial match against Pakistan. I still remember Dad’s face; first disbelief flitting across and then crazy crazy laughter. I also remember him going after Bhaiyya with vengeance. Heh heh heh.

Life does come back full circle though. When my lil one was 6, he asked me, “What are they talking in the huddle, mommy?” Heeheeheehee.

PDMA: The new banker to the Government

This Union Budget came out with an announcement that the public debt management function of the RBI will now be siphoned off to the new “Public Debt Management Agency” or PDMA. All at once there has been a flurry of news daily of how the RBI is taking this news; reports have ranged from the Governor calling it a “worthwhile move” to some claiming that the RBI is unhappy with this “siphoning” of its responsibilities even as RBI officials take great pains to explain that there is no “rift” of the RBI with the Government of India (GOI) on this.

Here’s what makes the PDMA such an important issue.

Firstly, do we need a PDMA? YES. Before saying any other thing, it’s important for us to appreciate that the PDMA is going to be necessary; it’s really not a question of if, but that of when…it can get functional. Why PDMA? Because the RBI has been traditionally looking after two functions that philosophically and practically clash with each other. If inflation control is a priority objective for the RBI, the RBI may try to fund the fiscal deficits more from the market borrowing program, thereby hiking the yields of the bonds. Now, this implies that the Government can now raise money only at higher rates. Thus, inflation control and the objective of helping the GOI to raise low cost funds stand at opposite ends of the spectrum. The idea is that the RBI will now actively engage in inflation control (as per the amendments that are currently under process on the RBI Act) as a chief priority; as you may well be aware, the RBI will “target” an inflation figure of 4% with a band of 2% around it. Even as the Central Bank now actively targets an inflation level, the entire onus of raising low cost funds for the GOI will be undertaken by the new agency- the PDMA. The bonds will be issued by the PDMA and G-sec market regulation would be done by SEBI, just as it currently does it for the corporate bonds. But what if the GOI asks the PDMA to raise too many funds for it? Well, so a fiscally responsible and committed GOI and an inflation-targeting Central Bank are the two logical precursors to setting up of the PDMA. And that is why I commented earlier that its not really a question of “if”; it seems to be more a question of “when” the PDMA could get functional.

How will establishment of the PDMA help the GOI? Currently, the GOI, facilitated by the RBI, carries out its market borrowing (around Rs.5.9 lakh crores this year) program by largely borrowing funds from the banks. As the number of participants into this niche market has been so very restricted, it has created a largely sticky yield level. Further, for balance sheet management, banks have shown a tendency to HTM (hold-to-maturity) the bonds, due to which active trading in the G-sec markets has not really taken off in India. In a bid to create more excitement on bond trading, we have seen in recent times the RBI scaling down HTM proportion of the SLR chunk of bonds. However, for the Government to truly raise funds at a lower rate, what is required is more participation i.e. deeper and broader bond markets. What is being envisaged is a liquid, broad and deep bond market, in which G-secs and corporate bonds can become true-blue investment banking instruments. This should enable the GOI to truly “discover” the bond yield, and hopefully a lower one, rather than rely on one that comes out from forcible devolution of bonds onto reluctant banks.

Does the establishment of the PDMA help other players in the market such as banks and corporate houses? Obviously, yes! Once the bond issuance function of the RBI is taken over by the PDMA, and once the numbers and varieties of securities trading firms that can demand G-secs start rising, the RBI could well be in a position to drastically reduce the SLR holdings ratio, giving banks that much more control over their liquidity and profitability management. Corporate houses obviously stand to benefit as this room created by reducing the SLR could well be used towards reducing the interest rates profile of the economy.

Further, it would be fruitful to spend a minute on understanding how the siphoning of the G-sec issuance function to the PDMA will help create a healthier monetary transmission mechanism (MTM) for India. MTM basically helps us to connect changes in the money supply to changes in the GDP, through the interest rate transmission channel. Now, in the recent past, the transmission has not really worked and especially so, in the downward direction; reductions in the policy rates haven’t necessarily changed (reduced) the lending rates offered by the banks to their end customers. One of the oft cited reasons for the weak MTM in India is the weak bond markets. Once the RBI puts in a liquidity enhancement through rate cuts, this should create more appetite for bonds, driving the yield rates down. However, HTM-savvy banks and static bond markets really mean that we have lost that precious link between policy rates and yield rates. As the yield rates do not exhibit the correlation that ought to have vis-a-vis the policy rates, the discovery of the term structure of interest rates for different instruments loses its link to policy rates, resulting in MTM failure. Siphoning off the bond issuance function to the PDMA and integrating the G-sec and corporate bonds into one market segment makes inherent sense, because it not only frees up the liquidity that is currently forcibly pushed into G-secs by the banks, but it also gives a genuine chance to the RBI to affect the real sector through a alive-n-kicking monetary transmission mechanism.

With a Government that has so recently re-affirmed its faith in the FRBM and an RBI that has a swanky new inflation target role, isn’t it too early to get into one more change? Perhaps so. But it is a healthy start and it looks like finally, bond markets will get the make-over that has long been due to them. As the Romans would have said it, alea iacta est. The die has been cast.

Econ mom gets FB sassy

On our way back from our weekend trip, we stopped at CCD at this place near Nagar. Seeing Nephew toying with his FB account, I remarked to him rather tentatively that my dearest wish and ambition is to get on my FB account “Manasi was with so and so at such and such a place.””But”, I asked him, voicing my deepest fear and suspicion “How does Facebook know this anyway?”

Now, is this question such a big crime, tell me. He was soooo annoyed with me, I can’t tell you. Rolling his eyes skyward, he said “How will Facebook know anything, bua? YOU have to feed it in” Thank you God! I had been feeling a little worried about this in the past month, just that niggling worry you know, and it felt wonderful that humans were still in control. Extremely relieved and happy, I asked him to show me how to get this done..

So, well, he showed me (though I have forgotten it already, in 2 days) and it looked simple enough and I was rather enticed by the whole thing at that time..well, so I told him “Feeling chilled n thrilled at CCD with Nephew Dear” is what I want on my timeline.

I mean, its MY timeline dammit, and I feel very possessive about it…why others have to come and scribble on MY wall I don’t understand. Actually, I told this to my bhabhi, who too is on FB and shares many of my worries and has similar ones and doesn’t laugh or roll her eyes in that weird fashion that geeks do. So bhabhi told me “But I think you can delete what others have written on your wall if you don’t want it there.” And I know I can. I had actually checked that out… hee hee…so I told bhabhi I (who is also relatively untrained and like me, finds all this techie stuff Latin and Geek) that we have been given powers over our own walls.

“So, delete what you don’t want” is what she told me uncertainly. “But what if people who post things there feel bad…I mean, I don’t know if it’s the done thing. Frankly, do they even come to know I deleted what they lovingly (at this Nephew threw a fit pulling his hair with both hands…rather exaggerated, this generation) wrote onto my wall?” It is a GOOD question, this last one, I tell you. Not one of my nephews (with all their eye-rolling at my uncertainties), nieces and all these young techie people around me have been able to answer this one. Its as good a question as “Does Voldemort come to know when a horcrux is destroyed” Not even Nephew (May the Force be with him), who has a cult position in the family, rather like Yoda in the FB wars, could answer this one…

Anyway, to come back to my timeline, I told Nephew that I want “Feeling Chilled n Thrilled with my Nephew dear” to go on my wall. “No way! I don’t want to be seen with YOU at CCD, bua!” Excuse me? GRRRRRRRRR…oh, how rude, how uncouth is this generation! I had a mad urge to go and plaster some of his crazy baby pics (which I have with me) on his wall. Control, woman, this guy knows how to get that fashionable statement on your wall. Smile! “Come on, only this one time. Please,”I coaxed him, with what I thought was a winning look. And then, most grudgingly, he taught me how to do this. It was really quite simple. I took a couple of pictures too and, we left from there and stopped for fuelling at a petrol pump. I immediately told Nephew enthusiastically that we should now write “Filling petrol at Devi Shakti petrol pump with my FAV nephew” so that I’ll get a bit of practice. “Bbbuuuuuuuuuaaaaaa, I’ll kill you…you can’t possibly tell the world I was with you at this…whatisit? (Devi Shakti, I piped in helpfully)…yeah, this Devi Shakti petrol pump” he said, flexing his muscles threateningly. Hmph! What is the world coming to? I mean, your aunt wants to tell the world she enjoys being with you, even at the petrol pump, and these youngsters…But what was fun was that for the first time I realized wickedly that I now had geeky control over Neffy-poo :p

Now, this new knowledge HAD to be tested and tried and consolidated. I immediately told bhabhi “Tomorrow, I am going to McDonald’s (there’s one right across the corner from my home) and write something nice on the timeline”…such as “Feeling full at McD with…?” Nephew bared his teeth at me in a most rude fashion indicating that he can’t be seen with ME at McD’s either. I mean, what will all those 213 girls who are “FB friends” think? Ohk..Just then, bhabhi asked me “So, are you going to McD’s just for practice?” Well, yes, I sighed, what to do Bhabhi, no gain without pain… “But Manasi,”she suddenly burst out “You don’t have to! Last time I was practicing at home and it shows all possible locations around the house…including McD’s” What? Now, this means I just go to my FB account at home and click on the Mac location (Wow! Feeling exceedingly intelligent with Bhabhi :P) and I’m through! Hee hee! So the next day, bhabhi came over for a cup of coffee (thereby saving us lots of money as well as calories, she reminded me wickedly) and we selected the McD location and immediately decided to write “Feeling blessed and contended with Nephew Dearest at McD’s” (just to make him squirm, the brat, hee hee hee) and also pasted a pic from CCD (so long as you are in a dimly lit place with some food in hand, how does it matter!) for good measure…

Aaaah! Life feels so…good! The moment Nephew Dearest says the remotestly rude thing to me these days, I just remark softly “Oh. Feeling joooooyously creative with my FAV nephew at Bhamburde Wada Pav Center” Tee hee hee…that shuts him up. Thank you, Facebook!





Who would have thought that greenery would be upsetting?

We did a road trip to Marathwada this weekend. Pune to Jalna, via Aurangabad. I have always enjoyed this route; we do this so often, I know the landmarks by heart. The cosmopolitan Pune, with its many housing complexes and malls and 5-star hotels makes way for the grim and grimy industrial area of the Nagar Road. As you go down it, you hit Ranjangaon, largely known for its Ganesh temple, but increasingly changing its identity. More, far more than the number of people that flock the village to visit the temple is the increasing traffic of trucks and logistics carriers that are carrying material in and out from the Ranjangaon MIDC, known for hosting the white goods industry in Pune.

A little way down from Ranjangaon and you hit Supa. This is one village I always have enjoyed driving through. For one, you see lots of flower fields. Suddenly, there’s the pink aster fields, and the white ones and the yellow and orange marigolds…little patches of color with a solitary person working in it..or is that a scarecrow…a look to the left reveals the hills hosting the huge captive wind farm owned by Bajaj. Supa spurs you on to a smallish and rather picturesque ghat- a winding road- that takes you to Ahmednagar.

Nagar is where you could say Marathwada begins. The nature, the culture, the housing, the farms, the crops, the shops…they are suddenly not Puneri anymore…they are Marathwada. The major change that comes in is that the geography is so much more flat. You suddenly start realizing why the Deccan is a “plateau.” The roads take you through flat expanses, with hot winds fanning your face, fields on both sides and sudden entries into villages, where human settlement bursts on to the scene with fruit carts, colourful sari shops, women with big kumkums on their foreheads walking on roads that also play host to small rural shops with ludicrously urban names like “The Pink Cindrella Boutique.” Marathwada. The place where traditional culture has thrived, rigorously, in the face of crazy urbanization that the youngsters seem to prize. Where the poor farmer who struggles to make both ends meet coexists with the huge trading bazaars dominated by largely Marwadi communities. Where dhoti-and-pagdi-clad rural folk ride on roaring bikes like they own the roads. Where marriage parties are arranged on sprawling lawns that lie on the same road that also hosts pink colored single storeyed houses named “Shiv Krupa.”It’s a different ball game…its just very..Marathwada.

I have always enjoyed this melting pot phenomenon that Marathwada is. I love driving through those roads, love seeing the Sarva Shiksha Abhiyaan boards with two little kids perched on a pencil, love seeing baya weaver nests on a lone tree in parched surroundings, love hearing the Marathi accent change ever so slightly, but yet conspicuously, when we fill up at the petrol pump..

A March Marathwada is a parched Marathwada. Lets face it. This is THE part of Maharashtra that has been starved of water for years together. March to June are unbearably hot, with the temperatures in May pushing up to nearly 44 degree Celcius at times, making even the slightest cool breeze seem like the most wonderful creation of the Almighty. Even the evenings are relentlessly warm. One almost feels like one is baking slowly to perfection, in a nature-made oven that has been timed by the book. Ting! There, after 12 hours of continuous simmering heat, you are now totally ready to take on any challenge that nature has to offer you. Marathwada. Its about robustness. Its about sturdiness. Its about the ability to shrug in the face of sweltering heat and get back to business. Its about appreciating the little wonders of nature like those grey clouds that occasionally lose their way towards your field, where dry shrubs sway in their wait..

A March weekend in Marathwada should have been “exceptionally warm”, if not outright crazily hot. However, as we entered Nagar, everything felt wrong. Instead of that dried caky form that soil assumes in its quest for survival against the impending summer, the roads were awash with water. Cool air breezing through the windows. Small puddles in badly constructed roads to filled up basins of Bhima and Godavari…it all felt wrong. It looked wrong. It smelt wrong. Instead of the sole drongo bird on the power lines, there were egrets and gulls and kingfishers perching on small trees dotting the waterlogged surroundings. Rains, unseasonal, merciless, have battered the fields in the past 10 days.

Oh, the sadness of it all. The fields have never looked so tired to my eyes before. The grand cobs of jowar and bajra that my eyes were used to, stood dejected, necks drooping, the grain turning black. There is never a sight blacker than those cobs turning black. The economist in me struggled to argue intellectually about how the unseasonal rains would lead to failure of rabi crop leading to pressure on food prices; but frankly, I was unable to look at it as an economist. I just kept on thinking how devastating it would be for the farmers, who had been preparing for the harvest since November. Thinking of how much effort must have gone into tilling the land, sowing the seeds, watering the fields, tending to the crops…and all the funds they must have borrowed, everything washed away, by rains…elusive rains, that wouldn’t come in last year and now have paid a belated visit…or is it an early one? I felt even worse when I saw the cotton fields. There isn’t too much cotton at this time, but whatever was standing, has been completely lost. The cotton bolls were dripping and soggy, hanging off brown shrubs, a real sorry sight. Even worse were the sugarcane fields. Sugarcane in its glory, has a very upright backbone. Almost the types that Ramdev Baba and company would prescribe, for a good yogic experience? But the cane looked forlorn, its sheath drooping. The onions are typically ready early March and for about 15 days, the crop is not watered after which it’s harvested. But, this time, the onion bulbs which are ready have rotted away in the soil itself.

One can normally spot a couple of farmers walking along the fields, just looking through the crops. But this time, I could see no one. May be it was my mind in overdrive. May be it was just my imagination; but the absence of that lone figure dotting the fields sent a shiver down my spine. What is it that the farmer’ll go and check anyway? How black has the cob become? Or how soggy the onion?

The Marathwada as I remember it in March is basically yellow and brown. The agricultural lands sport yellow corn cobs and the land around is typically brown or dusty and sparsely green, with thorny vegetation like babhul, mandar and rui. But this time, the fields were brownish black and the surrounding wasteland, wonderfully green. Oh, what I’d have given to get the yellow color back to the fields. What I’d have given to experience that extreme Marathwada heat, about which I keep grumbling.

Oh, there’ll be follow up policies. The state Government is already moving in, with declarations of relief packages for Vidarbha, where a similar rainfall has affected the onion crops. The farmers associations, media, press, banks, Governments…oh, the circus will now begin. Statements, fast and furious, about how the “overall” rabi performance will only be 94% of the usual. Estimates, about how much food inflation this can bring on. Conjectures, about how the rate cuts now cannot happen…

All of this, due to the wonderfully green Marathwada. Who would have thought that green can be depressing? Oh, this greenery…its giving me the chills.

Inflation targeting and a bit of Malice in Wonderland

Alice: Would you tell me, please, which way I ought to go from here?

The Cheshire Cat: That depends a good deal on where you want to get to.

Alice: …So long as I get somewhere.

The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.

Lewis Carroll, Alice in Wonderland

India has taken a bold monetary step, perhaps the boldest post-reforms, in introducing a soft inflation targeting regime in the country. This pushes us into the list of more developed economies like the US or the Eurozone, which have been traditional inflation targeting hubs.

There have been immediate reactions, typically, on both sides of the argument. Moody’s, the moody ratings agency, has announced that this new Monetary Policy Framework (MPF) is a credit positive and will apparently go a long way in steadying the economy. Why? Because, steady prices are a pre-cursor to growth. On the other hand, the erstwhile RBI Governor Dr. Subbarao gave a statement that inflation targeting is “neither feasible nor advisable” in India.

Who is right? Now, as usual, there is no one answer to this conundrum. (Curioser and curioser! cried Alice) But the conundrum arises because of the following history.

Typically, the fabric of the fiscal-monetary relations in India has been that the fiscal policy is oriented towards the growth-employment outlook whereas the monetary policy does that tight rope multi-dimensional balancing between inflation, growth, credit cycles, and obviously, exchange rates. Whew!

Under the new policy framework however, the RBI will have to mainly target inflation “with an eye on growth.” The mandate has been defined. The tone seems to be: If the Government of India is ready to deliver on fiscal consolidation and promises to deliver no more than 3% of the GDP as the fiscal deficit target, why should the RBI not be ready to deliver on inflation?

Can it? I am giving some of my misgivings below; I do hope that the guidelines will give us some clarity on all of these.

Fiscal consolidation is necessary, not sufficient:

The first issue that has been troubling my mind is whether fiscal consolidation is both necessary AND sufficient to control inflationary levels in India. While it is definitely necessary, I am a little reluctant to agree that its sufficient. A quick look in recent history suffices.

While it’s true that high fiscal deficits have generally been succeeded by high inflation levels, it is not necessarily true that higher inflation levels have ALWAYS been preceded by high fiscal deficits.

In the recent past, Indian inflation seems to have been imported and not really manufactured here, if you know what I mean. We imported food inflation from every trading partner, we imported oil inflation from the Middle East and we, finally, imported inflation straight from the heavens too, as the rain gods failed to deliver the goods 3 years out of 5 in a row. Now, neither food, nor fuel (both of which carry significantly high weightage in the CPI inflation index) prices are directly controlled or influenced by interest rates or any other monetary policy tool. Hence, one of the bigger challenges to inflation targeting in India will be the failure of the Monetary Transmission Mechanism to influence these two aspects of the CPI. Even if the RBI increases the rates and mutes the demand domestically, the country continues to sport high inflation numbers just because we keep importing them.

Thus, to say that with a commitment to a fiscal deficit target of 3%, India is now ready for inflation targeting seems a bit premature to me.

Steady inflation and risky asset markets

Now, there is a steep bit of history in this second point that has been bothering me. In the aftermath of the dotcom bubble bursting in the USA, the inflation figures were very benign (too soft as compared to the targeted rate). This prompted the then Fed Chief Alan Greenspan to push an easy money policy, that would create more demand and hopefully, more inflation. This easy liquidity, as many have pointed out since (including our very own RBI chief), was the chief culprit in causing asset price bubbles in the housing market, leading to huge overvaluations of the MBSs, CDOs and CDSs, which in its subsequent correction phase, caused major trauma and recession in the US.

Now, in India too, the inflation rates are currently extremely benign, thanks to the Saudi-Shale spat. The monetary policy framework mandates that the CPI be kept between 2% and 6% bands in the medium run upto 2017; it has been a long standing statement of the RBI Governor that an inflation rate of around 6% would be the RBI “comfort zone” to be achieved by January 2016. Now, the current movement of the CPI (around 5% inflation first week March) being lower than 6% implies that the RBI should begin work on an easy money policy; the recent repo cut by the inflation warrior stands testimony to the trend. In fact, there seems to be scope for further cuts till such a time that the CPI edges along to the targeted inflation. The only surprise element of the policy could well be the timing; again recent announcements have been made out of turn without really waiting for the mid-quarterly or quarterly reviews. Further, guidance on how low the oil prices may remain, how quickly the adjustment to the targeted 4% level is required and how well does a policy rate cut translate into a lending rate cut could well dictate whether the adjustment will be borne out of repo cuts or CRR cuts.

In the next couple of quarters hence, it does look like the RBI may push the Indian economy towards a softer rate regime; this also implies that the valuation of the asset markets (stocks, other financial segments, property) could well rise in the immediate couple of quarters. Once this gets factored in, the self fulfilling expectations game propels players or agents to buy, pushing the high valuation into an overvaluation zone. Are we already witnessing this kind of an overvalution on stocks? While I would be reluctant to say an unwavering, blanket “yes” to this question, the super spectacular rise in the P-Es of some companies (it is no secret that the current increase in Sensex has been valuation driven, rather than earnings driven) does indicate within the markets, some small “pockets” of overvaluation, for lack of a better word.

Thus, inflation targeting could well increase our vulnerability in terms of overvaluation of certain asset classes over the next one year. When the framework of the monetary policy gets defined, it would be important to state what stance the RBI would take on asset price volatility, even as it keeps the general price volatility intact.

Inflation targeting and exchange rate volatility

Door: Why, it’s simply impassible!

Alice: Why, don’t you mean impossible?

Door: No, I do mean impassible. (chuckles) Nothing’s impossible!”

The impossible trinity states that in the presence of fixed exchange rates and free capital flows, independent monetary policy cannot be practiced. Now, the moment we try our hand at inflation targeting i.e. the Central Bank practices independent monetary policy, exchange rates cannot really be kept fixed at all and would become more volatile. This phenomenon has been referred to as the “fear of floating” in quite a few research papers earlier. One of the biggest challenges of inflation targeting is that the Central Bank is mandated to control inflation through controlling interest rates. Now, at those interest rates, capital inflows or outflows may be triggered rendering the exchange rate and hence growth patterns and indeed, inflation itself, unsteady.

Fathom this. As the RBI stays committed to a low interest rate regime currently, FIIs are already moving in quickly into the bond markets, anticipating that the lower interest rates would drive up treasury profits through higher bond prices. Further, there is also anticipation of the easy liquidity helping the cause of a bullish market sentiment in stocks. What this effectively means is that the Indian exchange rate would start appreciating in the medium term.

I somehow do not see the RBI not reacting to changes in the exchange rate levels. I also am anticipating bigger movements in exchange rates in the coming year on account of corrections in oil prices and/or change in interest rates, or rumors thereof, in the US. Does a “flexible” inflation targeting also imply “flexible” exchange rate intervention? Will the RBI do a generic exchange rate monitoring or will it only do so if the deviations are “sharp”? Again, how sharp is sharp?

Constitution of the Monetary Policy Committee

Now, this is the most worrisome and politicized part of the story. Who will call the shots in the Committee that takes the decision on interest rates? If there is too much Government intervention errr…sorry….representation, there is always a danger that interest rate movements may get a political color rather than an economic one; something that will undermine the very thing we are trying to get done.

I, like others, await guidelines and hope that these issues do get addressed in those. Otherwise, as the inimitable Lewis Carroll says in Alice in Wonderland, we’d be forced to tell the RBI “You used to be much more….”muchier”. You’ve lost your muchness.”