A Bahubali of a Devaluation!

Dear Reader,

The Chinese Yuan was devalued so suddenly, it was almost filmy in its implementation. Here’s my filmy take on a “Bahubali of a Devaluation” that appeared in the Hindu Business Line today under my column “Tweakonomics.” You can also read the column directly at http://www.thehindubusinessline.com/opinion/yuan-a-lens-eye-view/article7583325.ece



It’s official. So impressed is the film fraternity with the filmi way in which the Chinese Yuan was suddenly devalued, that film makers all over the world now want to re-create famous movies in China.

Cast of the sci-fi movie “Honey, I shrunk the kids” was found in China last week, trying to create “Honey, I devalued the Yuan.” Instead of a mad scientist, the movie will show a mad economist, trying to gain entry into the IMF inner circle. The mad economist makes a desperate appeal to the IMF to let the Yuan be one of the 4 currencies that can be part of the Special Drawing Rights. But the IMF refuses to consider it and then the mad economist goes back to China and creates a machine that can shrink the Yuan to miniscule sizes.

In the meanwhile, disavowed IMF agent Raghuram Rajan comes to India on Mission Impossible. His mission, if he is to accept it, is to prevent the Chinese devaluation from affecting Indian markets. He is given a team of the best to assist him in this mission. An FM who can make statements to calm the markets and Sundar Pichai as IT support. The services of Amma or Didi can also be availed to create the charm of the femme fatale, but he correctly refuses. As he fights with the havoc created by the Rogue Nation, he uses the FOREX to control the Rupee from going into free fall. Indian FOREX reserves fall a bit, but he says in style “Desperate times, desperate measures.”

Karan Johar has also reached China to re-make “Kabhi Renminbi Kabhi Yuan”. In Johar’s film, Shah Rukh Khan, who is Bachchan’s son and lives in a palace that looks suspiciously like the NY Federal Reserve, is called Dollar. In the meanwhile, there’s Renminbi, played by Kajol, who lives in abject poverty off the Great Wall of China. Dollar and Remnimbi exchange rate their vows and enter parity. The marriage enters troubled waters. Reason? Kajol has become fat and has slowed down. Bas! Aur nahiiii! Renminbi decides to devalue and break parity. Kajol, wearing a 10-feet long black pallu depresses currency, derivative and stock markets through the globe. But she emerges looking leaner and meaner and with re-newed fundamentals, re-enters a new, more flexible relationship vis-a-vis Dollar. Shava shava!

Karan Johar also wanted to re-make “Currency of the Year” in China; but the Chinese Government expressed serious reservations about allowing Alia Bhat to play a central role in any movie made on Yuan dynamics.

Finally, much to the consternation of the Chinese, the entire star cast of Bahubali reached Shanghai, the new Mahishmati. Chinese economists were rounded up for a compulsory viewing of the first part. The poor economists could only watch in stunned silence as the towering matriarch with the curled lip gave crazy orders holding two babies in one hand, while Orcs from another movie suddenly entered the scene to pass lewd comments. Her spite and command reminded many of the good old Mao days. After the ordeal was over, wiping tears of disbelief and relief, the Chinese Premier asked the only question, which has been ticking in the mind of crores of Indians. “WHY, oh WHY did Katappa cut-uppa Bahubali? Tell me the answer and I’ll do anything you want. I’ll stop the Yuan from devaluing further.” Bahubali Junior removed his helmet. It was PM Modi. “Place a call to Dr. Rajan and tell him it’s all over. Mission Accomplished. There’s no need for competitive depreciations and FOREX reductions. All it needed was a Hindi movie.”

The author is a Pune-based economist. You can read her blogs at manasiecon.wordpress.com


Corporate Outlook H2: FY16

Dear Students/ Readers,

Hi! With the current volatility that has crept into the currency, stocks and real sector markets, India Inc. is getting jittery about opportunities and prospects in H2 of FY16. I was scheduled for a talk with a corporate client on Black Monday itself and it was a challenge to deliver the talk as the bad news kept pouring in.. I am sharing the presentation I had prepared since I thought it’ll be a sort of study material for students that keep visiting the blog.

The presentation was directed to a company that deals primarily in irrigation equipment and hence there’s more of a sectoral outlook connected to irrigation in the presentation. There is obviously a lot of talking that supports every point and so the reader may not feel completely connected to the ppt. In that case, just write in to me and I’ll handle your query!

The journey to 2016-17

Will the US raise interest rates in September?

No. Based on the volatility we’ve been witnessing in the global markets, it seems unlikely that the Fed will hike interest rates in the September review.

One of the external factors that the RBI has been watching closely for taking a call on its own interest rate stance is the behaviour of the US interest rate. Since Jan 2015, increasing number of Fed members, policy analysts and traders have opined that an interest rate hike in the US is a question of when, rather than of.

The markets were largely expecting that the Fed would raise its interest rates in the September review. The RBI, which did not slash rates in last month’s policy review, also seemed to be waiting for some kind of a cue coming in from the Fed, before it could give a reduction on rates.

Pre-volatility, why were the markets expecting the Fed to hike rates?

The basic argument was that the jobs data from the Labor Bureau has been very good in the run-up to August. Unemployment rate in the US seems to be around 5.5% (see chart below). Now, the Federal Reserve believes that the “Natural Rate of Unemployment” for the US stands between 5% and 6%. This is the unemployment rate faced by the US when the labor resource is almost fully employed. Thus, any further reduction in the unemployment to say, 5%, would eventually spark off wage inflation and feed into an overall price hike.


Has the inflation in the US been very high?

Actually, no. But since monetary policy is as much about managing inflationary expectations as it is about curbing the actual inflation, the Fed was taking a view that the current jobs data seemed to show a trend of future potential inflation. It would be necessary to curb this potential overheating by hiking interest rates.


How has the dollar been moving vis-a-vis other currencies in the past one year?

Now this is one trend which is really interesting. If we observe the US Dollar Index (which is 6 currencies weighted against the dollar), we find that the dollar has pretty much strengthened against a basket of currencies since September 2014. The aggregate strengthening of the dollar over the past one year works out to a hefty 14%. So for a year now, the dollar has been getting stronger, which has been hurting the exports movement from the US.


So what has changed now?

Many things.

  • Since the Emerging Market economies have all witnessed considerable depreciations in this week, the dollar will emerge even stronger once the dust starts settling down. This by itself, should help the economic system to move from overheat to a more calm economy.
  • Add to this the fact that cheaper exports and cheaper oil should take the inflation southwards. Since the Chinese growth rate is expected to be soft in the coming fiscal, the biggest buyer of commodities will be showing low demands. This will cause commodities to remain low for a while, helping inflation to be controlled for all economies including the US.
  • Finally add to this the fact that the Chinese Central Bank PBOC has reduced its interest rates in an attempt to excite the real sector fundamentals into growth. Even with the US interest rates untouched, it really creates a differential between the US interest rates and the Chinese interest rates, which effectively helps in controlling overheat and dampening inflation in the US.
  • One last point before I wind up. Interest rates are changed in order to give critical direction to the economy. By that I mean, that interest rates are used as an instrument to change values in the real sector of the economy. However, that they have an impact on financial markets is also a given. When markets are already jittery and on tenterhooks, it would be pointless to rattle them some more by hiking the rates at this point.

There seems to be no case left for a September hike anymore.

Econ mom on Nursery Rhymes, SDRs and Devaluation of the Yuan

As I came in from my walk yesterday, I saw some little girls playing their usual, chirrupy games…

Ring-a Ring-a Roses

Pocket full of posies

Atishoo! Atishoo!

They all fall DOWWWWWNNNNNN!!!

There was a great amount of scuffling and giggling to make sure that one sits down before the others. A competitive, let-me-fall-before-you-do game. The person to fall last gets a penalty, of course. I sat down on a bench to watch them play, and Econ Mom took over. Obviously.

The day’s news were playing on my mind. It’s almost similar, I found myself thinking. The ring-a-roses on the currency markets today. The yuan sneezes…Atishoo! And they all fall down in a competitive depreciation. The Rupee and the Yen and the Ringitt. The question is: WHY did the Yuan sneeze? Here are some quick Q&As.

#1. I hear that the Yuan devaluation has to do with Special Drawing Rights? What are SDRs?

Simply put, the SDR is an international reserve asset created by the IMF, which can be used to supplement or augment the member countries’ official reserves. Now this reserve asset comprises of 4 currencies; the dollar, the euro, the pound and the yen. 2015 is the year in which the IMF will review whether new currencies should be included in the pool of currencies that comprise the SDR.

There are 2 basic features that a currency has to posses to make it to the highly dignified SDR category. It has to have a significant role in world trade and it has to be “freely usable”.

That the Chinese have a significant role in world trade is undisputed. Their current contribution to 11% of the world’s exports means that they gain automatic entry into the IMF review this year, though of course, their chief stumbling block would be that the Yuan is not perceived to be “freely usable.”

The Articles of Agreement of the IMF define a “freely usable” currency as that which is widely used to make payments for international transactions and is widely traded in the principal exchange markets. Thus, a freely usable currency is technically NOT a freely floating currency. In fact, it has very little to do with the underlying exchange rate regime. You could have a situation where in a currency was fixed but was freely usable in markets across the globe.

So the next question is: Is the Yuan freely usable? Increasingly so. More and more FOREX reserves are being held in Yuan terms, more and more export payments are being made in Yuan terms. The Economist has shown that even though Yuan payments/ holdings may not be high in absolute terms, its been showing a growth rate that allows it to come very close to the “freely usable” terminology. At least, “The Economist” thinks so.

The People’s Bank of China (PBC) is now in a mood to make sure that the IMF thinks so too. One of the chief reasons why the Yuan was devalued is because the PBC is anxious to prove to the world that the Yuan increasingly is market determined, rather than determined in a fixed parity by the Bank.

#2 Hold on. I thought the Yuan was always undervalued. If the market is to determine it, it should have risen, right?

Wrong. There are 2 factors here. First, that the yuan has been typically held undervalued is a correct perception. However, in the last one year, with the US showing robust fundamentals, the dollar has undoubtedly strengthened. The robust fundamentals and increasing sentiment has also increased the possibility of a rate hike and FIIs hence have been making a beeline towards the dollar, strengthening it further. Since the Yuan, at whatever undervalued level, was held fixed vis-a-vis the dollar, it has implied that the Yuan has de-facto strengthened against most currencies in the globe. So even if the yuan was undervalued, the extent of its undervaluation has lessened. This is one of the reasons that sparked off the devaluation.

Second, the Chinese fundamentals have definitely deteriorated in the last one year, when the US strength has increased. Here is my earlier blog on what plagues their banking structure and why excess capacities got built in China. A deterioration in the fundamentals calls for a devaluation from the present value, whether that value is correct or otherwise to begin with becomes immaterial.

# 3. Does the Yuan devaluation help China? If every Emerging Market goes into competitive depreciation, there’ll be no relative change at the end of the game.

The argument given above is largely a financial argument. As currencies across the globe get hit, relatively we may find in the medium term that the Yuan is not really cheaper compared to the other emerging currencies and hence, Chinese exports may not really get the boost that they want vis-a-vis other emerging markets. But that the yuan stands cheaper vis-a-vis the dollar, is undeniable.

Second, the current movement in the yuan is not so much about devaluation as it is about sending a signal of more flexibility. While the IMF has now said that the same 4 currencies will comprise the SDR till September 2016, there is increasing reason to believe that the Yuan would find a place in the SDRs after 2016. This would make the Yuan more acceptable, more traded and would create a different positioning for China in the global markets.


As every News Channel was analyzing yesterday, the currency market movements are because of the SDR issue. Never in my life do I remember the humble, modest SDRs occupying such a special place in a common man’s life and discussions. To have news analysts yelling about Sensex and currencies was okay, but to have them yelling on composition of SDR, the IMF’s virtual currency, the role of which IMF itself says has been “insignificant”, was surprising beyond measure.

As I got up from the bench with a sigh to head back home, I heard the girls start on their game…

Who stole the cookies from the cookies pot? Who me? Yes, you. Couldn’t be. Then who? Mr. Yuan stole the cookies from the cookies pot.

Making the “Most” out of Indian “Post” Office Payment Banks

Today morning, the RBI gave in-principle approvals for payment bank licenses to 11 out of 41 applicants. While there are some big names there such as Reliance Industries, Aditya Birla Nuvo, Vodafone and Airtel, the most humble name in the list was the one with maximum connect to the objective of financial inclusion. Indian Postal Service.

Big numbers in small accounts

I went back to browse through the Annual Reports of the Department of Posts and found some interesting snippets on how the post supports the economic structure in India. As on 31st March 2013, there were 1,54,856 Post offices, of which 89.87% were in the rural areas of India. That is 1,39,164 branches in rural India, folks! The Post Office also operates several small savings schemes floated by the Government of India. The Post Office Savings Bank (POSB) handles 12.53 crore small savers’ accounts with an outstanding balance of nearly Rs.378 billion. And if we add the total balances outstanding under different savings accounts, recurring deposits, fixed deposits, PPFs, MNREGA accounts, etc., we are looking at a total outstanding balance of Rs. 6031.7 billion! Most of these deposits have been collected from the poor, unbanked areas, hence offering inclusivity to the chunk of our populace which finds it difficult to approach a bank, for whatever reason.

It would be interesting to compare this number to the rural branches of a big nationalized bank, say, SBI, I thought. And voila! Here’s what I find.

In 2013, SBI boasted  having 16,000 total branches, of which 9851 (around 66%) were in the rural areas. No bank comes even close in the actual number of villages/ rural areas that are covered by the Post Office. Interestingly, I found it exceedingly difficult to get data on savings deposits mobilized by the SBI in the rural areas. One rather oblique number that I found claimed that the rural deposits are roughly around 38% of the total deposits. This amounts to Rs.3600 billion. Thus, one comparison point that comes across is that the Postal Offices, which are not really banks, mobilize a tenth of the deposits mobilized by the SBI, whereas the number of branches of the Postal Services is 10 times that of SBI.

Is that small comparison telling us a deeper story? Perhaps, yes. Perhaps it is hinting at the tremendous potential of the post offices to offer financial inclusion to that section of the population that shies from commercial banking, for whatever reason.

The physical reach of the humble Post Office is definitely enviable; the next question is whether the Post Office has in it the wherewithal to function as a payment bank. It is fruitful to stop for a minute and reflect what a payment bank really does. It basically collects small deposits (to the tune of Rs. 1 lakh), invests in Government paper, disburses payments done through Government of India schemes, cannot really offer a loan, but would definitely offer the facility of a debit card or an ATM card. If you discount the last feature there, what you have is a full fledged description of the Indian Postal Services.

Postal Services and interaction with the Government

Since 2008, the Post Office was chosen by the Government to be an official agency to disburse MNREGA wages; in the year 2013, 57.4 million beneficiaries of the scheme were disbursed payments worth Rs.120 billion through the Post. The Department of Posts enjoys a seamless kind of an interface when it comes to networking with the Government of India. The pilot programme of the Direct Benefits Transfer (DBT) in Andhra Pradesh for disbursement of MNREGA wages and other benefits is being handled by the Post. Disbursal of pensions for several Government schemes is facilitated by the Post. The Aadhaar letters were booked and delivered under the Speed Post facility offered by the Department.

Very very interestingly, the Post Department helps the Ministry of Statistics and Programme Implementation (MoSPI) gather data in 1181 villages which feeds into preparing the CPI data for rural India! Thinking about it, it makes sense, doesn’t it? Who else, than the dak ghar, with a reach to the smallest of houses in the remotest of villages, to offer a sneak peek into how the prices of the basket of goods and services consumed by the rural folk are changing!

Since 2012, a computerization scheme of the postal network has started. The objective of this computerization program is not only to connect the postal network across the country to help track parcels and postal delivery instruments, but to also allow a platform for the Post Offices to get financially integrated into the overall payments system. Once this financial integration is completed, we may well be looking at one of the biggest potentials in Indian financial history to truly offer inclusivity to India.

Stories from elsewhere in the world

A quick look at some other postal case studies from other countries offers some lessons. The World Bank has published financial inclusion data after interviewing 65,000 participants from across 60 developing and developed countries. And there are some very interesting findings.

  1. The data suggests that those people in the 60 countries who tend to have an account with a post office are likely to be older, poorer, less educated and not employed.
  2. Most poor people who tend to hold a postal account also tend to hold an account in a commercial bank! Only 3% of the respondents were those who exclusively owned only a post account.
  3. The success of post banks as a vehicle of financial inclusion depends on the business model followed. There are countries where the post office acts like an unlicensed savings bank (POSB, the kind of model we have in India currently), others where the post office has a tie-up with some established commercial bank, and yet others, where the post offices get a formal license to operate as a Financial Institution or a payment bank (this is the model we are now getting into).
  4. Whenever there are partnership models between commercial banks and post offices, it has been observed that postal deposits do not actually increase; but this model does lead to an overall increase in the total number of accounts held by the poor.
  5. More importantly, whenever the post office acts as a “cash merchant” for transactional financial services, such as electronic government and remittance payments, the number of accounts held by the poor is likely to increase significantly.

What does this mean for India?

To begin with, post office payment banks have a chance to make it real big in terms of the financial inclusion vision of the Government of India. If they could aggressively market the strength they have in terms of being the preferred institution through which the Government benefits are disbursed, it’ll give them the numbers to become a viable force in the initial few years. Over a period of time, these banks may have to explore the possibility of tying up with another Financial Institution to sustain the momentum of the earlier years.


Dear Reader,

Hi! Here’s my spoof on the irritating, infuriating, AAARRRRGGGHHHH behaviour of our Mantris in the monsoon session of the Parliament.

Parlia”mental”nomics appeared in the Hindu Business Line today under my column “Tweakonomics”…You can read the column directly at http://www.thehindubusinessline.com/opinion/columns/parliamentalnomics/article7546910.ece too!

Enjoy! And DO post in a comment with your views!


Clever Guptaji (Sycophantically): Sir! Welcome back Sir! Our hero! We saw you on TV. What a performance! Awe-inspiring! All those slogans and placards! For a heart-stopping minute, I thought you’d gone over to the muffler party. And tearing up paper and throwing it up in air confetti style! Waah!

Neta (swelling up with pride): Haahaa. Oh yes, we were truly in a “Singham” mode. Guptaji, I have always wished to be part of some struggle! And this time, my wish was really fulfilled.

CG: Of course, Sir! The earlier one was to get Swaraj. And this one was to get at Swaraj. 68 years ago, the people of this country decided we don’t want a Raja. And now we don’t want Raje. Such similarities!

Neta (a bit unsettled): Umm, yes, yes. And did you see our leader talk? That is the form we were waiting for!

CG: Of course, Sir. Though I must say it was unsettling to see a Gandhi fight against Swaraj.

Netaji (discomfited): Guptaji, stop talking like that. Sometimes I wonder on whose side you are.

CG: Between Gandhi and Swaraj, an average Indian does get confused, Sir. But Sir, what is this entire thing about taxes? Why were you protesting about taxes?

Netaji (now really uncomfortable): Actually, even I did not get it properly. They kept on talking about rolling out a GST and hiking MAT. So confusing! Because I always roll out the mat in the evening and don’t know anything about GST! But someone told us that the GST would make liquor expensive. We immediately protested.

CG: What intoxicating depth! You made the entire country reel under the impact! And Sir, did the FM manage to introduce the Direct Tax Code at all?

Netaji (vehemently): I get very bored of this DTC business. The FM kept talking about converting some long run vehicle from EEE to EET. I was greatly troubled first because there is no vehicle called EEE. And even if there is, how can the FM convert it? He is a lawyer, not an engineer. But then someone told me that a vehicle means savings scheme. These economists! Always using confusing jargon. But the moment we heard E means exempt, EEE sounded like the perfect thing for us!

CG: For us? Parliamentarians?

Netaji (now indignant): For us; the public of this country. You don’t need to be an economist to know that Exempt, Exempt, Exempt is much better than Exempt, Exempt, Tax. We immediately protested.

CG: Sir, I heard NGO saying that cost of stalling the Parliament is ₹30,000 per minute. That is a total cost of ₹1.44 crore per day.

Netaji (concerned): Nonsense! How can it be so less? In 2012, this cost stood at ₹6 crore per day! They’ve forgotten to add the inflation, the idiots!

CG: To experience inflation, you need to have value, Sir. But ahm. We are diverting. So, 40 of you have created a cost of ₹126 crore!

Netaji (flattered): Well, now everyone knows we are truly our weight in gold, Guptaji! Now that the opportunity cost of our work has been estimated an NGO, we have decided to put in a demand to increase our per day allowance for attending the Parliament peacefully. Our placards are already done. Paper balls are being made even as we talk. We will create an international awareness about our working style.

CG (mumbling): That you’ve already managed to do, Sir. The Oxford Unversity is replacing “unparliamentary” with “parliamentary” with immediate effect.

The writer is a Pune-based economist

(This article was published on August 16, 2015)

Econ Mom on Myopic Politicians

Finally, the monsoon session of the Parliament wound up. I am disgusted. And that does not even begin to express what I’m feeling.

When the monsoon session of the Parliament was announced, it was largely expected that the Direct Tax Code and the GST Bill would be tabled. There would be discussion on the land acquisition issue and the Parliament would mandate the way in which land could or could not be acquired/ transferred/ used for industrial projects and projects of social significance.

Instead, what we’ve seen is one of the most disgusting shows of immaturity. Waving placards, slogan shouting, throwing paper in the air.

“It’s so not done!” I exclaimed furiously to Hubby in the morning whilst reading the newspaper. “I am not even very upset about their distasteful behaviour. What I am really upset about is that there is no plan for the future. Not only have they lost an excellent opportunity to get the bills going, they are also creating some crazy cost of Rs.6 crore per day by stalling the Parliament. When the NDA was in power, they did not hesitate to block bills. And now the UPA is dishing out the same treatment. How can we go ahead when Parliamentarians behave like this? Don’t they understand the issues? What is their problem?”

After fretting and fuming to the only audience I had (a reluctant Hubby), I did the only sensible thing I could. I calmed down. And went to work, thereby making sure I act in the most unparliamentary fashion possible and make my positive contribution to the GDP. After having made sure that GDP from the training vertical was alive and kicking (though many a times my students make me feel that I am actually creating a great disservice to them), it was time to visit my ophthalmologist in the evening.

I was experiencing a strain on my eyes and was sure that my eyesight had worsened in the past month. Lil One had skipped along just for the fun of it. When I told the doctor about the issue, she exclaimed “Oh, but that’s unusual. At your age, your vision should not worsen.” I told her emphatically I was having trouble seeing objects in the distance and reading billboards.

“Are you having trouble reading fine print?”

“Well, no. I am really able to read books well. And I am reading them by the dozen. No strain.”

“That’s really strange. At your age, you are supposed to have a problem reading fine print.”

Well, I thought irritably, this is really too much. How can she tell me what I’m supposed to be suffering from? She put some drops into my eyes to dilate the pupils and I sat there helpless, with stingy eyes, feeling resentful about Doc and Lil One, who were having a blast gossiping about me.

Lil One, who prides himself on his scientific knowledge, was in top form, seeing that I was not really in a position to retort. “She always has the wrong kind of issues,” he told my ophthalmologist rather authoritatively. “It is really too much. Myopic at 40!”

How interesting! I thought from behind stinging eyes. It’s myopia! Had you been an economist, Lil One, you’d have met someone who is myopic at 68. Independent, but myopic. Powerful, but myopic. Even worse, policy maker, and myopic. Can see close quarters. Only wants to see close quarters. From one election to another. Near-sighted. Government of India.

Political parties are genetically prone to myopia and also have a life-style that promotes it. Their basic objective function is to be voted back to power and hence their decisions pertaining to economic reforms are essentially about getting political mileage rather than about giving long-run reforms continuity to the country. They do not mind inflation, if it brings in the growth that supports their election prospects. They do not mind skewed growth patterns, so long as the sectors which would support them monetarily benefit from the skew. They essentially think short term and live for 5 years in the fear of not living post-5 years. Not exactly a life style that promotes far-sightedness. Since the Government is essentially run be a political party with a short term political goal, the Government of India as a policy making agency necessarily suffers from myopia issues.

How can then the voting bank expect a more responsible, far-sighted economic response from a political party that is essentially near-sighted? Or is this asking for the impossible?

I can think of two correction mechanisms which could work towards reducing the myopia. One would be the presence of more educated and forward-looking people within parties, who could have a vision about the future, at least at a personal level. And we have seen increasingly that Finance Ministers from across different parties have actually carried out some reforms agenda proposed or started by the earlier FMs. A case in point is that of Sarva Shiksha Abhiyaan, that was started by the Vajpayee Government but really received huge outlays under the Common Minimum Program of the UPA I. Another case that we are looking at right now is the GST reform, the movement towards which really started under UPAII, though finishing touches to the Bill have been given to it by the NDA with gusto. How ironical that UPA itself is blocking the passage of the Bill, because it makes political sense to block its own economic idea.

The second corrective lens that can help matters along is pressure from external agencies. Increasingly, economic reforms proposed by successive Governments have been under the scanner from external ratings agencies such as Moody’s or Fitch. In fact, globalization itself acts as an external checkpoint on political parties in power. In India, more and more value of the Sensex is coming in from FIIs; this essentially implies that any negative remarks by rating agencies causes knee-jerk reactions in markets and sentiments, weakening public sentiment towards efficacy of the Government. Governments have learnt to take cognizance of the fact and this has promoted more forced fiscal prudence, even if the genetic myopia persists at the core.

Lil One’s voice jerked me out of my economic reverie. “Did you know that myopia is one of the disorders that cannot be cured naturally, mom? That means, once you are near-sighted, you will be near-sighed forever. Poor you!”

Poor us, I thought. We are going to need corrective mechanisms forever.