Tag Archives: india

Dictatorships and primaries

In their excellent book “the dictator’s handbook” Bruno bueno de Mesquita and Alastair smith talk about why dictatorships usually put on a garb of democracy and hold (mostly) sham elections.

According to bueno de Mesquita and smith the reason is not to appear good in front of the international community, as the general discourse goes. Dictators are extremely rational actors, they say, and reputation in the international community didn’t usually give enough benefit to compensate for the cost of the garb of democracy and elections.

Instead, bueno de Mesquita and smith say that the real purpose of the elections is to keep followers in check. If a member of the dictator’s team “misbehaves” for example, getting rid of him is normally a difficult process. Essentially sacking is a hard job for anyone, even for hard nosed dictators. In the context of dictatorships sackings can get controversial and often bloody and is not a particularly pleasant process.

By putting in a garb of democracy, however, there is an easy way to sack an official. Assuming that in a dictatorship most citizens vote according to the fancies of the dictator, all a dictator needs to do to sack an official is to instruct the electorate to vote against the official the next time he is up for reelection. The sacking having been effected by “popular mandate”, the process is easier and likely to be less bloody and troublesome for the dictator.

Now, the question is if we can use this framework to understand the new US-style primary elections that the Indian national congress has been using for candidate selection in some constituencies in the forthcoming elections.

Normally in the congress, like in most other parties in India, candidates for elections are determined top-down, by the party “high command”. The risk with this however is that candidates who did not get a ticket to contest the elections know that for whatever reason the party high command is not in favour of them contesting. This can lead to disillusionment and can lead to defections to rival parties.

In this context a primary election acts as a facade through which the party high command can get its choice of candidates without pissing off those applicants who did not get the ticket. Now the purported message to these unsuccessful applicants is that the next time they should work of getting the support of the party rank and file in their constituency.

In reality however, with the party being high command driven, the rank and file has voted as per the instructions of the high command! The high command thus gets its choice of candidates without losing the support of the unsuccessful candidates.

So why is it that primaries work in the US? For the same reasons that elections work in democracies! In the US parties are truly democratic and organised bottom up. There is no high command there to (credibly) dictate the choices for the rank and file. So the results of the primaries are truly reflective of the opinion of the party rank and file.

In conclusion, given the high command based structure of political parties in India, primaries will not work. Instead they will only end up as instruments in the hands of the party high commands, just like the sham elections on dictatorships.

Narendra Modi should short the Nifty

The common discourse is that businesses like Gujarat chief minister Narendra Modi, and that India’s economic growth would get back on track if he were to become PM following the elections this summer. For example, this view was articulated well by my Takshashila colleague V Anantha Nageswaran in an Op-Ed he wrote for Mint last Tuesday, where he spoke of a “binary outlook for India” – either economic growth under Modi or further populism and stagnation under a Third Front.

Based on this view being the consensus, one can expect that the Indian stock market would go up significantly in case of a Narendra Modi victory, and would tank in case the Modi (and/or his party BJP) ends up doing badly. So what should Modi do?

He should short the stock markets, and fast. He needs money to run his campaigns, and he might be taking funds from friends and well-wishers, who expect some kind of payback in kind if/when Modi becomes PM. The question, however, is how he will pay them back in case he fails to become PM!

He will not have the power to pay back in kind. There is only so much he will be able to do as the Chief Minister of Gujarat. And given that he has got a lot of fair weather friends over the last couple of years, some of them might be disappointed that he didn’t become PM, and will ask for immediate payment. So how does Modi service these debts?

A part of his campaign budget should go into shorting the Nifty – perhaps by means of buying puts (with a May expiry – not sure they’re traded yet). This way, in case of his victory, he will end up losing his premium, but he will be able to pay back his creditors in kind, since he will be PM. In case he loses? The markets will tank anyway, and he will end up making a packet on these puts, which can then be used to pay back his current well=wishers!

Easy, no?

The Congress Party is a bubble

I think the congress party is a bubble. From what I’ve observed of the party in the last 10-15 years, they have no real ideology other than “loyalty to the Nehru-Gandhi family”. In other words, they have grown and flourished significantly without having any strong fundamentals. Which means they are in a bubble.

Let’s say you are a congressman and for whatever reason you were pissed off with Rahul Gandhi following his interview with Arnab Goswami on Monday. Now, because the uniting ideology in the party is “devotion to the family”, you cannot come out in criticism of the family or one of its members. If you do, you get hounded by other Congressmen, whose loyalty to the party is chiefly due to loyalty to the family.

Now, imagine a large number of congressmen think thus. If they had a way to communicate to each other about their displeasure with the family, they would come together and raise a no confidence motion against the party leadership. However, the problem is that no Congressman wants to let it be known in the party that he doesn’t like the family, for he can be accused of betrayal and removed from the party. Hence he keeps his thoughts to himself. That he keeps his thoughts to himself means that other congressmen who feel the same way also keep their similar thoughts to themselves, and the general discourse is that all congressmen are loyal to the family.

So why is “the family” is so powerful in the Congress? The answer is that the family is powerful because Congressmen think the family is powerful. A congressman thinks that his career in the party will be furthered if he is seen as being loyal to the family. So irrespective of his opinion, he puts up a facade of being loyal, and that increases the value of being loyal to the family!

A commodity is said to be in a bubble if its price is being driven up solely because other players in the market think that its price is going to be driven up, without the fundamentals being in favour of an increase in prices. You can think of “the family” of the Congress as one such commodity. Congressmen like to praise the family (i.e. go long the commodity) because they think everyone else in the Congress is doing the same, and thus the “price” is going to increase.  You can see the cycle of positive reinforcement that is at play here.

Like all bubbles, the Congress Party bubble is also bound to burst. And like other burst bubbles, this one is likely to end badly for the party – a split in the party cannot be ruled out in the period immediately after the bubble is burst.

The problem with bubbles, however, is that you don’t know when it will burst – anyone who can predict when a bubble can burst would be an extremely rich person. And you don’t want to be shorting a stock thinking the bubble might burst, only for the bubble to continue. And so you continue to dance, for the music is still playing.

The moving solstice

Today is “Makara Sankranti”. If the name doesn’t already strike you, “Makara” is the Sanskrit name for “Capricorn”. The Makara Sankranti is supposed to represent the Winter Solstice in the Northern Hemisphere, or the day when the Sun is directly over the Tropic of Capricorn.

However, we know that the winter solstice falls on the 21st or 22nd of December every year. Then why is it that the Indian version of the Winter Solstice falls on 15th of January?

I’m not sure if you remember, but a few years back, Makara Sankranti would usually fall on the 14th of January. After some back-and-forth movements, it has now settled on the 15th of January. You might have already noticed that this is unlike other Indian festivals such as Deepavali or Ganesh Chaturthi, whose dates according to the Gregorian calendar move every year (typically in a -11, -11, +19 cycle) over three years). This is because unlike Deepavali or Ganesh Chaturthi, which are observed according to the Lunar calendar, Makara Sankranti follows the solar calendar!

I recently read a book called “Solstice at Panipat”, about the third battle of Panipat in 1761 (my review is here). The Marathas went to battle four days after celebrating the Winter Solstice. The battle was fought on the 14th of January 1761, which means the solstice was observed that year on the 10th of January. So you see that the solstice, which is supposed to be observed on the 21/22 of December, was observed on 10th of January in 1761, and on the 15th of January in 2014.

This shows that there is an error in the Indian solar calendar. This error amounts to about 20 minutes a year, which means that the rate at which we are going, about 10000 years from now the Makara Sankranti (“Winter Solstice”) will fall in June, the middle of the summer!

That we know that the error in the Hindu solar calendar is 20 minutes a year allows us to calculate the last time the calendar was calibrated – we can date it to around 285 AD. Back in 285 AD, the calendar was calculated accurately, with the Winter Solstice falling on the actual Winter Solstice. After that, the calendar has drifted, and one can say, so has Indian science.

I’m informed, however, that this 20 minute error in the Hindu solar calendar is deliberate, and that this has been put in place for astrological reasons. Apparently, astrology follows a 26400 year cycle, and for that to bear out accurately, our solar calendar needs to have a 20 minute per year error! So for the last 1700 or so years, we have been using a calendar that is accurate for astrological calculations but not to seasons! Thankfully, the lunar calendar, which has been calibrated to the movement of stars, captures seasons more accurately!

I’ll end this post with a twitter conversation (I’m off twitter now, btw) where I learnt about this inaccuracy :

Update: The link to the tweet doesn’t show the entire thread. See that here.

Update: Here is a piece by astrophysicist Jayant Narlikar on the Makara Sankranti. Basically due to a change in the earth’s axis, our divisions of the night sky into 12 constellations are not stationary, and hence the date when the sun moves from “Dhanur” to “Makara” is no longer the solstice date.

 

Booth level coordinators for AAP

In today’s Economic Times, I was reading this article on the attempts by the Aam Aadmi Party (AAP) to establish roots in Uttar Pradesh and Bihar. The article mentioned about the party already recruiting booth level coordinators in those two states and thus starting to prepare for the forthcoming elections.

The question, however, is why someone would want to be a booth coordinator for AAP. Before we examine that, let us examine why someone would want to be a booth coordinator for a party – some might see it as a stepping stone – having coordinated a booth, one might find a way into the higher echelons of the party, and might result in an MLA ticket the next time round.

However, in most cases this is rather unrealistic. Given the number of booth coordinators required in each assembly constituency, the promise of at most one of them being elevated to MLA is not enough to motivate them to work. The party needs to find a different way of compensating them.

Cadre based parties do this by paying their members a salary, and booth coordinators are thus paid to do their work. The salary may not be immense, but most cadre-based parties are ideologically driven and it is possible to find party workers who are willing to work as booth coordinators for the given fee.

Less ideological (and perhaps more practical minded) parties use a different method to motivate their booth coordinators – they are promised sweet deals and government contracts in return for their services. Given the size of the government and the discretion of the elected representatives, it is possible to suitably compensate each booth coordinator. For example, the guy who coordinated my booth for the sitting MLA’s party in the last elections also got the contract to desilt and cover the storm water drains on my road!

Coming back, how do you think the AAP will find booth coordinators? While it may be a strongly ideological party, it is still young and is unlikely to have the resources to find enough motivated people to man booths in quantities required to run a national election. Hence the nominally paid cadre route is ruled out. Then, the very ideology of the AAP means that the party is against corruption, and working out sweet deals for its booth coordinators will go against the party ideology, so that is ruled out!

So, the question remains – how will the AAP manage to find the requisite number of booth coordinators?

Trying to understand the Telangana situation

Let me state at the outset that this is a dispassionate outsider’s perspective. It’s also rather abstract – I don’t really care about the emotional factor behind the split or the non-split, or how Andhra Pradesh came into being. All that, in my opinion, is secondary.

So the basic issue is this. There is the state of Andhra Pradesh. One part of the state (a minority) thinks it will be better off being a separate state. So for years now they have been clamouring for a separate state. The rest of the state doesn’t want to let them go. And so we have a deadlock.

Let us go back to 2000, when three new states were created in India, breaking up Uttar Pradesh, Madhya Pradesh and Bihar. Those three states also had long-standing demands for separation. All those states had seen “movements” to that effect. The emotional factor was high. The key point, however, is that in each of those states, the rest of the state willingly let go of the breakaway part. Each of the three assemblies passed resolutions recommending the breakaway states. So finally when those states were created the process was rather peaceful and amicable.

That is not happening in Andhra. The Rest-of-Andhra is unwilling to let go of Telangana. Politicians across parties think a breakaway Telangana is a bad idea. The Andhra Pradesh assembly is unlikely to pass a resolution recommending the split any time in the near future. Right now the central government is trying to bulldoze the split and we are seeing the chaos that we are. The question is how we can do this better.

What helped the formation of Uttarakhand, Jharkhand and Chhattisgarh is that their geography is very different from that of their parent states. More importantly, these three states have the kind of geography that makes it hard to govern them. Hilly or forested tracts, with slow transportation and underdeveloped roads meant that administering these areas was costly. Essentially if you did a cost-benefit analysis it made sense to let go of these states – it made the job of the original state government administratively easier.

The problem with the Andhra split is that the capital city Hyderabad lies in smack in the middle of the region that wants to breakaway. People from Rest-of-Andhra have invested heavily in the city, and fear for their investments in case it becomes part of a separate state. It doesn’t help matters that people from Telangana and from the Rest-of-Andhra don’t particularly trust each other. The former claim that the latter have been persecuting them, and the latter fear the same in case the former get their own state. Events over the last few months have only made this trust deficit significantly worse.

What needs to happen is that Telangana needs to assure the Rest-of-Andhra that the people in the latter won’t lose out due to the state split. One way to do this is to sweeten the deal in terms of Hyderabad. One option that had come up would have made Hyderabad a union territory, thus putting it outside the control of Telangana. Another would be for Rest-of-Andhra to be assured of an annual payment based on the state taxes raised from Hyderabad city. This, however, is unlikely to work given the lack of mutual trust.

There is a third option – which is what is being played out now. Telangana acts as a tough guy, and a bully. One who will bully its way into getting its own state. The way this is probably going to work is that by continuously rioting in Hyderabad, it will force businesses to leave the city. As things get worse, the economic value of the city of Hyderabad fall so much that Rest-of-Andhra see no value in holding on to it and vote for the resolution to split the state. Of course, this is not good for anyone since this involves value destruction, but this seems the way things are headed right now.

What might also work (destructive, but not as much as the above) is for Rest-of-Andhra to get a strong message that the state is going to be split sometime in the near future and they have no say in it (this is probably the Central Government’s message currently). Currently, people from Rest-of-Andhra are hopeful that the split won’t happen and are thus holding on to their investments in Hyderabad. As there is more conviction that the state is going to split, they will start slowly withdrawing their investments, so that at  some point in the near future, there will be enough politicians from Rest-of-Andhra that will vote in favour of the split in the state.

Note that not all legislators from Rest-of-Andhra need to support the state split. Telangana contains 119 out of the 294 seats in the Andhra Assembly. Assuming that there is bipartisan support for the split among Telangana MLAs, they need the support of only 29 more legislators to have their way. Of course there is the Anti-Defection Law and all that, but this is some food for thought.

Lastly, I don’t think the current process of the Union Government bulldozing the state split is going to work out in the long term. You don’t want to have neighbouring states that mistrust each other. Yes, Andhra Pradesh is a vast state and might be tough to administer. But no decision on its split should be taken without the resolution by its own assembly.

The Crow’s Designs

As I had mentioned in my blog post yesterday, I just finished reading Sanjeev Sanyal’s Land of seven rivers yesterday afternoon. And later in the evening I started reading Nassim Nicholas Taleb’s Anti-fragile. And before you wonder, let me tell you that yesterday was a working day for me. Just that I had a long process running which gave me the flexibility to catch up on my reading.

So one topic that was mentioned both towards the end of Sanyal’s book and in the prologue of Taleb’s book was the issue of urban planning. And interestingly, the two agreed. In the prologue of Anti-fragile, Taleb has listed out a series of “fragile”, “robust” and “anti-fragile” systems. He has classified it by subject, and in each subject he gives us examples of the three systems. Being halfway through the first chapter, I understand that he is going to elaborate on each member of the list later on in his book, but I’m yet to reach the chapter (I’m still in chapter one, I told you) where he talks about urban planning. Yet, what he has written in that table in the preface on this chapter caught my eye. More so, given that it agreed with what Sanyal had written in his book. In the row on “urbanism”, Taleb has simply written “Le Corbusier” in the Fragile column and “Jane Jacobs” in the Anti-fragile column (the preface of the book is available on Taleb’s website. The relevant section of the table is on page 27).

In the last chapter of Land of seven rivers Sanyal talks about post-independence events that has affected the geography of India. One topic that he delves into is urban planning, where he contrasts the sterility of Le Corbusier’s Chandigarh with the dynamism of unplanned Gurgaon. He mentions that despite careful planning, little economic value has been created in the city of Chandigarh itself, and one reason why it is supposedly clean is because there exist no space for the poor within the city! The city’s rigid master plan is actually a hindrance to economic activity as it allows for little space for entrepreneurial activity to take place. So whatever growth and innovation Chandigarh has seen, says Sanyal, has actually happened in its suburb of Mohali, which is in the state of Punjab.

Urban planning is a topic that I’ve been thinking about quite a bit in recent times, as I’m trying to figure out where to buy a house and “settle down”. Having examined several of Bangalore’s neighbourhoods, I’ve found a strong contrast between planned and unplanned neighbourhoods. The former (eg. Jayanagar) usually have wide roads, pavements, access to markets at frequent intervals (one thing where planning has failed, and for the good I think, is zoning. I wouldn’t want to walk to the main market for every one of my needs) and auto rickshaws. More importantly, they have people walking around on the streets all the time, which makes the neighbourhood safe. Unplanned neighbourhoods (eg. Sarjapur Road) usually have large condominiums, few shopping options and no auto rickshaws. You have either highways or small village roads and not too many people walk around. This makes the streets unsafe and makes you reliant on private transport, which in my opinion is not a good thing. Nevertheless, one must admit that given the massive influx into Bangalore in the last 10-12 years (on account of the IT boom), it is the unplanned neighbourhoods that have taken the lion’s share of housing the incoming population.

So the question is how much planning a city needs. Too much planning (as in Chandigarh and Delhi) can make the cities static, and not provide enough for potential immigration – which is necessary for increased economic activity. On the other hand, unplanned areas are inherently unsafe and don’t provide for a great urban quality of life (as far as I’m concerned one of the primary indicators of urbanism is public transport). Is there a middle ground of “light touch regulation” which derives the best of both worlds? How should urban planners approach this issue? How can we make our cities both dynamic and safe? As of now, I don’t have the answers.

PS: The title of this post is in reference to the name “Le Corbusier” which is French for “The Crow”.

What should we do about the falling rupee?

So the more perceptive of you would have realized that the rupee is falling. And fast. At the beginning of the year, fifty four rupees bought a dollar. Now you need over sixty rupees. That’s a fall of over ten percent in half a year.

People argue based on differences in interest rates and interest levels between India and the United States, and India’s current account deficit, that the rupee deserves to depreciate. Some argue that the rupee should actually trade even lower. That is correct. What makes the fall of the rupee worrying, however, is that it has happened so quickly. No theories on trade imbalance or rates imbalance or inflation can account for the fall of ten per cent in half a year.

The issue, of course as everyone knows, is to do with capital flows. While India has run a persistent current account deficit, the continuous inflow of foreign investment into the Indian markets (either direct or indirect) had ensured that the rupee was relatively stable over the years. With India maintaining a high growth rate in the GDP over the noughties, the inflow was persistent. Things aren’t so good now, however.

India’s GDP is slated to increase at a paltry 5% this financial year. The growth story is seemingly over. And that is not all. Things aren’t looking great in other parts of the world also. Due to this concept of margin financing, sometimes when some of your holdings lose value, you are forced to liquidate other holdings in order to comply with “margin requirements” (we will not go into the technical details here). So with markets around the world not doing great, and India’s growth not as spectacular as it used to be, and with the country’s muddled policies (check out how difficult the government has actually made it to invest in India – irrespective of your nationality), investors started exiting. With some investors exiting, asset values dropped and the rupee dropped. Consequently other investors exited. And so forth. It did not help that there was nothing inherent in India’s government policies to hold them here.

So that’s the story so far. Question is what we should do going forward. As I mentioned earlier, there are two levers that can help shore up the rupee – the capital account and the current account. Within the current account there are two components – imports and exports. What normally happens when a currency depreciates is that exports become more competitive and go up further. Imports become costlier and thus reduce. On the current account front, thus, we have what is called as “negative feedback”.

Notice that in the past whenever an economy staged a recovery, it was generally preceded by a devaluation of the local currency. So since our currency is already devalued the stage is set for recovery, right? Unfortunately it’s not so simple. While it is true that our exports are now likely to be more competitive, fact is that Indian industry is not well placed to capitalize on that. Investment bottlenecks, labour laws and bureaucracy means our entrepreneurs haven’t been able to move fast enough to take advantage of the falling rupee and up exports. This can be borne in the fact that the Reserve Bank of India, which normally shies away from controlling exchange rates (as long as they are not too volatile), has issued several public statements on this matter in the recent past, and taken steps to prevent further fall in the currency levels. That the Central Bank has had to step in to protect the currency shows that we are in extraordinary times. The natural corrector to a falling exchange rate (increase in exports) is absent.

Matters are not helped, of course, by the fact that one of our largest imports is an asset – gold. Thing with asset prices is that unlike prices of “normal goods”, the demand for assets increases with price. When asset prices increase, people see “momentum” in the asset and want to get on to the bandwagon. So there goes part of another natural corrector to a falling exchange rate (less competitive imports).

So coming back to where we started off with – what should the Government do? While this is going to be a time-consuming process, what the government needs to do is to ensure that exporters can exploit the falling rupee. Reforms in this direction are not easy of course – since they require significant efforts in removing bureaucracy and making it easier to do business – which means we need significant administrative reform. There is also the small matter of possibly having to reform labour laws (while on the matter of labour laws, check out this paper by Takshashila Scholar Hemal Shah, who presents some easily implementable reforms in the labour law). While these are difficult things to implement, the fact that there is a crisis gives the government an alibi to push ahead with the reforms. PV Narasimha Rao had done that once in 1991. The problem now is that the government may not have political will given that elections are less than a year away. In this context, it would be advantageous to have early elections, for a new government with a fresh mandate might be more prone to taking tough short-term measures.

Currently, the government is trying its best to shore up on the other levers. Gold import is being curbed – except that it will be hard to implement since they will simply get diverted to the black market. The Finance Minister is traveling the world putting up a roadshow to get investments to India. That, however, is akin to putting lipstick on a pig since there is little in India’s fundamentals and current economic scenario to attract foreign investors. Even if some of these measures succeed, they will only lead to temporary respite to the currency. Fact is that for sustainable improvement in currency, tough reforms are mandatory.

Kabaddi, Jesus Navas, Digvijaya Singh and Modi Bhakts

Writing during the last FIFA World Cup in 2010, I mentioned a concept that I named after the Spanish (and now Manchester City) winger Jesus Navas. It was the strategy of one guy breaking off separately from the rest of his teammates, and ploughing a lonely furrow in a direction different to what his teammates were working on. So when the rest of the Spanish team played tiki taka and relied on a slow build up based on intricate passing through the middle, Jesus would come on and run away on his own down the right flank. It was a useful distraction for the Spanish team to have, for now the opposition could not mass its defences in the centre.

In the same post, I had mentioned that it is similar with Kabaddi. When a team is “defending” all but one person in the team form a chain and try to encircle the attacker. The other guy works alone, and his job is to lure the attacker deep into the territory so that the chain can close in around the attacker. This way, the lone ranger and the team work together, towards a common objective, just like Jesus and the rest of the Spanish team.

Having observed Indian politics for a while now, I realize that the Indian National Congress has successfully adopted this strategy, while the BJP has failed to keep up. Now, the reason you want to use a lone ranger in politics is slightly different, but on the same lines. Sometimes, there can be disagreements within a party on certain issues. For political reasons, the party can officially adopt only one of the two possible paths. Yet, they know that by sticking to this official path, they might lose out on some support. How then can parties tackle this issue of giving out the “dissenting judgment” while still appearing united?

This is where people like Digvijaya Singh come in. Digvijaya is a known loose cannon, and has mastered the art of taking a line different from the mainstream Congress line. In case he turns out to be right, later on the party can claim that he was right all along – and quietly bury the official party line. In other cases, the party can publicly castigate him, and distance itself from his claims. In a way that I can’t fully understand, the Congress has mastered the art of managing the loose cannon, such that they “recognize” his statements when he is right and unceremoniously ditch him otherwise.

The opposition Bharatiya Janata Party (BJP), however, hasn’t got its act together. The biggest problem with the BJP is that there is no one loose cannon with whom an agreement can be struck on the lines of what the Congress possibly has with Digvijaya. At different points in time different party leaders espouse views that are out of line with the party’s official line, and this being hard to control, the party gives off an image as being disunited. The matter is made worse by the thousands of online fans of Gujarat Chief Minister Narendra Modi, who like to voice their personal opinion which may not tally with the party line, but whom the party cannot publicly dissociate from.

It is in this particular issue that the BJP significantly lags the Congress when it comes to media management. As a BJP supporter mentioned on twitter yesterday, Digvijaya can say whatever and the Congress can get away with it, but whatever a Modi Bhakt says gets attributed to the BJP. It is this differential handling of fringe elements that leads to significantly worse press for the BJP than for the Congress. The answer lies in appointing an official lunatic whose job it is to make outrageous statements and be prepared to get censured by the party frequently.

Too many fringe elements, all of them shooting off in different directions, weakens the core, and weakens the focus of the attack. One can be managed, and is useful. More is the problem.