Podcasts about viral acharya

Scientific Sense ® by Gill Eapen: Prof. Viral Acharya is Professor of Economics in the Department of Finance at New York University Stern School of Business. He was a Resident Scholar at the Federal Reserve Bank of New York and a Deputy Governor at the Reserve Bank of India (RBI) from 2017 to 2019 in charge of Monetary Policy, Financial Markets, Financial Stability, and Research. Please subscribe to this channel: https://www.youtube.com/c/ScientificSense?sub_confirmation=1 --- Send in a voice message: https://podcasters.spotify.com/pod/show/scientificsense/message Support this podcast: https://podcasters.spotify.com/pod/show/scientificsense/support

New series: climate finance is an essential part of the fight against climate change. Join co-hosts Alissa Kleinnijenhuis and Tim Phillips for the important debates in climate finance, with the researchers and policymakers who are making a difference. In our introductory episode: What problems can climate finance solve, and how do we solve them? With guests Patrick Bolton, Viral Acharya, and Stefano Giglio.

India Policy Watch #1: How Not to Let the Opportunity Slip AwayInsights on issues relevant to India — RSJA strange thing happens when you are away on a break. One week you are sitting and wondering how many different things you can write about because of the flurry of events around you. US banks getting into trouble, Rahul Gandhi being denied bail, more curbs on US companies doing business in China, frenetic moves in semiconductor politics - you get the picture. And then you take a break. And everything slows down. First Republic Bank doesn't implode in a matter of hours like SVB. Instead, it drags its feet in a slow-motion death spiral. RBI pauses on its rate increases. Janet Yellen pulls back on US hostility towards China while cooing about how the two economies need one another. Things go to a standstill when you stop looking at the world with a weekly columnist's gaze. It is like the vibe of a still summer day in India takes over everything. Nothing moves. Once back, what does one write about? Well, thematically, there isn't any one thing that will do right now. So, I guess I will cover a few areas that could be of interest.The big story out of India last week was that we might have overtaken China in the population sweepstakes. This was kind of inevitable, and a million people here or there doesn't make a difference in the larger scheme of things. Yet, it is as good a moment as any to reflect on that elusive thing called the India opportunity. Now, we have devoted multiple editions to why having more people is a good thing. Somewhat to my relief, a lot of commentary in the last week has echoed this sentiment. There's the usual comparison of the relatively younger demographics in India with that of China and the advantage of being more aligned geopolitically with the West. And, of course, the governments in India don't do terribly arbitrary things like China did in the past couple of years to the tech sector. On this last point, I have my views, but we are using a really broad brush here, so I will let it pass. The general tone of these articles is that this is India's opportunity to lose—a far cry from my school days when the population was seen as a problem. I have three points to make in this context which are a bit different from the usual view of what India should do not to let this opportunity slip.First, there's the usual prescription that India should industrialise faster to take advantage of this dividend and avoid the middle-income trap. My usual take on this is how well do we know why India couldn't industrialise faster in the last 20 years when China took off. It is not like this is a fresh insight that wasn't known to policymakers then. So, what gets in the way of India to industrialise? My short answer will always be the state. Despite all the hype around Make in India and the rising ease of doing business rankings, it is still quite difficult to start and run a business in India. The state is deeply entrenched in controlling capital in India, and it enjoys the arbitrary power that it has over them that it is impossible to change this with just better optics of ‘single window', tax holidays or investment roadshows. In the last two decades, the state has retreated a bit in some areas, but paradoxically, with greater digitisation, it has more information and, therefore, greater power over industry. My general contention is that the state can continue with its welfarism (or whatever else you may call it) on the social and political front, but for India to industrialise, the state has to retreat on the economic control it wields. This looks very difficult today because the state's first goal is to perpetuate itself. It will require the PM to go back to some of his campaign promises of pre-2014 with real conviction. All Indian politicians of a certain vintage are instinctively socialist. And as the farm reforms saga showed, even a small vocal minority can derail a progressive reform. The other challenge has been the availability of capital for MSMEs to build their business and compete for global orders. For the most part, since 2009, we have had a twin balance sheet problem, and that has meant banks have been very choosy about whom to lend. Add to that the shallowness of the corporate bond market, and we end up having a manufacturing sector low on its ambitions. On this, we might be on a better footing now. Bank and corporate balance sheets are at their robust best, and the public digital infrastructure and GST network make it possible for better underwriting decisions using informational collateral. This is evident in the robust credit offtake reported in the MSME segment across the banking sector in the past year. My view is we will industrialise a bit faster than in the past, but we are going to fall short of the expectations of the kind of industrialisation that's expected for us to increase our per capita income from $2000 to $10,000 in the next 15 years. China traversed that exact journey between 2006-20, so it is possible. And it is possible to do it without making the same mistakes as China, where it went back on its decentralised model of growth that made regions and companies compete with one another to an overly centralised model now that will only hurt it further. We need a very specific retreat of the state from the economy with a regulatory framework that acts as an enabler rather than lording over it in a policing role. These seem to be difficult even for a PM and a party that's hugely popular and has no immediate threat of losing power. We will therefore continue to do a respectable 7 per cent growth over the long run than a tearing 10+ per cent. It is what it is. This growth is good but not good enough to take care of the employment aspirations of the people. So, we will have to contend with high unemployment or underemployment for the foreseeable future. What will compound this is automation and the speed of AI adoption in the industry. One of the things to watch out for is the increasing sophistication of AI tools that could automate the services sector. The short-term evidence of generative AI tools like ChatGPT or Dall-e shows how quickly lower-skilled white-collar jobs could be automated. Also, these tools are now getting ‘consumerised'; that is the AI use cases are no longer restricted to a business-to-business context. This will increase the ability of the end users to use them for their needs directly. And that will reduce opportunities in the services sector, which has been the growth engine of the Indian economy in the post-liberalisation decades. Separately, we have talked about the increasing market concentration among 4-5 corporate groups in India. This trend is only getting stronger, and I have explained in the previous edition how this is different from the ‘national champions' model of the Asian tigers. Simply put, unlike them, these national champions aren't using their monopoly to win in global markets. Concentration is a classic market failure that will eventually lead to higher prices and poor allocation of capital. There's a good argument on this that's been made, of late, on this by Viral Acharya. But it has gotten drowned in the usual nationalistic noise that any criticism of this government brings these days. The usual caution that would have come up at this stage would be about the social risks of a young and aspirational population being unemployed. As I travel across India, I find this risk to be somewhat overblown. The availability of cheap smartphones, cheaper data and a general increase in prosperity mean the youth is forever busy staring at their screens engaged in low-quality entertainment. We will continue to generate low-end services jobs to take care of the top tier of Indian society like the ‘home delivery of everything' model has already shown us. This ‘yajman' system of one rich Indian supporting ten others will be a feature of our economy.Lastly, we must realise that the surplus labour and surplus savings (we are already getting there) that we will have will need to find their use outside of India. We will be one of the few countries in the world to have these together and almost no one will have our scale of surplus labour and savings. Free trade and open borders will therefore play to our advantage. It will be counterproductive to champion protectionism or any kind of swadeshi brand of politics. It will just be bad economics and blunt our edge in the global economy. There is no shortage of things to solve if we want to make use of the demographic dividend. I have read the usual lament on how we must improve the quality of our labour pool, upgrade our education system, improve infrastructure and bring women into the workforce - the list is long. I think these are downstream factors that will mostly get taken care of if the state makes it easier for the enterprises to do business. That retreat when the state has enjoyed having capital under its thumb for decades is mighty difficult. India will do well because there is an overlap of trends that favour it uniquely. The giant leap it so desires will need more than just this happy coincidence to come its way.  Course Advertisement: Admissions for the May 2023 cohort of Takshashila's Graduate Certificate in Public Policy programme are now open! Visit this link to apply.PolicWTF: Tariff ki Taareef Mein This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?— Pranay KotasthaneWe've cried ourselves hoarse that India's position on international trade in electronics is self-defeating. The consensus in India is that high tariffs, heavy customs duties, and other such barriers are a crucial pre-condition for creating world-beating Indian electronics companies. Another edition of this series titled “Tariff ki Tareef Mein” played out last week. On April 17, the World Trade Organisation (WTO) dispute settlement panel ruled that India's imposition of tariffs on mobile phones and electronic components violates its commitment under the Information Technology Act (ITA). The ITA is a plurilateral agreement of the WTO in which the signatories committed to reducing all tariffs and taxes on Information and Communication Technologies (ICT) products. Europe, Japan, and Taiwan raised these disputes separately against India. No surprise, the Indian government plans to challenge the ruling. In fact, government officials are signalling that the ruling won't have any impact because the appellate body of the WTO doesn't have enough judges to hear India's position. India's formal defence is based on two arguments: one is technical, and the other is ideological. The technical argument is that India signed the ITA in 1997 when mobile phones, chargers, and many of the now ubiquitous digital wonders hadn't emerged. So, the recent tariffs on new products that came to life after 1997 do not violate India's ITA commitments. However, a deeper ideological argument underlies the technical argument. The Indian government strongly believes that signing the ITA led to the decline of its domestic electronics industry. And as a result, import tariffs are critical for maintaining the current uptick in domestic electronics production. The commerce ministry website pulls no punches when it says:“India's experience with the ITA has been most discouraging, which almost wiped out the IT industry from India. The real gainer from that agreement has been China which raised its global market share from 2% to 14% between 2000-2011.In light of recent measures taken by the Government to build a sound manufacturing environment in the field of Electronics and Information Technology, this is the time for us to incubate our industry rather than expose it to undue pressures of competition. Accordingly and also keeping in view opinion of domestic IT industry, it has been decided not to participate in the ITA expansion negotiations for the time being.” As this official position indicates, the government seems to have internalised that the ITA was the reason that India's past attempts failed. (That line about incubating the industry rather than exposing it to “undue” pressures of competition transported me to the 1950s.)There are at least three problems with this line of thinking. One, it mistakes correlation for causation. It is true that Chinese companies decimated the domestic Indian manufacturers of cheap mobile phones by 2017. Indian domestic players couldn't match the “features per unit price” that Chinese companies were able to offer. The import of cheaper phones back then benefited millions of Indian consumers. The reason that domestic players couldn't compete wasn't the ITA but that they had no competitive advantage. Their business model relied on rebranding older phones sourced from China. Zero tariffs under ITA, in fact, made it possible for these companies to import components cheaply and climb up the assembly value chain. But without any significant investment in R&D or industrial innovation, these “domestic” players were easily wiped off the market. This story isn't unique to electronic products. Even in segments to which the ITA doesn't apply, such as machine tools, textiles, or toys, Indian companies couldn't stand international competition. Surely, the problem then lies in India's large-scale manufacturing troubles and not in signing the ITA. The much-lampooned ease-of-doing business factors, such as poor infrastructure, byzantine labour and land regulations, and a complicated tax system, can explain why production in India remained a challenge across sectors. Two, protecting domestic players will not produce world-beating champions. This is particularly true for electronics production, which relies heavily on cross-border flows of materials, machines, and humans. To export one type of electronic product, you need to import another type; atmanirbharta is impossible. By disregarding the ITA, products manufactured in India will not be able to compete in the international market. An analysis by the industry body of phone manufacturers shows that higher import tariffs have meant that a large portion of the money companies receives under PLI gets re-routed to pay these tariffs, ultimately making production cost-prohibitive. This is the reason why companies such as Apple have been trying to seek duty exemptions for some electronic components. It is also a major sticking point in the India-Taiwan Free Trade Agreement. A unilateral reduction in tariffs by following ITA is thus in India's interest.Three, India's vehement dismissal of the ITA places it at a disadvantage in future negotiations. India has opted out of the ITA-2 negotiations that sought to expand the list of ICT products on which tariffs were to be reduced. As a big manufacturer, China was able to get favourable exemptions in these negotiations. Instead of reducing tariffs to zero immediately, it was able to extract waivers that give it a gentle gliding path towards zero tariffs. India has a similar opportunity today, given that it is far more integrated into the global supply chain for electronics due to the manufacturing presence of players such as Samsung and Apple. The geopolitical situation, too, is far more favourable. But India's obstinate stance on the ITA makes the question of negotiating waivers a moot one.China signed the ITA in 2003. By then, it already had a strong electronics assembly and manufacturing setup. The ITA supercharged its powers and helped it become a global provider of ICT goods. Twenty years later, India, too, has been able to kickstart electronics assembly. It's now time to approach ITA more confidently instead of falling back to the tested-and-failed tropes of import substitution and infant industry protection. A basic rule of strategy is not to spread too thin on many fronts simultaneously. India's trade strategy seems to ignore this maxim. If our chief adversary is China, it's better to settle trade disputes with the EU, UK, Japan, Taiwan, and the US with minimal friction. Instead, we continue to treat every tariff reduction as a bargaining chip. Missing the woods for the trees shouldn't become India's guiding principle in international trade. Global Policy Watch: What Fed Learnt From SVB Failure Reflection on global policy issues — RSJOn the face of it, quite a lot. A 118-page report. As the Economic Times reports:“The Federal Reserve issued a detailed and scathing assessment on Friday of its failure to identify problems and push for fixes at Silicon Valley Bank before the U.S. lender's collapse, and promised tougher supervision and stricter rules for banks.In what Fed Vice Chair for Supervision Michael Barr called an "unflinching" review of the U.S. central bank's supervision of SVB, the Fed said its oversight of the Santa Clara, California-based bank was inadequate and that regulatory standards were too low.”It is useful to understand what policy lessons are learnt by a regulator from a setback. SVB was a small bank (16th largest) but a fairly important player in the valley. And it went down in a heap within hours because of a run engineered by the enlightened VCs who asked their investee companies to pull out their deposits. I have covered the saga in a previous edition. In its report, the Fed has identified the reasons for the bank failure, which in hindsight, is clear to everyone now. It points to three broader issues:“First, the combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs. Social media enabled depositors to instantly spread concerns about a bank run, and technology enabled immediate withdrawals of funding.Second, as I have previously stated, a firm's distress may have systemic consequences through contagion—where concerns about one firm spread to other firms—even if the firm is not extremely large, highly connected to other financial counterparties, or involved in critical financial services.Third, this experience has emphasised why strong bank capital matters. While the proximate cause of SVB's failure was a liquidity run, the underlying issue was concern about its solvency.”All good, so far. And therefore, the question: So, what have they learnt from it? Well, the key “takeaways” summed up are here:“1. Silicon Valley Bank's board of directors and management failed to manage their risks.2. Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity.3. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.4. The Board's tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.”The Board and the management take a large portion of the blame. And then it appears like the Fed is holding itself accountable by calling out the weakness in supervisory standards. Till you read the fine print. It is largely throwing a small team of SVB-specific supervisors under the bus, thus making it sound like a specific instance of dereliction of duty. SVB failed because the Fed raised interest rates too quickly without asking what could be the possible risks of such a move. It didn't do its homework for its actions on the banking system. And when it realised the likely vulnerabilities that it hadn't anticipated, it went easy on the rate hikes than the hawkish stand it had taken only a week earlier. Had it been only an SVB-specific issue, what explains the slow unravelling of the First Republic Bank? It is one thing not to anticipate the unintended. It is another not to acknowledge it and search for lessons which won't help you the next time around. Or maybe it knows what went wrong, and it is too proud to admit it went wrong. Either way, it comes out of this poorly. India Policy Watch #2: Devil and the Deep SeaInsights on issues relevant to India — Pranay KotasthaneOver the last couple of weeks, the Congress' new election slogan, “Jitni aabaadi, utna haq”, has caused quite a flutter. Bluntly speaking, it is a pre-election promise to expand reservations for Other Backward Classes (OBC). We've seen this movie before. As was the case with the last election, it means that the grand narrative that's been put forward to counter Hindutva majoritarianism is “backward” caste mobilisation. But this time around, the mobilisation comes with some clear demands: a caste census, an expansion of OBC reservation, and a dedicated ministry for the empowerment of OBCs.In his characteristically edifying column, political scientist Pratap Bhanu Mehta explains why these three demands for caste mobilisation will not translate to social justice. Social justice needs good public institutions of education and inclusive economic growth, combined with strong affirmative action for the Dalits and some deeply marginalised sections of OBCs. Instead, political parties have reduced the logic of “social justice” to one and only one item: expansion of OBC reservation. In his words:“The most important things that are required for social justice do not require caste data. Making quality education available to all, the creation of public goods in which all can participate, the design of welfare or other cash support schemes, the best mix of subsidies and income enhancing measures, and most importantly, an expanding economy that creates mobility do not require the framework of caste. The mistake of the social justice agenda was that it forgot Ambedkar's lesson that to effectively attack caste you have to (for the most part) strongly but indirectly attack the range of material deprivations that make its logic so insidious. Second, we have to express the blunt truth on so much of what went under the name of social justice politics in North India.”…“In my years of dealing with higher education, it was rare to come across a social justice party that shed a single tear for the decimation of public education or the destruction of universities. But all their social justice outrage was focused on the one single point of reservations. So in Bihar you got the RJD that, for all its tapping into the politics of dignity, decimated the governance structures that could have empowered marginalised groups. In UP, under the garb of social justice agenda, we tolerated parties that had little interest in governing. What was called the deepening of democracy in North India did not lead to deepening of governance or inclusive growth.” [The Indian Express, April 21]As you would imagine, that article ruffled many a feather. Writing in the same newspaper, Manoj Kumar Jha (a Rajya Sabha member of RJD) and Ghazala Jamil mounted a defence with these words:“The RJD and other opposition parties that he accuses of reducing social justice to distributing “government largesse based on officially reified caste identities” and “decimating public education and destructing universities” have, in fact, invested heavily in school education systems so that the marginalised sections can simply reach public universities. The quantum of ambition in Bihar's youth for competitive exams for public jobs and their presence in all sectors of the private economy across India and abroad today is a testament to the massification of education, despite suffering from the effects of uneven development and the failure of cooperative federalism.” [The Indian Express, April 27]To claim that RJD and opposition parties' biggest success is increasing the “number of youth writing competitive exams for public jobs” proves Mehta's point. With quotas as the primary instrument of action, government education institutions merely become vehicles to distribute positions along caste lines. Of course, Mehta's article is a lament that the opposition is using one form of majoritarianism to counter another form of majoritarianism. But those in favour are desperate to show that their project is morally superior. Both these views are somewhat orthogonal to how this issue will resonate with the electorate in 2024. As of now, we are stuck with the politics of religion versus the politics of caste.HomeWorkReading and listening recommendations on public policy matters* [Article] Ajay Chibber's take on fiscal decentralisation has useful comparisons:“India's share of sub-national (state plus local) spending at 60 per cent of total spend is quite high at its level of development. Other large federal states spend less. Brazil spends around 50 per cent at the sub-national level, Germany 46 per cent, the United States around 40 per cent, and Indonesia around 35 per cent. Only Canada and China spend more than 70 per cent at the sub-national level. …Going forward, where India must focus is the share of local government, which remains very small. India's local government spend is less than 4 per cent of total government spending. This share is much smaller than in most advanced economies, but also much lower than in centralised authoritarian governments like China, where local government spending exceeds 50 per cent of total spending by government. China is an outlier in this, but in most advanced economies, the share is much higher than in India. The 28 countries in the EU spend 23.2 per cent at the local level, Canada 21 per cent, the US 29 per cent. In Latin America, local government spending is around 12.7 per cent and most analysts feel it should be much higher.” [Business Standard, April 20]In this context, we earlier discussed a framework for decentralisation in edition #186. * [Podcast] A Puliyabaazi on the population question. Is India really overpopulated?* [Paper] The Information Technology Agreement, Manufacturing and Innovation – China's and India's Contrasting Experiences by Dieter Ernst is THE starting point to understand the debate on India's protectionism in electronics. *From the poem Opportunity by Raymond Garfield Dandridge This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit publicpolicy.substack.com

India Policy Watch #1: Don't Concentrate Insights on issues relevant to India— RSJIn one of the recent editions on the Hindenburg short-selling saga, I had written about how easily the Adani group had spread itself into a diverse range of sectors. The group was highly leveraged because it was so keen on getting into newer sectors and then winning bids in them with metronomic efficiency. Generally speaking, it is difficult to run a conglomerate of different businesses. You might argue that each business can be handled by a competent management team who will use the brand name and deep pockets of the parent group to build a solid business. But it is easier said than done. Capital allocation decisions, which lie at the heart of executing a business strategy, are difficult within a single line of business. They become hugely complicated within a conglomerate of businesses. Misallocation of capital, lack of focus and inability to stay competitive against smaller, nimbler players eventually follow. Soon, the businesses need to be hived off, and you find companies convincing would-be investors on how they are doing fewer things and doing them well instead of spreading themselves too thin. This is the usual cycle. Yet, you see conglomerates appearing on the business landscape across countries. In some cases, these are businesses integrating vertically or finding interesting adjacencies in their business. This kind of makes sense in the Coase-ian “Nature of Firm” way. I mean, if the transaction costs of finding someone to do a particular work are higher than you doing it yourself, sure, go ahead and do it yourself. But beyond that, there should be no economic reason for having conglomerates. Unless you have one of these conditions in the economy: a) Cost of capital is high, and access to it is difficult. Newer players find it difficult to access capital to start new businesses while older, established players with free cash flow can muscle their way into unrelated but lucrative new sectors only because they have access to capital at a lower rate. b) The playing field isn't level for newer players to make a dent. Through a mix of friendly regulations, ‘working' the networks and M&A activities, the bigger players continue to have an advantage going into a new sector over smaller players who might have expertise in cracking those sectors open.c) There's relatively little ease of doing business in those sectors or in the evening overall. The established conglomerates with an army of people, lawyers and consultants can get started relatively faster and capture the market than new entrants. You don't have to be a genius to see where the Indian policy-making framework is on the above conditions. There's common and easy access to capital through a large number of PEs and VC funds but only for a particular kind of ‘flavour of the season' variety. This also is getting difficult to access. The market for other forms of capital isn't deep enough. In the same vein, long-term capital for greenfield projects where the credit risk has to be borne by the issuer isn't available. There is always a whiff of regulatory capture especially in sectors where the government is closely involved bin decision making. Lastly, we might have moved up in the ‘ease of doing business' rankings, but it isn't clear yet how this has changed things on the ground. New businesses still find going tough for them. All of the above means that in the past five years, we are reversing a trend seen since the ‘91 reforms. That of increasing salience of conglomerates in India. You don't have to research too hard. Just take a look at any sector - already big or one that is emerging - you will have the same spectacle of a few large corporate groups getting themselves into all sorts of businesses, from defence to semiconductors or from airlines to carbonated soft drinks only because they believe they can take advantage of market distortions.As if to illustrate this point further, here's news that's only a day old. Here's Moneycontrol  reporting:“The shares of Mukesh Ambani-led Reliance Industries Ltd (RIL) rallied 3.5 percent in the morning trade on March 31 after the company said secured creditors, unsecured creditors and shareholders would meet on May 2 to approve the proposed demerger of Reliance Strategic Ventures.After the approval, the unit, which is the financial services subsidiary of the oil-to-telecom conglomerate, would be renamed Jio Financial Services.Benefits that shall accrue on the demerger of the financial services business will be the creation of an independent company focusing exclusively on financial services and exploring opportunities in the sector, the independent company can attract different sets of investors, strategic partners, lenders and other stakeholders having a specific interest in the financial services business, a financial services company can have a higher leverage (as compared to the Demerged Company) for its growth and, unlocking the value of the demerged undertaking for the shareholders of the demerged company, the conglomerate said in an exchange filing.”This isn't out of the ordinary. If you search for similar news items from the last five years, you will notice the same pattern of large conglomerates (usually the big 5) muscling into other or newer sectors because they think they have the capital and they will be able to manage the sector well. While one cannot blame these conglomerates for their ambitions, this trend suggests we might have tipped over from being pro-markets to pro-business. Coincidentally, as I was writing this, we had a paper authored by Viral Acharya (former Deputy Governor, RBI) on the opportunities and challenges for the Indian economy published by the Brookings Institution and being discussed in the media. Acharya has highlighted the concentration of power in Indian industry as a particularly worrying trend. He writes (I have paraphrased a bit):“A striking feature of this rise in industrial concentration by private companies is that it is in part due to the growing footprint of “Big-5” industrial conglomerates, based on the overall share of assets in non-financial sectors in 2021. Data shows the following patterns.First, until 2010, the Big-5 increased their footprint in more and more industrial sectors, broadening their reach to 40 NIC-2-digit non-financial sectors. After this breadth first strategy came the depth-next strategy. Starting in 2015, the Big-5 started acquiring larger and larger share within the sectors where they were present. In particular, their share in total assets of the non-financial sectors rose from 10% in 1991 to nearly 18% in 2021, whereas the share of the next big five (Big 6-10) business groups fell from 18% in 1992 to less than 9%. In other words, Big-5 grew not just at the expense of the smallest firms, but also of the next largest firms.Next, this growth of Big-5 appears to be driven in part by their growing share of overall Mergers & Acquisitions (M&A) activity. Even though the aggregate number of M&A deals has dropped since 2011, the share of M&A deals by the Big-5 has doubled from under 3% in 2015 to 6% in 2021, without such an increase being seen in the next five biggest groups. Arguably, this growth has also been supported by a conscious industrial policy of creating “national champions” via preferential allocation of projects and in some cases regulatory agencies turning a blind eye to predatory pricing. Equally importantly, given the high tariffs, Big-5 groups do not have to compete with international peers in many sectors where they are present and derive most of their revenues domestically.”Acharya then goes on to list the usual downstream problems of such an increase in market power concentration - inefficient allocation of capital, favouritism in project allocation, regulatory interference, related party transactions, over-leveraging while becoming too big to fail and crowding out new players. But he also makes an important claim that this concentration of market power is one of the reasons for persistent core inflation. He concludes:“In summary, creating national champions, which is considered by many as the industrial policy of “new India”, appears to be feeding directly into keeping prices at a high level, with the possibility that it is feeding “core” inflation's persistent high level.”I won't go as far as Acharya yet on this thesis. As he admits, there's more work that needs to be done here, but his conclusion on pricing remaining high because of industry concentration does pass the smell test. And it should concern policy makers. I know there are many who will ask what's wrong in creating ‘national champions' like the tiger economies did between the 70s-90s. But there are a few differences in our case. Firstly, the focus on creating national champions elsewhere was to choose specific sectors where they might have a comparative advantage, invest in them, especially on technology and then win in global markets through an export-oriented strategy. It is a somewhat flawed approach, but it still makes sense for a low-income economy to do this. But we aren't really doing this in India. Our so-called national champions are focused on domestic markets where there's no particular need to have them. In fact, there is only a monopoly risk here with the attendant problems of price cartelisation and poor customer service. Also, the limited focus on exports that these big five domestic players have as of now is largely linked to natural resources and not large-scale, job-creating manufacturing setups. It is unclear how the broader economy is benefitting from this apparent design. Secondly, the successful national champion model in other economies didn't need high import tariffs to support their ambitions like it is now the case in India. We have written about this many times in the past. Higher tariffs will reduce the competitiveness of the domestic players in those sectors to compete globally. It is counterintuitive to have a high tariff regime if you want to build national champions. After all, global markets are much larger than the domestic market, and that's where these conglomerates must be competing. Thirdly, what's the government getting out of the apparent tilting, if it is intentional, of the playing field in favour of these players? If the idea is to have national champions despite the obvious flaws in this intent, it makes sense to have stakes in these ventures to participate in the value being created. Lastly, the overall economy will benefit if the process of creating such champions leads to factor market reforms and real ease of doing business for other participants in the process. Else, the larger players will continue to get ahead not because of better products or innovation but simply because they know how to manage the system. In other words, it is the 1970s all over again with a tadka of markets.It is difficult to see how we can trace our way back from this path, given the apparent lack of opposition and the already dominant position of these conglomerates in industry and media. Also, any walking back will require some bold antitrust kind of measures (it is what Acharya suggests) which is quite impossible in India. Possibly, the only medium-term scenario is these conglomerates start stepping on each other's toes as they continue to diversify their businesses and that competition alleviates the problems of concentration. But that might be too late in coming, or they might have a tacit understanding of the rules of the game in competing with one another. It will distort markets further. Maybe this is a tad alarmist, but it is important to acknowledge there's way too much diversification among the top conglomerates in India and that's always a sign of market distortion. India Policy Watch #2: We Need an Agnipath for India's DiplomacyInsights on issues relevant to India— Pranay KotasthaneIn edition #198, I highlighted that at least three areas of the Indian executive need a quick state capacity boost. These were: the Ministry of External Affairs, Ministry of Electronics & Information Technology (MeitY), and economic regulatory bodies such as the Competition Commission of India (CCI). Then I came across this tweet from the External Affairs Minister, which acted as a positive reinforcement for this line of thinking. Managing these engagements in an unsettled world order needs an immediate boost in India's foreign policy capacity. Solutions like incremental increases in the Indian Foreign Service (IFS), while required, will be too slow.What we need today is a ‘surge hiring' strategy. The external affairs ministry, in fact, was the first union ministry to experiment with a broader lateral entry for government officers in 2015. It also opened up positions in its policy planning and research division for people in academia and the private sector. However, these tentative trials seem to have lost steam. The underlying reason is the internal resistance from the foreign service officers, who see such attempts as a threat to their career progression.The surge hiring strategy should try a different approach. It should attempt to hire a much larger number of people below ambassadorial positions. This way, the cadre protection impulse can be side-stepped. Instead of targeting joint secretary levels, two fellowships could be attempted: one for fresh graduates and another for young professionals working within and outside the government (thanks to Nitin Pai for this idea). Given the growing prominence of technology and economic issues as foreign policy domains, this approach would help build institutional knowledge within the ministry. More importantly, the surge should target staffing for the headquarter functions in Delhi for managing various engagements and new initiatives. Indian missions abroad can continue to be led by IFS officers. Past attempts at lateral hiring were advertised as single posts in the unreserved category. By opening up a larger number of positions concurrently, the government could retain existing norms on reservations and quotas. Finally, the surge hiring strategy should have a sunset clause and a well-defined recruitment target. If it is conceptualised as a non-recurring measure keeping the current geopolitical situation in mind, it will resonate with the opposition and the parliament.With the Agnipath experiment of the defence ministry, the idea of short-term employment within the government has gained some acceptability. It is no longer anathema to the government but an idea whose time has come. Without a surge in foreign policy capacity, we will only have great ideas but tardy implementation, resulting in a perennially underperforming foreign policy. Matsyanyaaya: Reflections on the QuadBig fish eating small fish = Foreign Policy in action— Pranay KotasthaneLast week, I attended a US State Department sponsored programme that aims to invigorate think tank research on Quad collaboration in the four countries. As part of the first segment of this programme, five representatives from each country's think tanks were hosted in the US. What follows are my reflections on the Quad as a geopolitical formation, based on what I saw in this programme.* Quad ranks higher on the US foreign policy agenda than I had expected. My prior assumption was that given the multiple alliances that the US leads, a new, amorphous grouping such as the Quad wouldn't rank high on its priority list. However, the interactions with the officials suggested a conscious effort to infuse energy into the Quad. * The Quad is being positioned visibly and intentionally as a positive force that would bring benefits to the Indo-Pacific at large, rather than as an anti-China “alliance”. This is the reason why the interactions as part of the grouping have spawned into six leader-level working groups—on COVID-19 Response and Global Health Security, Climate, Critical and Emerging Technologies, Cyber, Space, and Infrastructure, and at least three initiatives—Indo-Pacific Partnership for Maritime Domain Awareness, Semiconductor Supply Chain Initiative, and the Quad Fellowship. The strategy, if there is one, seems to be to throw several balls up in the air, knowing fully well that some of them will get dropped, while others might be caught on their way back by all four countries, or only a subset amongst them.* As the Quad is not a traditional security alliance, its success metric will also be different. Not all cooperation will be Quad-labelled, and some of it might come in bilateral or trilateral formats. So, the increased cooperation between Japan and Australia on defence ties, and between India and Australia on economic ties, are also indicators that the Quad is moving in the right direction. * While the rationale for Quad collaboration in many areas is often “common interests” or “shared values”, an underrated frame is “mutual complementarities”. In many spheres, especially in technology, the Quad is an attractive forum for cooperation precisely because each country has complementary strengths. * Positioning Quad as a force for good in the Indo-Pacific—rather than a geopolitical grouping against China— in many areas runs the obvious risk of underperformance and loss of credibility. In international affairs, efforts at providing benefits to another country are usually known by their failures more than their successes. For instance, in May 2021, the Quad Vaccine Partnership targeted the provision of 1 billion COVID-19 vaccines. Even though the four countries individually delivered 670 million doses, including 265 million doses in the Indo-Pacific, the demand for vaccines waned by the end of 2022. The dominant narrative was that the Vaccine Partnership had failed, even though it had made a significant contribution. HomeWorkReading and listening recommendations on public policy matters* [Podcast] We were on Shruti Rajagopalan's excellent podcast Ideas of India to discuss our book and the Indian State's many puzzles. * [Podcast] A Puliyabaazi on citizencraft featuring Nitin Pai.* [Paper] This paper by Isha Bhatnagar offers evidence that gender equitable preferences are rising in India. From the abstract:Over more than a quarter-century period (1992–1993 to 2019–2021), I find a significant decline in son preference from 40 to 18 percent and an increase in gender-equitable preferences among most subpopulations. Multivariate analysis shows that for all survey years, education and frequent exposure to television significantly increased the odds of gender-equitable preferences. In the last decade, community norms supporting women's employment are also associated with gender-equitable preferences. In addition, decomposition analysis shows that compared to compositional change, social norm change accounts for two-thirds of the rise in gender-equitable preferences. These findings suggest that rising norms of gender equality have the potential to dismantle gender-biased preferences in India. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit publicpolicy.substack.com

Michael and Mark take a break today for the Thanksgiving holiday, and welcome Jack Farley from Forward Guidance onto the podcast for a special cross-over episode. This episode from Forward Guidance is with William White, senior fellow at the C.D. Howe Institute, and Joseph Wang, former senior trader for the New York Federal Reserve. They discuss why economic forecasts are so often wrong, how the world can escape the “debt trap,” and how central bankers face a trade-off between price stability (low inflation) and financial stability. William White's work can be found here: https://williamwhite.ca/ Joseph Wang's writings can be found here: https://fedguy.com/ -- Follow Jack Farley on Twitter https://rb.gy/uesguv Follow Forward Guidance on Twitter https://rb.gy/cy0dki Follow Blockworks on Twitter https://rb.gy/igyzsj __ Academic papers referenced: "Where Has All the Liquidity Gone?" by Raghuram Rajan and Viral Acharya: https://rb.gy/n47fah "Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)" by Jeremy Rudd: https://rb.gy/4wjzx8 "Some Unpleasant Monetarist Arithmetic" by Thomas J. Sargent & Neil Wallace: https://rb.gy/53kikq William White's recent presentation on the future of policy modelling: https://rb.gy/robwk2 -- This episode is sponsored by Curve. Curve is unlike any other credit card. It gives you the power to connect multiple credit and debit cards into one, convert your cashback into crypto rewards, Go Back in Time ®, create Smart Rules, and more. Apply now through https://link.curve.com/blockworks_on_the_margin, you'll earn $20 in Curve Cash after your first transaction. So sign up today! Terms and conditions apply. -- Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://rb.gy/5weeyw Market commentary, charts, degen trade ideas, governance updates, token performance, can't-miss-tweets and more. Subscribe to the Blockworks Research “Daily Debrief” Newsletter: https://rb.gy/feusos Find out more about the Blockworks video editor role here: https://blockworks.co/careers/ -- Timestamps: (00:00) Introduction (01:09) Looking Back At 2022 (04:20) Quantitative Tightening (QT) is Causing Disruptions (11:55) "The Central Bankers Have Made A Profound Ontological Error" (23:17) Does Fed Chair Jay Powell Pay Attention To Economic Models? (25:25) Algorand Ad (27:09) If Inflation Is Supply-Side Driven, What Should Central Bankers Do? (40:43) The Debt Trap (46:04) Powell Is Not Worried About a Recession - Is This A Mistake? (54:39) Getting Out Of The Debt Trap (58:36) The Fed Has Lost A Lot Of Money (01:04:22) A Global Economic Slowdown is Here (01:09:52) Crypto Contagion and the Fall of FTX -- Disclaimer: Nothing discussed on On the Margin or Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

Today Jack welcomes William White, senior fellow at the C.D. Howe Institute, and Joseph Wang, former senior trader for the New York Federal Reserve. They discuss why economic forecasts are so often wrong, how the world can escape the “debt trap,” and how central bankers face a trade-off between price stability (low inflation) and financial stability. William White's work can be found here: https://williamwhite.ca/ Joseph Wang's writings can be found here: https://fedguy.com/ -- Follow Jack Farley on Twitter https://rb.gy/uesguv Follow Forward Guidance on Twitter https://rb.gy/cy0dki Follow Blockworks on Twitter https://rb.gy/igyzsj __ Academic papers referenced: "Where Has All the Liquidity Gone?" by Raghuram Rajan and Viral Acharya: https://rb.gy/n47fah "Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)" by Jeremy Rudd: https://rb.gy/4wjzx8 "Some Unpleasant Monetarist Arithmetic" by Thomas J. Sargent & Neil Wallace: https://rb.gy/53kikq William White's recent presentation on the future of policy modelling: https://rb.gy/robwk2 -- Join Kraken, Binance, Arrington Capital, and 2000 others in heading to Dubai this fall for Algorand's DECIPHER conference, happening November 28-30. Tickets are available now -- use code DecipherFam22 for 25% off: https://www.decipherevent.com -- Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://rb.gy/5weeyw Market commentary, charts, degen trade ideas, governance updates, token performance, can't-miss-tweets and more. Subscribe to the Blockworks Research “Daily Debrief” Newsletter: https://rb.gy/feusos Find out more about the Blockworks video editor role here: https://blockworks.co/careers/ -- Timestamps: (00:00) Introduction (01:09) Looking Back At 2022 (04:20) Quantitative Tightening (QT) is Causing Disruptions (11:55) "The Central Bankers Have Made A Profound Ontological Error" (23:17) Does Fed Chair Jay Powell Pay Attention To Economic Models? (25:25) Algorand Ad (27:09) If Inflation Is Supply-Side Driven, What Should Central Bankers Do? (40:43) The Debt Trap (46:04) Powell Is Not Worried About a Recession - Is This A Mistake? (54:39) Getting Out Of The Debt Trap (58:36) The Fed Has Lost A Lot Of Money (01:04:22) A Global Economic Slowdown is Here (01:09:52) Crypto Contagion and the Fall of FTX -- Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

Heat stress from climate change affects the economy, so does it change the cost of issuing debt or the return on equities? Viral Acharya has investigated how this climate risk is priced, and he tells Tim Phillips how it raises the cost of borrowing most for the places and firms that can least afford it.

In this latest installment, Viral Acharya⁠—Professor⁠ of Finance at NYU Stern, joins me to discuss how India is dealing with oil/inflation issues and what to expect from the U.S. economy in the coming months, as well as reflect on his time as Deputy Governor of the Reserve Bank of India. 00:00 - Intro03:32 - Takeaways from Acharya's experience as Deputy Governor of the RBI12:21 - Will the RBI's aggressive approach towards inflation pay off?18:52 - India's bond yield + oil prices going up - long-term issue?24:16 - Will the U.S. actually hit a recession or can we brace the fall? 27:55 - Unpacking the dichotomy of strong (?) labor market with recessionary fears

The Indian economy has been going downhill for a decade now. How has Covid-19 affected it? Ila Patnaik joins Amit Varma in episode 227 of The Seen and the Unseen to take stock of where we are today, and where we go from here. Also check out: 1. Ila Patnaik at NIPFP, The Print, YouTube, Indian Express & Business Standard. 2. Asia Confronts the Impossible Trinity -- Ila Patnaik & Ajay Shah. 3. The Economics and Politics of Vaccines -- Episode 223 of The Seen and the Unseen (w Ajay Shah). 4. The Tragedy of Our Farm Bills -- Episode 211 of The Seen and the Unseen (w Ajay Shah). 5. The Art and Science of Economic Policy -- Episode 154 of The Seen and the Unseen (w Vijay Kelkar & Ajay Shah). 6. In Service of the Republic -- Vijay Kelkar and Ajay Shah. 7. India’s Lost Decade -- Episode 116 of The Seen and the Unseen (w Puja Mehra). 8. The Lost Decade -- Puja Mehra. 9. What a Long Strange Trip It’s Been -- Episode 188 of The Seen and the Unseen (w Arvind Subramanian). 10. The Fight of the Central Banker -- Episode 193 of The Seen and the Unseen (w Viral Acharya). 11. Pandemonium in India’s Banks -- Episode 212 of The Seen and the Unseen (w Tamal Bandyopadhyay.) 12. Demystifying GDP -- Episode 130 of The Seen and the Unseen (w Rajeswari Sengupta). 13. The Indian Economy in 2019 -- Episode 153 of The Seen and the Unseen (w Vivek Kaul). 14. Two Economic Crises (2008 & 2019) -- Episode 135 of The Seen and the Unseen (w Mohit Satyanand). 15. Twelve Dream Reforms -- Episode 138 of The Seen and the Unseen (w Shruti Rajagopalan, Rajeswari Sengupta and Vivek Kaul.) 16. The Seen and the Unseen episodes on Demonetisation and GST. 17.  Most of Amit Varma’s writing on DeMon, collected in one Twitter thread.   18. Understanding Indian Healthcare -- Episode 225 of The Seen and the Unseen (w Karthik Muralidharan). 19. Women at Work -- Episode 132 of The Seen and the Unseen (w Namita Bhandare). 20. Past episodes of The Seen and the Unseen on Covid-19, featuring (in reverse chronological order) Ashwin Mahesh, Gautam Menon, Ajay Shah, Anirban Mahapatra, Ruben Mascarenhas, Chinmay Tumbe, Rukmini S, Vaidehi Tandel, Vivek Kaul, Anup Malani and Shruti Rajagopalan. 21. India’s Problem is Poverty, Not Inequality -- Amit Varma. 22. Anup Malani on India’s COVID Second Wave — Episode 13 of Season 5 of Grand Tamasha, hosted by Milan Vaishnav. 23. Seeing Like a State -- James C Scott. 24. Milton Friedman and PJ O'Rourke on Amazon. Please subscribe to The India Uncut Newsletter. It’s free! And check out Amit’s online course, The Art of Clear Writing.

About Dollar Gujarati: Dollar Gujarati is a show about successful Indian Immigrant entrepreneurs and professionals in America. We talk with them about their ideas and struggles on the road to success in this land of opportunity. Subscribe to the Dollar Gujarati here: https://open.spotify.com/show/6MMESppatkToQG7mTrom81 https://podcasts.apple.com/us/podcast/dollar-gujarati/id1519034412?uo=4 Guest Introduction: Our guest today is Dr. Viral Acharya. Dr. Viral is a Professor of Economics at New York University's School of Business. He was the youngest Deputy Governor of the RBI and held the position from January 2017 to July 2019. Dr. Viral has taught at London Business School, before being called back to his alma mater in New York during the 2008 financial crisis. Dr. Viral is an alumnus of New York University, IIT Bombay, and, perhaps most importantly, Fellowship School in South Bombay. Bio: https://www.stern.nyu.edu/faculty/bio/viral-acharya Buy his new book: https://www.amazon.in/Quest-Restoring-Financial-Stability-India/dp/9353884896/ Donate to Pratham: https://prathamusa.org/ --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app --- Send in a voice message: https://anchor.fm/cold-brew-money/message

India's financial system has been in crisis for more than a decade -- and it affects all of us. Tamal Bandyopadhyay joins Amit Varma in episode 212 of The Seen and the Unseen to make sense of all the turbulence. Also check out: 1. Pandemonium: The Great Indian Banking Tragedy -- Tamal  Bandyopadhyay. 2. Tamal Bandyopadhyay's books on Amazon. 3. Tamal Bandyopadhyay's website. 4. Tamal Bandyopadhyay's columns in Mint and Business Standard.5. India's Lost Decade -- Episode 116 of The Seen and the Unseen (w Puja Mehra). 6. The Fight of the Central Banker -- Episode 193 of The Seen and the Unseen (w Viral Acharya). 7. The Importance of Finance -- Episode 125 of The Seen and the Unseen (w Ajay Shah). 8. Zombie Firms and Creative Destruction -- 118 of The Seen and the Unseen (w Ajay Shah). 9. Easy Money -- Episode 56 of The Seen and the Unseen (w Vivek Kaul).  10. IL&FS and the Indian Financial System -- Episode 91 of The Seen and the Unseen (w Vivek Kaul and Ashutosh Datar). 11. Episodes of The Seen and the Unseen on public sector banks and NPAs.. 12. What Really Happened? — Lawrence H White on the 2008 Financial Crisis. 13. Politics and the English Language -- George Orwell. 14. Lady Chatterley's Lover -- DH Lawrence. 15. Firefighting: The Financial Crisis and its Lessons -- Ben S Bernanke, Timothy F Geithner and Henry M Paulson Jr. 16. Code Name God: The Spiritual Odyssey of a Man of Science -- Mani Bhaumik. 17. Ispat Bhi Hum Banate Hain -- The Tata Steel commercial. (Also this.) 18. Complan Boy and Girl (w Shahid Kapoor and Ayesha Takia). 19. Maltova Mum. You can now buy Seen/Unseen swag. And do check out Amit’s online courses, The Art of Clear Writing and The Art of Podcasting.

For those interested in understanding India's banking and Non-banking Financial sectors, there is no better source than this hour-long Episode 18 of the Transforming India podcast. In this episode, co-hosts Arvind Panagariya and Pravin Krishna speak at length with Dr. Viral Acharya, CV Starr Professor of Economics at New York University's Stern School of Business and former Deputy Governor of the RBI. The three discuss the evolution of the Non-performing assets (NPA) crisis, its handling by the government, the role it played in economic slowdown both pre- and post-Covid-19, the impact Covid-19 will have on future bankruptcies and NPAs, and preventive actions the government must take. Dr. Acharya also offers advice on banking sector reform, including privatization. Further, the episode offers a rich discussion of the role that Non-Banking Financial Companies (NBFCs) play in India's financial sector, the crises that engulfed it alongside the NPA crisis in banks, possible remedies, and whether it will be wise to allow non-financial corporations to have their own banks.

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at Ad-Auris. If you have any feedback, please send it to us.PolicyWTF: One Nation, One ElectionThis section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?— Pranay KotasthaneThe series “One Nation, One X”, like another sitcom Tarak Mehta Ka Ooltah Chashmah, doesn’t seem to end. The latest season of the series is titled One nation, One election (ONOE). PM Narendra Modi has batted for this idea on many occasions before. In his latest pitch, he said:Elections are held at different places every few months, the impact it has on development works is known to all. Therefore, it is a must to have deep study and deliberation on ‘One Nation, One Election’.This speech apart, the most robust defence of ONOE comes from a NITI Aayog discussion paper by Bibek Debroy and Kishore Desai. They cite four reasons. Let us investigate the top two.Reason #1: Imposition of Model Code of Conduct by the Election Commission derails development programs and governanceAccording to this view, political parties, once in power, are brimming with development ideas but are not able to do so, that too for considerable periods, because of repeated elections. This view is shared by many people outside the government as well.The discussion paper tries to estimate the development time lost because of elections. Based on a projection that at least two states go to elections in India every year the authors conclude:“Assuming the average period of operation of Model Code of Conduct as 2 months during election to a State Assembly, development projects and programs (that of State Governments going to polls and of Union Government in those states) may potentially get hit every year and that too for about one-third (four months) of the entire time available for implementing such projects and programs. Such a situation is completely undesirable and needs serious deliberations and appropriate corrective measures.”Sounds quite serious. But hang on. There are several problems with this assessment.One, if the Model Code of Conduct is the problem, it can be changed either by shortening the length of the moratorium or by relaxing the kinds of developmental activities permitted during the election season. Even in its current form, the government can consult the Election Commission about the developmental works it plans to undertake and if they are deemed to not have electoral implications, they are allowed to continue. I’m in favour of removing these restrictions altogether. If a government wants to use developmental activities to lure its voters, it’s more than welcome to do so. If the government is promising freebies to distort voter choices, it can do so even today, just before the Model Code of Conduct comes into place. Two, the claim that developmental activities get stalled for four months a year is misleading. That’s because the code of conduct applies only to the state where elections are to be held. There’s no reason why developmental activities need to stall in all other states. Moreover, it’s useful to see the development period lost over a five year period. Assuming that one Lok Sabha election gets held between two state assembly elections over five years, the total “developmental time lost” in the state is six months. That’s an average one-tenth of a year, not one-third.Three, this “developmental time lost” argument sounds a lot like the dog ate my homework excuse. For one, governments know when the next elections are due and can reasonably plan their developmental works taking this ex-ante information into consideration. Secondly, and this is the bigger issue, this view relegates elections to a begrudgingly necessary event; a mere obstacle blocking the grand developmental vision of the party or the leader in power. Reason #2: Frequent elections lead to massive expenditures by governments and other stakeholdersThe NITI Aayog paper claims:Elections lead to huge expenditures by various stakeholders. Every year, the Government of India and/or respective State Governments bear expenditures on account of conduct, control and supervision of elections. Besides the Government, candidates contesting elections and political parties also incur huge expenditures. The candidates normally incur expenditures on account of various necessary aspects such as travel to constituencies, general publicity, organizing outreach events for electorates etc. while the political parties incur expenditures to run the party’s electoral machinery during elections, campaigning by star leaders and so on.While this is true, “massive” expenditures need to be unpacked. The first component is the government expenditure in conducting elections. The 2014 Lok Sabha elections cost 3870 crores i.e. an expense of 0.03 per cent of India’s 2014 GDP once every five years. State elections for a large state like Bihar cost a tenth of this amount i.e. 0.003 per cent of India’s 2014 GDP every five years. Even if we assume all states require the same amount as Bihar did, India would be spending 0.12 per cent of India’s 2014 GDP over a period of five years, all state assemblies and Lok Sabha elections combined. Clearly, this number is not unaffordable. It can’t be the primary motivation for undertaking a constitutional amendment exercise fraught with unintended consequences. The other component of the cost is spending by political parties and candidates. While the latter is capped to laughably low numbers (Rs 70 lakh for Lok Sabha and Rs 28 lakhs for state assembly elections), there’s no cap on the former. The paper claims that taken together, this component amounted to Rs 30,000 crores for the 2014 Lok Sabha elections. This is indeed a worrying number, more so because the expenditure is often in the form of freebies and vote for cash exchanges. But, arguing that conducting simultaneous elections will fix this problem is an admission by political parties that they will not change their ways; it’s just that they will engage in this simultaneous corruption once every five years. Fixing election expenditure requires many urgent solutions but a simultaneous election is not one of them. Besides these two reasons, there are other counterarguments that I haven’t considered at all. For example, there is a correlation between a higher percentage of electoral wins for national parties as against regional parties when Lok Sabha and state assembly elections are held together. There are also severe repercussions on India’s federal structures as state governments falling before completion of the five year period might have to be placed under the charge of caretaker governments or state governors. Regardless, what this limited analysis shows is that even the two reasons given in favour of simultaneous elections don’t hold water. We don’t need One Nation, One Election. India Policy Watch #1: RBI And Banking Licenses— RSJThe Internal Working Group (IWG) of the Reserve Bank of India (RBI) last week came out with draft report that recommended a calibrated entry of industrial houses into the banking sector and for conversion of large NBFCs into banks. The usual brouhaha followed. But hidden in the brouhaha is an important lesson about the interplay between political and economic institutions. We will come to it later. First, the brouhaha.  Always A Bad IdeaThe camp against the idea of entry of corporates into Banking was led by the formidable duo of Raghuram Rajan and Viral Acharya. In a LinkedIn post titled – “Do we really need Indian corporations in banking?” – they laid out their reservations in no uncertain terms including an innuendo here and a wink there. It covered the usual grounds – risks of connected lending where a corporate house will raise cheap deposits from ordinary citizens and finance their businesses without due diligence; further concentration of economic power among few corporates in a country that’s fast turning oligopolistic and the need for the government to find more bidders when it begins privatisation of PSU banks that it can’t fund any longer.“First, industrial houses need financing, and they can get it easily, with no questions asked, if they have an in-house bank. The history of such connected lending is invariably disastrous – how can the bank make good loans when it is owned by the borrower? Even an independent committed regulator, with all the information in the world, finds it difficult to be in every nook and corner of the financial system to stop poor lending.”“The second reason to prohibit corporate entry into banking is that it will further exacerbate the concentration of economic (and political) power in certain business houses. Even if banking licenses are allotted fairly, it will give undue advantage to large business houses that already have the initial capital that has to be put up. Moreover, highly indebted and politically connected business houses will have the greatest incentive and ability to push for licenses.”“One possibility is that the government wants to expand the set of bidders when it finally turns to privatizing some of our public sector banks. It would be a mistake, as we have said in an earlier paper, to sell a public sector bank to an untested industrial house.”Do We Need More Banks?The short answer is yes. Look at India’s ambitions. A 5 trillion economy by 2025 that’s a global economic powerhouse. Keep your dose of realism aside for a moment. If India has to even make a fist of this ambition, it needs a robust, deep and competitive banking sector. What do we have today? A total of maybe six and a half large banks that have the capital, management strength and the ambition to support this vision.   India is still severely underbanked. Credit to GDP is about 56 per cent which is woefully short of what a fast-growing economy needs. PSU banks that fanned out into the interiors hardly built a deposit base or managed to support enterprise at scale outside of urban centres. Despite such modest achievements, almost every PSU bank has drained taxpayers’ money with very little to show for. Turning PSUs around is nigh impossible. It is easy to recommend professionalising the management but there’s no easy way to achieve it. The government has mixed up its role of being a regulator, shareholder and the management. All sorts of conflicts of interest follow. The benefits of running PSU banks are concentrated among bureaucrats, employee unions and politicians who use them to pump prime the economy when it is politically expedient. The costs are diffused among millions of taxpayers. No wonder the market cap of all PSU banks put together is smaller than the biggest private sector bank.  Is there really an alternative to big businesses or large NBFCs (many of whom have corporate houses as promoters) to support India’s ambitions? Who else has the ability to bring in patient capital and support a bank for a period of time in future?Fait Accompli?So, does this mean we will soon have corporate houses being issued bank licenses? In my opinion that’s unlikely unless government really nudges the RBI in that direction. I have my reasons:In the current dispensation itself, many NBFCs could have applied for banking license over the last five years. But they haven’t. Why? The capital requirements needed to run a bank are very different from that of an NBFC. That apart, the NBFCs face far relaxed regulatory oversight than banks. No wonder none of the NBFCs have touched it with a barge pole over the years.RBI will have to change the Banking Act, 1949 through a bill passed in the Parliament. Following that there will be a ‘fit and proper’ filter that will be with the RBI to decide on who to give the license. The IWG report suggests some of these will be made more onerous for the applicants.This is still a political hot potato. There are many voices within the government who might not be comfortable with this. The pressure group of unions, bureaucrats and opinion makers still wield significant power to block the entry of corporate houses.RBI will continue to make it very difficult for anyone applying the bank licenseSo, what’s happening here? Why is RBI coming out with a paper for allowing corporates in Banks while simultaneously making the criteria impossible to achieve. A Balancing ActRBI as an economic institution understands the need for more banks in India. But it does not believe the political institutions in India will be able to manage the conflict of interest inherent in having large corporates as banks. So on one hand it wants to show the political leadership it is supporting their aspirations in ambitions by re-looking at the guidelines for new licenses while making the conditions of the guidelines so onerous that it will make the license unattractive for an industrial house.For nations to succeed (like Acemoglu and Robinson have argued), its institutions have to be strong. In my view, a nation has to have its political and economic institutions in sync with another. It is difficult for it to have its political institutions extractive, exclusionary and rent-seeking while its economic institutions are liberal and inclusive; and yet succeed in the long run. Having an extractive and exclusionary political institution while continuing to work with economic institutions that are free and inclusive is an unstable equilibrium. Sooner or later, the extractive nature of one type of institutions casts its long shadow on everything. The post-independent history of India speaks to this phenomenon. Following Independence, India chose a model where its political institutions were by design inclusive and liberal while its economic institutions came to be dominated by the state. In the late 60s, Indira Gandhi found it expedient to double down on the state control of economy in order to consolidate herself politically. This led to the nationalisation of various sectors including that of banks. As this domination and undermining of economic institutions turned complete, the political institutions couldn’t stay beyond it. The judiciary became subservient, roles like governors of state turned into rubber stamps, Article 356 was liberally used to dismiss state governments at slightest of pretexts and most independent institutions were packed with sycophants. No surprise then this culminated into the emergency of 1975. The crisis of having both political and economic institutions that were extractive reached a point of no return by 1991. That’s when we decided to take a sharp turn away on how we’d like to manage our financial situation. The state reduced its control on factors of production, multiple independent regulators were born and a relativity free market came in to play. The feedback loop of the liberalisation of economic institutions soon started coming up against the extractive nature of political institutions. Through some fortunate circumstances of coalition politics, enlightened leadership and favourable global conditions, the political institutions began to change in the image of the liberal economic institutions. This was reflected in a more active election commission, laws like RTI being passed and the courts actively preserving the liberties of the citizenry. However, over the last decade or so, the political institutions in India have turned the clock back on being extractive. Electoral victories on the back of a strong leader, a decimated opposition and the power of majoritarian politics have meant we have reversed the gains we made post-liberalisation on making our political institutions freer. As the feedback loops in, the economic institutions are starting to corrode. This is where RBI finds itself today. It still is a free and liberal institution that’s walking the tightrope between a democratic mandate (that the government represents) and its own independent thinking. The draft IWG report in that sense is its stand. It will play ball yet not play it at the same time. It is anyone’s guess how long it can continue to do so. The right solution of course is to go back to the path of strong, free and inclusive political AND economic institutions. But that doesn’t look likely anytime soon. It is a lost opportunity.   India Policy Watch #2: Farmers’ ProtestsInsights on burning policy issues in India— Pranay KotasthaneWe warned in edition #70:Any reform that is even remotely seen to impact the MSP gravy train is bound to face opposition from a host of incumbent beneficiaries. One, the farmers growing the 22 crops backed by the MSP. Two, the traders getting a percentage of the MSP. And three, the state governments making money by charging hefty commissions for the sale of produce at APMCs. None of this is surprising.That apart, we mentioned two critiques merit serious attention: one, the timing of these reforms amidst the worst economic crisis in decades meant that the government needed to align the cognitive maps of those losing out. Two, the government fostered suspicions because the three farm laws said nothing about the impact on the existing procurement price mechanisms.Unfortunately, the anticipated unintended consequences have played out according to the script above. Farmers in Punjab and Haryana are agitating while the government has not come out with a reconciliatory offer yet. As usual, Pratap Bhanu Mehta’s article takes the long view. He writes:“Given the far-reaching changes we need in agriculture in Punjab, it is important that the trust between the state and the farmer remains. A good faith dialogue that gives the farmers reasonable assurances and a face-saver is necessary. It is easy for the government to win. But how many times in Indian politics have we won short-term victories that create long-term political precariousness?”Just like the GST compensation cess issue, the union government has pushed through a big change without getting other political parties or state governments onboard. These specific reforms might still go through but future negotiations will become even more difficult. Parties to the table will come with ossified positions. That’s a precursor to policy paralysis. We have seen this movie before.In the crisis situation we find ourselves in, it is all the more important that the union government’s reform agenda should factor in distributional consequences of those losing out. The government needs to build bridges. Politics, after all, is the art of the possible, as Bismarck said.HomeWorkReading and listening recommendations on public policy matters[Podcast]: Acemoglu talks with Russ Roberts on why institutions matter.[Article]: Jagdeep Chokkar and Sanjay Kumar make a solid case against simultaneous polls.[Podcast]: In the second Puliyabaazi episode on Indian banking history, Amol Agrawal shares fascinating insights on princely state banking, the feud with the State Bank of Pakistan, priority sector lending, and lots more.[Article]: Mohammad Taqi in TheWire writes how “Pakistan’s Islamisation started almost a decade before its birth, and long before any army dictator or adventurist general came along.” Even Pakistan didn’t become Pakistan all of a sudden. Something for us to reflect on in India. If you like the kind of things this newsletter talks about, consider taking up the Takshashila Institution’s Post Graduate Programme in Public Policy (PGP) course. It’s a 48-week in-depth online course meant for working professionals. Applications for the Jan 2021 cohort are now open. For more details, check here. Get on the email list at publicpolicy.substack.com

Thanks to the COVID-19 crisis, India’s economy is expected to shrink by at least 9 percent this fiscal year—a gut punch that comes on the heels of several years of continuously slowing growth. At the heart of India’s economic woes is a severe banking crisis that some have argued has sapped the vitality out of India’s investment cycle and consumed the energies of government economic firefighters.  This week, Milan sits down with Viral Acharya, former Deputy Governor at the Reserve Bank of India (RBI) from 2017-2019, and author of the recent book, Quest for Restoring Financial Stability in India. Milan and Viral discuss the health of India’s economy, the “silent crisis” afflicting India’s financial sector, the future of central bank independence in India, and the role that Indian economists based overseas can play back home. 

When we speak about India and its relationship with the world, we often focus on what we have received from the world. But what about what we have given to it? This doesn’t get covered as much. Even when it does, we go to the extremes. Either we were a vishwaguru or our only contribution is ‘zero’. Is there a more nuanced view? That’s what we explore in this episode. What have we given to the world? From the stories of our mythology that have parallels in Persian and Greek myths, the versions of Ramayana and Mahabharata in Indonesia, Malaysia and Cambodia, the spread of Buddhism from India to the world, and the trade between West Asia and Africa and west coast Indian states. Then with the coming of Mughals – our blending of music and dance forms, with British – our export of fine arts, weaving, craft and food and with independence  - our export of Bollywood, food, music, English writing, yoga, spiritualism and software. In Spotlight, we feature Renu Saluja - a trailblazer who in a short but illustrious career edited the finest Hindi films of the 80s and 90s. She gave life to films that have since gained cult status. We discuss her craft, her films and friends and her impact on the many women editors who followed on her footsteps. Plus, our usual recommendations on films, books and music. Episode Highlights: 00:00 to 17:00 –Introduction and spread of Buddhism from India  17:00 to 40:00 – India's trade with South Asian littoral states, Odisha and Chola maritime empires, influence of Ramayana on South Asia and the many Ramayanas 40:00 to 50:00 – West coast of India and its relationship with Persia, Egypt and East Africa, our influence on English 55:00 to 85:00 – Modern India and its message to the world - Tagore, Vivekananda, Gandhi, Ramanujam. Early pop culture of imports from India: Sabu Dastagir, KA Abbas, Raj Kapoor and their films, Ernst Rubener and Sujatha 85:00 to 130:00 – Pt. Ravishankar, Shakti, Helen Abadzi and the mania for Hindi films songs in Greece in 1950s, Mithun's popularity in Central Asia and Eastern Europe, Rushdie and chutneyfication of English, Rahman, Aamir Khan and China and the lost promise of Shekhar Kapoor 130:00 to 186:00 – The life and times of Renu Saluja 187:00 to end – Recommendations. Trial of Chicago &, Scam 1992, Halaahal, Viral Acharya on Indian Banking system, Avni Doshi's Burnt Sugar, Invisible: The Art of Renu Saluja ***** जब जीरो दिया मेरे भारत ने बचपन से हमने प्राचीन काल के भारत के वैभव, कला, संस्कृति और दर्शन की विश्व भर में प्रसिद्धि के कई किस्से और कहानियां सुने हैं। दुनिया को पुराने भारत ने क्या दिया,  उस पर हम सदा गर्व करते आए हैं ‌। मगर एक बड़ा सवाल उठता है कि नए भारत ने, आधुनिक भारत ने, दुनिया को संस्कृति कला और दर्शन के नाम पर क्या दिया है। 90 के दशक में ग्लोबलाइजेशन के दौर में साहित्य सिनेमा और संगीत के साथ-साथ हमारे खाने और पहनावे में भी कल्चरल इंपोर्ट की छाप नजर आने लगी। जिन फिल्मी गीतों को बड़े चाव से सुनते थे, संचार की दुनिया के खुलते ही पता लगने लगा कि उनकी धुनें चोरी की हैं। सिनेमा और साहित्य में भी इस तरह का माल बहुत प्रचलित हुआ। इस बार की गपशप में बातचीत हमारे कल्चरल एक्सपोर्ट पर, हमने हमारे कला संस्कृति और दर्शन में दुनिया को कैसे प्रभावित किया। दशहरे दिवाली का समय है तो बात रामायण और रामलीलाओं की भी, कैसे हमारी रामायण दुनियाभर में पहुंची और अलग-अलग देशों में, उनके रंग में ढल के लोकप्रिय हुई। बुद्ध धर्म किस तरह से भारत की सीमाओं को पार करते हुए दुनिया के कई देशों में पहुंचा। कुछ बात मलेशिया थाईलैंड और कंबोडिया जैसे देशों में भारतीय संस्कृति से समानता पर भी, और फिर आधुनिक भारत में कैसे हमारे सिनेमा, संगीत और साहित्य ने सोवियत रूस, इजरायल, अफगानिस्तान और ग्रीस जैसे देशों में अपनी खास जगह बनाई। स्पॉटलाइट में इस बार बात एक बेहद महत्वपूर्ण कलाधर्मी की, हमारे दौर की भारत की सबसे प्रतिभाशाली फिल्म एडिटर स्वर्गीय रेनू सलूजा के आर्ट, क्राफ्ट और टेक्निकल स्किल्स की चर्चा और 80-90 के दशक में भारतीय सिनेमा को उनके अतुल्य योगदान पर भी बातचीत। मुख्यधारा में भारत की पहली महिला फिल्म एडिटर होने के साथ-साथ अपनी अनूठी कार्यशैली और रचना धर्मिता से रेनू सलूजा ने हमारे दौर के सिनेमा को जो एक नई सिनेमैटिक लैंग्वेज दी और और जिस तरह से महिला फिल्म एडिटर्स के लिए एक नया दरवाजा खोला, उसकी भी बात और साथ में हमेशा की तरह जो नया देखा है, सुना है और पढ़ा है उसकी भी बात, और अनुशंसा और एपिसोड पर आपकी प्रतिक्रियाओं के इंतजार में ****** LinkOuts: Books The Revelation of Hindi-style Songs in Greece by Helen Abadzi Autobiography of a Yogi by Paramahansa Yogananda  Films Pardesi by K.A. Abbas Jungle Book (1942) starring Sabu Halahal by Randeep Jha The Trial of Chicago 7 by Aaron Sorkin  Scam 1992 by Hansal Mehta Music The definitive episode 10 playlist by Pavan

Today’s guest is Viral Acharya, who is the C.V. Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business. His recent book, Quest for Restoring Financial Stability in India is an excellent introduction to the problems of autonomous central banking in the face of fiscal dominance by the ever-expanding Indian state. The book contains a series of Viral’s lectures given during his tenure as Deputy Governor at the Reserve Bank of India. This conversations covers his views on fiscal dominance and its impact on central banking, the current banking crisis brewing in India, India’s informal economy, problems with fiscal federalism, the role of technocrats and the role of ideology, and the reversal of policy direction towards more statism.    Full transcript of this episode enhanced with helpful links:  https://www.discoursemagazine.com/tag/ideas-of-india-podcast/ Connect with me on Twitter: https://twitter.com/srajagopalan

The conflict between the government and the central bank seems like an arcane one that only wonks care about -- but it affects the lives of all of us. Viral Acharya joins Amit Varma in episode 193 of The Seen and the Unseen to explain why we should all join him in the battle against Fiscal Dominance.  Also check out: 1. Quest for Restoring Financial Stability in India -- Viral Acharya. 2. Viral Acharya at NYU Stern. 2. Guaranteed to Fail -- Viral Acharya et al. 3. Indian Banks: A Time to Reform? -- Viral Acharya and Raghuram Rajan. 4. On the Importance of Independent Regulatory Institutions –The Case of the Central Bank -- Viral Acharya's AD Shroff Memorial lecture 2018. 5. Yaadon Ke Silsile -- Viral Acharya. 6. Viral Acharya interviewed by Ira Dugal, Mitali Mukherjee, Vivek Kaul and Anantha Narayan. 7. Lakshya Ko har Haal Mein Paana Hai. 8. Rahul Dravid at Headingley, Adelaide and Rawalpindi. 9. What Really Happened? -- Lawrence H White on the 2008 Financial Crisis. 10. Zombie Firms and Creative Destruction -- Episode 118 of The Seen and the Unseen (w Ajay Shah). And do check out Amit's online course, The Art of Clear Writing.

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at Ad-Auris. If you have any feedback, please send it to us.India Policy Watch: Rajan-Acharya on PSB ReformsInsights on burning policy issues in India— RSJRaghuram Rajan and Viral Acharya have a new paper titled, Indian Banks: A Time To Reform?, that looks at a comprehensive set of reforms that will enable public sector banks to drive the Indian economic growth engine instead of being a drag they currently are. Rajan and Acharya have held leadership roles at the RBI and know a thing or two about issues relating to the banking sector. Here’s a nice summary of the recommendations by the BloombergQuint.So, what to make of them? There are 4 points we’d like to raise:Is this the time? Rajan and Acharya argue maintaining status quo is untenable. The huge strain on government finances now shifts the Overton window for much-needed reforms of the public sector banking system. This is their hope. In my view, shifting the status quo at this time carries the risk of falling off the brink. There’s a fog of uncertainty about the duration of the pandemic, the state of our public finances and the nature and length of recovery. More than any immediate reform we need some stability, however precarious, at this moment.What about the empire? The paper reiterates the need for a systemic solution to the bad loan problem. The idea for a nationalised and a private “bad bank” is revived along with a strict time-bound process for bankruptcy procedure. The recent books by Urjit Patel (who succeeded Rajan) and Acharya have outlined in great detail how there’s no incentive for anyone in the political economy or in the banking sector to implement the IBC process. Everyone is happy kicking the can down the road. Any attempt at enforcing strict insolvency guidelines is met with resistance. Patel named the relevant chapter in his book ‘The Empire Strikes Back’. And this resistance to change was the state of affairs before the pandemic. So, to expect a serious reckoning by the government now is out of question. In fact, we seem to be going the other direction. The suspension of IBC is to be extended by another quarter and the restructuring proposal by Kamath committee leaves the discretion with the bank on triggering default procedure. We will have to learn to live with elevated levels of NPAs and banking system stress especially in public sector banks (PSBs).Who will implement them? There are proposals to improve the performance of PSBs through greater operational freedom, performance-linked bank financing plans and winding down the Department of Financial Services (hah!). While these are good intentions, operationalising them in a system that has bloated cost structure, unionisation and relatively lax performance management culture won’t be easy. There are suggestions that are akin to the Kamath committee on giving loans based on cash flow and liquidity position of the companies instead of their assets. More aggressive norms for provisioning for bad loans and making sure the promoters have skin in the game in long-term infrastructure projects are also suggested. There are other suggestions to manage banking system risks better that have been around for some time. But implementing them will mean standing up to the ‘empire’. Is stake sale the panacea? Finally, we have the issue of the ownership structure of banks. The paper proposes bringing the stake of the government below 50 per cent (state-linked banks) and gradual privatisation of select PSBs. While this step to create a distance between it and the everyday operations of the bank is necessary, this alone won’t address the governance issues of the PSBs. There’s an entire superstructure (the ‘empire’) that manages and lives off the PSBs that includes unions, bureaucrats, various oversight committees and temporal political interests. This influences everything from recruitment, performance management, promotions, disbursement guidelines to risk management practices. This won’t change overnight merely because the government stake is below 50 per cent.The paper brings together all the extant issues relating to banking reforms in India. In that sense it is a valuable compendium of ideas – most old, some new. The key question remains: what’s the political will to take up these reforms now? The authors are aware of this too:“While we have put together a variety of suggestions, many of these have been discussed in the past. Many concern public sector banks and their governance. Is there any reason to be more confident they will be implemented now?”And they bring up the issue of incentive. What’s in it either for the bureaucracy or the government (either this or any in future) to take up these urgent reforms? As they write in conclusion:“The government obtains enormous power from directing bank lending. Sometimes this power is exercised to advance public goals such as financial inclusion or infrastructure finance, sometimes it is used to offer patronage to, or exercise control over, industrialists. The government also has potential access to an enormous amount of sensitive information through its state ownership – for instance, the identity of purchasers of electoral bonds is known only to the State Bank of India. The government can oblige party members by appointing favorites to positions in public sector banks, including on their boards – and once there, some of these appointees use their influence to direct bank loans to favored parties. Parliamentarians of all parties are not immune to the lure of public sector banks – the banks are often asked to arrange the logistics for their fact-finding committee meetings in enjoyable locales across the country. And Finance Ministry bureaucrats are reluctant to let go of the power that allows a young joint secretary to order the chairpersons of national banks around.”Just reading that passage is kind of depressing. Besides the above, the ordinary citizen isn’t exercised by the deteriorating condition of public sector banking in India. It will never be an issue in any election. Rajan and Acharya believe the pandemic and the enormous resource constraints it will place on the government will make it difficult to recapitalise the banks. This in turn will curb credit flow and impede growth in the economy. “With government deficits and debt levels reaching enormous levels, there simply are not enough budgetary resources to recapitalize banks. An encumbered, under-capitalized public sector banking system will not lend well, which will be a huge tax on growth, as it has been for the last six years. More worrisome, without reform the banks will cumulate further losses. Status quo is simply not an option.”“It is important that the government use the urgency of the moment to draw key players together to develop a reasonable reform path; it should be comprehensive and not just a one-off “tick-the-box” exercise dealing with a thin sliver of issues. It should then reach a consensus with concerned players such as unions and political parties, and then embark on the reforms.”We aren’t as sanguine as they are. The political capital that will need to be spent (or invested) in implementing the reforms they have suggested in this paper is enormous. While this government and the PM enjoy unprecedented goodwill and support, this is a bet that might just be too big even for it. The PM has shown an appetite for ‘bold’ steps. But they tend to be one-off events. A deeper and deliberate structural reform of this kind that will take years to implement will be a genuine bold measure. One can only hope he take that step. A Framework a Week: Nine Competing Visions of EqualityTools for thinking public policy— Pranay KotasthaneAssume the Indian government plans to distribute ₹50,000 crores to 50 crore Indians this year, how would it go about doing this equitably? The intuitively obvious solution is to divide the sum equally — ₹1000 to everyone. Simple, isn’t it? Think again. Isn’t it unfair to the nearly 80 crore people left out of this distribution in the first place? Even amongst the chosen 50 crore Indians, isn’t equal division unfair to some who need this money more than others? Isn’t it unfair to the socially disadvantaged groups who might not even have access to prove their identity?This is what Deborah Stone calls the paradox of distribution in her textbook Policy Paradox:“equality often means inequality, and equal treatment often means unequal treatment. The same distribution may look equal or unequal, depending on where you focus.”This is a key insight. Stone lays out a useful framework for thinking about what equality means. She lists nine ways in which one can use equity language to distribute, often in ways that you would consider to be unequal. Each of these ways equalises along one dimension and can be considered as being ‘unequal’ on another. These nine ways are split along three dimensions — who gets something, what gets distributed, and how is the distribution done. (Deborah Stone, Policy Paradox, Page 47)Way 1 deals with membership. It’s easy to say that things should be divided equally amongst all but who constitutes this all is a tricky question. Citizenship, for example, is a membership criterion that is exclusive by nature. Way 2 deals with merit. It argues that the more deserving should be rewarded for their accomplishment. Hence, any distribution problem should also be resolved by identifying achievement or aptitude.Way 3 is a claim that resources should be allocated based on ranked subgroups. For example, employees in all organisations are paid according to rank. Equally ranked get equal pay, unequally ranked get unequal payouts.Way 4 is a claim for group-based distribution. Caste-based reservation is an example of this kind of equality.Way 5 expands the boundaries of the item. If the government were to distribute the Rs 50000 crore only to those Indians who haven’t received their rations from the public distribution system in the last one month, the boundary of the item being distributed changes from only cash to a basket comprising of cash and food.Way 6 is a claim on distribution according to the value that the recipients ascribe to that item.Ways 7, 8, and 9 are about equalising the process. Way 7 talks about distribution based on fair competition between all players. Way 8 talks about distributing based on a lottery so that chances are equalised. Way 9 calls for a vote to decide who gets what.This categorisation into nine definitions of equality is useful for a policy analyst. There’s no right answer on which of these is the best method, of course. What can be said is that Way 1 (equal slices amongst all members) and Way 8 (lottery) are intuitively powerful and are used by policymakers when they can't find better reasons to justify their decisions.So the lesson for a policy analyst is that faced with a distributive problem, look at these definitions of equality and pick one that seems the fairest. It’s easy to say that inequality is a problem. It’s far more difficult to answer what being equal means.World Policy Watch: Tool To Change Social NormsInsights on burning policy issues in India—RSJShould courts be framing social policies? This question is the subtext of a number of articles that have appeared since the death of US Supreme Court (SC) associate justice, Ruth Bader Ginsberg (RBG) last week. The Trump administration is moving with speed to get a conservative judge confirmed by the Senate before the elections in November. The Republicans control the senate and nominating a judge of their ideological persuasion now will decisively swing the 9-member SC bench to a 6-3 ‘conservative’ majority. Why has nominating a judge to the highest court turned into such a contentious political issue? Not so long back judges would get nominated with overwhelming majority from the Senate. RBG won her confirmation with a 96-3 majority. Justice Antonin Scalia who was on the other end of the ideological divide won his nomination 98-0. The days of such bipartisanship are over. Why? All About IncentivesLike everything in life, it is about incentives. First, the lifelong tenure of a judge means they have the ability to influence decisions for a long period of time. As the ideological divide has gotten sharper, both Democrats and Republicans are keen on nominating more ‘extreme’ judges. Second, there’s an incentive to nominate relatively younger judges who will sit at the SC for a long time and influence decisions. This has meant nominating less experienced jurists who are ideologically ‘pure’. This riles up the other side. Lastly, an increase in the number of judgments that are decided by the slenderest of margins (5-4) works as a feedback loop to the parties. It feeds into their anxieties of what’s at stake and they have greater motivation to nominate more extreme candidates.At the heart of these debates is a deeper question about the larger role the SC has taken over the years in legislating social issues in the US. The two most famous examples, of course, are Roe vs Wade and Brown vs Board of Education. Courts have turned into lawmakers is how it appears. Seen from here in India, US is a litigious country. As far back as 1835, Tocqueville had noted ‘sooner or later, every major dispute in the US ends up in courtroom.’ So, it is no surprise when women, minorities and other under-represented sections started contesting the social norms handed down to them, the matters reached courts for resolution. The Conservative AnxietyThe conservative preference is for any social change to be gradual. Societal change is shaped through the many eddies of debates and protests that resist the flow of the mainstream. As they gain wider acceptance, they begin changing the course of flow of social norms. This could be painstakingly slow, but it makes change acceptable and sustainable. For the conservatives, the role of the judges is to apply laws, not to create them. Going beyond this brief becomes judicial activism. So, the original conservative view was all issues of public or social policy should be discussed and debated by the legislative and executive branches of the state that represents the society. Courts resolve disputes following the written down law while sending back any ambiguities to the legislative arm for approval. There is a lot of merit in this argument. It is difficult to imagine how a single complainant with a specific grievance in a combative judicial process be the basis for drafting a norm for the society. Isn’t there a risk of the courts overlooking the true costs and benefits to the society while judging a single case? Would the second order impact of their decision be visible to them? Should we allow the judges to bring in their personal values into issues of constitutional merits? And let’s not pretend judges are above this. ‘Judicial activism’ is unavoidable if we let courts decide on such issues. In fact, the current debate in the US about nominations is an implicit acceptance that judges insert their personal code into judgments. When you consider the adversarial nature of many historic social judgments (both in the US and India) and the costs such a process extracts in polarising the society further, it becomes clear litigation is a blunt instrument to carve out social change. Courts shouldn’t pre-empt social and political debates. The Liberal ActivismThe liberal position, as it has evolved over time, is marked with suspicion of the society reforming itself. The classical liberal approach to this problem was to accelerate the process of change in the society. This was to be achieved through a combined political, social and cultural assault on the bastions of conservatism in the society. This led to the portrait of a liberal as a perpetual activist in a constant state of mobilisation to upend existing norms. The liberal belief that society must change from within was no different from the conservative stance. The difference was on the need to induce change through proactive measures and on the speed of change. This need for speed eventually led the liberals to the courts. To the liberals, this wasn’t difficult to justify. The law isn’t ever ‘value neutral’. Like Sahir Ludhianvi once wrote (Chitralekha, 1964):“Yeh paap hai kya, yeh punya hai kya, reeton pe dharm ki moharein hai,Har yug mein badalte dharmon ko kaise aadarsh banaoge?” What’s right or wrong has always been a compilation of enforceable values. This is a forever changing or evolving construct. Since people use these values in their daily lives, the courts can define their boundaries of ‘reasonableness’. A couple of other reasons nudged the liberal position closer to supporting judicial activism. First, it became clear that there can be no regime where every issue of public policy can be resolved through the executive or legislative arms of the state. How representative is the legislature anyway? Or, how compromised? This centralised policymaking unit that changes every few years in a democratic process can’t be expected to draft policies that will be considered the final word and stand the test of time. Also, there are common laws that precede the state and changing them requires blunt force of law itself. Second, as the legislative environment turned more partisan and dysfunctional, the drafting of laws became more imprecise or vague to accommodate political bargains. This has meant a constant need for interpreting or divining the legislative intent of laws. This act of precise interpretation and proofreading has turned judges into lawmakers by default. Lastly, the liberals who are often blamed for nominating activist judges argue this is a matter of perspective. Only when the issue at hand goes against the conservative agenda, it is considered judicial activism. Not otherwise. The Perils Of (Any Kind Of) CentralisationBased on evidence it can be argued the conservatives have lost the argument. The courts are at front and centre of social policymaking today. The many historic judgments that cleave the US society are evidence of it. The legislative arms of the state representing the society aren’t drafting these laws. But here’s the irony. The conservatives have co-opted the liberal model. With a few strokes of good fortune, the single-minded agenda of turning the US SC bench into conservative majority has been fruitful. The peril of pushing social change into the cabins of a powerful, centralised and an autonomous institution is clear to the liberals now when the shoe is on the other foot. A blunt instrument doesn’t look blunt till it is in the hands of your adversary. The path of wresting back control to the society will be long and arduous.  Matsyanyaaya: COVID-19 Warrants Long Overdue Doctrinal Shifts in Military PlanningBig fish eating small fish = Foreign Policy in action— Pranay KotasthaneLt Gen Prakash Menon and I have a new paper out in the inaugural edition of the Indian Public Policy Review journal.We argue that the economic shock of COVID-19 makes the current method of defence budgeting redundant. When the GDP itself is set to reduce, defence expenditure demands as a percentage of GDP is less feasible. On the other hand, the situation on the Line of Actual Control (LAC) in Ladakh has demonstrated again that managing China, not just Pakistan, should be the focus of India’s military planning. To overcome these two challenges, a few incremental budget cuts, postponing of capital acquisition plans, and forgoing of salaries for a day would be insufficient. Instead, we argue that it’s imperative to address the mismatches between India’s political objectives and the kind of force structure put in place to meet those objectives. We identify four such mismatches.Derived from these mismatches, we propose six doctrinal shifts — a paradigm of employable power, a structure for integrated theatre commands, conversion of manpower to human capital investment, organisational changes to build firepower, and a shift in focus to the seas and new domains.Do read and let us know what you think. HomeWorkReading and listening recommendations on public policy matters[Article] Excerpts from Charles Tilly classic Misreading, then Rereading, Nineteenth-Century Social Change.[Article] The P.J. Nayak committee (2014) report on Banking reforms. It has a lot of points that remain relevant.[Paper] A must-read paper on equality and fairness by Christina Starmans, Mark Sheskin and Paul Bloom. Money quote: “humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality”.[Article] Looking beyond reservations for equality. That’s all for this weekend. Read and share. Get on the email list at publicpolicy.substack.com

In a new book based on his time as deputy governor of India's central bank, Viral Acharya warns that India's bloated public sector is strangling growth. The economy urgently needs institutional reform, he tells Tim Phillips - and now is the perfect time to do it. Viral's book is called Quest for Restoring Financial Stability in India, and is published by Sage India (https://in.sagepub.com/en-in/sas/quest-for-restoring-financial-stability-in-india/book276181) .

Viral Acharya tell Tim Phillips that the action to save Europe's financial sector after 2008 has delayed reform in the banking sector - creating a decade of lending to zombie firms that has stifled economic growth. Acharya on Zombies and disinflation (https://voxeu.org/content/creating-zombies-and-disinflation-cul-de-sac-accommodative-monetary-policy) at VoxEU.

There is a race to the bottom in Indian media. It is rational. Its reasons are structural. The state and society must share the blame. Amit Varma and Vivek Kaul explain why in episode 8 of Econ Central. Also discussed: public sector banks, our love for simple narratives and Raat Akeli Hai. Also check out: 1. Raat Akeli Hai -- Honey Trehan. 2. 'Does he look depressed?' -- The Times Now tweet. 3. Television Price Controls -- Episode 27 of The Seen and the Unseen (w Ashok Malik). 4. Why Are Indian News Channels so Disappointing? -- Ashok Malik. 5. The top paid newsletters on Substack. 6. 1000 True Fans -- Kevin Kelly. 7. 1,000 True Fans? Try 100 -- Li Jin. 8. The State of the Media — Episode 46 of The Seen and the Unseen (w Prem Panicker). 9. The State of the Media 2 — Episode 89 of The Seen and the Unseen (w Sidharth Bhatia & Peter Griffin). 10. What Happened to Our Journalism? -- Episode 178 of The Seen and the Unseen (w Nidhi Razdan). 11. Persuasion -- Yascha Mounk's newsletter. 12. Fighting Fake News -- Episode 133 of The Seen and the Unseen (w Pratik Sinha). 13. Non-Performing Assets -- Episode 32 of The Seen and the Unseen (w Vivek Kaul). 14. IL&FS and the Indian Financial System -- Episode 91 of The Seen and the Unseen (w Vivek Kaul and Ashutosh Datar). 15. Overdraft -- Urjit Patel. 16. Quest for Restoring Financial Stability in India -- Viral Acharya. 17. The govt and RBI face a trilemma regarding PSBs -- Vivek Kaul. 18. RBI’s forecast on NPAs has often missed the mark -- Vivek Kaul. 19. Indian banks are in for a ₹20-trillion hole -- Vivek Kaul. 20. Privatisation of banks is a great idea, and will remain so -- Vivek Kaul. 21. Urjit Patel Ko Gussa Kyon Aata Hai? -- Vivek Kaul. 22. Whose Money is it Anyway? -- Amit Varma (on Milton Friedman's four ways of spending money). 23. Indian Board President's XI vs England XI, Vadodara, 2006. 24. The Evolution of Everything -- Episode 96 of The Seen and the Unseen (w Matt Ridley). 25. Who Broke Our Republic? -- Episode 163 of The Seen and the Unseen (w Kapil Komireddi). 26. The Economics of the Chilling Effect -- Episode 5 of Econ Central. 27. Facts Don’t Matter. Stories do -- Amit Varma (on Donald Trump & simple narratives). Do subscribe to The India Uncut Newsletter, Amit's new project. And pick up Bad Money, Vivek's bestselling book.

Show Introduction: Welcome to Dollar Gujarati, A show about Gujarati entrepreneurs and businessmen, and the stories behind their success in America. We talk about their struggles and opportunities on the road to success in the land of opportunity. Guest Introduction: Our guest today is Dr. Viral Acharya. Dr. Viral is a Professor of Economics at New York University's School of Business. He was the youngest Deputy Governor of the RBI and held the position from January 2017 to July 2019. Dr. Viral has taught at London Business School, before being called back to his alma mater in New York during the 2008 financial crisis. Dr. Viral is an alumnus of New York University, IIT Bombay, and, perhaps most importantly, Fellowship School in South Bombay. Bio: https://www.stern.nyu.edu/faculty/bio/viral-acharya Buy his new book: https://www.amazon.in/Quest-Restoring-Financial-Stability-India/dp/9353884896/ref=sr_1_1?dchild=1&keywords=9789353884895&qid=1594651117&sr=8-1 Donate to Pratham: https://prathamusa.org/ --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app Support this podcast: https://anchor.fm/dollar-gujarati/support

In Today’s Auditorial:       Ø  VIRAL ACHARYA, RBI DEPUTY CALLS IT QUITS 6 MONTHS BEFORE END OF TERM         Ø  INDIA REJECTS MINORITY REPORT BY US STATE DEPARTMENT, SAYS MUSLIM MINORITIES PROTECTED UNDER CONSTITUTION     Ø  JHARKHAND MUSLIM MAN BEATEN ON SUSPICION OF THEFT, MADE TO CHANT JAI SHRI RAM AND JAI HANUMAN, DIES IN HOSPITAL     Ø  14 ELECTROCUTED IN RAJASTHAN AFTER DUST STORM CAUSES RAM KATHA TENT TO COLLAPSE       Ø  ERDOGAN LOSES KEY ISTANBUL ELECTION AGAIN, THE CITY BURSTS INTO PARTYING       Ø  WHIEL PREVENTING COUP, ETHIOPIAN CHIEF OF ARMY STAFF SHOT DEAD BY OWN BODYGUARD        Ø  SLUG BLAMED FOR RARE POWER FAILURE ON JAPANESE RAILS         Ø  FRANCE ROOTS FOR A ROOSTER'S RIGHT TO CROW                 

Reserve Bank Of India governor Urjit Patel may consider resigning from his post if Section 7 of RBI Act is invoked to transfer reserves.The government and the RBI came to loggerheads after the deputy governor Viral Acharya hinted that the government is trying to hinder the independent working of the institution.The spat became more public when Finance Minister Arun Jaitley blamed the institution for “lending spree” during UPA era. We spoke to Vishwas Utagi, Banking expert over this ongoing rift between the RBI vs the Government.

Guests: Viral Acharya - Deputy Governor at the Reserve Bank of India (RBI) in charge of Monetary Policy, Financial Markets Operations and Regulation, and Research and Statistics Ridham Desai - Heads Morgan Stanley’s Indian Equity Research team, which is the top ranked team in the country Guarav Sinha - an Asset Allocation Strategist at WisdomTree who is an expert on India See acast.com/privacy for privacy and opt-out information.

Professor Viral Acharya discusses capital budgeting and governance at banks, and challenges banks to reconsider performance targets

Professor Viral Acharya discusses bank equity at an Investment Management Club roundtable briefing on the financial crisis

Viral Acharya, Professor of Finance, talks about the repercussions of the sub prime crisis.