Saturday, April 30, 2016

Weekend reading links

1. The story that Africa, with its burgeoning middle-class and a new dawn of democracy, would be the new East Asia was always questionable. Now "over-exuberance has given way to uber-pessimism",
In its semi-annual report, the World Bank forecast growth in Sub-Saharan Africa of just 3.3 per cent this year, less than half the average of 6.8 per cent recorded between 2003 and 2008. Because of their growing populations, most African states need nearly 3 per cent growth just to stand still in per capita terms.
The biggest challenge for the African economies is their lack or slow pace of productive structural transformation, a problem not amenable to easy solutions,
Perhaps the biggest flaw in the middle class story is that, with a few exceptions, Africa hardly makes anything. For too many countries, the economic model continues to be to dig stuff out of the ground and sell it to foreign companies... Unless governments can build sustainable growth models less dependent on commodities and based more on adding value domestically, the ‘Africa Rising’ story will be just that: a story.
2. This snapshot of the reversal of commodity prices since January 2014 says it all,

3. Gavyn Davies points to the relative exchange rate movements since 2010, which marks out renminbi as being the biggest loser, in terms of currency appreciation.
The scale of renminbi's appreciation makes it a ripe candidate for an one-way bet, something which Beijing would go out of the way to dispel.

4. FT points to China's spectacular debt accumulation, rising from 148% at end-2007 to $25 trillion (163 trillion RMB) or 237% at March 2016., far higher than the emerging markets debt to GDP ratio of 175 at the end of Q3 2015. New borrowing rose by 6.2 trillion RMB in Q1 2016, the biggest three-month surge on record. As the graphic below shows, the country today has the largest corporate debt ratio among all major economies.
However, the article's reference to the concern of Michael Pettis and others about a Japan-style balance sheet recession in China may be overblown. For a start, there is a compelling argument that demographics has been the driving force behind the Japanese problems. More importantly, in terms of the space for responding, unlike Japan, the government and households in China are among the least indebted. The big worry with China would be the impact of large-scale corporate defaults and its impact on a largely public banking system, which gets amplified as the government struggles to increase consumption spending by consumers.

5. Bloomberg reports that $7.8 trillion of sovereign bonds are currently yielding negative rates, as against just $3 trillion yielding more than 2%!

To put the distortions in perspective,
Ireland’s 100 million euros ($113 million) of bonds due in 2116 were issued to yield 2.35 percent -- similar to yields that benchmark 10-year German bunds offered as recently as 2011.
And FT has country-wise break-up of negative yield debt,

Half a century ago, harvesting California’s 2.2 million tons of tomatoes for ketchup required as many as 45,000 workers... by the year 2000, only 5,000 harvest workers were employed in California to pick and sort what was by then a 12-million-ton crop of tomatoes.
7. FT has a longform on China's robot revolution, which will make it the largest operator of industrial robots in the world by the end of the year. Even as it is automating its factories with robots, its entrepreneurs have been moving very rapidly up the robot production chain. Backed by government support, Chinese robot manufacturers have been rising fast. In 2014, President Xi Jinping called for a 'robot revolution' to address labor shortages and improve Chinese manufacturing quality, and exhorted,
Our country will be the biggest market for robots, but can our technology and manufacturing capacity cope with the competition? Not only do we need to upgrade our robots, we also need to capture markets in many places.
Driving the rapid adoption of robots in China is its economics - the payback period of robots fell from 5.3 years to 1.7 years in the 2010-15 period and is expected to fall to 1.3 years by 2017. 

8. Corporates in the US may be flush with cash surpluses. But the market expectations of long-term corporate health may have rarely been as bleak as now,
Three decades ago, the club of triple A-rated American corporate borrowers was a busy place. About 60 big companies, ranging from Pfizer to General Motors, were deemed so “safe” that they held this coveted tag from the credit rating agencies. No longer. Standard & Poor’s has just stripped the mighty ExxonMobil of its triple-A rank because of understandable concerns about falling oil prices and mounting energy sector debt... This leaves just two — yes, two — American companies still in that triple-A club: the unlikely duo of Microsoft and healthcare giant Johnson & Johnson.
This further shrinks the global space of "safe assets", thereby amplifying the flight in "search of yield". In this context, Gillian Tett also points out the parched global landscape for "safe assets",
Ricardo Caballero and Emmanuel Farhi calculate, using data from Barclays, that between 2007 and 2011, the value of safe assets fell from $20.5tn to $12.2tn, equivalent to a drop from 36.9 per cent of global gross domestic product to a mere 18.1 per cent... Prof Caballero and Prof Farhi argue the imbalance is so severe that the problem confronting the world today is not a “liquidity” trap but a “safety trap”: the shortage is creating a self-reinforcing, panicky cycle that is contributing to stagnant growth.
More stringent post-GFC financial market regulatory provisioning norms, QE purchases by central banks, growing global sovereign indebtedness, and now the shrinking space of AAA rated corporate debt, have all contributed to the scarcity of "safe assets".

Thursday, April 28, 2016

Geng Yanbo and the transformation of Datong

NYT has this brilliant documentary made by Qi Zhao and Hao Zhou that captures the tenure and life of Mayor Geng Yanbo of Datong municipality, who transformed the city over a five-year period by relocating nearly half million people and overseeing the redevelopment of the city's ancient quarter.
The script is strikingly similar with at least a handful of municipal commissioners and corporations in India - intense and committed, rough and abrasive, impatient with ambitious timelines, slow-moving bureaucracies, endless inspections and reviews, haul up slacking contractors, threats to bring around defiant property owners, petitioners and endorsements, heavily overworked with early mornings and late nights, tough on families, and finally transfers, protests, and successor syndromes. Not to speak of the paraphernalia and accompanying staff. The difference is that the squatters would have a court order, the defiant citizens not so meek and have the support of some political party or other, the telephonic instructions to get work done not anywhere as effective, the instant decision making to change a pipe size impossible, the contractors still be unable to hasten beyond a point, the threats to fire or shift officials blunt, and the tenures limited to 2-3 years (so fly-overs or road widenings are more likely than relocations). More often than not such leadership goes hand in hand with controversies, which in turn increases the likelihood of faster transfers and even shorter tenures!

The outcomes are reflected in the state of Chinese and Indian cities! Whatever the enabling policy frameworks, it is the dynamics of field level implementation that makes the difference. And it is in getting stuff done that the Indian state, for whatever reasons, pales in comparison.

Tuesday, April 26, 2016

Selling stressed bank loans

Livemint reports that Stanchart's efforts to off-load $1.5 bn in stressed loans has found few takers, even with attractive haircuts. The only interested buyer, SSG Capital, is apparently offering to buy the stressed loans with a haircut of only 30%. This, as per the World Bank's latest Doing Business Survey, would be far higher than the country's average haircut of 74.3% and comparable to the OECD's average of 28.1%.
But, despite the very attractive valuation, Stanchart is apparently in no hurry to sell the asset. Livemint quotes an insider, 
The current process is aimed at arriving at a valuation. Depending on the valuation they receive, they will assess whether they can recover more internally. The bank has already taken full provisions on these loans. They are not in a hurry to get rid of these.
There have been several news reports in recent days of intense activity in the buyout market with the arrival of major global LBO firms. But there have been very few actual transactions. In 2015-16, just 15% of the total of Rs 1.1 trillion assets put for sale were actually sold. It is widely accepted that public sector banks are naturally averse to taking haircuts for fear of subsequent vigilance and other proceedings. But the apparent reluctance of the likes of Stanchart to sell their bad assets, even at very attractive valuations, may point to deeper challenges in off-loading bad assets. 

One possible reason could be that banks, public and private, are encouraged by the prevailing incentive structures to retain the loans as long as possible in the hope of recovering as much as possible or even in the belief that the asset would repair with time. Consider the pervasive practice of banks floating Asset Reconstruction Companies (ARCs) and selling their bad assets to these entities in what has been described as "right-pocket, left-pocket" transactions. Similarly, the provisioning rules too may be encouraging banks to hold out for as long as possible. 

The Government have, including in the Union Budget 2016-17, taken several steps to allow majority foreign ownership of ARCs, even 100% ownership by sponsoring entity, 100% FDI on automatic route, complete pass-through of income tax on securitization trusts to their investors, and permit non-institutional investors to invest in securitization receipts (SRs). But they may not be enough to overcome more deep-rooted structural factors. 

While the RBI has been constantly taking action to mitigate the incentive distortions from such practices, it has refrained from imposing a clean break between the bank and ARC, if at least for certain categories of loans. Unfortunately, such incrementalism is unlikely to yield the desired results. Neither do the sponsoring banks, and their subsidiary ARCs, have the competence to effectively restore the asset, nor will the ownership structure allow their respective managements to take the hard decisions necessary to achieve the objective. More disturbingly, this may also be discouraging genuine sales of assets and the emergence of a vibrant market in stressed assets. 

In fact, we may only be kicking the can down the road, with the attendant risk of having to pay a much higher cost when the sale eventually materializes, as it must in most cases. In the circumstances, a prudent strategy may be to limit such conflicts of interest and cut the umbilical cord between the asset selling banks and asset purchasing ARCs, at least for certain categories of bad assets, and allowing for structured transactions which claw back a share of windfall gains, in any, in the future.

Sunday, April 24, 2016

Weekend reading links

1. MR points to Ruchir Sharma's very bleak assessment of the Brazilian economy. He paints the picture of an economy intimately tied to the global commodity cycle and dynamism smothered by a massive bureaucracy and public spending,
Brazil’s GDP growth rate has fallen from 7.5% in 2010 to minus 3.5% last year. This decline followed the collapse in commodity prices that began in 2011... Today the average Brazilian income is about 16% of the U.S. average, with basically no gain for 100 years... Even more striking, since the mid-1980s Brazil has seen its GDP growth rate track commodity prices more closely than any other nation in the world. Brazil’s fortunes are so closely tied to the global commodity cycle in part because so little works inside the country. The private economy does produce some internationally competitive companies in auto parts, aerospace and other industries, but they thrive by dodging a growing bureaucracy that smothers the rest...
The country appears to be a classic example of a country entrapped in commodities and an over-generous welfare state, 
Spending by local, regional and national governments amounts to 41% of Brazil’s GDP, the largest for any country in its middle-income class, and a scale close to those of much richer European welfare states such as Germany and Norway. Brazilians face the heaviest tax burden of any emerging country, with collections amounting to 35% of GDP... The budget is very rigid, most of it going to salaries and legally mandated social entitlements, which are growing. Over the past 15 years, public pensions have increased from 3% to 7% of GDP. Brazilian men typically retire at age 54 and women at 52, earlier than in any major European country, drawn into the golden years by generous benefits. On average Brazil pays pensioners 90% of their final salary, compared with an average of 60% in developed countries.
The basic issue for Brazil is that heavy state spending tends to push up interest rates and borrowing costs, depress private investment and defer any shift away from commodities. Under Lula and Ms. Rousseff, Brazil has grown more reliant on soybeans, with commodities now accounting for 67% of exports, up from 46% in 2000. Brazil’s manufacturing industries remain anemic, representing only 11% of the economy, near the bottom of emerging-economy rankings.
2. Ed Morse, the head of Citi's commodities research, talks of a new oil order, where the rise of US has rendered OPEC "irrelevant",
The US is now arguably the world’s largest oil liquids producer in the world, if you take into account crude oil production and other supply like liquefied petroleum gases (LPGs), biofuels output and the incremental volumetric gains from having the largest refining system in the world. On paper the US might produce 9.3m barrels a day against Russia’s 11.1m b/d and Saudi Arabia’s 10.3m b/d. Add everything that looks and smells and is used as oil and the US is the biggest of the lot, producing 14.8m b/d versus the kingdom’s 11.7m b/d, versus. Russia’s 11.5m b/d.
And the basis for his conclusion,
US has production based on competitive decisions of hundreds of independent producers, which now, unshackled, can sell oil at home or abroad. That makes an enormous difference, especially when considering the nature of marginal production in the US, which comes from shale resources. These rocks are not only superabundant, but they can be exploited at a relatively low cost. Just compare an offshore well at $170m with a vertical shale well that costs under $5m, with a five-year payout for a successful deepwater well versus a mere five-month payout for a shale play. And multiply a single, individual shale well by hundreds of wells and hundreds of decisions and you get a new world order.
Shale, for sure, has changed the global oil market dynamics. But I am not sure that it is wise to draw too sweeping conclusions from events of recent memory. If any analyst says that an incremental 5-6 mbd in a 95-96 mbd global market has rendered OPEC "irrelevant", then I would be inclined to discount that source of research.

3. WSJ has interesting news on India's pharmaceutical companies, which are aggressively pursuing niche treatment areas, apart from generics,
Close to a third of all FDA applications in the nine months through September were by India’s multibillion-dollar pharmaceutical industry, which accounts for 40% of generic drugs sold in the U.S. That figure, the latest tally available, is up from 19% during the same period a year earlier.
For all the bad press that the pharma industry gets from US FDA actions, it ranks on par with IT as corporate India's most remarkable world-class achievements.

4. FT has a report which appears to indicate that Sun Edison's woes are likely to affect its Indian operations. The report talks of a cash transfer from the account of one of the company's yieldco TerraForm Global into its own account to pay off a margin loan in November 2015, which is now part of a lawsuit filed against the company,
It approved an $150m advance against some unfinished solar plants in India that TerraForm was planning to buy from SunEdison at a future date. The money pinged from TerraForm Global’s bank account to SunEdison’s to pay off the margin loan “mere minutes before the 3pm payment deadline”, according to the lawsuit.
In any case, given the close links between Sun Edison and its yieldcos, it is unlikely that the latter will be able to avoid being dragged into the bankruptcy process by creditors.

5. Livemint points to the newly released data from the Global Consumption and Income Project (GCIP), which suggests that the official figures may be understating the true extent of poverty in India. The poverty rate for 2011-12, at Rs 38 per day (or $2.5 per day on PPP terms), would be 47% against the 22% Planning Commission figures (for Rs 27 and Rs 33 per day in rural and urban areas respectively).
Other than the high rate, the other disturbing fact is the slow pace of decline.

6. The New York mayor has an ambitious affordable housing goal, the development or preservation of 200,000 units over the next ten years. The City Council kickstarted it in 190 blocks of Brooklyn, the first of 15 neighborhoods across the city,
The city’s tools are powerful: a new mandatory inclusionary housing law that requires developers in rezoned areas to set aside up to 30 percent of units in new buildings for lower-rent apartments. That’s a minimum — the administration also plans to use subsidies and tax breaks to extract even deeper levels of affordability from new construction. In East New York, it promises to break ground in the next two years on 1,200 “deeply affordable” apartments. Forty percent of them will be rented by families earning $38,850 or less. Ten percent will be rented by families making $23,350 or less.
India's metropolitan cities, where land valuations are astronomical, similar aggressive mandates should be associated with all land use conversions.

7. Nice article in Times on the market for the super-rich, the top 1%, where businesses are focussing an increasing share of their innovation and resources to provide premium services. To get a sense of the top 1%,
Emmanuel Saez, a professor of economics at the University of California, Berkeley, estimates that the top 1 percent of American households now controls 42 percent of the nation’s wealth, up from less than 30 percent two decades ago. The top 0.1 percent accounts for 22 percent, nearly double the 1995 proportion... From 2010 to 2014, the number of American households with at least $1 million in financial assets jumped by nearly one-third, to just under seven million, according to a study by the Boston Consulting Group. For the $1 million-plus cohort, estimated wealth grew by 7.2 percent annually from 2010 to 2014, eight times the pace of gains for families with less than $1 million... Spending by the top 5 percent of earners rose nearly 35 percent from 2003 to 2012 after adjusting for inflation, according to a study by Mr. Fazzari and Barry Z. Cynamon of the Federal Reserve Bank of St. Louis. For everyone else, spending grew less than 10 percent.
From jumping ques to exclusive zones and timings, the richest are able to purchase their convenience.

8. And staying with inequality, and its impact on life expectancy, new research by Raj Chetty and Co find a 15 year difference in life expectancy among American males at the top and bottom 1 per cent.
It is difficult to establish contributors and causal factors. Apart from wealth buying better health care, wealthier people also lead healthier lifestyles. Further, the cause and effect may go in both directions - healthier people can work more and productively and increase their incomes. And one of the implications of this life expectancy gap is that the richer people benefit more from various social security programs.

9. As the wheels are coming off the emerging markets story, with minus four per cent growth in Brazil and Russia in 2015, Dani Rodrik questions the merits of the original story itself,
Scratch the surface and you found high growth rates driven not by productive transformation but by domestic demand, in turn fueled by temporary commodity booms and unsustainable levels of public or, more often, private borrowing.
The article has this about the India story,
In a sense, all of the major emerging markets – with the revealing exception of India, where economic growth is not dependent on commodity exports – are reliving the lesson of the 2008 global financial crisis. As Warren Buffett famously summed it up: “Only when the tide goes out do you discover who’s been swimming naked.” For much of the last generation, buoyant commodity prices served as a fig leaf for emerging markets’ profound governance failures. Now the fig leaf has been stripped away, and their leaders must face the beach.
It is true that India benefits from not being a commodity exporter and having a fairly diversified economy. But the problem is that it, like all others, has not done enough on the productive transformation front, thereby raising questions about the sustainability of economic growth, especially at high rates.

10. Business Standard refers to a paper by KC Zachariah and Irudaya Rajan which puts in perspective the importance of remittances to the Kerala economy,
(Kerala) receives 40 per cent of remittances that come to India... Remittances finance as many as 20 per cent Kerala households, or 2.4 million families. Assuming a family size of three, remittances directly affect 7.2 million of 35 million Keralites... Remittances, at Rs 70,000 crore, accounted for 36.3 per cent of the net state domestic product (NSDP) in 2014. Remittances constitute a fourth - Rs 22,689 of Rs 86,180-of the per capita income of Kerala in 2014. Remittances were 1.2 times the revenue generated by the Kerala government in 2014... The number of Keralites working abroad had jumped to 2.4 million by 2014... a majority, 86 per cent , work in the Gulf countries.

Friday, April 22, 2016

Secular stagnation, corporate surpluses, industry concentration, and declining business dynamism

The widening inequality, especially driven by the out-sized compensation in the financial sector and the rising pile of corporate profits, and reflected in the stagnant median labor incomes, must count as the arguably the most disturbing social and political theme of our times.

Now Larry Summers has argued that monopoly profits, extracted by the growing concentration of market power across sectors among the top firms, is responsible for the increasing returns to capital despite the persistently low real interest rates. Profits, free-cash flows, and returns on capital are at historic highs among US corporates.
A spate of mergers and aggressive cost-cutting have boosted profitability from both supply and production sides. The persistence of high profitability and the likelihood of the same firms being the beneficiaries over time points to prohibitive entry barriers. Pointing to high levels of entry barriers, the Kauffman index of startup activity is at its lowest since the 1970s.

The Economist examined US firms in 893 industries, grouped into broad sectors, and found that two-thirds of them became more concentrated between 1997 and 2012 and the weighted average share of the top four firms in each sector rose from 26% to 32%.
The concentration is especially pronounced in sectors like Finance, Retail, and Wholesale.
In this context, MR points to the findings of a recent study by Grullon, Larkin, and Michaelly which finds an alarming decline in publicly traded US firms and attendant concentration of economic activity,
There has been a systematic decline in the number of publicly-traded firms over the last two decades. Half of the U.S. industries lost over 50% of their publicly traded peers [from 6,797 in 1997 to 3,485 in 2013, AT].... This decline has been so dramatic, that the number of firms these days is lower than it has been in the early 1970s, when the real gross domestic product in the U.S. was one third of what it is today. This phenomenon has been a general pattern that has affected over 90% of U.S. industries... The decline has increased industry concentration, as the void left by public firms has not been filled by an increase in the number of private businesses or by greater presence of foreign firms. Firms in industries with the largest decline in the number of firms have generated higher profit margins and abnormal stock returns, and enjoyed better investment opportunities through M&A deals. Overall, our findings suggest that the nature of US product markets has undergone a structural shift that has potentially weakened competition.
This US CEA study finds a significant increase in the concentration of economic activity in many industries recent decades, a reflected in record levels of mergers and acquisitions. It also finds declining new firm entry and returns that are greatly in excess of historical standards. The share of US workers requiring some form of State occupational licensing grew five-fold over the last half of the 20th century to about a quarter of all US workers in 2008. 

Nowhere is the concentration more pronounced than in the financial sector. Noted investor, Henry Kaufman, has cautioned that such concentration undermines the operation of market forces,
The number of FDIC-insured institutions fell from more than 15,000 in 1990 to a mere 6,300 today, and the ten largest U.S. financial institutions currently control some 80 percent of all financial assets... financial concentration increases the spreads for securities, drives up financing costs, increases price volatility, reduces traditional sources of liquidity, and requires greater government supervision of credit markets... Debt has been shifting tectonically as well... U.S. government debt... now equals – GDP; in 2000 it was only half of GDP. In the 1990s, corporate equity increased $131 billion while debt soared an astonishing $1.8 trillion. And the quality of corporate debt has been deteriorating... In the mid-1980s, the number of non-financial corporations rated AAA was 61; today it is 4.
The returns on capital invested, excluding goodwill, among the American publicly traded non-financial companies have become increasingly concentrated in a small segment at the 90th percentile and above, whose returns are more than five times those of the median. 
Another recent paper by Ryan Decker et al points to declining entrepreneurship, job creation and destruction, and economic dynamism in the US. It finds increased reallocation of jobs towards the more productive and more profitable sectors, which invariably require ever declining shares of workers. This has to be taken with evidence of declining workers internal mobility across occupational categories.
The opinion is divided on what are the factors driving these secular structural trends. But these trends assume significance for even developing countries which are already buffeted by adverse headwinds of premature de-industrialization and stagnation in global trade. If declining business dynamism (entry and exit), lower entrepreneurship, increased industry concentration, internal workers mobility are driven by factors that are more secular, independent of nature of economies, then they may prove insurmountable barriers to economic growth in these economies. 

Wednesday, April 20, 2016

Expansive versus expensive cities

The WSJ points to a just-released study by Issi Romem of US cities and housing affordability which finds that expansive cities are less expensive. In other words, cities which increase their footprint or expand outwards, are more likely to keep housing affordable. The standard narratives on the growth of cities have tended to present an either-or relationship between the emergence of haphazard suburban sprawls as cities expand outwards and vertical development by liberalizing zoning regulations. This study questions that conventional wisdom.   

It captures the steady expansion of US cities from the forties onwards. Cities like New York, which expanded aggressively earlier have almost stopped growing.
In contrast, others like Atlanta continue to grow outwards even today.
The difference between these two types of representative cities is captured in the graphic below on housing prices. It clearly shows that housing prices have risen less in cities which have expanded outwards, even when their populations have increased faster.
Romem explains the relationship, 
Expensive cities gained population as well, but they did so despite the constraints on housing supply, and in the absence of such constraints their population would have grown much more. Legacy cities’ populations grew only slightly or even decreased, as indicated by the absence of a circle. The chart shows that, with the exception of legacy cities, housing price growth is inversely related to cities’ outward expansion. 
At least three things are driving the relationship. One, massive amounts of housing were built on rural land in expansive cities and helped keep housing prices there in check, whereas the restricted outward expansion of expensive cities limited their supply of housing and contributing to housing price growth. Even though correlation alone does not imply causation, there should be no doubt that cities’ degree of outward expansion affected their housing prices directly. Two, land use policy impeding densification – as opposed to expansion – is likely to be stricter in the same cities whose outward growth is curbed, and such impediments to densification contributed to housing price growth as well. Three, recall that housing price growth sets in motion a sorting process that yields a more affluent population, which is prone to tightening land use regulation. This process means that housing price growth can indirectly cause cities to expand more modestly, which once again contributes to the relationship in the chart.
For developing country cities, where urbanization is only just gathering pace, the choice is not between deregulation or geographical expansion. They need both. They are like New York of 1960s or earlier. They are also like the Atlanta of today, but with far more regulated antecedent zoning regulations. 

In the years ahead, these cities will face massive immigration pressures. The more successful cities will be especially vulnerable. Business-as-usual will leave them with unmanageable sprawls and their economic vibrancy will be crushed. These cities need aggressive deregulation by way of much larger Floor Area Ratios (FARs), calibrated releases of massive extents of vacant lands currently occupied by public agencies, and gradual expansion of the city boundaries. Unfortunately, none of these are happening in any satisfactory manner. 

Tuesday, April 19, 2016

Observations on the Delhi road rationing experiment

The odd-even vehicle rationing experiment in Delhi has restarted. Much of the debate around the issue has centered around assessments of the emission reductions from the first round. Critics have been quick to dub the experiment a failure based on these estimates. In fact, they have been unwilling to countenance anything other than the first best option of the development of a world-class public transport system as the solution to Delhi's pollution and congestion problem.

In this context, going beyond the immediate impact on emission levels and so on, a few observations. 

1. The road rationing program introduced by the Delhi Government constitutes a paradigm shift in the way governments across this country have addressed pollution and congestion. They have largely revolved around emission norms and road widenings and flyover construction. This is the first time that a government in India has consciously decided to ration road usage, thereby directly address both problems. In this sense, the January experiment was India's crossing the Rubicon moment in policy making to address urban vehicle pollution and congestion. It has undoubtedly lowered the political and social bar for similar policies in other cities across the country. 

2. I am inclined to believe that governments like the current one in Delhi, despite their political populism, are more likely to be able to introduce such policies, which directly impact a very large and vocal electoral base. Such governments are as much vulnerable to reckless populism as capable of progressive policies. The nature of their evolution and network of influencers are such. Traditional political parties are less likely to be creatures of such evolution.  

3. Reflecting their growing pre-eminence in policy making, the courts, in the form of the National Green Tribunal (NGT) this time, played a critical role in forcing the Delhi Government to bite the bullet with road rationing. After all, the original thrust came from the NGT directions to improve air quality. This is a reminder that such public policy mutations (deviations from the norm) are more likely to happen when the moment is ripe, both in terms of the political and social environment as well as the coincidental confluence of supportive coalition partners (Delhi Government, NGT, and civil society organizations like Center for Science and Environment). 

4. When the program was initiated, there were apprehensions about the Delhi government's ability to enforce the ban. Critics suggested that people will forge number plates or even just ignore the ban. While this has undoubtedly happened, it has been far less than anticipated or in any case, atleast less enough not to warrant headline news. Is this evidence of much higher civic spiritedness among Delhi's population than credited? Does this mean that the citizens have the appetite to tolerate more such paradigm shifting public policy interventions.  

5. There is much to compliment about the manner in which the policy has been rolled out. Its iterative and slowly phased approach apart from diffusing discontent has also given the government valuable feedback to constantly improve the implementation design. It has been classic two-steps forward, one-step backward. 

6. Finally, unlike the first round in early January, this time, the Delhi Government has exempted vehicles running on Compressed Natural Gas (CNG). This has prompted a scramble among car owners to have their vehicles retrofitted with CNG. Given Delhi's success with CNG retrofitting of public transport buses and auto rickshaws, this may be a trigger for large-scale conversion of even private vehicles. What if the program becomes a catalyst to inculcate the habit of car-pooling among Delhi residents? What if the program works at the margins to tip over some share of car residents to embrace the metro and keep them there? What if it leads to more rationing policies like number plate licensing? Such unintended consequences of public policy are a strong reminder to critics of such policies who evaluate them on narrow and immediate quantitative parameters. Development is hard and complex. We need to be humble enough to accept this before trigger-happy assessments based on superficial considerations. 

If this policy can be sustained and bear fruits, even if unintended, over a longer time, it would be a terrific achievement for the Delhi Government. Transport related problems, apart from housing, have been the most intractable of urban problems. Governments which have successfully addressed them have captured the public imagination. After all local residents fondly remember Ken Livingston in London for the congestion pricing scheme and Enrique Penelosa in Bogota for the TransMilenio BRT system.