Saturday, February 13, 2016

Weekend reading links

1. The difference a century makes! Tim Taylor has this snapshot of the life of an average American worker from 1915,
Whether or not your abode was a single-family home or a crowded tenement, it probably was heated by a potbelly stove or by a coal furnace in the basement. It wasn’t until the coal shortage during World War I that oil or gas-powered central heating became a popular replacement for the hand-fired coal furnaces and stoves. Your home probably wasn’t yet wired for electricity; less than a third of homes had electric lights rather than gas or kerosene lamps. However, electricity was the byword of new middle-class homes, which sported electric toasters and coffee pots... Telephones could be found in at least a few million homes. However, direct dialing did not exist until the 1920s. If your home had an indoor toilet, the toilet likely was located in a closet or a storage area. It would be a few more years until it was common for toilets, sinks, and bathtubs to share a room... Although some households had running water in 1915, many rural families and city dwellers did not. Less affluent residents still heated a boiler full of water on a coal or wood range, rubbed clothes on a washboard, used a hand ringer, and hung clothes to dry. Homes without gas or electric heat were harder to clean because of soot from the fireplace or wood stove.
2. Election cycles affect Padma Awards too. The Times of India reports that 30% more awards were given during election years compared to the average of the preceding four years.

3. After nuclear weapons and stealth technologies and precision guided missiles, US military is embracing robotics in its attempt to stay ahead of rivals. "Swarming, unmanned, autonomous vehicles" have become the priority. Like with all previous endeavors, this time too, the field of robotics will benefit immensely from this focus. It is most likely that most of the major advances in robotics related technologies and its civilian applications will have its origins in US military. 

4. Amidst all talk of declining China, its firms appear well-positioned to play a dominant role in the  global telecoms, search, email, social media and e-commerce markets,
(After Samsung and Apple) the next three biggest smartphone makers are all from China: Huawei, Xiaomi and Lenovo... Alibaba has greater reach than Amazon... Ecommerce accounts for about one-tenth of all retail sales in China compared with about 7 per cent in the US. Tencent’s WeChat messaging and calling app has more than 650m active monthly users and is catching up rapidly with Facebook’s WhatsApp, which has just passed the billion-user mark... Google, Apple, Facebook and Amazon, the big four tech companies, may soon be competing more directly with Chinese companies — Baidu, Huawei, Sina and Alibaba, to name a few.
5. In December 2014, Rajasthan passed legislation that mandated functional toilets and minimum educational qualifications (Class X for Zilla Parishad and Panchayat Samiti, Class VIII for Sarpanch, and Class V for Schedule areas) to stand in local body elections. Haryana followed suit for Panchayat elections. The Supreme Court, in another example of kritarchy, upheld the legislations mandating minimum educational qualifications to stand in local government elections. The implications are profound,
The conditions have resulted in the shrinking of the pool of candidates who are eligible to contest. In Haryana, the education requirements—matriculation for the general candidates, Class VIII for women and Scheduled Caste men and Class V for Scheduled Caste women—has disenfranchised 78% of all men, 89.1% of all women and 62.1% and 67.5% of Scheduled Caste men and women, respectively, according to Census 2011 data... Of the 6,207 sarpanch elections across Haryana, 274 were won unopposed and 22 went vacant. It’s more or less the same story in Rajasthan where the January-February 2015 election saw 260 sarpanchs getting elected unopposed, compared to 35 in 2010.
The level of political participation fell across a range of parameters.

6. The day of reckoning for India's start-ups may be soon coming. After nearly $9 bn poured into startups over the past two years, Livemint reports that funding has dried up and firms are hiring investment banks to secure new funds or find buyers. In another manifestation of an impending disruption, FT reports that the investors in the larger ones are getting impatient and are demanding returns on their investments.

In this context, apart from the obviously inflated valuations, it is most likely that all the e-commerce firms may have over-estimated the size of the country's consuming class and their price elasticity of demand. Like with post-liberalization consumer durables market, which initially pointed to decades of China-like very high growth rates, it is likely that the initial growth spurt of e-commerce captured the pent-up demand and the market may now be settling down to more realistic levels of growth.

7. Interesting comparison in Mint about horticulture and foodgrains cultivation. Though its share of cropped area is miniscule, vegetables and fruits have overtaken foodgrains in production.
In terms of irrigated area, 87-90% of fruits and vegetable cultivation is in irrigated areas to just under half for foodgrains.
8. The Masala Bonds were always likely to be exactly that, masala, more garnish than substance. And the reluctance of corporates to go ahead only confirms it. Even with the removal of the with-holding tax and even if the Government of India takes the lead with direct issuances, it is most unlikely to take off. Apart from the well documented historically persistent and pervasive original sin hypothesis (developing countries cannot borrow abroad in their domestic currencies), the global economic uncertainties make it pretty much a non-starter. The comparison with Chinese 'dim-sum' bonds was plain misleading, as would be with most such things Chinese. In any case now, India is more investment demand constrained than capital constrained - decreasing overseas bond issuances (a five year low of $9 bn in 2015 against $19.2 bn in 2014) and ECBs, declining domestic corporate bond yields, lower credit off-take, and falling investment intentions. 

9. Negative interest rates and record low Baltic dry index portends dismal prospects for the world economy. Sweden's Riksbank cut its key short-term interest rate by 15 basis points to minus 0.5 per cent. Rates for dry bulk carriers, including container ships, have fallen below break-even prices, on the back of large capacity expansion over the past decade, in turn motivated by a 7% increase in global trade in the decade to 2008.  
10. India's banking sector appears to be gripped by a reflexive downward spiral of rising non-performing assets (NPAs), dragging down equity markets. Indian Express reports that the provisioning coverage ratio (total provisions to gross NPAs) of 20 public sector banks fell over the 2011-15 period and are all below the RBI mandated 70 per cent. Indian banks have written off Rs 2.77 trillion over the past ten years, more than half happening in the last three years, and gross NPAs are estimated to jump to Rs 4.26 trillion by March 2016, an increase of 32% over the year. 

Faced with a systemic bad asset problem, regulators face the classic dilemma. Clean up too fast and run the risk of individual bank runs and systemic contagion. Cleaning up too slowly runs the risk of prolonging the misery, even exacerbating it, and encouraging bankers to hide bad assets. 

11. Finally, Ricardo Hausmann makes a compelling case that Venezuela will be the first oil exporting domino to fall and predicts a disorderly sovereign default this year, 
While most other oil exporters used the boom to put some money aside, former president Hugo Chávez, who died in 2013, used it to quadruple the foreign debt. This allowed him to spend as if the average price of a barrel of oil was $197 in 2012, when in fact it was only $111. He also used it to maim the private sector through nationalisations and import controls. With the end of the boom, the country was put in a hopeless situation. The year 2015 was an annus horribilis in Venezuela with a 10 per cent decline in gross domestic product, following a 4 per cent fall in 2014. Inflation reached over 200 per cent. The fiscal deficit ballooned to 20 per cent of GDP, funded mainly by the printing press. In the free market, the bolivar has lost 92 per cent of its value in the past 24 months, with the dollar costing 150 times the official rate: the largest exchange rate differential ever registered...
As bad as these numbers are, 2016 looks dramatically worse. Imports, which had already been compressed by 20 per cent in 2015 to $37bn, would have to fall by over 40 per cent, even if the country stopped servicing its debt. Why? If oil prices remain at January’s average levels, exports in 2016 will be less than $18bn, while servicing the debt will cost over $10bn. This leaves less than $8bn of current income to pay for imports, a fraction of the $37bn imported in 2015. Net reserves are less than $10bn and the country, trading as the riskiest in the world, has no access to financial markets.

2 comments:

Unknown said...
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Anantha Nageswaran said...

On your link no. (5), that notes the declining political participation after the imposition of minimum standards with respect to education and/or toilet facilities, I have the following observations to make:

(1) It is a reminder that the road to hell could be paved with good intentions and that there could and would always be the law of unintended consequences with public policy decisions.

(2) One way to decide if the costs of the decision - low political participation - are outweighed by the decision - is to evaluate if the aspirants to political power are rushing to build toilets in their homes, neighbourhoods and villages and rushing to enrol in adult learning and distance learning programmes.

In other words, check if the policy is achieving at least the intended measures, even if there are costs. If so, then it might be worth keeping it for a while before entrenching it or discarding it.

(3) My second paragraph in point (2) above brings me to the final point I wish to make. That is about the time-frame. If policy measures do not show results within a reasonable time-frame, they should be scrapped. That should be indicated in the original policy formulation itself.

All measures, at inception, must come with a sunset clause along with an understanding and articulation of the intended benefits and anticipated costs so that policy evaluation/criticism becomes focused, targeted and specific.