14  THE ECONOMIC TIMES The Edit Page THE ECONOMIC TIMES | MUMBAI | MONDAY | 2 OCTOBER 2017

RBI’s faith in macro-models must be tempered with greater discretion and judgement
Deflated Bubbles
Spell No Tragedy
Take measures to step up stalled investment
The festive season of Dussehra-Diwali is supposed to he-
Give Growth a Chance in the comparable period last year,
current account deficit at 2.4%, the
rald a new year of prosperity. The good news is that the highest in four years and, inflation,
market bubble is getting deflated. The last week of Septem-
ber witnessed a 1.3% crash in blue-chip indices, ending a
once our biggest boast, inching up to
3.4% — raises the stakes before the A Millennial
forthcoming announcement to a new
month when stocks shed 3.5% of value. This reinforces a
longer, three-month trend that has seen the 30-share BSE
level altogether.
It is no exaggeration, therefore, to
on Gandhi
Sensex and the 50-share NSE Nifty decline nearly 4%. Mythili Bhusnurmath say posterity will judge Patel largely
by what he unveils this Wednesday.
ABHISHEK PATHAK
This was inevitable: a global surge of liquidity following

quantitative easing (QE) in the US fuelled emerging mar-
ket asset bubbles. India was no exception: through 2015-
17, equities scorched up, shrugging off worries about flat
or declining profitability.
This got over after Janet Yellen, chair of America’s Fed-
eral Reserve, called an end to QE on September 20, bring-
ing the curtains down on an unprecedented nine years of
easy global money. The Fed will now sell bonds, sucking
money out of other asset markets to the relative safety
and stability of US Treasuries. But Fed activity does not
explain why India is the third-worst em-
erging equity market among 23 track-
ed by the MSCI Emerging Markets Ind-
ex. Local factors, like poor governance
in many states, an overstretched fisc,
declining margins across corporate
India, stagnant rural markets and a
slowdown in most transactions after
demonetisation and the introduction of a needlessly
complex GST regime, are all to blame.
Compared to the Sensex’s three-month slump of 4%, en-
ergy and bank stocks are down 4.7% and 4.8%, IT 5%, ind-
ustrials 5.4% and power 5.8% over the same period. But
capital goods are down 6.9%, hit by a sharp fall in invest-
ment, and real estate, a large employer, has taken a 7.6%
dive due to demonetisation and slowdown. But the worst-
hit sector, down 7.8% in three months, is telecom, hobb-
led by extortionate government charges for spectrum,
Reliance Jio’s disruptive tactics and the spread of techno-
logies like WhatsApp. The government has to spur invest-
ment, even at the cost of running a higher deficit, clear
policy clutter and stop taxmen and petty regulators from
intruding on normal business activity.
T
The problem is that in complex econ- I was born more than three dec-
he job of the RBI governor omies like India, it is almost impossi- ades after the death of Gandhiji.
has never been easy. Former ble to predict outcomes. So, regard- I learnt that he was an apostle
Prime Minister Manmohan less of what Patel does or does not do, of non-violence, an advocate of
Singh once called it the lone- there is a fair chance it could be ‘damn- prohibition and someone who
liest job in India. The estab- edif he does and damned if he doesn’t’. helped India win her freedom.
lishment of the Monetary Policy Com- If he cuts rates and inflation picks I also learnt about Gandhi’s phi-
mittee (MPC) was expected to change up, no one will give him the benefit of losophy communicated through
that. At the very least, it was to make it the doubt and say, maybe it helped the symbolic three monkeys,
less lonely since Singh’s days as RBI support growth and other factors at each in a different posture. The
governor in the 1980s. But it hasn’t play caused prices to rise. If, on the one with the eyes closed symbol-
made the RBI governor’s life any easier. other hand, he stays true to his inna- ised seeing no evil, the second
True, interest-rate decisions are te hawkish instincts and keeps rates with the ears closed symbolised
now taken by the six-member MPC, on hold and growth continues to fall, Cut, RBI, cut hearing no evil, and the third
rather than by the governor alone. he will be seen as unwilling to give one that had its mouth shut
But going by the widespread clamo- growth a chance. Yes, rising fiscal deficits, GST and greater risk from inaction, Patel and symbolised speaking no evil.
ur for action by RBI, it would appear Caught between the devil and the house rent allowance might put so- the MPC must do a ‘Mario Draghi’. But I now realise that Gandhi
the MPC has not succeeded in either deep sea, what should Patel do? Opt me pressure on prices. But the whole At the height of the euro crisis, was much more than all these
deflecting public attention or expect- for the lesser evil and give growth a idea of a flexible inflation target is to when confidence in the euro was sha- symbolisms attributed to him.
ations from the central bank. chance. Yes, inflation is inching up. allow elbow room. Not to view the 4% ken to the core with bailouts of some The one significant aspect of
But it is driven mainly by food and fu- inflation target as cast in stone. debt-laden members threatening the Gandhi that is being a subject
The Buck Stops Here el, both largely outside the purview very existence of the EU, Draghi vir- of popular discourse these days
This is not surprising. The compositi- of monetary policy. Globally, inflation Cut it Right tually changed the course of events. was his view on cleanliness.
onof the MPC — three of its six mem- is on the downturn. Sure, a rate cut is unlikely to move the He boldly declared the European Cen- While modern social scientis-
bers are from RBI and the governor Recall the stunning admission by needle on corporate demand for cre- tral Bank would do “whatever it tak- ts may claim that green consci-
has a casting vote in case of a tie — US Federal Reserve chairperson Ja- dit, given existing excess capacity. es” to tackle the situation. ousness is a late 20th-century
leaves the governor with nowhere to net Yellen that the Fed does not fully But by increasing retail demand, it Likewise, the US Fed. Faced with a idea, Gandhiji had talked about
hide. In the final analysis, the onus understand why consumer inflation might improve capacity utilisation. financial sector meltdown after the that much earlier. His views on
for monetary policy formulation re- is so low, despite the huge increase in It will provide much-needed sheen to collapse of Lehman Brothers, it threw sanitation and cleanliness, and
mains with RBI. The buck stops with money supply. Yes, fuel prices have bank balance-sheets through higher the rule book — and, presumably, ma- their relation to health, were
governor Urjit Patel. risen and we will see a spike periodi- treasury profits (a fall in interest rat- croeconomic models as well — out of vividly expressed in his com-
Every monetary policy statement cally — possibly each time Kim Jong- es leads to a rise in bond prices); red- the window. It printed dollar bills (so- ments in Navajivan, November
from the central bank is important. un and Donald Trump exchange ple- uce the cost of government borrow- called ‘quantitative easing’), in an all- 2, 1919. He wrote, “No one shou-
But the precarious juncture at which asantries. But oil prices should most- ing and dis-incentivise overseas ca- out bid to keep the economy afloat. ld spit or clean his nose on the
the economy is poised now — Q1GDP ly remain easy. pital inflows, looking to make a fast Agreed, RBI does not have the Fed’s streets. In some cases, the spu-
growth at 5.6%, the slowest in the last On the manufactured goods’ side, buck (borrowing overseas at 1-2% advantage. It cannot print pieces of tum is so harmful that germs
six quarters, industrial growth for excess capacity continues, so there and investing here at over 6%), since paper that the rest of the world scram- are carried from it and they in-
April-July 2017 at 1.7, down from 6.5% are virtually no demand pressures. this props up the rupee artificially bles to lay its hands on. But it does not fect others with tuberculosis.”
and hurts exports. have the luxury of dithering either. Similarly, he talked about the
Given that RBI’s inflation models Faced with a choice between a rate importance of ensuring that th-
have consistently overestimated futu- cut that is highly unlikely to stoke in- ere was no stagnant water pools
At the height of the euro crisis, Mario Draghi boldly reinflation and by a wide margin, and flation, but might help growth, and near villages or dwellings, to
declared the European Central Bank would do given the small window of opportu- inaction that will definitely not help avoid breeding ground of mos-
nity before the Fed hikes rates in Dec- inflation, but could hurt growth, RBI quitos. As we talk of Swachh
“whatever it takes” to tackle the situation ember, and, most importantly, the far must cut. Bharat, we need to revisit Gan-
dhi’s views on observing clean-
liness in lavatories, and avoid-
ing open defecation. He wrote
MEME’S THE WORD that a lavatory must be as clean

Needed, Rigour in South Asia: Net Problem

There are now 3.9 billion internet users in the world, according a new
as a drawing room. He truly was
much ahead of his time.

Fixing Accountability Unesco report. Nearly half of these users — 1.94 billion — are in the
Asia Pacific. With a penetration rate of 34%, South Asia continues to
be a laggard in the region… Chat Room
There tends to be scandalous asymmetry in locating account- “Success seems Variation in penetration rates Internet users as % of population

ability for errors of omission between the private and the pub-
to be largely Select Asia-Pacific countries Major regions Decongest Delhi
lic sector. When a flyover collapses, for example, the media N America 89%
a matter of and Mumbai
93

works up a frenzy over the presumed failure of the private 87%

92

W Europe
hanging on
87

firm responsible for its construction and the police arrest its 57% Apropos the Edit, ‘Tragic Wag-
83
83

East Asia
es of Horrific Negligence’ (Sep
78

senior-most officials, with the judiciary, more often than not, after others GLOBAL 51% 30), incidents of mass casualti-
nodding in approval. When a major accident happens because have let go.” South Asia 34%
67

es due to natural calamities and

an arm of the government that was supposed to take preventi- Africa 32% infrastructure overload are
58

William Feather
ve action failed to, there is little more than resigned rolling of becoming the order of the day.
52

Writer
50

Papua New Guinea

48

The problem is overpopulated

Solomon Islands

eyes at the ways of the Sarkar. Both responses err by veering to

47
45

megacities, and the governme-

41

28

the extreme: of fixing criminal culpability right at the top of nt must decongest them. With
35

23
32
APAC average

the administrative hierarchy in the private sector and by hold- computerisation and internet
South Korea

Source: Unesco
Bangladesh
Philippines

connectivity, there is no need

Singapore

ing accountability to be so diffuse in the

Indonesia

Myanmar
Sri Lanka
Australia

Malaysia

Pakistan
Thailand

Vietnam

Bhutan

to make administration pure-

Japan

government as to not exist for all practi-

Nepal
China

India

11

ly Delhi-centric and financial

10

cal purposes. This must change. transactions Mumbai-centric.

Criminal negligence is not some vicari- Such public institutions can be
ous reflex. If a mishap occurred because moved to tier-2 cities that will
lead to development of small-
senior management failed to allocate re-
er cities, better life for citizens
sources, either human or financial, that
RED HERRING Citings and reduce load on the infrast-
were needed in a systemic sense to pre- ructure in Delhi and Mumbai.

How to Bake an Opposition

vent it, the misguided senior management would, indeed, be
culpable. But if such resources were, in fact, available to oper- Digital V R KHUSRO
By email
ational functionaries and laxity on their part resulted in tra-
gedy, accountability must stop at the level of the errant func- Strategy Can’t Except
tionaries. Law enforcement and justice mechanisms should
scrupulously follow this maxim. This must happen in the gov-
economic policies, including “a badly
conceived and poorly implemented
and Princeton vote in India’s assemb-
ly or general elections. But, hey, some
VENKAT ATLURI ET AL Bad Manners
ernment as well. GST”, and multi-stabbing the PM’s flag- of us got to see Sam Pitroda after ages We believe an increasing num- While salutary in its intent,
In India, the officialdom is governed by an incentive structu- ship demonetisation drive by describ- and did want to thank him for India’s ber of industries will converge ‘Tragic Wages of Horrific Neg-
re that penalises errors of commission, whether intended or ing it as “an unmitigated economic dis- telecom and IT ‘revolution’. under newer, broader and mo- ligence’ ignores an important
aster”, he ended with, “The prime min- But Gandhi’s brief interlude of sorts re dynamic alignments: digi- aspect of our social behaviour:
otherwise, and rewards inertia on par with proactive achieve- ister claims that he has seen poverty reminded us suddenly that there was tal ecosystems. A world of eco- we are impatient to a fault. Add
ment, with no system to hold to account either administrative Indrajit Hazra from close quarters. His finance minis- indeed more than one party still in na- systems will be a highly custo- to that our temperament, be it
positions or those who fill them, for errors of omission. Fixing ter is working over-time to make sure tional politics in a yet-to-be Dhinchak mer-centric model, where use- for alighting
this is crucial for effective governance. that all Indians also see it from equally Pooja-mukt Bharat. And then came Ya- rs can enjoy an end-to-end exp- from or getting
There is an apocryphal story about close quarters.” When I read that, I saw shwant Sinha’s Parashuram avatar per- erience for a wide range of pro- into an aero-
two phuchkawalas outside Kolkata’s Sinha wearing a stiletto heel and driv- formance. Even if it came hurtling out ducts and services through a plane, train or
Victoria Memorial. One of them sells ing it into Arun Jaitley’s… well, palm. of the BJP-GoI complex — the proverb- single access gateway, without bus or even dri-
five phuchkas for .̀ 10, the other sells Collective squeals in post-Lutyens ial ‘within’ — India suddenly had an Op- leaving the ecosystem.… ving. Our ill-
four for the same price. The two of them Delhi were heard everywhere, even positional force, at last. Or that seems The World Bank projects the mannered and
The trillions used and discarded add up to sell on either side of the main entran- from the far corners where opposition to be the general take, at a time when combined revenue of global ‘me-first’ atti-
mountains of non-biodegradable trash ce of the city’s landmark. So, most visi- parties are rumoured to still scavenge the Modi government genuinely finds businesses will be more than tude, besides
tors, aware of both of them and their and roam. The media, understanding itself loosening a collar button or two. $190 trillion within a decade. If throwing caution to the winds,
offers, quite obviously gravitate to- that being critical about this govern- In my opinion, however, it’s not quite digital distribution (combini- cannot, and must not, be excu-

Plastic Straws Suck, wards the cheaper phuchka-gorging

option, feeling rather chuffed and sup-
erior at having made a bargain and
convinced of the stupidity of one of
ment is like telling your class teacher
that he is a dimwit before your final
exams, was delighted that someone
was firing at this administration —
so cow pat. Let’s go back to the story of
the two phuchkawalas. While custom-
ers go home, sated and thrilled at the
prospect of finding ‘cheaper’ phuchka,
ng B2B and B2C commerce) re-
presents about one-half of the
non-production portion of the
global economy by that time,
sed. The authorities must fac-
tor in human behaviour while
designing infrastructure.

Go Back to Sipping the phuchkawalas.

Indian politics-watchers find themsel-
ves in a similar scenario today. Except,
without firing from their shoulder.
Add to this, a small section had got ex-
cited earlier at Congress vice-preside-
it turns out that the two phuchkawalas
at the Victoria Memorial are brothers
who work in tandem. They came up
the revenues that could, theore-
tically, be redistributed across
traditional sectoral borders in
A K KOHLI
Gurugram

The Sumerians may have used golden ones 5,000 years ago, instead of feeling satisfied at making
a bargain over the world’s loveliest st-
but the invention of the flexible drinking straw by Joseph
Friedman in 1937 — that eased the use of the original paper
reet food, they are convinced that they
are now witnessing the birth of an op-
drinking implement developed by Marvin Stone in 1888 — position to the Narendra Modi-led gov-
was what really triggered a drinking revolution around the ernment. Providing unexpected grist
to this mill has been one of the BJP’s
world. Both men would probably be mortified that their in- own stalwarts: former finance minis-
ventions, now made of polypropylene and manufactured in ter Yashwant Sinha.
their billions these days, are regarded as prime polluters Now, Sinha is not in the same category
and the target of a burgeoning international ecological cam- of sulkers as the openly angsty, Arun
‘This government can’t see the Bhish-
paign called Refuse the Straw. Pubs and other establishments ma Pithamah that I am even if Rama-
in western countries are being roped in to discourage straw nand Sagar laser-pointed me’ Shourie.
use and Indians should follow suit. Especially since as envi- Nor is he a redundant figure like L K
ronmental campaigns go, it is certainly ridiculously easy to Advani, whose redundancy was furth-
er underlined by the fact that the cur-
join in because it merely entails going back to the traditional rent regime didn’t even bother to have
way of imbibing liquid: sipping it straight. The straws’ dis- his name in the ring as a presidential
pensability is manifest. candidate. And Sinha is certainly not
the kind of sputtering spitting image
Given that the number of straws used and discarded by just
of an Angry Old Man like Ram Jeth-
US and UK reportedly exceeds 550 million per day, it is not malani, who makes great TV dissing
difficult to see how worldwide usage adds up to mountains of everyone, the BJP and the govern-
non-biodegradable plastic — or, worse still, rivers of it empty- ment included.
Writing in The Indian Express last
ing into the oceans and choking marine life — that will take a
week (goo.gl/Qzu8uB), Sinha seemed
minimum of 200 years to disintegrate. For everyone with a
nt Rahul Gandhi not having made a
Rahul Gandhi of himself while on a
with the plan of selling the same num-
ber of phuchkas at different prices.
2025 would exceed $60 trillion:
30% of world revenue that year. Dear Tom Alter,
lecture tour in the US. It was not quite
the moment when the Messiah was
Finding such a ‘bargain’ at the same
location, most customers would be too
Under standard margin assu-
mptions, this would translate
Rest in Peace
sighted. Nor do most folks at Berkeley happy to not look any further for more to some $11 trillion in global The demise of the ‘blue-eyed
phuchkawalas, who may be even sell- profits, which, once we subtra- desi’, Tom Alter, brings down
ing six phuchkas for .̀ 10. So, what ap- ctapproximately $10 trillion for the curtains on one of the most
pears to be a decent bargain is actual- cost of equity, amounts to $1 colourful and versatile person-
ly a camouflaged monopoly, a nice lit- trillion in total economic pro- alities of our time. Besides car-
tle domestic ‘scam’. fit. Again, it’s uncertain how ving a niche for himself in the
I am not saying that Yashwant Sinha much of this value will be re- entertainment industry, Alter
and the BJP’s overlords have launch- apportioned between busines- was also a distinguished sports
ed a cunning plan to set up an arrange- ses and consumers, let alone writer and author, and lent his
ment where ‘Opposition’ is part of a among industries, sectors and voice to several documentaries
‘Make in BJP’ initiative to further individual companies.… and TV shows. His understand-
make any ‘real’ non-BJP oppositional Many of the steps that comp- ing of Indian culture and lang-
forces become invisible to the land at anies are taking and contemp- uages was to be admired, and
large. All I am proposing is the possi- lating are defensive in nature: he was at ease with Hindi and
bility of genuine disgruntled voices fending off newer entrants, by Urdu. The Padma Shri award in
from within the party being utilised to using data and customer rela- 2008 was a fitting accolade to his
ensure a ‘controlled opposition’. tionships to shore up their core. exemplary talent. His demise
After all, whom would you rather take As incumbents and digital na- has saddened millions and left
seriously — and squeal in delight — to tives alike seek to secure their us with a huge sense of loss.
hear criticise the Modi government: positions while building new
civil aviation minister Jayant Sinha’s ones, ecosystems are sure to ev- N J RAVI CHANDER
father? Or Congress president Sonia olve in ways that surprise us. Bengaluru
Gandhi’s son?
Letters to the editor may be addressed to
PTI

genuinely upset and angry at his own From “Competing in a World of

conscience, this should be the last straw. lot. After criticising the government’s Would Yashwantji be interested…? indrajit.hazra@timesgroup.com Sectors Without Borders” editet@timesgroup.com