IDEAS

I pitter, I patter, and click a clack,
About Gandhi and his ideas that worked without a whack.
But I’ve installed an army and a nuclear button,
With a few easy deaths over chicken and mutton.

Now this is not to refurbish savagery in my blood,
‘Cause a fellow in me stands as calm as seas under shrieky thuds.
He’s an overfilled soul and a hungry gut,
Away from his home, in an island stuck.

An island, which is his loyal platoon,
Sometimes engendered with baits that swoon:
Men over women and men over other men,
Since fellow beings are more dangerous than a lion’s den.

But he has not grown on Kindle fables,
And knows of clouds bereft of WiFi cables,
Under which he builds a castle of dreams that never fade,
Since what is life, if not ideas that weed out the good old stereotypical spades.

So he builds out a task force,
And doesn’t let a voice go hoarse,

That condemns religions under the broad daylight,
For victimising creativity by infringement of rights.

That task force are words on paper,
Terrified of intolerance and creativity’s current stature,
Not in just muddy houses and movie halls,
But in shut minds and open tabs of people all!

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Long run: We’re all dead

​Recently, ex governor of RBI, ex finance minister and ex prime minister, Dr Manmohan Singh became the butt of all jokes when the renowned economist quoted the very great, Sir John Maynard Keynes:

In the long run, we’re all dead.
But I would like to take his case forward because as an economics student, I somewhere believe the man has got a point!

Source: localpress.in

In economics, short run, medium run and long run are/can be never properly defined. A short run for a policy can be 6 months in one country and 60 years in another country.
For example, Japan after atomic attacks wanted to grow industrially by increasing production. So companies like Daikin, Toyota etc came up and despite poor agricultural endowments; they were able to spur growth. The economic theory says that when production is increased to improve growth rate then consumption levels initially are compromised of the public in the short run (due to increased investments in production) but in the long run as profits start coming; incomes increase and expenditure/consumption rises too. And medium run always means the equilibrium. So here, medium run would be investment = consumption. 

Japan adopted this policy in 1950s and here we are in 2017, and yet the short run of Japan hasn’t ended. Currently, they’re having 0% lending rates yet none are taking up loans or consuming a substantial part of their income. This downfall in expenditure/domestic demand is what’s restraining japan from competing with China, us etc. It’s not the lack of technology there but the lack of young population (who generally demand the highest goods and services) 
Most of their population is ageing.
Compare it to India where I think 65% are below 25 and hence, demand is an all time high affair. And this brings inflation, currency depreciation, fiscal deficit etc in India.
So the thing is:
1. Long run can be as long as eternity
2. Till the time long run comes, external factors begin affecting the policy’s objective. Here, that externality being age group of population. Other common ones are political scenario, central banks efficiency etc
3. Long run NEVER comes. Like I said, medium run is equilibrium and in economics, equilibrium is a mirage. We can/should aim for it but in the foresight, its good to know that we’ll never reach there. However, in pursuit of coming closer to it we can grow.. That’s it.
Since there’s no medium run, there ought to be no long run.

DEMONETISATION, HEAR ME TOO?

For a lot of years now, I’ve been believing that black money within India is necessarily present as cash only. However, the recent onslaught against the demonetisation policy pushed me to spend a few days digging for answers to every cross question put up, finger pointed and doubt raised. After all, how can the likes of Pulapre Balakrishnan, Prabhat Patnaik be so confidently wrong?!
What Modi did right?

This scheme has rightly halted the businesses of D-Company, Maoists and other terrorists who had crores of counterfeited notes. Cashless transactions, as inevitably forced down the people’s throat has found its way via PayTm and others, as they reportedly claim a 200% hike in transactions since November 8, 2016. Tax amnesty scheme and the probable, Benami land ownership are smart moves too.

What went wrong?

Historically, demonetisation has been implemented only under hyper inflationary circumstances. Using this traditional sequence of events as a point to counter the recent  policy is just the beginning of a tsunami of reasons that make this move alarmingly unrequited and political.

I believe that priorities matter. Is your concern to catch the offenders and their coffers or is it just to seize the stash of black money from their pockets? Well, for Modi & Co it’s certainly the latter. The very fact that bank employees are being “overworked” and the I-T department not, says it all.

This “overworked” is different in context from the usual one too, thereby making things worse. I’ll explain how: when banks are being put to function as centres of deposition of a defunct currency and withdrawal of the new one; pragmatically there’s no business going on within the banking sector. It has come to a giant halt.

In addition to this, the term “demonetization” in itself is very perplexing and questionable in the present times. It means to do away with a higher denomination currency. But in India, what has happened is not merely the warding off 500 and 1000 rupees notes but surprisingly, a higher denomination currency ie 2000 rupee notes, has been injected too. 

Speaking about history, right from Weimar Germany to Morarji Desai’s policy implementation demonetization has and as economists mostly point out, should only be executed in case of a presence of a very high denomination currency which is allegedly affordable only by the black marketers and hoarders of unaccounted cash. That currency can never be 86% of the total cash circulation!

In addition to this, by allowing farmers to transact with Rs 500 notes after very lately realizing that the timing of announcing the policy clashed with the sowing season, I doubt how this is going to work. It’s honestly strange! To say you’ve demonetized a currency and then to allow the major employer of your nation to transact in it is a paradigm in itself.
Moreover, perspectives matter more than facts when you try to analyse any economic policy. For me, money laundering at present will lead to financial inclusion of the unaccounted amounts of money but is this a win for the policymakers? Is this the aim with which the PM flagged off this policy? 

Rich business tycoons all over the country are dealing in black to save their prior savings and worse, get it converted into white and safely stored in bank accounts!! 

Explanation runs simple: say I’m a corporate business owner with 50 crores of black money in cash. I hire a CA who acts as an intermediary to find someone who has a bank overdraft of nearly the same amount. What happens next? The deal gets negotiated. The borrower from the bank agrees to clear his loan by paying 40 crores of cash to the bank, earns a certain commission in easing the wounds of the businessman and the CA goes home with a hefty commission too. 

The daily media reports which run the news that “6 lakh crores have been deposited in PSBs…” etc hail the policymakers but I’ve my doubts. If I’m able to park 80% of my black money in a bank by paying in black to the borrower and the CA in the process, how can the government see my deposits as their victory?!
The second story is very well known. You simply hunt for all your near and dear trustworthy ones whose bank accounts are really handy for you in the moment.

So to say that black money is being financially included through the regime ticks all the boxes right but to take this money laundering as a triumph against the battle of black money is naïveté.

To take the argument further, I don’t understand who throws the axe on one’s own poor feet? The supporters of the policy till now had one thing which could be considered a biggie to cheer about and sadly, it’s been taken away from them too. Enormous influx of cash in the banks was being taken as a sign of ease in lending rates and growth of credit market. Market stabilisation bonds were being eyed. But to make the matters worse, RBI has announced a CRR of 100% to strictly control the liquidity and thereby, possibly lead the lending rates unchanged. 
Second question that comes out of this is: why are the banks depositing the cash they’re accumulating as government securities and not increasing their loans with it? For PSBs, one can get that the lack of capital and NPAs make them unable but why aren’t the private banks stepping in?

What should’ve been done?

Instead of being so unrealistically quick in implementing the entire scheme in one go, the de facto leader should’ve launched it in steps. To begin with, real estate and gold transactions beyond a certain limit should’ve been made mandatory to be taken place online only. 14 lakh crores have been spent in printing the new “high security notes”, which’ve already been counterfeited in Chikmagloor, Bengaluru. (Counterfeiters in the business!)

RBI should’ve laid a greater impetus on market stabilisation bonds and should have speculated the falling stock market and currency in the ForEx market. Corrective measures should’ve been there in the hindsight.

This meeting of political agendas by fooling people will compromise the growth rate significantly and the nation will sadly still laugh at one of the major economic reformist of the nation: Dr Manmohan Singh. 

A policy which has already failed in India twice has been introduced to test the waters and glorify the “third time lucky” phrase.

Conclusively, I just cannot digest that such a macro move has been taken with so many miscalculations.