Is RBI handling inflation correctly?: Part 1

Nowhere in the recent economic history of India, has an issue that is so well debated and polarized as the inflation/ overheating debate going on India circles. Now, the question has changed slightly from "is India overheating" to whether Indian central bank (RBI) is correctly handling the overheating. Inflation has spiked from around 4% to over 6% now and RBI has recently gone through a round of interest rate hikes that pushed the interest rates from around 7% last year to over 13% now. Simultaneously, it has hiked the reserve rates (that will prevent banks from giving more loans) and allowed the rupee to appreciate against the dollar. As the stakes in Indian economy are growing bigger and bigger, different parties are taking sides on what are the implications of the policy. The market has voted with its foot by crashing the Sensex (it has recovered partly though as i write this) and analysts have smashed the policies. I myself have written a couple of articles arguing against the RBI's policy. Here, I'm giving the other side of the picture. So, what is happening and what will be the implications on various parties concerned - Indian poor, middle class, corporates, exporters, government, foreign investors?

Great Indian Growth:
First, what is happening? India is on a big boom cycle since 2003 and a lot of people have come to begun that the time has come for India to get to the center stage and rightly so. The growth rates have gone up over 9% from a dormant 6% rates 3 years ago, and the efforts of reforms during the previous regime is finally paying off. The fundamentals look good - a nation with atleast 250 million people with reasonable spending power, a vast network of well bred universities (atleast 25 of the institutions are now in the elite category, including the IITs, IIMs, AIIMS & IISc), a great history, center of major trading routes in Asia, and a vast network of expatriates providing free diplomacy and act as conduits for knowledge and economic exchange. India is simply in the best possible position for development, so far, and here is the link for India's scorching growth prediction.

Oh no... not so soon. However, too many things happened and the growth was simply too fast for the system to handle and the overheating signs have been showing its ugly teeth now. 6% core inflation shows nothing and honestly, I believe the RBI doesnt care as much about that. What is dangerous is a precarious position in asset markets. Indian infrastructure and housing development, along with even good corporate stocks, couldnt withstand a sudden barrage of this huge money flood. House prices in Indian major cities have gone up by over 300% in 3 years, stock index appreciated over 300% in the mean time, real-estate and commercial property have gone up by over 5 times in a few places, and all these dwarf the 6% core inflation rate that is mainly showing global inflation in commodity prices. And all these were fed with cheap credit, and loan growth is at a dangerously high 30%/year. The condition is really risky now.

Indications of overheating:
Housing: Rocketing house prices where people are willing to pay $200,000 for some second-grade apartments in not-so-good localities when the country's per-capita income is just around $1000/year is definitely a scary sign. To put things in perspective, in Seattle (the home of Boeing, Starbucks, Amazon and Microsoft) good apartments in nice localities can be got for $400,000 when the median household income is over $100,000, and people fear overheating here! So, the hard-earning middle class is priced out, while a lot of people have dangerously accumulated huge amount of loans to buy white elephants. In the last 1-2 years RBI has issued a lot warning regarding this situation, and asked banks to cool down housing loans, but banks have not turned their ear to it.

Real Estate: Its not just the houses that are too expensive. Commercial property is an unexpected peak where shady locations in Bombay and Delhi seek prices that would shame even Manhattan. This has affected expansion plans for many hotels (nation of India has less hotel rooms than the city of New York), many companies are holding their plans to open offices in Mumbai and Bangalore, and even retailers are affected by this skyrocketing prices. At some point the cost of doing business will cross a tipping point, and India will no longer be a favourite service/production outsourcing even with low wages, if we dont address this real-estate quandary.

Stocks: And the stock markets have been affected by this irrational exuberance. While the fundamentals are definitely good, the prices (in terms of P/E ratios) are really high for an emerging country, enough to price out many serious investors. And a lot of investment is in the hot-money section (foreign institutional investors and domestic buyers trading on margin) that could vaporize at a degree above room temperature. While, a good stock appreciation encourages the corporations to expand more, over-appreciation and over-hype could cloud us on crucial things like efficiency and cost-management, and over-paying on unworthy assets like what the Japanese did in 1980s. It is time for some correction to more moderate levels (probably around the 10-11K region in the Sensex).

Savings: For an Asian country, India's saving rate is not impressive. While, the Europeans and Americans have social security and good nets (comparatively) and the Asians have good domestic savings, Indians have neither. India is on a complete blow-out cycle, learning to spend from the Americans, before even they have learnt to earn from them. Personal credit growth is rocketing, and unlike their previous generation, people are not afraid to go on big loans for flat-screen TVs and unaffordable houses. Automobiles are overcrowding before the roads are even built and Indian researchers are worrying more about obesity and cholestrol than hunger and poverty! Indian domestic consumption as visible from rocketing non-oil imports have also caused the current account deficits to zoom (imports much greater than exports) inspite of a healthy growth in export industries like IT, Auto, Pharma and Chemicals. Indians are currently just over-consuming and a developing country cannot afford to have deficits for long.

Thus, the current overheating, if left unchecked, could rock the Indian boat and the Japan's painful experience from over-exuberance in 80's and America's experience in 90's should not be forgotten. Brimming prices of Housing, stocks, commercial properties and runaway loan growth has already given enough indications that the supply-side pressures from agricultural commodities, oil and metals are just an excuse for the inflationary pressure. RBI has got nothing to do with these latter things, and the solutions are pretty simple and are with the government: Liberalize sectors like power, mining and agriculture and you would see the same benefits. But, we are not arguing about these core principles for now, and RBI with its monetary stick is tackling the runaway overheating than core-inflation with interest rate hikes. Commodity inflation is just a pretext for RBI to pull the government to take action (governments are the biggest beneficiaries of inflation and low interest rates, as they are usually the biggest borrowers). If RBI is even half as intelligent as I would assume them to be, they would know that monetary policies cannot control commodity inflation (no one is going to stop eating food because you increase interest rate by 0.5%) and so it should not be a secret that the recent measures are more against over-heating fears than CPI per se, what many analysts assume it to be.

In the next part let us see, how the current measure are enacted and in the third part how it will individually affect the various players in the game (including us).

(This article has been included as an Op-Ed in Asian Development Bank's E-Newsline)

Mr. Smith goes to Washington

Whenever I think a movie was the movie I've ever seen, there is something sooner or later, something even better comes and surprises me with ingenious film-making. Life is Beautiful, Schindler's List, Saving Private Ryan, Shwashank Redemption, It's a Wonderful Life... the list keeps growing. Now, here comes a movie that I believe one of the best ever I've seen. I know a lot of people might not share the same passion as me for this, as it is about democracy and America, still not as much appreciated by many people. But, Frank Capra and James Stewart will not make anything less than an extraordinary movie. And Jean Arthur caps it like a cream of the cake. And, Harry Carey who acts as the President of the Senate brings a highly respected and esteemed impression for his character, though he is not properly credited for this.

The film is about how a young, simple minded Midwesterner from Jackson city, Mississippi is selected for the American senate to be a honorable stooge of a corrupted businessman to replace a recently passed-away senator and how he fights the very own corrupt machinery that had engulfed the principles and ideals of America. The young man (our great James Stewart of "It's a Wonderful Life") loves and believes every patriotic ideal and adores his fellow senior senator and all gungho for this great job of law-making for this world's greatest democracy. When he first sets foot on Washington he loses his mind just watching the Capitol dome and loses time in the great memorials of Washington and Lincoln. His innocent mannerisms and plain patriotism is initially ridicule and mocked at by all those whos-who of Washington and even his secretary Clarrisa (the lovely Jean Arthur) is initially annoyed at baby-sitting this "cocky" new Senator.

The senator has visions of building a great boy's camp in his own state to teach and grow up boys with American ideals, but little does he understand that his bill to create this national camp is on the same land where the corrupt Mr. Taylor works up the nation to build a dam for his own interests. When the interests collide, Taylor tries to break up our man with allegations and when our hero has almost lost, he rises up extraordinarily using the Senate provisions (that allow for filibustering) and makes up his case. You have got to watch this, as I don't do justice for this great act, by explaining all this in a sentence.

We have all seen such stories where a lone man fights for a lost cause among the villains backed by politicians, their stooges and businessman with deep-pocketed connections in the press and other public media. But, this movie is extraordinary and puts America both in a positive light and also points out to its deficiencies. It points out to the concern of how the different estates of public sphere - lawmaking, business enterprises, media and the executive machinery have to be independent and impartial. It reminds people of their responsibilities of this democracy in selecting their representatives and keeping track of the various estates of the society. If people are not going to pay much attention to politics then the corrupt elements will, and instead of representing the will and ideas of the people, the government shall represent the vested interests of the few. Then politics and Presidentship will not be decided in the fields, factories and offices of the common man but at the expensive cocktails, conventions and conferences in New York, Chicago and Los Angels. What is said in 1939 is even more true today, when America is more and more becoming plutocracy far away from the dreams of its creation in 1776.

And it reminds the people of the great dream of its forefathers - the visions of Jefferson and Franklin in the declaration of independence, the Philadelphia bell and Statue of liberty standing to represent the freedom and liberty to all men and women, the words of Lincoln that urges us in protecting the sovereignty and maintaining democracy and the Washington memorials that stands tall to represent the ingenious ideas of this young nation. The singing of star spangled banner (the national anthem of US) during the senator's election and dramatic portrayal of various symbols of American entity is simply wonderful in this movie.

I hold a lot of personal emotions for this movie in that it points to what we have lost in politics. I always get emotional when I visit the great memorials of the Washington, the great Washington's pillar, the majestic statue of Lincoln, the great World war memorial and most importantly the capital dome viewed from the Union station just out of Amtrak, from the air taking off from Reagan airport, and from every road leading to it. It is the place where laws are made that governs the working or atleast affect it for most parts of the world. Seldom do people understand how important an institution it is, how much they really care to affect it.

We, the common people, have shrugged from our responsibility towards politics and treat it like a nasty art little realising that it is the thing that moves and works us. What is true for America holds true for most other democracies including Britain and India. Back home in India, we have left politics to rot. The great halls of Rashtrapati Bhavan where doyens like Sarvappalli Radhakrishnan and Abdul Kalam have grazed their presence, is just a ceremonial entity that overlooks a chaotic Sansad Bhavan where goons and criminals represent us and enact laws for us. More than the Americans, we have shrugged our responsibilities to elect responsible representatives for the nation and then just bitch about the poor state of the nation.

I wish movies like these come in India and other democratic nations, and more people get into the working of the beautiful web of democracy.

Should people be restricted in online media?

Fire in the stove cooks while fire in the roof kills

Should there be regulations to maintain a proper interaction in the web or should the statusquo be maintained? How many of us realize that they could be prosecuted if they write illegal content on a blog or even on an Orkut community or even an "anonymous" Wikipedia entry? If you are a girl and someone puts slanderous content with nude/objectionable pics in an online media, and totally screws up your life should the person doing intentionally or as a prank be let scot-free? If you are a lawmaker and you are seeing terrorists use online forums to recruit and commit crimes against your innocent people what should you do? As terrorists and gullible teenagers utilize the Internet for a lot of criminal activities how should the conventional society respond? Finally, has Internet made the world a better place?

This is one of the question that I was asking myself for a while and I had couple of posts in draft that were later discarded. Let me put more thoughts into this. Our conventional society has done a lot of adhoc things to stop this Internet menace but things are not enough. they either restrict too many things or lets too many things.

Consider the conventional society:
There is a minimum age for driving & drinking, there are processes for obtaining licence and only those who are qualified can drive, for getting a gun you need to be qualified, you can drive only in left/right depending on the country you are driving in, if you insult someone publicly in writing or speech you could be prosecuted for libel or slander, if you kill someone you are jailed or put to death....

When we don't have problems with conventional society having so many rules and regulations that help us mostly though gives some minor nuisance, and is a must for orderliness in the society. How much of those controls exist in the highly powerful online mediums? This is particularly important as young kids write blogs, go to social networking sites and do all sort of activities without even realising the rules of conventional society and a lot of people get burnt. They don't realize that if you create a malicious profile in social networking sites like Orkut intentionally slenderizing people, you could be prosecuted in various jurisdictions including India, China, Brazil and US. This is like giving fully loaded Machine guns to kids and punishing them when they accidentally hit the trigger. The fault lies in the society that had allowed the kids to have accessed the tool in the first place.

Internet like any powerful tool of nature has to be put in place and accessed properly to get real benefits out of it. Fire in the stove cooks while fire in the roof kills. But, I'm appalled to the lack of much regulations and education regarding preventing its misuse. No doubt, the revolution occurred too quickly for lawmakers to take decisive action. A similar process occurred in the world a hundred years ago, when automobile was invented and every tom-dick-and-harry started driving. The result was disastrous and nations quickly responded by issuing driving licences. We need similar things for the online media, lest it gets totally out of control.

Reputed service providers like Google, Yahoo and Microsoft have to take first steps and steer the direction for the community and the public should maintain a list of sites that voluntarily implements the steps and block the access to the rest from the corporate domain, parental control list etc. I use the term Internet account to mean the combo package offered by Google, Yahoo, etc that lets a range of services including email, chat, photo sharing, blogging, social networking, etc.

Some of the essential standards are:
1. Provide options for special Internet accounts with proper identification: Currently anybody (including Osama Bin Laden) could open email/blog/social networking account. This has to be slowly moved to a situation where only real persons with provable records and identification should be able to open accounts. In other words, if you need to obtain a Google account (for Blogger, Orkut...) or equivalent Yahoo and Passport accounts, you should be able to produce atleast one identification from the conventional society: Drivers licence, Credit card number, Passport number etc. This is one of the first steps in controlling spam and malicious mails, apart from reducing a lot of different spoofing and other crimes on the net. Though, it is not a cure-all medicine, it will make a lot of people think twice before they could do all those stupid blunders under the guise of anonymity.

2. Ensure licensing in accounts: Schools must start an internet education program and only those have passed them should be allowed to create internet entities including email & blogging. There must be such education and test programs across the society and the individuals wanting to access the specific tools must be able to pass a small exam that makes them liable to their crime. So, if you are kid sending a death threat by email to the President, or insult a person in a blog or create a malicious Orkut account or vandalize a Wikipedia entry you know its consequences. It might even be as bad as killing someone with a jigsaw. If we can suitable have drivers licence program for hundreds of millions of drivers across the world, I don't think why it will be more hard to create education and testing program for hundreds of millions of Internet users in the world.

There are few other steps that could be done for a better internet world, but these alone could make a good start and enable to contain the current anarchy. Initially enforcing them would be hard, but schools & governments should work with internet tool providers like Google and Yahoo to create such standards and punish those companies that don't follow the standards. A lot of governments are very concerned with Internet security and thus, most of the world will agree to those standards and only companies adhering to those standards will be permitted in a lot of school & office campuses. Eventually other companies will start implementing the standards and once most of the major providers of email, news, social networking & blogging join the common standards platform, ISPs could be pressurized to blockade everyone else, and eventually from our ISPs we will get only those websites & content that have proper legal standings. And things like Verisign standards can be extended for many other websites too. And after a while, such international conventions can be agreed upon and all these Internet content will come under the purview of the international law, instead of the current fragmented jurisdictions. And those countries and networks that don't agree can be permanently blockaded from the Internet.

The goal is to bring every Internet user, website or an Internet entity under laws and procedures of the conventional society. Like, how the world agreed upon that killing without a cause is a crime internationally, internet laws should be international standards and it will end the anarchy in the Internet world and pave the world for a better future.

Should government subsidize Oil?

This question has been puzzling me and the answer to the question "Should Indian govt. control the petrol/diesel prices" produces an answer even baffling to me. I'm a free market supporter and in general against government intervention, but I feel Indian govt is not too wrong in controling the oil prices at the moment. At the same time, I also feel we in the US are enjoying a much cheaper petrol and the government here must raise the prices by increased taxes. I'll explain my contradictory position in this article.

Background:
In India, oil prices are not directly determined by the world prices, but controlled by the government in a process called APM (Administered Price Mechanism). What this means is that periodically, based on the international prices, government would set a prices for Petrol (Gasoline), Diesel (used by trucks), Kerosene (used by poor for cooking & lighting) and LPG (used for cooking by middle class) and all the oil market companies have to fix to that price. The price is set in a way that oil companies make profits on Gasoline, break even on Diesel and losses on Kerosene & LPG, and in return get compensated by government bonds.

In an effort to curtail inflation (and score political points ahead of forthcoming elections), the government has reduced the oil prices though the oil companies are still making losses out of subsidies on Kerosen & Diesel. A lot of columnists have blasted the government, and for once I'm not going to attack the government.

In India, currently after the reduction the price for petrol (gasoline) is around Rs.50/liter ($4.18/gallon) compared to US prices of around $2.3/gallon, while Diesel costs around Rs.32/liter ($2.55/gallon) almost the same price as in the US. And India has better refineries and slightly hence lesser cost of fuel production and distribution. Thus, its not correct to say that Indian government subsidizes oil. In effect, what Indian govt does is to tax the fuel heavily and then make profits at all levels mostly going to state & provincial governments.

So, gasoline in India is not cheaper than most countries and this makes sense as India should curtail the use of more cars till the necessary infrastructure comes up, and even then it is better not to go the American way of automobilzation. High gasoline price makes sense, but very high prices can affect sectors like tourism etc. and so I believe that current prices for petrol are neither too high nor too low. And the pricing of Diesel at lower rate makes sense, because Diesel is much more efficient (40% more power compared to Petrol) and it emits just 69% as much greenhouse gases as petrol for every kilometer of ride. Thus, by encouraging the Diesel usage government is pushing more people out of the more inefficient and nasty petrol towards a shade better Diesel. Moreover, Diesel is used by trucks transporting essential items and public transportation (Trains & Buses), apart from small captive power plants. Thus, Diesel subsidization encourages a more healthier practice of relying on public transportation rather than Automobilzation a trap that America got into. Now, US is considering more sops for Diesel based cars. And, since diesel is used in core sectors, a lower price will curtail inflation in a lot of sectors.

Now, coming to the sacred cow of Kerosene & LPG the main cooking and lighting source for the poor and middle class respectively. India has a ultra low price for Kerosene almost half the cost of production and this alone leads to a loss of over $2b/year and a similiar amount in LPG. I believe that LPG prices have to be gradually increased so that it breaks even, while some efforts must be made to modify Kerosene distribution. $2b is not a big deal for trillion dollar economy and the Indian government can effectively carry on protecting the poor for a longer time from the vissicitudes of global economy. The poor spend considerable portion of their earnings on energy, food & transportation and all these are directly affected by the fuel costs, and the resulting unrest can put the economy down by tens of billions of dollars, and hence Kerosene subsidies make sense. But, distribution mechanisms must be modified so that it reaches the appropriate persons and to protect the blackmarket sale and adulteration into petrol and other fuels. This paper has proposed good methods for this problem.

http://www.iimahd.ernet.in/publications/data/2006-07-06smorris.pdf

Global oil prices are erratic and you cannot have mechanisms that directly reflect the global prices in a developing economy. Oil prices swing from $10 to $80 in 5 years before coming to $50 in a few months, and this could totally collapse a fledgling economy like India, if the government doesn't interefere and smoothen things out. If you calculate all the taxes that various governing bodies in India make out of oil, it could easily compensate for the various subsidies - notably in Kerosene & LPG. And, even if you have to spend a couple of billion dollars more, its worth it to keep running an economy that adds $100billion to GDP every year. And to compensate the oil majors for the loss, the government has to provide sops, though in the long run I would prefer a more simple system, where the government reduces taxes on these oil products and also take away some of the sops from the companies. The non-m0netary sops including governmental intervention and support for acquiring global oil assets and exploration of alternative fuels and efficient systems should be pursued more.

In the end, I believe that India's currently policy of keeping a higher price for gasoline and a moderate price for diesel makes sense and should be continued. While the oil companies face losses due to this, they could easily be compensated with the government bonds, which inturn can be paid from the taxes the government earns on these fuels. And LPG prices in the long run should get in par with the global market, while Kerosene subsidies should continue but mechanisms must be reformed to ensure appropriate distribution.

Regarding the situation in US, I recommend higher prices and here is a slightly older post, but still relevant to the current issue.

India's Growth Model: China or America?

In the previous post, we discussed about whether India and China were ever equal. Now we will go further and discuss the right model for comparison: United States of America.

As the analysts are finding the last couple of years, India and United States are much more common than what most people think (did I just say that the world's poorest & richest country have some commonality). Superficially, India's english, democratic tradition & British colonial legacy are visible. But, we have just got started. There are much more deeper. We will randomly see them and then put them in place.

1. Hollywood Vs. Bollywood - You must be thinking that I'm just kidding, as movies are not a factor for world economy. It is. At one point, not long ago, Russia overtook US as a super power and Japan overtook US as an economic power. But, how many kids dreamed of Russia & Japan, tried to imitate their culture, flock to their universities or even learn traces of Russian & Japanese? But they did all that to US, because of a very powerful influence - Hollywood. It shaped the world cinema, and gave a way for imagination and thought. In all that imagination and dream world, only America was there and its perspective on the rest of the world. Interestingly, whereever they lived most kids saw world from the prism of United States. Thus, US got the best of world relationships, best of students & scientists & entrepreneurs and easily outsmarted its competitors. I'm not saying that Hollywood was solely responsible for America's growth, but without hollywood, a lot of American succcesses would have never happened. For a long time, US benefited from the export of Hollywoodism, McDonaldism & CocaColaism. Culture shapes billions of bucks and US companies & brands (from Ford, GE to Pepsi, Coca-Cola to Microsoft) became a marque for the world.

Coming to India: India's long lasting legacy in Asia it is its export of culture. Everwhere from Thailand, Malaysia to China, Japan, Middle East, coastal Africa... you could see great influence of indian culture. Thus, even without magnificent war & army India had conquered a huge territory, just by being a powerful holder of cultural exports. People from Columbus, Vasco Da Gama to English sailors to Chinese buddists flocked to India and dreamed on a trade with India. In a way, it is similiar to American export of culture, only a good form of culture :). And as Bollywood emerges, people from as far as Africa to East Asia will see world from an Indian prism and will bring both development and international relationships with that, and Indian companies will get the visibility and brand promotion it requires. Probably we might even convince Pakistan and China to have better friendhship with India.

This is also extendible to other media. Washington Post, Time magazine & CNN has so much effect on world media. Now India has many of the strengths and can take a part of the strength just how US took from UK (with BBC, Times etc.).

2. Enthusiasm & Entrepreneurism: If a Rip Van Winkle from 19th century America suddenly woke up in current India, he could find the comfort of home in it. 19th Century America didnt have infrastructure, had shabby roads and dusty towns, quarelling federal government, but its people had an unique power: An optimism for the future, a sense of pride and vision & an overbearing urge to succeed. They quickly moved from the heterogeneous group of colonies to bring powerful economic houses that dreamed of growing big and conquering the world. This fiery capitalism and energetic entrepreneuship is what we see in India - from slums to high raises. We are poor in infrastructure and shabby in our cities, and our heterogeneous is quarallesome, but our energetic young men & women are going to overcome all of that with the same sense of purpose our godfathers (19th century Americans) had.

3. Stress on Unity in Diversity: America has a great power, it quickly assimilates its immigrants much faster than any other country. The irish, jews, Italians, Germans who came during the last 100 years are now fully integrated as Americans. Though, there is great diversity in terms of immigrants (we have huge African-Americans, Hispanic-Americans, Asian-Americans and of course European Americans) representing every continent in the world. But, they all are almost united on a concept: American (albeit diversity and fractionsim are growing).
Historically, only one other country had such a track record: India. It had such a power that whoever came to the land became Indians (or Hindus). We definitely have an exceptions like Islamics who will never be assimiliated anywhere. The Greeks, Afgans, Aryans, East Asians, Mongols, Arabs are all fully assimilated and the art & culture as an example for it. Thus, it has such a diversity (in language, religion, art forms) but a soft thread runs among all, conscious or sub-conscious. A sense of Indianism. A lot of Indians will oppose when I say it, till they feel their subconscious emotion of it at different times.

India and China: Were they ever equal?

The predominant comparison discussed everywhere in the world of economics and politics is India & China. People bring all sort of things to table how these are similiar and how India is the lame dog compared to Chinese tiger, etc. They also point out that India and China grew from similiar position. This blog has two threads: Were Indian and China from equal backgrounds and whether China is a model for India.

First, irrespective of what a lot of people think, India and China didnt start equals 30 years ago.
China was protected by Pacific Ocean to the east, Siberia to the north, Tibet to the south and Central Asia to the west and had no trouble of invaders except mongols. India was instead invaded by everyone from Greeks, Afgans, Persians, Huns to Arabs & Europeans. While China never was a full-fledged colony of anybody, India had 8 centuries of occupation when it entered 20th century. While China became a permanent member of UN security council and a recognized nuclear power, India was a pariah of World's elite clubs 30 years ago.

China was also a leader in manufacturing and innovation since eternity and was way ahead of India in the ancient history, from producing silk & tea to umberalla, gas pipes, etc. Indians were leaders in finance, religion, trade, arts (dance, painting, architecture, literature), Mathematics, etc. A perfect service sector. The comparative differences in the religion from a materialistic & pragmatic Chinese Confusianism to abstract & colorful Hinduism, are also point of interest here.

Chinese leadership also approached more pragmatically (however worse they were, they focused on fundamentals) and built its agricultural sector, rural health, roadways as major priorities even at an early age, while India is yet to reform the fundamentals even now. Dictatorship also helped them to get around with their reforms.

Thus, China and India were never similiar anypoint in their 5000 year history. Now to the second question: Is China a Model for India?

As they were never similiar and have different strengths & potentials simple comparisons dont do any justice. Just because India doesnt have a few things compared to China, doesnt make it worse. After all, just because the Tiger doesnt have fins, doesnt make it inferior compared to Fish. While it is definitely advantageous to learn from successful neighbors it is also better to keep originality as the tiger can and need never become a fish. The problem is especially found in investors, who just blindly compare return ratios (P/E) for India and Chinese stock exchanges and just say that China is more attractive. They just dont realize that Chinese exchange is heavily weighed by banking stocks, in which China doesnt have healthy position, and manufacturing that cannot have a higher P/E compared to India's Telecom & IT stocks. Just an example to show, how blind the comparisons are.

The next article focuses on a better model and comparison for India: America !!!

Also See: http://balajiviswanathan.blogspot.com/2006/02/india-and-china-different-viewpoint.html

Rang de Basanti in Action

For those of you who thought that the events in Rang de Basanti are impossible, think again. There was a peaceful procession of medical students in New Delhi and the Delhi police used lathi charge and teargas and violence to ward them off. The protestors were for a cause and their methods were peaceful. Like RDB, the villian is a cabinet minister. And the police were indiscriminate. Time is soon running out and at some point we have to fight the locusts who have managed to control India for the last 60 years. But, we should do much more intelligent work than the innocent youth of RDB. We are not having a single enemy. The thing that stands before us is a heinous system of reservation that has brainwashed people enough that most people just fight on its implementation and forget its unjust concept. The system of quota is against the spirit of Indian Constitituion's Article 15 (equality and non-discrimination based on birth) and is also against the spirits of democracy worldwide (US and European courts have illegalized quota systems)

References:
Students protesting story

Tank Man

One of the most incredible personalities in the recent history is this tank man of China. During the Tianenmen square protests, where Chinese students wanted democracy and gathered at the historic tianenmen square, in Beijing, they witnessed such a blood and horror that charecterized our era. The Chinese government used tanks and heavy armoury to break the protest of innocent, weaponless students. But, one man chose to defy them. He stood valiantly against all the tanks and its stunning to look at that picture and the video, where a human 'warrior' stands brave against dozen armoured tanks. See this video.

If someone needs courage, then you need to see this. I'm always impressed with such people who can terrorize 'fear'. They are real humans, who stand courageous for a just cause. Unfortunately, we have become a society of dumb people, who are willing to compromize values, who are willing to be voiceless before injustice, who are villing to be cowards before fear and who become the main source of the evilness of the society.

"Evil can proceed only when the good become silent"

Protectionism in Europe

After a long time, I'm writing an article that doesnt directly concern India. The reservation (a combination of Affirmative Action and Racialism) issue in India has taken so much of my time that I could not concentrate on any other story. I wanted to write about the French job contracts in keeping up with the worldwide viewership of this blog, but I could not put up the articles although I wrote up an article in Wikinews.

For those of you who didnt follow the youth riots in France, earlier this month, let me explain in brief. There was a labor law reform in France that would allow employers to hire and fire freely young employees, under the age of 26, for the first two years of trial period, which is felt as a ncessary reform for modern companies to work. But, riots erupted so much that the deal was throw out and the main architect of the deal - de Villepin's (French PM) political career is doomed.

Unemployment among youth is extremely high and this not only generates riots, but also worsens the impact of already ageing country. If more than 25% of youth are unemployed and the average population is well past middle age, France is in deep trouble.

In this context, comes the CPE (First Job Contract) which would allow employers to fire their workers in the first two years of trial period, if they are under 26. The things surprizing for me is why only till 26 and why only 2 years of trial period. While, the rest of the world has come to terms with jobs where there is no guarantee that anyone will be retained for any length of time, I find even the CPE is a bit unrealisitc and not-enough reform. But, the French people surprize by having an enormous extent of riots and strikes that de Villepin (French PM) was forced to take back his policy. This is a crucial event that might dictate the future of this country.

First, France is not going to get any modern industry, without basic protections for the employers. How do you expect Yahoo or Google to give an employment for life, when they cant predict what will be their future in the next 5 years? Already, the French are ageing and so the modern companies dont find much market to sell and have little choice of workers. Thus, all the wealth generating modern companies will go to emerging markets with lighter labor laws, and French will be saddled with old-age companies.

Second, the defeat of de Villepin (who has been victimized for this policy and could lose his Presidential ambition) will dissuade the French politicians from talking reality to their subjects. They would be forced to tell the people, what they want to hear - a modern welfare economy, and this could spell disaster for the country.

Third, riots will worsen. The French people were rewarded for their unjust riots. Now, they will get the feeling that they can stop the govt. by indiscriminately goin on riots. As France starts to go down with a sagging economy the riots among both citizens and immigrants would rise and will bring France economy to a halt.

The problems are not just isolated to France. They are present in similiar or different forms in the rest of the Europe, where left wing socialists join hands with right wing nationalists to stop the countries from accepting reality and join the modern economy. During 1998-99 German govt. was forced to stop hiring more of Indian computer engineers, which significantly affected the growth of German s/w companies compared to their American counterparts. Last year, they(French and Dutch) stopped the common Euro constitution, which would allow the tiny continent of Europe to unite, as it gets impossible for them to make their voice heard in this world of giants.

France, like the rest of the Europe, is surging with opposing currents of leftists and rightist wing nationalists both of whom have marginalized the logical politicians. While the leftists try to promote more of isolationism and protectionism, in the name of labor rights, the rightists believe that France has a special place in the world and promote racialism and harsh treatment of immigrants. While we could understand the problem posed by indiscriminate entry of immigrants in the form of refugees and low-paid workers to add with the problem of poorly skilled second-generation kids of immigrants, we have to Agree that France has done preciously little to solve the actual problems.

France, along with the rest of Europe and to some extent Japan, is unable to come to terms with the modern economy and globalization. They are unable to understand the mammoth changes visible on the horizon, with India, China and to some extent Brazil and Russia rising as massive economies. They still dont realize that their wealth was mainly earned with the majority of the world was sleeping and chained in imperialism where they got cheap resources and labor supplies and got markets without much competition. Otherwise, a relatively small country tucked in Europe, without much of mineral resources and historical heritage, compared to many Asian countries (like India and China) couldnt have become a great economy. They had progressive policies, when rest of the world were riddled with the chaos of monarchy, clanism and communism.

Now, the rest of the world has started to wake up. Countries like India and China demand their fair share of world resources and wealth. Thus, France has to come up with reality. They cant expect their yesterdays to be same as tomorrow. They built up an overly welfare state on top of wealth, which wouldnt have come had they not interacted with the rest of the world. Now, there is no choice for them. They cant afford to close their economy. Their companies cant afford to be big by having only tiny markets of few million people, while giant Indian, Chinese and American companies drive them out from the rest of the world. At some point they have to realize that the only way Europe can prosper is by competiting with the rest of the world and thus there is no way they can avoid globalization and tuck themselves into the cozy blanket of protectionism.

Let us hope that they will realize Reality, before it gets too late.

Rang De Basanti

Today, I saw the movie Rang de Basanti, a story about how 5 happy-go-lucky Indian youth get transformed into fiery revolutionaries and finally give up their live for a cause.

It left a deep emotional scar on me. It brings back the question that I keep asking me often.

What does freedom mean for a nation, where a girl gets raped every 4 seconds, a child is forced in slavery in work and taken away from education, where a person gets traped in bonded labor and a person is discriminated by untouchability and poverty? What does prosperity mean for those people who doesnt even have access to basic necessities food, clothing & shelter and where thousands die of hunger and malnutrition and totally avoidable diseases everyday? What does development mean for a nation where hundreds of millions earn less than $1/day and 400 million people can't even read or write any language? What does equality mean for those people, who cant draw water from the well, due to their lowly birth? What does opportunities mean for those people who dont even send their kids for primary education?

How do we attain Azadi for the nation of India?

Whom are we going to get our freedom from? Is it going to be from the foreign powers that imperialize(d) us? Is it goin to be from those worst criminals who rule us under the guise of politicians and make laws for us? Is it goin to be from the totally corrupt beurocrats whose misplanning kills our nation everyday? Is it goin to be from those law enforcement persons who commit as much crimes as those, from whom they are supposed to protect us? Is it goin to be from the govt. officials who badly enforce all of the governmental measures? Is it goin to be from the caste and religious leaders who seek to whip up the emotions of the people and gain sadistic pleasure? Is it goin to be from those poor-quality teacher, killer doctors who do false operations, deadly engineers who design those collapsing bridges .....

We have thousands of people from which we need to get freedom from, and this we use as an excuse for our inaction. We hide behind the walls of coverdice, by blaming everyone around us. We hide behind our silence that veils our impotence. If there is something that we need to get freedom from, It is WE whose coverdice and impotence sustains the despots. It is our silence that grows the clutches of violence. IT is our inaction that puts our nation in peril. If we watch a crime happen before us, and dont stand up to it, we are as much part of the crime. In this way, every one of us are CRIMINALS.

We need to change ourselves. We need to wash our sins of inactivity and corruption. We need to feel guilty of every minute we waste, as we lose a chance to save someone from violence. We need to feel guilty of every resource we waste, as that could have been used to save hunger and death. When there are people who commit suicide for Rs.10000 ($200) of their agricultural loans, unable to raise their family due to drought and famine, we need to know the preciousness of what we have. It is our success and prosperity that we are goin to work on and channelize them for the growth of everyone of us, not by the stupidity of communism, but by market prosperity and entrepreneurship skills.

We need IAS officers, professors, engineers, scientists, lawyers and social thinkers who can set our economy and society on a roll. We'll solve the problems of society by our collective will and potential. If every educated youth, taught an illiterate to read and write a basic script in a year, within 5 years, we can wipe out the whole problem of ILLITERACY. If each one of us could just share our success to a rural kid and motivate him/her and provide them basic information, we could wipe out the whole problem rural in-development. And We need the revolutionaries whose thoughts can set the society on fire and whose ideas can inspire whole fields of thought.

Everything is in the realm of us, but still we find it comfortable to be stupid, loser, cowards who grumbles against everybody else. It is WE who are going to change....

INQUILAB ZINDABAD

India and China - A different viewpoint

For the world economists, the biggest question before them is "Can India match China" and there are arguments and counter-arguments put forth for each of the sides. Both nations have lots of similarities, yet they are strikingly different. Thus, the comparison is very interesting and presents two entirely different spectrum of choices.

India and China developed parallely and their histories trace to the early bronze age civilizations. Since, then both nations had cultures, civilizations and philosophies spawning from them. Interestingly, though these two countries were neighbours, there were very little cultural exchange between them. The biggest reason for that being the Himalayas. China was guarded on all sides by hostile terrain. Mammoth Pacific ocean to the east, daunting central asia to the west, roof of the world to the south and freezing Siberia in the north cradled a civilization and thus is responsible for a very different Chinese culture.

India on the other hand was a land being continuously invaded by raiders from west. Its ancient Indus valley civilization was probably replaced by the Central Asian Aryans and countries like Greece, Iran had lots of cultural interchanges with it and was followed by 800 year Muslim occupation and 300 year European colonization. Thus, while China developed in isolation, India developed in variety. This is probably the reason why, China wants to be One China, whereas India wants to have Unity in Diversity. Probably, this is one of the reasons why Communist dictatorship still survives in China while India clings on to a noisy, but stable democracy.

From ancient times, Indians were predominantly interested in abstract thoughts, while Chinese were focused on concrete, worldly thoughts. India led the world in Mathematics, Fine Arts, Religion and Philosophy, while China invented everything from umbrella to seismograph. While China built the imposing Great Wall of China, Indians were more interested in building artistic rock temples and majestic cave paintings. All the Chinese temples, Palaces and other religious centers appear to be constructed with the same typical architecture, while no two Indian building appears the same. India has atleast a dozen different prominent architectural elements inherited from Kushanas, Mauryas, Cholas, Orissa rulers, Hoyasalas etc. While the Chinese religions of Confusiansim and Taoism spoke mostly of worldly principles, India's religions like Hinduism, Buddism and Jainism focused on mystic aspects and abstract and loft philosophy. Chinese imported a lot of Indian religious concepts, like Buddism and learnt Karathe from the Indian found- Shoalin school of martial artis. While Chinese were busy manufacturing, Indians were busy thinking. Thus, China leads the today's world in Manufacturing, while India is good at services.

The strengths of these two nations are different. China is good in Unity. India is good in diversity. China could single-handedly build enormous number of bridges, roadways, and airports, while India lags behind a lot in infrastructure. However, India's soft elements are good, with a fine banking structure, respect for property rights and most importantly a stable democracy.