C Rajagopalachari wondered whether nationalisation was possible under the Constitution!

It has been fifty years since the bank nationalization took place in July 1969, the following articles are discuses about the major reasons and impacts on the economy and financial systems in the country:

50 Years Of Bank Nationalisation: The Banks That Were

The 1969 bank nationalization did India more harm than good

45 years after its dissolution, here's what opposition parties must learn from Swatantra Party founded by Rajaji

Good reading

Responding to the distress in Indian banking

Minor tweaks haven’t worked

Traders not to blame for food inflation

Two suggestions for Ms Irani

Narendra Modi's golden opportunity

Fixing the Indian economy

Crack-up GOLD

Protect our gold from the beast!!

"Those who control the economy describe gold as a “dead investment”, oppose its import, and talk of putting the “gold to work”.

Significantly, the proposals of Raghuram Rajan, the government’s chief economic adviser, favor foreign bankers who seek to hoard gold to protect themselves from a major economic collapse. Raghuram Rajan was formerly with the International Monetary Fund and is currently affiliated with the secretive BDT Capital based in Chicago. He also works for the University of Chicago whose endowment fund operates like a hedge fund with a portion of its investments tied to gold. Yet, Raghuram Rajan opposes the ownership of gold by Indians who want to protect themselves from the impending economic downturn."

Read the full article here.

Making capitalism work

"What we are witnessing, globally as well as in India, is the end-game for fiat currencies (for the scholarly-oriented, the present conditions could be best summarised as the “Crack-Up Boom,” as defined by Ludwig von Mises, an economist from the liberal, laissez faire-oriented Austrian School of Economics.). From now on, all Keynesian stimulus policies would actually go on to worsen the imbalances rather than revive growth." More here.

Meaning that 'public policy'

Prof Ila has a very interesting piece on the ultimate impact and true use of Aadhaar in India. Read NIPFP study finds large returns from Aadhaar project

The FTI Team has also announced huge prize for public policy competition. 

Back to Marx and banking in 21st century. Read "Marx would have been proud of bankers".

Money beast!!

Over the period April 2006 -June 2010, currency has shown a yearly growth rate of 17 per cent. It is estimated that for 2009-10, the RBI incurred an annual cost of Rs 2,800 crore to just print the currency notes. More here.

Don't Miss it!

Old time of Bombay Plan and its impact today. It is important to ponder over the below statement:

• To some extent, the kind of corruption that is agitating India today was built into the Bombay Plan as it detailed the facilitating role of the government and the public sector in promoting private enterprise. As such, this must be reformulated.

Big bribes behind big notes

Here is very interesting perspective by Dr Ashok V Desai on the current debate on coal scandal which hunts the ruling UPA government.

• Everything worked fine for the next 14 years. Then the government was briefly subverted by liberals who believed that the wholesale nationalizations had been a mistake and that competition amongst privately owned businesses was best. Led by P.V. Narasimha Rao, they wrought a revolution in industrial policy. The Coal Nationalization Act was amended in 1993 allowing allocation of blocks to private enterprises for captive exploitation.

Two young Tamilians talking something fishy in their mother -tongue in the presence of a Gujarati woman had the shock of their life as she knew Tamil.

Why Amartya Sen likes Prof James Buchanan's theory of public reasoning?

Meeting different people is not all that bad even if some one is really thinking differently about them. I had brief opportunity to meet Prof Sen early this month. He had mentioned about one of his new article and that is the one I am citing here. It is worth to read the entire article for the below para alone.

• "Public reasoning is not only crucial for democratic legitimacy, it is essential for a better public epistemology that would allow the consideration of divergent perspectives. It is also required for more effective practical reasoning. It can bring out what particular demands and protests can be restrained in interactive public reasoning, in line with scrutinized priorities between a cluster of quite distinct demands. This involves a process of “give and take” which many political analysts, from Adam Smith and the Marquis de Condorcet in the eighteenth century to Frank Knight and James Buchanan in our time, have made us appreciate better."

At least a generation gap the ATM revolution took place in India compared to America.

Atalji's wise words: "Tragically, morality and ethics are at a discount in politics today, not only in India but countries across the world." 

New Finance Minister's new mantra: "I would like to make it clear that the burden of fiscal correction must be shared, fairly and equitably, by different classes of stakeholders. The poor must be protected and others must bear their fair share of the burden. Obviously, adjustments must be made both on the revenue side and on the expenditure side." 

Niranjan of The MINT wonders whether Finance Minister is musing to increase the tax bases?

Instead of making useful sense of argument, they start fighting among themselves (1, 2) from the day one. The case in point is the review committee constituted for revisiting cartoons in school textbooks. Don't forget, all in the name of poor 'dalits'!!

Some Links

Laaton ke bhoot baaton se nahin maante

"We certainly do not need The Economist to remind us that India’s “mood is waiting to be lifted”."

The dynastic Congress will shiver and sink if the Modi-Muslim relationship gets recast in this manner, with both sides learning the lessons taught by that wise teacher—democracy.

Of that fault lines

Finally, I read the book "Fault Lines: How Hidden Fractures Still Threaten the World Economy" by Professor Raghuram Rajan. Its a wonderful book. All those interested in understanding the global economic issues and challenges should read it at least once. He gives great narrative in each chapter in the beginning and good summary at end.

The chapters I enjoyed reading are chapter 2 and chapter 9.

The full introduction chapter is freely available here.

Some of the interesting book reviews:

WSA piece here, here is another piece by Rajan's friend highlighting the essentials, here is must read piece and the last one I would like to cite is here. 

"Statists’ antagonism toward the gold standard"

Nilesh Shah writes:

• "We should seriously push for return of gold standard. In this turbulent time many economists are advocating return to gold standard. We should encourage global debate on debasement of paper currencies through the expansionary policy of central banks to potential break down of currency union. We should push academic studies to show that growth and employment received as much encouragement under gold standard era as in the era of loose monetary and fiscal policies. Indian diaspora around the academic world should be encouraged to speak for gold standard. We should highlight subdued inflation under gold era. We should remind the world about the prophetic statement by an eminent Federal Reserve governor, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” The full article is here.

Matters, of that trips reading and

Back from a visit to Dehradun, the city of pleasantness. I had good time visiting the place where our country's bureaucrats are get trained. The Lal Bahadur Shastri National Academy of Administration in Mussoorie! The climate in Mussorie was absolutely pleasant.


Meeting people and talking to them was more interesting then simply talking with bunch of people in the conference!


The following are some of interesting readings:


Economics by and for human beings by Jeff


Contemporary Indian literature by Shivaprakash


The Power of one by Ninan (its old article on Parth and the CCS achievements in India)


Restrictions on radio violation of free speech by Arvind


NY Fed: Leaving the Building by Wenzel

Biggest RBI's deregulation move!

In my previous assignment I use to attend the review meeting of RBI, and kept on pointing out the silliness of not REFORMING the interest rate from savings in bank, RBI regional director (Chandigarh) use to ask me more questions and clarifications why we should do and how!! later many others joined with me!!!! the good news is finally the RBI has done this in the last Tuesday review. See here for the full statement.

RBI polity

Indian economist Bhalla plea "Note the close correspondence — and especially note the economically criminal vote-getting policy of the Congress after it came to power in May 2004. Starting in 2006, procurement prices literally exploded, with an 18 per cent increase in 2008 alone. Between 2006 and 2009, the relative price of food increased by a record 33 per cent. The normal pattern is for the relative price to move in a plus/minus 5 per cent range."

See more here.

To act on them again is mistaken folly

The RBI has justifiably criticised our statistical system for the amount of random noise it generates. But either the physician should heal itself or Caesar’s wife should be above suspicion. There is more noise generated by using year-on-year data than by CSO’s incompetent reporting of data. The IIP and GDP data are a mess, and their updating methods leave a lot to be desired. But that shouldn’t be an excuse for bad data to be transformed into badder policy.

'India's decentralized principalities have been merged into one bureaucratic morass'

Thanks to Sauvik! Excerpts from The Daily Bell article:

• This is the conclusion to the article, and while it sounds reasonable, it seems to us that the assumptions on which the article is built are not necessarily accurate. For one thing, the article glosses over the fairly Draconian authoritarianism of the anti-corruption movement.
• For another, the article assumes that the current Indian vitality is the result of inexorable cultural and entrepreneurial shift. We would argue this is entirely incorrect. India's resurgence is driven by central banking money printing and may not be seen as a natural expression of industry and society.
• It is extremely important that the progress of the BRICS be placed in perspective. Brazil, China, India, even Russia, all have aggressive central banking policies. China and India, especially, have economies that are obviously being stimulated by excessive money printing. Both countries have a problem with price inflation as a result.
• Progress built on printing money from nothing is ephemeral. In America and Europe, thanks to the debasement of money and the vast resources it grants (temporarily) to government, economies can seem quite healthy  one moment and then ill the next.
• Money printing hollows out economies. It distorts business and job growth. It makes people feel wealthier than they are in reality. In both China and India, economic implosions will eventually take place. It cannot be otherwise, because central bank money stimulation inevitably leads to an exaggerated business cycle and subsequent busts.
• For this fundamental reason in particular, the Wall Street Journal article is flawed. India has not necessarily experienced a resurgence of business and market creativity. It is simply going through the same cycle of monetary stimulation that the European PIGS and America went through recently.
• Such monetary stimulation inevitably leaves behind ruined and fractured societies. In the case of India, the anti-corruption movement will likely make things worse, as it is in no way an expression of ancient Indian culture, which was decentralized and extraordinarily tolerant.
• The India of today, based on reports having to do with the anti-corruption movement, would seem to be inheriting the worst parts of Western socioeconomic systems. India's decentralized principalities have been merged into one bureaucratic morass.
• Money printing, in fact, is fooling the Indians into believing their economy is far stronger than it is – and also increasing the corruption of the bureaucracy. The anti-corruption movement is providing the Indian middle class with a simplistic approach to dealing with such problems.
• The real issue of the way the West has organized Indian society from the top down, starting with central banking stimulation, are not being addressed. The solution is seen as one of authoritarianism rather than a reconfiguration of India's basic institutions.

Make sense

Shankkar Aiyar writes:

• India is doubtless the home of paradoxes. It has arguably the largest number of banks and the lowest level of financial inclusion. The RBI informs us that there are 33 foreign banks, 21 private sector banks, seven new private sector banks, 20 nationalised banks, six banks of SBI and its associates…not to mention a host of cooperative institutions. And yet over 50 per cent of the households find themselves outside the formal banking and financial system, and 73 per cent of farmers have no access to formal credit. Is it then the claim of the government that new banks and indeed corporate houses will deliver what the existing pantheon of 80 banks and over 1,000 cooperative institutions are struggling to achieve?

• The very obvious need is for more branches or access to banking services. If financial inclusion is the stated objective, why has the policy shut out public institutions like the Life Insurance Corporation and India Posts which have been clamouring for banking licences? Indeed, if there is one organisation which can deliver access, geographical reach and inclusion, it is the India Posts which has over 155,000 offices of which 1,39,000 are spread across rural India. Yet, India Post has been shut out of the process of expanding banking and delivering financial inclusion.

It makes sense to argue like this but the services delivery is terribly poor in post offices. I have experienced all kinds of non senses in vising post offices for years. Unless, the post office system takes help of technological development it cannot provide any kind of services with cost effective.

Fiction of central bank

From The Economist on Milton Friedman (His centenary birthday is on coming Saturday 31^st July):

"…central banking is an essentially illegitimate criminal enterprise freer rein. When a significant portion of a political movement's activists believe that the whole point of central banking is "systematic robbery", and that inflation is the means by which this robbery takes place, widespread, reflexive opposition to inflation is not surprising." 

Turn that coin OUT

Sudheendra Kulkarni has very nicely explained the abolition of 25 or 50 paisa coins specifically a logical “.. thought on what the death of ‘paisa’ means for the social, cultural and psychological history of India?”.

I remember a news item of 2004 or 2005 when I was student of social science at Indore University. The RBI had announced the abolition of 50 paisa coins from circulation. I felt how stupid, to do this, when the economy is still developing from the bottom, I mean when the country has huge population with less and lesser per capita income how come the bigger denominator would help poor people? Just think of a case, a labourer who earns Rs.100 per day and he spends on various basics needs like food, etc. How much money he might have left in his packet or for that matter how much money he or she will give it to his children who are largely 

dependent on tiny shops for their tiny items. I am talking about rural area. This is terribly.

So the mess is everywhere not only in central bank in India but also from school education to university education.

In a lecture yesterday Prof Yash Pal said in New Delhi that our university system is in complete chaos and also in terrible and spoiling the beautiful young minds. Though, he realizes these things very late, he could have done it something when he was in power as Chairman of University Grants Commission that look after the higher education system in the country in terms of funding etc. He did not do anything. Of course, he ensured how to get attracted by media etc, etc. He never visited single university independently to understand what is going on with the university or college or students etc. when he is going to die, he talks about the reality of the education system! Of course, we may get some understanding from his utterances but then what is the point? When he along with others have already sent a crooks of team to kill the education purpose!!

Shabash Mr Surjit Bhalla!!

Dr.Surjit Bhalla is undoubtedly one of the leading Indian economists and a strong proponent of free market economics. He also delivery the 2000 F A Hayek Memorial Lecture! See "Hayek Rediscovered: The Road to Economic Freedom"

In his column in yesterday’s Financial Express, he snipped off some of the economists who some time clime to be an ‘expert’ the field of macroeconomics quite dismally!! His article is really “No Proof Required”

Why I say so? Read his column you will get my point! However, what interested me is the below paragraphs:

• Dear Persons: We, at RBI, are dedicated to deliver both growth and stable low inflation. We have been doing our best, though I must admit that we have not succeeded in our efforts, to date. However, I must frankly admit that I have not been helped by various people providing arm-chair or self-indulgent advice. I have advice for them.

• Kaushik Basu, Chief Economic Advisor, GoI: You are a very welcome addition to the policymaking body in India. Your fame precedes you, and your record as a microeconomist is at least first among equals. It is also hugely welcome that you are now espousing more ‘market’ oriented policies than before, e.g., cash transfers rather than corrupt government intervention programmes. However, try as I might, I cannot find much useful academic output from you on anything even remotely related to macroeconomics. It is never too late to learn, but in the meantime, can you stop offering me unsolicited advice on exchange rates, and interest rates, and stop making forecasts on inflation?

• Subir Gokarn, deputy governor, RBI: RBI regulates the bank deposit savings rate in India (recently raised to 4% after 19 years at 3.5%). Fat cat bankers gain from this repressive policy of low and fixed deposit rates; pensioners and depositors lose immensely from this stupid regulation. Yet, my deputy Subir Gokarn had the gall to state that RBI may not deregulate this rate because “a lot of people see this (fixed savings rate) as a safe and reliable source of monthly income”. This implies that a “free market” savings deposit rate will decline after deregulation—an impossibility given the present inflation scenario. Subir knows, or should know, that the rate can only increase with deregulation. So Subir, either stop talking or stop being disingenuous.