Slavery is freedom

While many people in India think that we have freedom of speech,
things are actually quite bad.

There are two well-respected global rankings in this field:

• Reporters Without Borders has a `Press Freedom Index'. For 2010,
  they
  show India at rank 122 out 178 countries. In their ranking,
  Nepal and Jordan and Qatar are more free than India.
  
  
• The other prominent ranking is by Freedom House. For
  2010, they
  place India at rank 72 out of 196. In their ranking, Hong Kong,
  Benin and Tonga are more free than India.
  
  

Why are things so bad? The Constitution does not establish freedom
of speech as a fundamental right. Laws of colonial vintage punish
free expression, and new laws (e.g. connected with the Internet)
have not shown a greater interest in free speech. Books are
regularly banned, journalists or bloggers are regularly imprisoned
or killed. It is a war zone out there.

See India
puts tight leash on Internet free speech by Vikas Bajaj
in the New York Times on 27 April.

I was hence quite surprised to
see reporting
by Sanjib Kumar Baruah in the Hindustan Times where he
quotes the minister for information and broadcasting, Ambika Soni,
as saying:

"Our media is probably the freest in the world"

It is bad enough to have a fundamentally flawed Constitution and
laws where free speech is not enshrined. The least we can do in this
unhappy situation is to recognise that we have a serious problem and
go solve it. We are better off without such Orwellian claims.

Similarly, Amartya
Sen, writing in the New York Review of Books notes that
there is more free speech in India than China. Yes, there is. But
should we get pleased when we are good when compared with one of
the more thuggish states of the world? India needs to set its
sights higher.

We like to think that while we're poor, we're one of the better
democracies out there. Okay, if so, shouldn't we be atleast in the
top quartile in international rankings of freedom of speech? That
would mean getting to a rank of 45 (instead of 122) in the ranking
by Reporters Without Borders, and a rank of 49 (instead of 72) in
the ranking by Freedom House. To get there, we will need to first
start by acknowledging that we have a problem, instead of engaging
in triumphalism.

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Kicking the wheels of the new CPI

by Ashish Kumar.

Inflation measurement is a critical component of macroeconomic
policy. In a recent paper, href="http://econpapers.repec.org/RePEc:npf:wpaper:11/83">Patnaik
et. al. have argued that while the CPI-IW has many problems, these
difficulties are not first order, and that the CPI-IW can yield a
reasonable measure of inflation today.

On 18 February 2011, CSO released a new CPI with base year 2010
(Jan-Dec =100). This new CPI has five important new features:

1. It is disaggregated at the rural and urban levels. The new
   overall all India CPI is a weighted average of the two. This
   is in contrast with the earlier CPIs which represented subsets of
   the population (industrial workers, agricultural labourers, rural
   labourers, etc.).
   
   
2. The new series has better geographical as well as commodity
   coverage. The basket of consumer goods has risen from 25 to 250.
   
   
3. The weights have been derived from the 61st round of the NSS
   consumer expenditure survey (2004-05).
   
   
4. Data for the urban CPI will be collected from 310 towns (compared
   to 78 in the current CPI-IW, for all India). The rural CPI will use
   data from 1181 villages. Field officers of the NSSO and the Department
   of Post will be the price collection agents for urban and rural
   centers respectively.
   
   
5. Since the two series are not comparable, year-on-year inflation
   numbers based on the new CPI will be available only from February
   2012.
   
   

Sub Group		New CPI
	Rural	Urban	All India	CPI IW
Food, beverages and tobacco	59.31	37.15	49.71	50.20
Fuel and Light	10.42	8.40	9.49	6.25
Clothing, bedding and footwear	5.36	3.91	4.73	13.28
Housing	0.00	22.53	9.77	5.33
Miscellaneous	24.91	28.00	26.31	24.94

The share of food in the new CPI series has seen a small dip in
comparison to the CPI-IW while the share of services has risen. The
share of housing has also seen a sharp rise. In CPI-IW, the price of
housing services was imputed from the house rent allowance given to
civil servants. For the new CPI series, housing prices will be
collected through surveys of a sample of rented dwellings in 310
towns.

The weights in the new CPI are taken from a household survey by
NSSO. This is, however, already quite dated given that it was
conducted in 2004-05. It is hence interesting to compare these
weights with those seen in the href="http://www.consumer-pyramids.com/">CMIE Consumer Pyramids
dataset, which goes upto the quarter ending Dec 2010. This is a
panel dataset where 140,000 households are measured every
quarter.

The household basket as shown by CMIE gives a weight to rent based
on households that report rent. The CPI uses an imputed rent. An
imputed rent calculation for the CMIE data is not feasible based on
the information presently given out by CMIE. In order to render the
two comparable, we purge both consumption baskets of rent.

Sub Group	New CPI, rural	CMIE: Oct-Dec 2010, rural
Date	2004-05	2010-11
Food, beverages and tobacco	59.31	59.57
Fuel and Light	10.42	12.12
Clothing, bedding and footwear	5.36	3.75
Miscellaneous	24.91	24.54

In rural India, the weights of food and miscellaneous in the new
CPI match that seen in the CMIE consumer pyramids even though the CMIE
dataset is much more timely. In comparison to the Consumer Pyramids
weights, fuel and light is under-weighted while the clothing category
is over-weighted in the new CPI. The fact that these differences are
small gives us increased confidence in the NSSO and in the new
CPI.

Sub Group	New CPI, urban	CMIE: Oct-Dec 2010, urban
survey in	2004-05	2010-11
Food, beverages and tobacco	47.96	45.95
Fuel and Light	10.84	16.45
Clothing, bedding and footwear	5.04	3.78
Miscellaneous	36.14	33.82

A similar comparison in urban India shows noticeable differences in
all categories. The weights for the food group is lower in the CMIE
data. Both the clothing and the miscellaneous categories exhibit
similar patterns. The fuel group has a significantly higher weight in
Consumer Pyramids. Over time, the role of fuel has risen.

Sub Group	New CPI, all India	CMIE: Oct-Dec 2010, all India
survey in	2004-05	2010-11
Food, beverages and tobacco	55.09	53.48
Fuel and Light	10.52	14.06
Clothing, bedding and footwear	5.24	3.77
Miscellaneous	29.16	28.69

All India weights reveal similar patterns as urban India
weights. This is not surprising because all India figures are weighted
averages of rural and urban weights.

Assuming NSSO did a good job of measurement in 2004-05, this
suggests that over a short period of time, the expenditure pattern
of Indian households has been changing at a fast pace.

Despite the issue of weights, the new CPI series is a welcome
step. Improvements in inflation measurement will be an important
component of the Indian process of refashioning monetary policy
to deliver low and stable inflation,

Read More

Interesting readings

Freedom House measures freedom of speech online, and finds
that India
is only `partly free'. The score of unfreedom worsened from
34 in 2009 to 36 in 2011. Here is
some reportage
on The Register.

The
challenge for a new order in West Bengal will be
daunting by Swapan Dasgupta in The Telegraph.

Is this what we are doing with the JEE: abstract
of this
paper reads: a more severe control of the quality of the
output will improve the overall quality of the education. This
paper shows a somehow counterintuitive result: an increase in the
exam difficulty may reduce the average quality (productivity) of
selected individuals. Since the exam does not verify all skills,
when its standard rises, candidates with relatively low skills
emphasized in the test and high skills demanded in the job may no
longer qualify..

Why,
for a Class of Bribes, the Act of Giving a Bribe should be Treated
as Legal by Kaushik Basu, Working Paper, Ministry of
Finance.

Decode
your future for Rs.20,000 by Swapnika Ramu, in
the Economic Times.

India
does breakfast, by Aabhas Sharma in the Business Standard.

A working paper on an important contemporary
issue: A
policy response to the Indian micro-finance crisis by Renuka
Sane and Susan Thomas.

Watch
me talk about inflation.

href="http://openlib.org/home/ila/MEDIA/2011/ninepercent.html">Ila
Patnaik reminds us that it is wrong to expect a steady and stable
9% growth every year. There's such a thing as a business cycle.

In continuation
of the
capital controls debate,
see Deepak
Lal in the Business Standard, and Ila
Patnaik in the Indian Express. Also see: href="http://openlib.org/home/ila/MEDIA/2011/emerged.html">We
have come a long way by Ila Patnaik in the Indian Express.

Tamal
Bandyopadhyay in the Mint on inflation going out of
control.

Ila
Patnaik on how to make a difference to the child sex ratio.

28
Months Later: How Inflation Targeters Outperformed Their Peers in
the Great Recession. The
abstract reads: the evidence on post-crisis GDP growth emerging
from a sample of 51 advanced and emerging countries is flattering
for inflation targeting countries relative to their peers. The
positive effect of IT is not explained away by plausible pre-crisis
determinants of post-crisis performance, such as growth in private
credit, ratios of short-term debt to GDP, reserves to short-term
debt and reserves to GDP, capital account restrictions, total
capital inflows, trade openness, current account balance and
exchange rate flexibility, or post-crisis drivers such as the
growth performance of trading partners and changes in terms of
trade. We find that inflation targeting countries lowered nominal
and real interest rates more sharply than other countries; were
less likely to face deflation scares; and had sharp real
depreciations without a relative deterioration in their risk
assessment by markets. While the task of establishing causal
relationships from cross-sectional macroeconomics series is
daunting, our reading of this evidence is consistent with the
resilience of IT countries being related to their ability to loosen
their monetary policy when most needed.

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Did the Indian capital controls work as a tool of macroeconomic policy?

Ila Patnaik and I wrote a paper titled Did the Indian capital controls work as a tool of macroeconomic policy?

The abstract of this paper reads: In 2010 and 2011, there has been a fresh wave of interest in capital controls. India is one of the few large countries with a complex system of capital controls, and hence offers an opportunity to assess the extent to which these help achieve goals of macroeconomic and financial policy. We find that the capital controls were associated with poor governance, were unable to sustain the erstwhile exchange rate regime, and did not support financial stability. India's experience is thus inconsistent with the revisionist view of capital controls. Macroeconomic policy in India has moved away from the erstwhile strategies, towards greater exchange rate flexibility combined with capital account liberalisation.

This is interesting in the discussion on Indian economic policy. But this has also become surprisingly interesting on an international scale.



Many years ago, policy makers and academics had figured out capital controls. The old orthodoxy ran as follows. Capital account liberalisation was an integral part of the package of policies that made up a modern nation. Plugging into globalisation meant shedding autarkic policies, and being open to ideas, trade, services, capital, etc. All good countries had an open capital account. One by one, emerging markets started figuring out how to remove capital controls. This led to many blow ups along the way: A certain coherent apparatus is required, of fiscal, financial and monetary policy in order to play this correctly. So the path has been a turbulent one, where emerging markets have had to figure out this package, but the destination has been clear.



Policy makers and academics did not come to this conclusion from deductive reasoning. They came to this conclusion by getting bloodied over and over. The capital controls that were attempted did not deliver the desired results, and the capital controls that could deliver the desired results imposed too high a cost on GDP growth. The working consensus of practical people shifted away from capital controls.



In recent years, these questions have been reopened, most notably by the IMF. These questions are, hence, back in the global economic discussion.



But in the world today, most countries have opened up.  Among the G-20 countries, only India and China have a large and complex system of capital controls. In most places, practical experience with capital controls is actually hard to find. Many of the lessons of international experience from the 1970s and 1980s have been forgotten. It is, hence, particularly interesting to study the contemporary experience of India and China with capital controls. This makes our paper a useful component of this global debate.



And, on these issues, also see The IMF needs to find its voice again, by Sebastian Mallaby in the Financial Times. The Frank Warnock paper that he talks about is also worth reading.

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Legal process in rule-making: A success story in an unexpected place

by Shubho Roy and Deepaloke Chatterjee.

Rule-making process: A critical component of the rule of law

A despotic king has absolute power. When a society matures, the
rule of law emerges in two stages. First, the despotic ruler writes
down a set of rules, and the main body of government implements the
law. So the interface between citizen and State is now governed by
law, but a despotic king has the god-given power to enact new law.

The next stage of the evolution of the rule of law is where the
very law-making process is enveloped in checks and balances. It is
useful to think of three levels:

1. In the worst scenario, there is only the command of a few
   men that purports to be the law of the land. Governments can act
   capriciously, violate stated laws, and courts (if they exist at all)
   are no help.
   
   
2. The next step up, in history, was the despotic rulers of
   Continental Europe who preserved the absolute right of the king to
   make law, but built a fairly sophisticated system of civil servants,
   judges and courts through which citizens faced the consistently
   applied rule of law. At the same time, the ruler retains unbridled
   power in changing laws. With the high quality judges who hear cases
   at the the Dubai International Financial Centre (DIFC), we may now
   place DIFC in this league.
   
   
3. The next step up is a liberal democracy, where legitimacy is
   won because the very rule making process is governed by checks
   and balances; is enveloped in the rule of law.
   

The rule-making process in independent regulators

In this post, we focus on independent regulators, which are a
fascinating combination of law-making and law-enforcement. Parliament
empowers them to write law. At the same time, this does not mean that
a regulator is a despotic king who can issue law based on any whim and
fancy. Democratic accountability requires that the very process
through which an independent regulator writes law should also be
enveloped in a system of checks and balances.

The Indian situation

While the above is well understood in developed countries, in India
this is still very new terrain. Most finance practitioners would not
be surprised if they are surprised by the newspapers with a completely
new regulation issued by a financial regulator. In the field of
financial regulation, the best practices in India are usually found at
SEBI. However, on this issue -- the rule-making process -- SEBI
remains relatively weak. At other financial regulators, rules are
often issued like fatwas.

We recently came across a remarkably good arrangement in an
unexpected place: the Airports Economic Regulatory Authority
(AERA). In this blog post, we describe this process. While this is not
yet state of the art by world standards, we think this is state of the
art by Indian standards.

The rule-making process in AERA

AERA was established in 2008. As with all regulators, it has to set
out regulations governing the stake-holders in its domain. The steps
AERA undertakes before making regulations display a level of
transparency and organization rarely seen in Indian regulators.

The href="http://civilaviation.nic.in/aera/9.Quick%20Reference%20to%20AERA%20ACT.pdf">
AERA Act requires the regulator to maintain transparency through
the following mandates:

1. Hold consultation with all stake-holders.
   
2. Allow all stake-holders to make submissions.
   
3. Document and explain all decisions.
   

One of the first actions of the AERA was to establish its approach
and philosophy towards regulation. This was done through the method
mentioned above. Let us look at the steps AERA went through:

1. A white
   paper was released in December 2009. It contained major issues
   impacting formulation of a regulatory philosophy and approach.
   
   
2. An opportunity was given to stake-holders to consider the issues
   highlighted and provide feedback, comments and suggestions.
   
   
3. AERA considered all the submissions and released a href="http://aera.gov.in/consultationcat.php?cat=38">consultation
   paper in February 2010. This consultation paper contained not only
   the submissions received for the White Paper (the relevant
   paragraphs were annotated) but also detailed responses from AERA to each
   submission. Apart from the response, it also provided reasons for
   the approach taken (and the economic rationale where possible).
   
   
4. After the release of the consultation paper, another meeting was
   held where comments were received. The minutes of the meeting were uploaded on the Authority's web page.
   
   
5. AERA finalised its regulatory approach (for determination of
   tariffs) and issued an Order
   in January 2011. The order stated that the guidelines would be
   drafted in consonance with the consultation paper.
   
   
6. The AERA then issued the
   draft guidelines in February 2011. The stake-holders were again
   given an opportunity to comment, and another meeting was held with the
   stakeholders.
   
   

Analysis

This process is important for the healthy functioning of
democracy. As Robert Conquest wrote in his article Downloading
Democracy in The National Interest in Winter 2004-05:

A civic society is a society in which the various
elements can express themselves politically, in which an articulation
exists between those elements at a political level. A civic society is
not a perfect social order - which is in any case unobtainable - but a
society that hears, considers and reforms grievances. It is not
necessarily democratic, but it contains the possibility of
democracy.

Most regulators in India invite comments from stake-holders. What
is unique about AERA is the level of documentation and detail it
provides in response to the comments. The entire procedure is
available publicly. The parties who provided comments may not agree
with the position of the regulator but they know that their comments
were heard and considered. This helps create the incentive for the
larger community to engage with the regulator in future
consultations. A sure sign of difficulty in the rule-making process at
a regulator is the event of a `consultation process' that attracts a
negligible amount of comments: that tells us that the wider community
has lost confidence in the regulator.

The entire process is not a one-off incident. AERA has created a
detailed
guideline on how it will go about inviting comments and involve
stake-holders in their discussion. This creates benefits for both the
regulator and the regulated as:

• The regulator can now clearly state that it is fulfilling its
  requirements for meeting the mandate of transparency and
  consultation as required under its parent legislation.
  
  
• The regulated entities/ stake-holders are clearly aware of
  process that goes into the drafting of regulations.
  
  

The legal process surrounding rule-making at AERA takes away
arbitrary and discretionary power in the hands of the senior staff of
AERA to issue rules based on whim or fancy, and thus reduces the
chances of mistakes being made or of rules being hijacked through
ignorance or corruption.

Economists and the Ministry of Finance are generally confident that
some of the best governance in India happens on their watch
(e.g. SEBI). It may come as a surprise to see sophisticated legal
process in an unexpected place: AERA. As we attempt to build more
sophisticated regulators in finance and infrastructure, AERA's work
needs to be studied, emulated and improved.

Read More

Jan Lokpal Bill is based on poor policy analysis

Pratap Bhanu Mehta reminds that that while Elephantiasis is a nasty problem, elephant dung is not the cure. Just because we're convinced that corruption is a serious problem, it doesn't mean that any vaguely proximate remedy is going to work. Mere moral outrage does not solve problems. Complex problems require cold thinking and sophisticated analysis.

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Economic freedom in the states of India

This blog post is joint work with Mana Shah.

What is economic freedom?

An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are able to engage in voluntary transactions. James Gwartney and Robert Lawson have proposed a definition where individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.

Measuring economic freedom across countries and time

Well functioning countries today are grounded in the yin and yang of political and economic freedom. Liberals like Milton Friedman and James Buchanan suggested that it is important to measure economic freedom across countries and across time. The Fraser Institute, based in Canada, put this idea into practice and has been working on measuring the levels of economic freedom across more than 140 countries since 1970. The annual reports of the Economic Freedom of the World (EFW) are a valuable source of data on this crucial issue.



This database can be used to study the determinants of economic freedom, and its impact. As an example, we might like to examine the extent to which political freedom fuels economic freedom and economic freedom fuels political freedom (Milton Friedman's `Capitalism and freedom' hypothesis). Or, we might like to measure the extent to which an increase in economic freedom yields an acceleration in economic growth.



Many researchers have explored this dataset on such questions. Broadly speaking, the findings suggest that more economic freedom is associated with greater wealth, lower poverty and higher growth. Greater economic freedom enhances civil and political liberty.

How does India fare?

The Indian score went all the way down to 4.4 in 1975. From there, slow improvements have been obtained. The score had recovered to 4.9 in 1990 and rose sharply to 5.6 in 1995. However, as many observers have emphasised, India's economic reforms has not been a big bang story. From 1995 onwards also, the economic freedom score has improved further to 6.6 in 2006.



In relative terms, India was at the bottom (58th out of 72) in 1975 and has recovered to roughly halfway in the world in 2006 (77th out of 141 countries). While this is an improvement compared with conditions in 1975, there is no reason why India should not continue to push on these issues, to get to the ranks of the top 20 countries of the world.

What about intra-India differences?

India is a continent-sized country, and there is considerable variation across various locations. Just as it is useful to compare economic freedom across countries, it is useful to compare economic freedom across the states of India.



In the current political debate on stalled reforms, most eyes and hopes lie with the states. Intense political competition and increasing political rewards for good governance are pushing states to explore and implement innovative economic, political and governance reforms. In this scenario, the Index provides an objective view on the positive and negative impacts of policy changes (or lack thereof) over a period of time.



Using the methodology adapted by the Fraser Institute's Economic Freedom of the World annual reports, the Friedrich Naumann Foundation alongwith its partners, the Cato Institute and Indicus Analytics, recently released their report on Economic Freedom of the States of India 2011. The report follows earlier work done by two of the authors.



The report, which is authored by Bibek Debroy, Laveesh Bhandari and Swaminathan S. Anklesaria Aiyar, ranks economic freedom in the 20 biggest states in India. This index is based on three parameters:

1. Size of government
   
   


2. Legal Structure and Security of Property Rights
   
   


3. Regulation of Credit, Labour and Business

In summary, the findings are as follows:

State	Score 2005	Rank 2005	Score 2009	Rank 2009
Tamil Nadu	0.57	1	0.59	1
Gujarat	0.46	5	0.57	2
Andhra Pradesh	0.40	7	0.51	3
Haryana	0.47	4	0.47	4
Himachal Pradesh	0.48	3	0.43	5
Madhya Pradesh	0.49	2	0.42	6
Rajasthan	0.37	12	0.40	7
Jharkhand	0.40	8	0.38	8
Jammu and Kashmir	0.34	15	0.38	9
Kerala	0.38	10	0.36	10
Maharashtra	0.40	9	0.36	11
Punjab	0.41	6	0.35	12
Karnataka	0.36	13	0.34	13
Uttar Pradesh	0.35	14	0.34	14
West Bengal	0.31	18	0.33	15
Chattisgarh	0.33	16	0.33	16
Orissa	0.37	11	0.31	17
Assam	0.30	19	0.29	18
Uttarakhand	0.33	17	0.26	19
Bihar	0.25	20	0.23	20

The report has a separate chapter on Andhra Pradesh, the state that registered the fastest improvement in economic freedom moving up from seventh position in 2005 to third in 2009. Andhra Pradesh reduced waste and corruption and implemented innovative reforms. Three factors -- buoyant agriculture, rural infrastructure and the elimination of Maoism -- boosted employment and attracted in-migration from other states.

Did improvements in economic freedom go with improvements in investment?

CMIE maintains a database named `Capex', which tracks all outstanding investments in a state. We focus on the stock of investment that they define as being `under implementation'. For each state, the percentage share in overall Indian investment is computed, in December 2005 and December 2009.



This graph juxtaposes the change in economic freedom (from the table above) against the change in the share in investment (in units of percentage points):

This does show a positive relation. There is a rank correlation of 0.42. It seems to say that states which improved economic freedom tended to improve their share in investment.



As an example, Andhra Pradesh got an increase in the share of investment of 2.87 percentage points from 2005 to 2009, and Andhra Pradesh was also a state where the economic freedom score went up by 0.11.



We have to, of course, be careful about ascribing causality. Perhaps high economic growth caused improvements in economic freedom (reverse causality). Perhaps some other unrelated factor caused both. But it is still quite interesting to find a relationship between two distinct data sources.

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Defence land: A key dimension of India's privatisation problem

As Vijay Kelkar has long emphasised, India's privatisation question should be viewed as a question about the portfolio of the State. For each Rs.10,000 crore of shares of Air India that the government owns, it is forgoing 2,000 kilometres of highways. The State needs to ask itself whether it is better to own 2,000 kilometres of highways as opposed to owning the same shares of Air India. On this subject, also see Section 4.3 of this paper.



The second key dimension that should shape the discussion on privatisation is that of improving GDP growth. When assets are moved from public control to private control, the translation of capital stock and labour into GDP growth generally becomes more effective. Through this, India would reap GDP growth by better utilisation of existing resources.



Both these issues have, so far, been largely seen questions about the control of public sector undertakings (PSUs). But both issues are broader: they are about asset ownership by the government more broadly. Given India's socialist background, government has frequently and wantonly grabbed assets, far beyond those required for the production of public goods. Hence, the problem of selling off assets is much bigger than just PSUs.



As an example, this article says:

The defence ministry is the largest state landowner, holding 80 percent of the 7,000 square kilometres of government land, much of it now prime real estate, according to the CAG report released Friday.

Here is the CAG report referenced there.



There are two interesting dimensions to the problems of defence land. First, while the Ministry of Defence undoubtedly needs large tracts of land on which it can run exercises, training, experiments, etc., it certainly does not require prime land in cities.



The heart and soul of a city is the dense interactions between top decile people. What makes a great city is greater interactions within a greater density of higher talent people. By definition, military installations are aloof from the general population; they do not interact with the main citizenry. Hence, large military installations are like black holes in a city: they increase distances for everyone else, and they stand aloof. The presence of big defence lands in cities is not just about wasting fiscal resources (you'd be better off selling that land and retiring public debt) but primarily about increasing the quality of the cities.



There is a case for placing defence research labs in other innovation hubs of India - e.g. Bangalore, Poona or Bombay. This is justified because they would serve to increase the density of scientists thus enhancing the quality of these cities, and because these defence labs would benefit from interactions with civilian scientists. Barring research labs, there is no case for placing defence facilities in cities.



There may be a role for one big HQ in New Delhi, but I don't see why dozens or other defence installations are required to be in Delhi. The governments stands to raise trillions of rupees by selling this land and shifting these organisations to locations in the boondocks, where land is roughly free. And there is a further kicker: When defence holdings in places like New Delhi or Poona are moved off into private ownership, India's GDP will go up. So this is a win-win at two levels: First, India's fiscal problem is eased by selling defence land and writing down debt, and India's GDP is increased because the land gets put to productive use.



Similarly, I don't see why anything connected with the Indian Navy needs to be in Bombay. It's perfectly feasible to create naval bases at boondocks locations on the coast and thus free up the space used in high marginal product land.



The second interesting dimension is that of the Ministry of Defence as a creator of new cities. If you start off with land in the boondocks, on day one, nobody wants to go there. The Ministry of Defence has the ability to solve the coordination problem. It can engineer the synchronised movement of a large number of distinct pieces that are required to create a new cantonment town. Once this has been put into motion, within 20 years or so after starting up, it would be wise for the government to sell this off and start over. For MoD, there is little difference between being in a mature cantonment town versus a brand-new one. But for the exchequer, enormous value is created through this process. And for India, this works well because new cities can be steadily created in this fashion.

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Interesting readings

Sadly,
India abstained.

In India, we're quite gloomy about the place that has been given to
organised labour. But these questions are not closed elsewhere in the
world. See href="http://online.wsj.com/article/SB10001424052748704150604576166011983939364.html?mod=rss_opinion_main">Robert
Barro on the appropriate place of trade unions, and href="http://www.nytimes.com/2011/02/27/magazine/27christie-t.html?_r=1&ref=magazine&pagewanted=all">Matt
Bai in the New York Times magazine on a politician taking
on public sector trade unions.

Manoj
Mitta has written, in the Times of India, about the new
world of a Supreme Court headed by S. H. Kapadia.

Censorship.

Maybe
the time will soon come to close down this blog.

An
editorial on the questions that face U. K. Sinha as the new
SEBI
chief. And, Anirudh
Laskar has an article in Mint about concerns about SEBI
suffering a big upheaval.

Deepak
Shenoy in Pragati on Paypal's problems in India.

A
new opening act by Ila Patnaik, in the Indian
Express on 2 March 2011, on the announcements in the budget
speech on capital controls.

S. S. Tarapore
in the Hindu Business Line, on the FSLRC.

Joel
Rebello in Mint on the internationalisation of India's
investment bankers.

Ashish
Dhawan on his leaving the firm and what he will do next.

href="http://www.livemint.com/2011/03/04225453/As-debt-piles-up-Ambani8217.html?atype=tp">Good
reporting in Mint by Sumeet Chatterjee about the potential
for distress at href="http://www.business-beacon.com/kommon/bin/sr.php?kall=wcos&cocode=369944&type=s&tab=1010">Reliance
Communications.

Ashish
Khetan has a great story in Tehelka about the 2G scandal.

India
is chipping away on removing visa restrictions.

Remya
Nair and Surabhi Agarwal in Mint on post offices
selling insurance
products. Also see.

Why does China have a SOB-dominated financial system while India
has a market-dominated financial system? Writing on Project
Syndicate, Mark
Roe has a clue.

A great
lecture by Stan Fischer at the RBI.

Why I
write, by George Orwell.

Felicity
Barringer looks back at Chernobyl.

The revolutions of the Arab world are endlessly fascinating. Read
href="http://www.nybooks.com/articles/archives/2011/mar/24/volcano-rage/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nybooks+(The+New+York+Review+of+Books)&utm_content=Google+Reader">Volcano
of Rage by Max Rodenbeck and href="http://www.nybooks.com/blogs/nyrblog/2011/feb/23/revolution-not-yet-over/">The
revolution is not yet over by Yasmine El Rashidi on the New
York Review of Books blog. On Libya: href="http://www.project-syndicate.org/commentary/ashour1/English">Omar
Ashour on Project Syndicate.

href="http://www.project-syndicate.org/commentary/koike15/English">Yuriko
Koike on Project Syndicate, on the evolution of production
chains in Asia. href="http://www.telegraph.co.uk/news/worldnews/asia/china/8349425/The-end-of-Chinas-cheap-denim-dream.html">The
end of China's cheap denim dream by Malcolm Moore in the
Telegraph. href="http://econintersect.com/b2evolution/blog2.php/2011/03/01/never-short-a-country-with-2-trillion-in-reserves">Michael
Pettis on the prospect of shorting a country that has $3
trillion in reserves.

Dubai
on empty by A. A. Gill in Vanity Fair.

Football betting is a good place to measure the extent of wisdom of
the crowd. In a paper
titled Information
and Efficiency: Goal Arrival in Soccer Betting, Karen
Croxson and J. James Reade argue: In an efficient market, news is
incorporated into prices rapidly and completely. Attempts to test
for this in financial markets have been undermined by the
possibility of information leakage unobserved by the
econometrician.... sports betting markets offer a superior way
forward: assets have terminal values and news can break remarkably
cleanly, as when a goal is scored in soccer. We exploit this context
to test for efficiency, applying a novel identication strategy to
high-frequency data. On our evidence, prices update swiftly and
fully.

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