Thursday, January 24, 2013

Is this a time for monetary policy easing?

`Headline inflation':
The year-on-year change in CPI-IW,
with target zone superposed.

The best price index in India is the CPI-IW. `Headline inflation' in India corresponds to the widely watched year-on-year change in the CPI-IW. The above graph shows us the experience of inflation in India from 1999 onwards. The informal target of policy makers is for inflation to lie between four and five per cent. These are the two blue lines on the graph.

In February 2006, inflation breached the upper bound of five per cent. It has never come back in range. Things are so bad that even the overall average inflation of this period (the red line) is now above the upper bound of five per cent. We don't just occasionally fail to stay within the target range of inflation; we persistently fail to get there. This inflation crisis is a major failure in Indian macroeconomic policy, and is holding back India's growth.

Many explanations like supply side factors or droughts are offered. They fail to persuade when we see this time-series experience. Did we have fewer droughts before 2006? Or that supply side factors were not a problem before 2006? Sustained failures on inflation are always rooted in monetary policy. In the long run, inflation is always and everywhere a monetary phenomenon.

There is some tiny progress in the latest months in this graph, but we cannot claim that the inflationary spiral has been broken. Policy rates are 7 and 8 per cent, and inflation is almost surely above 8 per cent, so the policy rate is likely to be negative when expressed in real terms.

Smoothed month-on-month inflation
(annualised, based on seasonally adjusted CPI-IW)
The year-on-year change is a moving average of the latest 12 month-on-month changes. We obtain information about current conditions by looking at more recent month-on-month changes. This requires seasonal adjustment. The graph above shows the 3-month moving average (3mma) [source]. Just as the y-o-y change shows average inflation over the latest 12 months, this graph shows average inflation over the latest 3 months.

There is some progress in recent months. But at the same time, in the entire period, we see many such short periods of decline in inflation. Eyeballing the graph does not give us confidence that there has been a qualitative change in inflationary conditions. As an example, consider the previous dip in inflation. We could have become quite excited by the drop in this 3mma CPI-IW inflation down to 2%. But this was a temporary gain which was quickly reversed.

We should hence be cautious about reading too much in the recent decline in month-on-month CPI-IW inflation. While it is great news if inflationary pressures in the economy are declining, and it will be great news when the cycle of high inflationary expectations will be broken, there isn't enough evidence as yet to announce that the mission -- of achieving low and stable inflation -- has been achieved.

Sunday, January 13, 2013

Measuring social conservatism and social change

The widely reported UNICEF Report Card on Adolescents has survey evidence about persons in the age group 15-19 in India, for 2011. Adolescent boys were asked whether they think that a husband is justified in hitting or beating his wife under certain circumstances, i.e., if his wife burns the food, argues with him, goes out without telling him, neglects the children or refuses sexual relations. The answer: 57% thought it was okay. There were only 8 countries in the sample worse than India: Sierra Leone (57%), Swaziland, Azerbaijan, Uzbekistan, Uganda, Timor-Leste, Solomon Islands and Tuvalu (83%).

This isn't about war of the genders. The women suffer from Stockholm Syndrome: 53% of the girls in that age range agree. I think this is a very interesting litmus test about social conservatism in India. I wonder what the original sources are, and how we might see the variation in this number by income class and location.

Nicholas D. Kristof in the New York Times led me to The better angels of our nature by Steven Pinker (2011), which says:
In 1987 only half of Americans thought it was always wrong for a man to strike his wife with a belt or stick; a decade later 86 percent thought it was always wrong.
This is similar ("is it okay for a man to beat a wife") but also different (in the former case, it is only age 15-19 and it isn't as specific as a belt or stick). Also see Battlefronts.

This makes us see India in new light. From 1987 to 1997, the US got this number down from roughly 50% to roughly 14%. Let's not think in terms of crude historical determinism. This absolutely does not guarantee that the change in India over the coming decade will be similar. But it shows us the scale of social change that could arise over fairly short time-periods.

One of the most fascinating features of recent weeks has been the variety of politicians and religious figures coming out and talking about their social conservatism in the public domain. It will be interesting to see how well these pronouncements pan out with a young electorate. There has always been something odd about the mismatch between youthful India and its octagenarian leadership that peddles. Perhaps recent events will help make voters more skeptical about the present leadership.

Tuesday, January 08, 2013

Wednesday, January 02, 2013

The rise of high-end finance work in India

by Shashank Bansal.

Until recently, outsourcing by global financial firms to India conjured up an image of commoditised low end services outsourcing: call centres, peripheral systems programming, and testing and maintenance. However, in recent years, there is a new rise of more sophisticated work. This reflects supply and demand factors. Global financial firms are keen to cut costs. Capabilities of operations in India -- both captives and independant firms -- have grown for many reasons:

  • The individuals involved in this field in India have gained experience ("learning-by-doing") and credibility.
  • New management practices and improved telecommunications technologies have improved the extent to which teams and projects are handled in a more non-local way.
  • The Indian diaspora has been rising to senior management levels in global firms, and is better able to envision what can be done in India and to obtain execution.

A European investment bank was among the first to experiment by bringing in teams in India into critical projects. This was a landmark change as a lot of inertia about confidentiality was overcome. Other banks followed suit. New management practices, higher pay, greater meritocracy came in, which helped Indian teams make the transition from low-end work where the HR and management techniques used are quite different. Demand for high skill labour has helped induce greater supply, with a lag, as individuals were more inclined to tool up with advanced degrees and high-end knowledge.

Alongside the developments in finance, parallel developments were taking place in the field of offshoring which have driven up skill levels, and helped create a high skill ecosystem in India. Top tier consulting firms launched `centres of excellence' in India, hiring grads from IITs, IIMs, IISc, statisticians, economists. While education in India has huge problems, the raw talent available in India was of good quality, particularly when we focus on individuals who were able to read on their own and reinvent themselves ("never let your school come in the way of your education"). This process has been helped by globally recognised certification exams such as the FRM and the PRM.

IT firms have have been evolving from core development and maintenance to an entire gamut of IT strategy and consulting for financial firms. Many smaller KPO firms with specialised domain knowledge in finance have emerged, who cater to smaller hedge funds, trading houses, not just outsourcing increasingly complex pieces of work, but also advising them on the entire outsourcing strategy. All this has helped create a pool of high skill labour which is moving between multiple employers in India and able to build knowledge through diverse kinds of experience.

The most impressive development of recent years has been the growth of offshore trading units of global brokerages and trading houses, where people sitting in India take independent trading decisions in international financial markets based on their own skills and judgement. In some ways, this is the highest level of transfer of decision functions to India, albeit at relatively low monetary stakes.

In this fashion, within a period of 15 years, India had graduated from doing repetitive low value tasks to Knowledge Process Outsourcing (KPO) for the global financial system. While these activities are primarily in Bombay, they are also taking place in Gurgaon and Bangalore. The number of high-end finance workers in Bombay has never been greater than it is today. It is estimated that there are now 50 individuals working in Bombay doing work for global financial firms who have Ph.D. degrees in quantitative fields. This is starting to become a big enough number for them to talk with each other and get network effects going. From an employer's point of view, it is now possible to shop in the labour market in Bombay and recruit a 10-man team all with Ph.D. degrees so as to get a new group going. This is a sea change when compared with conditions just a few years ago.

To appreciate this change a little further, it was interesting to take a look at some of the capabilities of finance focussed KPOs, divided mainly into 4 broad categories, catering to Sales and Trading, Middle office and Back office:

  1. Quantitative Research and Analytics Support:
    1. Equity and FICC Analytics: Model Validation, Price Verification jointly with clients: these are pretty quant heavy functions which require in-depth understanding of products.
    2. Technical and Fundamental Analytics.
    3. Index and Portfolio Analytics: Index maintenance, design, construction, operations and after sales, Portfolio tracking, decomposition and correlation analysis, performance measurement and attribution support.
    4. Derivatives and Risk Analytics: Measurement of derivatives Greeks, Value at Risk, Tolerance checks.
  2. Research:
    1. Equity and FICC Research: Company research, Credit Research, Economics research etc. to augment senior analysts in money centres.
    2. Trade idea generation and back testing: Sales pitches for clients and internal trading desks.
    3. Country, Sector, Company profiling, trends, news and projections: Pitch book generation and support.
    4. 24x7 weather patterns tracking for global energy trading outfits
    5. Overnight trade and market tracking to feed in summary reports, Market Dashboards, news letters, morning meetings and agendas
    6. Market Research: Pre-entry market research and positioning survey for bank's clients.
  3. Data Analysis and Modelling:
    1. Data sourcing from multiple heterogeneous sources, refining and maintenance: Static data, Live and Historical market data maintenance. Data research and statistical studies feeding into trading strategies.
    2. Data Mining solutions.
    3. Data modelling, smoothing: Providing data solutions for Algo trading desks.
  4. Operations and Control
    1. Derivatives trade processing and documentation: Trade review of structured trades and complex documentation. End to end life cycle management of trades e.g., matching, broker confirmations and fee calculations.
    2. P&L and balance sheet control: Generation and reporting of P&L for vanilla products. Some banks have started moving exotics P&L functions to India. This is quite a significant milestone as such activities require high degree of confidentiality and direct user (e.g., traders) interaction who have zero tolerance for mistakes.
    3. Risk Stress testing, VaR back testing, Risk reporting to senior management.
    4. Auditing: external auditing of valuation marks of trading desks and control processes around it.
    5. It should be noted here that since the funding crisis of 2008, these jobs have become quite complex as most banks have built more sophistication into their analytics. For example, most yield curves would now have multiple basis spreads (like tenor basis, xccy basis) and not just rates desks but even credit and equities desk have been using such advanced discounting curves.)

What's next

The biggest push probably has been in quantitative middle-office functions with an ever increasing emphasis on valuations and counterparty risk management. Given the way markets have adopted collateral based pricing of derivatives, and the regulatory push on managing counterparty default risk, some captives have started building quantitative teams who will develop and manage CVA, DVA, etc. processes for all trading desks.

The new regulatory climate (Dodd Frank, Basel III etc) has lead to a substantial increase in costs due to additional checks and reporting requirements e.g., centrally cleared OTC trades, real time trade reporting to regulators, exhaustive risk reporting - all of which can are leading to fresh volumes of activity in offshoring.

All high quality banks have a team of techno-quants who work closely with the sales/trading desk, risk managers etc, on their day to day needs as well as on strategic projects. It is now feasible to move such high impact roles to India. It would be possible to have "extended front office teams" where dedicated staff support traders in money centres, doing real time risk analysis and client profiling, while the trade is being dealt overseas.

For a back-of-envelope calculation, if we think of internal billing rates of $100,000 per person per year, and if there are 10,000 persons at this average price, then this is services export of $1 billion a year, which is a sizeable amount. It appears that the early beach-head is in place, and this area will grow dramatically now.

This blog post reflects my experience, which is in investment banking and money management. A similar escalation of complexity of work in India is taking place in retail banking, insurance, etc., reflecting similar compulsions and opportunities.


There is a certain tension between the push towards offshoring to India, and the activities that regulators consider `key in-house activities' that cannot be outsourced.

There are serious constraints with education in India. The top institutions are producing some quantitative skills (e.g. fluency with matrix algebra, fluency in numerical computation). On one hand, there are weaknesses of broad intellectualisation that shapes cognition, creativity and malleability. On the other hand, there is essentially nothing in place by way of a finance education in India. A small amount of high-end finance research is taking place (example) but for the rest, there isn't much capacity in the existing academic campuses. New approaches to learning and training need to be devised through which high quality individuals, with strong quantitative skills, can be converted into full fledged participation in high-end global finance work. A mix of public and private initiatives are required in order to jump to the next level.

There are strong synergies between the sophistication of the Indian financial system and the work that is done for global financial firms. There is a two-way feedback loop here: Better domestic capabilities will help do sophisticated offshore work, and the brainpower built for offshore work will strengthen domestic capabilities. The best example of this is found in the equity derivatives market, where India has a world-class market. The individuals with a domestic background here are ready for offshore jobs in fields like algorithmic trading, and individuals with capabilities built in offshore work are useful in the domestic setting. This is where India can set itself apart from Malaysia and the Philippines. To the extent that Indian financial reform makes progress, this will fuel the rise of high-end outsourcing to India.


I am grateful to Anand Pai, Paul Alapat and Gangadhar Darbha for useful discussions.

Activism and wonkery are the yin and yang

The first element of achieving change is a dissatisfied public that is able to speak up. In places like China, freedom of speech is circumscribed and it is not that easy to express dissatisfaction with the way things are going. In India also, freedom of speech is under attack, and particularly when it comes to our problems of crony capitalism, the threats that we face are dire. But in some other fields -- e.g. the protests against the events in Delhi -- there are no real barriers to speaking out.

When does democratic outrage genuinely change the republic?

Everyone is against rape. Shouldn't our outrage about rape immediately yield a world where women are safe? Unfortunately, the safety of women comes from the functioning of the complex machinery of laws, police, lawyers, judges, courts. To fix the problem, we have to modify this machinery.

The workings of government are a vast clanking machinery with many moving parts. When you see something going wrong in the outcomes, it isn't always easy to diagnose the problems of objectives, accountability, and organisation structure that are inducing the problem, and envisioning the change that is required in order to solve the problem. The protester is saying I'm mad because the car does not work. But it takes a skilled engineer to understand why the car does not work and how to fix it.

Sometimes, I see activists who are revulsed at the workings of the dark satanic mills; who emphasise the protesting and downplay the fixing. There is sometimes a mix of frustration and reverse snobbery in play. I think that at its best, democratic society needs both: the activism (that puts a searchlight on things going wrong in society) and the wonkery (that actually gets things done). I respect the work of activists: What is in the searchlight of the public debate is where we have a chance to break free from the tyranny of the status quo. But there is no escape from getting engaged in the plumbing, from figuring out how it works, and coming up with fully articulated blueprints for change.

In a blog post about Occupy Wall Street, Paul Krugman says:

It would probably be helpful if protesters could agree on at least a few main policy changes they would like to see enacted. But we shouldn't make too much of the lack of specifics. It's clear what kinds of things the Occupy Wall Street demonstrators want, and it's really the job of policy intellectuals and politicians to fill in the details.

This emphasises a two-part process: a democratic process throws up an opportunity for change, after which the quality of the change that is obtained depends on the capabilities of the policy intellectuals and politicians.

While voice is a precondition, it is not enough. The Anna Hazare movement set out to conquer corruption and achieved nothing. A great deal of energy was expended, and it generated plenty of television footage, but it came to nought.

A related example: a while ago, there was a public outcry about insecticides in soft drinks. I think the activists got it wrong : the really important target should be the low quality of drinking water, and not corporations peddling soft drinks. We did not have the policy intellectuals and politicians who could think about reforming water and sanitation, who could harness the outrage and get a meaningful reform program going. Hence, that episode has failed to alleviate the insecticide in India's drinking water.

Example: London's Great Smog of 1952

The Great Smog of China by Clarissa Sebag-Montefiore in the New York Times tells a great story. In 1952, London was hit by a terrible bout of air pollution, termed `The Great Smog of 1952'. 4000 people died. As she says: Most Londoners who lived through the Great Smog thought it was simply an especially foggy period until the undertakers ran out of coffins and the florists sold out of funeral flowers. This led to a `Clean Air Act' of 1956.

Look at the Clean Air Act of 1956. It takes a great deal of thinking to go from outrage at 4000 dead, to figuring out how to draft this. There are hundreds of decisions in the 15,389 words of the law, all of which have complex implications in terms of public administration, incentives for private households and firms, and so on. It isn't about setting up a death penalty for emitting smoke: it is about finding the smallest possible intervention that will get the job done, and one that is feasible given the implementation constraints of government.

Example: India and airports

Circa 2002, the airports were a disgrace. There was a public outcry. The government reacted. Today Bombay and Delhi have decent airports. Why did this work so well?

  1. The outcome - a high quality airport - is visible and measurable and monitorable. In other fields -- e.g. criminal justice system -- it is much harder to know where you stand, which reduces accountability.
  2. MPs and ministers use the airport. In contrast, with the criminal justice system, they have opted out of public systems. In a problem like corruption, many might actually want the status quo to continue.
  3. Airports are relatively cheap and easy: All you had to do was to offend the employees of AAI. The government wrote contracts with GMR/GVK, and the passengers are footing the bill in terms of paying user charges every time they fly. There was no tradeoff between pushing airports and pushing welfare programs.

Under these circumstances it was possible for the political leadership to achieve airports, and make some in the elite (and themselves) happy, at no cost to their conventional focus on welfare programs and at no cost to anyone other than a few unhappy employees of AAI (who did not even lose their jobs).

There was the difficult problem of building regulatory capacity at AERA. The leadership in AERA of the early years did things better than most infrastructure or financial regulation in some respects. My personal experiences with AERA in recent months have left me enormously impressed at the capabilities in the organisation. But at the same time, the problem that they face is a relatively simple one. To use Pratap Bhanu Mehta's delicious phrase, building airports in Bombay and Delhi was not a wicked problem.

Example: London's Big Stink of 1858

Going much further back into time, London went through the `Big Stink of 1858', where the Thames was clogged with human waste. In the summer of 1858, within 18 days, Parliament drafted and enacted legislation that, in time, made the Thames one of the cleanest rivers of the world.

That's a remarkable story. As an illustration of the firepower amongst the policy intellectuals: they had Michael Faraday working on the problem! We don't have a Michael Faraday in our midst; we have yet to match the capabilities of the UK circa 1858.

Some areas are harder than others

Drawing on work by Lant Pritchett and Michael Woolcock, we should apply three tests to understand when doing something in government is hard: (a) Does a public service have a large number of transactions? (b) Do front line workers have discretion? (c) Are the stakes high?

When these three problems come together, building sound public systems is extremely hard. As an example of this thinking, financial regulation is hard while monetary policy is easy. By these three tests, building a criminal justice system is truly hard.

How do good countries grapple with the problem of constructing a criminal justice system? As an example, the John Jay College of Criminal Justice, at the City University of New York, works in this field. It has over 1000 academics working on this one field! In this one field, they have placed more than 2x the number of academics across all fields at IIT Bombay.

There are thus two reasons why making progress on the criminal justice system is hard. Unlike the airports example, these are difficult areas: Large number of transactions, front line civil servants have discretion, and the stakes are high. And unlike the partial success of the equity market reforms, we in India have not laid the foundations in terms of analysis of problems, consensus-building, and construction of key individuals that can play leadership roles in the change.

Example: India's stock market reforms

Financial regulation is a wickedly hard problem. There are a large number of transactions, front-line workers have discretion, and the stakes are sky-high. If all regulation and supervision were done in government, it would be truly hard to make things work, particularly in India.

Hence, there is a neat two-part separation of the work. The exchange is a unique private body that does regulation and supervision. In the bad old days, the exchanges in Bombay and Calcutta were riven with conflicts of interest and did not do a good job of supervision. This gave us stock market crises in 1992 and 2001, which had large-scale consequences for the country. Calcutta Stock Exchange was a small player in 2001, but the problems there were big enough to matter to everyone.

There was an outcry. This led to a dramatic program for change. A new governance model was put into place at NSE and BSE, where there is a three-way separation between shareholders, managers and trading members. The managers, who perform quasi-State functions in supervision, have no shareholding nor stock options. It worked.

Why did it work? It is important to look back into time. Right from the 1980s, ideas for reform had been tossed about. The G. S. Patel Committee, in 1984, had many of the key ideas of the following 20 years in its report. A little noticed feature of the G. S. Patel Committee report is in the preface, where the research support of a R. H. Patil from IDBI is acknowledged. Many of the names that figure in the story of the Indian stock market in the following 20 years were part of the G. S. Patel Committee; as an example R. H. Patil was the founding CEO of NSE.

As a consequence, in 1992, when the crisis came, there were people and ideas in the system that were ready to respond. The knowledge and consensus that was available then carried us half the way.

Through the 1990s, there was a process of analysis and thinking about policy alternatives. There was a view on how change should proceed, and the conservatives were able to stall it. In the listless years from 1996 to 2001, a lot of hard work got done on fully thinking through the next batch of reforms. When, in 2001, the next crisis came, the Ministry of Finance was able to access well-developed ideas and people that drove the next batch of change.

From the viewpoint of politicians, all change is risky. Fear of the unknown feeds into inertia: Why suffer a political cost for sure, offending the status quo, for a reform that might not work? We improve the probability of a reform being attempted when two properties hold: (a) We have a fully articulated blueprint for change, which is backed by high quality thinking and evidence, and (b) People who can staff the reform effort are available.

From 1980 to 2000, the committee process created a working consensus on what was needed to be done, took new ideas from heretical to mainstream, and built individuals who went on to play leadership roles in achieving the change.

That's the good part. And yet, in some ways, this has started turning into a failure story of sorts. After 2001, when the big changes fell into place, the policy community stopped focusing on the stock market. It was felt this is a solved problem. There was a lack of institutional memory about what had gone wrong in 1992 and 2001. The three-way separation between shareholding, management and securities firms was not remembered, and has been undone. We are going back to dangerous times.

Why has the wonkery been so weak in India?

Why are the policy intellectuals and politicians of India so weak on the questions that matter for India's future? There are two elements of an explanation. The first is money.

In India, we spend roughly 1% of GDP on research in four fields : defence, nuclear engineering, the space program and agriculture. But all these fields are of second order importance when compared with the main story of India's future, which is at the intersection of politics, economics, law, ethics and philosophy. In these areas, we are spending 0.001% of GDP. This ratio of 1000:1 of expenditure between these areas is inappropriate. As a consequence, we are failing to grow the intellectuals and university departments in these fields.

This matters for the wonkery. It also matters for the activism. If we could do better on the education that millions of people get in college, we could have a much more thinking citizenry which could be much more effective in mass political action. Our failures on universities are limiting the feedback loop through which growth should feed higher education and should feed back into better politics.

The second problem is development economics. What little is there of the social sciences and humanities in India matters less than it should, owing to the development economics worldview. Everyone outraged about violence in India should ask why the policy wonks of India are so interested in health, education and welfare programs, and so disengaged with the most basic public good of all, law and order. Why have economists thought the private goods of primary health centres are more important than the public goods of policing and courts?

To some extent, the two problems are related. India has offered little by way of career paths in studying India, and getting engaged in the project of building the republic. The development economics establishment, in contrast, offers a full career path: with Western aid agencies, NGOs, the World Bank, academic development economics, and much nourishment from a socialist government. This gives strong incentives for people to focus on poverty, inequality and welfare programs. This has enfeebled the wonks, for the big questions that India now faces are not poverty, inequality or welfare programs.


As Sunil Khilnani says, the most important task for each of us in India is to get involved in politics, in the sense of taking interest in how the State functions and undertaking actions small and large that will prod it towards better functioning. We have traditionally felt that the greatest threat that we face is that of an apathetic citizenry.

It now appears that we have a more active and participatory demos and this is a great thing. We are seeing profound changes in the world of activism. New technologies are reducing the cost of mobilisation. Millions of people have joined the conversation. We find that they care about core public goods and corruption. The voice of the people is negating the socialist claim of all these years, that what people care most about is garibi hatao and inequality. These are great developments.

But while this is a necessary element for a well functioning republic, it is not sufficient. The surge of policy involvement by citizenry is not getting translated into action on a commensurate scale. The constraint is the weakness of the elite. We lack the policy intellectuals and politicians who are able to pursue wicked problems, diagnose what is going wrong, and articulate a tangible program for change.

The policy intellectuals and politicians are missing in action on the questions that matter. The bulk of the existing policy establishment is focused on poverty, inequality and welfare programs. As Shekhar Gupta has emphasised, the ruling ideology among most politicians is ossified in the thought process of the 1970s. India has moved on, but our political ideologies haven't.

Intellectuals are the yeast that make a society rise. Our under-development in intellectual capacity limits our ability to translate a moment -- like the anti corruption movement -- into change. In addition, there is a danger that an irate public that is weak on political philosophy will settle for cartoonish solutions like Lok Pal or Naxalism or a death penalty for rape.

The wonkery is intellectually bankrupt today. The policy intellectuals and politicians who are able to reshape themselves to fit the needs of India from 2013 to 2038 will matter. A greater conversation between the two cultures will also matter greatly, with each cross-fertilising the other. Activism and wonkery are the yin and yang that must work together to build the republic.


This post grew out of email discussions with Joshua Felman.

Tuesday, January 01, 2013

Interesting readings

An improved version of my blog post Law and order: How to go from outrage to action has appeared in the latest Pragati: From outrage to action.

From the Delhi police: Why women deserve to be raped by Lakshmi Chaudhry, on Firstpost.

In continuation of Faulty tradeoffs in security on this blog, see Bruce Schneier's review of Against security by Harvey Molotch.

Congress governing somewhat better without Pranab Mukherjee by Javed Sayed in the Economic Times.

Ila Patnaik on the deeper significance of FDI in non-tradeable areas such as the retail trade. And, another piece by her on the importance of unilateral liberalisation by India towards Indo-Pak trade.

Ila Patnaik on Misinvoicing as a mechanism for capital account activity. And, another piece by her worries about the barriers against a next wave of investment by stressed firms grounded in a stressed financial system.

Cut up the RBI by Deepak Shenoy in Pragati.

A major story in India's economic growth in coming years is going to be the evolution from family-dominated companies to dispersed-shareholding professionally-managed companies. Writing in the Business Standard, Bhupesh Bhandari tells us about the principal-agent problems that we have to overcome in this process.

Wanted -- some policy paralysis in banks by Dipankar Choudhury in Mint.

The two most important stories of the coming years are going to be the breakdown of the existing regime in China and in Saudi Arabia. Hugh Eakin has a great piece in the New York Review of Books which helps us think about Saudi Arabia. Alan Riley in the New York Times gives us one key piece of how the next decade will unfold.

This is politically incorrect but worth pondering: Steven Dutch argues that the most toxic value system in the world is made up of: (a) extreme importance of personal status and sensitivity to insult; (b) acceptance of personal revenge including retaliatory killing; (c) obsessive male dominance; (d) paranoia over female sexual infidelity; (e) primacy of family rights over individual rights. I fear we get a lot of these traits in India.

When you swallow a grenade by Carl Zimmer, a great article about antibiotics.

Nick Wingfield in the New York Times reviews the outcome after Microsoft launched Windows 8 and a tablet computer named `Surface'. And, Goldman Sachs: Windows' true market share is just 20% by Neil McAllister in the Register. His source is Janet I. Tu in the Seattle Times.

David Pogue has a great collection of the Brightest Ideas of 2012, in the New York Times.