## Friday, April 29, 2011

### 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.

## Thursday, April 28, 2011

### Kicking the wheels of the new CPI

by Ashish Kumar.

Inflation measurement is a critical component of macroeconomic policy. In a recent paper, 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 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,

## Friday, April 22, 2011

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.

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: 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.

## Friday, April 15, 2011

### 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.

### 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 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 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.

## Sunday, April 10, 2011

### 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.

## Thursday, April 07, 2011

### 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.

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.

## Sunday, April 03, 2011

### 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.

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.

## Saturday, April 02, 2011

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 Robert Barro on the appropriate place of trade unions, and 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.

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.

Good reporting in Mint by Sumeet Chatterjee about the potential for distress at 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 Volcano of Rage by Max Rodenbeck and The revolution is not yet over by Yasmine El Rashidi on the New York Review of Books blog. On Libya: Omar Ashour on Project Syndicate.

Yuriko Koike on Project Syndicate, on the evolution of production chains in Asia. The end of China's cheap denim dream by Malcolm Moore in the Telegraph. 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.