Wednesday, 13 November 2019

Streamlining Higher and Professional Education in India

It is important to assure that good quality higher education is available to all students irrespective of their economic background. In the current scenario, only the top layer of students get admissions into top notch colleges and all other students are forced to join lower rung institutions. As a result, we are left with degree holders who may not be fully ready to join the corporate world. To be fair to students, they have to go through some very high pressure coaching and entrance examinations. One has to remember that students have to perform in a limited time frame.

All educational institutions offering higher education need to maintain the requisite 'infrastructure' and have to be monitored by the concerned educational authorities. Among all other areas, education is the most critical and its impact on the economy in the longer run is probably the differentiating factor.

It is fine if some students do not find admissions, they can try next year or pursue some other vocation. But to graduate from bad institutions (it is homicidal to run such institutions) like half  baked potatoes is just not acceptable. So all those educational institutions that do not have the infrastructure or those that do not meet qualitative and quantitative standards have to be closed before the beginning of another academic year. Where there are issues related to specific branches of study, specializations need to be withdrawn and this requires continuous monitoring.

All the established institutions, have to incur capital and maintenance expenditures as a percent of revenues to avoid degradation and show them as part of their income tax returns. Students have to be provided with state of the art training, laboratories, teaching and guidance.

Also, it is not necessary that academic success reflects in professional success and vice versa. It is also necessary to include vocations which may not be main stream in the current higher education curriculum.

The problem with education sector is that one may not be able to see the impact in the short run. India has an educated middle class population which is aspirational and the foundations for the future have to be based on best in class education and skill development.

No one has the right to play with future of any country.

Wednesday, 6 November 2019

Linking aadhaar, pan, property and bank accounts

As of June 2018, 90% of Indians have been issued with aadhaar card. If we can link aadhaar, pan and bank accounts (accounting for all forms of income) of all individuals, it is possible to set up a data base which contains details of incomes of every citizen of the country. If there is also a one time property and wealth declaration exercise where all kinds of properties will be linked to their property holders, a huge database would be created with income and wealth details of every citizen. Using this data base people can be segregated based on their income and wealth levels. At least, we can have a system where most if not all of of the 'white' money and property transactions are accounted for. All forms of benefits to the citizens can be streamlined in the most efficient and transparent manner. Any forms of inefficiencies and duplications can be removed. It is possible to create a system where benefits kick in and kick out depending on income levels. Once beneficiaries' income levels reach the stipulated level, benefits can be withdrawn and diverted to more needy people.

When there is a scramble between subsidy and development expenditures every penny is important. Economies which spend more on production rather than subsidies are going to grow faster. It is high time to integrate technology with all forms of administrative and welfare schemes.

Sunday, 3 November 2019

A Sonnet in Appreciation of Prof. Damodaran


In the field of finance, there is one teacher who has millions of students and many more fans,


Across all the news and kabuki dance, he filters with a lens and finds every nuance,


Many data points and a lot of numbers, he sifts through them all like grains of sands,


Small and young firms or mature giants, he values them all, even if they are start-ups,


Numbers and stories, using spread sheets he ties them together in knots of inseparable bonds,


Not just in words, he backs his models and takes market positions in a number of stocks,


Forget all the fuss, he chants, growth, risk and cashflows are the main pillars, whatever be the case,


Makes rational assumptions, grounds them in realities and ties them to fundamentals,


Cashflows for micros and discount rates for macros, he unravels all corporate finance puzzles,


Mergers or synergies, may be real options, backs them with numbers, no fancy buzz words,


In a world full of imperfections, shares his toils through his writings and books,


Blogs on various topics, he surprises you with razor sharp analysis and laser like insights,


The intersection of three areas - education, publishing and financial services lies his place,


Awards and accolades although common place, show his commitment and decades of excellence,


Against all odds, he sticks to humble grounds, loves his kids and plays with his grandkids,


Holds the Kerschner Family Chair, at the Stern School of Business,he lives in the biggest of Apples.

Friday, 1 November 2019

Suggestions to improve economic equality

At the outset, we need to remember that by robbing the rich and giving the poor the economic value added as a whole is zero and the society as a whole is not going to get any better. (the same problems are going to persist!) We need to understand and appreciate the fact that redistribution of income generating ability is much more important than redistribution of income itself.

The poor have a higher marginal propensity to consume than the rich. So any cash transfers they receive, they spend immediately on their basic needs and it is back to ground zero again. So at least in the longer run the objective of governments should be to augment the income generating ability of the depleted sections of the society. And the objective of the recipient public must be to give up short term benefits in the longer run interests of everyone.

An ideal society would be the one where the people's dependence on government benefits and subsidies is reduced to zero and people voluntarily refuse subsidies and benefits. That would be a dream come true for every economy!

In this article, I am going to make a few suggestions to remove economic inequality. Some of these suggestions may reflect the views expressed in/by authors, books, newspapers, magazines etc that I read including authors like Prof. Joe Stiglitz, Prof. Raghuram Rajan, Prof. Aswath Damodaran, The Economic Times, The Hindu, Mint, Project Syndicate etc. 

1.Differential and broad based taxation system: The most important and effective way of addressing economic inequality is by having a differential and broad-based taxation system. The underlying philosophy is to have a system where you have differential tax rates for different levels of income.
Most countries do have differential taxation system and those which do not will have to move towards this system in the longer run.
At least, the majority of the rich realize their responsibility towards the poor. Any instances of regulatory arbitrage or outright fraud will be addressed within the legal system and it is not appropriate to stereotype people on the basis of income/wealth levels. 
At the same time, tax payers have every right to expect accountability and know where their money is being spent. 

2. Fool proof distribution systems: We need fool proof and transparent distribution systems. People at the highest levels of public office may have great intentions but their ideas and actions need to get transformed to economic welfare at the ground level. To be fair to the public office bearers, many good measures do benefit the people at the lower economic levels but there are vast sections that are omitted due to both qualitative and quantitative deficiencies.
Over a period of time, the objective should be to improve the income levels and living standards of people. Improvement in living standards is only possible when the dependence on subsidies and benefits is reduced and more funds are allocated to development expenditure which has more long lasting benefits.

3. Cutting down on duplication and free loading: When there is a scramble between subsidies and development expenditure every penny is important. Economies that find ways to spend more on development expenditure and cut down on wasteful expenditure are going to prosper in the long run.
For generations, there are societies and families who have benefitted from government schemes and subsidies and their economic levels are much better than many other sections of the society.
It is high time to segregate government benefits on the basis of the recipient's economic levels. Politicians are scared of excluding the higher income groups from subsidies and benefits for electoral reasons. People have to voluntarily give up any government benefits or subsidies when not required.

4.  Use of technology: There is a greater need for integration between policy administration and technology. Using quantum computing, data security systems and data warehouses, it is possible to issue an all purpose unique identification number for all citizens of a country and the progress of every citizen starting from birth to death can be recorded and tracked. Effective and efficient control measures can be put in place to make the administrative infrastructure more dynamic. In terms of investment, this would be a lumpy one time cash outflow and the follow up cash out flows are going to be much smaller but the benefits are going to be huge. 

5. Integration between private and multiple public welfare schemes: As stated earlier, there is a scramble between subsidies and development expenditure - every penny saved is going to help public welfare. Different forms of democracy have different political-party setups and in democracies where there are different political parties in power at the state and centre, there is a chance for duplication.
Each party tries to take credit for the benefit offered to the people but no body thinks of duplication.
There is a need to streamline welfare benefits and schemes and cut down on redundancy. 
Second, many big corporate houses take an active role in corporate social responsibility activities. Whatever is the reason, private corporations function more profitably and efficiently when compared to many public systems. In geographies, where corporates are socially active we do not need government schemes. That would be wasteful expenditure again  and in such areas governments can limit themselves to supervision of welfare actvities. 

6. Education: The importance of education does not have to be overstressed. In his book, The Third Pillar Dr. Raghuram Rajan describes how the founding fathers of the United States (including Thomas Jefferson) have stressed on the need for education and making every community part of the education ecosystem. Although the United States has its fair share of problems today, she is still among the economic leaders of the world. Better education is necessary for people's participation in a market economy. The success or failure of market economies is dependent on the education and skill levels of their populace.

7. Power hungry politicians and corruption in public works: In many parts of the world, the rivalry between political parties is so bad that people are ready to kill each other for power. To stay in power, they need to earn through illegal means or else the opponent is going to kill you!
Everyone needs to understand that political rivalries are only ideological and as a nation we are all one. In fact, Dr. Rajan envisions that two hundred years from today there may be a borderless world! People need to learn to co-exist and work together.
In many emerging economies, corruption in public works is so common place that it is ingrained in to people's psyche. (may be we need to have an official Corruption to GDP ratio!) Wherever, possible all big ticket payments have to be executed in electronic mode.

8. Broad based growth, job training and creation and equality in opportunity: Growth has to be broad based and every one has to be given equal opportunity. If growth is not broad based, then over a period of time people are going to get more restless and this may have volatile consequences.

The problem of economic inequality is present everywhere in the world irrespective of the size and state of the economy. Economic inequality feeds into political inequality and both reinforce each other. 

We need to be aware of our rights and responsibilities - together we need to work towards a more equitable society. 



Thursday, 31 October 2019

Public representatives cannot pursue other economic activities while in office

The office of a public representative is sacrosanct - the time in office is people's time and the money is tax payer's money. So those who are elected to public office cannot conduct other economic activities while holding office. Any incomes or wealth accrued to them from pre-existing businesses during the period of office should be put in an escrow account until they demit the public office.

We find that some public representatives take advantage of the current loopholes of the system. Irrespective of the profession or practice, while in office a public representative cannot conduct other economic activity. This has to be put in place both in spirit and deed. A pubic representative's time and energies must be completely dedicated to her office and people of the constituency.

Second, when the respective legislative body is not in office, a public representative must be physically present in the geographical territory of the respective constituency. Quite often we find that people are based out of some other location and hold office somewhere else. This is not acceptable. You have to be available to your people 24/7.

We do not need public representatives who want to conduct their private businesses while holding office. That is just not acceptable in a democracy. Where is the accountability?  There are other people waiting who are much more dedicated and intelligent.

It is high time that civil society and courts question such practices and enact strict legislations to ensure better accountability among public representatives. 

Wednesday, 30 October 2019

Compulsory Education up to 21 years of age for all

Why can't education be made universal and compulsory until 21 years of age ? At least in major democracies, education infrastructure is already in place with both government and private players. Governments around the world spend millions on child care and education and yet there is a considerable proportion of children suffering from mal-nourishment and illiteracy. Quite often, we find children working in eat outs, commercial establishments and farms. In some extreme situations, we come across children working in even hazardous plants. Agreed that in most cases, these children may be the bread-winners of the family. But that cannot be a reason for children not attending schools and colleges. There are other welfare schemes in place for adults. At least during schooling hours, children should be prohibited from work.

Governments have to make education compulsory until 21 years of age for all children. Any employment schemes that lock-in children into future jobs before 21 should be withdrawn whether government or private. We need to give an opportunity for individual growth and development. That is only possible with education and vocational training under learned teachers. We need to give our children all possible opportunities to make their career choices. The importance of education need not be over emphasized and irrespective of the field that an individual chooses education is critical.

Private educational institutions with a reasonably large revenue size can be asked to provide 10 to 20% of their seats to children from poorer economic backgrounds and disclose these details in tax returns. Plus we already have government schools and programs in place. Many large corporations are proactive and have already taken up the cause of education as part of their social responsibility. This should be sufficient to meet the educational needs of our children to a large extent. Our children are our future and their well-being should be of utmost importance to us.

By leveraging smart phone technology and internet penetration, the entire academic curriculum can be made available online and can be accessed any time. Using unique identification number issued to every child at birth, the progress of every child can be recorded and tracked at every administrative level. Wherever, there are deviations like incidences of increase in school drop-outs, necessary action can be taken.

All democracies must accumulate political will to implement 21 years of compulsory education and it should not be a distant dream!

Tuesday, 29 October 2019

Trends in GDP and Per Capita GDP for Select Countries

GDP on its own may not present a complete picture of growth, therefore, per capita GDP has been included here to better understand trends in growth. When we look at GDP and per capita GDP growth over the past six decades for major economies it shows that Asian tigers are roaring.

But when we look at growth in the past three decades it is really the Chinese miracle that attracts your attention. Since the decade starting from 1991, Japan has been stuck in a quagmire. India has a CAGR of around 8% for the past three decades. So China and India have been leading global growth in the more recent past. 
To be fair to the advanced economies you need to look at the base effect and to get a better picture of growth. For a country like the United States with GDP of $ 20 trillions (2018) even a 2% growth transforms into $400 billions which is 15% of India's 2018 GDP. 

Second, for India and China to grow someone has to buy their exports - whether it is software services or manufacturing goods or any others. For some countries to run surpluses, some have to run deficits. We live in an interconnected world. So if the advanced economies slowdown it is going to impact the emerging markets growth.

Although, consumption led growth is a strong point of countries with large populations, no economy can decouple itself from the rest of the world. Moreover, if imports increase and exports decrease (as is the case with increased consumption) deficits increase and currencies fall under stress. 

Third and a more important aspect, is the standard of living and we need to look at the per capita GDP figures to get a better picture. For India and China, huge populations weigh down the per capita  figures. Per Capita Income of all other countries is higher than India and China which in most cases should translate into better standards of living. 

Prof Joe Stiglitz, in one of his addresses at the Norwegian School of Business, remarked that between 1978 and 2017, China was able to move 740 million people out of poverty to a comfortable middle class living. This kind of sets the standard for other emerging markets in terms of poverty alleviation.

One interesting comparison between India and US - India's GDP in 2018 is close to that of US GDP in 1980 and at around the same time Regan tax cuts were introduced which perhaps (different economists have different views) helped prop up their economy. Only time will tell us whether Modi's tax cuts propel India's industry and what India has in store for herself. (and the world!)

For emerging economies huge populations are both a boon and bane. For example, India has experienced growth thanks to its booming services sector, thanks to its large population. At the same time, when we look at the trends in the per capita GDP, population explosion has dampened the growth of emerging markets including India. 


So the key for emerging economies lies in being able to harness the energies of their people by focusing on job creation and broad based growth.