India! I dare you to be rich

Category Archive: Economics

BJP’s hooligans are becoming intolerable. Time to throw them out. Prahlad Gunjal must GO.

BJP's gang of thugs is getting worse with every passing day.

I won't go into a litany of proven charges against them. These are just too many to mention. Corruption, black money, murder, violence are all part of their repertoire.

But the idea that an MLA can speak in this manner to a civil servant is beyond obnoxious. This man Gunjal represents the culture in which goondaism and thuggery are rapidly replacing any semblance of civilisation that India might have once represented.

The man has not had the shame to resign. The BJP also has no shame.

The people of India had a very bad party: Congress. Now they have a worse party: BJP.

Unless they get their act together and come behind a party committed to the rule of law, they can expect to live the life of rats. 

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Questions about Singapore’s national/ public wealth fund Temasek

A few months ago I made some notes regarding Singapore's authoritarian economic liberalism. This model has attracted a lot of attention recently (including in The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait  and Adrian Wooldridge).

A recent article in Foreign Affairs touted the Tamasek model. The authors of the article are publishing a book on this topic, soon: The Public Wealth of Nations.

However, more interesting than the article were some of the comments, which set off a bit of a search for the truth about Temasek.

Let me highlight key sections of the main article, first.

On average, governments are mismanaging their public assets. Many economists see these inefficiencies as arguments in favor of privatization. But privatization comes with its own risks: crony capitalism, corruption, and dysfunctional regulation. Luckily, there is a third way: governments can assign the task of professionally managing their assets to National Wealth Funds.

National Wealth Funds are the perfect compromise: they keep public assets under government ownership while simultaneously preventing undue government interference. The state appoints the auditors and the board responsible for the portfolio, and decides which assets should be sold when sufficiently developed, but it cannot influence how the fund itself is managed. This strict separation guarantees that politics will not get in the way of good asset management. When governments control public commercial assets, opportunities for better management are ignored or fall prey to political meddling, clientelism, and corruption.

National Wealth Funds also enable governments to consolidate their commercial assets, which allows professional managers to create an integrated inventory and business plan for the assets as a whole. The world’s leading National Wealth Fund, Singapore’s Temasek, established in 1974, boasts an average annual return of 17 percent, a track record that would be impressive even in the private sector.

Now for the comments which interested me quite a bit.


If you are going to hold up Temasek as a model you must mention that the CEO for the last 12 years has been the Prime Ministers wife. She gives no interviews and has never written the letter in their annual report. Hardly a model of accountability. Further the 17% annual IRR since 1974 is largely due to their historical practice to government transfer of assets at very low valuations which Temasek then takes public and public market value. If transferred at market value the returns would be much lower as they have been since 2002. While the disclosures are selective and self serving at least there are some.


Absolutely right. Temasek never gives meaningful IRR figures. Despite its glossy annual reports, it is effectively impossible for any outsider to assess how it is performing from year to year. What you can do is look at the many large investments it has made over the last 10 years that have gone badly wrong. If you look at its record in banking alone, it has lost billions on Barclays, BoA and is now suffering the headlong fall in StanChart's share price. This poor record is replicated in other sectors. There is no accountability and, of all the experienced candidates who could have been appointed to run it, the most qualified was, by an extraordinary co-incidence, the Prime Minister's wife. Having stepped down once for presiding over a disastrous series of investments, she was reinstated and remains in office. Lucky Singapore. This is a very superficial article which appears to show no understanding of the subject.


Question is whether the IRR figures are audited.

The Temasek financial disclosure is completely irrelevant because they only show the Temasek Group accounts which purposefully muddle up the Temasek Holdings accounts with those of all their portfolio companies thus rendering the entire set of accounts useless. And how about those footnotes? Not.

They use the concept of beating their cost of capital or Wealth Added as their primary metric for performance. However for the last 12 years in total that number is negative so they have destroyed capital while they have increased head court dramatically. This is in spite of taking dubious actions to lower their cost of capital by adjusting down their Market Risk Premium which no be else does. They now are so embarrassed by their performance they hardly even mention WA and bury it in the back pages excluding it from the Chairmans letter and all the full page ads they take out.

Also they tout the principal of no WA, no bonus yet the people there are still getting paid a bomb and the Temasek parking lot is full of very expensive, shiny new cars. Where is the oversight.

I've explored further and this is what I find:

Why sovereign funds are a bad idea: Should India Set up a Sovereign Wealth Fund? It’s a Bad Idea

Some mess-ups by Temasek.

Research paper: A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore.

The summary of this paper is provided here. In brief, the idea that Tamasek has achieved 17 per cent return over 35 years is refuted vigorously. 

Temasek controversies.


Singapore is a secretive place. One cannot rely on public reports of the way its national fund is managed. There is need for significant caution while considering this model/option. It has significant benefits but these seem to come at a high cost.

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In support of Judith Sloan’s critique of the Commonwealth Treasury’s policy mettle

When I came to Australia in late 2000, I received an interview call from the Commonwealth Treasury (CT). They were about to send me the air ticket for an interview in Canberra. But by then my son had been given a scholarship by Melbourne Grammar School (supposedly one of the best private schools in Melbourne), so I decided to stick to Melbourne and declined the interview offer. I was to join, soon after, the Victorian Government's largest regulator, and later, the Victorian Treasury. In retrospect, this was a good decision.

I've had occasion to interact with the CT on a few matters. I won't go into details since doing so will breach the public service code of conduct. But from my vantage point as close observer of numerous economic debates and based on published papers and policies of the CT, I am able to write in support Judith Sloan's critique of the CT

Let me detail Judith's concerns.

1) The CT does not focus on the prosperity of all Australians

To understand this point, we fist need to understand Amartya Sen's deplorable confusions. The disastrous Human Development Index adopted by the even more confused UNDP was his "contribution". Mixing up social and economic variables using subjective weights can never be justified. This is mumbo-jumbo; pure nonsense. The Victorian Treasury's vision is uni-dimensional: a prosperous future for all Victorians. Period. Per capita real GSP is the key measure in such an approach. People can buy wellbeing IF they have money. The government's job is to enable and support the ability of the people to earn money.

But from Judith's analysis, it appears that the CT uses a mushy way of thinking (perhaps in the Sen tradition?):

It is quite difficult to pinpoint the exact start of the decline. My feeling is that the adoption of the mushy, confusing and unhelpful wellbeing framework in the late 1990s marked the beginning of the Treasury's loss of prestige. "The wellbeing of the Australian people" remains one of the core elements of Treasury's strategic framework. Where, once upon a time, Treasury essentially focused on maximising per capita gross domestic product, there are now five elements of wellbeing, some contradicting each other. These elements are: opportunities, distribution, sustainability, the level and allocation of risk, and the complexity of choices. [Sanjeev: What do these terms mean!! ] The real problem with using five ill-defined criteria to judge policy is that without some explicit weighting of the five factors, virtually any decision can be justified. [Sanjeev: No, Judith, these non-economic terms are pure nonsense, in the same category as the meaningless term 'social justice'. Multiplying nonsense with 'weights' can never create sense.] Sure, a policy will reduce per capita incomes, but just look at the improvements to sustainability. It is heaven on earth for the Greens.

As economics professor Jonathan Pincus notes, "any decision made by Treasury can be justified by (the wellbeing framework) unless it can be shown to worsen wellbeing in all five dimensions". The framework relies on the subjective (and political) value judgments of Treasury officials to weight the five dimensions of wellbeing. Of itself, this politicises decision-making within Treasury. [Source: Treasury's fall from grace started with wellbeing, Judith Sloan, 13 November 2012, The Australian]

This serious muddle-headedness apparently started in around the mid-1990s (HDI was created in the early 1990s and soon became a joke among real economists). It is possible that had I joined the CT in 2000 I'd have been a misfit and left it, long ago. 

2) The CT recruits Keynesians and lefties:

This is news for me: a shocking disclosure from Judith, today:

The Treasury has leaned left for some time. Potential graduate recruits, for example, have been asked for their views on the pricing of carbon dioxide emissions and the value of stimulus spending to deal with economic downturns. The “correct” answers have been pretty obvious. This bias and the perceived politicisation of the Treasury, more generally, have to be eliminated." [Source: John Fraser will face challenges to restore Treasury’s reputation, Judith Sloan, 15 November 2014, The Australian].

If what Judith is saying about Treasury recruits is true, this is a sure way to ruin any prospect of objective, sensible economic policy advice

3) The CT's approach prevents it from looking objectively at data

Then there is this third critique – that the CT uses subjective, rosy glasses while looking at data:

Another example of Treasury's loss of status and respect is reflected by comparing the first edition of the Intergenerational Report released in 2003 and the one released in 2010. Originally commissioned by Peter Costello when he was treasurer to highlight the fiscal implications of the ageing of society, the first edition was a solid piece of work. The 2010 edition, which was brought forward by Wayne Swan, is a complete embarrassment.

It is an overly long, verbose document that spends most of its time praising the government for its current policy stance, even though the focus of the report is 40 years out. It even includes a ridiculous chapter on climate change and the environment, a topic that quite rightly was not included in the previous editions. What the reports also demonstrate is that Treasury is completely incapable of forecasting basic variables such as labour force participation, even a few years out. (This point could be applied more generally to the credibility of Treasury's modelling.)

If you read the first report, you would conclude that we will all be "rooned". The second one (2007) was a bit more upbeat about our prospects, but the last gave the impression that, because of the outstanding and far-sighted policies of this government, everything will be fine. [Source: Treasury's fall from grace started with wellbeing, Judith Sloan, 13 November 2012, The Australian]


I have been frequently disappointed with the macro-economic (and even micro-economic) policies advocated/ supported by the CT. Judith points out a few examples:

  • The CT's approach to taxation of ­employee share ­options
  • The CT's design/ advocacy of the mining tax
  • The CT's approach to changes to the fringe benefits tax
  • The CT's modelling of the impact of pricing carbon
  • The CT's "contrived modelling of the impact of the government’s stimulus spending spree in response to the global ­financial crisis that, according to Treasury, “saved” 200,000 jobs. The Treasury also tried to argue that the countries that had boosted government spending the most were least affected by the GFC. It turned out that the Treasury had cherry-picked the countries for inclusion in its analysis. When a comprehensive list of countries was included, the relationship fell away."

In my view, the CT's advice has badly damaged Australia's prospects in the coming decades. The Rudd 'stimulus' was a disaster. Any attempt to justify it should rank in the category of NONSENSE/ quackery of the sort that Keynes spouted, e.g.

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. [Keynes, “General” Theory (and other crap)]

[Indeed, combining Keynes and Sen would be the surest way to destroy any society’s future prospects, almost as certainly as using Marx’s ideas] 

Stephen Anthony wrote last year about the shortage of brain power in the CT [Source: Treasury needs more brainpower and less of the touchy-feely, Stephen Anthony, AFR, 29 April 2013]. I don't think this is a brain power issue. Brain power (IQ) is of no use without the right way to think. That's why high IQ people throughout mankind's history (till around 1700) achieved nothing, while ordinary people with the right thinking since 1700 have achieved wonders.

The CT's problems seem to stem from a fundamental failure to understand economics.  Let me I quote (genuine Nobel Prize winner) Ronald Coase and hope that the CT will pay heed to one of the greatest economists of all time:

Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.  [SourceRonald Coase, Saving Economics from Economists, Harvard Business Review, December 2012]

My advice to the CT, for whatever it is worth, is this:

1) Try to understand the process of the price system and how this process balances the self-interest and local information (including budget constraints) of all people on this planet, simultaneously. 

2) Try to understand, therefore, how your interventions will invariably distort the price system and reward rent-seekers and frauds at the expense (very often) of hard-working savers and workers. 

3) Finally, try to understand that governments necessarily play the game of politics, marginal seats and lobby groups. Their game, while essential to a liberal democracy, also imposes costs and damages society in many ways. Democracy is not costless. But we are not in this game. Our job is to limit the damage caused by government interventions, not exacerbate it.

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Without liberalising and radically reforming education IMMEDIATELY, India’s future is DOOMED.

Vishal Singh drew attention to this article in The Economist: Arrested development: The model of development through industrialisation is on its way out.

It notes "The falling cost of automation makes the use of robots attractive even in India, where cities are swarming with underemployed young workers."

Those of you who follow this blog know that I've raised this issue on NUMEROUS occasions on this blog. There are MILLIONS of unemployable people in India, and people are moving to robotics.

I am currently reading Race Aganst the Machine – which is one of the best books on this topic. I've also been making detailed notes for a future manuscript The Glorious Abundance and Creativity of the Robotic Age.

India has almost entirely missed the bus on manufacturing. We need to focus on training people for services and domestic construction (which has become a boom sector as people want bigger and better houses across the world, as they grow richer).

And as I've already said many times on this blog – the developed world is NOT going to leave the best brains of India/ China in those countries. Such people are being attracted to the West in large numbers, and will abandon India/China. Australia, too, is engaged in such active attraction of top talent from the developing nations. 

Without liberalising education, India is DOOMED. That is not in doubt.

With people like BJP/Modi/Smriti Irani, bid goodbye to India's future.


The third great wave

Wealth without workers, workers without wealth

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PV Indiresan was firmly against Keynesian ‘pump-priming’

I’ve been reading a number of books simultaneously, including PV Indiresan’s Vision 2020. Indiresan, although not trained in economics, seems to have broadly understood a number of economic concepts. He does make a few errors here and there, but he is definitely not socialist, nor Keynesian. Not entirely classical liberal, his views are broadly consistent with classical liberalism.

In particular, he has some harsh words for Keynesians:

For four decades, the government went on a spree creating jobs whether they were needed or not. The prevailing view was that employing people was a good in itself – even if there was no work to do, or the work done was not commensurate with the wages paid.

Keynesians consider themselves expert in this area. Stung by the disastrous loss of competitiveness that resulted from their policies, they have been lying low for nearly ten years. Now, they are back at the centre-stage insisting that pumping money into the economy, and increasing fiscal deficit, is the only remedy for unemployment. Fiscal deficit puts all that money and patronage into the hands of politicians and officials. Neither of them is always wise or even honest.

Applied across the board, as Keynesians would do; pump-priming is like rain, it falls both where it is needed and where it is not, even where it may do much harm. So, the consequences of classical Keynesianism are problematic at best and disastrous at worst. [Vision 2020, p.93]

I’ll summarise his key points separately, but this section was good enough for me to scan, OCR and publish.

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