Via email, V Anantha Nageswaran gave a simple theory on the USD/INR exchange rate. Posting it here with his permission.
Source: V Anantha Nageswaran
Using the above chart, which charts the exchange rate over the last 20 years, he says:
The chart attached is quite clear. Except for the period between 2002-07 when actual growth and growth expectations in India shifted higher, the rupee has been on a trend depreciation.
Sustained high inflation (or, rather higher inflation relative to peers) caused by lack of fiscal discipline is the principal or predominant explanatory factor.
To bring back the experience of 2002-07, he states that we need to bring back sustainable growth rates of 7-8%.
Elsewhere, in The Hindu Business Line, S S Tarapore argues that the RBI should not intervene until the USD/INR is at 70. Quoting:
The RBI needs to accept that the rupee is still grossly overvalued despite the decline in recent days. It should not support the rupee till it reaches a rate of around $1 = Rs 70, which would be consistent with the long-term inflation rate differentials between the US and India.
My view is that this may not be enough – this view assumes that Indian businesses (specifically exporters) will be able to take advantage of the falling rupee and export more. This also assumes that domestic demand for petroleum products and gold (our two biggest imports) is elastic and will fall with the falling rupee. If these assumptions don’t come true, things are only going to get worse with a falling rupee.
Also coming back to Ananth’s point on the break in fall of USD-INR in 2002-07, I want to point out that despite our high growth rates in that period, we still didn’t run a current account surplus. It was just that our high growth attracted significant foreign investments which offset our CAD from that period to lead to a rising rupee. The consequent pulling out of those investments has hastened the fall of the rupee over the last few years.
The stated objective of the Reserve Bank of India when it comes to foreign exchange rates is that they want to maintain a “stable” exchange rate, and will step in only to curb volatility. There is no stated level at which the bank seeks to hold the rupee, and so it will intervene only when the rupee is volatile.
In this post, we will look at how the volatility in the USD/INR exchange rate has varied over the last seven years. For purpose of this analysis, we will use a 30-day Quadratic Variation as a measure of volatility (this is a lagging indicator, so the volatility number for today is the QV of the last 30 days).
The following graph shows both the level of USD/INR (black line, left axis) and the quadratic variation (red line, right axis).
Source: Oanda.com Volatility calculated as 30-day Quadratic variation
Notice that for most time periods, irrespective of the exchange rate, the RBI’s stated objectives have been met – the volatility in the exchange rate has been low for large period of time. Volatility of the exchange rate spiked once following the financial meltdown of late 2008 and again towards the end of 2011 (when Europe got into trouble).
It is interesting to note that for all the footage that the sliding rupee has received in the last month or so, the volatility of the rupee has been quite low (compared to the peaks). It will probably take a significantly higher volatility in the rate for the RBI to step in.
It is also interesting to note that in the second half of 2010, even though the rate level was fairly stable, volatility was significant!
Recently the National Crime Records Bureau put out statistics of violent crime in India in 2012. In this post we will look at the incidence of rape in various states.
The following chart plots the number of rapes per 10000 people against the number of murders per 10000 people. The reason we have included the murder numbers here is to control for states which have an overall high rate of violent crime. This chart also has the regression line and the shaded region is the 95% confidence interval around this line.
Source: Crimes in India 2012 report by the National Crime Records Bureau
It is interesting to note that relative to murder rate, Mizoram has the highest case of reported rape in India. In fact, Mizoram has the absolute highest rape rate in India. However, we need to take into account that these are the numbers of reported rape cases. According to reports in the media, a large number of rape cases in India go unreported. So these numbers need to be taken with a handful of salt.
So I’ve learnt that doctors prefer to marry other doctors. Well, there’s nothing new in this. When I think about my extended families, and doctors there, most of them I realize are married to other doctors. The ostensible reason, I’m told, is that it’s a different lifestyle, and only doctors can understand the lifestyles of other doctors, and hence this preference. It cannot be ruled out, however, that it is a fallout of pretty good gender ratios and long hours at medical colleges, which leads to coupling – with the “understand each other’s professions” only being a fig leaf.
While people in other professions also marry within their profession (again put down to ease of “meeting”), this tendency is especially exaggerated among doctors. The problem with this, though, is that it doesn’t make financial sense.
Now, the deal with doctors is that they don’t earn good money until very late. After you’ve finished your bachelors, you first need to slog it off for a few years before you get a masters seat. And once you’ve finished your masters, you need to slog for a few years at a hospital which will pay you a pittance, until a point comes in life when you become senior enough that you start getting paid well.
Typically, most doctors (in India) don’t make much at all till they are 35, and after that they get flooded with money. Now, if two doctors marry, that means they are starved of cash flow during their prime years – time when their engineer and MBA counterparts will be minting money, traveling the world, having kids and buying houses. By the time the doctor couple makes money, they would probably be well past their youth, and it is only their descendants that will get to really enjoy their cash flows.
If a doctor marries an engineer (or an MBA), though, cash flows are better hedged. While it is true of all professions that salary goes up with years of experience, the curve isn’t as steep for professions apart from doctors. So, a doctor-MBA couple (say) can live a good life on the MBAs salary till they are in their mid-late 30s, by which time the doctor’s career would have begun to take off and the MBA would have begun to burn out. And then the doctor’s enhanced cash flow starts kicking in! Great hedge, I would say!
So dear doctors, unless you have fallen in love with a classmate at medical school (which has effectively locked you in to a lifetime of poor cash flow structures), reconsider. Consider marrying out of your profession. Yes, it might be harder for you to get each others’ professions. But at least your finances are taken care of!
PS: Some other professions such as lawyers and accountants also have a fairly steep salary increase curve – starting off at a pittance and then later making money. But in these professions people end up getting to “partner level” at around 30, which is far superior to doctors. Then again, such professionals don’t inter-marry within profession as much as doctors do.
First of all, I’m serious. Second of all, this is not the first time I’m writing on Bangalore’s nightlife (or the lack of it). The last time I wrote about this topic, I had argued that most people in Bangalore are fundamentally illiberal and opposed to extended night life, and official response was just an embodiment of this sentiment. This post is more positive.
I think I have hit upon a solution to create a night life in Bangalore. This is based on my experiences at Amritsar and Ajmer. Both of them were extremely spiritual experiences (no, not that spirit. Alcohol is banned in the vicinity of the main shrines in both these places). Both places offered fantastic food (again, vegetarian food only in the vicinity of the Golden Temple – but bloody brilliant; and brilliant mutton biryani near the Dargah of HKGN in Ajmer). And most importantly, both towns had a vibrant night life.
I’m not sure if I’ve touched upon this topic earlier, but the fundamental problem with Bangalore not having a night life is that it has never had one. Half of it was a traditional Indian city, and the other half was a rather sleepy cantonment town – which had its share of bars and discotheques, but most of which closed at eight in the evening (even twenty years ago, most of MG Road and Brigade Road would close at eight in the evening). Consequently, the city never did have a lifestyle. Even if you argue that the cantonment side had one, that the “city” side became more dominant after independence meant that whatever night life was there never really developed.
Fundamentally, a town gets a night life if people have some business being outdoors at night. Bombay had its textile mills that ran round the clock. New York was a busy trading port. Pick any city with a reasonable night life and you will find that sometime in its history there would have been a solid reason for people to remain outdoors late in the night. And yes, I’m talking about a solid business reason, not just partying.
The simple fact of the matter is that Bangalore has never had one (for reasons explained above). The situation is slowly changing of course, with many of Bangalore’s BPO and IT shops open through the night to service customers in the new world. Unfortunately, most such companies have insulated themselves from the rest of the city and built their own facilities for food, transportation, etc. Thanks to this, workers in such establishment (no doubt there are several) do not really contribute to the general nocturnal economy of the city. And so the administration can get away with downing shutters at bars and restaurants at 11 pm.
So what needs to be done? As the title of the post suggests, we need to build temples. We need “udbhava murtis” (idols that have sprung up from the ground) to magically spring up in several places in the city (not in the middle of roads of course). Then we need our religious leaders to declare that such murtis are the greatest to have ever existed, and to create a discourse that visiting one such murti will cure one of all past sins (or any such thing that will bring in crowds in large numbers). This needs to be a concerted effort, such that the demand for “darshan” at these murtis become humongous. The demand to see the murtis will be so humongous that the temples that are likely to spring up around them will need to be open round the clock!
And so we will have people visiting these temples late in the night, in the wee hours of the morning. Lots of people at the temple means an enterprising chaat wallah will find it profitable to set up shop outside these temples. They will be followed by a chai wallah, and then dosa carts will begin to appear. Police will want to read the rule book to these businessmen, but their removal will lead to incurring the wrath of thousands of hungry pilgrims. The police will quietly extract their commissions and let the establishments stay. Then, people will need to get to the temples at wee hours of the morning, so we will have buses running through the night. More people moving around will mean greater “liquidity” in the auto rickshaw market and they will become more affordable at these times.
It will take a while (no good things come easily). But soon the bustling economies around these 24-hour temples will mean that the city will be alive through the night. Laws will have to change, and soon shops will be open through the night. As will be restaurants, and in the course of time bars (no promise on that one; Till very recently even in London bars had to shut at 11pm). And the city will have a night life!
Of course, the road to this liberal utopia is through a religious process. But then, don’t ends sometimes justify the means? And who is to say that an all-powerful deity does not add value to society at large? It will take concerted effort though (these idols need to magically appear in strategic locations, and we need the support of religious leaders to bless such idols – this is easier said than done), but it can be done.
PS: After writing this I realize that I’d written something similar on the Broad Mind a few months ago. Apologies for re-hashing the same idea. But don’t tell me this is not more positive.
I did my higher education at two “institutes of national importance”. Both institutions followed what is called “relative grading”. It didn’t matter on an absolute scale how well or how badly you did. Your grade for the course would depend on how everyone else who took the course did. So for example, there was this one course at IIT Madras where I got 80/100, and got an S grade (the highest grade possible). The general performance of the class had not been great, so in that course 80 merited an S. In another course, however, 80 fetched me only a B (the third highest grade) – the general performance of the class had been much better.
While IITs and IIMs and some other autonomous institutions practice relative grading, it is not the “done thing” in most of the rest of India. Most of our board and university exams follow what is known as “absolute grading” – your grade for the course depends solely on your performance, without taking into account the performance of others. So it is theoretically possible to have a case where practically everyone in the class scores “90%”. Given that this is the prevailing system of grading in most of India, we assume that the board exams follow this principle, too.
Two or three days back, Debarghya Das, a student at Cornell set a cat among the pigeons by scraping the marks of every single student who took the ICSE or ISC exams (10th and 12th board respectively administered by the CICSE). What he noticed was that certain marks had gone missing – for example nobody scored 81, 82, 84, 85, 87, 89, 91 or 93 in any of the courses. This is just a sample of marks that have gone missing. There are several other numbers which are effectively “unattainable” in any of the courses. Das, on his account, has alleged some kind of “fraud”.
What is the first thing that comes to your mind when you see this rather jagged distribution? I wouldn’t blame you if you saw a hedgehog. But can you think of a graph that looks like that?
Three years back I bought myself a DSLR camera, after which I pretend to be an expert photographer. I even use Photoshop/Gimp to manipulate some of the images I click. And a decidedly much better photographer friend has told me that the first thing you do while editing a photo is to adjust “levels”. See this to know what you can do with levels. Basically, the concept is that some parts of the colour spectrum are unrepresented in an image, and by adjusting levels you make sure the full spectrum is used, thus improving the contrast of the image.
There is something known as the image histogram. I took a picture that I had shot and adjusted the “levels”. On the left you see what the histogram looks like after the levels. On the right, you see the histogram as it was before you adjusted the levels.
Image histogram after (left) and before (right) adjusting the levels of an image. From a random photograph I had shot
Doesn’t the histogram on the left remind you of the distribution of ICSE/ISC marks? And how did we get that histogram? By taking the histogram on the right (which is smoothed but all bunched up in one part of the distribution) and stretching it so that it falls across the entire distribution. And what happened when we did that? We got gaps, as you can see in the histogram on the left or the distribution of ICSE/ISC marks.
There is an article in The Hindu today that again explores this issue of missing marks in ICSE/ISC. In that the ICSE council, which administers these exams is quoted saying:
“In keeping with the practice followed by examination conducting bodies, a process of standardisation is applied to the results, so as to take into account the variations in difficulty level of questions over the years (which may occur despite applying various norms and yardsticks), as well as the marginal variations in evaluation of answer scripts by hundreds of examiners (inter-examiner variability), for each subject.”
Another money quote from the same article:
“The word tampering is wrong. There is moderation that happens across education boards,” explained a teacher, who has worked with ICSE schools in Hyderabad and Chennai. “After the first round of corrections, raw data is given to officials and head examiners who analyse how students have performed. They try to ensure the bell curve of the results does not look awkward. If it does, the implication is that the checking has been either too liberal or very strict.”
So there you go. The ICSE Council effectively follows relative grading. There is a certain distribution of marks that they desire, and they adjust the “levels” of the overall distribution of marks so that the desired distribution is achieved. The desired distribution of marks is something like “X% students get between 95 and 100, Y% get between 90 and 95”, and so on. Now, two students who had got the same number of marks as per the initial marking have to get the same number of marks after recalibration. So what the missing marks indicates is that there was clustering – a large number of students had ended up scoring in the same narrow range, and so after normalization, this range got expanded because of which you have gaps. Now, when certain sections of the range in the middle are expanded, some at the end have to get contracted (for example, if someone who originally got 70 is given 90, a person who originally got 90 deserves so much more). Which is why you see that at one end – 94-100 all possible marks are represented.
This still doesn’t explain one thing though – why is it that the same marks have gone missing in all subjects? It is impossible that the initial distribution of marks was identical across subjects. I have only one explanation for this – there was one overall mapping algorithm that was used across subjects, that converted marks obtained to the relative marks. This is also seen in the fact that the shape of the distribution across subjects varies widely (again refer to Das’s post).
So that explains the weird distribution of marks in the ICSE / ISC exams. But what explains the title of the post? In IITian English, “RG” is a term derived from “relative grading”. It is a rather derogatory term used to describe people who prefer to pull down others in their quest to get ahead (note that this is a consequence of relative grading). Taking some more liberties and using IITian English, you can say that the ICSE/ISC board has “RGed” students!
Now I guess you know how I work. I come across a data set and then torture it to extract as much information as I can before I let go of it. So continuing with the railway data put out by the EPW, in this post we will look at the track utilization. The metric is simple – how many passenger trains go over a piece of railway track each day?
We have numbers for the total route length and the total number of passenger train kilometers. Dividing the latter by the former gives us the number of trains that pass over the average piece of track in a year. Divide that by365 and you get the number of trains that go over the track per day. In 1992, this number was 16. An average piece of track was run over by 16 trains each day. By 2009, this number had gone to 25!
Data source: Economic and Political Weekly May 18, 2013 vol xlviII no 20
Note that these are average numbers. They hide the fact that there might be tracks on which no trains run, and other tracks on which maybe 100 trains run each day (even higher if you think of something like the Mumbai local train tracks). Yet, they give us a good indication of how the railways have utilized the infrastructure that is most scarce (tracks are the hardest thing to add, given the complexities involved in laying additional track – taking into account land acquisition, etc.).
Notice that though this is a largely linear growth, there have been times when growth has been faster than in other times. Next, let us look at how much utilization has been added each year. And let us look at it in terms of who the railway minister was in that financial year!
Data source: Economic and Political Weekly May 18, 2013 vol xlviII no 20
Notice that the outlier years are the first two years of Nitish Kumar’s occupation of the Ministry. During his unbroken 5 year tenure, Lalu Prasad Yadav also consistently added significantly in terms of track utilization. Unfortunately the data for passenger train kilometers ends with 2009, so here we are not able to see how Mamata Banerjee performed in her second stint in the ministry.
In my last post I looked at some railways data that was put out by the Economic and Political Weekly to show that the total addition in route length over the last 20 years is not much to talk about. The same data set also gives data on “passenger kilometers” and “passenger train kilometers” for each year. The latter gives the total distance all passenger trains in India have run, while the former gives the total distance traveled by (ticketed) train passengers in India each year.
Now, the ratio of these two numbers gives us the number of passengers per train. It is interesting to note how this has moved in the last 20 years.
Data source: Economic and Political Weekly May 18, 2013 vol xlviII no 20
In 1990 the average train used to carry about 800 passengers. That number has almost doubled to 1400 in 2009 (data on passenger train kilometers not available after that).
While some people might see this as a measure of higher efficiency by the railways, I see it more as an inability by the railway infrastructure to keep up with passenger demand. With little track length having been added, there is no surprise in that.
Back in 2009, just before the general elections, I had advised people to vote for the NDA. My argument there was that irrespective of the relative merits and demerits of the parties leading the two coalitions, the BJP was a more likely candidate to lead a reformist government for it was not the incumbent. Incumbent governments tend to get cozy with unelected people who are in power (for example, leaders of PSUs, unions, civil servants, etc.) because of which they are loathe to take up policies that cut the power of such people. In other words, they are loathe to take up reformist steps that decrease the size of government.
The same argument can be extended to argue why the Congress is inherently a pro-government party. The fact of the matter is that it is the party that has been in power at the Union government for most of our history. This means that a large part of the unelected government organization has its loyalties with the party. Consequently, the party too sees itself as being loyal to this cadre, and will not pursue policies that cut down their power.
This explains why the Congress-led UPA1 government decided to reverse the earlier NDA government’s decision to repeal the Essential Commodities Act. It explains why the Congress-led UPA1 government did not pursue the reforms in the APMC act that had been set in motion by the earlier NDA government. This also explains why the Congress-led UPA2 government is trying to push through the Food Security Bill, which seeks to increase the role of the government in the agricultural supply chain.
The reforms that the UPA governments have been trying to pursue are those that do not significantly impact its unelected-government-organization constituency. Foreign investment in retail, for example, will only affect the retail industry, and the government doesn’t have much skin in the game there. The Indo-US Civil Nuclear Agreement again doesn’t trample on government feet. Conversely, nuclear energy is a field where a compelling argument can be made in favour of a government monopoly, so that agreement will only increase government participation in the energy sector (note that I’m not against the deal. I’m only trying to explain why it is acceptable reform for the Congress). The MGNREGA again brings in several thousand more people into the government folds. The only exception in the list of UPA-led reforms that might challenge big government is the Right to Information, but that act was passed in the infancy of the UPA1 government when it was much more beholden to the National Advisory Council (NAC) than it is today.
So what explains 1991? Two things. Firstly, it was a whole bunch of low hanging fruit. Though government was reduced, the resulting incremental growth increased the size of the pie so much that the proportion of the enhanced pie that the unelected-government-organization had access to was enhanced. So from a rational tradeoff perspective, it was the right thing to do. Secondly, and more importantly, the reforms were inevitable. The Indian economy was in such bad shape that there was no way out but to do those reforms. So holding up 1991 as proof of the Congress Party’s reformist credentials is wrong.
But what is the guarantee that a non-Congress government will pursue reforms that could reduce the size of the government? They fully recognize the fact that large parts of the unelected-government-organization cadre are beholden to the Congress party, and they will want to cut this constituency down to size. Hence, they will work towards reforms that will reduce the size of government. Yes, there is no guarantee that they will not open up other fronts that will increase the government’s footprint, but they are unlikely to do worse than a government involving the Congress.
Normally I would welcome a move like the recent one by the Directorate General of Civil Aviation (DGCA) that allows airlines to decrease baggage limit and allows them to charge for seat allocation. While I’m a fan of checking in early and getting in a seat towards the front of the flight (I usually don’t carry much luggage on my business trips), under normal circumstances I wouldn’t mind the extra charge as I would believe it would be offset by a corresponding decrease in the base fare.
However, I have a problem. I don’t pay for most of my flights – I charge them to my client. And this is true of all business travelers – who charge it to either their own or to some other company. And when you want to charge your air fare to someone else, one nice bundled fare makes sense. For example (especially since I charge my flights to my client) I would be embarrassed to add line items in my invoice to ask for reimbursements of the Rs. 200 I paid for an aisle seat, or the Rs. 160 I paid for the sandwich. A nice bundled fare would spare me of all such embarrassment.
Which probably explains why most airlines that primarily depend on business travelers for their business don’t unbundle their fares – that their baggage allocations remain high, that they give free food on board and they don’t charge you extra for lounge access (instead using your loyalty tier to give that to you). Business travelers, as I explained above, don’t like unbundled fares.
Which makes it intriguing that Jet Airways, which prides itself as being a “full service carrier” has decided to cut baggage limits and charge for seat allocation (they continue to not charge for food, though). Perhaps they have recognized that a large number of business travelers have already migrated to the so-called low-cost Indigo (it’s impossible for Indigo to have a 30% market share if they don’t get any business travelers at all), because of which Indian business travelers may not actually mind the unbundling.
Currently, Indigo flights have a “corporate program”, where the price of your sandwich and drink is bundled into the price of the ticket. I normally book my tickets on Cleartrip, so have never been eligible for this, but I can see why this program is popular – it prevents corporates from adding petty line items such as sandwiches to their invoices. On a similar note, I predict that soon all airlines will have a “corporate program” where the price of the allocated seat and a certain amount of baggage (over and above the standard 15kg) will be bundled into the base price of the ticket. Now that I charge my flights to a client, I hope this happens soon.
