Smriti Irani

EVERYBODY LOVES A GOOD STORY…

smriti-irani

Last week, prime minister Narendra Modi, expanded the Union Cabinet, and 19 new ministers were inducted into it.

The swearing in of the new ministers happened at 11AM in the morning and did not hold any surprises. But a late evening announcement spelling out the change in ministries of existing ministers, had its share of surprises.

Smriti Irani, the youngest cabinet minister in the present Cabinet, was moved from Human Resources Development to Textiles. Jayant Sinha, the minister of state for finance was moved to the Civil Aviation ministry. Both these moves were surprises and were a step down for the ministers.

But it took the social media no time to come up with explanations for these moves and give a positive spin to the entire thing.

So, Irani, apparently had been moved to the textiles ministry because she could have a big role to play in the 2017 Uttar Pradesh elections. While people suggested that Sinha was basically paying for the outbursts of his father, former finance minister, Yashwant Sinha, against the Modi government. Some others suggested that his wife is an investor and there is a conflict of interest.

There are multiple issues that come up here. If people were so sure that Irani being moved from a high profile ministry to a low-profile one, why didn’t they talk about it earlier? If they knew that this was a possibility, they could have at least speculated about it, before the decision was made.

Coming up with explanations after something has happened is an excellent example of hindsight bias. As Jason Zweig writes in The Devil’s Financial Dictionary: “Hindsight bias [is] the mechanism in the human mind that makes surprises vanish. Once you learn what did happen, your mind tricks you into believing that you always knew that it would happen.”

Psychologist Daniel Kahneman explains the phenomenon through the example of a football match. As he writes in Thinking, Fast and Slow: “Imagine yourself before a football game between two teams that have the same record of wins and losses. Now the game is over, and one team trashed the other. In your revised model of the world, the winning team is much stronger than the loser, and your view of the past as well as of the future has been altered by the new perception.”

An excellent example of this is all the explanatory articles that were published after Iceland recently beat England in the Euro Cup football tournament.

The reason this happens is that the human mind wants explanations for surprises. And if there are no explanations it comes up with explanations. As Duncan J Watts writes in Everything is Obvious—Once You Know the Answer: “Whenever something interesting, dramatic, or terrible happens—Hush Puppies become popular again, a book by an unknown author becomes an international best seller, the housing bubble bursts, or terrorists crash plans into the World Trade Center—we instinctively look for explanations.”

This is precisely what happened when Irani and Sinha were demoted. In Sinha’s case, that his wife is an investor has always been known. So that leads to the question why was he moved now? If the reason was conflict of interest, that was true from the day he became minister.

Hence, things that appear to us explanations are basically just stories that we tell ourselves and others, in order to come up with an explanation. As Watts writes: “The result is that what appear to us to be causal explanations are in fact just stories—description of what happened that tell us little, if anything, about the mechanisms at work. Nevertheless, because these stories have the form of causal explanations, we treat them as if they have predictive power.” This is clearly not the case.

Nevertheless, at the end of the day, everybody loves a good story, especially when one does not know the real reason behind why something happened. And that is precisely what happened in the aftermath of Irani and Sinha being demoted from high profile ministries to non-descript ones.

The column originally appeared in the Bangalore Mirror on July 12, 2016

 

In defence of Smriti Irani: Why Madhu and Maken are wrong

 smriti-irani

Vivek Kaul

So Smriti Irani cannot make for a good human resources development minister because she is not a graduate.
Or so we have been told by the likes of Madhu Kishwar and Ajay Maken.
In short, people who have degrees make for better politicians is the conclusion being drawn. But is that really the case?
Let’s take the case of a certain Lalu Prasad Yadav, who was the defacto Chief Minister of Bihar for more than 15 years. Lalu has a Bachelor of Laws and a Master in Political Science. How did his degrees make any difference?
During his rule Bihar went from bad to worse. In fact, when Lalu was questioned about the lack of development in the state, he was very open about admitting that development did not lead to votes.
Such was Lalu’s lack of belief in development that even money allocated to the state government by the Central government remained unspent. As Santhosh Mathew and Mick Moore write in a research paper titled State Incapacity by Design: Understanding the Bihar Story, “Despite the poverty of the state, the governments led by Lalu Prasad signally failed to spend the money actually available to them: ‘…Bihar has the country’s lowest utilisation rate for centrally funded programs, and it is estimated that the state forfeited one-fifth of central plan assistance during 1997–2000.’”
Interestingly, between 1997 and 2005, Rs 9,600 crore was allocated by the Ministry of Rural Development to Bihar. Around Rs 2,200 crore was not drawn. Of the amount that was drawn only 64% was spent.
During Lalu’s rule Bihar went from bad to worse and a whole generation lost out on progress. But yes, Lalu had two degrees.
Let’s take an even better example of former prime minister Dr Manmohan Singh, a PhD from the University of Oxford. Now compare his degree to the mess that we have ended up with under him. Interestingly, most of our politicians who have a degree, tend to have a degree in law. How does that help in anything other than running the law ministry or the ministry of corporate affairs or other similar ministries? And that is assuming that having studied law, the politician understands its intricacies (not every lawyer has the same command on the subject like Arun Jaitley does).
If we take this argument further, what it means is that to become a minister an individual should be an expert in that particular area. So, a finance minister should either be an economist or a finance professional. Arun Jaitley is neither. A defence minister should have experience in the area of defence. So, doesn’t that make General V K Singh an excellent choice for being the defence minister?
Further, in order to get an individual with the right experience or a degree to head a ministry, one would be looking at technocrats all the time. So, then why bother about electing MPs at all?
This would mean moving onto a more American form of government where the President is elected by the people and is allowed to choose his team, a lot of whom are technocrats who have the required experience.
Given this, insisting that a minister have a degree, doesn’t make much sense in the present system of government that we have.
That’s the general part of the argument. Then there is also the specific part regarding Smriti Irani and Congress’ criticism of her lack of a degree. To her credit Irani is a successful professional, who has risen on her own, in a very competitive television industry.
Also, what one needs as a minister is the ability to administer. Whether she has that or not, we will come to know in the time to come.
The Congress party is in no position to criticize her. One of their foremost leaders Rajiv Gandhi, never completed any degree after leaving the Doon School. He was the prime minister of the country. His mother Indira, never completed her degree at Oxford. Their current leader Sonia Gandhi’s educational qualifications are also nothing to write home about. So, they really are not in a position to criticise Irani. It’s like the pot calling the kettle black.
To make a totally different comparison, all the Ivy League MBAs, PhDs in Maths and Physics who worked on the Wall Street, created a major part of the financial crises that the world is currently going through.
To conclude, there is not much of a link between having a degree and having the ability to govern. Look at the mess Kapil Sibal, who held the human resources development ministry between May 2009 and October 2012, made in the education sector. He had got his LLM degree from the Harvard Law School.

 The article originally appeared on www.firstpost.com on May 28, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

How UPA turned NDA’s economic growth into shambles

upaVivek Kaul 

In both love and war, it makes sense to hit where it hurts the most.
The war for the next Lok Sabha elections is currently on. And there is no love lost between the two main parties, the Congress and the Bhartiya Janata Party (BJP).
The BJP today hit out at the economic performance of the Congress led United Progressive Alliance government, over the last ten years.
Politically, this makes immense sense given the bad state the economy is in currently. Economic growth as measured by the growth in gross domestic product (GDP) is down to less than 5%. The GDP grew by 4.7% between October and December 2013.
The rate of inflation as measured by the consumer price index had been greater than 10% for a while and has only recently come below 10%. The consumer price inflation for February 2014 came in at 8.1%.
Industrial activity as measured by the index of industrial production (IIP) was flat in January 2014, after falling for a while. The overall index grew by just 0.1% during January 2014. Manufacturing which forms a little over 75% of the index fell by 0.7% during January 2014, in comparison to January 2013. This primarily is on account of the slowdown in consumer demand.
People have been going slow on spending money because of high inflation. This has led to a scenario where they have had to spend more money on meeting daily expenditure. Retail inflation in general and food inflation in particular has been greater than 10% over the last few years, and has only recently started to come down. Given this, people have been postponing all other expenditure and that has had an impact on economic growth. Anyone, with a basic understanding of economics knows that one man’s spending is another man’s income, at the end of the day. When consumers are going slow on purchasing goods, it makes no sense for businesses to manufacture them. When we look at the IIP from the use based point of view it tells us that consumer durables (fridges, ACs, televisions,computers, cars etc) are down by 8.3% in comparison to January 2013. The overall consumer goods sector is down by 0.6%.
This slowdown in consumer demand was also reflected in the gross domestic product(GDP) numbers from the expenditure point of view. Between October and December 2013, the personal final consumption expenditure(PFCE) rose by just 2.6% to Rs 9,81,463 crore in comparison to September to December 2012. In comparison, during the period October to December 2012, the PFCE had grown by 5.1%.
The lack of demand along with a host of other reasons also means that the investment climate for businesses is not really great. This is reflected in the lack of capital goods growth, which was down by 4.2% during January 2014. If one goes beyond this theoretical constructs and looks at real numbers like car sales, they also tell us that the Indian economy is not in a good shape as of now. Smriti Irani, a television actress turned BJP politician summarized the situation very well, when she said “Today, as the Congress-led UPA leaves office, it leaves behind a legacy of an economy which has been mismanaged.” Yashwant Sinha, former finance minister and senior BJP leader, went a step ahead and said that “an investment crisis” and “a crisis of confidence in the economy”. The Congress party is likely to react to this attack by the BJP by following the conventional line that it has always followed. The party is most likely to say that India has done much better under the UPA than the BJP led National Democratic Alliance (NDA).
Prima facie, there is nothing wrong with the argument. Between 1998-99 and 2003-04, when NDA was in power, the average GDP growth rate was at 6% per year. Between 2004-05 and 2012-2013, when the UPA has been in power the average rate of growth has been at 7.9% per year. If one takes into account, the GDP growth rate for this financial year i.e. 2013-2014, this rate of growth will be lower than 7.9%,but still higher than the 6% per year achieved during NDA rule.
But it is worth remembering here that the economy is not like a James Bond movie, where the storyline of one movie has very little connection with the storyline of the next. An economy is continuous in that sense.
The rate of economic growth in 2003, a few months before the UPA came to power, was at 7.9%. The rate of inflation was at 3.8%. In fact, the rate of inflation during the entire NDA term averaged at 4.8%, whereas during the first nine years of UPA regime between 2004-2005 and 2012-2013, it has averaged at 6.7%.
If we take the rate of inflation during this financial year into account the number is bound to be higher. The index of industrial product, a measure of the industrial activity in the country, was growing at 8% in early 2004. Currently it is more or less flat.
The fiscal deficit for the year 2003-2004 came in at 4.5% of the GDP. The fiscal deficit for the year 2012-2013 was at 4.9% of the GDP. The fiscal deficit for the year 2013-2014 has been projected to be at 4.6% of the GDP. Fiscal deficit is the difference between what a government earns and what it spends.
As I have explained in the past, this number has been achieved through accounting shenanigans and does not reflect the real state of government accounts. The expenditure and thus the fiscal deficit of the governmentis understated to the extent of Rs 2,00,000 crore. This is not to say that there wouldn’t have been any accounting shenanigans under the NDA rule, but they would have been nowhere near the present level.
The broader point here is that the NDA had left the economy in a reasonable good shape on which the UPA could build. And the first few years of growth under the UPA rule came because of this. In simple English, unlike James Bond movies, growth under the UPA cannot be separated totally from the growth under the NDA. The growth under UPA fed on the earlier growth under the NDA.
That’s one point. The second point that needs to be brought out here is that the massive economic growth during 2009 and 2010, when India grew by 8.5% and 10.5% respectively, was primarily on account of the government expanding its expenditure rapidly.
The government expenditure during 2007-2008 had stood at Rs 7,12,671 crore. This has since rapidly grown by 123% and stood at Rs 15,90,434 crore for 2013-2014. While this rapid rise in government expenditure ensured that India grew at a very rapid rate when the world at large wasn’t, it has since led to substantial economic problems. During the period Atal Bihari Vajpayee was the Prime Minister of India, the government expenditure grew by 68% and stood at Rs 4,71,368 crore during 2003-2004.
This rapid rise in government expenditure in the last few years has led to loads of problems like high interest rates and inflation, as an increase in government spending has led to an increase in demand without matched by an increase in production.
As Ruchir Sharma put it in a December 2013 piece in the Financial Times “With consumer prices rising at an average annual pace of 10 per cent during the past five years, India has never had inflation so high for so long nor at such an unlikely time…Historically, its inflation was lower than the emerging-market average, but it is now double the average. For decades India’s ranking among emerging markets by inflation rate had hovered in the mid-60s, but lately it has plunged to 142nd out of 153.”
In fact, if one looks at the incremental capital output ratio, it throws up a scary picture. Swanand Kelkar and Amay Hattangadi in a December 2013 article in the Mint wrote “the Incremental Capital Output Ratio (ICOR)…measures the incremental amount of capital required to generate output or GDP. From FY2004 till FY2011, India’s ICOR hovered around the 4 mark, i.e. it required four units of investment to generate one unit of output. Over the last two years, this number has increased with the latest reading at 6.6 for FY2013.” Currently, the number stands at 7.
This, in turn, has led to a massive fall in investment. As Chetan Ahya and Upasna Chachra or Morgan Stanley write in a recent research report titled Five Key Reforms to Fix India’s Growth Problem and dated March 24, 2014, “Public and private investment fell from the peak of 26.2% of GDP in F2008 to 17.3% in F2013. Indeed, private investment CAGR[compounded annual growth rate] was just 1.4% between F2008 to F2013 vs. 43% in the preceding five years.”
What all this clearly tells us is that the economic growth during the UPA rule fed on the economic growth during the NDA rule. The UPA has left the economy in shambles, and the government that takes over, will have a tough time turning it around.
The article appeared originally on www.firstpost.com on March 30, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek)