A Solid And Sincere Bet On India

India, Monday, May 4, 2020. It is Day 01 of the third tranche of India’s COVID-19 lockdown. The third tranche is a combination of pragmatism, caution and necessity. It has set free many components of economic activity. It has retained the restraints that came into place along with the first tranche of the lockdown on March 25, 2020.

The government has published a list of “go, no-go” activities applicable to the third tranche. Akara and CreaSakti had published a list of recommended “go, no-go” activities on April 8, 2020. These two lists closely match one another. We are delighted. We are on the same page!

We were ahead of the curve by about three weeks. We had assumed that India would put to use FASTag, radio-frequency identification (RFID) devices and personal protection equipment (PPE) on a large scale. India has not. Without large-scale use of FASTag, RFID and PPE during the COVID-19 lockdown we have travelled far.

Our human capital

Our human capital and leadership resources have carried us this far. The air of resolve since this morning is palpable. Resolve and resourcefulness are seriously important determinants that India possesses in abundance.

Resolve and resourcefulness have a great past in India. They are granular and spread diffusely across India. India’s future rests on the resolve and resourcefulness of its people. India is a great bet. Betting on India is a good thing to do. We will back our optimism with data. We are a data powerhouse.

India’s low Gini index

India’s Gini index is a low 35.2. You may have begun to think that a low Gini index is a sign of weakness. You may have imagined it is one more sign of perpetual misery. Perpetual misery is what the cynics and critics of India discuss all the time. They wallow in it.

A low Gini index is a sign of strength. It shows India is a more benign and more equitable economy. The Gini methodology is so structured that big numbers show high income inequality. Small numbers show better income equality. The Gini index is somewhat similar to the measure of dispersion that we are all familiar with: sigma or standard deviation.

A low Gini index is the result of greater diffusion and dispersion of incomes. Greater diffusion and dispersion of incomes are obviously the results of better engagement and deployment of human capital in economic activities.

India’s Gini index is 35.2. India has a better income equality index than China (46.5), Singapore (45.9), Saudi Arabia (45.9), the United States of America (45.0), Iran (44.5), Israel (42.8), Russia (41.2), Turkey (40.2), Japan (37.9) and New Zealand (36.2). The Gini index numbers are from the CIA World Fact Book.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/rawdata_2172.txt

People cause fairness

India’s low Gini index is testimony to the enormous resolve and resourcefulness of its people. They have beaten the odds. They beat the lumpiness of governance capital and fiscal allocations. How?

They are masters in adjusting private sector wages, prices and mobility towards building a fair society. They enable the small fish to live. They adjust private sector wages, prices and mobility in such a way that thousands of households can equitably live within their means.

Private sector wages, prices and mobility adjust within geographic clusters so as to distribute purchasing power more equitably. India makes itself a benign and fair society by its own wisdom and means. There are a million and more invisible hands. We will have more to write on this. We are a data powerhouse.

Intelligent clusters

Most economists and economic think-tanks see India as a lumpy, monolithic whole. We cannot blame them. They fly high. They live high. From their altitudes and from their perches in Chicago and Washington DC, it would be very difficult for them to make out the difference between Dindugal and Dibrugarh.

Akara and CreaSakti know what makes Dindugal and Dibrugarh tick. Each district so arranges its value seeding, value creation and value addition activities that most households are pulled in towards economic activity without fuss.

They then create and exchange value in a manner that everyone is better off. Human capital shortages and human surpluses are whittled down by seasonal, periodic, short-term and medium-term migration.

Why are we discussing this here? The state and the union governments may not necessarily allocate governance capital and fiscal capital equitably. People are used to these whims and shortcomings. They – the people, therefore, do what is within their control.

They build principal and auxiliary economic activities that promote more incomes and better income distribution in Dindugal. They build principal and auxiliary economic activities that promote more incomes and better income distribution in Dibrugarh. They do these without consulting Chicago and Washington DC.

Genius and self-interest

Akara and CreaSakti have since May 1999 developed metrics to determine if Dindugal and Dibrugarh have comparable income distributions. Dindugal and Dibrugarh indeed have comparable income distributions!

Dindugal and Dibrugarh belong to two vastly different agro-climatic zones (ACZs). Their dissimilarities outnumber their similarities. Yet, they exhibit more similarities in their income distributions than dissimilarities.

Across all of India’s 15 ACZs, the annual income ranging between Rs. 75,000 and Rs. 200,000 is the modal household income. This pattern reappears in most districts of India. This occurs despite the huge variations in economic activities that contribute to the purchasing power of districts.

The districts have their own unique and individualistic connections with the broader national and global economic activities. But not all districts are fortunate to have equally strong connections with the broader national and global economic activities.

Markets, local capital and migration

Yet, at the microeconomic level, they have comparable income distributions. Wages and the prices of locally-produced wage goods adjust rapidly and across India to cause comparable income distributions. This is the genius of markets. We will write about the genius of marketing tomorrow.

Mind and body, heart and soul, India is the epitome of the market economy that right-wing purists write about. Mind and body, heart and soul, India is the epitome of the fair and equitable economy that socialists yearn for.

This is also the genius of local capital that builds auxiliary economies within the local economies. They enhance opportunities. Then they share shortages and surpluses of human capital through migration.

Prices and wages adjust

Our readers would be familiar with the six assumptions that precede the capital asset pricing model (CAPM). One of the assumptions of CAPM is that prices of assets so adjust as to have no surplus supply and no excess demand.

We have seen wages and prices of locally-consumed produce adjust rapidly in India. We were then members of the agricultural markets committee of the union government between 1999 and 2001. We have seen wages and prices of locally-consumed produce adjust as rapidly as imagined by Professors Treynor, Sharpe, Lintner and Mossin. CAPM owes its origins to these professors.

GST and the Finance Commission

The joint equilibrium of the production and consumption functions is predicated on the rapid adjustment of (1) wages and (2) prices of wage goods. Normative economists who normally constitute the price-setting institutions of India may have never paid attention to how, why and when these rapid adjustments take place. Theoreticians have no skin in the game.  

The rapid adjustment of (1) wages and (2) prices of wage goods is a prerequisite for production without an excess and consumption without a shortage. India’s unlettered practitioners who do not sit on committees get this done in the blink of an eye.

The reward accrues to the state governments. India’s Goods and Services Tax (GST) has formalised the flow of consumption-based tax to the state exchequers. Moreover, the Finance Commission has formalised a greater share of the pooled taxes in favour of the state exchequers.

India is structurally and fiscally well set for the economic recovery that everyone wishes for. We are earnest in betting on India. The committees and the commentators can say what they want. Those who have their skin in the game outnumber those do not have their skin in the game. So, our bet is on India doing better than what others expect.