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Sunday, May 18, 2008

Mistry Lets It Rip

In a wonderfully column in Business Standard, Sri Percy Mistry, who enabled the MIFC report - a plan to convert Mumbai into an international financial center on par with New York City, London, and Tokyo - which is now gather dust, of course, lets it rip. On the meddlesome nature of Indian babucracies, especially those dinosaurs called chief economic advisers, who seem to populate a dinosaur institution, the Planning Commission, which is currently blocking, among many things, the building and deployment of international airports in Delhi, Kolkata, and Mumbai, because, get this, they are too large (sic), despite the go head by the Ministry of Aviation, which actually did a study on the growth airline passengers, and the politicians mostly steeped in doctrine of socialism, including the apparently brilliant people like P. Chidambaram and Manmohan Singh.

Apparently, primitivism protects India from financial crises. Hence proper insurance, risk management, and derivatives markets are not allowed to develop. Banning futures markets is believed to reduce commodity prices! That is like the Aztec belief that daily blood sacrifice is necessary for the sun to rise every morning!...

The belief prevails that attempting to manage risk will exacerbate it because the tools involved are double-edged. To be sure, a sharp knife can be used to murder people. So should it be banned? We could always cut onions with our fingers, toes or teeth! That is the practical equivalent of what we are doing now in the world of Indian finance. If the thermometer gives you a reading you don't like (like prices being signalled by futures markets), then break or discard it!...

Goaded by commentaries of retired CEAs and RBI executives also living in the past, but unfamiliar with the problems of today (or of how similar problems are addressed elsewhere) the counterproductive beliefs of our ignorant leaders are bolstered. There seems to be a fundamental reluctance to accept a self-evident (inconvenient?) truth in 21st century India, that is, the socialist mixed-economy paradigm they have grown up with is bankrupt. It does not work. It never did; not at macro-, meso- or micro-levels. It was rooted in bad theory and good intention — the same combination and dynamic that paved the road to hell. [Paying the price of ignorance - BS]

The entire article is a gem. Please read it to understand how badly the country economy continued to be badly managed. (The article via Ajay Shah's blog.)