The article covers a neural network based model to predict the Rupee exchange rate over the short term. A linear regression based pre processing stage has been added to the neural network to improve the prediction accuracy.
Business Analysis and Research Lab SICSR
Saturday, November 25, 2017
Analysis Of Rupee Exchange Rate Dynamics using a Neural Network
Sunday, August 6, 2017
Banking Application Development in Software Project Management Course
I have setup the banking application developed in the Software Project Management course during my MBA at SICSR here: http://researchdiary.co.in/islamicbank/index.php
This was collaborative work by a team and not my individual effort. Other people who worked on the project are Sudha Edupuganti, Kiran Kendre, Prashant Khandagale, Khambor Malngiang, Arihant Jain, Bhagyashri Kadam and Pooja Toprani.
Software Testing, Object Oriented Analysis and Design, Database Design, PHP and web technologies were all covered in separate courses.
To check the dashboards with test data you can use these users:
Account Holder: Username: niravadesai Password: rorschach
Bank Manager: Username: admin Password: admin
Sunday, July 3, 2016
The Strength of ISIS
I did this exercise to try to see if it is possible to predict the ISIS attacks using time series analysis, like it is done in the stock markets. The increasingly distributed nature of ISIS attacks leads one to believe that the thinking behind a stock market move (which is a sum of large number of smaller moves) could be a close approximation of the model of the terrorist attacks by ISIS.
I found the timeline of ISIS growth from the Wilson Center: Link
This timeline was mapped to an Excel spreadsheet with a specific weight given to each event, 300 for a major attack by ISIS and -300 for the death of an ISIS leader. The time span between these events was modelled as growth of ISIS at a certain rate.
This data was used to predict ISIS attacks using neural networks and the analysis is presented here:
ANALYSIS OF ISIS ATTACKS USING NEURAL NETWORKS: REPORT
The cumulative score is plotted in chart below.
What is scary about this chart is that the size and power of ISIS today could be much more than what we feel from the size of the terror attacks it carries out.
The second chart below shows a time series of events that hit the ISIS. ISIS attacks are positive numbers and attacks on ISIS are negative number. If you zoom in to around 2014 - 2016 period, you will notice that every ISIS attack is followed by a corresponding attack on ISIS (or it could be vice versa - attacks on ISIS make ISIS attack back.)
Here is an interesting article from the Washington Post which talks of how the above process could be modeled as a Hawkes Process (Link). I found this article thanks to Jonathan Reichental, who I follow on Twitter. The article describes how the Hawkes Process was successfully able to describe the IED attacks of the Irish Republican Army in retaliation against attacks of the British Security Forces. The same could be applicable here as well.
The last major event on this timeline is the defeat of ISIS in Fallujah, Iraq on June 26, 2016, when the Iraqi forces regained control of Fallujah which fell in the hands of ISIS in 2014. I think we should expect a retaliation from ISIS soon.
ISIS timeline from the Wilson Center: Link
The analysis of the timeline in a spreadsheet: Link
Notice the peaks around Thursday, Friday and Sunday in the histogram below.
I found the timeline of ISIS growth from the Wilson Center: Link
This timeline was mapped to an Excel spreadsheet with a specific weight given to each event, 300 for a major attack by ISIS and -300 for the death of an ISIS leader. The time span between these events was modelled as growth of ISIS at a certain rate.
This data was used to predict ISIS attacks using neural networks and the analysis is presented here:
ANALYSIS OF ISIS ATTACKS USING NEURAL NETWORKS: REPORT
The cumulative score is plotted in chart below.
What is scary about this chart is that the size and power of ISIS today could be much more than what we feel from the size of the terror attacks it carries out.
The second chart below shows a time series of events that hit the ISIS. ISIS attacks are positive numbers and attacks on ISIS are negative number. If you zoom in to around 2014 - 2016 period, you will notice that every ISIS attack is followed by a corresponding attack on ISIS (or it could be vice versa - attacks on ISIS make ISIS attack back.)
Here is an interesting article from the Washington Post which talks of how the above process could be modeled as a Hawkes Process (Link). I found this article thanks to Jonathan Reichental, who I follow on Twitter. The article describes how the Hawkes Process was successfully able to describe the IED attacks of the Irish Republican Army in retaliation against attacks of the British Security Forces. The same could be applicable here as well.
The last major event on this timeline is the defeat of ISIS in Fallujah, Iraq on June 26, 2016, when the Iraqi forces regained control of Fallujah which fell in the hands of ISIS in 2014. I think we should expect a retaliation from ISIS soon.
ISIS timeline from the Wilson Center: Link
The analysis of the timeline in a spreadsheet: Link
Notice the peaks around Thursday, Friday and Sunday in the histogram below.
The Strength of ISIS
I did this exercise to try to see if it is possible to predict the ISIS attacks using time series analysis, like it is done in the stock markets. The increasingly distributed nature of ISIS attacks leads one to believe that the thinking behind a stock market move (which is a sum of large number of smaller moves) could be a close approximation of the model of the terrorist attacks by ISIS.
I found the timeline of ISIS growth from the Wilson Center: Link
This timeline was mapped to an Excel spreadsheet with a specific weight given to each event, 300 for a major attack by ISIS and -300 for the death of an ISIS leader. The time span between these events was modelled as growth of ISIS at a certain rate.
This data was used to predict ISIS attacks using neural networks and the analysis is presented here:
ANALYSIS OF ISIS ATTACKS USING NEURAL NETWORKS: REPORT
The cumulative score is plotted in chart below.
What is scary about this chart is that the size and power of ISIS today could be much more than what we feel from the size of the terror attacks it carries out.
The second chart below shows a time series of events that hit the ISIS. ISIS attacks are positive numbers and attacks on ISIS are negative number. If you zoom in to around 2014 - 2016 period, you will notice that every ISIS attack is followed by a corresponding attack on ISIS (or it could be vice versa - attacks on ISIS make ISIS attack back.)
Here is an interesting article from the Washington Post which talks of how the above process could be modeled as a Hawkes Process (Link). The article describes how the Hawkes Process was successfully able to describe the IED attacks of the Irish Republican Army in retaliation against attacks of the British Security Forces. The same could be applicable here as well.
The last major event on this timeline is the defeat of ISIS in Fallujah, Iraq on June 26, 2016, when the Iraqi forces regained control of Fallujah which fell in the hands of ISIS in 2014. I think we should expect a retaliation from ISIS soon.
ISIS timeline from the Wilson Center: Link
The analysis of the timeline in a spreadsheet: Link
I found the timeline of ISIS growth from the Wilson Center: Link
This timeline was mapped to an Excel spreadsheet with a specific weight given to each event, 300 for a major attack by ISIS and -300 for the death of an ISIS leader. The time span between these events was modelled as growth of ISIS at a certain rate.
This data was used to predict ISIS attacks using neural networks and the analysis is presented here:
ANALYSIS OF ISIS ATTACKS USING NEURAL NETWORKS: REPORT
The cumulative score is plotted in chart below.
What is scary about this chart is that the size and power of ISIS today could be much more than what we feel from the size of the terror attacks it carries out.
The second chart below shows a time series of events that hit the ISIS. ISIS attacks are positive numbers and attacks on ISIS are negative number. If you zoom in to around 2014 - 2016 period, you will notice that every ISIS attack is followed by a corresponding attack on ISIS (or it could be vice versa - attacks on ISIS make ISIS attack back.)
Here is an interesting article from the Washington Post which talks of how the above process could be modeled as a Hawkes Process (Link). The article describes how the Hawkes Process was successfully able to describe the IED attacks of the Irish Republican Army in retaliation against attacks of the British Security Forces. The same could be applicable here as well.
The last major event on this timeline is the defeat of ISIS in Fallujah, Iraq on June 26, 2016, when the Iraqi forces regained control of Fallujah which fell in the hands of ISIS in 2014. I think we should expect a retaliation from ISIS soon.
ISIS timeline from the Wilson Center: Link
The analysis of the timeline in a spreadsheet: Link
Wednesday, June 22, 2016
Trade Balance and Productivity
This is a discussion I had with a friend and decided to write about this here since I think it is relevant to the overall theme of the blog.
This blog is about trade imbalances and their reasons. The primary idea behind trade is absolute and relative competitive advantage. I make more of what I am good at and I trade for the rest with the surplus I generate.
What I am good at will be relative to what other's are good at, and this leads to the idea of absolute and comparative competitive advantage. If I have absolute competitive advantage, I will dominate trade. This is what happened in China over the last 20 years as the government followed protectionist policies, kept the currency pegged and subsidised the manufacturing sector. The Chinese manufacturing companies got an absolute competitive advantage in trade and thus they dominated global trade, generating record surpluses. Other manufacturing economies that did not enjoy such absolute competitive advantage, saw high trade deficits and high unemployment.
A good way to measure absolute and comparative competitive advantage would be productivity per capita. Productivity could be measured as the net output divided by the net resources consumed, the resources could be time, capital or energy. If we look at the productivity per capita in IT sector in India, it is pretty high, leading to high value of IT exports.
Productivity per capita in agriculture in India is low and so the sector needs a lot of government support. Rice exports have to be subsidised to be globally competitive. There are curbs on sugar exports during sugar scarcity. Some food imports are heavily taxed.
In light of this, I think the share of a global trade contributed by a specific country would be proportional to its absolute or comparative relative advantage vis-a-vis other countries. This correlation could be a useful means to study trade cartels and trade nexuses where trade shares of members are not proportional to their productivity. Absolute and comparative advantages could be measured using productivity per capita metrics for the specific industries.
This blog is about trade imbalances and their reasons. The primary idea behind trade is absolute and relative competitive advantage. I make more of what I am good at and I trade for the rest with the surplus I generate.
What I am good at will be relative to what other's are good at, and this leads to the idea of absolute and comparative competitive advantage. If I have absolute competitive advantage, I will dominate trade. This is what happened in China over the last 20 years as the government followed protectionist policies, kept the currency pegged and subsidised the manufacturing sector. The Chinese manufacturing companies got an absolute competitive advantage in trade and thus they dominated global trade, generating record surpluses. Other manufacturing economies that did not enjoy such absolute competitive advantage, saw high trade deficits and high unemployment.
A good way to measure absolute and comparative competitive advantage would be productivity per capita. Productivity could be measured as the net output divided by the net resources consumed, the resources could be time, capital or energy. If we look at the productivity per capita in IT sector in India, it is pretty high, leading to high value of IT exports.
Productivity per capita in agriculture in India is low and so the sector needs a lot of government support. Rice exports have to be subsidised to be globally competitive. There are curbs on sugar exports during sugar scarcity. Some food imports are heavily taxed.
In light of this, I think the share of a global trade contributed by a specific country would be proportional to its absolute or comparative relative advantage vis-a-vis other countries. This correlation could be a useful means to study trade cartels and trade nexuses where trade shares of members are not proportional to their productivity. Absolute and comparative advantages could be measured using productivity per capita metrics for the specific industries.
Saturday, April 16, 2016
A Multi-Variable Regression Model for GDP Growth Rate Prediction in India
Abstract: This paper attempts to build a multi variable regression model to predict the GDP growth rate in India using key macroeconomic indicators such as CPI inflation, manufacturing and services purchasing manager’s index, interest rates and the price of crude oil. The relationships between GDP and these parameters, as well as their inter-relationships are studied in this paper using linear regression models. An attempt is made to understand the relationships and understand the key driving factors for growth.
Keywords: GDP Growth Rate, Crude Oil Price, Inflation, CPI, Interest Rates, Rupee Exchange Rate,
Regression Model, Multi Variable Regression, Macroeconomics
Keywords: GDP Growth Rate, Crude Oil Price, Inflation, CPI, Interest Rates, Rupee Exchange Rate,
Regression Model, Multi Variable Regression, Macroeconomics
Tuesday, April 12, 2016
Why India Needs The Presidential System
I came across this book recently and since the title sounded so interesting, I decided to buy it. In his book "Why India Needs The Presidential System" author Bhanu Dhamija writes about what's wrong with the present Parliamentary System of Democracy in India and how and why the Presidential System can solve this problem.
The Presidential System is the US Presidential System and the Parliamentary System is the British Parliamentary System . India's governance was modelled around the British Parliamentary System which is quite unlike the US Presidential System. The author believes that the US Presidential System can solve this country of some systemic problems and presents a fact based analysis of his arguments.
In this and subsequent blog posts I will try to analyse what the author presents in his book. He starts with the 4 laws of power:
1. Power tends to corrupt and absolute power corrupts absolutely.
2. Power consolidates when it is more than essential
3. Power dissipates when it is less than sufficient
4. Power co-operates only when it is encroached upon
-If powers are properly assigned, government serves the people, otherwise, it becomes their master.
-The author believes these laws are confirmed in the US Constitution. James Madison had found that governments failed to serve not only when they were too powerful, but also when they were too weak. Madison had also stated that "Unless these government departments be so far connected and blended as to give to each a constitutional control over the others, the degree of separation.. essential to a free government, can never in practise be duly maintained."
This is how the above 4 laws were addressed in the US Constitution:
1. To deal with powers tendency to corrupt, they separated the powers. They separated the powers in local governments, state governments and the central government - leading to a Federal System of Governance. In India, the GST Bill, which has been stalled in the Rajya Sabha, aims to give the states the power to levy a tax and collect a tax. The Constitutional Amendment required for passage of GST Bill requires a 2/3 majority and not a simple majority.
2. In order to ensure that the Federal Government did not become too strong and tyrannical, they set up a system of powerful state governments. Each government, national and state, was assigned only limited and essential powers.
3. To solve the problem of co-operation, they created a system of 'co-ordinated' departments through checks and balances. This gave each department certain constitutional rights over the others.
Indira Gandhi, who came to power with less than 44% of the votes, instituted a state of Emergency in this country in mid-1970s, giving her unfettered powers and converting the Parliamentary system into a dictatorship. She amended the Constitution with retroactive effect and replaced the Chief Justice of India. The forty-second amendment by Indira Gandhi still stands which states that "There shall be no limitation whatever on the constituent power of Parliament." In six months of the Emergency, Indira Gandhi drafted a massive amendment to the Constitution which was 20 pages long. It added 59 clauses and 9 new articles to the Constitution and amended 50. One of her amendments gave Directive Principles precedence over Fundamental Rights, providing the government the right to deny individual rights for state purposes. The courts could no longer handle election disputes. They were not allowed any jurisdiction over tribunals. The Supreme Court was barred from considering the constitutionality of a state law, the high courts from those of Central Laws.
There was now a complete lack of any oversight on the Government. Corruption became endemic in the system. Transparency International's Corruption Index dropped India 11 places in 2011, ranking her 59th in the world. The practice of establishing commissions of inquiry to scrutinize specific government activities was also downright impractical. A government was expected to start an inquiry against itself, and then to reprimand itself.
[All facts in this blog post are quoted from the book "Why India Needs The Presidential System" by Bhanu Dhamija.]
The Presidential System is the US Presidential System and the Parliamentary System is the British Parliamentary System . India's governance was modelled around the British Parliamentary System which is quite unlike the US Presidential System. The author believes that the US Presidential System can solve this country of some systemic problems and presents a fact based analysis of his arguments.
In this and subsequent blog posts I will try to analyse what the author presents in his book. He starts with the 4 laws of power:
1. Power tends to corrupt and absolute power corrupts absolutely.
2. Power consolidates when it is more than essential
3. Power dissipates when it is less than sufficient
4. Power co-operates only when it is encroached upon
-If powers are properly assigned, government serves the people, otherwise, it becomes their master.
-The author believes these laws are confirmed in the US Constitution. James Madison had found that governments failed to serve not only when they were too powerful, but also when they were too weak. Madison had also stated that "Unless these government departments be so far connected and blended as to give to each a constitutional control over the others, the degree of separation.. essential to a free government, can never in practise be duly maintained."
This is how the above 4 laws were addressed in the US Constitution:
1. To deal with powers tendency to corrupt, they separated the powers. They separated the powers in local governments, state governments and the central government - leading to a Federal System of Governance. In India, the GST Bill, which has been stalled in the Rajya Sabha, aims to give the states the power to levy a tax and collect a tax. The Constitutional Amendment required for passage of GST Bill requires a 2/3 majority and not a simple majority.
2. In order to ensure that the Federal Government did not become too strong and tyrannical, they set up a system of powerful state governments. Each government, national and state, was assigned only limited and essential powers.
3. To solve the problem of co-operation, they created a system of 'co-ordinated' departments through checks and balances. This gave each department certain constitutional rights over the others.
Indira Gandhi, who came to power with less than 44% of the votes, instituted a state of Emergency in this country in mid-1970s, giving her unfettered powers and converting the Parliamentary system into a dictatorship. She amended the Constitution with retroactive effect and replaced the Chief Justice of India. The forty-second amendment by Indira Gandhi still stands which states that "There shall be no limitation whatever on the constituent power of Parliament." In six months of the Emergency, Indira Gandhi drafted a massive amendment to the Constitution which was 20 pages long. It added 59 clauses and 9 new articles to the Constitution and amended 50. One of her amendments gave Directive Principles precedence over Fundamental Rights, providing the government the right to deny individual rights for state purposes. The courts could no longer handle election disputes. They were not allowed any jurisdiction over tribunals. The Supreme Court was barred from considering the constitutionality of a state law, the high courts from those of Central Laws.
There was now a complete lack of any oversight on the Government. Corruption became endemic in the system. Transparency International's Corruption Index dropped India 11 places in 2011, ranking her 59th in the world. The practice of establishing commissions of inquiry to scrutinize specific government activities was also downright impractical. A government was expected to start an inquiry against itself, and then to reprimand itself.
[All facts in this blog post are quoted from the book "Why India Needs The Presidential System" by Bhanu Dhamija.]
Monday, March 21, 2016
Rupee Exchange Rate Dynamics from 1993 to 2011: A Study of Factors Driving the Exchange Rate
Abstract: This paper attempts to study the factors driving the Rupee exchange rate and reasons for its sustained
depreciation over the period since 1993. A statistical analysis is carried out to identify significant factors and
regression models are developed to validate the assumptions. Solutions that can mitigate the depreciation of the
Rupee are presented
Thursday, February 18, 2016
Is Socialism bad?
I have been following the debate over the US Presidential elections off late, and the fight between the Republicans and Democrats has come down to Capitalism vs Socialism, with Bernie Sanders being the most vocal proponent of Socialism, along with Hillary Clinton and Donald Trump and the Republican candidates being the most vocal proponents of Capitalism.
I have not seen a lot of people talk of the virtues of Capitalism on the media so far but I have seen a lot many attacking Socialism. If you find main stream media talking of virtues of Capitalism, please feel free to correct me.
To go to the definition of Socialism, I would refer to the book "The Audacity of Hope" by U.S. President Barack Obama where he states that socialism is derived from an idea of there being a social safety net, to protect people and businesses from failure. The Wall Street bailouts in 2009, TARP bailouts for businesses such as GM around the same time, the health insurance plan proposed by Obama and the US Social Security are all based on this Socialist ideal.
The arguments against Socialism are based on the model of Greece, Portugal , Italy and Spain - debt ridden economies of the EU that have run such high government deficits from socialist policies that the tax levels needed now are unbearable for the businesses to survive.
I think the fair question to ask is what is the fair value for the cost of social good derived from Socialism? Clearly the EU model is too expensive. It will be for the governments to decide where they tax their businesses, but one thing is for sure - Socialism is not bad and just needs to priced right to make it marketable to businesses.
IT delivers on productivity
I think this needs to be said now more than ever. In the global macro environment, where there is a lot of demand uncertainty owing to lack of macroeconomic stimulii from various central banks, businesses can still deliver on results through the use of technology in general and Information Technology in particular. I would like to talk a little about this topic here.
There are a number of case studies listed on the Nucleus Research web-site that study the Return on Investment for Information Technology based investments, a lot of which are free. Here is a reference to an interesting case study from Nuclear Research stating that investments in BI and Analytics can give up to 1300% ROI.
You will find a number of other examples on the Nucleus Research web page describing how investments in IT have paid good dividends to some of the most competitive companies. Through the strategic use of IT, businesses can take their operations to the next level of performance and deliver results.
Sunday, February 7, 2016
Where to find growth in the post QE era?
The market turmoil over the last few weeks has indicated that businesses are uncertain where they will see growth, now that the QE has ended in America and the interest rates are on the rise. The Chinese economy which had overheated, is now cooling off and the demand for oil, iron ore, copper and other commodities are dropping along with their prices. China is suffering from an over-capacity problem right now.
I think in this environment, the input costs for manufacturers would be very low since the price of oil is at an all time low and the price of copper and iron ore are also close to their all time lows. This should boost the margins for the manufacturers if their sales are constant. So all else being same, the manufacturers should be able to report better profits.
But the demand side is weak as the consumer is not spending a lot of money. This is due to the fact that they are cautious in this uncertain environment. In this situation, lowering the prices could be a good solution to increase sales. Considering the low input prices, manufacturers of goods should be able to sell their goods at a much lower price now vis a vis one year ago. Price of oil has dropped from the $50-60 range in 2015 to $30 per barrel today. Iron ore prices have dropped to a third of where they were one year ago. Copper prices are down 8% year over year.
There could be demand for commodities from building heavy infrastructure such as a rail road in Afghanistan or solar power farms in Sahara in Africa. India, which is facing a power deficit right now, is planning to build 5 new nuclear reactors in collaboration with the French. I think there are business opportunities and investing opportunities present today that could yield dividends going forward.
Wednesday, January 6, 2016
Happy New Year 2016!
2016 started with a bang as the Chinese markets crashed 7% before trading was suspended. You can find a good account of the opening day volatility in the markets in this blog post by Caroline Hyde, a correspondent for Bloomberg News.
The weak PMI data that came out just before the crash is just the straw that broke the camel's back. US tightening and anticipation of further rate hikes could be the prime mover here. China relies heavily on US consumption for manufacturing exports and the impact of the US rate hikes should have been felt in China much sooner. With further rate hikes slated in USA, there is no hope of a demand side stimulus.
On the question of interest rate increases in USA, it seems USA is not yet ready for more interest rate increases. The biggest loser on the rate hikes could be the US government, which could see a rise in bond yields as demand for low return assets would reduce corresponding to the higher cost of capital in borrowing from the Fed. However the market uncertainty from the rate hikes is so high that the risk adjusted return from government bonds is still attractive, as was evident in last rate hike, when the government bond yields actually reduced. Link to related Bloomberg story.
China is sitting on another time bomb right now which is the state and municipal debt. The state and local governments are under increasing pressure to raise revenues to sustain their high debt levels, and the weak PMI data maybe an indicator that this may not be an easy job. Link to related Bloomberg story.
Tuesday, December 29, 2015
The Indian Identity by Amartya Sen
Just finished reading the essay titled “The Indian Identity” from the Argumentative Indian by Amartya Sen. I am trying to summarize the main ideas expressed in this essay here, to share them with you and get your views. In this essay Amartya Sen dives into Indian history to identify the roots of the Indian identity and various dilemmas faced in defining such an identity.
The question to be answered here is whether the Hindu identity and the Indian identity are separate or are they inseparable? On this, Sen is very clear that the Hindu identity is very distinct from the Indian identity. India has a pluralist and multi-religious population with Jews, Christians, Parsees and Muslims. Identity has to be chosen with reasoning and is not a matter of discovery. The Indian constitution is secular in nature and so one religion cannot be attributed to the Indian identity.
The Indian Identity has been one of integration of several cultures over a long period of time. Challenges to this have come from separatism within India particularly with the privileging of one community over the others and one cultural tradition over others. Indians have multiple identities based on their association with any specific community, language, religion or home country. There is varying relevance of different identities in different contexts and we have the choice to how much significance we attach to our different identities. However, there is no escape from reasoning just because the notion of identity has been invoked.
Global movements of ideas, people, goods and technology have tended to benefit progress and development in different regions. Sometimes the global movement of ideas is seen as the ideological imperialism of the West - as a one-sided movement that simply reflects an asymmetry of power which needs to be resisted.
Amartya Sen mentions that the Indian Institutes of Technology, which were launched at the initiative of Nehru have been critical at flowering information technology and related developments in India. These along with the Institutes of Management have brought many dividends and have certainly been instrumental in opening up new possibilities for Indians. The development of Indian school systems has also been extraordinary. If we are not able to seize the economic opportunities for the manufacture of simple products in a way that has happened in Japan, Korea, China and other countries in east Asia, not to mention the West, it is because of a neglect of basic education.
The real debate on globalization is ultimately not about efficiency of markets or about the importance of modern technology, but rather about the asymmetries of power, for which there is much less tolerance today than after the Second World War. Amartya Sen argues that India has to move to import substitution and then to export promotion to build economies such as those of South Korea and Taiwan.
India today faces many challenges in setting up advanced manufacturing industries in the sectors such as semiconductors and electronics, advanced transportation systems and energy systems such as smart grids, solar and nuclear power to achieve energy security. These challenges are very similar to those faced by Jamsetji Tata in setting up the first steel mills in this country in 1907. Jamsetji Tata wanted to have a flourishing iron and steel industry in India whence the British had not setup a single steel mill in this country in their entire rule. It was during the Swadeshi Movement in India that Dorabji Tata was able to gain enough financial support from Indians for construction of the first steel mills that started rolling out steel in 1911. We will need similar initiative today to achieve energy security in this country that imports more than half of its requirements of oil, gas and coal.
P.S. The British are the largest investors in the Indian economy today out of the G8 nations.
The Argumentative Indian by Amartya Sen
So I am reading this book right now and just finished reading the essay titled “The Reach of Reason.” In this essay Amartya Sen sets up a case for having an integrationist approach to studying Indian history wherein the role of the Mughals is as important as that of the rulers before them. However, what is concerning is that in the 22 page essay, there are about 4 pages describing the philosophies of Akbar and only 2 passing references made to Chanakya and his book Arthashastra. Chanakya’s economic theories have not been explained in the essay at all and Akbar’s philosophies and their relevance has been explained in great depth.
Part of this may arise from the reason that Amartya Sen believes Hindutva activists marginalize the minorities in this country and their voice is not heard. Amartya Sen gives examples of the Babri Masjid being demolished in Ayodhya due to references of Ayodhya being the kingdom of Ram and such other intolerance that is practised by many pseudo Hindutva activists in the country. And that is indeed a cause of concern as has been noted in the recent debates on intolerance in the country.
Based on what we learnt in school, the Hindu religion has been developed as an assimilation of the cultures of many kingdoms in India over a period of time. And such intolerance as is seen in the pseudo Hindutva activists in India today is against the idea of Hindusim.
As Amartya Sen notes, India was a predominantly Buddhist country during the reign of King Ashoka, who too adopted Buddhism eventually. Incidentally, there is no reference to the philosophies of Ashoka in the essay as well. And Ashoka is considered to be among the greatest rulers to have ruled India, along with Akbar.
Amartya Sen also tries to argue that many of these religious beliefs are inhibiting the use of reason and the reach of reason in the society.
Monday, December 28, 2015
4 Digital Laws
We studied the 4 Digital Laws in one of our courses last semester These are:
1. Kryder's Law: The storage capacity doubles every twelve months
--Ever increasing memory capacities in magnetic hard drives, solid state drives and pen drives is testament to this law.
2. Moore's Law: Transistor count in microprocessors will double every 18 months to 2 years.
--Faster microprocessors have been coming out in the market since Gordon Moore developed this law at Intel.
3. Nielsen's Law: Data transfer bandwidth doubles every twenty-one months.
--Faster bandwidths have now pushed us into optical interconnects.
4. The Caveman Law: Whenever there is a conflict between modern technology and the desires or our primitive ancestors, these primitive desires win each time (Michio Kaku). Steve Jobs loved this law. Here is the reference article for this: Link
These laws remain the drivers of technology today. From big data to cloud computing and smart phones, these are at the heart of the technologies we see today. The increasing applications of information technology we see today are possible because of these fundamental advances.
In India, IT remains the primary growth driver along with agriculture. Considering these laws to be the backbone of IT, should we spending more time, effort and resources on developing technologies at the fundamental level of these laws such as better memories, faster processors and photonic systems? As it stands today, India imports a bulk of these technologies from memories to processors and optical fibre communication systems.
With the Make In India initiative of the Government of India, I think it is the right time to be investing more in these fundamental technologies that drive the IT industry.
References on the current state of the industry:
Semiconductors and IC design industry in Indiahttp://linkis.com/wordpress.com/fmCcD
Government plans $10 billion investment in 2 semiconductor plants: http://linkis.com/www.livemint.com/Ind/f90od Can India build the next Silicon Valley? http://linkis.com/e27.co/gd4MP Why a Made In India chip remains a chimeric? http://linkis.com/www.livemint.com/Hom/w7vpf
Saturday, December 12, 2015
The Paris Agreement of COP 21
The Paris Agreement of the COP21 has the following salient features:
1. Urging all parties to ratify and implement the Doha Amendment to the Kyoto Protocol.
Present ratification status of the Doha Amendment can be seen here: Link
The Doha Amendment to Kyoto Protocol: At a glance (This is roughly 20% emission reductions over the 1990 levels.)
2. Setup a fund by 2020 that provides 100 billion USD annually for mitigation and adoption.
3. Notes that 55 Gigatonnes of emissions reductions are necessary by 2030 to keep the temperature rise less than 2 degrees celsius in the worst case. The intended nationally determined contributions aggregated over all countries should fall in this range.
Link to the full document:
Present ratification status of the Doha Amendment can be seen here: Link
The Doha Amendment to Kyoto Protocol: At a glance (This is roughly 20% emission reductions over the 1990 levels.)
2. Setup a fund by 2020 that provides 100 billion USD annually for mitigation and adoption.
3. Notes that 55 Gigatonnes of emissions reductions are necessary by 2030 to keep the temperature rise less than 2 degrees celsius in the worst case. The intended nationally determined contributions aggregated over all countries should fall in this range.
Link to the full document:
Sunday, November 29, 2015
Climate Change Summit Paris 2015
The 2015 United Nations Climate Change Summit is underway in Paris now. At the previous summit in Copenhagen in 2009, it was agreed to control carbon emissions to the point that the temperature rise is below 2 degrees celsius. There were no legally binding agreements signed by the participating nations. A carbon trading system was proposed and global carbon trading market was stated as one of the goals of the COP15 summit.
Controlling global warming by reducing carbon emissions is important to sustain life on this planet. High levels of pollution have made cities in China inhabitable and people have to wear face masks on their daily commute to work. The rate at which plant and animal species become extinct has increased post the advent of the industrial age. Studies are showing that human productivity is decreasing in nations having heavy increases in temperature.
In the run up to the Climate Summit 2015, America has pledged that by 2025 it will cut its greenhouse-gas emissions by 26-28% below 2005 levels. South Korea says that by 2030 its emissions will be 37% below where they would be if the recent upward trend in emissions were projected forward.
What makes it difficult to get countries to a consensus on emissions reduction is the fact that the cost at face value of sustainable environmentally friendly business practices is more than that of more polluting practices. However, the recent advances in technology have made this argument turn on its head. As we had noted earlier on this blog, rising cost of coal imports and inflation in India have increased the costs of coal based thermal power plants to a point where wind energy is competitive without subsidies and solar power has come very close to break-even. The indirect benefits of a cleaner power source are also many, primary one being the healthier life of the citizens of the country.
Apart from this, carbon trading to offset the emissions is also gaining ground around the world. The revenue from taxing the emissions is used to fund environmentally friendly energy sources. I think it would be advisable to target areas where eco friendly technologies have reached free market pricing and have agreements on the use of these technologies. For example, electric cars, high speed rail, nuclear and wind power are some of the technologies that are at market potential and there should be agreements on the use of these technologies and their increased adoption. Instead of focusing on how much to reduce the emissions, the discussions have to now move to how to reduce emissions since several environmentally friendly alternatives are available which are competitive on the free market.
A global market for trading carbon offsets could be a good idea and carbon credits could potentially become an international currency. The price of a carbon credit would be low in a country which pollutes less and high in a country which pollutes more. Industries could purchase carbon credits from such countries that pollute less and get a license to pollute to that extent. The money earned by selling a carbon credit would be invested in developing eco friendly technologies and solutions. The carbon credit system could be internationally regulated and have a single controller such as the United Nations. The UN could then set quantitative targets on how much emissions are permissible over a given span of time and enforce it with a fine (carbon tax) on industries that don't have the required carbon credits. An Agreement on such a carbon cap and trading system should be the aim of the 2015 Climate Summit in Paris.
In the run up to the Climate Summit 2015, America has pledged that by 2025 it will cut its greenhouse-gas emissions by 26-28% below 2005 levels. South Korea says that by 2030 its emissions will be 37% below where they would be if the recent upward trend in emissions were projected forward.
What makes it difficult to get countries to a consensus on emissions reduction is the fact that the cost at face value of sustainable environmentally friendly business practices is more than that of more polluting practices. However, the recent advances in technology have made this argument turn on its head. As we had noted earlier on this blog, rising cost of coal imports and inflation in India have increased the costs of coal based thermal power plants to a point where wind energy is competitive without subsidies and solar power has come very close to break-even. The indirect benefits of a cleaner power source are also many, primary one being the healthier life of the citizens of the country.
Apart from this, carbon trading to offset the emissions is also gaining ground around the world. The revenue from taxing the emissions is used to fund environmentally friendly energy sources. I think it would be advisable to target areas where eco friendly technologies have reached free market pricing and have agreements on the use of these technologies. For example, electric cars, high speed rail, nuclear and wind power are some of the technologies that are at market potential and there should be agreements on the use of these technologies and their increased adoption. Instead of focusing on how much to reduce the emissions, the discussions have to now move to how to reduce emissions since several environmentally friendly alternatives are available which are competitive on the free market.
A global market for trading carbon offsets could be a good idea and carbon credits could potentially become an international currency. The price of a carbon credit would be low in a country which pollutes less and high in a country which pollutes more. Industries could purchase carbon credits from such countries that pollute less and get a license to pollute to that extent. The money earned by selling a carbon credit would be invested in developing eco friendly technologies and solutions. The carbon credit system could be internationally regulated and have a single controller such as the United Nations. The UN could then set quantitative targets on how much emissions are permissible over a given span of time and enforce it with a fine (carbon tax) on industries that don't have the required carbon credits. An Agreement on such a carbon cap and trading system should be the aim of the 2015 Climate Summit in Paris.
Tuesday, November 24, 2015
Guest Lecture on Business Ethics by Mr. Folker Mittag
Today we had a guest lecture on business ethics by Mr. Folker Mittag, who is associated with the Caux Initiatives for Business. The guest lecture was organized as a discussion and there were ideas exchanged between the students and the guest, Mr. Folker Mittag. I will try to highlight the important points from this discussion in this blog post.
To do ethical business, we have to listen to our conscience, and identify the actions which are right by our conscience. A person who does not follow ethics in professional life will not be able to do so in their personal life as well. There are no short cuts in business and businesses that take short cuts close down sooner or later.
In order to inculcate a culture of ethical behavior, the top management has to set the role model for the employees of the organization. If the top management is corrupt, you cannot expect the employees to follow ethical behavior in their business dealings. The values of the organization have to guide the behavior of the employees of the company. The mission statement for Toyota states - "Do that which is good for the community, do that which is good for the employees and do that which is good for the company. The profits have to be re-invested for future growth." A primary profit motive with efforts and funds dedicated for corporate social responsibility and a values driven organization could also be acceptable ethically.
Whistle blowers have a first duty onto themselves to take necessary steps to curb unethical practices within the organization. They need to notify the top management and all stakeholders concerned within the organization and take all possible measures to stop the unethical practices before they go public with their disclosure of business malpractices.
Customers too should choose companies that deal ethically. They should not deal with companies known for malfeasance. Costs should not be reduced if that means doing unethical business. Even in ethical business, sometimes it may be right to charge a customer higher if they do not understand the true effort and time that goes into the product and make unreasonable demands from the producer. Cutting corners to deliver the product or service is termed unethical.
Where are the bottlenecks to growth in India right now?
So this is the question on my mind - given the situation that India is in right now, where should we be investing the limited funds available to us? The situation being that government budget is constrained by the fact that the fiscal deficit should not be more than 5% of GDP. With the Goods and Services Tax coming up next year, there will be revenue sharing between center and states and the budget of the Central Government will be constrained even further. At present the government is finding it hard to implement the recommendations of the 7th pay commission. The manufacturing sector is lagging as government is not undertaking major projects (such as new dams, nuclear reactors, smart grids, etc.) at this stage and this is showing in corporate earnings of the industrial companies. The economy is in a dismal state right now.
The Goods and Services tax is expected to be a friendlier tax regime than the present VAT which suffers from 2 important drawbacks: 1. Cascading taxation and 2. Inability to tax imports on par with the domestic production. With the states sharing the revenue from the single GST tax regime, the Center will have to delegate increasing responsibilities to states than done previously. This would also open up the opportunities for state level debt and state government bonds similar to the central government bonds. A constitutional amendment will be required to enable the states to collect the GST.
The Congress had brought the GST bill in Parliament in UPA2 regime but were not able to bring the states on consensus on a common tax rate and so the bill was stalled. Now the BJP has been able to bring the states to consensus on the GST tax rate and the Congress is blocking the GST bill in Rajya Sabha.
The second factor that can boost the economy is Foreign Direct Investment in critical sectors such as power (nuclear reactors, smart grids, etc.) and transportation (high speed rail). These are very attractive sectors commercially and corporations in Japan and USA provide debt financing at low interest rates for such environmentally friendly projects. For example, Japan has offered to finance the the first bullet train in India, having a cost of $15 billion, at a 1% interest rate. There are a lot of opportunities in the nuclear power sector after the India and USA reached a joint agreement on development of civilian nuclear power (Link to September 2015 story). GE-Hitachi had started discussions on building nuclear power plants in India (Link to February 2015 story). These deals are stalled right now.
Generating more nuclear power will help reduce our dependence on coal imports for generation of electricity. This could potentially solve the persistent power deficit problem in this country and make power production immune to supply side shocks from high price of coal and natural gas when the Rupee depreciates.
The FDI regime in India can be changed from limited FDI (49-50% in most sectors) to 100% FDI with a caveat that the business has to support local jobs. This has been implemented in multi brand retail where we have seen Walmart set up stores in India and source large amounts of their merchandise locally. USA has similar FDI norms where car manufacturers have to manufacture at least half of their cars in USA. I believe this would make the FDI route more attractive for businesses and multi national corporations.
I think these factors can significantly improve the growth prospects of the Indian economy at this point of time.
Saturday, November 7, 2015
On The Problems Facing Africa
Read this story in The Economist today discussing the problems faced by an industrializing Africa. I think the story has a few problems in its analysis. The problem that Africa is facing is one of skipping the industrial phase of development and moving to the services phase seen in developed economies with out moving enough people from rural to the urban centers.
The story suggests the exchange rate fluctuations are not helping boost exports to support the industrialization of Africa. On the one hand, Africa is a commodities exporter and the commodity exports drive up the exchange rates. The story suggests such high exchange rates don't support manufacturing exports.
I think there is a problem here. Strong currencies make input costs lower and all major industrialized economies in the world today, be it Germany, China or USA, are following a strong currency policy. No doubt, they are commodity importers net-net. Even for Africa, if they are exporting some commodities, they will be importing others they don't have, such as maybe oil or copper.
A strong currency would thus make African economies much more competitive. Not only would that reduce the input costs, but also increase the domestic buying power and improve the quality of life. A stable currency such as a pegged currency would attract a lot of capital investments from manufacturing companies who benefit from the stable macroeconomics and low un-certainities.
All in all, Africa could try a managed currency regime like China did over last 20 years with free investment environment, to attract large capital investments to benefit from the local abundance of commodities.
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