Narcissism and Negation of Reality: A Review of Pawel Powlikowski’s Cold War (2018)

Spoiler Alert for Cold War 2018, Scenes of a Sexual Nature 2006, and Thor: Ragnarok 2017

A Scene from Cold War (2018)
A Scene from Cold War (2018)

Powlikowski’s Cold War is a warning to students of history like me to do literature reviews carefully. Cold War is a story about a couple of lovers who want to be with one another but are being constantly torn apart by the politics and the culture of the Cold War. So, in “pursuit of happiness” this couple moves from small villages in Poland to Warsaw, from there to Moscow, to East Berlin and they even defect to Paris and then go back to Poland again. The movie ends with them getting married in a “church” and then sitting by the roadside and the wife telling the husband, let us go to the other side, it will be better there. With this Powlikowski immediately falls into the trap opened by the following British movie: Scenes of a Sexual Nature, 2006.

Scenes of a Sexual Nature (2006)
Scenes of a Sexual Nature (2006)

This 2006 movie tells the story of 5 unrelated couples on a beautiful day in Hampstead Heath, London. Hampstead Heath is famous for its open public spaces. The most interesting of these couples is an old couple. A very old man meets a very old woman by accident in a park bench. They start talking and after sometime, they realise they were in an intensely romantic relationship during their youths but due to some accident of faith they completely and utterly lost touch with one another. They talk about their lives and it appears that despite their trauma of separation with one another they have had a happy and contented life. At this point, they decide to get up from the park bench and go “to the other side” of the park for a better view. This is supposed to capture the question that has emerged in both their minds which was – would life have been even better if they stayed together. They reached the other side and immediately realise that the “view” was much worse than what they had in their initial position.

Cold War (2018)
Cold War (2018)

Now, it is perfectly understandable if one reacts to this situation by saying – “that’s life”, sometimes things work out and sometimes it doesn’t. But what Cold War and the story of the old couple tells us is that it is precisely not that, i.e. not “life”, both the couples through their actions and thoughts were trying to “imagine” life. The couple in Cold War is constantly moving to the other side: from one side of the road to the other, from rural to urban centres, from East to West and West to East in search of their elusive happiness. But, the worst thing of their negation of reality and acceptance of an imaginary is that despite their intense love for one another they would often times “go to the other side” alone, for example, the guy would cross the iron curtain from the East to West without the girl, and she in turn would cross the iron curtain from the West to the East without the guy while at the same time being intensely in love with each other. Ask yourself, how many of you could do that? I wouldn’t and I would imagine not many of you would too. This led me first to believe that the protagonists were classical hedonists but I was wrong, hedonists would never accept long term suffering. Then I realised that the only thing that explains their delusionary search for idealism in the movie is the worst thing about a romantic relationship- i.e. narcissism. Of course, romantic love in itself is a very violent thing in the sense that out of all the people in the world you choose someone and say that you are the most important person for my life (Zizek, 2008) but the extreme form of this pathology is narcissism. Yes, I realise that narcissistic romantic love is a paradoxical term like “burning cold” or “bankers’ trust” or “military intelligence” (Rudner, 1989) but it is a real thing which manifests when one party refuses to accept the separate existence of the other party which often manifests in violence. Narcissistic romantic love manifests in Cold War when the guy hits the girl and in return to repent for his actions, he takes a masochistic step and spends 5 years in a labour prison camp where he loses his fingers (he was a pianist by profession).

Scene from Thor Ragnarok (2017)

Actually, a movie which has very little artistic value (apart from the whole VFX thing), Thor Ragnarok, 2017 seem to have found the synthesis that the protagonists of Cold War spend the whole movie searching for. In Thor: Ragnarok, the home of the protagonists i.e Asgard is totally destroyed. But, Thor realises that the materialistic evaluation of Asgard as his home is problematic because as long as he manages to save his friends, family, and people of Asgard he could have a “home” and happiness anywhere in the universe.



None of the images used here belong to me. They have all been taken from

An Elevation: A Review of Vice (2018) from the Perspective of Ingmar Bergman’s Works, circa 1957-58

(Spoiler Alert: Minor spoiler for the movie Vice but they could only be avoided if you did not watch any news or read any newspaper between 2001 and 2009. Major spoilers for a couple of movies which were released in 1957 and 1958 in Sweden.)
(Spoiler Alert: Minor spoiler for the movie Vice but they could only be avoided if you did not watch, hear or read any news between 2001 and 2009. Major spoilers for a couple of movies which were released in 1957 and 1958 in Sweden.)

The day before yesterday, a friend of mine and I were discussing existentialism and it reminded me of Ingmar Bergman’s The Seventh Seal which is considered by many to be one of the greatest movies ever made. So, I asked him if he had seen the movie, to which he answered in negative, therefore we decided to watch it. Almost exactly 24 hours later I was in a movie theatre in Southern California, USA watching Adam McKay’s biopic on the former US Vice President Dick Cheney’s life, titled “Vice”. I was watching this movie with three other friends of mine and they were from China, Japan, the US and I am of course an Indian citizen currently living in the US.


By the end of the viewing, we were all in agreement that VICE (2018) was a terrible movie. As we took a Lyft back from the movie theatre, my friends could only talk about the trailers of other movies which were shown before the screening of Vice. This was the degree of antipathy that we felt towards the movie and symbolised how forgetful it was despite having a stellar cast comprising of people like Christian Bale, Amy Adams, Steve Carell, Sam Rockwell, Tyler Perry, and Alison Pill. Our basic problem with the movie was that it was all over the place because the director did not have a clear aim or a goal of what he wanted to achieve and this made the storytelling a big hot mess. Also all four of us who watched the movie were students of history and we felt that when so much information about Dick Cheney was available in the open media, the filmmakers giving the audience an excuse that insufficient data on Dick Cheney’s life marred their filmmaking process is nothing but laziness which is reflected in other parts of the movie as well. Meanwhile, in the field of history, it would have been almost impossible to go through all the sources on various topics covered by the movie because of the sheer size and scale of these sources that are freely available.

The Cast of Vice with the Director

After having some time to think about the dumpster fire mess of a movie that Vice was, I realised the amazing value it had if I compared it with Bergman’s The Seventh Seal and some of his other movies. Both Vice (2018) and The Seventh Seal (1957) deals with periods of immense conflicts, extreme violence and large scale death. But while in The Seventh Seal the antagonist was clearly identified as a pale-faced, black robe wearing personification of death, in Vice it takes some time to realise that the dark suit wearing and slightly overweight Dick Cheney is also the personification of death as people keep getting seriously hurt around him and thousands if not millions die due to his actions. But then the question that emerges is if this is so where is the protagonist in Vice? Here you will have to understand the resolution of Bergman’s The Seventh Seal for which you will need a basic idea about the movie’s premise.

          The Seventh Seal starts at the coast of Sweden where we see a knight who is a recent returnee from the crusades. Sweden during this time is also suffering from the Black Death causing immense death and destruction. The knight soon realises that he is being stalked by “death” who has come to take him. But before dying the knight wants to achieve a final resolution in his life in the form of acquiring “knowledge” to understand the fear and suffering that he has seen around him in his short life. So in order to stall death the knight challenges him to a game of chess, with the condition that if he wins the game, death will let him go (i.e. live) and if death wins, then he will surrender himself to the reaper. The knight is allowed to live and go about his regular day to day activities as long as the game of chess continues. The movie reaches its resolution when the protagonist realises that during times of turmoil the darkness can spread very fast and wide, bringing in its wake immense suffering. The key to fighting against this darkness is identifying and trying to preserve the positive aspects of human life, regardless of the cost.

A scene from The Seventh Seal

So, restating my previous question, if Cheney was the antagonist of Vice who or what was the protagonist? The answer is quite simple, the audience was the protagonist. The audience still lives with the destruction and influences of the Cheney era and many of the legislative changes brought about under the leadership of Cheney act like chess pieces which are constantly in conflict with the American people who struggle to satisfy the needs of their daily lives. Many a time such struggles might seem pointless because after all no one escapes death. But like the knight, our main goal is to identify the positive aspects of humanity and then to fight for its survival. Here we need to ask a question in conjunction with both the movies. Just like the people that the knight saved from Death’s grasp, the audience of Vice are also not immune from death. So, is it meaningless to try to defend against the spread of the great darkness? Here I think we need to refer to the two of the strongest scenes in Vice. I am referring to the one where the discussion between Dick Cheney and his wife resembles the scene of a Shakespearean tragedy as they try to decide on George Bush’s offer to Cheney to be his running mate. The second scene is when a waiter explains to Cheney and his cronies what all are on offer when limitations on executive powers were removed. These two scenes make it clear that when we are talking about death we must distinguish between the physical and the metaphysical. Death can target only the physical but can do no harm to the metaphysical. This can be explained with the help of a funeral. While the subject of the funeral has been affected by death and has died the object of the funeral which is the ritual concerning remembrance of and tribute to the dead, operate mostly independent of the influence of death. This point directly corresponds to a weakness of the movie which is that the writers and the director seem to have been under the impression that they could carry the whole movie on the back of facts. This decreases the importance of the movie to the level of op-ed pieces one reads, watches hears in the news media. Why those two scenes were so effective is because the current Trump administration has clearly and repeatedly shown that facts can no longer be considered to be duex ex machina of political arguments. So, when hard facts have been devalued, the struggle against darkness takes place in the metaphysical. But it is very clear that the makers of Vice do not understand this and they try to in fact devalue both the scene as a placeholder for events for which there is little or no information.


The last few minutes of the Vice reminded me of another Bergman movie called The Magician or The Face in Swedish. While Ingmar Bergman was making that movie, he was under tremendous pressure to make it profitable. Once Bergman had made the movie the producers realised that the movie has a sad ending, which was seen as being bad for business. The producers wanted Bergman to scrap this sad ending and instead go for a happy ending, but he did not want to do that and both parties ultimately reached a different compromise. Bergman got to keep his end product as it was with the sad ending, but the last scene of the movie is not the sad ending but a happy ending which is narratively linked to the story. Something similar must have happened with Vice when the producers thought that the movie was very one-sided and needed to appeal to more people (code for Republican voters) because only that can explain the strange final scenes of the movie. In the last scene of Vice, Dick Cheney justifies his actions during his tenure as the Vice President by breaking the fourth wall and talking directly to the audience! His justifications could be summed up by the ancient Roman phrase- “Inter arma enim silent lēgēs” or laws are silent during wars. Then the credits roll and there is a post credit scene which tries to make a Trumpian point that “both sides” are to blame for the current problems in the US. But unlike Bergman’s The FaceVice does nothing to justify such an ending and it is impossible to conceive of a narrative thread to tie this ending with the rest of the movie.

A Scene from The Magician, starring Ingrid Thulin and Gunnar Björnstrand
A Scene from The Magician, starring Ingrid Thulin and Gunnar Björnstrand

Lastly one of my friends with whom I watched the movie remarked how so much of the movie takes place in an office or in an office environment which is why I thought getting Steve Carell to play the most important male supporting role in Vice was quite hilarious (here I am referring to his role in the popular US television series, The Office). So, maybe Vice will be a more enjoyable movie if while watching it people try to imagine what would happen if the characters of The Office ran the US Government.



Photo Credit:

All the pictures used here have been taken from

Why Thanos is Wrong: An Economic History Perspective

(Spoiler Alert!)


In less than a month’s time after its release, Avengers: Infinity War is on its way to becoming one of the highest grossing movies of all time. Avengers is a comic book based movie with aliens, Gods, superpowers and futuristic science so we need a healthy dose of suspension of disbelief to properly enjoy this movie. But the basic premise of the movie is so poorly dealt with that I am feeling compelled to deal with it here in this article.

Avengers: Infinity War is a movie about a powerful alien being called “Thanos” who is in a quest to kill half of all life in the universe to achieve what he calls “balance”, i.e. to reduce competition for limited resources, which he thinks will in turn lead to general prosperity for the survivors.

If you have been following the news recently, then I can say with some confidence that you have heard political and economic discourse similar to Thanos’ idea at one time or another. In fact such arguments are so common that far right organisations and political parties everywhere around the world can be seen frequently claiming that immigrants, minorities and refugees steal, misappropriate or siphon off “valuable and limited” resources for themselves.

Unfortunately, not only is Thanos’ idea for securing universal prosperity via mass genocide largely left unrefuted in the movie but Thanos is also shown as a being in possession of great knowledge. So, there is a danger that Avengers: Infinity War could be seen as backing and reinforcing the ideology of the extreme right wing.

So if the Avengers are not going to do it I would. Below, I have shown why Thanos’s ideas are not only ill-conceived but also objectively wrong.

Population and Prosperity

Thanos’ big idea about universal prosperity had two elements— population and prosperity and according to him both were inversely related i.e., if there was more population there will be less prosperity and vice versa. Let us have a look at what history of the world shows us.
screenshot-534Figure 1: Population adjusted by 1,000,000 and per capita GDP is based on 1990 International Geary-Khamis dollars[i]


What we see from Figure 1 is that consistent growth of population and per capita income need not be mutually exclusive. In fact what the said figure tells us is that over the last 1000 years it has been seen that growth of per capita income consistently accompanied the increases in population. Figure 2 additionally shows us that people now are living longer and thus healthier lives than they have ever lived before in human history despite human population being at the highest levels ever.

It needs to be mentioned here that the patterns seen above in the two figures hold true for most of the countries in the world.

I am not trying to explore the causes behind the increase in population, average life expectancy or per capita income, but I am just trying to show that Thanos in Avenger: Infinity War was wrong. As shown above, you do not necessarily need to reduce the population (let alone reduce it by half) to ensure that people can live prosperous, happy and long lives.

But how did a being in control of all forces of the universe go so wrong?

Malthusian Theory in Avengers: Infinity War

After all is said and done, Thanos in Avengers: Infinity War is a fictional character created by people and hence reflect human philosophy behind his ideas. Thanos’ theory about reducing the population by half to make the universe a paradise to live in is based on one of the most powerful and influential theories in demography— the Malthusian theory.

Thomas Malthus theorised in his 1798 book, “An Essay on the Principle of Population”, that population grew geometrically (e.g. 2, 10, 50, 250) while the food supply grew arithmetically (e.g. 2, 7, 12, 17). Malthus further hypothesised that if preventive checks like family planning, late marriages or celibacy is not undertaken to bring the population in line with the food resources then it will trigger positive or natural checks like wars, epidemics and famines which will in turn bring about what Thanos in Avengers: Infinity War called “balance”.

In the years that followed the publication of Malthus’ theories, many of his follower expanded on his theory by including more resources (other than just food), encompassing greater economic, political and sociological consequences into Malthusian theories and considered newer forms of preventive checks like birth control. These followers of Malthus were called neo-Malthusians.

These largely simplistic Malthusian theories were and still are very popular but one historical event/process caused serious problems for it, which is the Industrial Revolution.

Industrialisation, Food and other Resources

Before the Industrial Revolution food was the primary source of energy as it not only fuelled human activity but also helped to utilise the animal wealth of the community. Unfortunately, this also meant that societies had to place limits on their activities as food was often scare and never unlimited. Also, food and other perishable resources could not be traded long distance (which often meant from the land of plenty to those of scarcity) because food was an inefficient source of energy.  For example if one bullock cart load of food grains was to be transported from the North of France to the South of France the bulls driving the cart will need more food than they are carrying to achieve the said task, thus making the whole task unviable.

Now, let us consider some developments that took place before the Industrial Revolution like the “discovery” of the New World or the Americas which in turn led to the discovery of new nutritious food like potatoes, tomatoes, sweet potatoes and maize. Discovery of new gold and silver mines in the New World and establishment of oceanic trade links between the “West” and the “East” lead to an increased globalization of trade and the new food sources spread rapidly throughout the world. Also foundation of modern states via recognition of the primacy of formal institutions and fiscal consolidation meant the creation of strong states with the power to raise substantial resources whenever necessary and manoeuvre those resources in any direction they wanted.

So, when the steam engine was invented it was realised that the primacy of food as the main source of energy for activities like trade and transportation had come to an end. New sources of power like coal and hydro-carbons which were much more efficient sources of energy than food, now held the keys to the future. Steam engine based transportation vehicles like trains and stream ships became so fast that by the 1800s they could profitably transport large amounts of food and other resources from one corner of the world to another. Moreover, modern states could now use their considerable strength and resources to build better infrastructure to make energy utilisation even more efficient. Add to this the developments in electromagnetism and communication technologies and you have Karl Marx sitting in London writing for the New York Daily Tribune about the Indian Revolt of 1857.

It is because of these above mentioned reasons that mega cities like New York and Shanghai could exist today and hugely successful cities like Dubai and Abu Dhabi could be built in the middle of a desert. Today, human technology has developed to such an extent that if there is a want for any resource anywhere in the world, that resource could be transported to the place of scarcity from the place of surplus within a day’s time.

These are the reasons why the Malthusian theories which claimed that a society could only be sustained if the population was “balanced” by the resources available, are no longer valid. Hence Thanos’ theory in Avengers: Infinity War, that population reduction is the only way towards sustainability is based on a bankrupt idea.

Population Pyramid

Let us come to another misleading and entirely impractical idea in Thanos’ theory to make the universe a paradise to live in. Thanos in Avengers: Infinity War adopts the PC (politically correct) culture by claiming that although he is going to kill half the population of the universe but the killing will be random and will not discriminate between race, religion or class. Unfortunately such random and indiscriminate reduction in population will more likely lead to a massive imbalance which might result in the “collapse of humanity as we know it, rather than lead to the “balance” that Thanos craves for in the movie. Before I explain how, please have a look at the population pyramid below.


Figure 3: Population Pyramid of the world circa 2017[iii]

As can be seen from the population pyramid, most of the population of the world is concentrated around the working ages. It is this demographics that supports the people at the bottom of the pyramid and the top of the pyramid because they are too young or too old respectively, to adequately support the society. As shown in the movie Avengers: Infinity War, if a plan like the one Thanos had is implemented then most of the people who would end up dying will be working age people and with no one left to support them the mortality rates amongst the young and the elderly will sky-rocket. Also think about it, in a likely circumstance where most of the doctors, engineers, teachers etc. disappear for ever (as most of the people who are practising such professions belong to the working age group), who will train the young, who will build the world anew or who will look after the old?

Random selection like one proposed by Thanos could have another serious implication. What if after eliminating 50% of the world’s population, we are left with just 1-5% female population with the rest all being males. This could spell the end of the human species as we know it. To sustain a population women are much more important than men as the number of children that a woman can give birth to is far lesser than number of women a man can impregnate.

So, as can be seen from above, demographics of the world is not only very complicated but extremely sensitive to changes and any tricks like the one Thanos wanted to pull in Avengers: Infinity War could lead to the collapse of the human civilization as we know it.



As seen from the above, Thanos’s idea about achieving universal “balance” could be easily countered by even an amateur economic historian like myself. But the question we need to ask here is, why was Thanos given such a silly raison d’etre which had more in common with the crackpot ideas of the extreme right wing than with any in-vogue ideas of the intelligentsia, in a movie which everyone expected to be a massive blockbuster? The answer unfortunately, is quite simple i.e. anti-intellectualism. Anti-intellectual tendencies like disregarding expert opinion in lieu of something that is more convenient to believe or implement has become so rampant that it has now seeped into every aspect of our lives. Actually it is quite fitting that Avengers: Infinity War through its idiotic premise has now become the torch bearer of an industry which specializes in making fun of intellectual/expert advice or arguments because apparently they are too complicated to comprehend.


[i] (dt:16.05.18)

[ii] Riley, J., Estimates of Regional and Global Life Expectancy, 1800–2001, Population and Development Review (2005), pp. 537-543.

[iii]  (dt:17.05.18)


  1. The featured image and the image at the top of the screen belong to Disney
  2. The “Gomora” picture has been taken from

Why setting up a Bad Bank is a really Bad Idea and what can be its Alternative?


When not one but three central government ministers get involved in a controversy over an inconsequential issue like what a 20 year Old’s placard reads, it only means one thing- the government want to keep another far more important issue away from the limelight. This issue might very well be the government’s attempt to set up a “bad bank” which will have serious economic repercussions for all of us.

What is a  Bad Bank?

A bad bank is basically a bank which will buy the bad loans from different banks and try to “reconstruct” the assets to get back the money that was due.

With the main opponent to this plan- Raghuram Rajan out of office- the finance minister of India, the chief economic advisor to the Indian government  and a deputy governor of the Reserve Bank of India have recently opined that a bad bank should be established as soon as possible.

  1. Why did Raghuram Rajan oppose it?

He opposed it because of the Indian banks’ debt profile. Almost all the bad loans or NPAs are in government owned public sector banks and almost all of these are a result of loans being given to privately owned corporation and business houses. The private sector will not invest in a bad bank because it is a venture which guarantees loss. So, Raghuram Rajan was worried about the government using public money in order to settle private debts which might have serious consequences for India’s debt to GDP ratio.

In other words, Raghuram Rajan implied that if most of the loans were in the private sector banks then the banks would/could have been forced to raise money from the public through securities to solve that problem. But now the government will be forced to do that if it decides to set up a bad bank which will increase government debt and force them to limit expenditure.

  1. What does it mean in simple words?

Well, we as a nation have watched in slow-motion all the bad business decisions of liquor baron Vijay Mallya, such as, buying an IPL team, buying a Formula 1 racing team, private jets, expensive cars and last but not least swimsuit calendars. If a “bad bank” is formed all of Vijay Mallya’s bad loans could be transferred to it and the government will have to use our money to right Vijay Mallya’s mistakes. I don’t know about you but I find this completely unacceptable. But, Vijay Mallya is just one example- there are hundreds of people like him, many of whom are even bigger spenders than Mallya.

  1. If this plan is so bad then who is supporting it?

Last year the former RBI governor Rajan forced all banks to disclose their Non-performing assets. This led to a lot of embarrassment for many bank officials when it emerged that they gave loans to private business concerns which should not have got any if normal banking procedures were followed. Investigative journalists also soon found out that many of these loans were given out due to pressure being exerted by government bureaucrats on the banks.

But now with a bad bank buying up all the banks’ bad loans and NPAs- the bank officials and bureaucrats can wash their hands off of their misdemeanours and pass the responsibility for an asset’s “non-performance” onto this newly founded institution.

Bankers have a second reason to support this plan. If a bad bank is set up then the responsibility of banks to lend money responsibly considerably decreases because after all if the loan becomes a Non-Performing Asset then they can simply sell it to the Bad Bank and wash their hands off from any fallout.

  1. Is there any alternative to deal with NPAs other than opening a Bad Bank?

In order to deal with bad loans the government owned banks have been engaging in “assets reconstruction” either by themselves or by employing privately owned Assets Reconstruction Companies, but this initiative has been a failure. Now with a bad bank the government is hoping to succeed by setting up a big government owned Assets Reconstruction Company to deal with NPAs. I have only one thing to say here, that is to quote Albert Einstein- Insanity is doing the same thing again and again and expecting different outcomes.

Indian government should seriously and sincerely think of a different way to deal with these Non-performing assets. Below I have mentioned a suggestion- please have a look at it.

Possible Solution

One of the meanings of the word “democratise” is to make something available to all. Why don’t we democratise the NPAs?

Keep the NPAs with the respective banks. The banks know who their high value customers are. Banks can contact the assets reconstruction companies and not ask them to reconstruct the non-performing assets which take a lot of time without any guarantee of success but asks them which failed assets can most easily be reconstructed or re-converted into a profitable asset. This is not a difficult job to do and frankly there are many private consultancy firms in India which can do this job. The banks then should offer to sell these NPAs which have high probability of success to their high value customers. Only those customers who have impeccable credit record which can be easily determined with the help of CIBIL or Credit Information Bureau of India Limited should be made eligible to buy such an asset.

Any asset thusly sold to a private party should for a particular time period be made eligible for loans based only on the immovable assets of the business or the high value customer to whom this NPA had been solved. Moreover, loans should only be approved if the buyer of these assets agrees to implement the changes which have been proposed in a plan drawn up by the bank and the firm which assessed the non-performing asset before it is sold to the high value customer.

There are many high value individuals banking with Indian banks but most do not have any business background or entrepreneurial acumen. The pre-conditions to sell NPAs to such individuals should also be that they agree to set up an independent board of directors who can run the everyday operations of the newly acquired asset. The size of this board must vary according to the size of the asset and always be an odd number to avoid indecision.

I think this plan will work because there are many NPAs which have a lot of potential but have been run down by bad business decisions. I also think that there are sufficient number of high value individuals using the Indian banking system who would love to own a business but are hesitant to do it because they do not want to start from scratch and because they are ill-equipped to run the day to day operations of such a business. Moreover, a high value individual will most likely “adopt” a business close to where he/she resides, this will help in the welfare of local communities since NPAs and high value bank customers can be found everywhere in India.

If you like this suggestion on an alternate method to deal with NPAs, please share it online and on government portals.

(Full disclosure– There was recently a similar move to create a bad bank for Europe, but it has been shot down by EU’s biggest economy- Germany. I have been trained by and worked closely with at least 3 leading German economists and economic historians so the above article might be a result of my pre-conceived ideas.)


How Capitalism Short Circuited Communism with Wet Feet


One of the news items I remember from the 90s (probably because of the sheer number of times it was repeated in the Indian Media) was the US constantly preaching to India and rest of the developing world to “open up” their economies. I remember asking my father why we  just don’t do that, to which he basically replied that people were afraid of unemployment and capital flight.

Fast forward 20-25 years to the present, there is bipartisan support in the US to the idea that international trade deals are ruining their economy, that developing countries like China and India (which have now “opened up” their economies) are “stealing” jobs and other resources from the US and basically that an open economy with free movement of goods, services and labour is bad for the US economy.

But the US is not alone in expressing these sentiments. Many of its ideological allies in Western Europe who have been preaching similar things to the countries of the developing world about embracing the neo-liberal economic model have just in the past one year witnessed massive opposition to free trade agreements between EU and Canada and EU and the US

This is a significant turnaround for these countries which have been preaching “free trade” and practicing the modern version of capitalism for at least the last 70 years. Why did this turnaround happen? It happened because the US and Western Europe decided to borrow some ideas from Communism to make capitalism look acceptable without necessarily thinking about its future implications. This is what I am calling short circuiting communism.

The End of History

But before I proceed any further I would like everyone who is still reading this to stop being a Fukuyamaist for a moment. I agree with Slavoj Zizek that although I find Francis Fukuyama’s thesis in “The End of History” unpalatable, but he did get something right. After the Cold War, somehow we have all come to accept the status quo i.e. neo-liberal notion of democracy as the end of all polity. No longer do we see mainstream discussions regarding any alternative to liberal democracy. As a result of which we now have a growing epidemic of people who think that “politics is bad” and that somehow they can live their lives devoid of political opinions and decisions. If now you are thinking that your politics is being nice to people by practicing political correctness- I am including you too in the group of people affected by this epidemic.

Lets look at an example to make myself clearer. When we compare the ideas of US President Donald Trump and possibly his most virulent critique in US media the British comedian John Oliver, we see that on the surface both men do not seem to agree on anything. But if we look deeper we see that both men are just proposing their own different ideas regarding how best to preserve the neo-liberal world order. Essentially both are gate-keepers of the present capitalist world with Oliver advocating more social welfare and Trump advocating more competition for preserving the status quo.

Keep in mind that status quo is never “home” but it is usually where most of the “violence” happens, be it political, physical, psychological or societal because-

“Home is not where you are born; home is where all your attempts to escape cease.”

– Naguib Mahfouz (1911-2006) – Egyptian writer & novelist; won the Nobel Prize for Literature in 1988.

Scary Sounding Communist Terms and what they really mean

The current crisis in the neo-liberal world is due to capitalism adopting the classical Marxist idea of “withering away of the states” and employing it to meet their own needs.

Marxism is quite clear about how this stage in world’s history where there is withering away of the states will come about and their explanation, even though some might argue is impractical, is at least theoretically possible. This theory goes something like this- the world is ruled by bourgeoisie or people who control the means of production i.e. capital, land and labour- there will be a revolution where the working class or the proletariat will overthrow the bourgeoisie and then end their control over the means of production and there will be a classless society.  But since years of bourgeoisie rule has created various contradictions within each society, each country where there has been a proletariat revolution will have to deal with their own dialectic materialism. Only when each country had dealt with their own contradictions or reached a synthesis after dealing with their dialectical materialism, only then will it lead to a truly classless society across the world, which will in turn lead to an automatic “withering away of the state”. The operative word here is “automatic” not “assisted” or “forced”.


Now, let us come to capitalism. Capitalism is based on the belief that humans are rational animals and thus always looking to maximise their profit. According to capitalism, it is only when everyone works for their own profit can there be an ideal society where everyone’s needs and wants are fulfilled. So, capitalism is more concerned with ensuring economic freedom than with equality. In fact inequality is what drives the engine of capitalist growth- competition. So, when you hear terms like “the free world” it basically means the capitalist world. In the capitalist world view limitations like making provisions for equal opportunities are seen as barriers.

Whether you agree with what the ideology of capitalism says or not, it is not the point here. What matters is that communism and capitalism are completely different ideologies and there is no way that something like the communist idea about “withering away of the state” can be truly integrated into capitalism. But, frankly weirder things have happened in world history and this concept was adopted into the capitalist worldview and was labelled “globalization”. It is this decision to monetize “withering away of the state” without fully considering its possible political outcomes which has now resulted in internal contradictions within our societies as a result of Dialectic Materialism or in other words- unequal struggle for finite resources.

The primary rouse for convincing people about the benefits of “globalization” has been the concept of freedom. I will explain how capitalism has successfully used this concept till now but first we need to understand why capitalism felt the need to make provision for equal access to the market into a core element of their ideology although it is clearly counter-intuitive to their original beliefs regarding competition and practices like colonialism where different sections of capitalists would lay claim to different captive markets.

Different countries adopted globalisation and free trade for different reasons but I am giving a small explanation below regarding the three reasons why the US, the engine behind the growth of modern capitalism in the world and main power behind organisations like the IMF, World Bank and WTO adopted these ideas.

Modern Economic History of the United States of America in Brief

The Great Depression hit the US in 1929, the government tried using protectionism and closing off the US from the rest of the world, but that failed. Then Keynesian measures were undertaken in the form of the “New Deal”, it helped a little bit but real prosperity came only after the Second World War because frankly the New Deal was not Keynesian enough and only the World War resulted in significant capacity expansion through massive capital investment in the US. The results of this can be seen in Kuznet’s inverted U curve regarding initial increase in people’s income.

During the 20 year period from mid 40s to mid -60s, the US economy not only became the largest economy in the world but also the largest producer of both primary and secondary goods. For them to make a profit from such massive production they needed foreign markets as the domestic market alone would simply not do. This resulted in the perennial hunt for markets by the US. These economic circumstances also led to the creation of large number of scholarship in the Western world (specifically in the US and UK) which proposed increased free trade as a panacea for all evil be it poverty, war or oppression of minorities and women. This is the first reason.

Fun Fact: The last Indian Prime Minister, Manmohan Singh became heavily influenced by this school of thought while he was doing his PhD in Economics in Cambridge University and probably that was the reason why he decided to stay silent when problems of varying degree of severity were put in front of him.

But what happened after those 20 years. Well, two things happened one was more nuanced and more relevant to the decline in economic growth of the US in the 60s and 70s and the other was sudden and impacted the lives of millions of US citizens and thus remained in their memories longer.

The more nuanced and relevant thing which begin to happen to the US economy from the 60s till its literal halt in the mid-70s has been explained brilliantly by the US economist Mancur Olson in the book below.

We have to keep in mind that he was writing this book when we were witnessing the US economy stagnating and the world was witnessing the Wirtschaftwunder or economic wonder in Germany and Japan which had by then overcome the devastation that WW2 caused to their countries and were growing rapidly. Olson concluded that the American capitalist class as a group which grew and flourished after WW2 by innovating and providing public goods is now over-burdened with too many people who have given up on entrepreneurship in favour of maintaining the status quo and being part of the “group”, which brought easy profits. Olson said that this happened because membership of this group was not based on performance and taking collective action for change cost a lot when there is a large group involved rather than when it involves a smaller group like in Japan in the 1960s. Ironically Japanese capitalism faced the same problem which resulted in what the Japanese call the “Lost Generation”.

But what remained in people’s minds were not these subtle things about increased cost of collective action but the sudden oil crisis of 1973 as a result of the embargo imposed by the Arab Oil Exporting countries, as a consequence of the Yom-Kippur War. Oil prices shot up by around 400% in the US and even when people were ready to pay up this exorbitant amount they found that their gas stations had already dried up due to lack of supply. This came as a great shock to the US economy and there was a feeling of “never again” and so this is the second reason for why US adopted globalization and free trade principles whole heartedly.

But overall the 70s remained a depressing time for the US in many aspects- economically, socially and diplomatically, so much so that the Americans decided to elect a B list movie actor as their president to lead them into the 80s.

Ronald Reagan did three things to revitalise the US economy- the first is well known, the second is not and the third is completely ignored by different people for different reasons. What Reagan did was firstly start the process of rationalising regulations governing American businesses, secondly spent huge amount of public money to increase demand and thirdly began focusing on establishing trade relations with third world countries most significantly with India and China.

The results of these steps can be seen clearly only during the Clinton presidency. Burdened by the huge debt of his two Republican predecessors Bill Clinton began to advocate for “small government” which was basically also a continuation of the relaxation of regulations which was started in earnest during the Reagan presidency. Clinton also had to restart, maintain or enhance the trade relations between the US and China and between US and India despite the former engaging in ruthless suppression of democratic right and the latter carrying out a successful nuclear test. There were many reasons why these things happened but the most important is of course the pressure of the US corporates on the US administration to facilitate and open up new markets and investment avenues for them and the US government after having relaxed regulations for more than a decade and sizing itself down had no way to resist this pressure. This was the third reason.

Dialectical Materialism

The communist concept of “withering away of the state”, is based on the pre-condition that there is at least some form of harmonious existence amongst all people in the world, that national or identical concerns no longer become reasons for conflict and where some kind of solution has been found for the problem of inequality. Do you think globalization, achieved any of those goals? No, absolutely not. Instead of harmonious existence we see walls being built everywhere from Israel to the US and from Germany to Eastern Europe. Instead of national identities ceasing to be reason for conflicts it has become even more contentious than it was 10 or 20 years before with some countries squabbling over sub-national or ethno-national interests like in the UK and Spain. Finally when all of this is taking place inequality has gone through the roof across most of the world.

But how could such a minor thing like capitalism borrowing a concept from communism and implementing/monetizing it could cause such chaos? It is because it managed to stagnate human advancement. Let me explain with the following examples.

It is my belief that capitalism knows that it had hijacked the communist idea of “withering away of the states” and replaced it with “globalization”, so they have tried to mitigate the obvious problems with their own versions of enlightenment concepts like “freedom” and “tolerance”.

Let us start with “tolerance” first. We might perceive it from the simplistic notion that since capitalism has lessened the state’s powers, increased the size of the economy and reduced barriers to free movement of labour and capital, it wants us to be more tolerant to the different kinds of people we meet in our day to day lives. But the reason behind this show of “tolerance” is something more basic than that and reveals itself when we ask ourselves the following question- that when under capitalism there is constant competition for limited amounts of resource, how can there be real “tolerance” amongst people? To answer this question we must consider what might possibly be one of the biggest achievements of capitalism which is to morph this struggle for more resources into something which can be carried out non-violently, 5 days a week from 9-5. This was more out of necessity than altruism because violent competition for resources leads to instability which as we know is “bad for business”.

But of course there are breaks in this routine when wars break out. But this is natural and common occurrence in a capitalist world ruled by greed. But what is unnatural is the short-sightedness of the people who are opposed to wars, do they not realise that just because they want “peace” does not essentially make them anti-war. Have they not asked themselves the question- when has competition for resources not led to wars and conflicts? The realisations that we all who participate in capitalism somehow or other contribute to war are suppressed with the help of two tricks- free movement of capital across borders and consumerism.

Since the neo-liberal world has managed to establish the free movement of capital across borders, we neither see nor know of the damage that our capital is doing-all these add an element of plausible deniability. But since there are only finite resources in the world and capitalism involves competition for those, our very participation in economical social interactions with other people results in gain for one and deprivation for the other.

The element of plausible deniability is also strengthened with the excuse that most people’s jobs have nothing to do with violence or war. But this is not how things work in Capitalism.

Let us consider another Marxist term – “surplus value”. Surplus value is the value created by the labourer in addition to what they are paid wages for. It is by appropriation of this surplus value that the capitalists profit. Our investments in stocks are based on the trust that capitalists will continue to be able to appropriate the surplus value even in the future. So, it is through this expropriation of surplus value that the neo-liberal capitalist world can afford to pay the workers and invest in new ventures. So, even if you are completely against war your participation in the capitalist world makes you not only fund wars but also profit from it, even though it may not be obvious. This is because in a neo-liberal world everything is connected by capital and human interaction without capital has become next to impossible. To explain it with a movie reference, it is not “Love which is all around us”, it is capital that is all around us (Love Actually).

So, in other words, the very enthusiastic neo-liberal anti-war and peace activists forget that war in a capitalistic world system is just doing something quicker rather than what many of them do for years from 9-5 every day. This naivety about their role in wars and violence also seeps into the discussions when liberals talk about consequences of war like accepting refugees of war. Accepting refugees of war is a noble act but has its own elements of vulgarity under capitalism. This is because the refugees have not only fled a capitalist war for profits but because the country which will accept them will turn them into cheap labour for creating even more profits in no time. I wonder how many wars it will take for the people to realise that they are going around in circles, unfortunately, this question is rhetorical. There is no way people in the capitalist world can break out from the vicious circle of the debates we find ourselves in if we do not decide to question when and how we got indoctrinated into this neo-liberal capitalist world and if we really want to spend the rest of our live in it. The capitalist world, especially the developed Western world have found a way to make people forget the unpleasantness of capitalism by projecting its positive side vis a vas consumerism. Almost all their customs, cultural activities, hobbies (sports) and even spirituality have been covered under the halo of consumerism. But unlike the halo of saints, angels and Gods which looked unattainable or attainable only after death the things under the halo of consumerism can be ordered with a click of a button on your phone. Religion is no longer the opium of the masses but is just a subset within the hallucinogenic superset of consumerism.

To understand how this works we have to understand the concept of “freedom” in a capitalist neo-liberal world. To start with the primary concern of capitalism was “Free trade” but as capitalism grew in power and hence in confidence it expanded itself to include other forms of freedom like freedom of expression. For how can there be a danger to the capitalist world order when the means of communication is controlled by the capitalists? With the coming of the social media the dangers to the capitalist world system has receded even further because who can hear someone when everyone is shouting? This in turn leads people to retreat into echo chambers where they share their opinions on different issue with people of similar disposition. The real tragedy here is that many of those differently aligned echo chambers are worried about the same issues. But in a capitalist world where everyone is addicted to consumerism anything can be commoditized and competition ensures that that commodity is mass produced. So, the reason why we now find ourselves facing this historically unparalleled difficulty in discussing differing opinions is because of this mass production of information which results in the phenomenon called information overload. It doesn’t matter whether the information is real or false here, too much information usually exists on all sides of an argument to lead to its eventual failure.


The power and control of capitalism over information is especially evident when one looks at the weird evolution of the phenomenon of information overload. More information than it could be processed by the human brain existed before the internet age. But it was grudgingly accepted that one can be a true expert in only one field of work. But strangely with the coming of the internet age where there was growth in the number of specialized subjects there was also the growth of this infantile notion that the truly intelligent people knows everything about everything. This notion is not only reinforced through fictional portrayal of intelligent people knowing everything but also in real life for example when big seminars are held where theoretical physicists like Prof. Stephen Hawking will tell people that communication with an alien species will be disastrous for humans. Prof. Hawking’s work mostly involved reams of papers or to use a modern term terabytes of mathematical calculations. How can he know anything about alien psychology or sociology? That is why he falls back on the problematic historical theory called “Columbian Exchange” while discussing a probable event of contact with intelligent alien life form.

But nonetheless, these fictional and non-fictional accounts of “intelligent” people knowing everything serves its purpose well because who doesn’t desire to be intelligent, and if being intelligent means knowing everything about everything so be it. But since knowing everything about everything is impossible, at the slightest challenge “intelligence” disintegrates into opinions which are often just thinly veiled dogmas. This is why we see so many people discussing and presenting their strong reservations about topics on which they seemingly have very little idea about


As seen from above neo-liberal ideas like “tolerance” and “freedom” does not really have to do anything with tolerance and freedom but are fire-fighting measures of capitalism because they have realised that they might catch fire because they had short-circuited a complicated Communist idea while they were standing in an ocean created by capital. Anyone who is reading this must have on one occasion or another in the last decade encountered a situation when they tried defending basic ideas like freedom but was opposed by another whose objective was to defend freedom as well. This is what has led to the crisis in the neo-liberal world order and why neo-liberal critique of increasingly right-winged nationalist polity is meaningless and irrelevant because both inhabit the same area whose boundaries are fixed by capitalism.

Civilisation cannot hope to advance by simply critiquing the wrong information, by arguing about human morality and making fun of the everyday ridiculousness due to the above mentioned phenomenon of information overload and creation of echo chambers. Civilization can only advance when we either disregard the borders that bound us or when we expand them and the first step towards doing this is to stop being a Fukuyamaist and look for an alternative where the primary means of human interaction is not through capital. I know it is a lot to ask, especially when you are probably reading this in a device manufactured by a multinational corporation and when I am writing this in a software created by a multinational corporation, but never forget that just 2 to 3 hundred years back most people lived in a world which was not governed by capital. Of course, it was a world where the more dominant elements were feudal considerations, but human civilization did advance into the “Age of Capital”. To suppose that we cannot advance beyond this stage will not only be a disservice to humanity but also will be a terrible underestimation of our potential.


Universal Basic Income: The Master Plan to Destroy Social Welfare in India


The Economic Survey 2016-17, released by the Union Finance Ministry of India has proposed a Universal Basic Income or UBI for 75% of India’s population. This income will amount to 7620 Rupees per year or INR 635 per month which the government will deposit into people’s bank accounts directly. This plan will require the government to spend something around 4.9% of India’s GDP and this money according to the Economic Survey will come from abolishing all the welfare schemes and subsidies that we Indians currently get from our government which amounts to 5.2% of the GDP.[i]

Yes, you heard me right. The government wants to give you Rupees 635 per month and in exchange they will abolish everything including MNREGA, Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Awas Yojana, National Health Mission, Swachh Bharat Abhiyan, Sarwa Siksha Abhiyan, Mid-Day Meal Scheme, LPG Subsidy, Food Subsidy, Fertilizer Subsidy and every other Centrally sponsored scheme and sub schemes.

Unbelievable? Believe It![ii]

But how can they have arrived at such a measly amount? Well, what they did is that they took the consumption level of an average person living in poverty in 2011 (According to now defunct Tendulkar Committee Report) and then calculated the amount needed to be added so that that person crosses the poverty line threshold, then they inflation adjusted the numbers to 2016-17.

There are so many problems here that I do not know where to start my analysis from.

It is very strange that when the discussions on Universal Basic Income took place in the rest of the world people called it too socialistic a measure, but in India we have a situation where the Finance Ministry has perverted UBI to demolish whatever elements of socialism and social welfare remained in India.

I will be going off topic if I start to discuss the merits of poverty lines here but I think it should be mentioned that when the last report on poverty line was released by the Rangarajan Committee it was criticised for keeping the poverty line very low. The Tendulkar Committee Report which came before that kept the threshold at a level even lower than the Rangarajan Committee. According to the Tendulkar Committee Report, anyone with income of more than Rupees 1000 per month in urban areas or INR 816 per month in rural areas was not poor.

Now, do the authors of the economic survey really believe that the welfare programs that they plan to abolish will have no impact on income levels of the poor? Programs like MNREGA and Pradhan Mantri Gram Sadak Yojana employ lakhs of unorganised labour for whom income from these programs are very important for making their ends meet. But the impact on consumption of even basic things like food and fuel for cooking will be much worse which I will discuss in details below under a different context.

The “Evil” Middle Class

There is in the chapter on UBI a lot of implied and direct ranting and raving against the middle class of India which is apparently misappropriating a large amount of subsidy for their own benefit which in turn has been sighted as one of the reasons why subsidies and welfare schemes should be done away with in favour of a Universal Basic Income. But how much of the subsidies is the middle class appropriating for itself- according to its own admission the Economic Survey says it amounts to only 1.05% of India’s GDP (the total value of all subsidies and centrally sponsored welfare schemes is 5.2% of the GDP)

It is important to note that the subsidies valued at 1.05% of the GDP which according to the Economic Survey is going to the undeserving people of the middle class also includes favourable interest rates for farmers, long distance non-AC train travel, fertilizer and LPG subsidies. I am not convinced that it is only the rich or the middle class which takes advantage of these subsidies, are you?

What is the Middle Class?

The Economic Survey of 2016-17 does not quantify or define the middle class but if the above mentioned subsidies that it wants to curtail, the massive focus in the chapter about the undeserving appropriating subsidies and “75%” to whom it wants to give the UBI to are any indication then the number of people in the middle class in India according to Finance Ministry’s estimate should be something close to the World Bank’s estimate i.e. around 20% of our population or over 260 million people. [iii]

But how did they come up with this number and is it relevant to the present times?

The World Bank came up with this number by considering everyone whose income is equivalent to 2-13 US Dollars per day as middle class.

But, I will like to draw your attention to another study done by Credit Suisse in 2015 where the size of the Indian middle class comes up to only 24 million. They arrived at this by considering wealth instead of income[iv].

What is the difference between income and wealth?

Income primarily refers to only the salary or wages that a person earns from doing his job. On the other hand wealth or net worth refers to the financial assets of a person like the amount of money in the bank and insurance policy returns and non-financial assets like immovable assets and people’s debts are subtracted from this calculation[v].

So, even though a person’s income might categorize him as being middle class, he/she will lose that stature if they lost their job. But a person categorized as middle class based on his or her wealth will not lose that status immediately, even if they lost their job because they have a protective net preventing them from falling into poverty.

So, is Income or Wealth Assessments more applicable to India?

According to the International Labour Organisation (ILO) only 15.4% of Indian workers get regular salaries and over 80% people work in unorganised or informal sector[vi].

Furthermore, over 60% of India’s GDP comes from the service sector[vii]. The service sector does not only include the IT sector but also tourism, shipping and port services and media and entertainment services[viii].  These sectors are extremely vulnerable to external shocks and it seems the world economy is facing one shock after another. Two of the biggest shocks that it is currently facing are the increased speed at which China is selling US debt and the US dollar becoming extremely strong thanks to Trump’s policies[ix].

So, in the current situation where only 1 out of 10 Indian workers get a regular salary or wage, a number which threatens to plummet even lower owing to the present volatile international situation, income should in no way be the basis for defining the middle class, Instead a person’s net worth or wealth should be used for quantifying it. It also means that the Economic Survey’s assumption that around 20% of India’s population belongs to the middle class is not applicable since if we consider the wealth or net worth of Indians it is only around 2%.

Transaction Costs

I am a student of Economic History, but I have always been on the fence when deciding the role that economic history can play in policy making. But this chapter on Universal Basic Income released by the Finance Ministry has convinced me that economic history is very important for policy formation or else neo-classical economists like those involved in creating this Economic Survey will let some obvious things slip from their minds.

The proposal for the UBI falls under the New Institutional Economics or NIE school of thought. This is fast becoming the most important school of thought in economics. But some neo-classical economists are trying to pervert it to their own needs which currently mean only one thing- reduction of government spending and austerity which according to them will free the market for the private sector. But NIE school of thought not only talks about the often abstract economic notions that most people find difficult to comprehend, but also deals with implementation issues with their primary aim being to decrease transaction costs.

Let me give you a brief explanation about the transaction costs. According to the New Institutional Economics when people interact with one another economically they not only exchange goods but also rights to those goods. For example when you buy a cucumber from the market you buy the right to eat it not the right to hit someone over the head with it. In order to ensure that these rights are preserved three main costs are incurred- negotiation costs, information cost and enforcement costs. All these comprise to form the transaction costs and lesser the transaction cost the better it is for the economy. This principle is not only applicable to economics but can be applied to many other things like functioning of the government or distribution of subsidies. What you see in the economic survey is unfortunately a shortcut by which the authors are trying to reduce transaction costs by directly reducing the expenditure of the government, but this is really very short sighted.

Let us consider some possible consequences on transaction cost if the UBI plan as mentioned in the Economic Survey of 2016-17 is implemented.

It seemed really bizarre to me that this chapter which talks a lot about the negative psychological impact that poverty has on people, which they basically lifted from a study done by the World Bank in 2015[x], seem to be so clueless regarding how people deal with their surrounding everyday of their lives when they live in poverty. Living in poverty is a form of violence in itself which makes people behave in radical and often “unlawful” ways.

For example, the current NDA 2 government says that they have been able to provide LPG connections to lakhs of poor household[xi]. Now, if the LPG subsidy along with the kerosene subsidy is discontinued then what will these people do? Obviously they will start cutting down trees for cooking fuel.

Also, millions of people all over India are employed for a season (100 days) under the MNREGA scheme. If this support is removed then not only will many people lose their income and remain unemployed for almost 1/3rd of the year but rates of theft and robbery would increase.

As we have seen, elimination of just these two subsidies or welfare scheme will result in massive increase in the enforcement costs for the government be it to enforce the forest protection laws or to reduce petty crimes.  But these are obvious things, how could the economists writing the economic survey miss it? The answer might be in the following meme


It is no secret that the neo-classical economists see themselves as scientists who work in a field that can be mathematically precise. This has been their undoing in the recent years. This is why I am proposing that economic historians who deal with more social issues should be given more say or at least should be heard when shaping economic policies.

The Basic Problem with this Document

The basic problem I think with this UBI chapter in the Economic Survey is its clear intention to cheat the Indian people. To an extent they have succeeded because they have garnered support and congratulations for the Economic Survey from some staunch critics of the NDA government like from Yogendra Yadav[xii].

The primary instrument for this cheating has been the structure of this chapter. They begin and end this 41 page document with several out of context quotes from Mahatma Gandhi talking about social justice, responsibility and frugality, so that no one can question their good intentions. Then they proceed to tell you how much the Central Government is spending on all its welfare schemes and subsidies (5.2% of the GDP). Then they tell you that this does not reach the deserving by showing the percentage of poor people across all of India’s districts. In the next map they show you in how many districts there are shortfalls in welfare schemes/subsidy allocations. Their implication is that the undeserving has gobbled up those subsidies. But do they consider that the government might itself be under-investing in those schemes, no.

Instead they go on a full rant against the “evil” middle class based on their assumption that it comprises of nearly 20% of India’s population, all the while telling you the advantages of better targeting the welfare schemes and subsidies. In the mean time they also tell you that to implement the Universal Basic Income the government will need to spend 4.9% of India’s GDP. They freely sacrifice the subsidies they think goes to the middle class alone for this purpose but it comes up to only 1.05%. As for the rest of the subsidies they give a warning that dissolving them might destabilise the country, but this is to just confuse the people who might condemn it. But no one is getting confused, even The Economist read it the same way I did, but they were happy with it while I am disturbed by it[xiii]. Even Arvind Subrahmaniam (person in charge of writing the Economic Survey) in his interview to The Hindu makes it clear that he is all for of removing the entire gamut of subsidies and welfare schemes in favour of a Universal Basic Income.[xiv]

This document can also be accused of lying by omission especially with regards to two issues. Firstly, there is no discussion about how the government finds money to give subsidies and tax cuts to corporates while it cannot find the same for the poor, something that is repeatedly highlighted by people like Jean Dreze and Amartya Sen. Secondly, there is no explanation as to why they considered the old and much criticised Tendulkar Committee Report for deciding the poverty line instead of using the newer and somewhat better (although in no way perfect) Rangarajan Committee Report.


What saddens and worries me also is that the team which prepared this economic survey includes young and brilliant graduates from some of the best universities in the world like Harvard and Oxford. Do, they think that they can pass even an under-graduate exam in those universities if they produced such a mess of a paper? Do they think it is a great achievement on their part to cheat people into giving up all their subsidies and claims to social welfare for a measly 635 rupees per month?

The media and the civil society of India must ask the government to disown the concept of Universal Basic Income as proposed by the Economic Survey of 2016-17 or else shrewd economists will manage to convince sufficient number of politicians to approve this proposal. After all we have to keep in mind what John Maynard Keynes said-

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”



[ii] Catchphrase from







[ix]  and






Prerogative Powers Of The Indian Governors: Its Past, Present and Possible Future


The judgement given by the UK Supreme Court on the 24th of January 2016 ordering the British government to ask permission from the Parliament before they begin the formal procedure of withdrawing from the EU has some important links to the Indian political system which I will be exploring below. These linkages have emerged because this judgement deals extensively with the prerogative powers of the government, one of the many things that Indian polity borrowed from the UK.

The raison d’être behind this article is mostly to address the issues behind the increasing number of controversies arising from the exercise of the prerogative powers of Governors in India especially in the last one year, be it in Tamil Nadu, Uttaranchal, Arunachal Pradesh, Puducherry or Delhi.

The Judgementuksccrest2On the onset, I have to say that the summary of the judgement that was released to the press was very ordinary and I was quite disappointed by its quality. It basically said that – yes, the British government had the prerogative power to conclude foreign treaties like the ones which they will need to formulate and execute in order to withdraw from the EU but, since previous statutes enacted by the government will be effected when invoking Article 50, which will in turn change domestic laws of the UK, so the government will need to get the permission of the parliament before formally starting the process of withdrawing from the EU. This frankly sounded to me like a shrewd lawyer looking for a loophole to get his/her client off murder.

But, when you read the detailed 97 page judgement – you realise the depth to which these 11 judges went into, to come up with this judgement and it is where we can find this judgement’s significance with regards to India.

Historical Background

Prerogative Powers refers to the powers of the British crown to do whatever it wanted. Although there was mention of some limitations to it as early as in the 11th century but they were almost completely ineffective till the 17th and the 18th century when parliamentary rights, land rights and personal rights were shored up against assaults from the prerogative powers of the crown.

Coincidentally and ironically it was during this period (17th and the 18th century) that the British started to acquire territories in India and to legislate over them, posts like those of governors, governor generals, viceroys and secretary of states were created and all of these offices had massive amounts of prerogative powers. Even though Government of India Act of 1935, laid the ground for the basic elements of the federal system that we have in India now, the Crown appointed Governors of different provinces and Viceroys still maintained significant residual prerogative powers.

But by 1935, the prerogative powers of the crown in England had slipped out of the hands of the monarchy, even the residual ones. These prerogative powers did not disappear but instead got passed into the hands of the popularly elected executive or the elected government of the day. The logic behind this was quite simple- the parliament is the primary law making body in the UK, it derives this power, status and credibility from being popularly elected by the people. It is from this parliament that the government is formed, hence the prerogative powers which the previous form of government (monarchy) had, got passed onto the current democratically elected form of government. But the above mentioned Brexit judgement also reminds the British government that their prerogative powers are limited by various statutes and laws so the government of the day cannot do whatever it wants and be completely unaccountable.

Things get a little more complicated in India

Till the end of the colonial rule our British rulers enjoyed prerogative powers similar to those their predecessors enjoyed before the 18th century in their home country. Then the law making powers were transferred to an Indian constituent assembly which was elected by a limited mandate. This constituent assembly wrote down, approved and enacted the Indian constitution we have today.

It has been 68 years since this happened, so after numerous amendments and judicial interpretations let us look at the state of prerogative powers in our country.

Just like in the UK there are two kinds of prerogative powers in India. The government has the prerogative powers to take actions which will affect the lives and rights of different individuals within the country and hence these are subject to judicial review. Secondly, the government also have the prerogative powers like those protecting its actions during wartime which are guided by statutes.

The prerogative powers that the British Governor Generals or Viceroys enjoyed have been completely dissolved and handed over to the Government of India which can exercise it in accordance to the laws and statutes put in place.

But unlike in Britain, India has legislatures in each of its states and in 2 Union Territories (Delhi and Puducherry). So, what creates the problem here is that a totally unelected person the governor is given prerogative powers when these legislatures are already there for framing and enacting laws.

The prerogative powers that governors of states have are truly extensive- they decide who to call to form a government, when a government has to be dismissed, when to recommend president’s rule for a state and last but not least which state bills to reserve for the president’s approval. The powers of the Lieutenant Governors in Union Territories are even more extensive where even day to day administrative work cannot be carried out without the governor’s approval. The governor’s powers in Indian states are probably even more extensive than those envisaged by the British in the Government of India Act 1935.

The only people who could be considered historically equivalent to the modern day governors are probably the political agents that the British would place in the courts of the Indian princes once they enter the subsidiary alliance. Officially he was only there to represent the British in the princes’ courts but unofficially he made sure that the princes did not behave in a way which was adverse to the colonial interests.

Incomplete Transition

When nations make the transition from monarchy to democracy they are faced with problems regarding what to do with the prerogative powers of the monarchs. This is because these powers had been there for so long and in so many aspects of statecraft and governance that they cannot be completely neglected, yet they are in essence undemocratic. So, when countries like the UK made the transition from being a feudal to a democratic state it was decided to vest the prerogative powers with the government which was formed from the popularly elected supreme law making body – the parliament. So, it can be concluded that the less prerogative powers an unelected body or official has the more democratic and less feudal that country is.

This is the reason why I consider the massive prerogative powers with the governors of the Indian states as being the result of “incomplete transition” from the feudal to the democratic age. Although we Indians have a habit of relegating the debate over the role of governors in India to the sphere of federalism, I fear the problem is more serious than that and have to do more with our feudal hangover than with the federal structure.

India at the core is a union of states. Any look at Indian history and polity will immediately make it clear that it is the states/regions/provinces that made up India not the other way round i.e. India creating the region/provinces. One does not have to go very deep into history to clarify the truth behind this point- just look at the Sardar Patel’s attempts to unify 500+ states with the Indian Union and the principle of “Unity in Diversity” which forms the bedrock of many of our fundamental rights.

What I mean to say here is that just because the prerogative powers of the head of the state or President of India has been severely curtailed over the last few decades, it does not mean that the prerogative powers have all together disappeared. In fact since it is the states which make India a successful Union the prerogative powers are as much prevalent today as it was during the colonial era. This not only points to a disappointing democratic deficit in the Indian polity but also to a serious negation of the virtues of parliamentary democracy

What can be done about it?

Different law commissions have dealt with the problem of clashes between the governors and the state governments, so I won’t be going in to them, I have some recommendations of my own which I have elaborated below.

The provisions for sending state bills passed by the state legislatures to the president if the governor feels that it requires further considerations or the governor withholding his or her signature from the bill indefinitely must be done away with. As far as the bills enacting laws are concerned, if the governor feels that it violates the constitution or some other statutes or he needs further consideration he/she should send it to the Supreme Court or the state High Court which is more qualified to opine in that regard, and by rule the governor must be forced to approve the bill if it is approved by these courts or if the bills are modified according to the recommendations of these courts.

Secondly, regarding dismissing and forming governments- two paths are open.

A governor is often forced to dismiss a government in the state if it losses support of the majority of the elected representatives in the lower house of the state legislature. But just because members of the house are not able to form a government does not mean that the house has lost its credibility, because after all it was elected by the people for the purpose of legislating laws. We have to understand that we are a parliamentary democracy first, and posts like those of chief ministers and prime ministers, although constitutional are of secondary importance. The legislature continues to enjoy the credibility it got from being elected by the people even if there is no chief minister or prime minister.

So, the current system of dismissing an elected government after the dismissal, death or losing support of a particular section of the legislative body must be relooked at. For, what can be the justification for dismissing an entire legislative assembly if only a section of it falls foul of the rules? So, a system should be put in place by which the government can be run through these representatives being responsible for their own constituencies without there being any government per say. The council of ministers which is also a constitutional body should not be dissolved if the government “falls”, instead it should be made directly responsible to the legislative assembly and asked to carry on its functions. There is already a constitutional sanction behind this plan, which is that even after a ruling party has been ousted from the government by an election it continues to hold power till the new government is sworn in.

Such a system will give sufficient time for different political parties to engage in negotiations to form a proper government with a chief minister. This system also does not insult people’s opinions which they have provided through the process of voting.

An Appetite for Dictatorship

People’s mandate can be learned in many important issues not only by holding referendums but by holding elections for a new government. So, the second pathway open to limit the prerogative powers of the governors regarding the dismissing and forming of governments is for the Indian states to inculcate the habit of holding fresh elections at short notices whenever there is a need for it.

Instead of going for one election every 4 years for the entire country the attempt should be to hold elections at short notices almost immediately after a government losses its majority or if the government feels it needs to hear the people’s mandate on an important issue.

I know that this suggestion is coming at a time when there is increasing chorus from the ruling coalition for reducing the number of elections by holding simultaneous general and state level elections. This for me is quite alarming and is a recipe for future authoritarianism.

The 2 major reasons being given by the ruling NDA coalition for simultaneous elections are highly inadequate. The first reason that holding simultaneous elections will reduce costs for holding elections is at best a half truth and at worst misinformation. Political parties across the board have refused to publicise the source of their income for decades and now even refuses to come under the RTI Act. To shed crocodile tears over public spending in elections while protecting private spending under a veil of secrecy is hypocrisy plain and simple.

The second major reason, that the central government is not able to conduct its normal functions when the country is in perpetual election mode needs a more nuanced understanding in the part of the national parties.

National Parties in India have had a very poor opinion about federalism in India and they should take some lessons out of the continuing downfall of India’s first true national party, the Congress Party.

One of the major reasons for the downfall of the Congress, at present according to many amongst the hordes of “rebels” escaping from that party is the complete lack of regional autonomy in the party. All the decision are taken in a centralised manner to fulfil an agenda set by its central leadership. A simple look at India’s geography tells you that this is a wrong method to follow- the problems of India’s teeming masses living under completely different realities can never be solved under the guidance of a single master plan.

The rising national party the BJP would do well to remember this. Making its various state units confirm to its centralised agendas will require it to curtail the independence of its state units and impose on them programs which might be completely unthinkable in that region or state. As I see it, the BJP will have to face this problem of centralised decision making far sooner than the Congress because backed by its unitary RSS ideology BJP has more centralising tendencies than it rival.

So, to say that the functions of the central government are hampered due to continuous holding of different state elections all the time is a very short sighted argument. Governance never takes a day off- even when an election is going on there is a government which is responsible for conducting it freely and fairly. The national parties should learn how to respect India’s federalism and recognise that their central objectives will often times differ from their regional objectives and hence give their regional subsidiaries and affiliates more freedom to follow their own agendas which might be very different from their overarching national objectives.

The media too can play an important role in this. Unfortunately the analogy used by the Indian media to cover each state election is very similar to what they do when covering a cricket tournament. The Indian media create a hero or even a legend after a few good innings but a bad innings from that very same cricketer in a crucial match can make him a villain in an instant. Often times the media to increase their TRP refer to the state elections as being an indication of the feelings of the entire country which it is often not. But these kinds of artificial pressures from the media create situations where national parties find it difficult to carry out their normal functions of governance.

How will holding Simultaneous elections result in Authoritarianism?

It is all about perception and using the prerogative powers of the governors of the states.

People already see that the legislatures are not working due to disruptions and adjournments. Ordinances are becoming common place and important rules and statutes are being maintained only with the help of ordinances.

Now if simultaneous elections are held across the country and the prerogative powers of the governors are left unchecked in this era of coalition dharma and multi-party elections, it becomes far easier to dismiss a government for not having sufficient support in the legislature.

So, in the time period of say just 2 years large swaths of the country could be living under the undemocratic “presidential rule”.  Also since media pundits have been hammering us with the notion that successful democracy is the same as fulfilment of individual goals like reduced corruption levels and poverty alleviation how long will it be before people perceive that good governance is the same thing as democracy?

(The full judgement of the UK Supreme Court along with the summary can be accessed using this link:


The featured image is produced courtesy Karnataka Raj Bhavan

Demonetisation after a Month: Looking at the Rest of the Country from North East India


A Strange Experience:

I went to an SBI ATM a couple of days back, there was money in the ATM and there were only 5 people in the queue. Soon after that 3 people left the ATM without withdrawing any money because it was not giving out 50, 100 or 500 rupees notes. The remaining two people after failing to get notes of lower denominations reluctantly took out 2000 rupees notes and left. Then came my turn, fortunately I was not there to take money out but was there to just check the balance in my father’s account. But, unfortunately, the bank officials due to the huge rush caused by demonetization had not updated my dad’s pension papers so his account was empty.

This experience for me was symbolic of the utter chaos that demonetization has caused in our country.

Situation in North East India:

Everyone living in India and every region in India have been affected by the demonetization process albeit in different ways. To understand how the North East has been affected we have to first look at the macro-economic picture.

I live in the biggest city in North East India- Guwahati. But this does not mean we escape the harsh realities that afflict the entire region.

The size of the economy of North East is very small. In fact the size of the economy of the entire North East is smaller than the economy of the cities of Mumbai and Delhi individually.


Figure 1: Source[i] [ii]

Moreover, Assam which constitutes around 60% of the economy of North East India and around 70% of its population, has per capita income far below the national average.


Figure 2: Source [iii]

Also, over 90% of the employment comes from the unorganised sector which is 10% more than the National average due to the over-emphasis on primary sector in the North East.[iv]

So, most people in North East earn their daily livelihood in small denominations of cash. But what happens when there is none of that available? Simple- the common experience that people across the country have had due to demonetization namely- people spending less, postponing work that needs to be done, not employing labour, people not get paid, consumption levels being low and businesses encountering massive losses, have also been felt in the North East but to a much larger extent.

What is worse is that government’s prescription to go cashless is almost completely non-applicable in North East India because digital and Mobile phone network access is very poor. Share of E-commerce in retail for everyday needs is 2% for the entire country which is even lower in North East due to both poor physical and electronic infrastructure.[v]

A Rural Perspective:


I have witnessed recently that people who are opposed to the demonetization program usually mentions the difficulties that the farmers might face in procuring seeds.  But, the Indian farmer has more or less adapted to this challenge mostly because the concept of trust is far more prevalent in rural areas than in urban areas. Farmers have sold their produce to APMCs without getting paid, with the promise from the traders that they will pay them later. Similarly, farmers have purchased seeds from seed sellers without paying them with the same promise that they will pay them latter. So, we have the emergence of a true “cashless” economy one that is based on debt.

Unfortunately, many of the promises made above will have to be broken because of the basic laws of economics. Due to good rains last quarter the agricultural sector performed well and there was increase in agricultural produce. But now their consumers do not have sufficient cash at hand to purchase these primary goods which are sending their prices tumbling down in many urban centres. So, when the traders do not get sufficient cash by selling their goods how are they going to pay the farmer back?

But “seed” is just one of the problems facing rural India. The bigger problem is “labour”. The rabi cropping and harvesting season is going on. During this time the farms in India employ large amounts of extra labour.

The rabi season is a good season for the labourers in unorganised sector in both the urban and rural areas and the labourers have an option to choose amongst them. This is because coming fresh off from the monsoon season which causes huge disruption in construction in real estate sector (one of the largest employers of unorganised labour) the autumn and the winter periods are the time when they aim to do most of their work.

Similarly in rural areas the farmers having faced difficulties like floods and silts during the monsoon season pour everything they have into the rabi season to break even. So, this results in massive employment for low income households in both rural and urban areas. But now when there is no cash at hand and when most of the unorganised sector labourers are daily wage labourers how can the employers pay them?

This problem is far worse in the North East because our population levels are very low. The entire population of North East is just 45 million. So, North East comprises of 4.5% of India’s population while occupying 8% of India’s total land mass. This makes labour a scarce and precious commodity here.

Another important element for the rural economy of North East is the tea gardens. Prime Minister Narendra Modi’s Jan Dhan Yojana might have been a great success as far as opening bank accounts were concerned in the country as a whole but it was a massive failure in the tea gardens. This was realised by the Assam government only after demonetization program was launched and a haphazard attempt by the state government to make tea garden workers open up Jan Dhan accounts has as yet not been a success and why will it be? Tea Garden workers have been daily wage earners in Assam for the past 150 years- it cannot be reversed in just a few weeks’ time.

But this has helped in the rise of a new group of thekedars or labour contractors. Many of the farmers who own their own land have at least one bank account in the name of one of their family members. So, they contact these middle men and tell them how many labourers they need to farm their land. On the other side of the spectrum, the tea garden workers desperate to earn some money will contact these middle men and let them know of their willingness to do agricultural work for some income. So, the thekedars will make it possible for the demand and supply side to merge. After the work is done the farmers will transfer the money from their account to the contractors’ account.

It might look like a good deal, but it is actually not a very good deal for the agriculturalists. The sowing and harvesting of a farm which grows crops and vegetables are vastly different from the activities in a tea garden. So, tea garden workers are far slower in completing their work than the labourers usually employed by the farmers. This means extra income for the middle men but loss for the agriculturalists. The tea garden workers’ communities are also facing a lot of uncertainties due to this new ad hoc system coming into play.

The Security Angle


Just a few days after Demonetization was announced by the Indian Govt. it began to be also promoted as a step against terrorism and insurgency as much as it was a step against Black Money. But what has happened in the insurgency hit region of North East?

The constitution calls for the Indian Government to safeguard the unique culture of the North Eastern region under its 5th and 6th schedule. So, various tribal areas in the North East are governed by independent local council bodies. Many tribes governed by these councils do not have to pay any income tax, hence the concept of “disproportionate assets” is non-applicable to them. Keep in mind the government can put tax penalties in bank deposits only if there is disparity between the source of income and the real income. But what can the government do if there is no requirement to show source of income? Nothing!

So, the insurgents and militant groups which are dominant in these areas have brought trunks of currency that they had accumulated over the years through various illegal and nefarious activities like extortion and kidnapping and made the people of these regions deposit it into their bank accounts.[vi]

But what happens to the insurgents and other militant groups which are more dominant in regions which are not governed by these local councils?

Well, immediately after demonetisation we began to hear that people were very afraid that now since the money collected from them by these violent groups have become useless- they will start using more aggressive methods to extort money from them. The government also knew this and decided to step up security measures, but to no avail. The insurgent groups showed this new aggressive stance when ULFA (I) ambushed and killed 3 Indian Army soldiers on the 19th of November 2016 and NSCN (K) killed 2 Assam Rifles soldiers and injured 7 others in another ambush on 3rd December 2016.[vii]

“But at least they are getting the Black Money back”

I don’t think so. Till now around 75% or 12 lakh crore of the 16 lakh crore demonetised currency have come back to the government. Out of these only around 2000 crore rupees have been recognised and taxed as undisclosed asset which is just 0.16% of the total amount returned.[viii]

So, where did all the black money go? I don’t know. Maybe as I wrote before (here: and here: ) most of the black money is probably not in liquid assets and after all the 500 and 1000 rupee notes constitute only around 12% of the total size of India’s economy.[ix]

Also another place to look for the “missing” Black Money are the notoriously stagnant Jan Dhan accounts which from the date when demonetisation was announced till the 2nd of December 2016 has seen a sudden influx of funds amounting to nearly 50,000 crore rupees.[x]

“Only a Few days more and the situation will be back to normal”


Unfortunately the numbers in front of us belie this assumption.  On the 8th of November the government had demonetised 16 lakh crore rupees. But by the 8th of December only 4 lakh crore rupees of the new currency notes have been injected into the system.[xi] So, by normal calculations it will take another 3 months more or till the 2nd week of March 2017 for the situation to normalise (optimistically).

But the situation Indian economy finds itself in due to demonetisation is actually much more severe than the government authorities are letting us know.

The 4 months that Indian economy will take to arrive at any semblance of normalisation due demonetization also constitute an entire quarter in an economic year. Now the Indian economy is growing at around 7% per annum (nominal GDP). As mentioned above the value of the demonetised currency notes is 12% of India’s economy or around 1/8th of India’s gross GDP. The destruction caused to such massive portion of the economy and the time required to recover from it, is why most experts are saying that India will lose at least 1 percentage point in the nominal GDP growth numbers.[xii] Thus demonetisation will result in India returning back the crown of “the fastest growing big economy in the world” back to China.

But what does the growth numbers have to do with the common people? Private institutions / investors be it foreign or domestic invest in various countries by looking at several things like infrastructure, human development index and growth rates. With regards to the first two factors everyone knows that India lags behind most of the world, but they were still eager to invest in India because the economy was growing rapidly. But now when the economy decelerates to 6% how eager will foreign/domestic companies and investors be to invest their precious resources in India? Not very, and at a time when the government is increasingly abdicating its role in the economic sector to the private players this could have disastrous effect on the employment numbers in our country.

Final Suggestion

None of the top economists in the world believes that demonetisation will help end corruption, black money or the shadow economy; it is only quacks amongst economists who believe that. Fortunately the economists, even though they have diverging views in many topics do not have many varying views regarding how to fight the above mentioned ills of the economy. Their prescription is very simple, which is- improve institutions to reduce transaction costs. I can explain what they mean by this but that will be a subject for another article. For now know that their prescription refers to the scholarship in the New Institutional Economics (NIE) school of thought.

NIE is rapidly becoming the most important school of thought in economics and many of the last UPA government and present NDA2’s policies show traces of it. But demonetisation stands completely opposite to NIE principles.

To get a basic idea of what their prescription meant and what this school stands for you can read Doughlass C. North’s- “Institutions, Institutional Change and Economic Performance (Political Economy of Institutions and Decisions)”.

(This article is a follow up from this: )







[vii] See, and

[viii] The Hindu, Demonetisation a Month Later, (Kolkata, 9th December 2016)


[x] The Hindu, Demonetisation a Month Later, (Kolkata, 9th December 2016)

[xi] Ibid


Demonetization:Why it is not about “Black Money” and Why the Government had to do it?


Part 1: Why demonetization has nothing to do with “Black Money”

In 1985 and 2010 the Indian Government and the World Bank respectively conducted two different studies on how big the black or “Shadow Economy” of India is[i].[ii] They both came to the same conclusion- it is around 20% of the total GDP. It is quite a surprising consistency over a quarter of a century. So, let us assume that this share of “black economy” in India is still around 20% of its nominal GDP.

According to both the IMF and World Bank India now is the 7th largest economy in the world. According to the IMF the size of India’s economy is 2.25 trillion dollars.[iii] 20% of 2.25 trillion is 450 billion dollars.

Before the last week’s demonetization the total value of liquid currency in India was around Rs. 16250000000000 or around 240 billion dollars. Rs. 500 and Rs.1000 notes which have been dropped as legal tender constituted 86% of this total amount which brings its value up to around Rs. 14000000000000 or around 207 billion dollars[iv].

Screenshot (48).png

Figure 1: Values are in Billion dollars (US) and from before 9th November 2016

So, we see that the total value of the “black economy” is more than twice the total value of all the 500 and 1000 rupees notes. Now, let us consider that 20% of the 500 and 1000 rupees notes were “black money”. Even then, it will constitute only around 9% of what is generally considered to be the size of India’s “black or shadow economy”.

Hence in conclusion, demonetization will not affect more than 91% of the “Black economy”.

I like many other people have been quite critical of NDA2’s economic policies but we should not assume that the economic policies of our country is determined by “idiots”. Afterall, the Indian economy which was the 11th largest economy in the world last year is the 7th largest this year. So, they must have known that demonetization would affect only a minute section of the “black economy” so why go ahead with it?

Part 2: Why then did the Government do it?

(I am no government insider so this is at best an educated guess and at worst a speculation)

When I look around myself post- demonetization – I see nothing but economic stress. Businesses are not selling anything, because the customers do not have enough legal tender to buy goods and services and I see lots and lots of people everywhere wasting hundreds of individual working hours by engaging in bureaucratic banking activities.

So, I had to ask this question- why did the government impose such economic pain on the people and what was their cost benefit calculation? The conclusion I came to was simple- the government took this step to protect the fragile Indian banking sector against future volatilities caused by reasons like the US Presidential Elections amongst others.

But then why did the government just not tell people the truth? That is the question is it not? Let me answer that by showing first how weak the Indian banking sector was below

Screenshot (45).pngFigure 2: Source IMF[v].

The “tier 1” capital is the capital set aside by banks under the Basel Agreements so that the banks can carry on with their business even after facing a financial calamity thus providing assurance of stability to customers. But as is clear from the above diagram this assurance is lowest in India amongst other leading Asian economies.

Also according to the Fitch ratings agency- Indian banks lack tier 3 capital as well. This capital is supposed to protect against tertiary risks like market risks and commodity prices risks[vi].

Screenshot (46).png

Figure 3: Source IMF[vii]

This figure shows that only Japanese Banks have lower returns on investments than Indian banks. Consider this- Japan has been going through not years but decades of recession and India is the fastest growing big economy in the world.

Now, let us see what international and national ratings agencies think about Indian banks-

The CRISIL ratings agency in March of 2016 downgraded the following banks- Bank of India, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and UCO Bank[viii].

Standard & Poor’s ratings downgraded Syndicate Bank, Bank of India and Indian Overseas Bank in May 2016[ix].

ICRA ratings agency lowered the outlook for Bank of India, Indian Overseas Bank, Central Bank of India and UCO Bank[x].

What does the Reserve Bank of India think about this?

According to the Reserve Bank of India, 14.5% of the total loans given out by Indian banks have become NPAs or stressed assets. This amounts to 7% of India’s total GDP or around146 billion dollars[xi].

How does the Government of India look at this problem?

By all parameters the Government of India (GoI) also realises that the situation is quite grim. In 2015 the GoI began the “Indradhanush” plan to re-capitalize the banks by injecting 70,000 crore rupees by 2019[xii]. But this was not enough as the downgrades we saw above all happened after this plan had been launched.

Now consider the above in the light of the results of the US Presidential Election where the Indian Government was staring at a possible Donald Trump victory- a person who made cancelling both intercontinental and regional free trade agreements with some of the closest allies of the US his central theme in the election campaign. Trump’s most significant foreign policy goal was to go back to the isolationism of 1920s and 30s something which aggravated the Great Depression. Whether these things happens or not, we will have to wait till the beginning of next year but, if that happens or even if there is an indication of that happening it would lead to tremendous pressure on the international markets including in India and since India lacks severely in tier 1 and tier 3 capital, its banks will not be able to sustain this pressure. So, what will happen after that? Let me answer this question along with the question I asked above- “But then why did the government just not tell people the truth?” (about demonetization). It was probably because both the situations will have led to the following consequences.

People will rush to the banks not to deposit or exchange cash but to withdraw cash. Government will impose capital limitation over withdrawals (like it has done now- but with the crucial difference being that now it is due to increased demand and then it will be due to lack of supply of money). The people seeing that money is running out and they are not being allowed to withdraw a lot will start buying stuff in bulk and stocking them in their homes- leading to sky rocketing inflation. The RBI then in order to stop people from withdrawing money and to reduce inflation will increase the interest rates substantially. But this increase in interest rates will mean that businesses will not be able to borrow money to expand capacity or even carry on with day to day operations so many businesses will have to shut down leading to massive unemployment and social and political unrest.

I am not pulling the above hypothetical scenario out of my hat- not only because I am not wearing one but also because we saw this exact same situation play out in Greece and Russia in the last few years after their financial institutions collapsed due to the Eurozone crisis and due to the Western sanctions respectively.

So, it seems to me that the NDA2 government instead of dealing with this above mentioned hypothetical situation decided to deal with the consequences of demonetization. How this works out- time will tell but let us look at one of the immediate impacts of the “currency ban”.

Remember the 70000 crore rupees the Indian government was planning to spend on recapitalizing our banks? Well, within just one day after demonetization was announced the State Bank of India alone received deposits worth 53000 crore rupees[xiii]. Also when I see the massive crowd in the banks lining up to deposit their now- worthless currencies I realise that probably the 70000 crore rupees target has already been crossed and by the end of this year the Indian PSU banks should have sufficient resources to deal with their stressed assets comfortably. So, the mission to recapitalize the banks is now a success. But was it worth the pain that we see the government inflict on the common people with demonetization?

In conclusion I would like to just state something that the Lacanian philosopher Slavoj Zizek said in his review of the 2008 movie- The Dark Knight. So, (Spoiler Alert) Zizek said that the ending where the information about Harvey Dent turning into a villain is suppressed while Batman is falsely vilified in the stead so that people of Gotham have hope in a “brighter future” is a very neo-conservative way of thinking. The absurdity of this thinking is that the powers whom the people elected after judging them to be suitable for holding a post think that the people are too stupid to know the truth and hence it is suppressed from us.

(This article was edited to correct a mistake on 14th November 2016 at 11:20 pm IST)

[i] Study was conducted by National Institute of Public Finance and Policy (NIPFP), under the guidance of Dr S. Acharya (1985)














Varying Responses of Japanese and Indian Farmers to Institutional Changes in the 19th century



By the end of the 19th century the world would become nearly as globalised in trading as it would be by the end of the 20th century[1]. In terms of trading policies probably the world might have been even more globalised than it is now, this is because of the core and periphery relationship being firmly established around the world due to large scale imperialism. These globalising factors together with the increasing use of steam ships, railways, construction of better road and increasing number of bridges to support the railway and the road systems and use of telegraph lines, reduced transportation cost, increased speed of transportation, and there was also increased speed of communication[2].

These changes in the 19th century significantly impacted the markets of the world due to their integrative tendencies. The markets responded quite positively and more things were being traded in the world in the 19th century than ever before, as evidenced by the increasing number of heavier ships being built, and the reduced amount of time being spent by ships in the ports and harbours[3]. All these changes created a trading revolution, which was characterised by increased and faster movement of tradable goods and more efficient price negotiation of these goods. Nothing could have been better for the agricultural sector at this juncture than when all the above factors came together because for most of the agricultural goods the usability period is not very long.

The two factors of very high transportation costs and very high communication costs which implicitly means low access to the market were some of the major reasons why most of the farmers before the 19th century in many peripheral regions in the world were concerned only with subsistence agriculture. With the increased expansion of the market there were increasing changes in the institutions influencing agriculture and different countries followed their own methods to deal with it. In this essay I am using the examples of  Japan and India to show how the institutions and institutional changes played a major role in these two countries in creating market oriented farmers. Finally in the concluding section I would endeavour to show how different institutions played their roles in these two respective economies.


While talking about 19th century Japan we are essentially talking about two very different kinds of governments and sets of institutions ruling the country. The basic difference between these two governments while discussing agriculture is that the Japanese government in the first part of the 19th century was very feudalistic while the Japanese government in the second half of the 19th century was hostile to the feudal elements[4], at least in relation to agriculture. These two forms of governments were the Tokugawa Shogunate of the first part of the 19th century and the Meiji Government in the last quarter of the 19th century.

Under the Shogunate government Japan had an integrated market system[5]. This was due to two main factors – the sankin kotai system or the requirement to have an alternate residence in Edo for all the feudal lords and the castle towns system where the samurai warriors were housed. On one hand Edo became the consumerist capital of Japan with its big upper/ruling class population and on the other hand the castle towns had a very flourishing market system to sustain itself. Japan had a merchant class, who amongst other things also traded in agricultural goods[6]; they would have traded the goods from the daimyos(feudal lords) in exchange for currency and the daimyos usually would acquire the goods chiefly by taxing the peasants.

The taxes on the peasants were very heavy, much heavier than can be found in India or in China and the power exercised by the daimyos over the peasants’ life and property was almost absolute. The peasant never owes any land because it was prohibited by law, all the land belonged to the daimyos[7]. Thus, the participation of the peasants was very limited in the market system because it was too risky and costly. This system was necessarily accompanied by a high monitoring cost and the very high exit costs out of Japan caused by the geography of Japan and the Japanese seclusion policies.

This kind of picture postcard scene of feudalism was given a rude awakening by a world witnessing an explosion in the energy being emitted by the, market forces. Then there is the brief period of tremendous turmoil in the Japanese society and what emerges after the dust had settled is a very new set of ideas which revolutionised the Japanese society, this period is called- the Meiji Restoration. Serious policy alterations were made which had repercussions in the every aspect of Japanese life including agriculture.


The feudal system with the exalted position of the daimyos and the samurais were dismantled and land was given to the farmer, thus they were no longer under share cropping contracts with the daimyos and were in possession of much greater property rights than before. What also came along with this was the direct taxation system, and to add to the farmers’ worry the requirement to pay it by cash. As Richard Smethurst says, the tax burden on the farmers definitely reduced, and now they were forced to use the market to sell its goods and to get cash to pay their taxes. The farmers would also sometimes borrow money to pay their taxes, what this created was an entire financial system based on the land market, because now land was an exchangeable commodity. Thus there were many cases of money lenders taking over the entire or a part of the land of the peasants[8]. This gave rise to landlordism and tenancy, by the end of the 19th century, about 30% of the total arable land of Japan was under the landlords[9]. But this landlord system did not last long because the new Japanese Meiji government was always hostile to this system. There were also many efforts to improve agricultural output by improving the Japanese know how about agriculture. This was achieved by investing more on agricultural sciences[10]. These efforts manifested in supplying the Japanese farmers with better seeds and fertilizers. Quite a significant amount of land was also reclaimed during the Meiji Restoration[11]. All these led to the dramatic increase in the total produce of the Japanese farmers and also increased his yield per hectare.

Moreover, there was the boom in the Japanese transportation and communication sectors like in the fields of railways and telegraphs. The road transport of Japan was also improved to a large extent. All these factors led to the growth of the market. A wave of industrialisation took over Japan and increasing amounts of people started to move from the agricultural sector to the industrial sector and we see the emergence of the duality of the Japanese economy, where the agricultural and the industrial sectors are complimenting each other[12]. But still, industrialisation did not take away the prominence that its agricultural goods had over Japanese exports.

One important fact which needs mention here is the role of the state. The state played a very active role in the growth of Japanese economy, especially in agriculture and infrastructure. All these factors combined to make Japan one of the biggest players in the international agricultural market by the end of the 19th century.

During this period Japan experienced intensive as well as extensive growth. It also saw a gradual increase in the fertility rate (Ryoshin 1994).



A few thousand miles away from Japan, in India, the agricultural sector was coming into terms with the rapid changes which were mostly led by market forces. The role that the market forces played in the 19th century could probably be understood when we realise that by the first two decades of the 19th century most of India was under the control of a merchant company, the East India Company. This is a period when Indian agriculture experienced deep and extensive changes.

The most important institutional change that took place was in terms of the land revenue system. These revenue systems were not first implemented in the 19th century but it was in the first half of the 19th century that these revenue systems came to be implemented in almost the entire sub-continent. This new system could be divided into two main types- The zamindari system, which was like the European landlord system where the peasants paid the landlords the revenue and the landlord would usually give 9/10th of it to the government and keep the remaining to themselves and the other system being the ryotwari system or individual peasant proprietorship in which the owner of the land was responsible for the payment of the revenue. The important change which this form of revenue system brought was the commodification of land resources, which did not exist in any significant measure in the pre-colonial times, and now land could be bought and sold in the market like any other commodity. Now, unlike the previous period, the revenue was to be paid in cash[13],this increased the demand for currency.

Another very important change which took place during this time and which would be having a tremendous effect on Indian agriculture was the centralisation of the administration and this is also linked with the availability of the cash, because with centralisation there came the uniformity of the currency too which made the regional currency meaningless. With the onset of the British overlordship of India, the Indian economy was attached to the British economy and thus it was vulnerable to the changes in the London stock exchange, and the international market[14].

Moreover India was turned into a exporter of raw materials and consumer of manufactured goods, from being an exporter of manufactured goods. A lot of the exported goods used to be handicrafts, but this industry was destroyed by the machine produced and cheaper British imports and heavy import duties on the Indian exports[15]. These factors led to the depleting inflow of bullion into India. This was one of the main reasons for a prolonged depression period, which existed till the middle of the 19th century. The other significant reasons being the fading away of the old ruling class and village communities which used to consume the manufactured goods of the Indian peasants and used to invest in things like irrigation and maintaining embankments (A.R. Desai 1959).

It was in the second half of the 19th century that the depression started to ease out. The government reduced the revenue and improved its coercive methods. There was increase in the bullion flow into the country, one of the reasons being the increasing market for the Indian cotton as a result of the American Civil war. The increased bullion flow into India also stimulated the credit market and created a whole new class of creditors. There was also an attempt to improve the flow of bullion by opening up mints; the government invited anyone willing to convert bullion into coins. These mints were open till 1893. The enormous investment into Indian railway also helped in the inflow of bullion. The railways also played a role in the stabilising of the prices by transporting the goods from place to place at a pace unknown to an earlier period. Markets started to grow around the important railway junctions. The signs of depression also faded away and by the last quarter of the 19th century the prices started to increase and stabilise (Chaudhuri, 2008). In this half of the 19th century we see a rise in the amount of land being pressed into agriculture. We also observe the increasing commercialization of not only the cash crops(the demand for which was mostly stimulated by the foreign market) but also food crops as the peasants turned to the market to exchange their produce to pay their taxes, dues and to sustain themselves[16].

Weavers in Agra, circa 1862-4
Weavers in Agra, circa 1862-4

But the growth of agriculture in the second half of the 19th century was mostly extensive growth. It did not lead to any significant improvement in the living standards of the peasants or in their income or in their yield levels (T. Roy, 2000). As B.B. Chaudhuri has said there were too many breaks and irregularities such as famines and wars and the Indian population did not recover till the 1920s from them.


One important point to observe in this essay is the requirement of an approach which takes into consideration different theories of developmental institutional economics and points out the importance of understanding governmental motives. Pranab Bardhan divides these theories into two schools[17], one led by Coase and the other by Stiglitz. Coase talks about the inevitability of the factor of command in the economy, because the resource allocation is not exclusively done by market agreements but concluded in the market by command[18]. Coase’s transaction costs, includes 3 costs, the information, negotiation and enforcement costs[19]. This theory can be applied to the Indian case, first and foremost we must remember that India was a British colony, the resource allocation was usually by command, and here we can include Stiglitz’s theory[20] about the limits that the governments/state would reach as a result of misinformation caused by the misunderstanding of institutions, it explains the lack of intensive growth due to agriculture because this misinformation results in increasing the transaction costs mentioned in Coase’s theory.

Meanwhile in the case of Japan in the 19th century, we find the brighter side of Coase’s and Stiglitz’s theory working. In the beginning of the 19th century the transaction costs are very high because of the misinformed government allocating resources by command, then in the last quarter of the century we see the reduction in information, negotiation and enforcement cost as a result of the spread of proper information and changes in the basics of the institutions. But the government still plays a major role in the growth of Japan, so as to see that the “command” is not totally negated but meets Stiglitz’s requirement for centralisation of implementation (Stiglitz 1989).

Thus we have realised that a mix of command and correct information about the institutions is required for a long term intensive and extensive growth. But even after achieving this, our understanding of the agricultural situation in the 19th century will remain incomplete if there is a misinformation about the government. Due to the large scale existence of colonies in that century we urgently need to stress on proper information being spread about the motives of the governments, without which the understanding of its action and functions would remain incomplete.

[1] O’Rourke, Kevin H., and Jeffery G. Williamson. “When did Globalisation Begin”? (2002)

[2] Latham, A.J.H., and Larry Neal. “International Market in Rice and Wheat” (1983)

[3] North, Douglass. “Ocean freight rates and economic development 1750-1913” (1958)

[4] Waswo, Ann. Japanese landlords :the decline of a rural elite(1977)

[5] Nakamura, James I. Agricultural production and the economic development of Japan, 1873-1922 (1966).

[6] Sheldon, Charles David. The rise of the merchant class in Tokugawa Japan, 1600-1868: an introductory survey (1973).

[7] Vlastos, Stephen. Peasant protests and uprisings in Tokugawa Japan, (1986).

[8] Smethurst, Richard. “Agricultural Development and Tenancy Disputes in Japan, 1870-1940” (1986).

[9] Waswo, Ann. Japanese landlords :the decline of a rural elite (1977)

[10] Landes, David S. The wealth and poverty of nations :why some are so rich and some so poor (1998)

[11] Smethurst, Richard. “Agricultural Development and Tenancy Disputes in Japan, 1870-1940” (1986).

[12] Minami, Ryoshin. The Economic Development of Japan: A quantitative study (1994)

[13] Desai, Akshayakumar Ramanlal. Social background of Indian nationalism. 1959

[14] Chaudhuri, B. B. Peasant history of late pre-colonial and colonial India. 2008

[15] Bagchi, Amiya. The Political Economy of Under development. 1982

[16] Roy, Tirthankar. The economic history of India, 1857-1947. 2000

[17] Bardhan, Pranab K. The economic theory of agrarian institutions. 1989

[18] Coase, Ronald H., The Nature of the Firm. Economica. 1937.

[19] Coase, Ronald H., The problem of Social Cost. Journal of Law and Economics. 1960

[20] Stiglitz, Joseph E., Rational Peasants, Efficient Institutions, and a Theory of Rural organization: Methodological Remarks for Development Economics. 1989.


  1. Bagchi, Amiya Kumar. The political economy of underdevelopment. Cambridge: Cambridge University Press, 1982.
  2. Bardhan, Pranab K. “Alternative Approaches to the Theory of Institutions in Economic Development”. In The economic theory of agrarian institutions. Oxford: Clarendon, 1989.
  3. Chaudhuri, B. B. Peasant history of late pre-colonial and colonial India. New Delhi: Pearson Longman, an imprint of Pearson Education 2008.
  4. Coase, Ronald H., “The Nature of the Firm”. Economica 4, no. 16 (1937): 386-405
  5. Coase, Ronald H., “The Problem of Social Cost”. Journal of Law and Economics3(Oct. 1960): 1-44
  6. Desai, Akshayakumar Ramanlal. Social background of Indian nationalism. London : Sangam, 1976
  7. Landes, David S. The wealth and poverty of nations: why some are so rich and some so poor. London: W. W. Norton & Company, 1998.
  8. Latham, A.J.H., and Larry Neal. “International Market in Rice and Wheat”. The Economic History Review Volume 36, No. 2 (1983): 260-280
  9. Minami, Ryōshin. The economic development of Japan: a quantitative study. Basingstoke: Macmillan, 1986.
  10. Nakamura, James I. Agricultural production and the economic development of Japan, 1873-1922. Princeton, N.J., Princeton University Press, 1966.
  11. North, Douglass. “Ocean Freight Rates and Economic Development 1750-1913”. The Journal of Economic History. Vol.18, no.4 (Dec. 1958): 537-555.
  12. O’ Rourke, Kevin, and Jeffery G. Williamson. “When did Globalisation Begin?” European Review of Economic History, Vol.6, no.1 (Apr.2002) : 23-50
  13. Roy, Tirthankar. The economic history of India, 1857-1947. New Delhi, Oxford: Oxford University Press, 2000.
  14. Sheldon, Charles David. The rise of the merchant class in Tokugawa Japan, 1600-1868: an introductory survey. New York: Augustin, 1958.
  15. Smethurst, Richard J. Agricultural development and tenancy disputes in Japan, 1870-1940. Princeton, N.J. : Princeton University Press, 1986.
  16. Stiglitz, Joseph E. Rational Peasants, Efficient Institutions, and a Theory of Rural organization: Methodological Remarks for Development Economics. In The economic theory of agrarian institutions. Oxford: Clarendon, 1989.
  17. Vlastos, Stephen. Peasant protests and uprisings in Tokugawa Japan. Berkeley : University of California Press, 1986.
  18. Waswo, Ann. Japanese landlords: the decline of a rural elite. Berkeley; University of California Press, 1977.

(I deeply apologise for not giving the page numbers along with the references in this essay)