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Gurumurthy Kalyanaram
Gurumurthy Kalyanaram is a professor, consultant, and advisor.
Gurumurthy Kalyanaram is a professor, consultant, and advisor.


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On growth and inflation, the question is simply is this: Is this a threshold growth rate for an economy after which a society's economy is disproportionately (and adversely) impacted by high-inflation?

The answer appears to be Yes, at least in practice. It is not clear that there is that much theoretical and/or empirical evidence to support this norm in practice. Monetary policy experts -- particularly, Central Bank leaders all over the world, even liberal/dovish policy leaders -- believe that with high level of growth inevitably leads to serious adverse inflationary pressures.

And most of this is based is on Quantity Theory where increased in money supply is postulated to increase inflation -- and this assumes fairly full employment and a known velocity.

But in economies like #India, where unemployment and underemployment are substantial increase in money supply is likely to positively impact employment too even as it adversely affects inflation. The threshold point where the adverse effect is larger than the beneficial effect may not be 7 or 8 percent annual growth rate, it may be 10 or 11 percent.

We simply do not know, unless we experiment.

Rajan, the current Central Bank Governor in India, appears to believe that 7 or 8 percent annual growth rate may be the tipping point. Others believe that India can grow at 10-11 percent before the economy pivots to inflationary growth.

That's the crux of the disagreement. Rest is shadow-boxing.

On another note, I met with #ArundhatiBhattacharya, the Chairman of State Bank of India, and one of the favorites to replace Rajan as India's central bank governor a few days back. Bhattacharya made an interesting (different) point. Velocity of money is obviously higher economies where cash is a driver compared to economies where the transactions are substantially non-cash based. US and Western economies are less driven by cash, and therefore the velocity of money for the same of amount of supply is attenuated compared to India's economy which is in large measure driven by cash. As economies advance, they become less cash-transaction based. [If Bhattacharya were to be appointed as the Central Bank Governor, she would be the fist woman to lead the Central Bank in India.]

An interesting footnote. #RaghuramRajan, India's Central Bank Governor, was trained at MIT -- a place led by #PaulSamuelson known for liberal economics (e.g., relatively dovish on interest rates) but he worked at Chicago led by #MiltonFriedman -- a place known for conservative economics (e.g., relatively hawkish on interest rates.) #SubramaniamSwamy, one of the voluble critics of Rajan's interest rate regime, is considered to be a conservative politician in India (and he is by the standard definitions) but Swamy is relatively liberal on economic matters because he was trained by Paul Samuelson.
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#MorganStanley's Ruchir Sharma: India may be ‘overstating’ its GDP growth number.
#SubramanianSwamy: “If I apply Samuelson-Swamy Theory of Index Numbers to India's GDP calculation or RBI interests rates, media will scream anti party activity!,"
#US #StateDepartment: India's 7.5 percent growth rate may be "overstated", the Indian Government has been "slow" to match its rhetoric in economic reforms even as it appreciated measures taken by it in areas like bureaucracy and easing FDI restrictions.
#NobelLaureate #JosephStiglitz: "There are two aspects relevant for India (at this juncture). The first is making sure that the overall economy grows at a rapid rate, and that means not being overly obsessed with inflation. Extensive focus on inflation almost inevitably leads to higher unemployment levels and lowered growth, and therefore more inequality.”

So, there is a consensus emerging that there is much more to be done in India, and the Indian Government's promises are not yet commensurate with its decisions.
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Murder and Mayhem in Dallas. As reported by #NewYorkTimes, "Instantly, shockingly, the murder of five police officers on duty at a peaceful protest in Dallas has compounded the nation’s continuing agony. The devastating sniper attacks wounded seven other officers and two civilians. In mere hours, the carnage left the country with a wrenching shift: From grieving the latest black victims of police shootings in Minnesota and Louisiana to grieving for the police officers slain so viciously in #Dallas."
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There is angst and worry all over the globe about economy: Brexit and Europe chaos, slower growth/demand in China, uncertainty about India's monetary policy, perpetual stagnation in Japan, and other endless worries.

But not in the US. Economy is soaring.

As I mentioned earlier, the impact of Brexit on US and will be limited because US domestic market is huge and India's economy is relatively small.
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#Wimbledon Tennis Men's Semifinals: #Federer v. 3Raonic

I am watching the match live on TV. What a match! 2-sets even. We are on to the decisive final set, where there is no tie-break in Wimbledon. Play till you win: 2 games apart.

This is a marvelous match.

I cannot make up my mind: who would l like to win the match? Federer is the natural preference. Such a classy and distinguished player. Masterful, magical, graceful. Federer is on his way to potential historic 18th #GrandSlamTitle.

And then Raonic. A new face. First potential Grand Slam Title. He deserves it too.

Wish them both much luck!
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Japan's public civility and courtesy is an outcome of the "warrior code of the samurai" asserts Japan's Scholar. I agree. Not only Japan's social fabric, but also its economy and polity are built on the foundations of the warrior code which has produced great deference to authority, and self-effacing humility. The much touted work ethic is also an outcome of this warrior code.

While all this has produced much good, but such deference to hierarchy and authority has also impeded Japan's recovery from its 1988-1989 housing crash; sustained innovation; and building world-class academe on a large scale, particularly in social sciences.
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India's Prime Minister Modi's recent visit to the US, including meetings with President Obama and Congressional leaders and an address to the joint meeting of US Congress, was by all metrics a success.

Based on numerous conversations, meetings and including those with and by Nisha Desai Biswal, the US Assistant Secretary of State, Richard Verma, US Ambassador to India, Arun Singh, India's Ambassador to US, Jay Panda, India's Parliamentarian, Ashley Tellis of Carnegie Endowment for Peace, the following two facts are evident:
(1) The United States now trusts India in very substantial measure to be a defense ally/partner in the Asia-Pacific region, and a potential enforcer of the common military and strategic interests.
The common phrases are "rebalancing Asia," "strategic partnership," "security partnership," "net provider of security," "maritime security," "Indo-Pacific region."
(2) The current posture of the United States is an outcome of long and continuous effort ("arc of the relationship") by many US and Indian governments: the initiation of the the baby step of Malabar Exercises (joint US-India military exercises in India, now joined by Japan too) in 1992 under the leadership of President Bush (Dad) and Prime Minister Rao"; transformative" Indo-US nuclear agreement under President Bush (son) and Prime Minister Singh in 2008; now characterized as "defining" and "strategic" partnership under President Obama and Prime Minister Modi.
All this has been possible because as Ms. Biswal put it, President Bush and Prime Minister Singh"made the long bet" and agreed to sign the Indo-US Nuclear Agreement, in spite of many naysayers on all sides.

What is one obvious inference? As much as the Indo-US relationship will be mutli-faceted, it will be defined by common security concerns and interests. Logically, enriched military cooperation is evident.

What is the concern? Will India over time, wittingly or unwittingly, become a junior US ally/partner in largely military matters?

We do not have all the answers. Time will tell.
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Only for addicts of India politics and policy.

There is now a Twitter War between Dr. Swamy, a well-know policy leader in India, and Sadhanada Dhume of American Enterprise Institute.

Dhume wrote an op-ed highly critical of Dr. Swamy over Swamy's critique of India's Central Bank Governor, Raghuram Rajan. And that started it all.

I know Swamy well. Also Raghuram. I don't know Dhume. I hope to meet him in DC in the next two days.

The following Tweets summarize the war:
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Here is the Joint Statement by Modi and Obama after Modi's visit to the White House.

Predictable outcomes:
India admitted to Missile Technology Control Regime (this conversation has been going on for the last 5-6 years);
Westinghouse to build 6 nuclear plants in India (outcome of a decade long diplomatic initiative and lots of give by India, including on nuclear liability;
Return of India's artifacts (this is gratifying);
A common purpose in fighting violence, terrorism and extremism; and Reiteration of many principles.

No big surprises here. Almost all the outcomes are results of decade long diplomacy which began with Prime Minister Singh and President Bush which included the landmark Indo-US Nuclear Agreement (when President Bush made a personal call to China's President Hu Jintao and request that China drop its opposition which China did.) As a footnote, the then Senator Obama opposed the Indo-US Nuclear Agreement.
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Matt Damon is the commencement speaker at MIT on June 3rd. MIT South Asian Alumni Association is also hosting a Reunion/Graduation Reception.
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