Big two in elections in India


Tracking the fortunes of the Congress and BJP across election cycles.

Year Congress BJP Big Two Others Notes
2009 206 116 322 221
2004 145 138 283 260 With the big two almost tied, it was the alliances that mattered
1999 114 180 294 249 Wikipedia has some ambiguity about the BJP number this year
1998 141 182 323 220
1996 161 140 301 242 Vajpayee’s 13 day government
1991 244 120 364 179
1989 197 85 282 261 The 85 seats were “outside” support to VP Singh
1984 404 2 406 137
1980 351 31 382 161
1977 153 298 451 92 BJP here refers to Janata Party (post emergency)

The table shows the seats won by the Congress and the BJP for the post emergency period. The BJP itself was formed from the ashes of the Janata Party which collapsed as quickly as it was cobbled together. (A historical point of note: the JP government was an alliance with CPI-M and other socialist/communist parties)

What is interesting is that the big two have generally won about 300-320 seats between them. 1989 is an exception because the BJP was still a young and not established party and other parts of the Janata’s splinters (the Janata Dal and others) were able to form the government with BJP support.

The 2004 cycle saw the only serious break, where the Big Two tally fell to 283. This was the cycle where the BJP fell short with its India Shining campaign. It was not that they got the Shining wrong, they got the timing wrong. Much of the benefits of the economic reforms would come in the next three years. While the previous three years saw growth languish. Calling the elections early that year cost the party dearly. Eventually it was not the difference in seats between the parties that mattered, but the stitching up of alliances. In particular the communists aligned with the Congress to form the government.

What does this mean for 2014? Many opinion polls seem to forecast the Congress’ seat tally fall to the 100 mark (and a few forecasting an even lower number. If the “average” of big two’s seats hold, we are looking at the BJP between 200-220. The lower the Congress number the higher the BJP number and vice-versa. A trend since the 90′s has been the emergence of many regional parties especially in the seat heavy states of Uttar Pradesh and Bihar. If there is a swing back to the big two (not unrealistic this year), the tally for the BJP could well rise to 220-240.

I am not trying to make an election prediction with the above, only trying to remark on the swings and patterns in seats between the big two parties.

(Source of seat counts: Wikipedia)



Rajan on international monetary policy coordination


Or the lack of the same. What he calls the current “non-system.”

In a speech called Yesterday Once More (full title: Competitive Monetary Easing: Is it yesterday once more?), Dr. Rajan calls for greater international monetary cooperation. While he admits that this cannot be forced on anyone, just the acceptance of spillover effects by major central banks would improve overall decision making.

One important point he raises early on in the speech and expanded later is that unconventional monetary policies (balance sheet expansion at the zero bound) are not much different from competitive devaluation through exchange rate interventions, though the channels may be different. This is important because we see exchange interventions as “bad” while we bless quantitative easing (Rajan cites IMF in this). But the primary route that QE works is through market (asset) prices, including the most important price of all – the exchange rate.

At first non-QE countries don’t see QE as an implicit devaluation. But since you can’t keep everyone fooled forever, people eventually catch on. Thus other countries either counter the effects – witness China building reserves and Japan starting its own QE – or fail to counter the effects and suffer imbalances – witness the effects on India.

Rajan ends with two warnings: that in a world with inadequate aggregate demand, everyone is fighting for a larger share of the same demand; and that extreme monetary easing is more a cause of problems than a medicine.

My only quibble is that he should have used that most potent of terms, beggar thy neighbour, when describing QE. That is what it is.


Links to read


This election season has brought out some good journalism and insights. I am attempting to gather some interesting links here.

KP Nayar writes on JN Dixit, Natwar Singh and the disastrous foreign policy that we had in the last ten years. Singh came into office with a one-point agenda: to undo everything the Vajpayee government did before.

Prof. R Vaidyanathan (Finance, IIM Bangalore) writes on the competing economic models that we could have chosen: Rajaji vs. Mahalanobis. In the event the Bengali faction won as it was supported by Nehru and we went down the Soviet path. With the model imploding in 1991 and the Soviet Union itself collapsing, we need to revisit the model choice. The opportunity in 2009 was the nearest we got to cementing the change in the recent past. Had Manmohan Singh got his choice for Finance Minister (C Rangarajan), we would not have had to suffer the exploding deficit, inflation, currency weakness and financial instability of the last five years.


Eye of Siva

India goes to the polls


This is an important month. Over the course of a little over a month, up to 800 million Indians will vote for their representatives in the Lok Sabha. While I don’t want to comment on the political outcomes, I am quite interested in some aspects of the debate.

1. The lately arrive BJP manifesto puts development up top and the traditional hindutva bits behind (Ram temple, cow slaughter…). The news channels are all at it with “communist” leaning folk pretty upset as usual. N Ram of The Hindu was in particular railing about the Uniform Civil Code. Why are leftists opposed to a uniform civil code. Shouldn’t communists be the first to back it? After all it abolishes separate personal law for different religions. Why should Hindus be allowed to practice sati, or Muslims the triple talaq? Should there not be one law across community lines? Given that the Constitution of India has the uniform civil code as an objective of state policy, it is even more interesting to see the people opposed to it.

2. The rise (and fall?) of the Aam Aadmi Party. There are multiple things here.

When given the chance to govern Delhi, this party ran away. It was completely opportunistic – contesting LS polls while their chief gets bogged down with administration was not possible. Thus the party chief who said that he is committed to the people of Delhi as CM is contesting the LS polls giving a lie to that promise. Why trust them on good governance if they run away at the first fight?

It is not the only promise not kept. If the point of the party is anti-corruption and strong government, why is he standing against the BJP man in Varanasi when it is more appropriate to stand against the Congress leadership?

The AAP also comes across with what I would call anarcho-populism. As many left wing revolutionaries have done in the past the support comes from the youth, the disenchanted, the disenfranchised and so on. They have been the worst affected by the growth slowdown, high inflation and corruption. But the policies of the party – which are very populist – cannot be reasonably implemented. While the party says that the government should not be in the business of running businesses and that they are business-friendly by promising good governance, the short Delhi stint is not promising. Subsidy increases (water, power), education reservations and the like are policies that will entrench poor growth and high inflation, while leading to more opportunities for corruption. And where is good governance when the government raises moral hazard by telling people that their power dues will be forgiven. No answers.

What is very surprising is people like ex-bank chiefs and ex-IT company C-level execs are contesting on AAP tickets. Do they endorse these policies?

In the end the party will go back to protesting. They know that if they come into power they will have to deliver, which is impossible.

Captain America: Winter Soldier


Captain America shows up for the third time in Marvel’s Cinematic Universe and this time around he appears to be stronger, faster and all-round more interesting than in the previous movies. Maybe after being thawed out, he has finally trained up to be a better (superer?) soldier. All in an action packed movie with lots going on. Worth a watch? Yes especially if you are following the Marvel movies.

Captain America Cast Poster

The rest of this post has spoilers. Read on only if you don’t care or have seen the movie.



Monetary terms alphabet soup


There is a lot of confusion on what all these monetary terms mean. QE, OMO, TAF, LSAP, LTRO, Repo etc. This post tries to make sense of these monetary operations done by central banks.

Firstly it is important to understand what a central bank does. A central bank is a banker of banks, i.e. it provides banking services to normal commercial banks. In doing so it provides a deposit account where banks maintain balances called reserves (incidentally this is why central banks are also called reserve banks). These reserves are used by banks when they want to transfer funds to other banks.

If a bank has payments to another bank, it needs to find reserves. It can do so by borrowing in the market or by obtaining reserves from the central bank itself. It is the latter process that I want to talk about.

A bank may borrow from the central bank by providing collateral for the loan. This collateral is usually government bonds. This process is called repo (short for repurchase agreement – I agree to sell this bond to you and agree to repurchase it back tomorrow). In India the most common form of repo has been the overnight repo. In the last few months we have added term repos to the mix, where the tenor of the loan runs for multiple days and weeks.

The second source of liquidity is selling the government bond to the central bank without an agreement to buy it back. This is called an outright transaction.

Forms of repo:

Repo, Term Repo (India), Refinance Operations (US Fed), Refinance Operations and Long Term Refinance Operations (ECB).

Forms of outright transactions:

Open Market Operations (OMO, India), Large-Scale Asset Purchase (LSAP popularly called QE, US Fed) and Outright Monetary Transactions (OMT, ECB).

While both repo and outright transactions appear to be similar, in repo eventually the security returns to the borrower after the bank repays the loan to the central bank. Thus the risks associated with the bond belong to the bank and not to the central bank. In an outright transaction the future risk of the bond is with the central bank. This was brought to the fore in Europe in recent years thanks to the Greek default. The bonds which were held by the ECB in repo were returned to the borrowing banks and the banks took the losses not the ECB. In a future OMT purchase such a default would happen to the ECB.

Similarly in India in case of repo, the price risk of the bond remains with the borrowing bank while in OMO the price risk is with RBI.  This means that there is a qualitative difference in the way the market treats repo and OMO transactions, especially in longer dated bonds (where the price risk is large). The market sees the repo as just a means to add liquidity to the banking system while OMO is seen to have an impact on liquidity as well as providing a signal on yields – since OMO increases the price of the bond and reduces the yield. I wrote about the large OMO programme of RBI earlier here.

I hope that clarifies. Please comment here or on my twitter account if you need more clarity.


Media appearance: Mint (inflation indexed bonds)


I am quoted in today’s Mint on WPI inflation indexed bonds. This is an instrument that is sorely needed but seems to have flopped with no investor interest.

Axis Asset Management, even as it has applied to float an inflation-indexed bond fund, is yet to buy the bond in any of its existing schemes.
“The bond is definitely attractive, but we don’t own it, and we aren’t buying it any time soon,” said R. Sivakumar, head of fixed income and products, Axis Asset Management. He did not rule out the possibility of including this bond in the portfolio, but liquidity is a problem.


Tax treatment of eggs and sperms?


It may be a little early in the year, but this has to qualify for one of the weirdest stories of the year: Egg Donor IRS Challenge Offers Future Sperm Tax Certainty (Bloomberg)


The California woman and the government are arguing over whether egg donation is an act of commerce that should be taxed. A U.S. Tax Court judge will determine the outcome in what is seen as a precedent-setting case that could provide certainty for people who donate eggs, sperm and blood plasma.

“This is in no way considered self-employment since I did not sell a product or service,” she wrote in a 2012 court filing. “I feel like I am being penalized for doing something good for another person.”

Also, Perez could pay lower tax rates on the income if it were treated as long-term capital gains. Eggs could be considered property she had possessed since birth, in which case the sale could be seen as a long-term capital gain.

If they’re not considered property until removed from her body, the eggs could be seen as generating short-term gains.

I wonder how The Big Bang Theory cast handled it (pilot episode….).

Nokia XL

Nokia’s operating system problem


So Nokia has decided to make an Android phone? After the Microsoft acquisition announcement and just weeks before MSFT takes full control? Was MSFT on board with this? Is this Stephen Elop’s revenge for being denied the Microsoft CEO job? What is going on at Nokia anyway?

Nokia XL

(Forgive the potato-cam shot of the phone, it is from Nokia’s press website)

This is the second time Nokia is doing this in recent years. When Elop became Nokia CEO a couple of years ago, he threw out their smartphone platform (Maemo) and went with Windows Phone. Back in 2009, Nokia finally had a “smart” idea, combine their tablet operating system with phone hardware to come up with the N900. This was a fantastic piece of equipment, the first truly multi-tasking phone. No other phone OS does that. You could play a video, browse a website on firefox, go into a thumbnail view and see a little window with your video still playing in the background. Not paused. When Elop (ex-Microsoft) came on board in 2011, Nokia was suffering from a lack of smartphones. Maemo development had stalled since the N900 and Android was fast climbing. This was the best window for a catch-up. Windows & Blackberry were imploding and Android was not the 75% marketshare monster it is today. and what did Elop do? He ditched Maemo in favour of Windows phone saying that the existing operating platform was a “burning platform.”

Well if you are going to jump off a burning platform you better have someplace to jump to. Windows Phone was not a viable platform. Maemo was, if they had gone ahead with it. It had developers. It had the Qt framework which made porting apps from other platforms easier. Maemo incidentally lives on. After a brief spell as Meego (Nokia and Intel partnership), it is now renamed Tizen (Intel and Samsung mostly). While Nokia abandoned this (promising) platform, Samsung now looks ready to shift in a big way to Tizen with the launch of TVs and the new Gear smartwatches based on this platform. It is only a matter of time before they have smart phones too on Tizen.

Now Elop is doing it again. Going to Android. But not the whole way. Only the base AOSP – the open source bits, with the Googley bits replaced with Nokia/Microsoft equivalents: Here Maps, Outlook, Bing, etc. No Play store, but Nokia will create its own store. The whole thing is like what Amazon has done with the Kindle Fire range of tablets. The new range is supposed to be cheap and entry levels with users migrating to higher end Lumias running Windows as they upgrade.

But what happens when a user upgrades and finds that his/her apps don’t exist on the new upgraded phone? Nokia may be able to convince developers to bring their apps to Nokia’s store (apparently requires some changes, thus more work), but creating another version for Windows? Good luck with that.

Still Nokia makes great hardware. The swansong of Maemo was the N9 a fantastic piece of equipment which foresaw a lot of things Nokia has since done with Lumias. Perhaps a Nokia Android phone may just be the right blend of good hardware and operating platform. If only they had gone for a top end phone then. An entry level “cheap” phone is just not going to cut it.


Watching movies – the format impact


I had the opportunity to watch a couple of recent movies more than once. In different formats. Since I watched the different formats within a short interval of each other, it was a good opportunity to compare these formats.

1. IMAX vs. “normal”

I saw The Hunger Games: Catching Fire in normal (is it fair to say 70mm these days when all cinemas are digital?) and IMAX formats. The movie was not in 3D, so this was just a comparison of the image size and resolution. There is a visible difference. I watched the IMAX first, so watching the normal show, the lower resolution image was immediately obvious. I did not expect that. I wonder if the image was actually out of focus. To be fair I don’t think so. The larger format is actually better. And in this movie at least the grand imagery works really well in the larger format.


2. IMAX 3D vs.HFR 3D

Peter Jackson has been pioneering the use of HFR or high frame rate in The Hobbit series of films. Unlike the normal film speed of 24 frames per second, HFR uses 48 frames per second. This improves the fluidity of motion. After all motion picture uses persistence of vision to create the illusion of motion. Fast action creates a “tearing” effect at 24 fps. We are so used to this that higher frequency images like NTSC’s 30 fps$ (60 interlaced frames per second) itself is visually discernible to many. Because of the use of 30/60 fps in (American) television, people associate the lower frame rate with movies and the higher frame rate with TV. Indeed the term “soap opera effect” is used to describe how un-film-like higher frame rate appears. PAL broadcasts like they use in Britain and India use 25 fps, which is closer to film speed, by the way.

So I wondered if I would get a TV-like experience in HFR. The first movie when shown in HFR had a lot of people disliking it. I found it very nice in fact. In calibrating my new TV set earlier this year, I tried playing around with various frame rate options and found I did not dislike the higher frame rate option. So this is a personal opinion. In fact with the fast pace of action in the film, the higher frame rate made for a much more smoother movie watching experience. No more “motion blur” or tearing effects. Now if only a theater near here had HFR+IMAX, that would have been wonderful.

$ The true rate is closer to 29.976 frames per second. These crazy Americans. PAL is a sensible 25 frames per second.

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