I
The dramatic collapse of Lehman only indicates a recession in the mighty US economy. Indian companies have started rattling in the process and the future does not look easy.
One is forced to think that a regulation on the part of the central bank of any country plays a very vital role in checking such sudden and dramatic falls effectively. In this context, one has to appreciate the role played by the RBI. As a supervisory body, it has been applying itself to the crisis of economics time and again. Governors of RBI from C D Deshmukh to Y V Reddy have kept the economic flag flying high.
S Venugopalan, Chennai
II
The fall of Lehman Brothers was expected. The main reason for the present financial market crisis is unbridled executive compensation based on immediate growth of institutions like Lehman. We have also been aping the same and have allowed private sector banks to decide on compensation packages for their executives based on their client earnings and profit, which is resulting in charging the public usurious interest rates on services. The incentives also make these officials take undue risks with public money.
Therefore, it is time the regulator introduces some norms for compensation that are comparable to the industry and also ensure that excess compensation of salary/bonus is given after a period of at lease five years so that the organisation has time to measure performance with a better perspective.
M Govardhan, Mumbai
World Bank speaks
This refers to “Questionable Numbers” (Weekend Ruminations, September 6). T N Ninan’s interest in the World Bank’s new estimates of global poverty is most welcome. Ninan says he has found a striking inconsistency between the World Bank’s estimates of poverty in India (assessed by our new international poverty line) and the Bank’s estimates of the shares of consumption held by India’s poor.
However, the inconsistency is in Ninan’s calculations, not the Bank’s estimates. He compares the poor’s share of household consumption as estimated from the National Sample Surveys (NSS) with a version of the same share but using instead the private consumption component of India’s National Accounts (NAS). The reason for the discrepancy is the (large) gap between NSS consumption and NAS consumption in India. That gap exists for many reasons, some better understood than others, though the NSS is still widely acknowledged to be the best source of data for measuring poverty and inequality in India. However, the point here is that Ninan is quite wrong to infer that there is any inconsistency between the Bank’s estimates from the two sources: both are based on NSS consumption and they are perfectly consistent.
Martin Ravallion,
Director, Research Department, World Bank
