#
Here's a thought experiment for you.
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If you rebooted civilization, what would it end up looking like?
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In civilization 2.0, what would be the same as our world or civilization 1.0?
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And what would be different?
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This is a thought experiment I intend to think about in detail, perhaps even write about
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And I think it would reveal what is essential to human nature and what is accidental and
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need not turn up again.
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For example, in the context of sport, I think football would come up again, but cricket
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Anyway, in this episode, we spent a couple of minutes discussing one aspect of it, banking.
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And my guest said that if everything evolved again, we might have banking, but no banks.
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As it happens, we happen to have both banking and banks in civilization 1.0, and the way
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they function is normalized by us.
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But we need to rethink their nature, their structure, their function.
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We need to first see clearly.
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And then we need to imagine.
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Welcome to the scene and the unseen.
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Our weekly podcast on economics, politics and behavioral science.
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Please welcome your host, Amit Varma.
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Welcome to the scene and the unseen.
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My guest today is Harsh Vardhan.
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And I can't think of a more apt way to describe him than as a thinker and an important thinker
#
Our mutual friend Ajay Shah first introduced me to him a few months ago, and I straight
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away found myself hanging on to every word he said.
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Harsh grew up studying in Marathi medium, came to English late, mastered it, went to
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IIM in the 1980s, then went abroad and did a PhD at Wharton, then came back, became a
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consultant, became an expert in banks and financial markets, but rather than climb some
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corporate ladder or run some company, chose to live a life of the mind.
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He still consults, but he also writes academic papers and studies subjects that interest
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I called him over for an episode, we spoke about consulting, about banking, about living
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the intentional life, and lots, lots more.
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Super interesting conversation, many insights, but before we get to it, let's take a quick
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Hey, the music started and this sounds like a commercial, but it isn't.
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It's a plea from me to check out my latest labor of love, a YouTube show I am co-hosting
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with my good friend, the brilliant Ajay Shah.
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We've called it Everything is Everything.
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Every week, we'll speak for about an hour on things we care about, from the profound
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to the profane, from the exalted to the everyday.
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We range widely across subjects and we bring multiple frames with which we try to understand
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Please join us on our journey and please support us by subscribing to our YouTube channel at
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youtube.com slash amitvarma, A-M-I-D-V-A-R-M-A.
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The show is called Everything is Everything.
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Please do check it out.
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Harsh, welcome to the scene and the unseen.
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Thanks for having me here.
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You know, we were, before we started recording, we were sitting and talking about stuff and
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I was wishing that we'd recorded all of that because it was also interesting and there
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are many rabbit holes I want to dive into with you.
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To begin with, I'd love to talk about sort of your childhood.
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You told me the two cities where you've spent most of your time is really Bombay in your
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working life and Nagpur before that, where you were born.
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So I was actually born in a town called Jabalpur.
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For some reason, my parents were there when I was born, but then my entire childhood till
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college actually, till undergraduate, was in Nagpur.
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And typical lower middle class family, my father was a college professor, my mother
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I have two elder sisters who were both doctors, were practicing successful doctors, they were
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They spent time elsewhere, one of them was for a short time in the army, but they finally
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came back and settled in Nagpur.
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Both of them are practicing doctors, so I was the youngest.
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And so all my very happy childhood, as was, I guess, the case with all the 70s, 80s children
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growing up, I always said the middle class was poor compared to what the middle class
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So I guess I imbibed all the anxieties and aspirations of a lower middle class of that
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age, which means that from a very early age, you know that there's no family wealth or
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business to fall back on, there are no uncles in high places who can take care of you.
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So the only hope you have of a somewhat decent life is to do well in school, which I did.
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I mean, I was not like a star student, but I was like an average good student.
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So it worked out, went as everybody joined engineering, did okay in the exams.
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And it was funny, so there is a National Institute of Technology, which is called NIT now, in
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those days it's called Regional Engineering College, which is what I joined after 12th
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And when I look back, engineering should have been the last thing that I should have done.
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I just temperamentally was not suitable for that, but you are 17 years old, you tell what
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everybody else tells you to do.
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Why were you not temperamentally suitable?
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No, I just feel that I would have been far happier doing economics, sociology, philosophy,
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maths, logic, then internal combustion engines and transmissions and auto-transmissions.
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And in fact, for me, the moment of epiphany came when after third year of engineering,
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I went for my industrial training in a very well-known company and it was a very good
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I spent two very constructive, productive months.
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But at the end of it, I realized this can't be my future.
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I had very good people, I had a very good project, very good people that I was working
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Towards the end, I used to actually, this company had this long workshops where things
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I used to walk from one end to the other without looking at the machines, I became so averse
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I just did not feel that that was where I wanted to be.
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And so when I came back from that in my final year, I almost had a crisis.
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I said, so what the heck am I going to do?
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And this was like July or August of my last year final year.
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And that's when I, remember I'm in Nagpur, which was in those days, what I call was a
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So then some friends were preparing for management and I almost did that as an escape.
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I said, well, this is not going to be my future, so I have to find something else.
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And that is what people seem to be doing, which then I, and in those days, Nagpur had
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no coaching center, nothing, I mean.
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So we used to, a friend of mine, I was subscribed to these brilliant tutorials.
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So I borrowed that, studied and somehow managed to get through CAT and then went to IIM, which
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in hindsight was a very good decision because I am far better suited to finance and that
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kind of stuff than I was to engineering.
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So that's a short sort of summary of, and then I graduated in 89 from IIM, Calcutta
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and my first job was ICICI, the parent of ICICI bank, the bank didn't exist in those
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That's how I came to Mumbai because that job was in Mumbai.
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And then, so 89, I came to Mumbai and I have been a Mumbai person since, with a hiatus
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in between where I went to the US to study further between 91 and 96.
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So that's why I said this is two cities which I know intimately are Nagpur and Mumbai.
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I have traveled to pretty much every metro in Mumbai, in India on work extensively.
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But the only places I know are these two.
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So you know, thinking back, I wonder about, you know, what growing up in that time must
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have been for you because one, it's obviously pre-internet days, the 70s and 80s and you're
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in Nagpur, which is like you said, a semi-city, but a small city basically.
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But somewhat between a town and a city.
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Someone between a town and a city, but while you don't have that breadth of exposure,
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which everybody has by default today, I would imagine you still had a certain depth of exposure
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for the simple reason that your dad was a professor, your mom was a school teacher.
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So tell me a bit about that because like our mutual friend Ajay Shah has this one cited
#
a study which he and I will talk about in detail at some point because I find his theory
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But the study shows that children who grow up listening to 10-letter words around them,
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10-letter words being a proxy for, you know, higher order conversations, just end up having
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a different cognitive level than kids who aren't lucky enough to do so.
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So my father was not only a professor, but he was a very, he had very eclectic tastes
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and interests ranging from Sufism to Parsi, he spent some time in Iran, so Parsi literature.
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He was a card-carrying rationalist, but had wide-ranging interests, was very widely read
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and was deeply interested in Western classical music as well as Indian classical music.
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If you see this, so I was exposed to both of these at a very early age and I remember,
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I mean, at the age of 5-6, he would say this is Bithuvan symphony, then who Bithuvan was
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and why this music is different at that early an age, which was unusual for a lower middle-class
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kid in Nagpur going up to have that kind of exposure and I think it does make a difference.
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How precisely, I don't know, but I thought I got exposed to things because of my father
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topics and subjects which otherwise a person in that socio-economic strata would not.
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My father also basically believed no subject was taboo.
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So he'd read some random article from some Swami in some magazine and read it out to
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us and then find flaws in it and saying how stupid is this or how interesting is that.
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So it created this, I guess, mindset, I'd say that there's no topic you should say,
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You find time and you find it, just pursue it.
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So I thought that was an interesting aspect of growing up and to have two supremely competent
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sisters which means one had to really fight for their time at home because that also creates
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a lot of, I guess, influence on you, especially my elder sister who's six years older than
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I think was one of the most influential person in my life, so it still is in many ways.
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Tell me more about her.
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We had enough age difference and she would be my first port of call if I'd ever had
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any before reaching out to parents and so on because the age difference was big enough
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that one would seek and then that becomes a habit almost.
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My other sister is just three years older than me, she's kind of in the same, we would
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fight much more than we would talk.
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So yeah, I think to this date it really continues, you know, that psyche continues.
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Tell me more about your dad because I'm fascinated that a person of that generation could be
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a rationalist, could actually have gone to Iran, could be interested in, you know, some...
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My father was, his basic training was in veterinary science, but then he did his PhD in the US
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in the early 70s in UPenn in early era of genetics.
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So what is called developmental biology.
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He got some, in those days I think there are a lot of these USAID, Ford Foundation type
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of scholarships which he got and he went for that after I was born, so much later in
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life and when I look back, it would have been very hard on my parents to sort of take a
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mid-career break and go and after having three kids and go and do PhD.
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And then he came back to his university, which is an agricultural university to continue
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to teach and then in between he got some another gig in Iran just before the revolution.
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So it was very interesting, 70, 70, 79.
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He had to cut that short because of the revolution, but he kind of almost first-hand witnessed
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the Khomeini revolution and he used to talk about that a lot.
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So I think he just had, he was lucky to have extraordinary experience for a sort of Indian
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academic from a small town in those days.
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And I think that experience in the US and then Iran, it kind of shaped his own thinking,
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his own mindset and I mean, as a result, he was kind of a rationalist and later after
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his retirement, there's a Marathi publication dedicated to rationalism, he used to write
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a lot for that, et cetera, et cetera.
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When we sort of grow up, we look at our parents as a fixed thing, a father is a father, you
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know, they're in that role and that's how we relate to them.
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And I've realized that later on, if you're lucky as we come into adulthood, we begin
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to see them as proper people and we begin to see all the other sides of them.
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And I'm very curious about someone who's had exposure to the wider world, who's got
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such wide-ranging interests, who can clearly see what is wrong with his own society around
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him and who might at times even sort of feel that a lot of what he thinks and does is kind
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I wonder what his inner life was like, like what did he want to do?
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Was he happy where he was?
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It's hard for me to say.
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The way I look at people's relationship with their parents, at least in my case, if I reflect
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on mine and some people that I've observed closely, that you go through three phases.
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This is up to a certain point of life you actually fear them.
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Then comes a point you start judging them, you know, why they are saying this is not
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right, they have old style.
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And then there comes a point when you begin to understand them, you know, they are a product
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of their generation and so, and I went through all these three phases.
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What was his inner life like?
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I think he had his own contradictions, as was, I think, as is true for anybody, which
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he dealt with in his own ways.
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He tended to have a bit of a short fuse, which actually hurt him more than anybody else.
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So in fact, my father, I used to, I now feel that had this unique ability of both overthink
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and not think at all in situations.
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And sometimes simple things he would overcomplicate just by thinking too much about them.
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Can you give me a concrete example?
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I mean, so I'll tell you a story.
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So my father never had any strong political affiliation on any side, Nagpur is a hotbed
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There was once, there was some RSS function that was to happen in our neighborhood.
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And those people came and said, can we use your house as a simple request?
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So my father first said yes.
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And they started saying, no, I work in a government university, what would this look like?
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And this was soon after emergency in that era, this era was different.
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And I remember he just went through these complete paroxysms of complicated thoughts.
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And then he called me and said, no, you can't tell people, sorry, we are not available.
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And I thought even as a 12-year-old or 13-year-old, I thought, this is, I mean, they're just asking
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for a couple of hours in the evening to sit some people and do some chai chai and so on.
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But as an example of why he would take a simple issue and just think too much about it.
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On the other hand, he would sometimes just instinctively react to situations where very
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short, get very angry very quickly.
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And both of them, I think, ultimately hurt him more than anybody else.
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It certainly occasionally will have an impact on people around him.
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But more than anything, I think it ultimately hurt him in his career, in his relationships
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But I guess everybody has their own personalities that, but that was how I see him now.
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In those days, probably I would have seen it differently.
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But across all of that, I always have continued to admire him for his wide-ranging interest,
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being willing to engage on any topic with anybody.
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And I remember he would run into some municipal engineers and say, okay, tell me about the
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Where do you get water from?
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Where are your pipelines?
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I mean, why would a professor of developmental biology want to?
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I mean, he would just engage for hours and he'll keep asking questions.
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Which I think a little bit has rubbed off on me.
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Couple of related questions.
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And the first of them is exactly about that, that, you know, when I look back on my childhood,
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I can look at myself as a young adult thinking I am my own person.
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And later realizing as the years went by that these aspects came from my father, these aspects
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came from my mother, these aspects came from whoever, I would just soak up all of these
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things and many of them are really negative things, things about myself that I dislike
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Things you don't want to do.
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So, you know, some might be good things, but some are definitely bad things.
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And I wonder what there was, like, I think from my dad, I got this kind of intellectual
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arrogance at one point that, you know, he would, he would have, he had thousands of
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books and he was very well read and all that.
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And he just had this approach, nobody else reads, I read so much, he had that arrogance
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and I got it without reading anything like he had done.
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And my mom had the social arrogance because I used to office as wife and all that.
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And again, it took me to reach my 20s and perhaps even my 30s to realize that, oh shit,
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that there are all these things that are wrong about me.
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And this is where I come from.
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And equally, there are good things also, frankly, from both of them.
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But in your case, you know, what are the good and the bad things that you realize later
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in time that, haan, yaan se aaya.
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I actually have not thought about it like that.
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I mean, there are clearly things that I do now that I attribute to growing up in a particular
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As I said, wide ranging interest, interest in music, clearly I attribute to my father
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because I got exposed very early in my life.
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But like I try to control temper because I've seen impact of having short temper in case
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For him, it actually spoiled many very good relationships and so on.
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And I think, so maybe subconsciously a lot of these things work, but I honestly don't,
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I haven't sat down and tried to analyze, okay, this bit comes from my father, this bit comes
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I think what happens is that in that phase of your life when you start understanding
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your parents, not judging them anymore, that's the time when you actually synthesize everything
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into your own sort of behavioral style and so on.
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And one has crossed that stage now.
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So now it's far more about what your children are going to do and, you know, so on, much
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less about my father passed away in 2008, it's been a long time and so on.
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So I actually don't know, honestly, to answer your question, that I have never sat down
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and tried to analyze that this bit of me comes from my father, this bit comes from my mother
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or I avoid these things because of I saw my father doing it or my mother doing it.
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I haven't done that, honestly.
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I was also curious about what you said about him learning late in life, like after he's
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had his third kid, he's going abroad and doing a PhD.
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And equally, you mentioned that earlier you weren't drawn to engineering and you were
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drawn more to, I guess, subjects where you can do a certain kind of higher order thinking
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like economics and finance and so on and so forth.
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Not so much higher order.
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I mean, it's just, I'm sure a lot of engineers will react very badly if you say it just temperamentally
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I just was not suited for an engineering.
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By the way, academically I did fine.
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I mean, one could always take exams and do well.
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So there was not that issue.
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A lot of people turn off against the discipline if they start doing poorly.
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That was not the case with me.
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I just felt temperamentally I was not suitable.
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The question I was coming at is that, were you always drawn towards that kind of slightly
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broader higher order thinking?
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Because I imagine that when your father went so late in life, he would in that learning
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process it would not so much have been about getting into the weeds and learning the details
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and the craft of something, but thinking at a higher level, getting meta, thinking about
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I mean, looking at systems and finding interconnections, you know, this is what happens in politics,
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I mean, maybe that kind of thing that it's not engineering is very mechanistic.
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You push a lever, something else happens.
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Societies are much more complicated and I think maybe that's the and that's a far more
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interesting thing to then understand because pushing the lever every time does not have
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the same outcome when you're looking at social systems or political systems or economic systems.
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I think that probably somewhere is at the base of trying to look at find those subjects
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more interesting than just studying internal combustion engine, I said.
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But I mean, I can imagine people taking great amount of interest in that because there
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is also higher order thinking there.
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It just says temperamentally, I just found this to be much more appealing and it became
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clear to me later on in life and I think I always feel that that's really fault of our
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education system at that point of time Sunday, probably less so today is that you just get
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You know, you did math science in 1112, so obviously you're going to do medicine or engineering
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and then you did well, everybody said, okay, now you do engineering, so you do engineering.
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Also another interesting thing that even if let's say I was in Nappur and I wanted to
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do liberal arts, there were no institutions of comparable quality where one could do that.
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So that's also that issue that the best of the liberal arts schools were actually of
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Again, things probably have changed now.
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I think today people are far more open to doing non sort of engineering.
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So all of that resulted into, so you almost like with blinders on your eyes, you get into
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You only later discover and as a result, I mean, I saw a lot of people in my class who
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went on to do other things, you know, so I keep saying summer of 87 when I took my last
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exam, that was the last time I dealt with engineering.
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After that, actually, I've never ever done anything.
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I mean, when I was working in a financial institution, you know, you had to evaluate
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projects or some elements of engineering would come in there, but that was about it.
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And when you were growing up, I'm guessing you had easy access to books, you know.
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Oh, yeah, I mean, houses full of books.
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That's kind of, I think, house of an academic, right?
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And we had library subscriptions, we all read a lot, my sisters and I, and I remember my
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younger sister, she was just three years older than me, she and I, we would in summers would
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A lot of Marathi literature in those days, I started reading English much later in life.
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But yeah, I mean, we read a lot.
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My father in those days, I mean, had subscription to Time magazine, imagine that this is 70s
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and 80s would not be cheap, nor it would be easy, but he had it.
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And then he would read it, he would, you know, read out some stuff to us and so on.
#
So yeah, I mean, that exposure was incredible.
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I mean, I think I keep thinking that that's not something you expected of a lower middle
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class family in a semi city.
#
To that extent, my other habit that I attribute to my father is listening to BBC.
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Throughout my college, I was like a devoted listener of BBC.
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And it happened for me because of two reasons.
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One because I used to see my father doing that.
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But I studied primarily in vernacular in Marathi medium till 10th.
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And when I went to engineering, I realized that interviews are all happening in English.
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And I could not hold a 10 minutes conversation in my second year of engineering confidently
#
So then I realized that I have to learn English.
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And so I am eternally indebted to two institutions.
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One is BBC whose news I used to listen to in the night.
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I remember there's an 11, 13 news every day, religiously, to just get verbal English.
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And then I used to read Times of India.
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I used to force myself to read Times of India, especially the sports page, because I said,
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And I think that honestly gave me the confidence that I could sort of manage conversations
#
I was actually, let's deal with the next one week, what's coming up.
#
But I had no, I was not a daydreamer.
#
And I often find when I speak to guests on my show, that there are really two kinds of
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I mean, there are many, many kinds of guests, but through one particular frame, I can divide
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them into either people like me, who, and I consider this a misfortune, who have only
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kind of dealt in English and all their intellectual activities.
#
So I only read English and et cetera, et cetera.
#
My Hindi was decent, but never at that level.
#
And then there's another category of people who've read Hindi or Marathi or Gujarati
#
And I find that the second category of people, their understanding of India and of the world,
#
it's just broader, almost by default, because they've had exposure to another sort of milieu,
#
another way of thinking, another languages, almost as if different languages activate
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different ways of thinking in your brain and all of that.
#
Did you feel that there was something there that set you apart from your English only
#
Not in a good or a bad way necessarily, but probably, I mean, I extensively have read
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Marathi literature and I extensively, it might come through as a boast, but actually
#
I have not, I don't, I mean, I had friends who had done that.
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But I don't know too many other people in my current circle who would have read so much
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of vernacular literature, not just Marathi in another language, Bengali, Gujarati, whatever.
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Does that create a difference?
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I feel that my understanding, or at least Maharashtra is better because of that.
#
I'll tell you an interesting side story to this.
#
When I went to US, I had a very good Colombian friend, a girl by the name of Alexandra Rojas.
#
She introduced me to Latin American literature and she used to always say, say, why don't
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you Indians read our thing?
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Because we are so similar.
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We have colonial background, we are hot countries and so on.
#
And that was a momentous change.
#
So I hungrily read Gabriel Garcia Marquez, still my favorite writer, Isabel Alande, Maria
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Vargas Losa, and all these people.
#
To some extent, Naipaul, although not in the same category.
#
But that was also a very interesting twist.
#
In fact, in my US, I pretty much only read Latin American in translations, of course.
#
And I actually understood what she used to say, that their experience actually is very
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in many ways similar to the Indian experience.
#
And I feel that that reading has given me another perspective on the world.
#
I would have not otherwise gone towards that if I had not met this girl and she would have
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been so insistent and so on.
#
So yeah, so that is an interesting angle to this.
#
Yeah, the delightful directions that happenstance can take us in.
#
Tell me a bit about Marathi literature.
#
Like I know nothing about it, obviously, besides a few names here and there.
#
So you know, tell me about what you loved about it, who are your favorite authors, what
#
Yeah, so I read widely novels.
#
We have a, actually, Marathi literature is extraordinarily rich.
#
So we have novels, short stories, extensive canon in poetry, in plays, Marathi plays,
#
you know, and I read all of it.
#
I read novels, I read short stories.
#
And through my growing up, I still once in a while pick up a book and read, actually
#
much less now and mostly book of poetry now.
#
But you know, you start with historical novels, then you end with comedy, P. L. Deshpande
#
And then later on, I read a lot of almost nonfiction writings, essays and so on.
#
In each of these, we have actually very, very rich tradition.
#
And I've just, in fact, a lot of Marathi writers, I feel, are way beyond many of the
#
Nobel Prize winners I've seen in other languages, just that they're untranslatable poets, especially.
#
And it's still, it's still, there is, one of my favorite poet is one Mr. Mardekar, B.
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He was one of the first modernist poet in, I mean, absolutely fascinating poetry.
#
Actually, he wrote 200 poems in his life.
#
But they are of the quality of Yeats and Auden and certainly beyond Auden.
#
And yeah, I mean, you can't translate him.
#
Yeah, and that's kind of such a tragedy that languages are fundamentally so hard to translate
#
and within languages, there might be some authors who are harder.
#
Tell me that in your view, like I'm really interested in the evolution of a different
#
vernacular literatures as globalization happens and English gets more and more deeper and
#
language itself gets homogenized.
#
Like at one level, of course, you have everybody needing to learn English and speak English
#
for instrumental reasons, for getting jobs and all of that.
#
So that takes some of the space.
#
And at another level, you also have dialects gradually dying out and being subsumed by
#
So a Maithili and a Bhojpuri will vanish and a Hindi will take over.
#
And there are probably 30 dialects of Marathi that I know of.
#
If you go from Eastern Maharashtra, Nagpur area, come up to West, every hundred miles
#
you will have a different dialect and it's actually quite distinct.
#
But there is not, to the best of my knowledge, there is not literature in all of them, but
#
You know, last 20 years plus, I must say, I have lost touch with Marathi literature.
#
I've kind of occasionally read it and that happens typically if somebody recommends,
#
you know, this is this new short story writer, you should read him and so on.
#
But I've just not been nearly as much of a reader as I was when I was in school and college.
#
I also am a bit disappointed.
#
I think we've lost, I mean, this might be a bit of an adventurous statement, but I don't
#
think that the energy and the worth that Marathi literature had in the 60s, 70s up to 80s,
#
I think it's kind of declined a bit.
#
I don't see the same amount of output.
#
For example, plays, we don't see good plays being written anywhere.
#
Gone Are the Days of Tendulkar and El Khunchwar and so on, who wrote absolutely amazing plays
#
I don't see them being written anymore.
#
There are some, but sort of much less in numbers and they're not performed that often and so
#
So there's been a bit of a decline, I would say, in that count.
#
But I'm the wrong person because I also have lost touch.
#
It's something that I regret actually a lot.
#
You know, one of the things I regret greatly that I could write very good Marathi.
#
If you asked me to write two pages essay on, I could do that until I went to college.
#
I would make enormous grammatical mistake.
#
I will not remember words.
#
I can do happily that in English and I'm not at all proud of that, but yeah, that's what
#
Tell me about how the conception of yourself was forming through your college days and
#
Like one thing you've already indicated is that, you know, you got into engineering almost
#
You were doing well in the exams and at some point in the third year, you realized that,
#
hey, this is not for me and etc, etc.
#
But apart from this, who are you?
#
What are your interests?
#
Marathi literature, I'm guessing, is one.
#
But did you want to write, for example, at any point?
#
I didn't, but so my most enduring interest is Indian classical music.
#
I was very, I mean, I got, as I said, introduced by my father, but I was very lucky to have
#
friends in school and college who were, I have some of my best friends, school friends
#
who are still very good friends.
#
I don't ever remember going to a movie with them, but I remember dozens of classical musical
#
concerts that we went together to.
#
I was just very lucky, very, very lucky.
#
So that's an enduring interest.
#
Today also, if I find two hours doing nothing, I'll go to YouTube and listen to some concert.
#
That's just by default.
#
So basically classical music and old Hindi film music, which is sort of classical based.
#
I do listen to a little bit of Western classical because of my dad and a little bit to jazz,
#
but that also mostly on recommendation.
#
He says, oh, you, this is one piece you must listen to.
#
But yeah, so those are, if you, I mean, if you find, talk about enduring interest, that
#
I am a great fan of Ghalib.
#
So I have been, there's always a Ghalib Diwan on my phone and I often read, reread.
#
He's one of the most fantastic, I actually am not very good in Urdu, so I have actually
#
picked it up through hard work.
#
And in fact, I have no idea of his Persian work, which I was told is even better than
#
That's a relatively last 15, 20 year interest.
#
But yeah, so I don't know if that constitutes forming self.
#
One of the things that happened to me when I went to US to study in 1991, stayed there
#
That was a very, that was a very important, but it changed me in very profound ways.
#
A lot of, I feel that my intellectual base of how I think about anything got set in that
#
Until that time, it was a bit fluid.
#
And the reason for that, and that makes that whole period very worthwhile for me, is that
#
of the nature of education.
#
I mean, if you go to any good university, it's the most intellectually free world environment
#
So I went to business school to do my PhD, but business school used to share the same
#
building with the School of International Affairs, just to go and attend seminars on
#
US policy and this and that.
#
Of course, I did numerous courses.
#
I was half a resident of economics.
#
And I think that all formed a real foundation of how I think about social economic political
#
Until that point of time, I feel I was sort of kind of confused.
#
But it's kind of certainly set the way.
#
So if you talk about not so much forming the self, but how you think about the world,
#
that was the period that set it.
#
And we are so much shaped by the people we meet and we hang out with.
#
And I'm interested in sort of this interesting transition that happened in our generation,
#
essentially, in a sense, you're a few years older than me, where we move from being forced
#
to be part of communities of circumstance, either geography, where we are born or where
#
we choose to study and all that, to eventually forming communities of choice, which is enabled
#
to some extent by the internet.
#
And in your case, I'm seeing that your first community of circumstances, perhaps Nagpur,
#
and you have these friends and they introduce you to Indian classical and that's good stuff.
#
Your next community of circumstance would be IIM, where again, you know, the IEM exam
#
itself is a selection process where the best and the brightest minds, in a sense, kind
#
of come together, but and they're from all across the country.
#
So I'm guessing that expands your horizons in different ways.
#
And then of course, going abroad.
#
So tell me about, you know, that aspect of it, that the IIM years and, you know.
#
Yeah, so IIM years is two years, you know, and great years.
#
People from all over, generally very bright, ambitious people.
#
And it was good fun, but it is short.
#
People don't realize that two years just go by like that.
#
So I must say that what my strength in the US did to me or the one before that in high
#
school was much more meaningful in terms of shaping my than the IIM one.
#
IIM was professionally very important, you know, I got a certain job and that's kind
#
of channeled me into certain line of career, line of work.
#
But in building personality and development, it probably played a relatively limited role
#
just because it's such a short stint.
#
One I went to do a doctorate, which is very different than any other degree, you know.
#
It's a lot of it is self-motivated.
#
You have to really do stuff on your own.
#
How many years did it take?
#
I could have done it in four, but I just turned lazy in my third, fourth year.
#
But I really enjoyed it because American University was extremely well resourced.
#
You know, I remember I went in 91 and in 92 end or 90 degree, I sent my first email.
#
And I remember I once called my father and I said, this internet thing is going to change
#
And he just in his typical style, he said, no, every six months you come up with something
#
and tell me that's going to change the world.
#
I tell him, I'm telling you this is going to change the world.
#
And I was, I remember still, I was trying to explain what an email is, that it instantly
#
goes from one computer to another and he just kind of heard me say, maybe something happens
#
But it was still, that was a very, I just mentioned to you some time ago that I thought
#
my generation was a transition generation.
#
We grew up in socialistic India where everything was scarce.
#
And we started working around the time when things started opening up.
#
And I think that as a result, we in many ways benefited the most, certainly economically,
#
but also culturally and socially from that transition.
#
I think that after that took it for granted.
#
You know, I still remember, you know, waiting lists for getting a scooter and a phone and
#
I mean, these are things that today's kids will not even understand what they mean.
#
What do you mean waiting list for a phone?
#
We all suffered that, right?
#
So I think we were that generation which sort of went through that transition in 91, 92.
#
And for me, I came back in 96 and things had changed completely.
#
I came to a different India from 91.
#
What did you do your PhD in?
#
So I did in something called business economics.
#
So I studied joint ventures for my thesis was on why joint ventures are formed and etc.
#
But I also did an MS in finance.
#
I have a very strong thesis also looked at how stock market reacts to joint venture formation
#
Yeah, but so I was a while formerly a student of the business school, I spent a lot of time
#
in Department of Economics.
#
And so that's sort of gives my probably give some sense of why I'm still interested in
#
economic issues and so on, because I did extensive coursework in economics and finance and so
#
And yeah, and then I came back.
#
How many people from the IIMs in your time actually went on to do a PhD?
#
So my classes were probably among the last because thereafter when India opened up just
#
In fact, a lot of my, I talked to a lot of new IIMs have been opened and they're all
#
struggling for faculty.
#
And it's almost impossible nowadays to get a US PhD in the IIMs are now beginning to
#
But which was quite common 20 years ago, because I think from 92, 93 on was just the people
#
who went for PhD numbers came down because opportunity here exploded.
#
So it made economically I actually never went because I wanted to migrate.
#
I went without knowing what I'm going to do after my PhD.
#
I was so thrilled that I got a fellowship that somebody was paying me to read books
#
for two years without making me work.
#
I just said, let me figure out what this is.
#
And I was very clear after my second year, I didn't want to stay there.
#
I didn't want to be an academician and so on.
#
So for me, it was a bit different.
#
But I think thereafter, the numbers have actually gone down quite dramatically.
#
And I'll say so also, I'm told in IIT, I mean, even people doing PhD in engineering
#
has gone down because the opportunities have just expanded quite significantly.
#
Tell me about how you formed your frames to look at the world.
#
Like when we're growing up, I think a key part of coming through adolescent and the
#
teenage years and adulthood is you figure out frames to look at the world.
#
And typically what happens is there is a danger to the first frame that seems to make
#
sense to you. You adopt it wholeheartedly.
#
Like there is a saying, if at 18, you're not a communist, you don't have a heart.
#
If at 25, you're a catalyst, you don't have a brain.
#
Or you are still a communist, you don't have a brain.
#
So, you know, so one discovers all of these frames are all seductive frames.
#
But then at some point, hopefully one begins to look at the real world and begins to
#
realize its complexities and, you know, figure out the best ways to make sense of
#
whatever parts of it they can.
#
So what was that process like for you?
#
Yeah, so I think that is the transition that happened to me in the U.S.
#
that the complexity of the world and the interplay of numerous complicated forces
#
resulting in a particular situation is something that I begin to come to grapple with.
#
There's a very interesting quote of Steve Jobs, which I love.
#
He says, truth is rarely simple and never pure.
#
And I think that's absolutely right, that everything that you confront is a complex
#
interplay of multiple forces.
#
Each of them are themselves the outcome of multiple other forces.
#
And that's how you have to look at situations.
#
I think there is still a degree of ideological bias one has.
#
So I always say I am slightly right of center on economic issues and slightly left of center
#
on social issues, which is, by the way, space that's sort of disappearing very rapidly.
#
And so my instinctive reactions are based on that ideological positioning that I am
#
always worried about government getting into economic activity without any reason and equally
#
into social issues, etc., etc.
#
It's I guess over the period of time learned to contain that ideological bias and to say,
#
no, let's look at this from first principles and what does it mean and what forces are
#
So I think that's the evolution one goes through.
#
So I don't think that I today respond purely ideologically to any situation, whether it's
#
political, social, cultural, certainly not.
#
Well, maybe economic situations are a little bit cleaner, pure economic issues.
#
But yeah, I mean, that's the way one has evolved over the last 20, 25 years.
#
But do you have any loadstras that kind of guide you in terms of principles or values?
#
Like for me, like you again, I'm right of center when it comes to economics and left
#
of center when it comes to social issues.
#
So I think much more to the right on the first and much more to the left on the second,
#
where freedom is kind of everything for me.
#
And I've realized that that frame of consent and that frame of coercion is a very useful
#
one whenever I look at anything.
#
So whenever there's a problem in the world, I will typically begin by asking the question,
#
Because usually once you identify where is a coercion, you identify where is a problem.
#
Obviously, coercion itself is nebulous and hard to kind of pin down.
#
And like you said, the world is deeply complex.
#
But that is kind of my starting point, where at least when it comes to economics, I'll
#
look at where is a coercion, where is a state, you know.
#
So are there principles you use to kind of guide yourself?
#
Because my acknowledgement of the world's complexity is that at any point in time, I'm
#
completely open to you telling me that I've got my facts wrong, that my beliefs about
#
a particular thing are wrong.
#
I'm completely open to evaluating that.
#
But I'm not open to my values ever changing, the things, the principles that I value.
#
Yeah. And I think that's true of everybody.
#
So I think things like, you know, personal liberty and freedom, rule of law, everybody
#
is equal, exploitation of any kind is just not right.
#
I mean, all of those are values which we all hold.
#
I think the trouble happens when things are not very clear, you know, when you say that
#
somebody's personal freedom is at stake, but then there are larger issues, you know, how
#
And so I think it's kind of easy to spout values, which all of us do.
#
And I'm not saying we are all wrong.
#
Life is never that clear.
#
It's situations are always very complicated because I think if there are clear issues of
#
violation of values, then answers are simple and easy.
#
Just because they are not never very clear, things become complicated.
#
And I think that's what one must realize.
#
You know, that, you know, I spent my, an aside of this.
#
So I'm a consultant, right?
#
I spent entire, from 96 last 25 years, I've been a consultant, which you advise people.
#
I see myself having gone through an evolution in that.
#
So when I began, I used to be very clinical.
#
This company is facing, this is the economics of the situation.
#
And so here is the answer.
#
Now I realize that there is a politics to that situation.
#
There is a sociology to that situation.
#
There is a psychology to that situation.
#
People have different emotional investment in a certain issue, which I have actually
#
almost learned over a period of time.
#
And so today I look at even my work related issues very differently than I did 25 years ago.
#
And I'm a different advisor now than I was that time.
#
I was just talking to a colleague of mine who he and I, we worked very closely for the
#
last 20 years and he actually exactly said the same thing.
#
He said, you know, I am surprised how I was at 20 years ago, how simplistically I viewed
#
the world. And I think that's exactly what experience is, that it tells you that, you
#
know, things never have clinical solutions.
#
Can you give me an example without obviously taking the names of companies or whatever,
#
but can you give me an example about something about which you thought one way many years
#
ago, but you changed your mind?
#
No, so I give an example.
#
So there is, let's say there is a company where, and these are kind of typical words,
#
where a new business is to be set up, right, which there is a clear rational business
#
rational for that. However, setting that business impinges on the current set of businesses
#
because you have to take something out from them, put it into this business and so on.
#
Now, 20 years ago, I said, obviously you have to do it.
#
This is just economic rationing is so strange.
#
Now I would say, but who are the other heads who are going to be suffering through this?
#
What would be their reaction?
#
How do you make sure that their pushback will be the minimum?
#
What's the head of the CEO?
#
Because that person will try to balance his current reporting versus the new person is
#
going to head. Beyond the point, he or she is not going to push this.
#
All of this, I think far more about today.
#
It's not as if I didn't think.
#
But 20 years ago, I would argue, I'm saying, why are we even debating this?
#
Now I actually engage in that conversation.
#
So how do you create incentive compatibility to these other people who are going to at
#
least feel they are losing something?
#
I'll work a lot with the CEO saying, you know, you have to handle these people.
#
You have to put your arms around them because the only way they will feel that they are
#
not losing out if you go and tell them, etc.
#
All of these things I wouldn't do.
#
Well, I wouldn't say I wouldn't do.
#
But these would be far less important in my work than they are today.
#
So a business entity to me 20 years ago was a pure economic machine.
#
Now it is a microcosm of society.
#
It's a manifestation of different psyches working on certain issues.
#
There is a lot of politics that one has to stay away, but yet deal with.
#
You can't ignore it. All of that I do much more today than I did 20 years ago.
#
And why did this happen?
#
Not because somebody came and told me.
#
I realized that if you don't do it, it doesn't work.
#
So you are just much less effective if you don't take into account these things.
#
And that's learning. And that's how you then change as a even an advisor.
#
So tell me about, you know, coming back to India and getting into consulting.
#
What was, you know, was it your plan that you're going to come back and get into
#
consulting, per se, or it was never done?
#
It was my plan to come back, but it was not my plan to get into consulting.
#
It didn't actually exist in India in the form that it is today.
#
So when I came back, I had gone back to banking, which is where I had spent a couple of years
#
before going post MBA, but pre PhD.
#
But that time, actually, this thing called consulting was beginning.
#
And I said, maybe this is interesting.
#
This is new. So let me just figure this out.
#
And that's how I actually, it was not out of any sort of long-term thinking and all.
#
And in hindsight, it worked out well for me.
#
See, consulting is again, it needs a particular kind of temperament, a lot of it.
#
Obviously, it needs a set of abilities, but it's much more a temperamental profession.
#
You need to have a certain temperament and psyche to be able to do that.
#
It's, I keep saying it's another facing business.
#
You, by definition, mind somebody else's business, which is actually not that easy.
#
Some people do it, some don't, and some very good people find it difficult to do.
#
Even many people in my career of 25 years where I have had this conversation,
#
you are great, unfortunately, not in consulting.
#
You'll do much better elsewhere.
#
And that's true because it's just not temperamentally suitable.
#
You know, a lot of people ask me, what's your normal day?
#
I said, my every day is abnormal because I'm working on a different issue with a different
#
client at a different stage in that work.
#
And so it's very different.
#
Now that can unnerve a lot of people.
#
A lot of people are very good at every day going to office, being incrementally better at
#
whatever they are doing compared to yesterday.
#
That's just a different temperament, I think.
#
So you'll have to forgive me now if I ask you some really naive questions, because I
#
know nothing at all about consulting.
#
So I'm really just sinking allowed here.
#
And my first question would be that just sinking allowed.
#
It seems to me that let's say I'm a company and you're a consultant, right?
#
So as a company, let's say I'm a podcasting company, right?
#
So I have deep specialized knowledge in the particular thing that I do, but there are
#
some aspects of aspects that I'm not being able to figure out, like maybe how do I scale
#
it or whatever. So I call in a consultant.
#
Now, the consultant knows doesn't have anywhere near the amount of specialized knowledge
#
that I have in my field.
#
The consultant is necessarily a generalist, but you have specialized knowledge in things
#
like how do you get a company to scale and how do you balance the books better and all
#
of that. You bring in those areas.
#
But at the same time, you know, so I guess there must be that balance to maintain and
#
younger people in consulting could easily kind of go over their brief in a sense because.
#
Yeah, I mean, that doesn't happen in at least well run consulting firm.
#
So look, fundamental consulting happens because something in a business has to change.
#
Nobody will ever hire a consultant saying I have to maintain status quo.
#
So at least expressly, people want something to change.
#
And then the question is, why wouldn't they, the company itself do it?
#
And there are multiple reasons.
#
One, you just don't have the bandwidth.
#
People are just busy doing their own stuff.
#
They have to run the shop.
#
And so sometimes it's I always call consulting as a capacity on tap.
#
You need to do specific product.
#
You don't have capacity to get people who will do it.
#
But that's the reason you do it.
#
Sometimes you need understanding that is beyond your company.
#
And this happens quite often that, you know, I give you an example.
#
I want to set up a new business.
#
Tell me if seven other guys who are doing it already, how they are doing it.
#
Because while I know my current business, I don't know about that.
#
And these consultants actually are pretty good at doing.
#
So that's another area where consultants quote unquote add value.
#
Third is that, you know, what happens in companies?
#
There is a lot of group think there are established beliefs
#
and sometimes to break them, you need outsider.
#
So I'll tell you an example.
#
Many years ago, 2006 for a large Indian bank, I helped them
#
launch their credit card business.
#
And the mandate was we don't have credit.
#
We launched credit card.
#
Their entire internal team started with the assumption
#
that they are going to completely outsource the IT.
#
I said, we don't want to get into this business of having our own
#
IT setup and so on, get a solution implemented.
#
We'll outsource it on a transaction basis.
#
And at the beginning, it looked like as I started working on it,
#
I realized that has a problem that they were not good, reliable outsource vendors.
#
The company did not have the ability to manage those vendors.
#
And so I remember viewing to this extraordinarily long.
#
While that was at the beginning, it looked like a minor aspect of the whole work.
#
It became a pretty big issue because I had to argue as you can't do this.
#
And it took me like probably a month of numerous meetings right up to the CEO.
#
Finally managed to convince them and then they decided to do that IT on their own.
#
And I think to this day, they do it on their own.
#
This has been 16, 17 years.
#
I cited that as an example of where an outsider comes in challenges,
#
view that was very strongly held within the team, but it actually was not right.
#
A lot of this, a lot of my work has been just designing organizations.
#
For example, how should we create business units in a large.
#
Now, you can imagine that can be very politically fraught
#
because people have their sense of power importance depending on where they sit.
#
That's again, where outsiders can be very helpful because.
#
So again, many years ago, I worked for a for a large bank
#
and for one particular business, we had to do structure.
#
And I very quickly realized that the moment you show an organogram,
#
They say, which box am I in and who's around me, who's
#
and then all everybody loses any sense of logic.
#
So then I told, I remember the same colleague that I mentioned.
#
He and I, we are working together.
#
I said, look, we will not show any organogram until the last meeting.
#
We'll just lay out principles that we agree on, that the design principles will be this.
#
Meeting after meeting, we just used to show principle
#
and everybody used to agree that this makes sense.
#
And then in the last meeting, in the last half an hour, we should,
#
if we apply all these principles, this is the structure you get.
#
Now, that was like a tactical move one made, but it was very important
#
because I very quickly realized
#
that the moment you show somebody where he or she is sitting,
#
A lot of emotions come out.
#
Now, these are some of the things that consultants can do well.
#
What happened at that meeting, by the way, when you finally...
#
No, so every people were grudging and I haven't finally accepted
#
because you can't then say I disagree.
#
I would explain that you agreed on yourself, agreed on these principles.
#
If you apply them, this is what happens.
#
There's some minor tweaks that happen, move this here and there,
#
but majority it got accepted.
#
And that's a trick that I even today use.
#
Whenever somebody asked me to work on redesigning an organization,
#
I never show any organograms because I know that's the natural
#
reaction of individuals.
#
If suddenly you thought, oh, so and so is going to be my boss.
#
Now that's not happening.
#
And so you just avoid that.
#
And I guess companies, you know, the biggest danger to carry on
#
on that group think the thread is that they get ossified in certain
#
ways of thinking and certain ways of working and perhaps even certain
#
internal hierarchies within the organization.
#
So it is convenient for a boss to then call in a consultant and say,
#
hey, you're an outsider, clean this up.
#
I mean, so the, the not so pure reason is I want to overcome
#
some internal dissent and so on.
#
The more pure reason is that we are just clueless.
#
Tell us for other people who have dealt with this, maybe some are from
#
our business and other business.
#
And how do you best actually solve this problem?
#
And I've seen a bit of both people.
#
I mean, the bosses know that so and so has such view on this issue.
#
I disagree, but I don't want to be seen as slamming my view on that individual.
#
So let me get somebody that happens a fair bit, but also equally commonly
#
people say, no, please tell us how others have solved this problem or
#
how you would solve this problem.
#
And that's the advantage of consulting firms that they can bring in
#
experience from multiple businesses and so on who have faced similar issues.
#
And so I think, yeah, that works.
#
What are the typical kinds of mistakes you see firms in India making?
#
I don't think generically we can, there are some very good firms.
#
There are mediocre firms.
#
But what are the common kind of tendencies?
#
The other day somebody asked me, so what's in your opinion, a well-run company?
#
I said, it's a bit like saying, so what's a healthy person?
#
You can't define health.
#
You can only define illness.
#
You know, I can tell you, you are not well because of ABCDA, but well
#
meaning not having any illness.
#
So well-run companies do not have any management problems.
#
So I think they're quite, I mean, so I think there are many, which is not
#
being cost focused is common one.
#
Lot of people will, you know, if you didn't, I do a lot of so-called
#
visioning workshops, what's the vision of the company?
#
And one common thing that will come out is we want to be customer focused.
#
And I said, what does that mean?
#
A lot of companies actually don't understand their customers and they
#
That typically happens when you have, and in fact, I saw that for example, in
#
Indian banking, there was a time in the 2000s and 2010, everything was growing
#
at 20% because it was consumer banking was just a virgin territory.
#
You didn't have to spend time.
#
You know, you just opened a branch, opened your shop and you got business.
#
Things changed in the last growth has slowed down.
#
Now people have to far more worry about, so what do my customers want?
#
So typically what happens in high growth environments, people tend to overlook
#
a lot of, I always say this, that companies develop bad habits in good times.
#
So lack of focus on what the customer want, losing focus on costs, diluting
#
employee standards of all manners of competence, integrity, all of these
#
ills happen when you're growing very rapidly, because you just want to keep
#
growing and then it comes to haunt you later.
#
I remember about seven, eight years ago, I went to talk at the board of a bank
#
and I told him, I said, you guys, you are getting into your adolescence now.
#
And like human beings, it's difficult for organizations also.
#
You're not a child anymore.
#
You're not an adult anymore.
#
And this is where you develop all your bad habits.
#
And I then cited this, this is, you know, diluting employee standards and so on.
#
And that happens all the time.
#
And I've seen that happen multiple occasions.
#
And because we were a very high growth economy, we still are.
#
We need to continue to be.
#
I think some of these will continue.
#
It's just that grappling with growth is never easy for business organizations.
#
I'm struck by what you said about a lot of them when they say they want to
#
understand the customers better, they're too reactive.
#
And it really strikes a chord with me because I see right in the world, the
#
world that I know, I see right in the world of popular entertainment, where you
#
have, you know, whole entire Hollywood franchises come up because, hey, if a
#
superhero film succeeded yesterday, and you see right in the creator economy
#
also where mediocre creators, not good ones, but mediocre creators will look
#
at what is trending on YouTube or whatever, and try to figure out what
#
people want through that.
#
Well, my thinking is that you can, people themselves don't know what they want.
#
It's really hard for others to figure that out.
#
So I want you to elaborate on that in the context.
#
No, so my view is that, see, we, the last 20 years, we have emerged from a supply
#
constrained, controlled economy to a free economy where choices have expanded.
#
When you had exactly one or two car company, there was no choice.
#
They just, and even for those two cars, they were waiting lists.
#
And now that's not the case anymore.
#
So that's where, you know, the life that your customer is living, the, their
#
actual experience with product and all that matters a lot.
#
There's a very famous story.
#
In the 1970s, when Japanese launched cars in the U S they were treated with contempt,
#
cheap, poor quality cars and so on.
#
And Honda sent a bunch of its employees to live with American families for a year.
#
How do they drive in the morning?
#
Where the fact that they carry a coffee cup and simple things.
#
And then they use that to redesign their cars.
#
And that's when they started becoming very successful.
#
I mean, imagine companies sending engineers to live with families, to just
#
understand how they live their life.
#
That's, you know, I always do this.
#
I, you know, I said, look, let's, let's get into what does customer focus mean?
#
Then I, in this, I work in financial services.
#
I work a lot with banks.
#
I said, suppose I walk into a branch, whose customer I am, am I the branches
#
customer, I'm consumer banking divisions customer, that geographic regional office
#
customer or everybody's customers or nobody's.
#
And this is where things begin to break down.
#
Because somebody said, no, it's branch.
#
Because I am a home loaned customer.
#
Branch is not relevant.
#
Then you are a home loaned, but that unit is not there.
#
I'm at, so this is where then people begin to discover that, you know, you
#
can't have quote unquote customer focus unless there is an ownership.
#
Somebody says, so and so is my customer.
#
So whatever happens to is, is on my, my account.
#
Et cetera, just understanding the lives that your customers live.
#
I think this actually is, I feel far more important services businesses.
#
Like you talked about entertainment, financials, and so on.
#
Product, your relationship ends when somebody is bought the product, either
#
the person is happy or not happy, if not happy the next time services,
#
the ongoing continuous engagement.
#
And I think that's where it's far more important.
#
That's where actually we don't do it enough.
#
My view is that in high growth environment, companies
#
actually don't do that enough.
#
How does a person actually, what's the experience in a branch when somebody
#
walks in a woman walks in, I think don't don't think they spend enough time.
#
I mean, I think in the last 10 years, I see a lot of changes that are happening
#
in at least financial service that I've seen, but we still have to catch up a lot.
#
Can you, I mean, again, I obviously don't want to ask you for any names
#
of companies or to get that specific, but at the same time, I'd like some
#
concrete examples to kind of make it vivid for me and my listeners.
#
Like what is an example of misinterpreting what the customer wants or,
#
you know, not going deep enough into that.
#
And how, how does one turn that around?
#
What are the questions to ask?
#
So I'll tell you a very interesting story.
#
So some time ago, there's a company that I was working for, which is
#
trying to develop an app.
#
For rural, it was like a microfinance.
#
And, and then we were debating this a lot about it should have graphical
#
interface because people may not be able to read and this and that.
#
And then this went on in that headquarter for a long time.
#
And then we took a break and I met this young engineer who was actually working
#
on it and he, in the lunch break, he said, he said, you know, sir, the
#
problem with these women is that they don't know how to double click.
#
He said, you know, he said 90% of the struggle with double clicks.
#
So he said, we should avoid double clicks because they just don't know that.
#
He said, you want, I take it from that.
#
And I mentioned this, I said, we are spending so much time on whether the
#
graphics should be of a rabbit or whatever.
#
And here is a basic problem that we haven't figured out because we never
#
I just accidentally spoke to him.
#
So that's an example of actually.
#
So that's an example of actually over-intellectualizing the problem
#
without actually trying to understand what the customer actually experiences.
#
And then I actually checked that with a lot of people and people told me,
#
yeah, I mean, double clicking is a problem.
#
People take a while to learn it.
#
It sounds ridiculous to us.
#
So there was this fascinating story that this reminded me of.
#
I did an episode with Abhinandan Sekri, the news laundry CEO, great
#
And at one point, and he mentioned in his travels, he went to some village
#
in the Northeast and they were like asking those villagers there at, you
#
know, what do you really want?
#
And the thing is people who were sort of doing, you know, the central
#
planning for them from the state or wherever they were saying,
#
there are more accidents.
#
So let's give them better roads.
#
Let's give them better infra.
#
And the person in the village said, we just want a cinema theater.
#
And the reason for this is that they would have a lot of deaths through
#
road accidents because kids would go to other villages or towns to watch
#
So if they just had a local theater over there, then it doesn't become a
#
problem because you're reducing the number of road accidents by building a
#
And the only way you can, there is no act of logic from a distance that
#
will get you to this conclusion.
#
You just have to kind of get local and figure it out.
#
And in fact, this is too, you're talking about sort of rural areas, but
#
even in urban areas, I mean, when a housewife goes to a bank branch, what
#
exactly happens to her?
#
I don't know how many banks actually know this.
#
My daughter had a minor account in a bank.
#
And I've been a customer that drank for 25 years.
#
I opened when she was a minor and then she turned major.
#
So I took, when you are a minor, you are a guardian account and so on.
#
So I had to convert into a normal account.
#
My wife had to go to the branch seven times, seven times.
#
And after that also, it was not done.
#
I went to the branch reading where I attacked and then it got done.
#
Now this happens to a, perhaps the most informed segment of, and I think
#
the reason this happens is because this institution take customers for granted.
#
And I think that's so terrible.
#
And in fact, I wrote about this to the CEO.
#
I did not even get an acknowledgement.
#
I wrote like a seven paragraph mail.
#
I'm saying this is what happened.
#
And if this happens to you, pretty much the normal guy out there doesn't have a chance.
#
I said, I'm supposed to be your this privilege X, Y, Z client.
#
I shudder to think what would happen to a normal client.
#
And I had, because I knew the banking laws and I could go and shout at the branch.
#
A normal person would, he will go another seven times.
#
And it gets crazy because what also, like a friend of mine recently gave up her credit card
#
because there was a new KYC that happened and her name on her credit card was slightly different.
#
I think father's name was additional in the name on a radar or something.
#
There was some minor difference, but common sense tells you this is the same person.
#
And she had to go so many times that eventually she got fed up and said,
#
I'll just use my debit card.
#
In fact, it happened to me again, last, this is 20, 22, for four days,
#
all my, the same bank blocked all my payment transactions, all online app, credit card,
#
And I had no idea what the heck is going on.
#
In fact, it was so embarrassing.
#
I had some people had come from the US and I took them out to lunch.
#
Luckily, extraordinarily luckily, I was carrying cash.
#
I normally never carry cash nowadays.
#
That day I had cash, but so I could pay.
#
And I had no idea what was going on.
#
Then I figured that pending KYC, they had blocked.
#
Now this is by the way, completely illegal.
#
There's a clear RBI guideline.
#
Now the thing is, and I called people and nothing happened.
#
And this is the unfortunate part about the country.
#
Then you know what I did?
#
I know some people in RBI got somebody from there to make a call.
#
And then within two hours, it was restored.
#
But imagine a normal person who could not do this.
#
So this is this whole impunity of a large institution vis-a-vis customer.
#
It just completely bothers them, in my opinion.
#
And I'm guessing that just as the culture of a place can often be shaped by the institutions
#
because of the incentives that are set,
#
would it be the case that the culture of the banking sector would also be set by
#
the kind of controls that the state has?
#
Like if the state requires enormous amounts of paperwork and bureaucracy and red tape,
#
then when asked to bend, the bank engines choose to crawl
#
and become even more bureaucratic and stultifying.
#
Yeah, we had a situation.
#
See, if you look at Indian banking, we are veering a bit here.
#
Post-independence, I say we went to three phases of roughly 25 years each.
#
The first was the 47 to, let's say 70s.
#
69 is when Mrs. Gandhi nationalized.
#
So there was roughly 20, which was really completely private banking,
#
very narrow, but very urban focus, not reaching out.
#
Lot of banks failed, very poor regulation.
#
Then we had an era from 1969 to mid-90s, which was completely socialistic banking,
#
all government owned banks.
#
Banks, government and RBI was undistinguishable.
#
You know, when I joined work after finishing my MBA,
#
it sounds completely ridiculous.
#
There used to be something called credit authorization scheme.
#
Every loan that any bank made was approved by the RBI.
#
Where in the world this happens?
#
This went on till 92, 93.
#
So you could not tell the difference between the bank and RBI and the government.
#
And then it changed in 95 when the new private banks came.
#
So the next phase, I think, is the 95 to, let's say,
#
I take it to about the COVID, where still public sector banks were dominant,
#
but private banks kept growing.
#
I think now in the next stage where public sector is now less than 60%,
#
government owned banking, and is going to fall below 50%
#
in the next five to 10 years.
#
So now predominantly will be privately owned.
#
And to be fair, that has brought in a lot of changes
#
because this whole government style delivery of banking services now changed
#
because this private, but yet I think there's a long road to go.
#
I mean, we have replaced one kind of monopolies for other kind of monopolies, you know.
#
Top three private banks are now larger than their behemoths.
#
And they have imbibed some behavioral traits of their government owned peers, so to say.
#
So I think we have a road to go in terms of many of the things that we discussed.
#
Let's talk about banking.
#
We'll come back to, you know, your personal life story later.
#
But since we've taken this regression, I want to sort of get a sense,
#
you've already given a sort of a very rough sense of historically how it's evolved.
#
And these are the three phases.
#
And I'll also ask you, you know, what changed with COVID
#
that you marked that as the end phase of the third one.
#
But in a sense, what should banking look like?
#
One fascinating question I often ask is that if you had to reboot civilization
#
and it came about all over again, what would evolve again and what would not?
#
And it is clear to me that banking would,
#
but it is not clear to me that it would look like this.
#
Yeah. So there is a saying, Bill Gates once said,
#
we need more banking, but not more banks.
#
Institutionally, it might look different.
#
So let me, so my own, and this will surprise you, I think.
#
My own ideal model of bank or analog of bank is a power station, a utility.
#
It has to provide credit to the real economy in a reliable, predictable,
#
stable way and not do anything more clever than that.
#
See, banking demand is a derived demand.
#
People want a loan because they have to do something else.
#
There is a real economic activity that this is supporting.
#
My own view is that therefore banking has to move in lockstep with the way real economy is evolving.
#
If it tries to run too much ahead, then you get a global financial crisis.
#
If it stays behind, you get Japan, 30 years of stagnancy.
#
So you have to, and that is where I feel regulators, leadership of banks,
#
even to some extent government play a very important catalytic role to make sure that
#
this is evolving in lockstep with the real economy.
#
It's neither running too far ahead, nor it is falling too far behind.
#
Every time banks try to do something too clever, you run into trouble.
#
Can you define behind and ahead?
#
I mean, look at what happened in global financial crisis.
#
That banks went berserk on these complicated products that they did not understand.
#
That has way out of sync with the real economy.
#
If one single home loan gets converted into four times or 20 times credit default swaps on that loan,
#
there is a problem in the system.
#
This is just a complete cancerous growth that is happening on an underlying
#
real economy transaction.
#
That's the banking system or financial system more broadly running too far ahead.
#
State-owned banks cross-holding with companies, just deeper demographic challenges.
#
I'm not saying that's the only reason Japan has been held back,
#
but basically zero growth for 30 years.
#
What do I mean by that?
#
If the real economy is becoming complex, newer sectors are developing,
#
you have to have ability to provide them credit.
#
What happened in India?
#
2007, 3 to 2008, banks started lending to infrastructure.
#
They understood nothing of it.
#
All of that brought them to grief when the NPA bust happened.
#
We removed the old financial institution, asked banks to lend money to roads and ports
#
They were not ready for that.
#
That's what I mean by they were not moving in step with the real economy.
#
Now, I feel that a lot of banks are doing a lot of unsecured consumer lending.
#
There is a generation that buys everything on EMI.
#
That segment, I think it's going to come to grief at some point of time.
#
I'm absolutely convinced of that.
#
This is what I mean by that the two systems have to move together.
#
By falling behind, I mean that then you just constrain credit supply.
#
Credit is like oxygen to an economy.
#
You take out credit to an economy, it suffocates.
#
I remember in the 2008 crisis, while India didn't suffer all that much,
#
the peak of the crisis, there's a good friend of mine who works for a very large bank.
#
He's a treasury person and he called me and said,
#
Harsh, can you believe I can't borrow 100 crores in the market, the interbank market.
#
That bank not being able to buy 100 crores like you telling me,
#
I can't borrow two rupees today.
#
It was just completely absurd, but that's what happens when the markets choke
#
and that's what happened in that crisis.
#
That's what I mean by the banking sector being in lockstep with the real economy.
#
It can't run ahead, it should not fall behind.
#
That's a very tricky balance to maintain.
#
And I think multiple players play a role in that, regulators being the most important,
#
but also banks themselves, their management, the government,
#
all of them together probably will ensure that that balance is maintained.
#
You know that the best jurisdictions in the world are banking and customer,
#
I haven't had a banking crisis for 200 years.
#
Just look at their sector, they look very different from us.
#
Four or five large banks have 90% market, then there are especially small banks,
#
fairly tightly controlled on what they can and cannot do and organically they keep growing.
#
So that power plant model keeps supplying like you supply power in a reliable,
#
stable, non-fluctuating way to the real economy.
#
Power plants provide power, you provide credit.
#
So that's how I see banking.
#
Tangential question before we dig deeper into it.
#
I remember this great quote by Chuck Prince who was the head of Citibank.
#
He was asked about 2008 and he said when the music's playing, everyone has to dance.
#
And I'm just wondering that when you get into a loop of operating in a certain kind of way,
#
does it then become either a vicious cycle or a virtuous cycle?
#
I guess in the case of Australia and Canada, a virtuous cycle if you're going along the right
#
But the danger in other places is that even if you are the head of a bank and
#
your vision for the world is different.
#
But if you are answerable to shareholders who are also shareholders in other banks who are
#
dancing to a different tune, yeah, you have to.
#
But I think that is true and that is true of all capitalists.
#
Your shareholders will demand a certain behavior on your part.
#
But that's where I think both the management have to have a certain amount of vision and
#
firmness in dealing with that.
#
But this is also where regulatory role becomes important.
#
Why is banking regulated?
#
It's precisely to avoid things like this.
#
You know, if a cement company goes down, it doesn't take 10 cement companies with it.
#
If a small bank goes down, it can take the whole system down.
#
That's why we haven't let cooperative banks fail.
#
Because this connectedness is so pernicious that you have to prevent that.
#
And that is why I think in the West, whenever they have big bank deregulation,
#
it has always been followed by a crisis.
#
Because then the system just completely goes out of control.
#
So, in fact, it's strange for me to say that I am card carrying, free market.
#
But these are some of the areas where the regulators have to be on the watch all the time.
#
Because these things can very quickly spiral out of control, as we have seen elsewhere.
#
So, optimal regulation, which on the one hand promotes efficiency, promotes capacity building,
#
promotes innovation, all of that is good.
#
But on the other hand, avoid systemic crisis is the real challenge of regulation.
#
Lawrence White has a great paper on the 2008 crisis, which I'll link from the show notes,
#
where he talks about how a lot of the factors which pushed the banks in the old directions
#
were really state over each like the Community Reinvestment Act of the late 70s, which
#
pushed them towards making those subprime loans, which otherwise following normal
#
banking principles, they would not have done, or the role that Fannie and Freddie,
#
which were quasi government organizations did.
#
But that's a different matter.
#
I totally buy your point about optimal regulation being the key.
#
But the question is that the state over each can also become a massive issue.
#
Although I feel I have read those papers and I think they overstayed that case a little bit.
#
That is true that we had a Community Reinvestment Act and all of those loans happened.
#
But banks went way beyond that.
#
I mean, come on, subprime was not because of that act.
#
It was just self-interest of banks and the returns that they were showing to their shareholder.
#
That's what really led to it.
#
In fact, Fannie and Freddie, while we all lambas,
#
people forget for 50 years they helped democratize house ownership.
#
So it's not as if you judge them by everything that happened in 2008.
#
What happened 50 years before that?
#
They did contribute to the development of US housing market and, as they say,
#
democratizing home ownership, which is actually very important for any society.
#
So I think that's a bit overstating that case.
#
But the whole issue is that regulators struggle to balance between letting
#
animal spirits of bank management go on versus containing systemic risk.
#
As technology evolves, the nature of that risk changes.
#
People did not understand fully the risks and these derivatives until they blow up one day.
#
Now, we can argue till cows come home that regulators have their own weaknesses and so on.
#
You can see in India, for example, until Governor Rajan did that asset quality
#
review in 2016, banks kept hiding their NPAs and then one day it came all crashing down.
#
So this happens across countries.
#
The US is not unique, we are not unique.
#
That's the struggle of doing banking regulation properly, in my opinion.
#
Not just banking, but broadly financial sector regulation,
#
because it's not just banking.
#
There are many transmits in non-banking areas of the financial system and so on.
#
So I have a bunch of questions for you.
#
But before we kind of dive deeper into banking as it is and how it could be better
#
and all the mistakes we've made, especially in India, et cetera, et cetera.
#
I want to go one level back and ask a meta question that I alluded to with my thought
#
experiment earlier, that if you reboot civilization and it evolves,
#
what is the best outcome in terms of how the banking system works?
#
Like earlier, you mentioned that banking not banks.
#
But in a completely different world, civilization evolving again,
#
what is the optimal way that you would like to see it evolve
#
with respect to banking?
#
How would it look in a completely ideal world?
#
Forget all the constraints.
#
Look, as I said, banking is a derived demand.
#
It arises from the real economic activity.
#
So I like to answer the first question in that world.
#
What will be the real economic activity?
#
Will it be traders, farmers, manufacturers, all of the above?
#
And so it will have to evolve.
#
But again, I'll come back to what I said earlier.
#
Even in that world, my model will be it has to see itself as a utility
#
that I exist to actually support a real economy.
#
I, by myself, am not a real economic activity.
#
So I am the means and audience.
#
I am a service provider.
#
I am a supplier to a real economic activity.
#
I am on my own, not a real economic activity.
#
I am a fiction that gets created because of people's need
#
to conduct real economic activity in some form or shape.
#
That should inform the way you look at banking.
#
And by the way, that real economic active banking,
#
I simply divide banking into demand side versus supply side.
#
Demand side is giving loan to consumers to buy houses and cars and so on.
#
And supply side is to give money to companies to produce cars and homes and so on.
#
But it's the real economic activity which should decide how much
#
what demand gets created and what kind for banking.
#
And that's how we design optimally the institutions to supply those.
#
That's how it should evolve.
#
It should evolve organically to support that.
#
Now, if you become a farming society again, US banking got shaped by farming.
#
US, by the way, is remotely not a model for banking regulation.
#
But if you go back to their history, state chartering and all that happened
#
because they wanted local banks to be able to support local farmers.
#
And that's why for a long time, it's humongous, they had 9,000 banks.
#
Why? Because every district would have a bank.
#
And then because in order to protect them, then you created regulation
#
that prevented them from having to compete and so on and so forth.
#
So, evolution of banking does react to the underlying real.
#
There's a very interesting book by Calumaris and Haber called Fragile by Design.
#
And it talks about this grand bargain between the state and the banking system.
#
That state needs money to fund itself.
#
And so, it gives something in return.
#
And that's the grand bargain you see, which is things like protection from competition,
#
which is the bargain in different form you see in all jurisdiction banking.
#
So, I think that's how it is.
#
So, my view in even that world would be that it is a utility.
#
And it has to see itself as that.
#
So, in its evolution to its current state,
#
what went wrong and why did it start going wrong?
#
Everywhere, in general, in banking.
#
No. So, I think one of the important thing is that it is a business.
#
So, it comes under pressure of all pressure that business come primarily out of
#
having private capital.
#
You know, when India was completely government owned,
#
banks did not know how much profit they made.
#
I'll tell you very funny story.
#
1990, I started working in 1989.
#
1990, one of my relatives was a senior officer in a government owned bank.
#
And they had this officers association, which is like a union of officers.
#
And they had a huge dinner in Mumbai in the summer of 1990, which I attended.
#
They were all senior officers of this bank.
#
And the CEO of that bank came and gave a rousing speech.
#
They had crossed 25,000 crores in deposit that time, which was very large that time.
#
I remember I was this fresh out of business school.
#
So, I was talking, chatting to a few colleagues of this relative of mine.
#
I said, so, how much profit did make?
#
I said, how is some number?
#
Because they were not asked to make profits.
#
They were extension of the government.
#
So, their mandate was deposit.
#
So, that's what the chairman was talking about that we open X hundred branches and
#
we cross 25,000 crores deposit.
#
Companies will do what you ask them to do.
#
If shareholders are asking for returns on equity, then they will try to generate shares.
#
And if that requires them to take more risk, ultimately, private enterprises work on incentives.
#
If you incent people to make loans, they will make loans.
#
And since bad loans are easier to make than good loans, they'll make bad loans.
#
So, you have to really, I am a strong lottery for regulation to look at incentives for bank
#
I know it's not a very popular idea among card carrying free market economists that
#
why should the regulator say how much money the CEO is making?
#
I actually believe that that's right.
#
Because that shapes their behaviour and that creates systemic risk.
#
So, I think to your point, why, because the incentives completely went out of whack.
#
And you started incenting people to do things which were not actually
#
either in the interest of the institution or of the system.
#
And the regulators were doing nothing.
#
That's where now then the pendulum sunk the other way around.
#
Now, so regulators have many areas become much tighter and so on.
#
But that's the classic Hegelian dynamics you see everywhere.
#
And then some synthesis will emerge.
#
So, in India, for example, we had a very bad banking crisis in mid-90s.
#
There were Indian banks which had no capital, negative capital,
#
but had healthy deposit growths.
#
Deposit couldn't bother less.
#
Sarkari bank hai, where will my money go?
#
Today, that will not happen.
#
You know, so I think the fact that banking was a part of the government
#
actually did help us hide a lot of ills in the banking system.
#
But now that will change.
#
I think one of the good things that has happened,
#
especially after even the public government-owned banks got listed in India,
#
there's a much higher scrutiny now of them.
#
And that has improved their performance and behaviour.
#
That I can say unequivocally.
#
That listing on the stock exchange of this government or bank
#
actually has helped their behaviour and performance.
#
But that's where it lies.
#
I mean, I'm saying that if you are a business in a capitalist economy,
#
you will come under normal pressures that a business comes in.
#
It's just that in banking,
#
those pressures can create far more damaging outcomes
#
than, let's say, in a cement business.
#
Because you are not consuming systemic issues there.
#
And I'm trying to reconcile two things.
#
As you've pointed out, banks like power supply stations
#
fulfil a very useful social function.
#
That they are required for the real economy to function
#
and therefore you want them to function in particular ways.
#
But equally at the same time, they are part of the market.
#
Or if they're not part of the market, they're part of the state,
#
then the incentives are all over the place obviously
#
and that doesn't work either.
#
But even if they're part of the market,
#
how the market works is through creative disruption.
#
You have different players experimenting in different ways
#
and some go bust, which is great.
#
That is a healthy cycle of capitalism
#
and some survive and so on and so forth.
#
And that's how it goes.
#
But within banking, if the banks are all interrelated
#
in such a way that one bank going down
#
can bring all the others down like a house of dominoes,
#
then that kind of creative disruption actually can be a risk.
#
Yeah, so therefore, banking,
#
my view, always go through evolutionary change
#
and not revolutionary because that can be very damaging.
#
In fact, this issue comes to the fore
#
when we talk about fintechs and all now.
#
And I always find, you see,
#
banks have been at the forefront of using technologies in 1950s and 60s.
#
They were the first large businesses to broad scale adoption of IT.
#
Computers were first came in a big way in banking.
#
So to say that somehow suddenly now there is fintech
#
is kind of a bit odd to me.
#
I wrote an article two years or three years ago
#
where I said, look, the ideal model in India
#
was for these fintech players to partner with banks.
#
Why? One, that's the way our policy environment works.
#
That, you know, the moment they start becoming large for the system,
#
regulations will come in, leaving aside whether it's right or wrong.
#
But more importantly, to your point, unlike any other business,
#
you know, you set up a e-retailing shop,
#
you're selling t-shirts and jeans, you go down, nothing happens.
#
You have a fintech who's lending to consumer
#
and has borrowed money from banks.
#
It goes down. It can take that bank down with it.
#
So systemic issues are always quite significant in financial system.
#
And you can't say, I'll just ignore them.
#
You can't say, no, no, but so what can regulators?
#
Regulator will say, look, either I isolate these people
#
so that there is no systemic or I don't let them grow.
#
Or I constrain their growth in a manner that the systemic risk
#
that I see arising from their growth remain contained.
#
And you can't challenge that approach
#
because ultimately the regulator is not concerned about A,
#
entity doing better than B.
#
It wants to make sure the systems run reliably.
#
And if I see anywhere where, quote unquote,
#
innovation is going to threaten the system, I would have to get in.
#
Now, it's another matter whether the way they intervene,
#
the instrument they use, the intensity and extent of that is right or not.
#
That we can debate on individual issues.
#
But I think the philosophical approach of that is right.
#
That this is simply a sector where you can't let people run amok freely.
#
Not because you don't like what they are doing,
#
because they can create issues for others,
#
as has happened all throughout our history.
#
Is there a simultaneous danger that the regulator being part of the state,
#
there is a danger of capture there by special interests and so on?
#
Yeah, I mean, I won't name in India because we are multiple.
#
Some regulators, I feel, are captured by their industries.
#
And now, to some extent, it cannot be avoided
#
because they are the entities they deal with every day.
#
So, it's also a matter of degree.
#
On the other hand, I see Indian regulators are completely isolated.
#
They are Kafka's castles from which addicts emerge.
#
That also I find bothersome.
#
If you are regulating market behavior,
#
then you have to engage with the players to actually understand what goes on.
#
So, we see both extremes.
#
Complete capture versus complete castle-like mentality.
#
I think both are problematic.
#
And isn't it inevitable that there will be drifts in either direction?
#
Yeah, and that is where I think leadership of these institutions matter.
#
And that's where I have a little bit of a disappointment.
#
If you look at the last 25-30 years, since, let's say, the economy opening up in 1991,
#
99% of leaders of all these are ex-bureaucrats.
#
And that, to me, is a bit of a tragedy.
#
I mean, in a country of one and a half billion,
#
you can't find anybody other than a retired bureaucrat
#
or about to retire bureaucrat to head regulatory institution.
#
We have had few exceptions, but really very few.
#
And I think as our economy becomes more market, quote unquote, market economy,
#
that just would not work.
#
That will result in suboptimal regulation, which I see every day.
#
And I attribute that to the regulators not engaging enough with the market.
#
And at one level, you could argue that ex-bureaucrats are a bad idea
#
because of the stultified thinking.
#
And in a sense, they've been part of the system and they think in certain ways.
#
But equally, I think it could also be argued that it doesn't matter
#
who the individual in charge are.
#
They have to deal with the incentives that they have to deal with,
#
which could either take them towards regulatory capture,
#
where the market takes them over.
#
Or very bureaucratic government-like.
#
Yeah, so it's a bit of both.
#
But my view is that one or two things will happen.
#
Either as one senior person in the regulator once told me that
#
we'll house train the new head.
#
That happens, which means that the institutional traditions
#
and views sort of overwhelm the leaders, so no change happens.
#
Or there is a confrontation between, which is also not good,
#
between the institution and the head.
#
And we have seen examples of both in these agencies.
#
I feel that a lot of it has to do with the broader sort of political,
#
social context in which these entities operate.
#
And unless that changes, I've thought a lot about this.
#
Why is it that only ex-bureaucrats get picked up?
#
And I realized that the people who appoint, there is a mutual understanding.
#
Politicians know what knobs to, buttons to press for these guys.
#
They know how to deal with powers that be.
#
So it's a symbiotic relationship, which just is a natural extension of that.
#
Now, the fact that on the other side it creates sub-optimality is a minor issue.
#
I mean, if you look at the stakeholders, find that, we'll figure out.
#
It's as simple as that.
#
Who's come closest to getting this mix of banking and regulation exactly right,
#
like you mentioned Australia and Canada as examples, which have gone well.
#
But I'm interested in, what is the optimal mix?
#
Who's come closest to it?
#
And also the critical question that bothers me is that, how?
#
How did they get there?
#
Because I would imagine, principles of political economy are the same anywhere.
#
The state will behave in similar ways everywhere in terms of maximizing its own power and so on.
#
So how did whatever are the best sort of mixes, how did they evolve and how did they maintain?
#
So you have to really first understand some basic differences.
#
These are large land masses with thin population.
#
You know, farm and aquarium at the end of the world, both of them are.
#
And so some things become much easier there.
#
Secondly, they are newer countries, but therefore much stronger democratic foundations.
#
They are all Anglo-Saxon.
#
They came from the English common law tradition.
#
And much better, I would say, for the lack of a better phrase,
#
much better established rule of law and clear separation of powers and things of that nature.
#
And so that just allows you to run these institutions better.
#
Whether it's an oversight of the legislator on the regulatory agencies and the appointments
#
and so on, they are just institutionally better at that.
#
And then there are smaller economies, you know, it's just hard fact, smaller, much less complex,
#
both economies and societies.
#
You know, I mean, one of the things that has happened in India is that we are just not a market.
#
We are actually, I feel that we are not yet fully a market economy,
#
but we are much ahead, much more as a market society.
#
It's consumerism just rampant all over.
#
And that also is going to pose a problem, I feel, in the future.
#
As I said, we have a bubble happening in consumer borrowing right now,
#
without enough financial literacy, without understanding the implications of that.
#
And someday it is going to bring us to grief of some sort.
#
So coming back to your question.
#
So I think there are some things that are just easier in these jurisdictions to do,
#
but equally important to focus attention on countries that have done it badly.
#
US being a preeminent example, US banking relation is horrible.
#
You know, it has extraordinarily fragmented banking.
#
It has had repeated episodes of all kinds of banking crisis.
#
And they just don't seem to get it right.
#
They have now a plethora of new institutions,
#
this consumer protection agency that they have created.
#
They keep debating whether it's right or wrong.
#
So I think it's also, to some extent,
#
reflect the underlying political dynamic in those countries.
#
But even European countries, I mean, Germany has also not,
#
in the last 10, 12 years, not had great banking regulation.
#
Southern Europe has had problems.
#
So I think few countries actually have got it right.
#
That just tells you that it's not something that you get right easily.
#
And also the fact that it is a function of the underlying
#
political and institutional context in which these entities operate.
#
You can't divorce it from them.
#
So to ask my next question about banking,
#
I'll go off into my personal history
#
in what appears to be a completely different direction.
#
Circa 2001, I joined the wizard.com,
#
which is, you know, the famous historical cricket site.
#
And then we went on to buy cricket for shortly after that.
#
And then eventually Crickin4 got sold off to ESPN
#
and then Wizard and started separately.
#
But I remember when we took over Crickin4
#
and I was a managing editor there.
#
And one of the problems we had,
#
like the beautiful thing about Crickin4 was that it was almost,
#
the building of it was almost crowdsourced.
#
So people would, different people would give different bits of data
#
and different people would build different parts of software.
#
But an issue with that is that,
#
and an issue with many companies that grew during that period
#
is all the software was legacy software.
#
It wasn't modular. It didn't work cleanly.
#
There wasn't documentation.
#
Anything new that you had to build was almost a process of jugar
#
where you were overlaying one new thing on top of an earlier thing
#
and all kinds of unexpected bugs would happen.
#
And when you describe the US banking system,
#
I'm wondering if it is something like that,
#
that the initial design of it wasn't clean
#
and therefore you keep having these quick fixes,
#
which are like different Band-Aid softwares.
#
And you know, and now there is really,
#
it's such a complex mess that you can never fix it completely
#
because you can't break it down and build again.
#
And at the same time, the countries which you've pointed out
#
happen to have the right software and are working smoothly.
#
That's because of historical accident of their geographies and all of that.
#
And that makes me deeply despondent
#
because then I begin to think that how do we ever fix it?
#
I mean, India then like the US, but in a different way.
#
But I'll tell you, even India,
#
and I'll take a tiny sliver of what you're saying.
#
So remember we talked about customer focus.
#
And one problem I see in many banks
#
is that there is no single place where all customer information.
#
This is just, it's astounding.
#
But in 2023, that's still hard for many banks.
#
Historically, the way technology and operations of banks evolved
#
is very product-centric.
#
So you have a credit card, it will have an end-to-end technology for it.
#
It's end-to-end operation.
#
That's how the heads of these businesses run.
#
I want everything in my control.
#
If I'm a head of business, credit card for a bank,
#
if I'm home loan, that's what I will do.
#
If I'm lending to, I am doing letters of credit for companies,
#
then that's my business.
#
So you look at both the technology,
#
but more operational architecture of these banks.
#
It's highly sedimented.
#
It's like a sedimentary rock with these end-to-end processes.
#
Now, a customer would run across these sediments.
#
And so all of them struggle to get that right.
#
People would claim that, so what, to take your CrickInfo example,
#
so you build wrappers around it.
#
So I'll create one layer above it, which will take information that never works.
#
As a consultant, easy for me to do away with everything
#
and build it customer-centric.
#
It's impossible, it'll never happen.
#
Because some of them have evolved over the last 50.
#
So you have to constantly keep locally optimizing this.
#
And this I see happen in all banks all the time.
#
You know, I remember once I once asked a bank guy,
#
I said, why can't I go to your ATM and pay my credit card bill?
#
Tell me one bank that allows you to do that.
#
Wow, I never thought of that.
#
I said, there are ATMs now which are called bulk note acceptors,
#
I said, just allow me to access my credit card bill and put cash.
#
Tell me one bank that allows you to do that, zero.
#
Then they'll say, no, but not many people want.
#
I said, that's not an issue.
#
Even one person wants it, you should be able to do it.
#
Why it's not, technologically it should not be difficult.
#
So there are many such examples.
#
And the reason is, and this is by the way, other point that
#
evolution of institutions is very path dependent.
#
And it's often there for hard to break out of that.
#
Only a revolutionary kind of, and that just doesn't happen
#
in these businesses because of the systemic issue.
#
If I'm a new bank and I'm saying, I'm going to do all my IT
#
and I'm going to rebuild it.
#
I'll have to shut shop for three months.
#
That's not going to happen.
#
So that's why to your point, yes, this is the situation
#
where we will be in for a while till this gradual incremental
#
optimization will take us to a point where
#
it becomes acceptable that it has been for a while.
#
So we will live with suboptimality everywhere
#
of the kind that I just described and we live with that.
#
My worry is partly that we are condemned to suboptimality
#
forever because once you are in this low-
#
Well, it's suboptimality is who lies.
#
That's what I meant by saying that it's in the eyes of the customer
#
that I can't go to your ATM and do XYZ.
#
For a bank, it's a minor issue.
#
He said, there are one in a million person who want to do it.
#
Is it the case that if the technology suffers from all
#
of these legacy issues, that it's band-aid upon band-aid
#
upon jugar upon jugar and the whole thing is kind of messy
#
and you can't actually reboot that from scratch right now,
#
and therefore what happens is that everything comes down
#
to local decision-making and the people within the bank
#
being friendly enough with consumers in the sense
#
building a friendly enough interface with the consumer
#
so it's easy for consumers, does that then require
#
a cultural reboot within banking as a key priority?
#
Before cultural, I think it's not just by the way technology.
#
Technology is just an outcome of that.
#
It's also the way the whole-
#
The systems are designed, that's what I meant.
#
This process, organization, structure, everything is very
#
sedimented and people grow in that sedimented setup
#
and so yeah, their thinking is shaped that way, you know?
#
Yeah, so then to some extent it will require cultural change
#
but it's an overwhelming change.
#
I don't see that happening easily and in fact that's where
#
the larger the bank, the harder it is.
#
You know, if you're managing 10 million credit cards
#
versus you're managing 10,000, 10,000 you can do away
#
with that system and maybe reboot it.
#
10 million you can't, simply can't.
#
But there are some private banks which are relatively new.
#
Is it possible for say a brand new bank today
#
to completely redesign itself from scratch?
#
It is possible but it has to be a brand new bank
#
and you have to completely re-conceptualize the way
#
you are going to build that entity.
#
I think it's theoretically possible, practically I don't know
#
because remember even technology vendors themselves are like that.
#
So today if you went to an IT vendor and say
#
I want a credit card platform, you'll get a credit card platform.
#
It may not integrate with many other things.
#
So it's not just the user of technology and then you know
#
these are so technology dependent businesses
#
that the whole organization then is built around
#
that underlying technology.
#
So I think while I can entertain the theoretical possibility
#
of that happening, I don't see practically that happening.
#
So give me a history lesson now in the sense that you've pointed
#
about how this third phase in banking was mid 90s to COVID onwards
#
and all these private players were coming in and it started changing.
#
So give me a sense of how this panned out
#
and what are the mistakes that were made both by the banks
#
and at the regulatory end.
#
So the third look, I feel that I always used 2000
#
as the year when competitive banking started in India.
#
Before that, it was all state ones.
#
Private banks did come about in mid 90s, but they were too small till
#
and it's only when they started doing consumer lending
#
home loans and so on, that's when competition began.
#
And then what happened because that was the era of a lot of other changes.
#
Remember all these old DFI's were shut down and so on.
#
So a couple of things happened.
#
One is that they suddenly found themselves getting into area
#
that they had no background in.
#
For example, infrastructure lending,
#
which all government-owned banks did
#
and they did it a lot of time at the instance of the government.
#
I remember once one retired CEO of a large publisher of a bank told me,
#
he said, look, you guys are blaming us for lending to some failed airlines now.
#
But I used to get calls in 2008 and 9, we need more aviation.
#
Why are you not lending?
#
And so he said, look, we had no idea.
#
We didn't know how to evaluate a new airline, but we were made to lend.
#
So that's what happened.
#
And that whole thing kind of unraveled in the mid-2010s,
#
when these all large NPAs, government had to put capital and so on.
#
And what that did is that there is still a very large risk aversion in banking.
#
If you look at, I have written an article with Professor Hensheng Guptan,
#
we call it consumerization of banking.
#
So basically from 15, 16 onwards,
#
basically banks only want to give consumer credit
#
because they say it is granular.
#
I am not going to have these large loans going bad and so on.
#
Now, a lot of them are mistaken beliefs, but nevertheless,
#
as a result, what is happening is our last,
#
I also wrote an article called a decade of credit collapse in India,
#
where I said that basically from 2020 to 2020, credit just fell.
#
Historically, credit in India was going at 1.4 times the nominal GDP growth.
#
If you look, I looked at data from 1960 to 2020,
#
which means if the nominal GDP is growing at 10%, the credit will go as 14%.
#
In the last 10 years, 2010 to 2020, it grew at basically the same rate.
#
So the ratio was one, which means the credit was really,
#
and that is what is reflecting in loan economic growth now.
#
My strong belief is that we are struggling
#
is because we just not have put enough capital in the form of credit into the economy.
#
And we have put it more on the demand side through consumer credit now
#
than from the supply side.
#
Nobody is building large factories anymore and so on.
#
And that would have implications and so on.
#
So what happened was one, we had this state-owned bank going through this very bad patch,
#
which has created risk aversion, which has allowed a space for the private bank.
#
So the share of state-owned banks is for a long time at around 73, 74,
#
has now come down to 60% of the bank.
#
It will go down to about 50 in the next five to 10 years.
#
So now private banks are the dominant players.
#
And the top three of them basically don't do project loans.
#
They say, sorry, that's not our business.
#
Now, I wonder who's going to, if tomorrow I have to set up a cement factory,
#
who's going to give me money?
#
Sebi is telling them, look, borrow from the bond market.
#
Bond market has its own pathologies.
#
You know, it's not as easy for everybody to access that.
#
So those are some of the systemic issues we'll have to solve going forward.
#
Have we swung from lending too much to lending too little when it comes to infra?
#
So what has happened is that, see, the lending happened in this PPP model,
#
where they're private players building.
#
That model just people have given up on.
#
So now what has happened is lending has become,
#
sorry, spending has become government spending through things like NHIA and so on.
#
And so people don't have to lend to the project,
#
but then they are lending to contractors who are building those.
#
And so the form of that change, and that's probably slightly less risky,
#
because as long as you have a government order and so on,
#
and you're just lending people to buy construction equipment and so on.
#
So I think that's the change that has happened.
#
So there is that change, and then there is consumer lending.
#
But I don't think together it's going to be enough.
#
You know, it's very, so yes, two days back, I was doing this calculation.
#
We, our per capita income right now is about $2,200, right?
#
Now, we are a low-income country right now.
#
The definition of a mid-income country is per capita income of $8,000 to $13,000.
#
China is about $11,000 now.
#
The other factor is that if you look at our median age right now, about 28, 29, thereabouts,
#
if you look at the demographic projections, in about 25 years, our median age becomes 40.
#
Cuba take two, three years, it may be 25, 28, 30, maybe on the outside,
#
but around that, my own strong belief is it will be happening in 25,
#
because our population growth is falling quite rapidly.
#
Now, so if you are, so let's say 25 years, this also very nicely ties with 100 years of independence, 2047.
#
So if you want to become a mid-income economy by 2047, 100 years of independence,
#
we have to reach the per capita income of $8,000.
#
So if you do the calculation that requires me to have per capita GDP growth of 5.5% for 25 years.
#
Assume population grows, right now it's growing at about 1% per capita.
#
Assume population grows, right now it's growing at about 1.3%, let's say one to one and a half percent.
#
I need a real GDP growth of six and a half to seven percent for 25 years,
#
just to become a mid-income economy.
#
After a median age of 40 years, economic trajectories of countries don't change.
#
Across the countries we have seen that, it's just the dynamic of the demographics such that
#
you then, China is coming down to two percent, three percent growth,
#
because they have reached that now, but they are 40 years of seven percent plus growth.
#
So that's our challenge.
#
If I really, in a nutshell, put it in very basic, simple arithmetic.
#
And if I apply this one and a half, four percent, so I have to have,
#
now remember this is real growth, which means nominal growth will be 10, 11%,
#
if I apply this 1.4, I need 15 to 16% credit growth for 25 years.
#
Do we have the system with the capacity to do that?
#
And you'd want more of it on the supply side than the demand side, because that is…
#
That's one balance. And people keep, you know, our economy has become more efficient.
#
I said, fine, that 1.4 becomes 1.2. We still need 13, 14% sustained growth for 25 years.
#
Otherwise, we can't have this dream of being even a mid-income economy.
#
So now, you see, growth comes out of two things, productivity and number of people, right?
#
We have never done more than two to one and a half percent productivity growth.
#
I'll give you the benefit, I said, three percent. I need to get another
#
three to three and a half percent out of people working.
#
You can't have that if the population is growing at 1.3.
#
So the other important imperative for us to get more women working,
#
something that we do appallingly poorly, and I just feel there is just no other way.
#
It is not a social or moral obligation for us anymore. It's a brute economic necessity
#
that we need to get more women working if we are to reach the middle-income status.
#
Otherwise, we are damned to remain a poor country. That's the way I see it.
#
So that's the broader context. This whole power plant analogy is that I want a stable supply of
#
13, 14% nominal credit growth for the next 25 years.
#
If as a country, I want to become a middle-income country.
#
I want to go back to something you said earlier where you spoke about the distinction between
#
a market economy and a market society. You've also alluded to how a lot of consumer credit
#
is a bubble that's waiting to burst. My word is not yours, but that's a sense I took out of it.
#
I'm guessing that is related to your term market society. So can you elaborate on that a little?
#
Yeah, so I feel that, and it's maybe you and I think that because we grew up in a different era.
#
You know, my father built a house without borrowing money. His hard-saved money was put together and
#
whatever simple house was built. My generation is the British transition generation. We do borrow
#
money for the next generation is borrowing for everything. The other day, I was talking to
#
somebody. I said, somebody needs to borrow money to buy a Zodiac. That person should not borrow
#
because there's something just fundamentally wrong there. Now, I might be saying that purely
#
out of my own sort of cultural and sort of values background to use your term,
#
but that's what I see the next generation doing. So this is what I call a market society that
#
transactions, however you achieve them is what really life is about.
#
So if I have to borrow money to eat pizza every day, I'll do that. And then I'll figure out how
#
to deal with that. So this is market society. This is what US became 50 years ago. You know,
#
when I was a student in the US, as to find a restaurant, all my fellow American students
#
will be completely maxed out on their credit cards. And they will keep this juggling from
#
paying from one to the other. And this is early night. And I used to wonder, I said,
#
how do you guys do this? But that was the case. I think that's the kind of thing we are inching
#
towards. And I think I don't know whether it's right or wrong, to be honest. Somebody might
#
argue that's what pushes economic growth. Yeah, it does. No doubt. I don't know if the rest of the
#
society is yet ready for that. So for example, if you start having personal bankruptcies and so on,
#
how would we as a society deal with it? I don't know the answer to that question, but that I see
#
being inevitable in the way things are shaping up now. Why is it inevitable? Because I don't
#
think we have enough. This is the first time consumers are borrowing at a scale that they
#
are borrowing. And this inevitably will lead to some sort of default. We don't have a personal
#
bankruptcy law, by the way, in our country. We don't even know how to legally deal with it.
#
If tomorrow I come and declare bankruptcy, there is no law that tells me how the lenders are going
#
to deal with me. So we have a lot of homework to do on even that count. But leaving aside the legal
#
side of it, but society, families, how would they react to a young person or a young couple
#
going bust because of excessive borrowing for consumption, essentially? I don't know the answer
#
to that. I see that happening. Hopefully not on a large scale, but I wonder.
#
So what are the kind of directions you would move in to fix a banking system?
#
Yeah, I don't know. I am a firm believer in organic incremental improvement. And especially
#
when it comes to banking system, I feel that to keep it stable is actually overwhelmingly important.
#
So if we try to do quick surgeries and all, it will probably react badly. And so I always saw
#
the numbers that I worked with growth and all. So I always feel that we should work backwards.
#
So you say, look, in the next 10 years, let's say we are becoming a $10 trillion economy.
#
What kind of financial system we need in order to support that? And I look at four,
#
five attributes that we have to build. First is simply capacity. How do I create,
#
if I have to generate 14, 15% credit, then I have to have enough savings mobilized,
#
do the banking. That's the system I have capacity in order to actually generate that.
#
This is a pipe big enough. Okay. Second, efficiency. Indian banking is not the most
#
inefficient. Our cost of intermediation, as they call, which is the average cost of taking money
#
from savers and given is about one and a half to 2%. Advanced economy banks run at less than 1%.
#
Because this is a deadweight cost. This is the cost of just running the bank. So as it becomes
#
bigger, it has to become more efficient. It has to become more resilient. We should not have these
#
ups and downs. This is a power plant that is stable. It has to become more innovative.
#
As I kept saying, the real economy becomes more complex. If electric vehicle needs funding,
#
you have to figure out how to fund an electric vehicle because we have to understand what his
#
life cycle is, what his economics is. Nobody is lending because nobody understands these things.
#
So you have to become innovative in that sense. And finally, you have to improve access. You know,
#
we still have a large part of our society doesn't have full access to the system. So I always look
#
at these attributes that we have to build in the system. And then again, we wrote an article called
#
thinking about financial sector reforms. We said, any idea you tested through these attributes,
#
what of these is improving? So if I'm making a change policy change, is it improving capacity?
#
Is this improving resilience? Is this improving efficiency? Because if it is, then let's just do
#
it. It will be hard to find something that is going to fix everything.
#
And there are inherent contractions. You increase capacity, you increase risks. So then resilience
#
becomes or you become you often end up making it more inefficient and so on. So I think that's the
#
way I would look at it rather than saying these are the three fixes you do to the banking system.
#
Is there an intellectual ecosystem in India, which thinks deeply about banking and which thinks,
#
you know, at a deeper level, at a more meta level, at a higher order kind of thinking kind of level,
#
at a higher order kind of thinking kind of level, you know, or is it sort of policymakers and
#
politicians just going for the next quick fix or whatever, you know, short term?
#
I will answer that in two parts. I have found academic solid research on Indian banking lacking.
#
And I've actually looked around a lot. And it's just there's just not enough and certainly not
#
enough of good quality. That's purely academic research. And I find academic research is
#
important because it sets the intellectual foundation of how in terms of policy, I think
#
we have good people who are involved in policy making, although our policy making is almost
#
always reactive. So crypto happens and then you figure out how are we going to regulate it or not.
#
You are, you don't say, well, things called regularity is happening elsewhere in the world.
#
Let's just think about how we are going to deal with it in India.
#
NBFC crisis happened and then you say how I'm going to regulate NBFC differently. So it's always
#
triggered by some happenstance. You're being reactive, reactive.
#
Absolutely reactive. Now some of it is inevitable, but I think a lot of it does not have to be. And
#
this is where I mean this happens because of this castle mentality of regulators.
#
If you are in a bogged down in a fortress where you believe engaging with the market is doing
#
something wrong, then you will always be reactive because we have no sense of where the things are
#
at it. And that is why I feel that, see what happens, and again, I don't give US as a general
#
example, but there is a lot of mid-level exchange between market. People go on deputation to
#
regulators come back and this happens in UK. We don't have that. We have that on a very small
#
extent. So I can't, if I could send a mid thirties consultant who's working in consulting for on a
#
two-year deputation to one of the regulators, it would be terrific for both in my opinion.
#
It doesn't happen. We just don't have established mechanisms to do that.
#
And that actually, to my mind, deprives us both sides, by the way, both the regulator and the
#
regulated from sharing or developing a uniform view on how the world works and so on.
#
Is there too much of an adversarial reaction between the regulator and the regulators?
#
It's not always, but it turns adversarial. Sometimes it's captured, which is just far too
#
friendly. It both. So I think that's a function, a lot of actually specific individuals than
#
institutions. But in general, I think there has been a version to engage too much on an ongoing
#
basis. So they will form committees and all get people from, I have served on a few committees
#
and so on, but that's episodic. And it's very focused on a certain issue. There's not very
#
limited ongoing, you know, it's very interesting. I often try to engage with people in regulators
#
and I say, look, this is what I'm trying to do. You would never ever get a response.
#
Best you'll get, thank you for sharing. Okay. I mean, that's it. Never. I have this four questions.
#
Can you do this? I mean, there's never an engagement. And maybe it's probably because
#
they're worried that they should not be seen as, I don't know what it is, but a lot of these
#
engagements purely on simply academic issues. This is what I'm trying to figure out. This is
#
what I'm trying to analyze. Do you have a better way of looking at it? I've had these kinds of
#
exchanges and never ever any engagement from, and it amuses me more than it upsets me. I wonder why
#
this is so. Why are they so insular? But they are. So I don't want the people in question to get too
#
offended by this next question of mine, but I do honestly wonder that do the people who run the
#
big banks and the people who run the big regulators, but I'm sure they have a very good sense of what
#
they are doing in their own, you know, specific position and incentives, but do they also have
#
a sense of the larger system at play and a sense of, you know, banking as a whole, what is wrong
#
or right with it, et cetera, et cetera. So I think some of them do. I mean, some of them,
#
I know individually actually do know they have a very good perspective on larger issues and so on.
#
But ultimately you get bogged down in an institution you're working, right? And you
#
become a cog in the large wheel, in a large machine. So I think that's where it is. One of the
#
outcome of having long established institutions is that there's an institutional momentum that
#
sort of carries on. It's very hard to change that. I mean, leaders can, but on the margin.
#
And so that's what it is. So look, India is luckily blessed with good people.
#
And that's true both in banking and even in regulators. I think individually I've seen
#
fantastic people. Whether that results in great outcomes is where the issues are, in my opinion.
#
So I'll ask you to react to something that our good friend Ajay Shah says,
#
where he draws an analogy with air traffic control. And I'm sure you've heard this argument,
#
where he says that if a country doesn't have the ability to run air traffic control
#
and planes keep colliding, the logical thing to do is have fewer planes. In similar fashion,
#
he looks at the banking crisis that we keep having here and argues that if a sound banking
#
system in India is decades away, then is it… Yeah, I know. I've heard that from him for a
#
many times and severely disagree with him. I mean, his point is that we're just not ready to have
#
banks. I mean, that to my mind is just meaningless because what is the ideal type of a bank?
#
You first describe it to me, then I can tell you to wait. There isn't one.
#
In the most best-run banking jurisdiction, there are different types of banks.
#
And individually, the entities have gone through ups and downs.
#
Now, his point is always that we will always have suboptimal regulatory. Even that,
#
I'm not willing to grant. We have had very good phases in our regulatory history where we did
#
very important good things. So, I think we can't be so sort of fatalistic in saying,
#
this cannot be fixed. So, I'm just going to abandon this because very importantly,
#
we don't have an alternative. Then are you going to starve the real economy of credit?
#
I mean, who would do banking then? I think his point was non-banking parts of finance.
#
That is going to be better. And I mean, in fact, if anything, last five years saying,
#
they can be even worse. The two largest failures we had were non-banking entities,
#
gigantic failures. So, where does that confidence come from?
#
So, I feel that I understand his frustration with issues with regulation and issues with the
#
repeated episodes of banking. But the answer to that is not to abandon it.
#
It's to say, look, this is the reality and we have to make therefore incremental improvements.
#
We by the way have done that. I think you can always do things better. But it's not as if we
#
have been just completely static. We have had regulatory changes that have generally improved
#
the stability of the system and so on. So, I don't agree with him at all actually in that one.
#
And we have had this debate many times. Ajay argues we need a break from banks.
#
I argue that I have no position on this because I don't have enough knowledge,
#
but we do need a break in this episode. So, let's take a quick commercial break,
#
have a cup of coffee and then let's come back and talk more about your life.
#
There are many exercises, much interaction and a lovely and lively community at the end of it.
#
The course costs rupees 10,000 plus GST or about a hundred and fifty dollars.
#
If you're interested, head on over to register at IndiaUncut.com slash clear writing.
#
That's IndiaUncut.com slash clear writing. Being a good writer doesn't require God given talent,
#
just a willingness to work hard and a clear idea of what you need to do to refine your skills.
#
Welcome back to The Scene and the Unseen. I'm chatting with Harsh Vardhan about his life and
#
times and we took a long detour into one subject that Harsh has really deep knowledge on. So,
#
I couldn't resist asking some noob questions over there, which of course was banking.
#
But let's get back to your life. So, you sort of come to India and I'm intrigued by something that
#
you said earlier about being on that cusp generation, where you grow up in a sort of
#
a socialistic India, but then your working life happens where India has opened up and continues
#
to open up for a while. And you mentioned that this had economic consequences, social consequences
#
and so on. So, can you sort of elaborate on each of these?
#
Yeah. So, everybody knows, right? We've changed quite dramatically in last 25 years or so. So,
#
96 when I came back, it was quite a dramatic change. So, for example, before I went to the
#
US... Transmitted your changes with regard to your generation, not India.
#
Yeah, I know. So, I'm saying, for example, home delivered food did not exist.
#
When I came back, it had begun. In fact, I used to live in there in those days and there were a
#
whole bunch of restaurants, they said, sir, we'll send it home. Call them. And it was a revelation
#
to me. I mean, these are small things, but they were quite... If you stay out for five years,
#
then you notice them much more than if I had stayed on and sort of incrementally they had
#
developed. But coming back to my point, I look at my... You talked about my class at IIM.
#
We had a class of 140 and all of us by and large came from similar background. And we all went
#
through that transition. So, we all... Our aspirations were shaped by what we saw in the
#
social sector. And we suddenly started working in a more free market. And as a result, we were
#
rewarded way better than we ever anticipated. So, what you see, I see today is that my guess
#
is about 60 to 70% of my batch is semi-retired. And we are all in their mid to late 50s. So,
#
this is not the time. And this happened, by the way, good five, six, seven years ago. So,
#
basically by 50, many of them got out of their address and they are doing other pursuits.
#
And I think that happened partly because of this transition, that our habits got formed in the
#
era of scarcity, but we were financially rewarded in the era of free markets.
#
So, you would earn a lot, but spend little... Yeah, because our habits are not changed. So,
#
you got that financial security way sooner than you thought you would get. And I think that's...
#
I see a lot in that caste generation. It may be very different from the next generation,
#
because their habits are formed very differently. But that certainly happened, I feel, to my
#
generation, that people who went into workforce late 80s, early 90s, they were the caste generation.
#
And tell me about your early days in consulting, like how did you change in that early period?
#
Because I would imagine though, in your case, it would be different because you did spend five
#
years doing a PhD and you weren't straight out of management into a consultancy firm.
#
But I imagine when you're young, you could either be full of your own knowledge and
#
you know, thinking you're the smartest kid on the block, or you could equally be sort of
#
intimidated, being thrown into a world where there are so many things that you can't grok.
#
So, what were your early days like, that period of like, you've spoken about how in that larger
#
journey between when you were 25 and 30 years hence, you've changed. And that is the larger
#
scheme of things. But what was that process like? Changed as a person. Changed as a person and even
#
changed as a consultant in the way that you look at things. Actually, when I was doing PhD, I had
#
no sense of becoming a consultant. But it was just a personal change. It's just the way you
#
looked at issues, you try to address them that changed. You know, when I came back from the
#
US, I was exactly 30 years old. And I said, look, I'm going to work till 60. And I said, I'll do 10,
#
10 years of three things. I'll do 10 years of consulting. I'll do 10 years of actually working
#
in a company corporate. And I'll do 10 years of academia. I still wanted to teach. I like teaching.
#
That did not happen. I just got into consulting and just continued. And now I do a little bit
#
of teaching almost as a hobby. But that was my... So there are a couple of things that were
#
unique to me as a consultant. Meaning that don't, that normally don't happen to other people who
#
go out of business school nowadays and consulting. One was that I came mid-level. I joined as a
#
manager, not as an associate. That's just because I had spent time. I had a pre-PhD experience and
#
so on. And secondly, I specialize very fast. I always pretty much from day one, I worked in
#
financial sector because I had a bit of a background. There was always enough work.
#
Lot of new consultants, then they move across. Today you're doing hotel, then you're doing a
#
pharma company, which both unnerves some people and appeals to some people because they're just
#
variety. That didn't happen to me. In fact, in my 25 years of consulting, there's probably not more
#
than equivalent of two years that I worked on non-financial companies. I worked for one year
#
for a pharmaceutical company. I worked on engineering kind of companies for a while, but
#
90% of my time went in financial sector across. So banks, insurance, mutual funds, exchanges,
#
everything. I mean, you hang on for as long as I did, you end up doing everything. So those were
#
two things which are unique to me, which don't normally happen to somebody who has a typical
#
out of business school consulting career. They do float around in different domains for a while
#
before they specialize, if at all. Many of them don't specialize at all.
#
So that was different. So early years were two things. One, I was new, but so was consulting
#
as a field new. In fact, it's very remarkable that I saw buyers of consulting changing in the
#
course of my career becoming much smarter in the way they bought. See, earlier years, I used to
#
find it absolutely astounding the amount of homework that companies did not do before you
#
hired. See, consulting hiring is hiring a combination of a doctor, a coach, and a shrink.
#
And you have to do a lot of homework to really get value out of that. You have to really understand
#
what your issues is, where you need help or what kind, therefore what kind of consultant.
#
People would simply not do it. In the early year, a lot of them who were repeated users of
#
consulting started doing that. And so today I think people are much smarter, especially these
#
habitual users of consulting in the way they, and it's actually works better for both sides,
#
because it's much clearer in what you're trying to achieve. So early days were experimental for
#
both sides, which had both its charm and its challenges. Because I used to say that especially
#
I worked early years of my life with a lot of government-owned entities, public sector banks
#
and so on. And the attitude used to be once I had a consultant, if my toilet leaks, that I'm going
#
to talk to the consultant. I can't tell you the amount of speeches I have written, because my
#
client has to go and give a speech. Because there's no such thing as I'm supposed to do
#
something else. A consultant is in the house. So that those were, I mean, I enjoyed it because
#
I mean, without any accountability, I'm writing a speech for somebody, but I have done that a lot,
#
making presentations for them, which had nothing to do with my work. Just because I remember once
#
when Janmai, you make very good slides. PowerPoint was new in those days. So make a presentation for
#
me. So that all of those things have happened to me. You must have got job offers for senior
#
levels also. There was a phase in my life where I did that, where I remember in the late 2000s,
#
a lot of private equity firms would, at various points of time, decided no consulting is my
#
space. Actually, what happened, I changed firms in 2010. I left one and joined another consulting
#
group. But in that in-between period, I seriously contemplated changing. Remember that 10, 10 years
#
was, and that time I was really curious to look at working for an NGO because I felt that I've
#
done enough of commercial work and I could use the same kind of, and I did actually interview and
#
spend a lot of time with a couple of them, but then it did not work out. And it did not work out for
#
two reasons. One is that I felt a lot of them looked at me as somebody who will raise money for
#
them, which I didn't want to do. I struggled getting my invoices and consulting cleared. And
#
I said, now I don't want to get into raising money. If I have to do raising money, I might as
#
well do commercial work. That was one. And the other reason was in one particular case where I
#
actually went quite far with the NGO. It was being set up by a very wealthy family and dedicated to
#
education, which appealed to me, especially a girl's education and so on, underprivileged
#
girl's education. But then I met the father in the family and then had a chat and really liked what
#
he was saying. And they said, you, by the way, you meet my son. And I met the son and I realized
#
he had diametrically opposite views of what this entity should be doing. And I said, I don't want
#
to get caught between the air crossfire. So I kind of abandoned that idea, but I did spend time that
#
time trying to explore that. And then said, maybe consulting is my, so I joined another consulting
#
firm. But then what happened in that early 2010 is I started getting into this policy area,
#
which kind of was not for profit or not for command. I almost accidentally got into it.
#
A colleague of mine was doing some work with planning commission. He was a member of some,
#
and he said, look, I don't understand anything economics. This has a lot of economics,
#
why don't you help me? And then I got involved with that. And then through that, then I
#
walked into that ecosystem of, and then did fair bit of work in that with the government,
#
with regulators and so on. So, and I still today, as you know, I write a lot on policy issues. So
#
that's what happened about 10 years ago. So now right now about, I spend about 30, 40% of my time
#
in consulting and the remaining goes in partly research, policy work, and also a little bit
#
teaching. You'd mentioned that anecdote earlier about how you called your dad from the US when
#
you told them about the internet and you said, it's going to change the world. And he was like,
#
you say that every six months about something, I don't believe you. And I see a tendency there
#
to sort of, and I've lamented it in myself as well, that you see the future in a sense that
#
you know that something is going to be very big at some point in time. And either you do something
#
about it then, and you're too early as has happened to me, or you don't do anything at all,
#
you just sit on it. And I'm guessing that if that is something that, and that is something that
#
is likely to happen with any curious higher order thinker. And I guess that two of the temptations
#
that can then come is one, you either become an entrepreneur and you capitalize on whatever
#
direction you think the world is going in, or you become an extension of an academic, not exactly
#
an academic, but an intellectual of some sort where you write about it and you expand on the
#
ideas on what you see. So have these, like one, is that a tendency that you have that you can often
#
look ahead? Yeah, I'm not an entrepreneur. Clearly I'm not. And I discovered that long time ago
#
because idea is just one tiny small part of being an entrepreneur. There are many other things that
#
I simply don't have those, again, that temperament, those skills and so on. So I fairly early on
#
figured out that that's not my, but yeah, do to write. I mean, I would say my natural instinct is
#
to say, to explore possibilities. If this thing is happening, where can this go? And then challenges
#
and opportunities to put it very simply. You know, I've been talking to some colleagues that I feel
#
that there is something afoot in the Indian finance in the last three, four years. You talked about
#
COVID, a lot of these FinTech markets are changing. And I really would want to spend time on figuring
#
out all what is happening, where can it take us, what are the challenges we might pose and so on.
#
And often it's very unformed. I mean, you have just an instinctive feel that something is changing.
#
We are not clear quite what and why is it changing. But that's why I feel your earlier point you made
#
that I see great value in embedding one in this ecosystem where people are willing to engage on
#
this. What I felt disappointing to your point that many people in business world are not.
#
For them, it's a lot what my business and which is kind of natural, but very few actually want
#
to go beyond that. While that is something that I find very interesting and appealing.
#
What are the social political repercussions of this? I, for example, after the, I remember
#
the last election, I thought that social media played much greater role than what that time
#
people anticipated or people understood. And later on, a lot of articles came, I followed a lot of
#
them and how that happened. So those kinds of things actually interest me a lot.
#
And normally it begins with my domain, which is finance and banking and so on,
#
but then it also extends to other areas. So yeah, I mean, my reaction is more the second
#
of what you mentioned. It's not, is there a business opportunity? And in my case,
#
what happens is that oftentimes people come to me saying, look, I see a business opportunity,
#
then I am very happy to engage. And I do that all the time. I mean, I love meeting with entrepreneurs
#
and talking to them. And, but I, every of those interactions tell me I'm not an entrepreneur,
#
which are actually an important realization to have. So I will be a disaster as an entrepreneur.
#
I guess as an entrepreneur, you have to go headlong into one thing and just be obsessive
#
about it. Whereas I guess your natural- Instinct is to doubt.
#
Yeah, it's true. A, to doubt and B, to think widely about many different things.
#
And also, I mean, there is, there is a degree of irrational passion you need to have as a,
#
I feel as an entrepreneur, which I simply don't have. I'm just too, I, I very quickly and
#
excessively intellectualize a problem than just making it a passion, so to say,
#
which is what I feel good entrepreneurs need. What are the kinds of rabbit holes that you've
#
gotten into in recent years and what have they taught you? Like the big
#
learnings from them, which might have surprised you or, you know?
#
Rabbit holes, passions, areas of interest, especially if it's something outside your
#
normal domain of finance and banking, but you know, just-
#
Yeah. So I've been, last few years, I've got interested in law. And the reason for that is
#
I've realized that in businesses that plays a much greater role than previously I thought.
#
And that's something that, I luckily had good lawyer friends who were always very helpful in
#
sort of engaging in conversation where that became very clear to me. So it's not a rabbit
#
hole. It's just a new area that kind of, I now feel interest me a lot.
#
Can you elaborate on what you said about, you know, law playing a greater part in business
#
Yeah. So especially in, so I, what I found, I mean, my conception now of business is that
#
all businesses, there is a foundational sort of rule of law structure in any company, whether it's
#
operates to company law or sector of SESIC laws and so on, on which ride institutions.
#
Institutions get constructed basically as an outcome of the law that creates them,
#
both business institution, but also things like regulators and government.
#
And then on top of that, you have then sort of business outcomes and then you have
#
things like governance and so on. So my earlier work limited me to looking at institutions and
#
how they function and so on. I had never, I kind of scratched the surface a lot.
#
Now I feel increasingly that that becomes important, especially in highly regulated
#
businesses. And that's what actually, because you can't understand regulations unless you
#
understand laws well. And so that's actually what took me to, I know I, with our common friend,
#
Susan Thomas, when she was doing the bankruptcy, I was not a member of her core team, but I did
#
engage a lot. That was the first time actually I started feeling that laws become quite important
#
I chaired a committee of RBI on securitization, which is also in that work. I realized that laws
#
become quite important. Things like seemingly unrelated things like stamp act and transfer
#
of property and all those become actually quite important and they have meaningful impact. That's
#
when actually I started feeling that this is something that I need to better equip myself
#
with, so to say. So that's one. I haven't not had too many rabbit holes. It's not as if I
#
pursued something and it just went into a dead end. I can't think of anything that.
#
I mean, there are things that you want to explore and then after a while you lose interest. That
#
happens to me all the time. In fact, I very rightly realized that I will not be a good
#
academic. I simply don't have the tenacity to put out papers. If I, on the back of the
#
email, I figure something out, I say, good enough. Now I figured out how this works. And then,
#
and that's why a lot of time I partner with academicians because they have that tenacity
#
and also the incentives to actually convert it into a paper and publish it and so on. That I
#
actually have limited interest in. Questions interest me and then if you figure something out
#
and I said, let's move on in life. That happens to me all the time. How do you relax? What's
#
your guilty pleasure in terms of spending time? So I listen to a lot of music still. I studied
#
learned music as a child, six, seven years. So I have a little bit of initiation. So I understand
#
grammar a bit more than probably other people would. So that's my most common. And I read a lot.
#
I mean, I told you earlier that I don't watch cricket. I used to watch tennis a bit,
#
or basketball a bit, but I'm not a sporty fan. I haven't watched a Hindi movie in 40 years.
#
So those things don't occupy me. So it's basically music and reading is what I would
#
say takes most of my time. And last few years, I do a lot of listening to podcasts and
#
talks on the YouTube and so on. One major area of my interest is actually religion,
#
but religion more as a social force, not as theology or following religion, so to say,
#
but just history of religion and how it evolves and how it impacts society and so on.
#
So I do a lot of reading in that. When one is young, one has a very
#
compressed view of time. Like when I was 20, I thought, man, 40 years old, I'll be dead by
#
50. Who wants to live that long and all of that. And you have that view of history also,
#
something that was 20 years ago seems like it was forever ago. And I think one of the things
#
which approaching 50 now is that time is no longer so compressed, that as much time has elapsed
#
since my birth to now as World War II. In fact, it goes back before World War II. So you realize
#
that 50 years is not that terribly long a time, that if you're discussing something that happened,
#
say, in 1850, it's not that far back and that the world moves really slowly, paradigms change,
#
one funeral at a time, something like religion. In my rationalistic atheist way, I had the arrogance
#
that religion is irrelevant, but then you realize it'll actually be with us forever in some shape
#
or form because of the way humans are. And see, my view is that, and I don't
#
consider myself remotely religious, but my view is that if you add up the balance sheet of religions,
#
any religion, generally speaking, more good has been done in the name of religion than evil.
#
I mean, religion has done a lot of bad things, but a lot of good has happened in the name of
#
religion across all religions. A lot of good charity and act of great benevolence have happened
#
in the name of religion. And so to that extent, now that I've read a fair bit, I'm more tolerant
#
of the role of religion in society. One, it's inevitable, as you say, and it's not always bad,
#
which is what I would think when I was like in 20s. I thought all organized relations were
#
complete nonsense. I don't think that anymore. Yeah. And does that expansive sense of time,
#
how has that changed the things that you want? Like when you were 30, what did you want? When
#
you were 40, what did you want? What do you want now? Do you think in terms of, you know,
#
playing the long game or do you think in terms of sort of playing infinite games as opposed to
#
finite games? Do you just think in terms of doing stuff and not thinking about outcomes,
#
just do things which can give you peace? Yeah. So I mean, for a lack of a better
#
phrase, I think I have far more self-centric now than I has before in the sense, in the sense,
#
I mean, let me clarify that, not selfish, that, you know, I told a colleague of mine the other
#
day that your professional nirvana happens the day we get up in the morning. He said,
#
I don't have to impress anybody today. Wow.
#
And that happened to me, honestly, I can say that with my, about 10 years ago. I honestly,
#
professionally don't feel the need to impress anybody. I keep doing my work to the best of
#
abilities, but if somebody is not happy, I'm saying fine. I mean, it's part ways. And so to
#
some extent, you do work for yourself. You read for yourself. I, you know, conversation, this
#
don't happen very often. So I, the fact that I read about something is I don't read it to tell
#
somebody. That is the sense in which I think you become very self-centric. So I listen to a lot of
#
music, not to tell anybody that, you know, that I have heard so and so. I mean, there is a group
#
of people that we keep sending each other such a recommendation on listen to this one and that
#
one. And that's, that happens, but it's all for very fairly self-centric joy for you not to do,
#
achieve any external outcome. I think that's the change that has happened in the last 10 years,
#
both professional, professionally, personally, and so on.
#
At the same time, I have also increasingly became acutely aware of remaining intellectually engaged,
#
even after your professional life ceases. I keep telling my wife jokingly that after 65,
#
I'll pay people to employ me because I feel that you physically deteriorate when you start
#
intellectually disengaging. In fact, that's, I began to understand in the previous generation,
#
why would people go to religion? Because I think that was an intellectual engagement. You went and
#
heard Kathas and whatever you, because how else you kind of continue as a human being, as I was
#
alive. And so I just want to do that. And that's where all of these things, like why you get into
#
law, because I feel that will keep me engaged and alive and thinking and reading for a while. Maybe
#
five years later, it will be something else. But the need for that is much more acutely felt by
#
me now than even let's say five years ago, that you have to continuously stay intellectually alert
#
and alive, just to be physically in good health. So you mentioned two things now, and one of which
#
is the anxiety of what others think of you, which for the longest time in my life,
#
I could not get past. I think I'm at a stage where intellectually I've gotten past it. I'm
#
not doing anything to impress others anymore, but I still feel that if I think deeply about
#
something I do at any one point in time, I realize that, oh shit, it's because of, you know,
#
there is some element of that coming in and I try to fight it. And it is actually a pointless and
#
irrational anxiety because no one is thinking of you. No one gives a shit, right? So why worry
#
about, you know, that aspect of it. And the other aspect is also fascinating in terms of, you know,
#
intellectual disengagement. And I find that on the one hand, as far as that anxiety is concerned,
#
some people, if not most people, have it all their lives and it can be crippling. And also,
#
some people, if not most people, have that intellectual disengagement happen to them really
#
early. So they are both dealing with the anxiety of what others think of them and they are not
#
intellectually curious and passionate about these things. Is this a danger that you kind of
#
see around you? Have you ever felt that shit? I see that around me, not to an alarming level,
#
but that's probably because I don't know many people well enough to actually make that judgment.
#
But you are absolutely right. That scares me more than anything else. The latter part,
#
the part of being intellectually disengaged. And I'll tell you, I may see my parents grow up
#
and many other uncles and aunts, and I saw that pattern that once you intellectually disengage,
#
then your physical deterioration really kicks in very fast. And so that worries me. And in fact,
#
what worries me is that maybe someday I'll just not find anything interesting.
#
I mean, today, honestly, if you tell me this is the artist, you please listen to her concert.
#
I would eagerly do so. I'll look at and then if I like, I'll find some other performances and I'll
#
have a view. I fear someday I'll just not be interested enough to do that. And that I dread.
#
I honestly dread that. I'll get up in the morning and will not find anything interesting to do.
#
Today, that has not happened to me. There's always something that I have to read,
#
something that I have to listen to, something that I'm maybe even writing, but that I dread.
#
And I try hard to stave that off, if that's the right word. This thing about
#
impressing other happened some time ago. So I don't bother honestly much about that anymore.
#
That doesn't mean, by the way, you become completely callous and impolite or something.
#
It's just that you get on with your life, basically. Not worrying too much about or at all
#
about what, you know, you stay honest or sort of honest to yourself and then just move on.
#
But the other thing is a worry. And I don't, I'm not yet confident that that will not happen to me.
#
I hope it doesn't. Kafka has this great story called Metamorphosis about this guy, I think,
#
Gregor Samsa, who wakes up one day and finds he's a cockroach. And I guess for you, the dystopian
#
nightmare would be you wake up one day and find you're not interested. Absolutely. I am out of
#
interest. I don't want to read anything. I don't want to listen to anything. What a dreadful day
#
that will be. And in fact, not just that, the worst of that, one, that will happen. And second,
#
I'll drag into some trivialities, some family squabbles here and there. That just is a complete
#
disaster, if you ask me. Or that you don't have anything to keep you alive and you just get drawn
#
into some kind of completely silly. Heidegger has this interesting phase of trivialities of
#
everydayness. That bothers me. Yeah. And Thoreau talks about men who live lives of quiet desperation,
#
which I guess would be linked to Heidegger's phrase. I also want to ask about the role of
#
intentionality in your life. Like what happens to many of us is that a lot of things in our lives
#
get kind of normalized. That the first time something happens to us, we notice it and we
#
are acutely aware of it. But then it gets normalized and we don't see it again. And this
#
can happen to relationships within the family. This can happen to friendships where we perhaps
#
we take people for granted. And we are just in our own kind of cocoon. And I've realized
#
in recent years that this is something to really watch out for. And therefore, to make that
#
intentional effort towards keeping relationships real, towards maintaining your friendships and
#
not just taking everything for granted. Though, of course, a true friendship is one that you can
#
take for granted. But regardless of that. So I want to know about the role of intentionality
#
in your life and what are the things you're intentional about that you put an effort towards?
#
Like in the context of relationships or in every context? In every context. I mean, look,
#
in your work life, you clearly have intentions. You have to reach some objectives. You know,
#
you are getting paid for it. So we better do it. Right. But those are, you know, explicit goals
#
that are part of what you do. Yeah. But you also, in a fairly focused
#
manner, work towards them. Even if many times you don't necessarily agree with them, you don't find
#
them meaningful and so on. In personal life and relationship, yeah, I mean, look, I feel that,
#
and this is not, I don't think this is going to be popular. I feel that 99% relationship, 99%
#
people are transactional. We often delude ourselves into believing that they are not.
#
And if that, to my mind, results into a problem because relationship break when transactions fail.
#
And my default assumption of any relationship that beneath the packaging of whatever else
#
I might call it is essentially a transactional relationship. I am at the one end of a transaction.
#
I need to do that. So the intentionality coming is that I don't want to let somebody down in that
#
fairly crude transactional sense. Transaction could be very different. You know, there are very few
#
relationships I feel people have, which are called valued relationships, that you
#
relate to somebody just because of who they are. In other words, there is no transactional
#
expectation. That's where your intentionality is different, right? Where you just, the relationship
#
itself is the intention, is the outcome. Whereas in other, you are acutely aware, at least I am,
#
that you know, you might call friendships, you might call, you know, colleagues or something
#
like that, but there is the underlying transactions to all of this. And you have to stay good to that
#
because otherwise it will fail. And that's exactly why I feel most relationships fail
#
because we forget the fact, including things like marriages, I strongly believe that people
#
overlook the fact that at its core, it's a transactional relationship.
#
It sounds very crude, I know, but that's what it is. That's at least my view.
#
And so intentionality there is to just say that I will keep my end of the,
#
as long as I find that relationship to be meaningful.
#
The controversial part of your statement is not that you said 99%, but that you didn't say 100%.
#
Because one could argue that any relationships, even in that valued category, even between parents
#
and children or spouses, is at some deepest level, it is transactional and you are just
#
not making that explicit. No, in fact, I would say family by construct is a transactional unit.
#
It comes into being, there is nothing natural about monogamy or marriage and so on. I mean,
#
parenting is a bit different, there is a biological need, but that I have never believed to be
#
non-transactional. I mean, we might cow shit in other things, which we happen.
#
You know, it's very funny, somebody asked me the other day and I said, look, I for a long time
#
wonder why in cultures and in religion, there is so much of focus on elevating marriage to this
#
hollowed standard. Then I realized one day that because by nature, it's so fragile.
#
That's why you have to create all these embankments, so to say, to keep it alive.
#
You know, there are cultural norms and so on, but by nature, it's not. It's just incredibly fragile.
#
You don't hear enough about in religion and culture about parenting. Why? Because naturally
#
it's strong, you need it. And so I feel that cultures and societies and religions have
#
actually created that, recognizing that it's by nature very fragile. And I think it's fragile
#
because it's transactional. And so I never believed, but I do believe that outside,
#
there are relationships that can be valued. I feel a lot of people who have
#
these spiritual guides are often, because if the dead person, you're not going to, I mean,
#
you can always say, psychologically, there is a transaction that I feel somebody will do something
#
good for me, but it's not in a very physical sense. So to that extent, those two, I call
#
valued relationship that you have faith in some, I am far more tolerant of these kinds of worshiping
#
of these God men and so on, because I feel that there is a basis to that relationship. It's not
#
a transactional relationship. Somebody, especially somebody is not alive anymore.
#
But yeah, you're right. I mean, maybe it's 99.9%.
#
One could argue that, you know, in the last hour, you have both shown that you are kinder
#
towards religion than you once were, and unkinder towards human beings as you once were. I'm kidding.
#
We should see ourselves for what we are and be compassionate towards that.
#
You know, we look at things not as they are, but we look at things as we are. It's essentially that
#
that you have to be objective and practical in and not actually actually clear headed is the
#
right word of what this is, because that results in failure of religion, in my opinion,
#
that you fundamentally overlook the fact of what this is about.
#
So let me throw a question at you. Let's say you and a friend, let's say you and Ajay Shah
#
are abandoned on a deserted island, right? And one day passes, two day passes, and both of you
#
are really smart people, you're doing whatever the smartest things you are to attract other people,
#
but phone batteries died out and there's no signal anyway. And there's little chance of survival.
#
And then gradually the food runs out because it's a really small deserted island. And you're
#
reaching a stage where whatever hope you have of rescue depends on your staying alive and depends
#
on your eating. And the only source of food now is killing and eating the other person. Right? So
#
if we get to that stage, do you think that you would do the needful?
#
I don't know the answer. And I would like to believe that I won't, I'd rather die.
#
I mean, look, cannibalism is not a matter of taste, it's a matter of value.
#
So I'd like to believe that I won't, but I don't know. I mean, it's a situation that's
#
rationally very hard to come to a conclusion to. In fact, if one is to be completely, coldly
#
rational, both of you know that there will be a point in time where the other person will be
#
forced to kill you. So you've got to get him before that and he's got to get you before that.
#
And if you take this to a logical conclusion- No, but I'm saying that if the situation is that
#
only one is going to survive, then that one person could survive for a while. Then that issue who
#
kills whom comes in as a reaction. But if both are going to die, we'd rather kill each other or
#
we commit suicide. I mean, why not? Why? No, no, but you live in hope that you will be rescued
#
and you want to survive. But my point was an interesting game theoretic point that then
#
once you agree that it is coldly rational to kill the other person,
#
the optimal time to do so is as soon as you're deserted. Because the other person has to get you
#
before you get him and so on. Yeah, I mean, that's what game three will tell you. You work backwards
#
from the end. It's called finite games. I studied game three for my PhD, by the way.
#
Lovely. So this is very well set in that you in finite period games, you work backwards
#
from the end outcome and you do that as soon as possible. By the way, these lot of flies,
#
you read the novel? William Golding. It's actually really that there's a bunch of
#
young kids who are doing and effectively it brings out all the base human
#
emotions on a deserted islands and so on. It touches some of these issues.
#
So yeah, I don't know, honestly, I mean, these are hard thought experiments to.
#
Here's another question for you. I agree with you that I don't know what I would do,
#
but my instinct is that I would just rather die than actually kill someone.
#
I will not even instinct. That's what I would like to believe about myself.
#
Yeah, exactly. And I would like to believe that about myself because
#
I'm thinking in terms of the norms I've set for myself. So my question for you is
#
what norms do you have that defy rationality?
#
I don't know. I have norms. I mean, I would say that I recognize the fact that you can't be
#
fully rational in every situation. I mean, the first norm of rationality is to understand
#
limits of rationality, that oftentimes you act completely irrationally and you do so because of
#
other considerations which are irrational, but they're real.
#
And so I think that's probably about the only norm of rationality that I would say that I have,
#
that there are limits to rationality and you can't be fully rational. I mean, we'll create an
#
extremely unpleasant and almost unsustainable society if everybody acted completely rationally.
#
We need a fair degree of irrationality for society to get on in my opinion.
#
I'm fascinated by, and you know, to draw a metaphor, I often
#
refer to Michael Gazzaniga's experiments with split-brain epilepsy. Are you familiar with that?
#
So Gazzaniga is a neuroscientist and a few decades ago, and he wrote a book called Human,
#
I think, which mentions this, but I first read about this from Steven Pinker, possibly in the
#
bank slate. But essentially the experiments were this, that people who suffer from split-brain
#
epilepsy, one way of treating them was that you sever the bond between the two hemispheres of the
#
brain. So the right brain and the left brain are no longer communicating with each other. And I
#
think the right brain controls the left side of the body and vice versa, whatever. But the experiment
#
that he carried out was after severing that part of the corpus callosum or whatever, after severing,
#
after breaking the connection between the two hemispheres of the brain, the right brain would
#
be shown an instruction, like scratch your neck or get up and start walking. And the person would
#
follow the instruction. And then the person would be asked, why did you do that? And the left brain,
#
which Gazzaniga calls the interpreter, would take over and give an answer for that. And no matter
#
what the person was asked to do and did, you know, they would do it blindly, but they would not know
#
why, but the left brain would concoct an answer and really believe that that was the answer.
#
Right. And to me, this is like a deep and fundamental truth about human brains,
#
that we often do things for reasons we have no idea of. And we tend to rationalize.
#
Most of what we call reason is rationalization. And therefore, post-fact rationalization and
#
most of what we call rationality is really, you know, it's a PR firm in our brain, which is kind
#
of putting things forward, both for our own consumption and for that of others. I would say
#
a large part, I don't know if most part for most people, but yeah, a large part is that.
#
I mean, often we, I think 99% of the time we react instinctively, which is the emotional
#
reaction of that point of time. This is also that Kaneman, Turski, Revben,
#
system one, system two. And then we see the outcome and we try to then figure out a
#
rational logic to explain that. And that happens all the time. But I don't know that that's
#
necessarily bad. I don't know why, how would you do it any differently?
#
I think it is literally the only way society functions.
#
Exactly. I mean, society full of completely rational people will be a very bad society,
#
A society full of completely rational people would be a bad society. And B, a society full
#
of people who are acting on instincts, but not rationalizing them would also go haywire.
#
Yeah, I agree. Yeah, I agree. Because, yeah, I mean, that's where this question of limit
#
of rationality comes, right? You can't deal with every situation completely rationally.
#
So you have to have irrational instincts once in a, not once in a while, but quite frequently
#
playing a role, I would think.
#
I found this fascinating survey about, you know, someone made a categorization of public cells,
#
private cells and secret cells. And public cells are public cells. Private cells are cells you only
#
reveal to close confidants. And secret cells are absolutely only you. And I think the survey
#
asks people, how many secrets do you have that no one else in the world knows? And the average
#
answer was four. So what do you kind of think of this? What would, how many?
#
Yeah, I mean, I don't find that surprising at all. And I don't know how they can convert
#
into number because secret is not always accountable. Yeah, but assuming that that was
#
done somehow, what would be very interesting the nature of those secrets?
#
Yeah. That's where I think it will be even more revealing. I don't know if this article has that.
#
No, this doesn't have that. But I was discussing this with another friend who was on the show,
#
Murali Neelkanthan. I don't remember if we discussed it during the show or offline. But
#
my sense was that the secret self would have sexual fetishes and all that. And his sense was
#
that no, it would have that all sexual fetishes would be in the private cells. And I'm like,
#
if they involve other people, sure, because at some point you got to tell other people,
#
but if it's something like completely private, like say you get turned on my microphones,
#
and I'm just thinking of that because it's one in front of me, but I don't
#
for the record, then that could be part of your secret self.
#
So it would be, I would say that would be the most common sort of part of the secret cell.
#
But also secret likes, dislikes, hatreds, passions for a number of reasons. I could imagine
#
why somebody would just not want to talk about that. Views on people, those are
#
for a variety of reasons people will not want to express. Very interesting idea, actually. I
#
would have to think about it. What would compose somebody's secret self? And I think it will also
#
be important to analyze the relative sizes of those. In other words, if this is your whole,
#
how much of that is secret versus private versus public? It would vary across people.
#
I mean, most secret things would be banal because they're secret only because you
#
haven't told someone. So the idea is that things you wouldn't tell someone, no matter what happened.
#
Yeah, I mean, one way to think about it that you never found the opportunity or the audience
#
to share it. But no, a lot of it could also be pretty intentional non-sharing.
#
In fact, I can imagine that actually.
#
So a bunch of final questions. What are the big ideas that really shaped you that you
#
feel more people should pay attention to or take seriously? Like was there something that
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changed the way you look at the world? Whether it came about you suddenly or evolved into
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your consciousness over a period of time? So some of them have to do with, as I said,
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I was a student in the US, it's this whole basic ideas of rule of law of individual freedom and
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its importance. I think economic, rational decision-making, et cetera, all of those still
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today continue. And in fact, I was talking two days back to somebody and there is this whole
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news and articles about rise of right-wing in Europe. And Europe was historically far more
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liberal than even the US. I mean, US actually never was. So my view was that not just in Europe,
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but in India and many other parts of the world, this is a real reaction to two events that
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happened in the first decade. One was the 2001 attack because it threatened personal physical
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security, which we took all for granted for the post-Second World War, essentially.
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And then the 2008 crisis, which shook the economic foundations of modern society. So one shook the
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physical security foundation. And a lot of the rise that you are seeing right now is a real reaction
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to that, nativism, populism, very right-wing. And therefore, I feel that there is a need to
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reaffirm the values of the post-war, not the specific practical aspects of the world order,
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but the values that underlie, which are these, which are rule of law, freedom and liberty,
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et cetera, et cetera, democratic decision-making and so on. So I just feel that those are things
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that, and I'm often surprised that even well-supposedly educated people react to
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political situation in a very emotive way. India is going to be superpower. I mean,
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what the heck does that mean? But I mean, people do that all the time. And I feel that
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those discourses have to change if you have to change a society. And I don't see an easy way
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of doing that. I completely agree with you that 2001 had a deep impact on the popular imagination.
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I'm a bit surprised that you mentioned 2008 in the same way. Of course, I imagine 2008
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would have a deep impact on the community of thinkers that you are part of, thinking about
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banking and finance and all that. But in a larger sense, I'm not sure whether people reacted to it
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in the kind of visceral and emotional way that they did in 2001. No, see, my view is that it all
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forms a part of a package that you in way against us order, which is all these facets.
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So you do a political mobilization using these as anchor points. So by itself, it may be strong,
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but then it fits into the overall paradigm. Look, you are being screwed. Your personal security is
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at risk and your financial security and economic security and your children are going to have worse
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life. All that forms a part of a certain political discourse. And I think that's what led to by
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itself, it may have had limited impact. I agree with you that way by itself, even the 2001 attacks,
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I mean, outside of people who actually got killed and got hurt. I mean, everybody just saw it as a
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horror unfolding in front of them, but it sort of built a consciousness of the other and,
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you know, that civilization or that the fact that despite all the wealth and all that, that basic
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things as being safe in your own house, it just being challenged. I mean, that to me was such a
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shock, independent of where you knew anybody who died there or not. So I think, and similarly that
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the fact that people were on streets demanding this Wall Street, this and that, I think that has
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had an impact, especially in US and Europe, maybe less so in India. But I think we are also not
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immune from it. I think a lot of this is our own lurch towards right-wing, if that is how you put
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it, I think is a part reaction to that. And you see that in a lot of conversations. You grew up in
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a city or a semi-city, as you call it, which, you know, is the home of the RSS. There is a lot of
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conservatism there and yet personally, your family was outside of that. And yet you saw it. You know,
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it's very interesting. I was surrounded by people who were extraordinarily ardent, still am.
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I actually, my grandmother, my mother's mother was a cousin of Golwalkar.
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Not cousin, sorry, niece. So my, let me get that right, my mother used to call him mama.
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So yeah, he would be cousin of my grandmother. So I have a fairly direct connect.
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You are a descendant of Golwalkar.
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I'm not, I'm not. But I'm saying my mother, my mother's mother,
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see, they belong to this community called Karate Brahmins, which is a very small community and
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they are all related to each other in my opinion. So that was my mother. And so my grandmother,
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my mother's mother, who died when I was very young, I don't even remember her. She was a
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first cousin or second cousin of Golwalkar, who was the head of RSS, second head of RSS.
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So that way I have a very close connect. And my mother still remembers him. Apparently,
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he was a good math teacher. My mother at least tells me that she remembers him as a child,
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teaching mathematics, you know. I have no political affiliation and I look at everybody with the same
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degree of skepticism. But you are right that I was surrounded. If you are an upper caste
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person from Nagpur, if that era, then there is a very high probability that you are a
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very strong follower of the RSS and then BJP.
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But the question I was coming at is this, that all my life, you know, growing up in
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sort of an English speaking elite bubble, I imagined that the kind of values I grew up
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around were the values that largely India shared, you know, secular, tolerant, liberal,
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et cetera, et cetera, all of those things. And one realization that I then had in adulthood is
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that our society actually isn't like that. I was the one who was in a bubble. I was the one who
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was in a frame that today politics has caught up with society. And I want to, and that perhaps,
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you know, just to think aloud about our previous frame of public private secret, that many people's
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private preferences could become public because, you know, all of this exploded out into the open,
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the sort of the bigotry and the othering and all of those things. And I wonder what you think
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about that, because you would have been under no illusions about any of this, firstly. And
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secondly, do you think the illiberalism of society in general is being a little bit overstated by me
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because it is easy to look at some of the virulent Hindutva politics of today and say, hey, that's
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our society. But maybe the conservatism of our society isn't necessarily so toxic. This is just
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a toxic end of it. But there are also, you know, less malign aspects of it, perhaps even useful
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aspects of it, like your point to point to the usefulness of religion in personal and social
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life and so on and so forth. So give me a sense of how you feel. Yeah, so I feel that look,
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my view is that a lot of these talk, especially in the liberal circus about things becoming
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illiberal and some of it is true, obviously, but it's also explosion of media where you get
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to know more about this. I don't think people have fundamentally changed. It's just that they
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have now forums and platforms where, you know, there was a very interesting foreign affairs
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article on where they use this fresh shared awareness. So what social media is allowing
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is to create shared awareness of, you know, the secret cells maybe that, you know, I have
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passionately hate somebody. Now there are avenues to do that. So what was secret, to your point,
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is now coming out in at least small echo chambers where I think a lot more of that's happening than
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essentially society moving. That said, I feel that the center of gravity of Indian society
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at large is right of center on social and left of center on economic, exactly opposite of what
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you and I talked about R, but that has been true for a long time. It will remain true for a long
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time. In fact, I feel these left right categories don't really apply in India because they are very
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different when you look at social cultural issues versus economic issues. I mean, the so-called
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right-wing people are very left of center on economic issues. I would say the axis to think
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of is freedom. You and I are broadly for freedom in every domain and the median Indian would be
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against freedom in every domain. No, I think they will say they're against freedom, but with a lot
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of caveats, which by the way, our constitution also has, you know, freedom of speech is subject
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to four things, you know, and those four things are very open to interpretation. So I feel a lot
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of this is really greater awareness and talk and media access, so to say, of these ideas and this
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thing than the real underlying shift. Now, where that takes us, I don't know. I mean,
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If you amplify the worst in us and even celebrate the worst in us while amplifying it,
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that has a danger of making us worse than we are. Yeah, but I think it also creates a counter
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reaction, which doesn't get talked about enough. It does create a revulsion in many people,
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and I strongly believe that. And unfortunately, there is no outlet for that revulsion.
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Except elections. Well, except elections, one, exactly, but certainly not in media or social
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media and so on. If you are, you know, what social media has done is that it has allowed to create
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larger and larger eco chambers, where you talk to people like you. And so you start believing
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that that's what the world is about. It's actually not. It creates equal reaction on
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the other side, which you are completely away from. You are in a bubble. And so I think that,
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you know, there is another, so I'll tell you another episode, which, you know, we earlier
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touched upon this market society versus market. So I'll tell you an episode and why it sort of,
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so I was doing some work, this is 2015-16, about with the Ministry of Finance in the consulting
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firm. And there was a young, very bright IAM type consultant I was working with. And I was very
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energetically tried to explain to him, this is how ministry is organized. These are different
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departments. And I could realize the person is least interested. He's saying, tell me what you
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want me to produce in terms of slides. And then I asked him, I said, look, I see you spending half
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an hour in reviewing restaurant reviews, where you're going to have your next sandwich.
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You're the least bit interested in how economic policy in India runs. How's that? I mean, come on,
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you should demonstrate some basically. So then he gave me some long answer. No, no, this is not my
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domain. I'm interested in consumer. But that to me is to your point about consumer site. And that
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also, if you stretch it to the point that we are discussing, that a lot of these cultural and sort
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of illiberal outpourings are happening in very narrow domains. Yeah, the beef is being served
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somewhere and all. I mean, people get worked up about these. You know, there's somebody sent me
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a WhatsApp group saying that some temple in Rajasthan, you know, the road from Jaipur to
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that place, all restaurants are ruled by Muslims. I said, so what's the problem? You get good food,
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right? I mean, but it's being amplified, they give Sanskrit names and so on to their restaurant.
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I mean, I never understood what is wrong in all of that. But that's just I'm citing as an example
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of the whipping up of emotion on relatively minor issues. So that gives me some degree of comfort.
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The issues may be minor, but the emotion is very intense. Yeah, I agree with you.
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That I agree with you. But therefore, I think there is enough
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revulsion also that that doesn't get expressed. I strongly believe that.
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So there's a question I move on from this is a question I asked. I've asked a bunch of people
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recently, but never on the show. So you're the first recipient of the question. And it's a tough
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question. And the question is, and I'll ask you a modified version of it to make it easier. But the
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original question is, name five thinkers, Indian or Indian origin, alive and active, who you think
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all of India should pay attention to. And the reason I'll ask you a modified version, though
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you're welcome to answer this is that many people have not even reached five, which is depressing
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for me. So I'll take away the Indian qualifier. They need not be Indian, but you can begin with
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Indian. I don't know how many I'll be able to name that you think everyone in India should pay
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attention to. They are that important for you. Yeah, so hard. I would start with Plato, actually.
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I did say alive and active, but fair enough. Oh, you're alive and active. No, no, but fair enough.
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Let's do the dead ones first. Yeah, so dead ones, I'll put Plato, I would put Marx.
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Yeah, I'll struggle, but maybe I'll put Nehru third.
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Alive, I mean, it's kind of hard, but I would feel Ram Guha is one. I would love to meet him. I don't
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know him at all. But I think he's one person who I think shows a level of clarity of thinking,
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which is very badly needed now. He's a wonderful, generous man, also. He's been on my show five
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times. So Ram, if you're listening to this, the next time you're in Bombay, please come home.
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I'll call Harsh as well and you guys can meet. Yeah, I once wrote a mail to him. He never
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responded, but that's fine. But yeah, I mean, he's one I would say that needs broader and wider
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and more perceptive audience, if you were to set ourselves right. I can't think of anybody else.
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On the American side, I mean,
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yeah, I can't. I mean, maybe after two hours, I'll come up with some other name. But yeah,
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I mean, on the alive ones, I could only think of him. Yeah, and it's kind of sad that so many people
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have trouble reaching five. And then when they have trouble reaching five, they're like, oh shit,
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what straight are we in? Yeah. I read this wonderful book by Purushottam Agarwal on Nehru called,
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Who is Bharat Mata? It's a very, very good book, actually. I've heard of it. I haven't read it,
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but that takes me neatly to my final question. First of all, thank you so much for spending
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so much time. It was a fantastic conversation. I haven't had this kind of conversation ever,
#
actually. And we'll do it again at some point. So here's my final question. Not even a question,
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it's a request for me and my listeners. Recommend books, films, art, music that means a lot to you
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that you love so much that you want to share it with everyone and just shout from a soap box,
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read this, watch this, listen to this. Yeah. So I would by default go to music. I mean,
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I'm a great fan of Kishore Thayamankar and Kumarji so much so that sometimes I listen to their
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performance. I feel for two days, I should not hear any other sound. Any specific performances?
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By and large. I mean, my friends tell me you're so biased that you find nothing wrong.
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They have been great performances and they're not so great performance. But these two are my
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absolute favorites of all time. And I'm always open. Today you tell me, I will be ready to
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listen to that. So I feel that that's something that I would always want to share. I think people
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should read Indian history, which I have done a lot. And not just history of the independence
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struggle, but going back to Ashoka's time and so on. This wonderful book by Basham called
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The Magic That Was India, two volumes. Great, great book. I've read a lot of
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Romila Thapar's work on early India. I think all thinking Indians should read that. We don't know
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things about ourselves. And I don't care people argue left-wing, right-wing. My own answer is that
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if you feel strongly, you do scholarship of your kind and produce books of that kind of quality.
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I'll read them. But I just feel that our school level history is very narrow.
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Then Churchill used to say school children should not be taught history because they are
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not matured enough to interpret it. And I think I agree with him. We need to read much more history
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than I think most Indians are. I spent a lot of time last month or month ago on
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debate between Advaith philosophers and then the Vishesh Advaith and so on. And it is all absolutely
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fascinating. Not necessarily the philosophical part of it, but just as the social forces that
#
created that debate between the Vaishnavas and Shaivas and so on and so on. Absolutely fascinating.
#
No, so Shankaracharya was a Shaivite, right? And so he proclaimed this Advaith, which is
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non-duality between Atman and Brahman. That time, historically, there was a very long established
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bhakti tradition in South India, which were all Vaishnavas. They are followers of Vishnu.
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The problem they had was that if you say non-duality, then who do you do bhakti?
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If you and the ultimate is one, then you can't do bhakti to yourself. So they had to find
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twists to this tale to fit into their scheme of things. So they created this scheme. You know,
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that Brahma that he's saying is actually Vishnu. So all these fixes got found.
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So there's a very famous sage named Madhvacharya. He said once that Shankara talked about Advaith
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because he could not count beyond one. So I keep saying that tradition of taking cheap shots is
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very old in India, thousand years old at least. So I did not know any of this, but I found it
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absolutely fascinating that these debates are at that far back. At least I feel that the more I
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read about our history, the more I realized that I should have read more and earlier. So those two
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things, music and history is what I will talk about. Harsh, thank you so much for your time.
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Fantastic. I loved it and we should do one more time. Maybe I should ask you questions.
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We can do that. It can be a two way thing. We should be on a deserted island with the food
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running out and then record a podcast and see how that goes. What will be interesting, you know,
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there is this, in the US when I was a student, I used to be a fan of this public, there's a network
#
of public radios and they had this program called Desert Disc, where they would ask people what music
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they will carry if they are going to be left in a desert. And I had used to create my own desert
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disc which changed every four or five years. What music I will carry with me if I were really
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going to be stranded and I have only, let's say, two hours of music to carry. You want to share it
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now? I would have it on my laptop somewhere. Next time we will do it. But the problem with doing
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a show like that in India is really copyright law because I would not be able to play any of that.
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I think BBC had a show called Desert Island Disc where they would actually place half the song.
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Yeah, yeah, correct. I know, I know. Unfortunately, we would not be able to.
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Yeah, but we should actually, I think that's again, I mean, you can add to that the books
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you would carry. Yeah. And the music you would carry. But I think that will be fascinating,
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isn't it? It would be wonderful. Yeah. Thanks so much. Okay, thank you.
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If you enjoyed listening to this episode, check out the show notes, enter rabbit holes at will.
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Harsh's writing is linked from there, all his column archives. He is not on Twitter, unfortunately,
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but you can follow me on Twitter at Amit Verma, A-M-I-T-V-A-R-M-A. You can browse past episodes
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of The Scene Unseen at sceneunseen.in. Thank you for listening.
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Did you enjoy this episode of The Scene Unseen? If so, would you like to support the production
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of the show? You can go over to sceneunseen.in slash support and contribute any amount you like
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to keep this podcast alive and kicking. Thank you.
