Best Movies Of 2025

Best Movies Of 2025

1. Kantara: Chapter 1

2. Dhurandhar

3. Phule

4. 120 Bahadur

5. Haq

6. Tanvi The Great

7. F1

8. Complete Unknown

9. Avatar: Fire And Ash

10. Mission Impossible: Final Reckoning

'Dhurandhar' Movie Review

MOVIE REVIEW

How do you kill a pack of wolves? You send a tiger disguised as a wolf into the wolves' den - and kill them one by one. 'Dhurandhar' is the story of an Indian spy who infiltrates Pakistan's network of mafia gangs, intelligence agencies and terrorist groups - and gives them a dose of their own medicine.

An excellent action-thriller. A grand epic that must be seen on the big screen. A must-watch for every Indian.

Written and directed by Aditya Dhar. Starring Ranveer Singh, Sanjay Dutt, Akshaye Khanna, Arjun Rampal and R Madhavan . . .

Poverty, Job Creation, Growth, Exports & Government Policy

1. Which is the most important problem in economics? Poverty.

2. What is the solution for poverty? Job creation.

3. What leads to job creation? Economic growth.

4. What else leads to job creation? Exports.

5. What more leads to job creation? Government policy.

Now:

a) Poverty is studied by Development Economics.

b) Job creation is studied by Labour Economics.

c) Growth is studied by Macroeconomics.

d) Exports is studied by Trade Economics.

e) Government policy is studied by Public Economics.

But the most interesting thing in economics is the inter-connections among all these different economic forces/phenomena . . .

Nobel Economics Prize 2025: Creative Destruction

How does economic growth happen due to creative destruction? Must the government subsidise the R&D (research & development) of private companies? This year's (2025) Nobel Economics Prize winners Philippe Aghion and Peter Howitt answered these questions in their 1992 Econometrica paper 'A Model Of Growth Through Creative Destruction' (17k+ citations). They derived the equations for the Equilibrium Rate of Creative Destruction (ERCD) for two scenarios:

A. Free market situation (pic: top equation)

B. Social optimal solution (pic: bottom equation)

z* = ERCD = Probability of a firm making a product of better quality (0<z*<1)

('SP' in bottom equation = Social Planner)

α = Marginal cost = Units of intermediate product used to make one unit of final product (0<α<1)

β = Discount factor = Weightage people give to future consumption (0<β<1)

γ = Innovation step size = Increase in product quality (γ>1)

ψ = R&D productivity (ψ>0)

L = Total amount of labour

The two equations are different - so the free market ERCD and the social optimal ERCD are NOT the same. There are 3 differences:

1. Top equation: Numerator's first term has γ. Bottom equation: Numerator's first term has (γ−1) - which is <γ. So bottom equation's z* < top equation's z*. So social optimal ERCD < free market ERCD. Why? Consider an old firm selling a product of a certain quality and making profit P1. Then a new firm innovates and makes a product of better quality. Now this new product will completely replace the old product in the market. Thus the old firm now makes zero profit and the new firm makes profit P2 (P2>P1). So the new firm's incentive to innovate is the entire amount P2. But the gain to society is just the difference in quality between the two products - given by P2-P1 (<P2). Thus firms innovate at a faster rate than is socially optimal. That is, free market ERCD > social optimal ERCD.

2. Top equation: Denominator has an extra +β. So top equation's z* < bottom equation's z*. So free market ERCD < social optimal ERCD. Why? Because the free market ERCD is decided only by the firms trying to maximise their own profits. But society gives weightage to the future, and hence to innovation - thus increasing the social optimal ERCD. And the more this weightage, the more important is innovation - and the higher is the social optimal ERCD.

3. Bottom equation: Numerator's first term has α^[-1/(1-α)]. Since α<1, this term is >1. So bottom equation's z* > top equation's z*. So social optimal ERCD > free market ERCD. This is because monopolistic firms charge too high prices and hence under-use the intermediate products.

Thus #1 makes free market ERCD > social optimal ERCD. And #2 and #3 make free market ERCD < social optimal ERCD. The relationship is decided by the values of the parameters α, β, γ, ψ and L. If free market ERCD < social optimal ERCD, then government must subsidise R&D - in order to increase the ERCD from the free market level to the social optimal level . . .

'Phule' Movie Review

'PHULE' MOVIE REVIEW

An excellent movie about Jyotirao Phule and Savitribai Phule - the great social reformers who uplifted lower-castes and rehabilitated widows in the 1800s. They started schools for lower-caste children (especially girls) and opened shelters for widows. They ignited a revolution in Poona that spread to the whole country. Maharaja Sayaji Rao Gaekwad of Baroda rightly conferred upon Jyotirao Phule the title of 'Mahatma'. Later social reformers like Gandhiji and Ambedkar would draw inspiration from them. 'Phule' is a moving and inspiring story of courage, sacrifice and service. Written/directed by Anant Mahadevan and starring Pratik Gandhi and Patralekha Paul. Pranaam, Jyotirao and Savitribai . . .

GDP And Imports (Or Net Exports)

In 2016, two of Donald Trump's economic advisers wrote a paper titled 'Scoring the Trump Economic Plan'. They were Peter Navarro (an economics professor with a PhD from Harvard) and Wilbur Ross (a businessman). Today, Peter Navarro is Donald Trump's senior trade adviser and Wilbur Ross is America's Commerce Secretary (trade minister).

In it, they wrote:

"The growth in any nation's gross domestic product (GDP) - and therefore its ability to create jobs and generate additional income and tax revenues - is driven by four factors: consumption growth, the growth in government spending, investment growth, and net exports. When *net exports are negative*, that is, when a country runs a trade deficit by importing more than it exports, this *subtracts from growth*."

Now a country's GDP (Gross Domestic Product) is the total economic output produced *inside* that country. This output is consumed by 4 entities: households, firms, government and foreigners - so we have consumption (C), investment (I), govt spending (G) and exports (X) respectively. To get the GDP, we just add these 4 things. But these 4 components also include some things which were made *outside* the country - that is: made in other countries and imported into this country. So these things must be excluded. Hence we subtract imports (M) from these 4 components.

Thus we get the GDP equation:

Y = C + I + G + X - M

or Y = C + I + G + NX (where NX = X - M)

The second form is just for convenience - to reduce the number of terms from 5 to 4. But we are not subtracting imports just from exports - we are subtracting it from all the 4 components. Of course, arithmetically it makes no difference. But the economic meaning is important - and must be understood correctly.

Some people see the '-M' term (or the 'NX' term) and wrongly think that imports *reduce* GDP. This, as we have just seen, is definitely not the case. We subtract imports simply because:

1. They are included in C, I, G and X

2. But they are not made inside the country

So imports do not reduce GDP. And it definitely does not reduce GDP growth either. In fact, research has proved that total trade (exports + imports) increases growth. Therefore Peter Navarro and Wilbur Ross have made a very basic economics mistake . . .

Fun-facts:

# Harvard's economics department is ranked #1 in the world.

# 13 Harvard PhDs have won the Nobel Economics Prize - second only to MIT (14).

# The paper has since then been deleted from Donald Trump's official website.

India's Trade-To-GDP Ratio

The graph shows the trade-to-GDP ratio* versus the logarithm of GDP for 184 countries**. It shows a slight decreasing relationship between the two - as GDP increases, the trade-to-GDP ratio decreases slightly. India is shown by the red dot - and it is below the trendline. That is - its trade-to-GDP ratio (at 45%) is below what it should be as per this relationship (which is 70%). So there is a lot of scope (25% points) for increasing India's trade (both exports and imports) to make it on par with the world's trend relationship . . .

*[Trade = exports + imports]

**[I have left out 9 outliers whose trade-to-GDP ratio is more than 200% - these are small high-trading countries]

Data-source: World Bank

The Effect Of Trade On Growth

THE EFFECT OF TRADE ON GROWTH

Total trade (exports + imports) increases growth. Empirical research has proved this conclusively. But there is no theoretical model that shows this. This is because trade does not increase growth directly - but indirectly. And this indirect relationship between trade and growth is shown by two sets of models: growth models and trade models.

1. Growth models like Romer model and Lucas model show that technology and knowledge increase growth. And an important source of technology and knowledge is trade.

2. Trade models like Ricardo model and Heckscher-Ohlin model show that trade increases specialisation and efficiency. And specialisation and efficiency increase growth.

Thus these two sets of models indirectly show that trade increases growth . . .

Why Trade Is Good (Both Exports And Imports)

WHY TRADE IS GOOD (BOTH EXPORTS AND IMPORTS)

GDP is given by the basic equation:

Y = C + I + G + X - M

or Y = C + I + G + NX

where NX = X - M

These equations *seem* to say that GDP consists of net exports (or trade surplus) and hence:

1. Exports are good

2. Imports are bad

3. Trade surplus is good

4. Trade deficit is bad

1 is correct and 3 is partially correct. But 2 and 4 are fallacies. They are bad in themselves; what is worse is they make people miss an important economic variable: total trade (ie, exports + imports). Research has conclusively proved that total trade has a strong positive impact on economic growth.

Believing fallacies 2 and 4 leads to a zero-sum-game mindset. But trade is not a zero-sum-game. Trade (exports + imports) gives us:

a) A bigger market for our exports

b) Cheap and good-quality products

c) Specialisation and efficiency

d) Knowledge and technology

So we must avoid fallacies 2 and 4 (which are due to a wrong understanding of the GDP equation) and instead look at total trade (exports + imports):

T = X + M

Indian Economy: Oct-Dec 2024

INDIAN ECONOMY: OCT-DEC 2024

The urban employment data has just come out for Oct-Dec 2024. I look at 3 indicators of employment:

1. Worker Population Ratio (WPR)

2. % of workers in industry and services

3. % of regular wage/salaried workers

I make two comparisons - I compare Oct-Dec 2024 with:

a) Oct-Dec 2023 (the same quarter of the previous year)

b) Oct-Dec 2019 (the last normal/pre-Covid Oct-Dec quarter)

The graph shows these comparisons . . .

1. Worker Population Ratio (WPR):

a) This has increased by 0.4% points over the previous year. This is good news.

b) And it has increased by 2.9% points since the pre-Covid period. This is also good news.

2. % of workers in industry and services:

a) This has increased by 0.4% points over the previous year. This is good news.

b) But it is still 0.4% points below the pre-Covid period. This is not good news.

3. % of regular wage/salaried workers:

a) This has increased by 0.7% points over the previous year. This is good news.

b) But it is still 0.6% points below the pre-Covid period. This is not good news.

Thus the Indian economy is recovering from the Covid crisis - but it has not yet recovered fully . . .

India Budget 2025-26: Analysis

INDIA BUDGET 2025-26: ANALYSIS

# Fiscal deficit is decreasing from 4.8% of GDP (2024-25) to 4.4% (2025-26) - a decrease of 0.4% points. This is good.

# Nominal GDP is estimated to grow/increase in 2025-26 by 10.1%.

The 4 Budget components are changing from 2024-25 to 2025-26 like this:

1. Revenue Receipts (good income - ie, taxes)

This is increasing by 11.1% - which is more than the GDP growth rate (10.1%). This is good.

2. Capital Receipts (bad income - ie, loans)

This is *decreasing* by 0.0%. This is very good.

3. Revenue Expenditure (bad spending - salaries, schemes, subsidies)

This is increasing by 3.5% - which is less than the GDP growth rate. This is good.

4. Capital Expenditure (good spending - ie, infrastructure)

This is increasing by 17.4% - which is more than the GDP growth rate. This is good.

So this is a pro-growth and fiscally disciplined Budget . . .

How To Analyse/Evaluate India's Budget

HOW TO ANALYSE/EVALUATE INDIA'S BUDGET

(A framework to analyse/evaluate the Budget)

A. The Budget has 2 flows of money:

1. Inflow (Income) is called 'Receipts'.

2. Outflow (Spending) is called 'Expenditure'.

B. The Budget has 2 types of accounts:

1. Short-term transactions (that do not create assets/liabilities) go into the 'Revenue Account'.

2. Long-term transactions (that create assets/liabilities) go into the 'Capital Account'.

Thus we have:

2 Flows X 2 Accounts = 4 Components

These 4 components are:

1. Revenue Receipts: This is mainly taxes. This does not create any liability for the government. So this is good income.

2. Capital Receipts: This is mainly loans (a liability). Government has to repay this – with interest. So this is bad income.

3. Revenue Expenditure: This consists of salaries, pensions, schemes, subsidies and interest payments. This does not make the economy more productive – so this is bad spending.

4. Capital Expenditure: This is mainly infrastructure (an asset). This makes the economy more productive – so this is good spending.

Thus we have 2 'good' components:

1. Revenue Receipts (good income)

2. Capital Expenditure (good spending)

And 2 'bad' components:

1. Capital Receipts (bad income)

2. Revenue Expenditure (bad spending)

The 4 components must be seen relative to the GDP. So ideally, compared to last year:

1. The 'good' components must increase relative to the GDP.

2. The 'bad' components must decrease relative to the GDP.

That is, ideally:

1. The increase in the 'good' components from last year must be greater than the GDP growth rate (the greater the increase, the better).

2. The increase in the 'bad' components from last year must be less than the GDP growth rate (the lesser the increase, the better).

Finally, the most important number in the Budget is the Fiscal Deficit:

Fiscal Deficit = Spending – Income (excluding loans)

It is expressed as a % of GDP. It must be as low as possible. So the Fiscal Deficit must decrease as much as possible. The greater the decrease, the better.

Thus by:

1. Looking at the Fiscal Deficit

2. Comparing the increase in the four components with the GDP growth rate

We can say how good or bad a Budget is . . .

Caveat: Revenue Receipts must increase by increasing the tax base – not by increasing the tax rates.

India's Informal Sector Workers: PLFS Vs ASUSE

How many informal sector workers are there in India? Two different surveys are giving two very different numbers. The Annual Survey of Unincorporated Sector Enterprises (ASUSE) says it is 12 crore. But the Periodic Labour Force Survey (PLFS) says it is 20 crore!

ASUSE explicitly gives this number. PLFS does not explicitly give this number - but we can calculate it as:

Number of informal workers = % of informal workers among non-agricultural workers X Number of non-agricultural workers

And number of non-agricultural workers = % of non-agricultural workers X Number of all workers

And number of all workers = Worker Population Ratio X Total population

So number of informal workers = % of informal workers among non-agricultural workers X % of non-agricultural workers X Worker Population Ratio X Total population

= 73.2% X 53.9% X 43.7% X 120 crore = 20.7 crore!

A caveat: PLFS defines informal enterprises as proprietary* and partnership* (P & P) enterprises. Whereas ASUSE defines them as enterprises that are not registered under the Companies Acts - so this means not just P & P enterprises, but also self-help groups, cooperatives, societies/trusts, etc. So ASUSE has more enterprises than PLFS. Then ASUSE's number of informal workers must be more than PLFS's. But the opposite is the case here! In fact, PLFS's number is almost twice the ASUSE's number!

The only way to explain this discrepancy is that many (almost half) P & P enterprises (which are considered informal in PLFS) are registered under the Companies Acts - and hence not covered by ASUSE. Also, since registered enterprises will be bigger than unregistered enterprises, the fraction of registered P & P enterprises can be less than half to account for this discrepancy. But it still has to be a large number. So what is the probability that so many P & P enterprises (which PLFS considers informal for a reason) are registered under the Companies Acts? If anybody can explain this discrepancy, I will be grateful . . .

*[Crudely speaking, 'proprietary' means one owner and 'partnership' means a few owners]

Best Movies Of 2024

BEST MOVIES OF 2024

1. Phulwanti

2. Main Atal Hoon

3. Article 370

4. Razakar

5. Gladiator 2

6. Kingdom Of Planet Of Apes

7. Alien: Romulus

RBI, Inflation And Interest Rate

Last week the November inflation number came out at 5.5% - below the upper limit (6%) of the inflation target. So the media is saying that RBI must cut the interest rate. Is this view correct?

The RBI's Bulletin in July said that India's neutral/natural interest rate is around 1.5-2%. What does 'neutral/natural interest rate' mean? The top table illustrates this:

a) When the real interest rate is at the neutral/natural level, it neither decreases nor increases inflation. This is neutral monetary policy.

b) When the real interest rate is above the neutral/natural level, it decreases inflation. This is contractionary monetary policy.

c) When the real interest rate is below the neutral/natural level, it increases inflation. This is expansionary monetary policy.

Currently the inflation and interest rate situation is:

1. Inflation is 5.5% - above the target level (4%). So it must be decreased. That is - real interest rate must be above the neutral/natural level of 1.5-2%. 

2. But the repo rate is 6.5%. So the real repo rate = 6.5% - 5.5% = 1%, which is less than the neutral/natural level (1.5-2%).

3. So monetary policy is actually expansionary - ie, tending to increase inflation!

So to what level must inflation come down to justify a rate cut (in an already expansionary monetary policy)? The bottom table illustrates this. If inflation comes down to 4.5% (Case 1) then the repo rate can be cut to 6.25%. Because then the real repo rate will be 6.25% - 4.5% = 1.75%, which is above the lower limit (1.5%) of the neutral/natural level (1.5-2%) - which it has to be because inflation (4.5%) will still be above the target level (4%). Whereas inflation coming down to even 4.75% will not justify a rate cut (Case 2).

Of course, this is by taking the lower limit (1.5%) of the neutral/natural interest rate (1.5-2%). If we take the upper limit (2%) then inflation has to come down all the way to its target level (4%) to justify a rate cut (Case 3). Even inflation coming down to 4.25% will not justify a rate cut in this scenario (Case 4).

Low Salaries: Law Of Demand And Supply

The internet has many posts criticising the low salaries for:

1. Assistant Professors (like ₹ 35,000/month) in many colleges and universities

2. Fresh engineers (like ₹ 3 lakh/year) in companies like TCS, Wipro and Infosys

Wage is the price of labour. And the most fundamental law of economics is that all prices are decided by demand and supply. High demand or/and low supply leads to a high price/wage. And low demand or/and high supply leads to a low price/wage. Low salaries for Assistant Professors and fresh engineers are simply a reflection of the high supply of these workers.

The average wage of a casual labourer (like farm workers and construction workers) in India is ₹ 400/day. So if a farm/construction worker works 30 days a month, he/she will earn only ₹ 12,000/month - for doing back-breaking work in the hot sun the whole day. Is this fair? Of course, it is not. But the world does not run on fairness - it runs on the laws of economics, especially the law of demand and supply . . .

Why Did The Industrial Revolution Happen In Europe – And Not India Or China?

WHY DID THE INDUSTRIAL REVOLUTION HAPPEN IN EUROPE – AND NOT INDIA OR CHINA?

How did the West become rich? Why did the Industrial Revolution happen in Europe - even though historically, India and China were more advanced in science? This is the biggest question in economic history. Economic historian Eric Jones answered this question in his book 'The European Miracle' (1981). The ultimate determinant of history is geography - and a unique combination of geographical factors put Europe on a unique path of political, economic and technological development:

1. Latitudes: India is in the tropical/sub-tropical zones, China and Europe are in the sub-tropical/temperate zones. The tropical and sub-tropical zones were prone to droughts and famines - which retarded India's and China's development. But North Europe (Britain, France, Germany - the growth engine of Europe) is in the temperate zone - so it did not have this problem.

2. Coastline: India and China have short/smooth coastlines - but Europe has a long/jagged coastline. So India and China did not give much importance to sea transport, but Europe gave it a lot of importance - and hence advanced in shipping. The earth's surface is 70% water - so Europe's advancement in shipping enabled it to reach all parts of the world, and conquer them.

3. Divisions: Both India and China are unified land areas. But Europe is divided by seas, rivers and mountains into separate geographical units - and these separate geographical units became separate countries (Britain, France, Germany, Italy, Spain, etc). And these separate countries continuously competed with one another technologically and economically - and put Europe on a path of technological and economic development. India and China, on the other hand, were ruled by single empires - and did not have this division and competition.

4. Central Asia: Central Asia is a vast grassland whose people were horse-riding tribals. And these tribals (Turks and Mongols/Mughals) invaded the nearby advanced civilisations of India (to the south) and China (to the east) - and retarded their development. But Europe is far away from Central Asia - and so escaped this problem.

5. Americas: North America and South America were thinly populated continents rich in natural resources. America is 10,000 km from Asia - but only 5,000 km from Europe (half the distance). So it was easier for Europeans to go to the Americas, occupy them and get their vast natural resources - which accelerated Europe's development.

Dharmonomics: Dharma And Economics

DHARMONOMICS: DHARMA AND ECONOMICS

Last month Daron Acemoglu, Simon Johnson and James Robinson won the Nobel Economics Prize for showing how institutions produce economic growth. In particular, they have shown the importance of 3 institutions:

1. Law and order 

2. Enforcement of contacts

3. Protection of property rights 

In ancient Indian philosophy, the concept of Dharma (order/morality) had 3 main components:

1. Satya (truth)

2. Asteya (not stealing)

3. Ahimsa (non-violence)

We can see that the 3 components of Dharma are similar to the 3 institutions that produce economic growth . . .

'Phulwanti' Movie Review

'PHULWANTI' MOVIE REVIEW

Based on the famous novel (of the same name) by the great Marathi writer Babasaheb Purandare, 'Phulwanti' is a beautiful meditation on the relationship between knowledge and the scholar (and art and the artist) - and also the real meaning of love. The script, direction, acting, set design, costume design, music and choreography are all top-notch. The movie has English sub-titles.

[An economist's irrelevant aside:

A civilisation that can produce a great work of art like Babasaheb Purandare's 'Phulwanti' is indeed a great civilisation. Where we have fallen short is in building efficient systems - like economic system, administration system, etc . . .]

Why Government Must Be Small

WHY GOVERNMENT MUST BE SMALL

What should be the size of the government? Should it be big or small? Liberals want a big government that provides a lot of generous welfare schemes to as many people as possible. Conservatives want a small government that only performs its core functions of maintaining law & order and providing public goods (because a big government has to be funded by high taxes - and taxes reduce the social surplus). And centrists/realists say that the government must be neither big nor small - but of the optimum size: ie, the size that maximises the long-term growth rate.

These ideological preferences aside, there is one argument in favour of a small government. And we are seeing it in today's Indian politics. The Congress Party is promising the expensive and wasteful Old Pension Scheme (OPS) in every state election - and government workers are voting for it. In theory, democracy is the rule of the majority - and must work for the good of the majority. But as the economist Mancur Olson showed in his 1965 classic 'The Logic Of Collective Action' (for which he shockingly did not get the Nobel Prize) small groups can hijack a democracy. And the voting behaviour of government workers in India is a perfect example of this phenomenon.

Thus if the government becomes big, then government workers will become a big and powerful lobby - and will vote for wasteful government programs like the Old Pension Scheme (OPS). So this is a good reason for keeping the government small . . .