governance, political economy, institutional development and economic regulation

Posts tagged ‘innovation’

NITI’s vision 2032 disappoints

NITI vision 2

NITI vision 2032 : foggy, disjointed & barely hanging together

Prime Minister Narendra Modi and the chief ministers of states spent most of Sunday deliberating over the plans and prospects for India in the next 15 years to 2031-32. The third governing council meeting of the Niti Aayog seems to have been an underwhelming affair, judging from the two presentations put up on its website. Why this listless thinking?

Great expectations

Three years ago, when the dowdy Planning Commission was transformed into a glitzy Niti Aayog, expectations were high that it would be the loci of innovation and cutting-edge analytics in public policy. The Planning Commission was merely an extended office of the Prime Minister. Chief ministers, whilst supposedly integral to the National Development Council (NDC), which the commission serviced, felt like interlopers rather than participating members. The flamboyant J. Jayalalithaa used the NDC forum like a television station — walking in to deliver her speech and then walking out. Others stoically suffered the process, making debating points, that no one heard.

New beginnings

Some of that has changed. Mr Modi has done away with the elevated podium of yesteryear for the PM and Union ministers. Now all are seated at the same level around a round table. Another first — the meeting was held at Rashtrapati Bhavan. Symbolic, as our head of state is not the PM, but the President, with whom the Union and state governments have an independent constitutional equation. In deference to the beacon ban, the long line of official cars streaming into the venue were minus their flashing red lights, thereby letting the tricolour atop Rashtrapati Bhavan take pride of place. On optics, the arrangements were perfect.

More optics than substance

The substance, however, seems not to have been as uplifting. Five examples will illustrate.

Lacks credibility

indian dream

A car for every household – is this the Indian dream?

First, a 15-year vision which is not nuanced enough to reconcile trade-offs lacks credibility. To aim to make India a prosperous economy by 2032 is a pie in the sky. India can, at best, and that too with enormous effort, go from being a lower middle-income country (per capita at current $1,600) to become a middle-income country (per capita current $4,800). A very long shot from being prosperous. The per capita income (at current US dollars) in Latin America and Caribbean today is $8,415, while in East Asia it’s at $9,512. There is no way we can catch up to even these levels by 2032. Consider also that the high growth rates required to make this jump could negatively impact equality. The international experience amply demonstrates that high levels of growth come with the risk of increasing inequality. There is not a whisper in the vision statement of how we propose to navigate the trade-off between growth and equality — the latter being part of the PM’s vision.

More of the same

brick stacks

Second, the Niti Aayog’s vision statement is backward looking. It ignores the dislocation caused by technological developments which technology leaders like the Chinese entrepreneur, Jack Ma have been warning against. NITI aims to make India a highly-educated country by 2032. Should we not be looking, instead, at becoming highly skilled? We are already battling progressive robotisation. By 2032, artificial intelligence would have squeezed jobs further in traditional sectors. New jobs, 10 million a year, which we require and still don’t have, are only likely in highly specialised areas — like space travel, frictionless transportation and psychological counselling — niches which are not easy to robotise, rather than general education which we value today. By 2032, just as plumbers, carpenters, masons and welders would be obsolete so would equity traders, bank clerks, low-level lawyers and IT workers. We will still need pure scientists, social scientists and engineers, but in limited numbers, We already produce 2 million of these every year. But very few are of cutting edge quality. Our challenge is to develop innovative minds with appropriate skills, not to educate 400 million of our under 18 years population to become “thinkers” – the bulk of the thinking will soon be done by machines. Humans will need the skills required to choose and make wise decisions, intermediate between humans machines and train other humans to work with machines. No sign of this transformation in the vision.

Not joined up – conflicting objectives

oil pollution

Third, the vision statement wishes India to become “energy abundant”. But being energy abundant is a retrograde desire tinged with the potential for waste. Energy abundance means energy prices tumbling, spurring even more per capita consumption of energy. Surely this is incompatible with the other objective of being “environmentally clean”? Are we really aiming to provide a car or a motorbike to each household, as the vision proclaims, or do we wish to make public transport the most convenient option? Should we not be allocating funds to become energy efficient rather than spending on acquiring or developing more energy resources? The hunger for energy abundance is a stale ambition.

Mushy & emotional, not pragmatic

Fourth, the Niti Aayog aims to make us a “globally influential nation”. How is one to go about this Dale Carnegie-type revamp? India has thumped the tables of the United Nations for over five decades. And yet, suddenly today, we are more influential globally than ever before because of our large, growing markets, relatively easy access for foreign capital and technology, facilitating internal institutional arrangements and stable polity. Influence is an outcome of domestic capacity, confidence and conviction. These 3C’s are the drivers we should be looking at. Best, like Arjun, to aim for the eye of the bird and not get distracted by the clouds floating around.

Process matters for cooperative federalism

Fifth, the Niti Aayog was constituted to showcase cooperative federalism and be the entry door for its implementation. But it remains poorly organised for living by this principle. Its staff should be deputed both by the Union government and directly by the state governments, much like multilateral entities operate. It must have a permanent secretary-level board to review and clear documents to be presented to the governing council, and provide a forum for discussion and implicit negotiations between officers from the Union and the states deputed to the Aayog. The governing council should structure meetings to provide for negotiations at the political level to evoke the spirit of cooperation and collaboration. Currently, the council functions more as a receptacle for the views of state governments and offers an opportunity for the Union government to tell states what it is doing, just like the Planning Commission used to do.

Put some flesh on the vision

famine

The vision unveiled, yesterday, is muddied by a vast array of disjointed initiatives, thereby reducing the clarity of purpose expected from such a document. Words matter and must be used selectively and deliberatively. Otherwise a vision is nothing but a laundry list of wishes. For years the World Bank “dreamt” about a world free of poverty. It now recognises that wishes need to disciplined to the takable actions to convert wishes to reality.

The public expects much, much more than old wine in new bottles from Mr Modi- especially over the next decade. He and the outstanding talent in the Aayog, must allocate time for thoughtful negotiations at multiple levels. There is no other way to make others — particularly the state governments — feel like valued members of the same Team India!

Adapted from the authors article in The Asian Age  April 25, 2017 http://www.asianage.com/opinion/oped/250417/niti-aayogs-vision-2032-disappoints.html

PM NITI 3 GC

 

Mixed signals stifle innovation

signals

Photo credit: everettlaw.com

Weird as it may sound, despite the rhetoric around innovation and private entrepreneurship being key for growth, this is not the consistent message emanating from government policy and regulations. Here are three examples.

Ideological neutrality versus enlarging access to the internet

First, consider that TRAI caved-in, in February 2016 to the “shrill voices” demanding that Facebook/Internet.org be stopped from offering free basic (limited) internet. The wooly thinking behind this decision was that Facebook- a deep pocket player- could thereby lure users to the Free Basics site- dubbed by activists as a walled garden, from which there would be no escape. Customers would be so entranced by the scented garden, that they would never wish to explore anything beyond the limited products on display within. This may have pleased Facebook- the description of Free Basics closely matching what heaven must be like- but they upped stakes and left.

Foreign companies make easy targets

Most likely Free Basics, a foreign venture, was just an easy target. TRAI probably played to the home grown, software industry – represented by NASSCOM- which was up in arms against the foreign interloper. But it is the consumer who lost out- particularly those at the margin of attaining internet access. These millions could have been in a free walled garden. Today they continue to wander through the dust of an internet less but limitless, real desert.

The economic cost of banning access to free basic internet

ICRIER, a Delhi based think tank, is assessing the economic cost of not providing internet access through a nineteen state survey. Preliminary assessments show that there is a significant increase in GDP by adding more users to the internet. The, un-confirmed, upper-bound assessment could be an astounding additional GDP growth of around 2.5% if the number of internet users are increased by 16%. This is exactly what Free Basics would have done. But they have been thwarted by rules, which adversely impact competition, jobs and wealth creation via innovation.

Restraining private equity funds from attracting customers to e-market platforms

Sadly, this is not the only example. Yet another instance of rules which increase the transaction cost of doing business for innovators, rather than reducing it is the new FDI regulations permitting 100% foreign equity in e-commerce market platforms. Whilst the relaxed FDI limit is progressive, the additional constraints it comes with are not. One condition is that no supplier should have more than a 25% share in sales on the platform. Another condition is that the market platform must not influence retail prices.

e-market platforms are not stock exchanges

The government’s conception of an e-commerce platform seems to closely resemble a stock exchange, which is hands off aggregator and facilitator for matching demand and supply. Why then would we need more than one such e- commerce platform – since profits lie in scaling up operations? God forbid if the next step is to specify that the market platform must be co-operatively owned by all the suppliers.

Lip sympathy for bricks and mortar retailers

The underlying concern behind the restrictive concerns seem be that e-commerce market places should not disrupt the business of stand-alone bricks and mortar retailers by offering deep discounts, using private equity funds, to grab market share. True private equity driven scaling up can bankrupt inefficient and under- funded retailers. But isn’t it in the nature of business to remain efficient via disruption? Government needs to concern itself not with the fortunes of individual businesses but the aggregate health of the retail sector- employment and customer services provided. Instead of protecting individual jobs, government must grow the total number of jobs recognizing that innovation- by definition, is disruptive of the status quo.

In any case rules to artificially maintain the status quo are rarely effective. They can be undermined and evaded. That is not the concern. The real concern is the adverse impact, that impractical rules have on the innovation eco-system. Innovators and their financiers, expose themselves to enormous business risk. The last thing they need, as an add-on transaction cost, is the risk from uncertain regulation.

Why extend the broken business eco-system of legacy industries?

There is also the issue of the attracting the wrong kind of innovators and private equity- those who are adept at working within a tightly regulated regime using the nod-wink approach to compliance with rules. This was a key qualification for doing business in India earlier. It should not be allowed to become the norm in e-commerce also.

We acclaim IIT/IIM graduates who are courageous enough to start their own e-business. But why tie their hands behind their backs from the start by forcing them to be dishonest; by requiring them to innovate a business model which will hood wink the law. And what about the potential risk that these illogical regulations may be tightened further. For example, prescription of rigorous tests for a Chinese wall between the e-market platform and the suppliers with respect to shareholding; a ban on inter-company loans from cash rich platform developers to suppliers to avoid the short circuiting of the discount ban by setting up shadow, intermediate whole-sellers between the market platform and the actual suppliers.

Most importantly, the desire to tick the box on allowing 100% FDI in marketing platforms whilst mollifying the lobby of bricks and mortar retailers, has derailed the existing eco-system for innovation in e-commerce. Rather than getting out of their way, the government has ended up increasing the potential nuisance from the new regulations. This is not a healthy environment for promoting innovation.

Remember the boom in private IT and telecom business?

The spectacular IT growth since the 1990s was the result of facilitation rather than intrusive regulation. Similarly, the telecom industry grew exponentially post-2000, because the quality of regulation was light handed and promoted competition rather than intrusive regulation of business processes and pricing of retail services.

Electricity – the limitations of intrusive regulation

In sharp contrast, the electricity supply industry has intrusive cost of service based retail price regulation. The results are before us. Despite three separate schemes, since 2000, to restructure the stressed loans of electricity distribution companies, they still comprise a quarter of the non-performing assets of public sector banks. Whether privatization of electricity distribution in 2000- as was envisaged then- along with liberalization of the energy supply chain, could have had happier results, is in the realm of speculation. But intrusive regulation has not helped one bit in restoring the sectors health.

The consistent lesson is that less government is better governance. This was PM Modi’s rallying principle. One only wishes that he would make someone, who has his ear, responsible for alerting him every time government departs from this golden rule.

 

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TRAI’s ersatz socialism kills innovation

TRAI

R.S. Sharma the new TRAI chairperson and  architect of “ersatz socialism” in the www. Photo credit: economic times.com

By ruling against Facebook’s Free Basics type of innovation, which offers, hitherto undreamed of, free but limited access to data services, Telecom Regulatory Authority of India (TRAI) has regressed to a version of “ersatz Nehruvian socialism”, which persist long after Panditji. It would have astounded him that his thoughts are still evoked to preserve the privileges of a thin crust of 250 million elite Indians whilst doing little for the 700 million poor Indians. Consumer benefit has been sacrificed yet again for ideology.

Nehruvian Socialism and Net Neutrality

Remember the car you used to drive in the 1970s? Most don’t, because it was an expensive, exclusive asset owned only by the rich. Even today Indian cars remain a rich person’s trophy because of the high cost of owning and using one relative to average income. Only 10 per cent of the 230 million Indian households own a car. Ironically, the TRAI order of February 8, 2016, is driven by a similar vision — preserving notional equity and freedom within a small bubble of 250 million well-off, “Internet connected” Indians owning smartphones.

poor buy

India’s poor- ersatz socialism permanently excluded them from the bubble of shiny cars. Net neutrality similarly excludes them from the virtual world. Photo credit: bbc.co.uk

Shunning innovation in the pricing of access to the Net under the garb of Net Neutrality has precisely this bubble effect. TRAI has decided to protect the existing ecosystem which privileges platform managers, content and app developers who today have unpaid access to 250 million netizens. But it ignores the need to grow this market to include 700 million Indians who are too poor to access data services other than phone calls and SMS.

TRAI’s vision of the www is like that of an owner of an expensive mall- keep the poor out.

The net is like a Mall except that you have to pay to get in and guards are actively instructed to keep shabbily dressed people out so that rich customers can float through an air-conditioned heaven- just like in Dubai. The good news is that in the real world business serves the needs of the poor through street markets because the municipality facilitates it. in a TRAI ruled internet the poor are to shunned, exactly as in expensive Malls and no street market is to be made available for the poor. The poor are to be kept invisible – as in China or Rwanda where the strong arm of the State keeps the poor severely controlled.

It is unsurprising that the Congress which has made ersatz socialism into a family business should support “Net Neutrality”. But that this should happen under a government led by Prime Minister Narendra Modi which has vowed to “free” India from the social and economic chains of the past, shows that this government needs to put on its “thinking” cap.

TRAI order equates porn with socially relevant content

TRAI’s decision is perverse and here’s why. It throws out the baby with the bath water. Whilst banning price “discrimination” for content, it also effectively disallows “positive discrimination” or “affirmative action” for access to socially responsible content. In essence it says a consumer must pay to access content whether it is porn or wikipedia.

Consider a large Indian company which may want to subsidise a telecom service provider (TSP) for providing free access to educational sites targeted at helping poor or dalit kids crack the JIIT exam. The TRAI order disallows this effort.

Similarly, it bars a poor, pregnant woman, say on the outskirts of Patna, from availing free access to check the cost of having her baby in a decent hospital in Mumbai, where her husband works. Sorry, says the TRAI order. You must pay the TSP to access the Net.

It is hypocritical to simultaneously support free content-unhindered by state control whilst arguing against “affirmative action” for providing free access to the poor to socially relevant content, developed just for them.

It is not just about Facebook

It’s not only about Free Basics. It is the principle of killing innovation that’s the real concern. The Trai order kills innovation in developing socially relevant content for the poor because there is no way now of getting the content to them.

Free Basics is driven by commerce. Free access has to be paid for by someone. Today it is Facebook subsidising access, tomorrow it could be a Tata CSR project. In Africa, Net subscriptions of the poor are subsidised by foreign donors.

Net neutrality is bad economics

More practically, there is money at the bottom of the income pyramid. Activists, platform managers, content and app developers are being short sighted in ignoring the role of “free access” in getting them there. They lack the business vision of Hindustan Lever which innovated shampoo sachets two decades ago to give every woman an affordable taste of luxury. Or do they fear that international players with deep pockets may get there first before they get their act together? Are they using the garb of “Net Neutrality” as a fig leaf for self-preservation? Do existing Indian players, TSPs want to keep Facebook out so they can do the same once they become big enough?

Predatory pricing based on enormous private equity funding is the essence of the IT start up.

All IT start-ups attract customers by subsidising prices. Take Uber, Flipkart or any other. The fear that they will start increasing prices once they get bigger is misplaced because unlike the bricks and mortar world entry barriers are low in the digital economy which ensures sufficient competition to keep each big player on their toes. Guarding against predatory pricing is a slippery slope for TRAI. It can result in taking the fizz out of e-commerce which is growing by out-pricing the corner mom and pop store and traditional taxis by relying on serial funding from investors, not profits to fund unheard of price discounts. In any case India has laws and the Competition Commission of India to regulate dominance and monopoly. TRAI is hardly equipped to rule on anti-trust issues.

Today’s startup is tomorrow’s business biggie

flipkart

The Bansals of Flipkart- value $ 15 billion and counting- give Amazon a run for its money. Photo credit: livemint.com

Ironically, whilst making it easy to do business for “start-ups,” we are killing commercial innovation by business biggies. Can an “innovation” friendly eco-system really be sliced and diced, such that it is a “free market” for start-ups but a stiflingly regulated environment once they become a business biggie, like Facebook? In the virtual economy startups grow on the strength of innovation not government protection. In any case, the record of ersatz socialism in growing small industry via protection is miserable. The Indian Telecom industry, the only success story of privatisation and reform, has grown from being yesterday’s “start-up” to today’s business biggie. Why discriminate against it because it has been successful?

The digital eco-system must be fair to all stakeholders, not just the software and content developers

There is a symbiotic relationship between TSPs, content providers and app developers. TSPs, represented by Cellular Operators Association of India (COAI), buy expensive spectrum from the government, install and maintain the telecom network to link-in netizens and ensure that the number of eyeballs grows. If the content available is attractive, netizens spend more time surfing, thereby boosting TSP revenues. They enrich app developers by buying an app off the Net.

To access content on Flipkart, Snapdeal, Amazon, Uber or Myntra there is no additional charge other than the Internet access cost. So are these companies just plain generous? No. Like Facebook or Google, they make their money by selling the data they gather from the netizens — demographics and preferences — to market analysts and sometimes to governments; they leverage their eyeball score to increase advertising revenue and get additional private or public equity funding. This is the money they burn to offer fantastic discounts and out-compete brick and mortar pop and mom stores.

So why does National Association of Software and Services Companies, an Indian IT lobbyist, support the Trai order? Because it is in the interest of the software developers and content providers they represent to try and hang-on to the freebie they have — the roving eyeballs of netizens for which they pay nothing.

Why do the parents of the www (US & the Brit Sir Tim Berner) support net neutrality?

Berner

Sir Tim Berner-Lee inventor of the www. Photo credit Wikipedia.com

Indian activists are fond of using the United States as an exemplar of non-discriminatory pricing access and the trenchant advocacy of Tim Berners-Lee – the inventor of the www-for net neutrality. This is their Brahmastra to clinch the argument for “Net Neutrality”.

This is unsurprising. For most netizens, the US is the mother lode of innovation, which it certainly has been. But cut-paste is bad tactics for good governance. The context in which things work is key. Activists and governments routinely overlook the difference in context in a slavish tendency to adopt best practice international templates.

Why the US is different

US poor

The poor people of the US: photo credit: rediff.com

In the US, the poverty level income is $2,000 per capita per month. Data access costs just 5 per cent of income or $100. In India, the poverty level income is $30 per capita per month. Data access costs $10 or one-third of a poor woman’s income. The cost of Internet access is not an economic barrier in the United States. The US is under no compulsion to abandon “Net Neutrality”, an ideology which sounds noble. For India, TTAI’s ideology of “Net Neutrality” means the economic exclusion of 700 million poor people.

TRAI’s technical incompetence drives the ban on differential pricing

The bottom line  is that despite its rhetoric on “net neutrality” TRAI is technically incapable to monitor data services to detect instances of blocking or preferential access for content favoured by TSPs. This why it has opted for the blunt instrument of a complete ban on commercial innovation in pricing and financing. This is the worst option driven by regulatory incompetence not by high minded adherence to principles. A sad comment on the state of regulation and of consumer protection in India.

Adapted from the authors article in Asian Age February 10, 2015 http://www.asianage.com/columnists/trai-s-socialism-kills-innovation-136

Prime Minister Modi says Ni Hou

Ni Hou

(photo credit: india.com)

Arun Shourie- minister in the earlier NDA government and senior BJP leader was being strategically alarmist when he went public on May 1 warning Prime Minister Modi against succumbing to the seductive spell, which the Chinese put on Pandit Nehru (India’s first Prime Minister) eagerly accepting his diplomatic largesse and support whilst remaining firm on giving nothing in return, which was not expressly bargained for and agreed.

Mr. Shourie has a flair for the dramatic and an uncanny ability to be evocative in his speech, sweetly hitting hardest, where it hurts the most. The Chinese “betrayal” of Pandit Nehru’s “brotherly” love by invading India in 1962 broke Nehru’s heart and spirit. He succumbed to the body blow two years later. China supporters maintain that unclear messaging from India forced China to retaliate since it perceived India as being bent on unilaterally disturbing the status quo along an un-demarcated Himalayan border between the two countries. Be that as it may, the China-India 1962 war, in which, despite heroic, determined but futile resistance from an ill-equipped and poorly led Indian army, China soundly trounced India, has left an open wound for India, which is still raw more than five decades later.

One doesn’t need to go back to 1962 to be sure that China is not a natural ally for India. We are just too similar with few complementarities and hugely competing priorities.

India-China, twins separated at birth?

Both countries are in a race for fuel, which neither have and both need to grow their economies and feed their people. One out of every three humans is either Chinese or Indian. China is racing to achieve high income economy status (per capita GNI> US$ 12,746) whilst India is striving to be an upper middle income economy-where China is today (per capita GNI> US$ 4,125). Both need to find export markets to fuel their growth. Both are relative “outsiders” to the high table of developed countries and both are jostling for space. Both peoples are hugely entrepreneurial and compulsively competitive. But there the similarity ends.

Even twins grow differently

India is barely at the threshold of being a lower middle income economy but its international, political engagement is larger than its economic heft. China is already an upper middle income economy but traditionally prefers to remain below the international diplomacy radar and boxes well below its weight, except when it perceives its national interest directly at stake.

India is a democracy of long standing, grounded on the compulsion of complex heterogeneity and plurality. China is a largely homogenous, beneficent, authoritarian meritocracy.

India is has been institutionally and ideologically networked into the developed world due to its colonial heritage and the facility with English. But it is a recent and somewhat unwilling, entrant to the international trade and investment value chains. China’s culture and values are unique and somewhat autarkic but its planned tapping of developed country knowledge, innovation, research and technology market has worked well. Its pragmatism, easy adaptation to change and determined implementation of a growth strategy by integrating into trade and investment value chains, sets it apart from even its East Asian neighbours, most certainly India and previously communist countries.

Given the lack of complementarities and the visibly rivalrous character of the relationship why has Prime Minister Modi steadfastly wooed the Chinese?

Why China eyes India

China knows well what it wants from India. It wants to service India’s booming market with cost competitive goods and services. This is why a bilateral trade target of even US$ 100 billion per year is rather limited for China. Given a choice it would rather shoot for US$ 200 billion so that it can buy into India’s growth prospects for adding at least 1% to its GDP growth over the next few years.

Growth is flagging in China. This is worrisome for the leadership which has built its credibility by “filling people’s pockets to shut their mouths”- a snide reference to the grand political bargain in which Chinese citizens agree to trade in individual freedom for material gains.

India has a trade deficit of 50% of US$ 37 billion with China. Bilateral trade is US$70 billion.  This is higher than the aggregate trade deficit which is 20%. Further expansion of trade will likely worsen this deficit, since China is a more efficient mass producer of goods. Trade with China is consequently only a lever for India with which to negotiate alternative benefits in investment; security cooperation and mutually supportive diplomatic stances in multilateral fora.

So what is it about China which should excite India?

China made Indian Gods

Rather than predictably moan about the trade deficit with China Prime Minister Modi should praise the Chinese people for their achievements.

First, thank them for sending affordable goods to India thereby directly benefiting Indian consumers and forcing Indian industry to become competitive through attrition of uncompetitive businesses.

Second, thank China for being a role model for developing countries on the following three counts. (A) Illustrating the virtues of savings and investment led growth, particularly in manufacturing (B) Establishing the necessity of increasing public investment in human development and social protection (C)  Providing to the developing world a model for enhancing employment, jobs and rapid reduction in poverty

Third, invite them to visit India as Tourists, Students, Scholars and Friends so that our great cultures can learn from each other directly.

The gloved fist

Much has been made of the Chinese excursions into India even as President Xi was eating Dhoklas with Prime Minister Modi in September 2014.  Was this part of an elaborate Chinese plan to remind India that sipping green tea together does not mean China will give up its claims on Indian territory? Or were they a Peoples Liberation Army game plan to stab the reformist Xi in the back and undermine his international credibility? We may never find out. But what it does illustrate is that diplomacy is like sleeping with snakes-one has to sleep light, remain vigilant, move slowly but definitively and remain calm and unperturbed by the ensuing rattles.

Chinese cash

Should we fear Chinese investment in India? Clearly they have the cash and we have the need for it. One reason why we need the cash is to generate jobs. This means that the standard Chinese model of project implementation which relies on Chinese expatriates does not suit our needs. Rather they should build Indian skills in project implementation in keeping with their celebrated record in project implementation.

Partnership with Indian companies is the best model for Chinese investment in India so that social benefits and tax revenue flows downwards to the people of India whilst corporate profits flow to China. Other than a very short negative list of investments in sensitive border areas, Chinese investment should be welcomed. In fact co-partnership in international value chain related production can be of mutual benefit in services, engineering and chemicals.

End game

Prime Minister Modi’s China strategy must needs be minimalist. India looms too large in China’s neighbourhood for comfort. China will pull no punches in consciously trying to establish its dominance in South Asia and thereby cramp Indian influence. This is very similar to the effort India spends on cultivating Vietnam now and Taiwan earlier to the chagrin if China.

The best that India can hope to do is to stop China from playing “spoiler” in India’s unfolding growth story. Chinese support for Pakistani Terror or Maoist rebels in east India is an illustration of such proxy efforts. The best way of neutralizing “spoilers” is to co-opt them into the game as active participants. We must encourage China to develop significant investment stakes and trade links with India so that they too benefit from India’s growth. Actively encouraging highway and rail links across borders is a good place to start. India must aim to become “too big” in the Chinese investment portfolio for it to stall Indian growth- this is what “protects” the US.

It is inconceivable that Mr. Shourie is oblivious of this imperative to reach out to China. Could it be then be that his highly publicized “missive” to the PM was just a charade, dreamt up by the BJP “dirty tricks” department, to build up PM Modi as a strong and forceful leader with the reach; the credibility and the strategic depth to ignore inner-party, high level resistance to warming up China-India relations? In other words was Mr. Shourie’s advice given with the full knowledge that it would be ignored?

Similarly, could it be that the recent government action against Greenpeace and the Ford Foundation for crossing red lines by supporting activities against the national interest, were also initiated to project Mr. Modi’s government, ahead of the China visit, as being strongly nationalistic, able and willing to cock a snook at the US, just to illustrate, that India is not wedded to any traditional power block.

Far-fetched or not, PM Modi leaves for Beijing on a stronger wicket, as a friend of China, than he started with in September 2014, in part, thanks to Mr. Shourie.

The glue of cross-religious Kar Seva

multifaith

(photo credit: http://www.en.wikipdia.com)

By polishing shoes at Bangla Sahib Gurudwara, in New Delhi, as “Kar Seva,” the refreshingly ordinary Lt. Governor, Najeeb Jung and his wife, have raised the bar for people in high public office.

A “Kar Sevak” is one who volunteers to provide pro-bono service for a religious cause. That a deeply religious Muslim couple should choose to do so in a Sikh gurudwara, showcases the best practice role model for our plural society.

Critics will dismiss it as mere tokenism. But in a country starved of demonstrated public consciousness amongst the high and mighty, even tokenism is helpful in building bridges across our social divides.

In a similar vein, PM Modi launched his Swachh Bharat campaign by sweeping a poor colony of the kind that the Mahatma used to prefer to live in on his travels, to show solidarity with the Dalits; again tokenism of course but of the right kind.

Pseudo secularists of course would prefer to build a more religiously sanitized society where religion becomes purely a personal affair and the State keeps away consciously from religious events.

To expect this to happen in the near future is “pie in the sky”. Indians of all denominations are a deeply religious people. Even those, like the “Dalits” who were once doomed to be the dregs of society, under the orthodox Hindu caste system, rebelled not by abandoning religion altogether but instead chose to became Christian in earlier times, inspired by the egalitarian society of the Christian faith. More recently they choose to become Buddhists, led by Bhenji (Sister) Mayawati of Uttar Pradesh.

Religion is here with us to stay, just like man’s selfish nature or inequality. The real issue is how the downside of a deeply religious society can be minimized. As in matters economic, a vibrant society requires the push and pull of competing religions for people to choose from. Reform and change is often sparked by enough people “voting with their feet” to cross over to an alternative group or religion, whose sentiment resonates better with their current aspirations. If this was not so, religions would atrophy and become preserves of elites preying on the ordinary people. This, in fact, is the problem with theocratic states. There is little room or opportunity, for reforming the State religion. The only real choice is to exit the country.

Clearly a plural, traditional country like India cannot offer such blunt choices to its citizens. Hinduism is a fairly elastic religion and can fit all manner of beliefs. This is why, despite 700 years of Theocratic State rule, till 1947, by non-Hindu, monarchic or colonial governments, Hinduism has flourished even in the North and the East where these theocratic rulers were most firmly in power. This is also illustrative of the essentially extractive objectives of these theocratic government. So long as people paid their taxes and did not expect to share in political power, their religion mattered not a whit to the non-Hindu rulers.

It is odd, therefore, that in modern, democratic India, Hinduism should be perceived to be under threat. The real truth is that being the dominant religion in India, Hindu leaders have not felt the bite of competition to keep them on their toes.

If Christian missionaries could expand their fold by providing public services (education, health and social equality) what has stopped Hindu religious leaders from being similarly socially active? If Madrassas can attract poor Muslim kids with the promise of a free education and care why are Hindu institutions not able to compete and retain their market share of adherents?

An areligious State is not anti-Hindu. Similarly a State which does not recognize the deep reverence of Indians for religion can only be blind. Till now we have sought to covertly protect one religion or the other whilst pretending that in State matters religion does not exist. This is hypocritical. Let us confront the issue frontally.

Most Indians would want a State which deals with religions in an even handed manner. Here are five  ground rules we could establish to illustrate that the State has no religion.

First, establishment of new religious shrines should require the consent of the entire community resident around an area and must not be undertaken on public land. If people want a new Temple, Gurudwara, Mosque or Church, they must find the land for it privately and do so in a manner which does not create opposition.

Second, all those entitled to fly the India flag officially, must be required to participate in religious occasions in their local areas to give visible proof that the State respects all religions. Whilst in such high public office, officials must eschew public demonstration of their private religious faith. People judge intentions by how a leader behaves not by the rhetoric. Leaders have to be areligious whilst in public office if the State is to be benign to all religions. Being areligious means being accessible to all religions, including for their key events.

Third, the State must intervene forcefully to protect and facilitate inter-faith marriages, so long as they are legal, including being based on choice. The current trend is highly regressive where the Police act illegally to dissuade such marriages. Choice is the corner stone of liberty so long as it is exercised within the boundaries of the rule of law. By subverting this ideal we are subverting the very basis of democracy.

Four, affirmative action by the State (reservations) must be available to all religions on a common economic and social basis. So long as the basis of affirmative action is based on belonging to Scheduled Tribes and Castes or Other Backward Castes, they must not face the prospect of losing the benefits of affirmative action on opting for an alternative religion.

Five, the convention of rotating the positions of formal power (President, Governors, nominated members of Parliament) across all the religions is a fine, albeit symbolic gesture. Similarly, maintaining proportionate representation of all religions in such formal positions is an excellent convention which should be upheld.

No one knows better than PM Modi the power of symbolism. He is the symbol of New India: aspirational, confident, eager for change and enabled to compete in the World. In our race to “catch-up” with the World we must not repeat the mistake that China made of a black and white choice between tradition and modernity.

The “Big Mac index” only works if there is sufficient diversity in the World. If all countries were clones of each other it would not be needed. Innovation is the preserve of alternative minds and evolution the consequence of differentiated genes.  Let us preserve and grow both in India. More power to the elbows of “cross-religious Kar Sevaks”.

DGCA kills innovative, consumer friendly pricing by Air Asia

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Air Asia,the newest aviation kid on the block, got a taste of the heavy hand of Indian regulators even before it starts service on June 12. The Director General of Civil Aviation directed them not to implement their innovative initiative to charge only those passengers with check-in luggage for the service. The normal practice is to build-in the average cost of a 15 kg free luggage allowance whether one needs it or not.

Why DGCA was compelled to do so remains in the secret annals of the regulator which, being a government agency, hoards information on why decisions are made. There could be three possible reasons why this happened.

First, this unbundling of the checked in luggage charge was a departure from the norm. Babus hate such departures. The absence of the all-important “precedent” complicates life for them. A possible stint at Tihar, looms large in their minds, if their decision is perceived as favouring the licensee. This particular decision predated the assurance from PM Modi that babus need not be scared of retribution, unless it is deserved.

The key to effective governance is innovation. This “can-do” approach is foreign to the average babu DNA, across the world. But it is only innovation, which can reduce transaction cost and improve efficiency- both sorely needed in India.

The international experience in economic regulation indictates that intrusive regulation retards innovation. Nor does it help consumer interest, because the supplier is left with no incentive to increase profits by optimizing costs and maximizing revenue. Secondly, the entrepreneurial energy, which is unleashed by competition in the market, gets blunted if market forces are unduly restrained.

The Indian aviation market has more choice than two decades ago. But competition is still stifled by the “cartel” of five scheduled operators: Air India, Jet, Indigo, Go and Spice jet. To be fair, since their injection into the market, they have led on price discovery. Air India has been unable to compete and is accumulating massive loss, despite the advantage of preferential allotment of prime travel slots and destinations.

Cartels, like babus, hate “disruptive innovation” since it shakes up a stable financial equilibrium they have adjusted to over time. Consumers on the other hand look for such innovations in pricing which adapt to their specific capacity to pay. Think Hindustan Lever’s shampoo sachets.

Air Asia did just that. It slashed its inaugural tickets to negligible amounts. But it proposes to charge if you want to check-in luggage. This is welcome news for those on short trips, who carry nothing more than a briefcase. But it is terrible news for those who travel with a “colonial style” “bistra bund”. Air Asia proposes to allocate cost only to those on whose behalf they are incurred. Today the “bistra bund” lot free rides on the price paid by the “briefcase” lot. This is also bad news for passengers who consume their 15 kg free allowance but hang around, trying to pool their surplus luggage with other obliging passengers. Many obliged becuase their unused free luggage allowance was a sunk cost, till Air Asia came around.

Tariffs drive behavior. Airlines have already unbundled preferential seat allotment and food service with salutary effect on customer and staff behavior. Customers no longer jostle, pull rank or use influence to get the seat of their choice for free. Now its pay and get. Cabin staff, which previously used to throw free food and drinks at customers, like relief workers do at refugees, is now responsive to customer needs. Paisa bolta hai (money talks)

Possibly DGCA had concerns about Air-Asia duping customers into buying cheap tickets and then loading charges on them at the last minute, whilst checking in. This could have been dealt with by requiring the airline to (1) get a declaration signed from the customer that they are aware of the “no free luggage” clause and (2) ensured that in all advertisements of the cheap fares, the “no free luggage” clause is prominently displayed. After all airline customers have already got used to paying for their food and drinks on board and paying for specific seats. How is luggage so different?

A third concern, DGCA may have had, is of predatory pricing. This is what the existing “cartel” charged Air-Asia to be indulging in. At the very least the charge is odd. Predatory pricing is a strategy usually adopted by an existing dominant supplier, with huge sunk costs, to keep competition at bay. The fledgling Air Asia is hardly a likely candidate to invite the charge of predatory pricing.

Civil Aviation is a vital sector of the domestic economy. Viewed holistically, with railways, road and waterways; it is integral to an efficient multi-modal transportation system, each of which has a comparative advantage for a particular profile of passenger and cargo.

Unfortunately aviation continues to be viewed as a service for the rich. Aviation fuel is taxed punitively. The sector is ruled with a heavy hand by the DGCA-the government managed regulator. A report authored by Nathan Consulting in 2008 concludes that aviation needs to transition to more light handed and market oriented regulatory options, in the interests of enhanced competition and protection of customer interest.

The DGCA has erred in knocking down the very worthwhile innovation by Air Asia, which is perfectly in line with sound economics for the determination of fair and efficient user charges. At the very least, this reeks of an unsuitable, heavy handed, danda  wielding style of regulation. At its very worst, this action can be construed as undesirable collaboration with the “cartel” to “discipline” the kid in town- Air-Asia. In either case it has not brought glory to DGCA, which is more familiar with engineering safety concerns rather than the nuances of economic regulation.

One hopes, that the new chief babu in Civil Aviation and the new Minister will show the way and reward rather than retard dynamic and innovative pricing.

 

 

 

    

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