A few weeks ago, after a high-heat session hashing out a data governance/ lineage offering at work, a teammate shared material from Edward Snowden's interview by Prof Lawrence Lessig with me. It made for truly sombre reading. Watching the documentary Citizenfour (which premiered in the same month) yesterday was a grim reminder not merely of the profound moral-legal issues involved, but also of the question of what, if anything, has society learned from the sordid disclosures and consequent debate. First off, public memory is arguably impaired by information gaps regarding what Snowden actually exposed. Mainstream media mostly reduced the 2013 leaks to personal gossip, political theatre, and character assassination. Its occasional stirring into thriller-like coverage of Snowden's whereabouts or asylum attempts was also as predictable as it was puerile. The terrifying reality of mass citizen surveillance, which was core to the episode, was almost entirely ignored. The fact remains that l' affaire Snowden deserves examination through multiple lenses. The legal, moral, political, and organizational perspectives are obvious, but the precipitating action was technological. In fact, advances in information technology enabled the Orwellian surveillance just as much as they paved the path for its eventual exposure. Furthermore, this was not an isolated example: infotech advancements have dramatically outpaced our legal and ethical framework in the last few years. No lesson is enough, for we continue to lack the muscle to foresee and mitigate the risks of such revolutions. Going back to Snowden, it must be acknowledged that there are two fundamental dilemmas (lines of morality and legality blur here) at play. First, at a policy level, is the balancing act between prevention of public harm and invasion of privacy. The vision of Big Brother run amok is not just conspiracy theory fodder. Equally, it is difficult to guarantee civil liberty without the protective cover of public policy, which almost directly implies the enforcement power of a benign regime. As such, a balance is expected to be provided by internal checks, legislative oversight, judicial review, and Fourth Estate scrutiny. This framework assumes no information asymmetry, however, and is increasingly strained by an inherent bias, namely, one that results from a sustained global rise in threat frequency, disruption severity, and adversarial sophistication. The second ethical conundrum is personal and, one would think, integral to whistleblowing. Many would find no fault in the NSA's use of PRISM under a means-justify-ends logic. For them, loyalty to one's employer and commitment to a hallowed mandate (perhaps even a premonition of vituperative consequences), should have weighed heavily against Snowden. Yet, he acted under an overriding, good-faith obligation to shine a light on these surveillance practices. He evidently recognized his duty as being beholden to the nation at large, not merely to its instruments of state. Defining the 'common good' is a slippery slope, of course, and causes one to pause before becoming overly celebratory of Snowden's stance. Finally, there is the perspective of consequences. If one were to characterize Snowden's actions as Gandhian civil disobedience (conscience-driven, non-violent, public action), then he undeniably shook the State out of its complacency. From Obama on down, the polity was compelled to attend to policy deficiencies, including reform at the NSA itself. As for Snowden, the price of valuing integrity and a high sense of morality, enormous as it may be, was only waiting to be paid. History will be the eventual arbiter, but this is the seeming cost to keep the spirit of deliberative democracy alive.
Showing posts with label Policy. Show all posts
Showing posts with label Policy. Show all posts
Saturday, January 17, 2015
Torches and Snow Houses
Posted by Echohum at 11:36 PM 0 comments
Labels: Government, Policy, Security
Friday, February 28, 2014
A House Divided: The Script of AP
Andhra looms large in my Weltanschauung. Notably, I lived in Hyderabad back in 2005-07, making many friends for a lifetime (in one case, hopefully longer) during my sojourn. Scores more over the years have hailed from Telugu-land. Rare among this breed, however, were those who believed possible what shall become a reality later this year (having lived through BR turning BR + JH, I was much more sanguine). Erstwhile AP shall split, and Telangana shall be State #29 of the Union, come June 2!
Much ink has been expended on the why. Of these reasons, none is cited with more vehemence or consistency than historicity. Indeed, the idea harks back to the India of sixteen mahajanapadas in the form of Assaka. Yet, through the Satavahana, Vakataka, Chalukya, Rashtrakuta, and Kakatiya periods, the borderlines remain fluid. Come the Nizams and the 1799 alliance (which gifts Rayalaseema and Coastal Andhra to the British while retaining Telangana within Hyderabad) and the map starts to take shape. Then, of course, comes the Telangana rebellion against the Nizam and the Doras, building the groundswell for Hyderabad's merger with India and culminating in Operation Polo on September 17, 1948.
Enter Potti Sreeramulu. Overcoming Prime Minister Jawaharlal Nehru's long-held opposition, a language-based Andhra state comes into being in October 1953—almost directly in consequence of Amarajeevi's sacrifice—comprising seven Coastal region districts along with four from Rayalaseema (and no Telangana!), with Kurnool as capital. Genie out of the bottle, demands to redraw the map of India on a linguistic-regional basis proliferate across the country, forcing Nehru to appoint a States Re-organisation Commission. This is where it turns into a veritable political thriller.
The SRC, headed by the PM's beloved Fazl Ali (and including the venerable KM Panikkar, HN Kunzru et al), recommends in 1955 the formation of separate Andhra and Hyderabad states, considering economic disparity and relative misalignment in public opinion with respect to unification. Note that this is entirely in line with Nehru's concerns around the “tint of expansionist imperialism” in the Telangana-Andhra merger, with the PM going so far as to compare it to a matrimonial alliance needing “provisions for divorce” if the partners cannot get on well. At the very least, the SRC indicates a five-to-six-year cooling period before considering Vishalandhra. In a strange u-turn, a forever-sceptical PM now overrides his own SRC, not to mention earlier JVP and Dar commissions, to deliver a unified Andhra Pradesh in 1956!
Much has been speculated about Nehru's rather uncharacteristic volte-face—whether driven by blackmail by Andhra elites, the spectre of a communist Telangana, threat of royalist-Muslim revival of Azad Hyderabad dream, or a Soviet-influenced vision of mega-states. Or, perhaps more characteristically, the idealist in him was taken in by the 'Gentlemen’s Agreement' (in the main for political power sharing with a CM/Deputy CM split, a 60:40 Cabinet composition, job protections via Mulki rules, no revenue surplus diversion, and oversight via a Regional Committee as a special legislative body). Regardless, Nehru wilted, and in so doing, virtually wrote the exact script of the subsequent movement and eventual division.
Of course, in the typical arc of history, it took a few years for the union to entirely unravel. The Agreement itself was violated almost at once: Deputy CM post frequently left vacant or abolished; job quotas bypassed; Telangana surplus diverted to fund major irrigation projects in coastal Andhra etc. The ground continued to simmer: over 350 students lost their lives in 1969's First Telangana Movement; TPS won 10 of 14 seats in 1971 only to be co-opted into the Congress ranks in true Indira style; the 1973 Jai Andhra counter-movement that led to abolition of Mulki protection; and NTR's 1985 Government Order 610 to repatriate non-local appointments etc. Much was promised, little delivered, and for an illusory period of peace, it appeared that the demand for separate Telangana had petered out.
Cut to 2000. Chandrababu Naidu was at the peak of his political prowess. Having secured a crushing victory to enter his second term in 1999 and deeply allied with the ruling NDA at the center, he was internationally celebrated as a tech-savvy "CEO" Chief Minister. The Congress, led by the feisty Y.S. Rajasekhara Reddy, was entirely unable to breach Naidu’s development-focused narrative. Against this backdrop, a certain K. Chandrashekar Rao, then Deputy Speaker of the Assembly and disgruntled at being denied a cabinet post, sensed a massive blind spot in Naidu's Vision-2020 plan: the severe agrarian distress and deep feelings of neglect in the Telangana region. He walked out of the TDP and formed the Telangana Rashtra Samithi. There has been no looking back since, and in just over a decade, the statehood demand has fructified.
Naturally, as clear catalysts, KCR-TRS are being feted for their contribution toward the realization of the Telangana dream. What is less obvious, and arguably more pivotal, has been the Congress's strategic role. India's GOP may or may not have orchestrated his exit from the TDP, but they intentionally elevated KCR to legitimacy, forming an alliance in 2004, and including a promise for the reorganisation of states in their common manifesto. With this, they fractured TDP’s Telangana vote bank, sending Naidu into political wilderness for the last decade. What's more, when in power, the Congress carefully sustained the Telangana issue on a slow burner to keep the TDP perpetually at loggerheads internally, utilizing this friction to encourage a steady stream of desertions that have severely hollowed out Naidu’s regional leadership. For now, at least in Telangana, it appears bye-bye TDP.
Where does that leave the Congress? The bifurcation has obviously been inspired by massive anti-incumbency both nationally and regionally. Fact is that much of their woes are the outcome of a sense of entitlement and being too smart for their own good. This move appears no different. Thus, in the Congress high command's calculation, the division finishes Naidu off forever, checkmates a rising Jagan Mohan Reddy, and hopefully gains KCR as a long-term ally (for an eventual merger). I would be surprised by either outcome. Naidu will now double down on residual Andhra, and it is likely to be a two-way fight between him and Jagan for the foreseeable future. And KCR is unlikely to share power when he can reign absolutely. Eventually, the plan backfires on the Congress itself.
In summary, yes, one must justifiably expect celebrations galore in Telangana and KCR-mahal come June 2. And yet again, the fortunes of the country and its states have been held hostage to the Congress's partisan machinations and short-termist outlook. Chacha Nehru then, Sonia Gandhi now. Here's to hoping that this script changes nationally soon...
Much ink has been expended on the why. Of these reasons, none is cited with more vehemence or consistency than historicity. Indeed, the idea harks back to the India of sixteen mahajanapadas in the form of Assaka. Yet, through the Satavahana, Vakataka, Chalukya, Rashtrakuta, and Kakatiya periods, the borderlines remain fluid. Come the Nizams and the 1799 alliance (which gifts Rayalaseema and Coastal Andhra to the British while retaining Telangana within Hyderabad) and the map starts to take shape. Then, of course, comes the Telangana rebellion against the Nizam and the Doras, building the groundswell for Hyderabad's merger with India and culminating in Operation Polo on September 17, 1948.
Enter Potti Sreeramulu. Overcoming Prime Minister Jawaharlal Nehru's long-held opposition, a language-based Andhra state comes into being in October 1953—almost directly in consequence of Amarajeevi's sacrifice—comprising seven Coastal region districts along with four from Rayalaseema (and no Telangana!), with Kurnool as capital. Genie out of the bottle, demands to redraw the map of India on a linguistic-regional basis proliferate across the country, forcing Nehru to appoint a States Re-organisation Commission. This is where it turns into a veritable political thriller.
The SRC, headed by the PM's beloved Fazl Ali (and including the venerable KM Panikkar, HN Kunzru et al), recommends in 1955 the formation of separate Andhra and Hyderabad states, considering economic disparity and relative misalignment in public opinion with respect to unification. Note that this is entirely in line with Nehru's concerns around the “tint of expansionist imperialism” in the Telangana-Andhra merger, with the PM going so far as to compare it to a matrimonial alliance needing “provisions for divorce” if the partners cannot get on well. At the very least, the SRC indicates a five-to-six-year cooling period before considering Vishalandhra. In a strange u-turn, a forever-sceptical PM now overrides his own SRC, not to mention earlier JVP and Dar commissions, to deliver a unified Andhra Pradesh in 1956!
Much has been speculated about Nehru's rather uncharacteristic volte-face—whether driven by blackmail by Andhra elites, the spectre of a communist Telangana, threat of royalist-Muslim revival of Azad Hyderabad dream, or a Soviet-influenced vision of mega-states. Or, perhaps more characteristically, the idealist in him was taken in by the 'Gentlemen’s Agreement' (in the main for political power sharing with a CM/Deputy CM split, a 60:40 Cabinet composition, job protections via Mulki rules, no revenue surplus diversion, and oversight via a Regional Committee as a special legislative body). Regardless, Nehru wilted, and in so doing, virtually wrote the exact script of the subsequent movement and eventual division.
Of course, in the typical arc of history, it took a few years for the union to entirely unravel. The Agreement itself was violated almost at once: Deputy CM post frequently left vacant or abolished; job quotas bypassed; Telangana surplus diverted to fund major irrigation projects in coastal Andhra etc. The ground continued to simmer: over 350 students lost their lives in 1969's First Telangana Movement; TPS won 10 of 14 seats in 1971 only to be co-opted into the Congress ranks in true Indira style; the 1973 Jai Andhra counter-movement that led to abolition of Mulki protection; and NTR's 1985 Government Order 610 to repatriate non-local appointments etc. Much was promised, little delivered, and for an illusory period of peace, it appeared that the demand for separate Telangana had petered out.
Cut to 2000. Chandrababu Naidu was at the peak of his political prowess. Having secured a crushing victory to enter his second term in 1999 and deeply allied with the ruling NDA at the center, he was internationally celebrated as a tech-savvy "CEO" Chief Minister. The Congress, led by the feisty Y.S. Rajasekhara Reddy, was entirely unable to breach Naidu’s development-focused narrative. Against this backdrop, a certain K. Chandrashekar Rao, then Deputy Speaker of the Assembly and disgruntled at being denied a cabinet post, sensed a massive blind spot in Naidu's Vision-2020 plan: the severe agrarian distress and deep feelings of neglect in the Telangana region. He walked out of the TDP and formed the Telangana Rashtra Samithi. There has been no looking back since, and in just over a decade, the statehood demand has fructified.
Naturally, as clear catalysts, KCR-TRS are being feted for their contribution toward the realization of the Telangana dream. What is less obvious, and arguably more pivotal, has been the Congress's strategic role. India's GOP may or may not have orchestrated his exit from the TDP, but they intentionally elevated KCR to legitimacy, forming an alliance in 2004, and including a promise for the reorganisation of states in their common manifesto. With this, they fractured TDP’s Telangana vote bank, sending Naidu into political wilderness for the last decade. What's more, when in power, the Congress carefully sustained the Telangana issue on a slow burner to keep the TDP perpetually at loggerheads internally, utilizing this friction to encourage a steady stream of desertions that have severely hollowed out Naidu’s regional leadership. For now, at least in Telangana, it appears bye-bye TDP.
Where does that leave the Congress? The bifurcation has obviously been inspired by massive anti-incumbency both nationally and regionally. Fact is that much of their woes are the outcome of a sense of entitlement and being too smart for their own good. This move appears no different. Thus, in the Congress high command's calculation, the division finishes Naidu off forever, checkmates a rising Jagan Mohan Reddy, and hopefully gains KCR as a long-term ally (for an eventual merger). I would be surprised by either outcome. Naidu will now double down on residual Andhra, and it is likely to be a two-way fight between him and Jagan for the foreseeable future. And KCR is unlikely to share power when he can reign absolutely. Eventually, the plan backfires on the Congress itself.
In summary, yes, one must justifiably expect celebrations galore in Telangana and KCR-mahal come June 2. And yet again, the fortunes of the country and its states have been held hostage to the Congress's partisan machinations and short-termist outlook. Chacha Nehru then, Sonia Gandhi now. Here's to hoping that this script changes nationally soon...
Posted by Echohum at 12:15 AM 0 comments
Saturday, December 7, 2013
Inflation Bonds: Flatter to Deceive
Months in the making, the Reserve Bank of India has finally launched consumer inflation-linked bonds. Going under the moniker of 'Inflation Indexed National Saving Securities - Cumulative' (a mouthful, if ever), these bonds have been the subject of much anticipation. Alas, the fine print finds them coming up woefully short.
The biggest stumbling block lies in the product design and its consequent tax treatment. In most countries with such bonds, the formulation goes broadly thus: pay the investor a nominal interest rate on Face Value while letting the FV float in line with the linked inflation index. It is a simple structure that pivots on gains from the inflation-driven FV increases, which are treated as capital gains in the eyes of the taxman.
To take a line from the fabled Maggi sauce commercial, the IINSS is different. It has been structured as a bond paying interest, the rate of which is pegged to the Consumer Price Index. By implication, the entire interest earned qualifies as income, to be taxed at the marginal rate. To be fair, if only the inflation-compensating portion had been subject to capital gains, it could have benefited from indexation. Clearly, the powers-that-be at FinMin and RBI thought otherwise.
Several sticky points other than taxation come up too. The typical desi fixed-income investor, mostly given to income, may not line up in droves for the compulsorily cumulative IINSS. To boot, the lock-in period itself is rather long at 10 years. Such an extended tenor may only accentuate inflation and interest rate uncertainties that scare away investors. Early exit is possible, but only after 3 years, and with a penalty. Finally, there is an unfathomable ₹5-lakh investment cap. All told, I don't see investors being inexorably drawn to IINSS (versus, say, infrastructure bonds with a friendlier format and better post-tax returns).
Be that as it may, one could still have rooted for distribution success. We know only too well that, in the Indian context, financial products need to be actively sold (occasionally with little correlation to merit, ULIPs being a case in point). I wouldn't hold my breath for this though — these bonds are to be sold only via banks, and their low commission structure is unlikely to be incentive enough for them.
Perhaps I am being overly cynical. Maybe IINSS is a step forward, but it could have been so much more. Certainly, days into his tenure, our rockstar RBI Governor had himself talked a big game as to its market-making potential. At least on that count, if not more, this is an ahem.
The biggest stumbling block lies in the product design and its consequent tax treatment. In most countries with such bonds, the formulation goes broadly thus: pay the investor a nominal interest rate on Face Value while letting the FV float in line with the linked inflation index. It is a simple structure that pivots on gains from the inflation-driven FV increases, which are treated as capital gains in the eyes of the taxman.
To take a line from the fabled Maggi sauce commercial, the IINSS is different. It has been structured as a bond paying interest, the rate of which is pegged to the Consumer Price Index. By implication, the entire interest earned qualifies as income, to be taxed at the marginal rate. To be fair, if only the inflation-compensating portion had been subject to capital gains, it could have benefited from indexation. Clearly, the powers-that-be at FinMin and RBI thought otherwise.
Several sticky points other than taxation come up too. The typical desi fixed-income investor, mostly given to income, may not line up in droves for the compulsorily cumulative IINSS. To boot, the lock-in period itself is rather long at 10 years. Such an extended tenor may only accentuate inflation and interest rate uncertainties that scare away investors. Early exit is possible, but only after 3 years, and with a penalty. Finally, there is an unfathomable ₹5-lakh investment cap. All told, I don't see investors being inexorably drawn to IINSS (versus, say, infrastructure bonds with a friendlier format and better post-tax returns).
Be that as it may, one could still have rooted for distribution success. We know only too well that, in the Indian context, financial products need to be actively sold (occasionally with little correlation to merit, ULIPs being a case in point). I wouldn't hold my breath for this though — these bonds are to be sold only via banks, and their low commission structure is unlikely to be incentive enough for them.
Perhaps I am being overly cynical. Maybe IINSS is a step forward, but it could have been so much more. Certainly, days into his tenure, our rockstar RBI Governor had himself talked a big game as to its market-making potential. At least on that count, if not more, this is an ahem.
Posted by Echohum at 1:11 AM 0 comments
Sunday, January 27, 2013
Corruption: Obelix and the Magic Potion
There is much in R-Day celebrations to tug at the heartstrings. Its crowning moment is the parade: rich in nationalistic appeal, celebration of valour, and pride in the achievements of a republic but a few score years old, and a culture thousands of years young.
In addition to patriotic fervour, R-Day is also fitting occasion for solemn contemplation. In thus ruminating over the state of the nation, one can't help but rue what ails its fortunes. Today, the most prominent such malaise is corruption. The affliction is hardly new, but has become so endemic at the top, so brazen in its extent, that it is morale-sapping and threatens the very fabric of our motherland.
This is not scare-mongering. Take black money, which has a deeply symbiotic relationship with corruption. A few years ago, the Swiss Banking Association reported that banks in Switzerland had around $1.5 trillion in deposits from Indian nationals. Compare this illicit stash to the size of our formal economy, especially one that is strapped for investment to spur growth, and you wonder at the possibilities.
Of course corruption is hardly the preserve of those with access to the Confoederatio Helvetica (or the Bahamas, Caymans, BVI, or other similar global money-laundering havens). Enough exists around us, in the form of you friendly neighbourhood policeman, sarkari babu, driving licence agent, and so on. However, when the Central Govt gets as mired in it as UPA-2 has, then the nation starts to lose its moral compass. After all, what deterrence is to be expected when not a day goes by without headlines screaming obscene amounts and prominent names neck deep in graft. It appears that almost no part of Dilli sarkar is left untouched.
With the stench in Raisina Hill reaching unimaginable proportions, one looks for answers. The mind goes back to a UPA-2 corruption headline of a different kind. A year or so ago, then CEA Kaushik Basu, had offered a striking formulation (endorsed amongst others, interestingly, by INFY co-founder Narayana Murthy). Shri Basu advocated legalising bribe-giving so as to encourage reporting, thereby improving incidence capture.
As solutions go, perhaps we need something similarly drastic to shake us off our slumber. This idea though, however innovative, is a slippery slope. It can easily degenerate from honest reporting, to wilful entrapment (lessons from news channel 'sting operations' that have bred their own format of corruption). Stretch the point and one could start offering bribes by default. If caught, you claim immunity as a public-spirited citizen merely unearthing the corrupt. Rinse, repeat, till a pliable babu is found. Voilà.
My other bone with such legalisation is how it shifts the onus of catching the corrupt to whistleblowers, thereby diluting the ownership of the relevant authorities. Like it or not, it is the government's job to identify and nab the dishonest. Outsourcing it to sundry 'citizen journalists' of potentially dubious intent and zero oversight, sounds ominous to say the least.
Much as the heart would wish otherwise, here is no magical solution. Very little in the proclivities of the current government thus far suggest that a different, deep-rooted attempt to counter corruoption is imminent. It may take a regime change for the requisite political will to surface, and perhaps thats what one must pin hopes on, this 26 January.
In addition to patriotic fervour, R-Day is also fitting occasion for solemn contemplation. In thus ruminating over the state of the nation, one can't help but rue what ails its fortunes. Today, the most prominent such malaise is corruption. The affliction is hardly new, but has become so endemic at the top, so brazen in its extent, that it is morale-sapping and threatens the very fabric of our motherland.
This is not scare-mongering. Take black money, which has a deeply symbiotic relationship with corruption. A few years ago, the Swiss Banking Association reported that banks in Switzerland had around $1.5 trillion in deposits from Indian nationals. Compare this illicit stash to the size of our formal economy, especially one that is strapped for investment to spur growth, and you wonder at the possibilities.
Of course corruption is hardly the preserve of those with access to the Confoederatio Helvetica (or the Bahamas, Caymans, BVI, or other similar global money-laundering havens). Enough exists around us, in the form of you friendly neighbourhood policeman, sarkari babu, driving licence agent, and so on. However, when the Central Govt gets as mired in it as UPA-2 has, then the nation starts to lose its moral compass. After all, what deterrence is to be expected when not a day goes by without headlines screaming obscene amounts and prominent names neck deep in graft. It appears that almost no part of Dilli sarkar is left untouched.
With the stench in Raisina Hill reaching unimaginable proportions, one looks for answers. The mind goes back to a UPA-2 corruption headline of a different kind. A year or so ago, then CEA Kaushik Basu, had offered a striking formulation (endorsed amongst others, interestingly, by INFY co-founder Narayana Murthy). Shri Basu advocated legalising bribe-giving so as to encourage reporting, thereby improving incidence capture.
As solutions go, perhaps we need something similarly drastic to shake us off our slumber. This idea though, however innovative, is a slippery slope. It can easily degenerate from honest reporting, to wilful entrapment (lessons from news channel 'sting operations' that have bred their own format of corruption). Stretch the point and one could start offering bribes by default. If caught, you claim immunity as a public-spirited citizen merely unearthing the corrupt. Rinse, repeat, till a pliable babu is found. Voilà.
My other bone with such legalisation is how it shifts the onus of catching the corrupt to whistleblowers, thereby diluting the ownership of the relevant authorities. Like it or not, it is the government's job to identify and nab the dishonest. Outsourcing it to sundry 'citizen journalists' of potentially dubious intent and zero oversight, sounds ominous to say the least.
Much as the heart would wish otherwise, here is no magical solution. Very little in the proclivities of the current government thus far suggest that a different, deep-rooted attempt to counter corruoption is imminent. It may take a regime change for the requisite political will to surface, and perhaps thats what one must pin hopes on, this 26 January.
Posted by Echohum at 11:49 AM 0 comments
Sunday, June 12, 2011
Text-Me-Not
I would stop short of calling myself a gadget geek. I do, however, have a deep-rooted belief in Technology's game-changing abilities — at work and otherwise. This, coupled with a proclivity towards things new, often leads me to an early adopter posture toward techie products and concepts. One such acquaintance I made in the late 90s was text messaging. In fact, I evangelized its discreet convenience, referable memory, etc — compared to here-and-now voice calls to anyone who cared to listen (in context, it helped that it was free vs steeply priced airtime!), and remain an above-average user to this day.
I must add that I did not register in the first wave of DNC, even if sympathetic to the indignation on unwanted calls. My reasons were largely professional. At its root, the credo of open communication (read: taking calls from unknown numbers) was an occupational hazard. In reality, it was a goldmine of information - it helped me get bad news (the variety you want to know ASAP) promptly more than once, plus rudimentary competitive intelligence; not to forget insights best derived from listening to the occasional irate customer. All of this strengthened my resolve to stick it out amidst the onslaught of sundry telemarketers.
Unfortunately, it seems to be going from bad to worse. It is almost an incipient reality of modern life that text-messaged advertisements carpet-bomb your Inbox every day. Pesky calls too, after an initial decline, have reared their head again. The vanguard is clearly SMS though, and the biggest violator real estate firms and agents: I am subject to a dozen messages daily, in complete disregard of my tenuous pecuniary state! The bulk of these supposedly fantastic property deals are in assorted parts of Delhi NCR; but interspersed are offers from Jaipur's Tonk Road, plots in the Uttarakhand hills, down to faraway Mysore and back-of-beyond. It makes me wonder if only geographic bounds have been transcended or those of sanity too. Or perhaps it is my middle-class upbringing that limits me to imagine an investor class that takes realty, or similar sizeable, investment decisions based on an SMS exchange!
The uninvited texts wear other colours too. In fact, had it not been for the glaring segmentation error (maybe they score intention, not ability, as an explanation for ignoring my financial position) in real estate ads, or those ridiculous friendship helplines, I would have thought a grand design in peddling me travel packages, hairfall cure (ouch) or zero-effort fat-removal therapy (I even got one for a 10 yr US visa in 10 days for 10K from some random Churchgate agent last week). Frankly, if only less prolific, it would have been funny.
When viewed within a broader context, the apparent helplessness of the Indian consumer to overcome this mess only adds to the general scam-season discontent. True to form, an irresolute UPA-2 has shed hardly a tear for the revised-twice-yet-missed 31 Mar deadline. Strangely, their blundering ways have come to their rescue. With public attention on other more ignominious spectacles, they have actually been able slip by without saying almost anything.
Deadlines apart, given its declared intentions to snoop on all voice-data exchanges in the country (recall the BlackBerry tangle), the Government can hardly argue that policy formulation or erecting filter infrastructure are insurmountable asks. Likewise, allocating a special telemarketing code for landlines, or cracking down on rogue telecom companies that continue to sell bulk SMS deals should not be too tough to execute. Yet, the ongoing spectacle of DoT-TRAI ping-pong on the issue inspires little confidence in their appreciation for the task at hand or the seriousness of their commitment to it.
No one, of course, can fault the Government if it avers that implementing a foolproof DNC (or do-call) registry, including critical security pieces, is a complex exercise. I am just not sure why it should remain open-ended and a shifting goalpost (which sounds counter-intuitive in the context of technology). The nation needs a quantifiable plan. Or perhaps Mr Sibal needs to be text-blitzed to realise this...
I must add that I did not register in the first wave of DNC, even if sympathetic to the indignation on unwanted calls. My reasons were largely professional. At its root, the credo of open communication (read: taking calls from unknown numbers) was an occupational hazard. In reality, it was a goldmine of information - it helped me get bad news (the variety you want to know ASAP) promptly more than once, plus rudimentary competitive intelligence; not to forget insights best derived from listening to the occasional irate customer. All of this strengthened my resolve to stick it out amidst the onslaught of sundry telemarketers.
Unfortunately, it seems to be going from bad to worse. It is almost an incipient reality of modern life that text-messaged advertisements carpet-bomb your Inbox every day. Pesky calls too, after an initial decline, have reared their head again. The vanguard is clearly SMS though, and the biggest violator real estate firms and agents: I am subject to a dozen messages daily, in complete disregard of my tenuous pecuniary state! The bulk of these supposedly fantastic property deals are in assorted parts of Delhi NCR; but interspersed are offers from Jaipur's Tonk Road, plots in the Uttarakhand hills, down to faraway Mysore and back-of-beyond. It makes me wonder if only geographic bounds have been transcended or those of sanity too. Or perhaps it is my middle-class upbringing that limits me to imagine an investor class that takes realty, or similar sizeable, investment decisions based on an SMS exchange!
The uninvited texts wear other colours too. In fact, had it not been for the glaring segmentation error (maybe they score intention, not ability, as an explanation for ignoring my financial position) in real estate ads, or those ridiculous friendship helplines, I would have thought a grand design in peddling me travel packages, hairfall cure (ouch) or zero-effort fat-removal therapy (I even got one for a 10 yr US visa in 10 days for 10K from some random Churchgate agent last week). Frankly, if only less prolific, it would have been funny.
When viewed within a broader context, the apparent helplessness of the Indian consumer to overcome this mess only adds to the general scam-season discontent. True to form, an irresolute UPA-2 has shed hardly a tear for the revised-twice-yet-missed 31 Mar deadline. Strangely, their blundering ways have come to their rescue. With public attention on other more ignominious spectacles, they have actually been able slip by without saying almost anything.
Deadlines apart, given its declared intentions to snoop on all voice-data exchanges in the country (recall the BlackBerry tangle), the Government can hardly argue that policy formulation or erecting filter infrastructure are insurmountable asks. Likewise, allocating a special telemarketing code for landlines, or cracking down on rogue telecom companies that continue to sell bulk SMS deals should not be too tough to execute. Yet, the ongoing spectacle of DoT-TRAI ping-pong on the issue inspires little confidence in their appreciation for the task at hand or the seriousness of their commitment to it.
No one, of course, can fault the Government if it avers that implementing a foolproof DNC (or do-call) registry, including critical security pieces, is a complex exercise. I am just not sure why it should remain open-ended and a shifting goalpost (which sounds counter-intuitive in the context of technology). The nation needs a quantifiable plan. Or perhaps Mr Sibal needs to be text-blitzed to realise this...
Posted by Echohum at 12:53 PM 1 comments
Labels: Policy, Technology
Sunday, May 22, 2011
Of Dreams and Skylines
Urban infrastructure in Delhi NCR is a question mark that lurks around corners, like a sly predator waiting to ambush you in an unguarded moment. Step into Gurgaon where I live, and it will be clear what I mean: global and gobar are concurrent realities that, despite the paradox, coexist peacefully in Millennium City. Its tall office towers with imposing green-glass facades, or glitzy spoilt-for-choice malls, may not be engineering marvels, but they veritably showcase New India's ambitious dreams. Soar high in their alluring promise and you are in for a rude awakening — the sickening grind of your car's underbelly being tested on sludge-filled, potholed dirt-tracks that masquerade as the city's roads. The contrast is telling — the government's criminal apathy in a revenue-rich district is obvious. Yet, it also betrays the resigned compromise its denizens have made with the contempt sarkari-tantra displays for its upkeep.
This dichotomous backdrop made a piece in HT Comments (Our Forbidden Cities, Francesco Giavazzi) on Monday especially interesting. Its moot point was that youth (bigger dreams, more energy to realise them) provide the power — and urban infrastructure the vehicle — for development. The logic virtually anoints cities as playgrounds for progress, with benefits that ultimately accrue to large populations. Giavazzi argued that such transformation, while difficult, is achievable, predictably citing Shanghai's example (I say ‘predictably’ without malice — a visit back in 2006 had convinced me that anyone struggling to grasp the meaning of ‘economies of scale’ merely had to spend a day in China's showpiece city). The part left almost unsaid in the article was how India does not really have much of a choice in the matter — at risk is the souring of our much-vaunted demographic dividend itself.
Going beyond Shanghai, the point is that better utilisation of scarce urban land can have significant economic and social benefits for our country at large. This is true in the sense of upgrading our Tier 2 and Tier 3 towns as well as replacing haphazard growth in larger cities with a more planned and sustainable one. On the first, consider how amenities — or even look and feel — in city #100 in the US compare with NYC (notwithstanding the scale) and see the gaping hole between even Delhi and Patna. I say this not simply enamoured of downtown skyscrapers in any American city of note, but of the economic realities that support such growth, and resulting quality of life for citizenry that results from it (including but not limited to impact on curtailing migration that seems to so upset the Sheila Dikshits and Raj Thackerays of the world, assuming they actually believe in their flawed diatribes).
Suggestions abound on the second aspect too, namely making the most of our larger cities. For instance, consider replacing Sarojini Nagar's ubiquitous sarkari structures with modern high-rise apartment complexes. An important point is that this model benefits not just the moneyed — its erstwhile civil servant occupants too would enjoy (at marginal cost) facilities they often bemoan 'overpaid MBA types' for accessing. Similarly, better intra-NCR connectivity can do more for Noida's realty prices than bombarding my highly-leveraged self with twenty unsolicited SMS offers a day (last I checked, the much-promised KMP Expressway was set to miss its fourth revised deadline). Nor is such lackadaisical execution a hallmark of the national capital alone — Mumbai's pride and joy, the Sea Link, is grossly over budget, behind schedule, and barely half complete.
No doubt there are other larger, more contentious issues. Land policy, the subject of a typically token recent demonstration by the ruling party's Gen Secy cum PM-in-waiting, is prime among them. The need to stamp out corruption in implementation has similarly hogged headlines. Yet, Gurgaon is living proof of the inadequacy of our urban planning policy — either non-existent or hopelessly delegated to private developers — to support the growth of infrastructure, let alone stimulate it; and an educated citizenry's failure to propel the government to action. I hope for our sake, and our children, that at least one of these changes soon.
This dichotomous backdrop made a piece in HT Comments (Our Forbidden Cities, Francesco Giavazzi) on Monday especially interesting. Its moot point was that youth (bigger dreams, more energy to realise them) provide the power — and urban infrastructure the vehicle — for development. The logic virtually anoints cities as playgrounds for progress, with benefits that ultimately accrue to large populations. Giavazzi argued that such transformation, while difficult, is achievable, predictably citing Shanghai's example (I say ‘predictably’ without malice — a visit back in 2006 had convinced me that anyone struggling to grasp the meaning of ‘economies of scale’ merely had to spend a day in China's showpiece city). The part left almost unsaid in the article was how India does not really have much of a choice in the matter — at risk is the souring of our much-vaunted demographic dividend itself.
Going beyond Shanghai, the point is that better utilisation of scarce urban land can have significant economic and social benefits for our country at large. This is true in the sense of upgrading our Tier 2 and Tier 3 towns as well as replacing haphazard growth in larger cities with a more planned and sustainable one. On the first, consider how amenities — or even look and feel — in city #100 in the US compare with NYC (notwithstanding the scale) and see the gaping hole between even Delhi and Patna. I say this not simply enamoured of downtown skyscrapers in any American city of note, but of the economic realities that support such growth, and resulting quality of life for citizenry that results from it (including but not limited to impact on curtailing migration that seems to so upset the Sheila Dikshits and Raj Thackerays of the world, assuming they actually believe in their flawed diatribes).
Suggestions abound on the second aspect too, namely making the most of our larger cities. For instance, consider replacing Sarojini Nagar's ubiquitous sarkari structures with modern high-rise apartment complexes. An important point is that this model benefits not just the moneyed — its erstwhile civil servant occupants too would enjoy (at marginal cost) facilities they often bemoan 'overpaid MBA types' for accessing. Similarly, better intra-NCR connectivity can do more for Noida's realty prices than bombarding my highly-leveraged self with twenty unsolicited SMS offers a day (last I checked, the much-promised KMP Expressway was set to miss its fourth revised deadline). Nor is such lackadaisical execution a hallmark of the national capital alone — Mumbai's pride and joy, the Sea Link, is grossly over budget, behind schedule, and barely half complete.
No doubt there are other larger, more contentious issues. Land policy, the subject of a typically token recent demonstration by the ruling party's Gen Secy cum PM-in-waiting, is prime among them. The need to stamp out corruption in implementation has similarly hogged headlines. Yet, Gurgaon is living proof of the inadequacy of our urban planning policy — either non-existent or hopelessly delegated to private developers — to support the growth of infrastructure, let alone stimulate it; and an educated citizenry's failure to propel the government to action. I hope for our sake, and our children, that at least one of these changes soon.
Posted by Echohum at 8:26 PM 1 comments
Labels: Policy
Saturday, January 22, 2011
Microcredit Miscarriage
Following a rather spirited discussion last week on the economics and politics of interest rate ceilings — albeit in a Malegam Committee context — I was directed to a recent NYT piece by Prof Muhammad Yunus (Sacrificing Microcredit for Megaprofits). In it, Yunus, Grameen Bank founder and Nobel laureate, lamented recent trends in microfinance, calling special attention to developments in India to highlight the sector’s missteps.
The Prof's premise is summarized thus: the model evolved in the 1970s in poverty-stricken Bangladesh as an alternative to the usurious stranglehold of moneylenders. Over the years, its success spawned emulators beyond its birthplace. However, the past decade’s structural shift in many parts of the world from non-profit to commercial lenders — he notably cited SKS Microfinance and its famous IPO — has resulted in "a new breed of loan sharks", striking at the sector's very raison d’être.
As arguments go, there is some merit in what Yunus postulates. One doesn't need to be a Mother India buff to be familiar with the shenanigans of the Friendly Neighbourhood Lala – he was the ogre of choice till Hindi Cinema discovered the hate potential of the political class. Replace him with a faceless corporation and supposed implications are shareholder avarice, dubious sources of funds, and rising operating expenses. All told, this image doesn’t sit well with poverty alleviation shibboleths.
Equally, the issue of lender profitability — the ostensible driver for the 'mission drift' — is hardly resolved. An impersonal intermediary like a corporation may not intuitivels understand the borrower’s financial lifecycle. Such compromised credit decisioning inherently increases risk of default. Worse, the absence of community relationships impairs the ability to manage delinquency, further skewing the risk equation. The cascading impact on interest rates creates a vicious cycle, potentially leading to lender collapse.
It is a grim picture. At the very least, this model shift requires all stakeholders to tread with extreme care, given its impact on the wider ecosystem. Certainly the last we need is sundry politicians fishing in troubled waters, à la AP. Yunus recommends an interest rate cap alongside a dedicated microcredit regulatory authority to oversee administration, accredit specialized microfinance institutions, and enforce] transparency in lending and collection practices. These sound sensible, in my view, but one major caveat: overzealous governments do not overreach, as is their wont, or misuse increased oversight to dole out favours to a chosen few.
Beyond these conditions lies the not-entirely-theoretical question of whether the intermediary must necessarily operate as a non-profit. Here lies the rub — the Indian experience has been most unfortunate. Simple, straightforward products (or agencies) have gotten twisted into something completely antithetical, hopelessly losing their purpose in a web of intrigue and shortcuts. Consider, for instance, the Money Matters fiasco where housing loans were subverted into a tool for highly leveraged speculation; or how the entire insurance industry got sidetracked into ridiculously-priced ULIPs instead of addressing the core opportunity in inadequate cover for the average Indian etc.
At the heart of these BFSI snafus is the buyer-seller information asymmetry — so designed less by accident and more by intent to keep the buyer in the dark. Microcredit has merely followed this trend. January, however, is too early to give in to cynicism wholly. Indeed, hope shines bright through the mutual fund example — an industry forced to pivot to retail equity investment instead of short-term corporate paper or load-driven easy pickings. Needed, it seems, are a few regulatory nudges. Keep the chin up, folks.
The Prof's premise is summarized thus: the model evolved in the 1970s in poverty-stricken Bangladesh as an alternative to the usurious stranglehold of moneylenders. Over the years, its success spawned emulators beyond its birthplace. However, the past decade’s structural shift in many parts of the world from non-profit to commercial lenders — he notably cited SKS Microfinance and its famous IPO — has resulted in "a new breed of loan sharks", striking at the sector's very raison d’être.
As arguments go, there is some merit in what Yunus postulates. One doesn't need to be a Mother India buff to be familiar with the shenanigans of the Friendly Neighbourhood Lala – he was the ogre of choice till Hindi Cinema discovered the hate potential of the political class. Replace him with a faceless corporation and supposed implications are shareholder avarice, dubious sources of funds, and rising operating expenses. All told, this image doesn’t sit well with poverty alleviation shibboleths.
Equally, the issue of lender profitability — the ostensible driver for the 'mission drift' — is hardly resolved. An impersonal intermediary like a corporation may not intuitivels understand the borrower’s financial lifecycle. Such compromised credit decisioning inherently increases risk of default. Worse, the absence of community relationships impairs the ability to manage delinquency, further skewing the risk equation. The cascading impact on interest rates creates a vicious cycle, potentially leading to lender collapse.
It is a grim picture. At the very least, this model shift requires all stakeholders to tread with extreme care, given its impact on the wider ecosystem. Certainly the last we need is sundry politicians fishing in troubled waters, à la AP. Yunus recommends an interest rate cap alongside a dedicated microcredit regulatory authority to oversee administration, accredit specialized microfinance institutions, and enforce] transparency in lending and collection practices. These sound sensible, in my view, but one major caveat: overzealous governments do not overreach, as is their wont, or misuse increased oversight to dole out favours to a chosen few.
Beyond these conditions lies the not-entirely-theoretical question of whether the intermediary must necessarily operate as a non-profit. Here lies the rub — the Indian experience has been most unfortunate. Simple, straightforward products (or agencies) have gotten twisted into something completely antithetical, hopelessly losing their purpose in a web of intrigue and shortcuts. Consider, for instance, the Money Matters fiasco where housing loans were subverted into a tool for highly leveraged speculation; or how the entire insurance industry got sidetracked into ridiculously-priced ULIPs instead of addressing the core opportunity in inadequate cover for the average Indian etc.
At the heart of these BFSI snafus is the buyer-seller information asymmetry — so designed less by accident and more by intent to keep the buyer in the dark. Microcredit has merely followed this trend. January, however, is too early to give in to cynicism wholly. Indeed, hope shines bright through the mutual fund example — an industry forced to pivot to retail equity investment instead of short-term corporate paper or load-driven easy pickings. Needed, it seems, are a few regulatory nudges. Keep the chin up, folks.
Posted by Echohum at 7:17 AM 2 comments
Labels: Finance, Government, Policy
Friday, December 24, 2010
Rest Easy
The calendar's fourth quarter is notable for its disproportionate share of festivities — occasions when circumspect purse strings loosen, accumulating significant expenditure that greatly aid the cause of private domestic consumption. This is an established phenomenon in the West, building to a Christmas peak, with accepted socio-cultural-economic benefits. Not merely due to an Anglophile tilt, but India too has had Q4 turn into a consumer marketing delight lately, albeit with twin summits on either end. Again, of all shopping destinations, if there be one where such a dance of disposable incomes and Westernised lifestyles should be most conspicuous, Millennium City Gurgaon must possess strongest credentials!
Someone stepping into SRS Value Bazaar at Sohna Road, however, will likely make a strong case for the reverse. Rewind a month and the paucity of options in the neighbourhood, plus burgeoning household earnings, meant that grocery shopping at this establishment was a lecher's delight (of the too-close-for-comfort kind often observed in your average DTC bus). Crowded to the core with sundry shoppers and ill-trained staff, one was forced to jostle through narrow aisles and tightly packed shelves, all barely a moment away from disintegration into total chaos, to get to check-out lanes that stretched to eternity. Yet, come last week of December and far from an upswing in the footfall frenzy, you may well discern a pall of gloom, the droopy shoulders of salespeople a telltale sign of dropping revenue.
So what has changed? The retail epicentre of the neighbourhood seems to have moved to a new postal address: Easy Day — newly established a mere block away. In fact, with Wal-Mart pedigree under its wing, this shop appears to have drawn an expanded clientele (with very obvious results on Sohna Road traffic — in any case prone to highly excruciating gridlock). This shopper upsurge may partly be driven by a novelty factor, or high voltage entry-strategy advertising, but there is a suggestion of more. My thesis posits that the underlying promise in Wal-Mart’s discounter positioning (in our notoriously price-sensitive market), and its comprehensive one-stop-shop concept has helped pull crowds. In point of fact, one must note too that discounts currently offered are minimal and shopping experience — the raw janata rush, indifferent staff etiquette, and serpentine queues — differs little from SRS. Yet, for now, Gurgaon’s yuppie and not-so-yuppie populace is voting decisively with its feet (and wallets).
Easy Day and its kin may well have a grander, more systemic destiny to fulfil. Over recent posts, we have agonised over a lasting fix for India's food security. Yet, despite an immediate inflationary crunch and glaring medium-long term supply inadequacy, our current Government's response remains spasmodic at best — unless, of course, one were to go by those conspiracy theorists that see a deliberate, nefarious design in repeated policy and administration failures. In any case, GOI's assertions of control are rendered meaningless by WPI (and more acutely, retail inflation) metrics with unfailingly sorry regularity.
Thus, in lamenting what ails Indian Agriculture, it is time to shift focus away from reactive tweaks that is the wont of democratic governments, and abandon hope for one-size-fit-all solutions. Instead, we need to address the supply chain in bite-sized increments. The most conspicuous vulnerability lies in storage and distribution — we squander a shameful 20% (likely more) of the food we produce, an abysmal state of affairs by any account (Animal Farm). Granting that our sarkari agencies are scarcely up to the ask of delivering needed-as-of-yesterday supply chain upgrades, the logical conduit for capital and knowhow (cold storage infrastructure, for instance) remains FDI in retail. Hence the pitch for Easy Day and its brethren – the systemic benefits from aggressive backward integration.
This is not an easy cat to bell. We cannot wish away the fears, imagined or otherwise, of thousands of traditional kirana establishments, facing the threat of being overrun. Au contraire, we ought to take a leaf from China’s playbook on extracting its pound of flesh when framing market access and FDI policies. Let organized retail serve a national imperative — aligning policymakers, producers, and customers — to ensure the best deal. And in time, perhaps, technology will deliver required irrigation and yield increases — structural productivity improvements that cannot fructify in one easy day.
Someone stepping into SRS Value Bazaar at Sohna Road, however, will likely make a strong case for the reverse. Rewind a month and the paucity of options in the neighbourhood, plus burgeoning household earnings, meant that grocery shopping at this establishment was a lecher's delight (of the too-close-for-comfort kind often observed in your average DTC bus). Crowded to the core with sundry shoppers and ill-trained staff, one was forced to jostle through narrow aisles and tightly packed shelves, all barely a moment away from disintegration into total chaos, to get to check-out lanes that stretched to eternity. Yet, come last week of December and far from an upswing in the footfall frenzy, you may well discern a pall of gloom, the droopy shoulders of salespeople a telltale sign of dropping revenue.
So what has changed? The retail epicentre of the neighbourhood seems to have moved to a new postal address: Easy Day — newly established a mere block away. In fact, with Wal-Mart pedigree under its wing, this shop appears to have drawn an expanded clientele (with very obvious results on Sohna Road traffic — in any case prone to highly excruciating gridlock). This shopper upsurge may partly be driven by a novelty factor, or high voltage entry-strategy advertising, but there is a suggestion of more. My thesis posits that the underlying promise in Wal-Mart’s discounter positioning (in our notoriously price-sensitive market), and its comprehensive one-stop-shop concept has helped pull crowds. In point of fact, one must note too that discounts currently offered are minimal and shopping experience — the raw janata rush, indifferent staff etiquette, and serpentine queues — differs little from SRS. Yet, for now, Gurgaon’s yuppie and not-so-yuppie populace is voting decisively with its feet (and wallets).
Easy Day and its kin may well have a grander, more systemic destiny to fulfil. Over recent posts, we have agonised over a lasting fix for India's food security. Yet, despite an immediate inflationary crunch and glaring medium-long term supply inadequacy, our current Government's response remains spasmodic at best — unless, of course, one were to go by those conspiracy theorists that see a deliberate, nefarious design in repeated policy and administration failures. In any case, GOI's assertions of control are rendered meaningless by WPI (and more acutely, retail inflation) metrics with unfailingly sorry regularity.
Thus, in lamenting what ails Indian Agriculture, it is time to shift focus away from reactive tweaks that is the wont of democratic governments, and abandon hope for one-size-fit-all solutions. Instead, we need to address the supply chain in bite-sized increments. The most conspicuous vulnerability lies in storage and distribution — we squander a shameful 20% (likely more) of the food we produce, an abysmal state of affairs by any account (Animal Farm). Granting that our sarkari agencies are scarcely up to the ask of delivering needed-as-of-yesterday supply chain upgrades, the logical conduit for capital and knowhow (cold storage infrastructure, for instance) remains FDI in retail. Hence the pitch for Easy Day and its brethren – the systemic benefits from aggressive backward integration.
This is not an easy cat to bell. We cannot wish away the fears, imagined or otherwise, of thousands of traditional kirana establishments, facing the threat of being overrun. Au contraire, we ought to take a leaf from China’s playbook on extracting its pound of flesh when framing market access and FDI policies. Let organized retail serve a national imperative — aligning policymakers, producers, and customers — to ensure the best deal. And in time, perhaps, technology will deliver required irrigation and yield increases — structural productivity improvements that cannot fructify in one easy day.
Posted by Echohum at 8:50 AM 2 comments
Monday, December 20, 2010
Dal is Meat (rhyme Small is Big)
My idea of a delectable meal often presupposes a meat-rich diet. This has worked well for the foodie in me, providing latitude for wide — some would say wild — experimentation in cuisine and ingredients over the years. Indeed, it would be difficult to think of occasions in the past that would have found me averse to conspicuous consumption of the non-vegetarian kind. It is equally easy to remember my preaching from the pulpit to those deprived of similar indulgences.
Alas, what use is a tale without a twist, and mine came up against one via marriage when my dedicated six-seventh carnivorous pursuit met its match. (Incidentally the existing Tuesday exception was likely on account of historical habit more than purely religious reasons.) To cut a long story short, one could be pardoned for thinking my last post — Dal, Not Boring was my first on food; built around an eminently vegetarian delicacy — to be an ‘inspired’ choice! Yet, extenuating domestic circumstances (an outvoted minority status) apart, my alibi is a mehengayi-dayan discussion pending from that post. Indeed, not only is the virus of inflation agnostic to dietary preference, but its acute focus on foods hurts dal as much as chicken, making a complete mockery of the Great (Veg/Non-Veg) Divide.
With this backdrop, let me hark back to the RBI Q2 Monetary Policy document that was mentioned in my last post. The central bank's pointed concerns about food inflation expressed therein are a good starting point to appreciate the worrisome situation (in case you missed your grocery bills these last few months). Terming it 'structural', the Review referred specifically to prices of protein-based foods (despite policy tweaks and good monsoons, inflation in this segment "remained persistently elevated" mid-20s; six months ago it was a whopping 34%). What officialese did not make explicit was the fact that the uptrend is over a year old — meaning this inflation is working off an already high denominator. The resultant compounding effect on end-consumer wallets is, naturally, stark.
It is not difficult to discern the roots of 'structural demand-supply mismatches' the RBI laments, or to build a case for future worsening. Demand is up, driven by a burgeoning population and changing consumption patterns (economic progress whets the appetite for more nutritious food). Neither of these is likely to recede — in fact one can well expect significant upside in each. At the same time, we are faced with what the RBI calls 'inadequate supply response', meaning there is little relief on the other side of the economic equation. Specific to dal, none of the three global producers (US, Oz, Burma) displays any urgency to increase areas under pulse cultivation. (We could, of course, collectively root for a dietary switch towards meat — but that puts at stake much more than my personal domestic discord!)
As a conundrum, it is a desperate one — what else could be more compelling for a nation languishing at #67 in 85 countries on the Global Hunger Index? Unfortunately, the much-required sense of urgency seems thus far missing from all stakeholders — policymakers, producers, consumers, et al (and certainly in our TRP-happy mainstream media, preening with self-proclaimed righteousness, but content to sell the day's news). The logical solution would be for Indian agriculture to step up, even if its immediate ability to do so remains fairly suspect. Otherwise, declared national goals like a Security Council seats are rather meaningless.
Alas, what use is a tale without a twist, and mine came up against one via marriage when my dedicated six-seventh carnivorous pursuit met its match. (Incidentally the existing Tuesday exception was likely on account of historical habit more than purely religious reasons.) To cut a long story short, one could be pardoned for thinking my last post — Dal, Not Boring was my first on food; built around an eminently vegetarian delicacy — to be an ‘inspired’ choice! Yet, extenuating domestic circumstances (an outvoted minority status) apart, my alibi is a mehengayi-dayan discussion pending from that post. Indeed, not only is the virus of inflation agnostic to dietary preference, but its acute focus on foods hurts dal as much as chicken, making a complete mockery of the Great (Veg/Non-Veg) Divide.
With this backdrop, let me hark back to the RBI Q2 Monetary Policy document that was mentioned in my last post. The central bank's pointed concerns about food inflation expressed therein are a good starting point to appreciate the worrisome situation (in case you missed your grocery bills these last few months). Terming it 'structural', the Review referred specifically to prices of protein-based foods (despite policy tweaks and good monsoons, inflation in this segment "remained persistently elevated" mid-20s; six months ago it was a whopping 34%). What officialese did not make explicit was the fact that the uptrend is over a year old — meaning this inflation is working off an already high denominator. The resultant compounding effect on end-consumer wallets is, naturally, stark.
It is not difficult to discern the roots of 'structural demand-supply mismatches' the RBI laments, or to build a case for future worsening. Demand is up, driven by a burgeoning population and changing consumption patterns (economic progress whets the appetite for more nutritious food). Neither of these is likely to recede — in fact one can well expect significant upside in each. At the same time, we are faced with what the RBI calls 'inadequate supply response', meaning there is little relief on the other side of the economic equation. Specific to dal, none of the three global producers (US, Oz, Burma) displays any urgency to increase areas under pulse cultivation. (We could, of course, collectively root for a dietary switch towards meat — but that puts at stake much more than my personal domestic discord!)
As a conundrum, it is a desperate one — what else could be more compelling for a nation languishing at #67 in 85 countries on the Global Hunger Index? Unfortunately, the much-required sense of urgency seems thus far missing from all stakeholders — policymakers, producers, consumers, et al (and certainly in our TRP-happy mainstream media, preening with self-proclaimed righteousness, but content to sell the day's news). The logical solution would be for Indian agriculture to step up, even if its immediate ability to do so remains fairly suspect. Otherwise, declared national goals like a Security Council seats are rather meaningless.
Posted by Echohum at 12:13 PM 0 comments
Sunday, September 5, 2010
Damp Squib
Months ago, the draft of a new Direct Taxes Code for India had drawn much public acclaim, including in these pages. This was not without reason. For starters, the existing system was visibly knocking on the doors of obsolescence. Hence, any review intended to simplify its archaic tenets (thereby reducing repeated recourse to judicial interpretation) was hugely welcome. Next, a forward-looking document shorn of its predecessor's dotage could enable the taxman to better engage and deploy New Age tools. This promised a sea change in efficiency and effectiveness of Direct Tax administration (on counts like evasion detection, internal security etc) making it a progressive legislation worthy of a budding economic superpower billing. Last and not least, the very idea of promoting larger debate prior to finalization bespoke intellectual honesty and inclusiveness rare in our policymaking experience. A thumbs-up for this wiki approach was much in line.
However, implicit in all these arguments (in fact providing them overall credence) was the game-changing nature of actual changes proposed to the tax framework. If it were to fall prey to back-room intrigue and lobbying, as the more cynical amongst us foretold, it would be a real pity in the face of path-breaking promise. Even as these fears lurked, the revised discussion paper one heard of a few months back also sounded headed in a compromise-riddled direction. And sadly that is exactly what has finally come home to roost in the proposal formally introduced in Parliament this week.
So how has the cheer of the finest toast for Pranab-da soured into old-wine-new-bottle despair? Selfishly or otherwise, my first disappointment is in the largely superficial personal taxation changes. In fact, perusing the reams of newsprint dedicated to laud the 'extra income' (a princely INR 24,000 at the upper end) through marginally tweaked tax slabs, one wonders when our mainstream media will mature beyond cliché. (To avoid sounding like a stuck record, we steer clear of media-bashing — richly deserved as it may be. There is zero surprise in our Fourth Estate's centrist and arguably pro-Congress slant.) In any event, basic math of inflation on the cast-in-stone slab values itself beats hollow the DTC's pithy positioning as a taxpayer windfall.
Going beyond this, one must rue the lost potential of a truly simplified tax framework. With 6.5% incidence sacrificed at the altar of exemptions and political expediency, the Government had a clear shot at reducing cost and complexity. Removal of potentially distortionary criteria would have improved investment decision-making for aam aadmi and HNI alike. Equally, a move to EET could have boosted long-term savings (PF withdrawal is an example). All that has been belied. Perhaps most importantly though, the survival of the exemption regime has reduced the leeway to lower rates and punt on increased adherence, ultimately limiting the ability to fund GOI's ambitious developmental agenda.
The saving grace has been the refusal to tinker with Capital Gains Tax that would have created an artificial portfolio churn opportunity (en masse profit-booking in March, followed by resumed longs in April, a cost minus any economic value add) that has been avoided. (In lighter vein, the DTC is also the government's first assertion of having achieved its gender equality goals. So the deduction differential allowed for woman taxpayers stands withdrawn, unless merely saved for a subsequent budget to reinstate!)
Elsewhere, the other notable revision in the Bill versus its draft is the compromise on corporate taxation. It is an easy argument that GOI frittered a chance to overhaul capital allocation in our economy. The erstwhile proposal to predicate MAT on gross assets vs book profits represented a fundamental change in the much-misused play of lowering tax liability via investment-led depreciation. From being a tool to manage tax, investments could have emerged into the light, to be evaluated for true CBA. The Big Business lobby however (including relatively genuine voices in its capital-intensive cohort) ensured we are left with Photoshop-type interventions to lower tax rates through elimination of cess, surcharge etc. If these were temporary inclusions in our tax regime, as successive FMs gave us to understand, it hardly needed a large-scale DTC exercise to get rid of them. Equally, there is no surety that some other flavour suiting the incumbent political mood will not 'force' the government of the day to resurrect these ostensibly stopgap devices.
All told, this residual pot of half measures still sets the Taxman back 1% of their INR 5.8 lakh crore annual kitty, without any redeeming expectation of increased adherence. A solitary hope remains — with the suspense of end-Feb Budget jitters gone, we could leverage a long-term Tax structure come 2012. If only the redoubtable Mr Mukherjee had been inspired by the spectacular doomsday caper of the same name, the changes would be a bit more appreciable...
However, implicit in all these arguments (in fact providing them overall credence) was the game-changing nature of actual changes proposed to the tax framework. If it were to fall prey to back-room intrigue and lobbying, as the more cynical amongst us foretold, it would be a real pity in the face of path-breaking promise. Even as these fears lurked, the revised discussion paper one heard of a few months back also sounded headed in a compromise-riddled direction. And sadly that is exactly what has finally come home to roost in the proposal formally introduced in Parliament this week.
So how has the cheer of the finest toast for Pranab-da soured into old-wine-new-bottle despair? Selfishly or otherwise, my first disappointment is in the largely superficial personal taxation changes. In fact, perusing the reams of newsprint dedicated to laud the 'extra income' (a princely INR 24,000 at the upper end) through marginally tweaked tax slabs, one wonders when our mainstream media will mature beyond cliché. (To avoid sounding like a stuck record, we steer clear of media-bashing — richly deserved as it may be. There is zero surprise in our Fourth Estate's centrist and arguably pro-Congress slant.) In any event, basic math of inflation on the cast-in-stone slab values itself beats hollow the DTC's pithy positioning as a taxpayer windfall.
Going beyond this, one must rue the lost potential of a truly simplified tax framework. With 6.5% incidence sacrificed at the altar of exemptions and political expediency, the Government had a clear shot at reducing cost and complexity. Removal of potentially distortionary criteria would have improved investment decision-making for aam aadmi and HNI alike. Equally, a move to EET could have boosted long-term savings (PF withdrawal is an example). All that has been belied. Perhaps most importantly though, the survival of the exemption regime has reduced the leeway to lower rates and punt on increased adherence, ultimately limiting the ability to fund GOI's ambitious developmental agenda.
The saving grace has been the refusal to tinker with Capital Gains Tax that would have created an artificial portfolio churn opportunity (en masse profit-booking in March, followed by resumed longs in April, a cost minus any economic value add) that has been avoided. (In lighter vein, the DTC is also the government's first assertion of having achieved its gender equality goals. So the deduction differential allowed for woman taxpayers stands withdrawn, unless merely saved for a subsequent budget to reinstate!)
Elsewhere, the other notable revision in the Bill versus its draft is the compromise on corporate taxation. It is an easy argument that GOI frittered a chance to overhaul capital allocation in our economy. The erstwhile proposal to predicate MAT on gross assets vs book profits represented a fundamental change in the much-misused play of lowering tax liability via investment-led depreciation. From being a tool to manage tax, investments could have emerged into the light, to be evaluated for true CBA. The Big Business lobby however (including relatively genuine voices in its capital-intensive cohort) ensured we are left with Photoshop-type interventions to lower tax rates through elimination of cess, surcharge etc. If these were temporary inclusions in our tax regime, as successive FMs gave us to understand, it hardly needed a large-scale DTC exercise to get rid of them. Equally, there is no surety that some other flavour suiting the incumbent political mood will not 'force' the government of the day to resurrect these ostensibly stopgap devices.
All told, this residual pot of half measures still sets the Taxman back 1% of their INR 5.8 lakh crore annual kitty, without any redeeming expectation of increased adherence. A solitary hope remains — with the suspense of end-Feb Budget jitters gone, we could leverage a long-term Tax structure come 2012. If only the redoubtable Mr Mukherjee had been inspired by the spectacular doomsday caper of the same name, the changes would be a bit more appreciable...
Posted by Echohum at 10:37 AM 1 comments
Labels: Finance, Government, Policy, Politics
Saturday, July 24, 2010
Animal Farm
One of India's more watched news channels and its leading English daily recently ran an exposé on the pitiful state of our food distribution system. Given the sheer emotive value of rotting grain in a nation home to the world's largest concentration of the hungry, yet with superpower ambitions, public interest was bound to get fired up. Again, the backdrop of runaway food inflation (that has under its spell more than a trifling percentage of our Great Unwashed) provided the outrage with a tinge of rare immediacy. A call to action, so to speak, seemed immanent in the wave of national indignation.
Yet, it remains a moot question whether this will lead to tangible change. While a grandstanding media may have chanced upon its newsworthiness now, the issue has been hanging fire for ages. My personal recall is of (copious, if not compelling) lamentations on 'distribution losses' two decades ago, in the pursuit of an Economics degree — and the problem was not of recent vintage even then. Indeed, pithy 'mouths fed if gaps plugged' protestations brought academic glory to many (not me!) over the years — clearly, to little avail, as the sordid TV visuals testify. The agricultural supply chain was held hostage to political ambivalence for far too long. Such was the potency of notoriously enmeshed vested interests in every leg that one had to be content with a status-quoist survival play, with cynicism and not challenge being the dominant trope.
A quick dekko illustrates the extent of the rot in the entire ecosystem. Starting at the farm gate, the so-called farmer lobby (read: large agriculturists) cannot think beyond input subsidy retention and diesel price control. Interest in output is limited to pushing periodic MSP increases, with populist governments only too willing to oblige. Their small and marginal brethren are too fractured to wield any real political influence, clear from the typically lackadaisical, stopgap response to farmer suicides. A lack of organised credit confines their choices in any case — a fledgling microfinance revolution is still some time away. (This is not to undermine the fact that better contextual appreciation and economic timing help sustain local moneylender-cum-intermediary strangleholds.) In this extant reality of stagnant productivity, the otherwise laudable NREGA and mostly reprehensible Maoist violence add fresh undercurrents. It remains to be seen how these play out, but (at least for now) they have bred more questions than solutions.
Moving ahead in the chain, the picture alters only slightly. Higher investment continues to be a crying need in the storage and distribution of agricultural produce. Public sector agencies hold the key, but gunny sacks full of foodgrain don’t have a vote, and tackling post-harvest waste remains low on their list of priorities. Other logistics players, only occasionally different from middlemen, have little motivation to drive efficiency, given the infrastructure (and corruption) squeeze on margins, unless to profit from (artificially induced) supply imbalances. Lastly, wholesale through last-mile retail suffers from a lack of scale, subject to high rents, rising operating expenses, and limited organised investment, disadvantaging honest trade.
Fact remains that our nation also drove a Green Revolution. The erstwhile stage was one of stronger political will, with public memory fresh from ignominious PL 480 capitulations. In consequently sympathetic ears, AIR propagated research science prescriptions, and rural India took to HYV seeds, fertilizers, and irrigation in little time. (Incidentally, the most common critique of the Revolution centres around land degradation, showing little appreciation of R&D’s evolutionary nature — science is a process of constant churn, not a one-time infusion. Critics likewise gloss over the lopsided nature of fertilizer subsidies and the like.)
In short, we must lean on science again. Be it input optimisation, cultivation and processing practices, storage, or transit efficiency — each can benefit from the strides the scientific-industrial world has taken over the years. (Robust risk modelling too can help drive deeper microcredit penetration, but that science, alas, draws much derision in a post-Lehman world!) And our IT prowess can be brought to bear on information gaps that mess up cycle time, cost, and pricing across the value chain.
Of course, it would be naive to think one can solve it without social science. And no, this is not a call to the political class to miraculously conjure the will to lead the charge. Shorn of direct electoral gain, political commitment levels seldom multiply manifold — if it has not happened in years, a blog post or television theatrics won’t. (Our beloved Agriculture Minister is anyway planning to focus on his new ICC chair when not engaged in periodic one-upmanship exercises with his professed allies.) This is merely a plea not to wilfully muddy the waters. We cannot afford to continue ludicrous supply-pricing games, with ill-advised and badly executed (if not dubiously intended) market interventions lacking economic sense.
Hypercritical of politics after a fashion? No. We must recognise the math by which 58 million tonnes of stock accumulates, double the actual need. Or how over a million tonnes are lost to storage and transit in just four years while at least as many parts of the country reported starvation deaths. (Yes, we did give folks with BPL cards TV sets in some state elections. Good — they can watch the tragicomedy live now.) So, if our political masters can just about manage to keep their gaming instincts under control, this can get off the ground well enough. And if we are really, truly lucky, perhaps they can think visionarily — and allow full mobility and free markets in the sector. Food Security would then move from policy shibboleth to proud reality.
Yet, it remains a moot question whether this will lead to tangible change. While a grandstanding media may have chanced upon its newsworthiness now, the issue has been hanging fire for ages. My personal recall is of (copious, if not compelling) lamentations on 'distribution losses' two decades ago, in the pursuit of an Economics degree — and the problem was not of recent vintage even then. Indeed, pithy 'mouths fed if gaps plugged' protestations brought academic glory to many (not me!) over the years — clearly, to little avail, as the sordid TV visuals testify. The agricultural supply chain was held hostage to political ambivalence for far too long. Such was the potency of notoriously enmeshed vested interests in every leg that one had to be content with a status-quoist survival play, with cynicism and not challenge being the dominant trope.
A quick dekko illustrates the extent of the rot in the entire ecosystem. Starting at the farm gate, the so-called farmer lobby (read: large agriculturists) cannot think beyond input subsidy retention and diesel price control. Interest in output is limited to pushing periodic MSP increases, with populist governments only too willing to oblige. Their small and marginal brethren are too fractured to wield any real political influence, clear from the typically lackadaisical, stopgap response to farmer suicides. A lack of organised credit confines their choices in any case — a fledgling microfinance revolution is still some time away. (This is not to undermine the fact that better contextual appreciation and economic timing help sustain local moneylender-cum-intermediary strangleholds.) In this extant reality of stagnant productivity, the otherwise laudable NREGA and mostly reprehensible Maoist violence add fresh undercurrents. It remains to be seen how these play out, but (at least for now) they have bred more questions than solutions.
Moving ahead in the chain, the picture alters only slightly. Higher investment continues to be a crying need in the storage and distribution of agricultural produce. Public sector agencies hold the key, but gunny sacks full of foodgrain don’t have a vote, and tackling post-harvest waste remains low on their list of priorities. Other logistics players, only occasionally different from middlemen, have little motivation to drive efficiency, given the infrastructure (and corruption) squeeze on margins, unless to profit from (artificially induced) supply imbalances. Lastly, wholesale through last-mile retail suffers from a lack of scale, subject to high rents, rising operating expenses, and limited organised investment, disadvantaging honest trade.
Fact remains that our nation also drove a Green Revolution. The erstwhile stage was one of stronger political will, with public memory fresh from ignominious PL 480 capitulations. In consequently sympathetic ears, AIR propagated research science prescriptions, and rural India took to HYV seeds, fertilizers, and irrigation in little time. (Incidentally, the most common critique of the Revolution centres around land degradation, showing little appreciation of R&D’s evolutionary nature — science is a process of constant churn, not a one-time infusion. Critics likewise gloss over the lopsided nature of fertilizer subsidies and the like.)
In short, we must lean on science again. Be it input optimisation, cultivation and processing practices, storage, or transit efficiency — each can benefit from the strides the scientific-industrial world has taken over the years. (Robust risk modelling too can help drive deeper microcredit penetration, but that science, alas, draws much derision in a post-Lehman world!) And our IT prowess can be brought to bear on information gaps that mess up cycle time, cost, and pricing across the value chain.
Of course, it would be naive to think one can solve it without social science. And no, this is not a call to the political class to miraculously conjure the will to lead the charge. Shorn of direct electoral gain, political commitment levels seldom multiply manifold — if it has not happened in years, a blog post or television theatrics won’t. (Our beloved Agriculture Minister is anyway planning to focus on his new ICC chair when not engaged in periodic one-upmanship exercises with his professed allies.) This is merely a plea not to wilfully muddy the waters. We cannot afford to continue ludicrous supply-pricing games, with ill-advised and badly executed (if not dubiously intended) market interventions lacking economic sense.
Hypercritical of politics after a fashion? No. We must recognise the math by which 58 million tonnes of stock accumulates, double the actual need. Or how over a million tonnes are lost to storage and transit in just four years while at least as many parts of the country reported starvation deaths. (Yes, we did give folks with BPL cards TV sets in some state elections. Good — they can watch the tragicomedy live now.) So, if our political masters can just about manage to keep their gaming instincts under control, this can get off the ground well enough. And if we are really, truly lucky, perhaps they can think visionarily — and allow full mobility and free markets in the sector. Food Security would then move from policy shibboleth to proud reality.
Sunday, July 18, 2010
Numb and Number: UID
Well into the 21st century, the first impression for anyone walking into a government office in India is likely an image of a deluge of paper, embodying its creaky infrastructure. A proliferation of overflowing cupboards, dusty files stacked wall to wall, cobweb-tangled piles kissing the roof, and reigning over every spit-stained corner; it is an ugly and telling sight. The obvious — a grim tale of bureaucratic sloth suggestive of callow indifference, busy adding to the karguzari paper mountain day by day. Equally, a sense of wonder how, in its midst and despite it, the business of governance carries on in our vast, parched lands.
Times are a-changing, though. Via some central initiative but mostly local effort, the Government is waking up to technology and convergence. While paperless is still a far cry, Indian officialdom is taking gradual, diffident steps to improve information management and productivity. This is only natural. Services, and specifically IT, offered a way out in a country beset by inadequate physical infrastructure. In tandem with corruption and lopsided left-leaning policy, these bottlenecks had leashed us to a stubbornly sluggish growth and economic has-been status. New Age technology enabled the emergence of a confident, vibrant India that is generously glimpsed today. Thus, it is only fitting that it provides the vehicle for our governance transformation, light in a pen-pushing, paper-gorging Black Hole where citizenry feared to tread.
Obviously, this goes much beyond paper. Of vital significance are technology's game-changing capabilities in delivery of governance benefits. Indeed, the Government has put no less than 27 mission-critical projects to this task. UID, or Aadhaar as it is now named, is arguably the most important of these: the core of our national e-enablement effort. The idea is simple - a unique identifier to serve as primary key driving the massive information repository that governance for a billion-plus populace entails. Naturally, the superstructure can only be as good as its edifice. And the UID ask is humongous — plan and execute a 12-digit numerical tag for a mindboggling 600 million records, including associated biometric and personal data. All this over the next 4 years, while staying true to the goals of building a robust and efficient system. If successful, this identifier and pathbreaking database of biometric permanent numbers and personal statistics would enable policy analytics and monitoring at an unprecedented scale. Frankly, it is nearly impossible to envision the full governance impact of the result. Yet, broadly speaking, its incisive segmentation and targeting ability would be a dream in terms of faster rollout, easier tracking, and better audit.
Of course, the picture is not all hunky-dory. The enormity of the exercise is perhaps equalled only by its complexity. For instance, potential private use is a double-edged sword. While it does wonders for, say, a financial services company for verification, marketing analytics, and the like, the risk in unfettered online access to personal information can be immense, especially for a terrorism-frontline state. To this extent, UID is much more than a technological challenge or design complexity. Imagine concurrent needs across multilevel security and ease of accessibility in a citizenry with varying levels of computer proficiency (safely assumed low on average). Then there are connectivity concerns (Mukeshbhai's opportunity can be Nilekani's bugbear). Revert to traditional paper census methods or a paper-hub-digital-spoke model and you open up data compromise risks in L1 implementation itself. Power can play spoilsport too — solar panels had to be used to fill gaps during proof-of-concept — and bear in mind that a Karnataka does not an India make. We cannot be blind to the bureaucracy's internal change resistance either — some of the flock do love a good drought, as we unfortunately know only too well! And so on.
Yet, the RTI experience shows that political will at the top goes a long way in overcoming what seems prima facie insurmountable. Similar commitment must be mobilised to tackle the issue of data privacy protection for citizens in post-UID India. Not only is this a checks-and-balances need, it is high time the GOI realised that potential for misuse in a nation with lax, ill-defined laws is not restricted to its Internal Security agencies alone. Take this train of thought forward, and one would love to see proactive public debate around Aadhaar's design and other postulates or concerns — beyond the self-congratulatory, world-hunger-solution posturing that has come by till date. Short of this, it will be another gamechanger that flattered to deceive!
Times are a-changing, though. Via some central initiative but mostly local effort, the Government is waking up to technology and convergence. While paperless is still a far cry, Indian officialdom is taking gradual, diffident steps to improve information management and productivity. This is only natural. Services, and specifically IT, offered a way out in a country beset by inadequate physical infrastructure. In tandem with corruption and lopsided left-leaning policy, these bottlenecks had leashed us to a stubbornly sluggish growth and economic has-been status. New Age technology enabled the emergence of a confident, vibrant India that is generously glimpsed today. Thus, it is only fitting that it provides the vehicle for our governance transformation, light in a pen-pushing, paper-gorging Black Hole where citizenry feared to tread.
Obviously, this goes much beyond paper. Of vital significance are technology's game-changing capabilities in delivery of governance benefits. Indeed, the Government has put no less than 27 mission-critical projects to this task. UID, or Aadhaar as it is now named, is arguably the most important of these: the core of our national e-enablement effort. The idea is simple - a unique identifier to serve as primary key driving the massive information repository that governance for a billion-plus populace entails. Naturally, the superstructure can only be as good as its edifice. And the UID ask is humongous — plan and execute a 12-digit numerical tag for a mindboggling 600 million records, including associated biometric and personal data. All this over the next 4 years, while staying true to the goals of building a robust and efficient system. If successful, this identifier and pathbreaking database of biometric permanent numbers and personal statistics would enable policy analytics and monitoring at an unprecedented scale. Frankly, it is nearly impossible to envision the full governance impact of the result. Yet, broadly speaking, its incisive segmentation and targeting ability would be a dream in terms of faster rollout, easier tracking, and better audit.
Of course, the picture is not all hunky-dory. The enormity of the exercise is perhaps equalled only by its complexity. For instance, potential private use is a double-edged sword. While it does wonders for, say, a financial services company for verification, marketing analytics, and the like, the risk in unfettered online access to personal information can be immense, especially for a terrorism-frontline state. To this extent, UID is much more than a technological challenge or design complexity. Imagine concurrent needs across multilevel security and ease of accessibility in a citizenry with varying levels of computer proficiency (safely assumed low on average). Then there are connectivity concerns (Mukeshbhai's opportunity can be Nilekani's bugbear). Revert to traditional paper census methods or a paper-hub-digital-spoke model and you open up data compromise risks in L1 implementation itself. Power can play spoilsport too — solar panels had to be used to fill gaps during proof-of-concept — and bear in mind that a Karnataka does not an India make. We cannot be blind to the bureaucracy's internal change resistance either — some of the flock do love a good drought, as we unfortunately know only too well! And so on.
Yet, the RTI experience shows that political will at the top goes a long way in overcoming what seems prima facie insurmountable. Similar commitment must be mobilised to tackle the issue of data privacy protection for citizens in post-UID India. Not only is this a checks-and-balances need, it is high time the GOI realised that potential for misuse in a nation with lax, ill-defined laws is not restricted to its Internal Security agencies alone. Take this train of thought forward, and one would love to see proactive public debate around Aadhaar's design and other postulates or concerns — beyond the self-congratulatory, world-hunger-solution posturing that has come by till date. Short of this, it will be another gamechanger that flattered to deceive!
Posted by Echohum at 6:12 AM 0 comments
Labels: Government, Policy, Technology
Sunday, June 27, 2010
U(r)LIP or Mine?
A couple of smug rookies posturing as 'Relationship Managers' at my bank, an almost equally minuscule clique that seeks me out for investment advice, and hordes of DNC-dismissive telemarketers peddling insurance — all can stand testimony to my ULIP-agnostic personal finance strategy. My stance is hardly original — most experts of any standing shun ULIPs in their shopping cart must-haves. Despite this rare unanimity and strong arguments against the product class, it has drawn investor interest consistently. Reasons behind this ostensible anomaly, or the product's long-term prognostications, have assumed centrestage with recent developments in the shape of a SEBI-IRDA jurisdictional battle. At the heart of this are changed regulations that address opacity and investor-unfriendly practices that ail ULIP sales and service, or inherent design.
To appreciate the context of the proposed changes, one must recognize that ULIPs have been sold in a manner completely antithetical to the fundamentals of the family to which they ostensibly belong. (Most people one knows, when buying a ULIP, actually believe they are taking 'smart' life cover.) The lure of entering an asset class where 'your money is not idle' but 'deployed to maximize returns' and offer 'better term cover', has been irresistible for the typical gullible investor, fed on years of stodgy state-run insurance firms’ (often unfairly so dubbed) unimaginative offerings and dull salesfolk. A general expectation of market efficiency over public sector sloth thus plays into the aggressively positioned ULIP schemes promising lay investors the moon.
Again, an investment offering of this kind, with significant dependence on market performance, usually comes into its own in the long run (and this is not 3 or 5 years that qualify as 'lifetime' to 25-year-olds nowadays). Think 10-15 years, or 20 if not more, and cyclical noise is factored out of markets and sensible stockpicking yields results fully. Admittedly, this is market investment spiel (for, say, equity MF) but unfortunately not what many newbie investors readily bite, obsessed as they are with 'timing' the market. The same investor, when thinking term cover, expects longer tenors in line with life expectancy. The resultant surge of patience, sweetened with promise of exceptional returns, draws savings to ULIP schemes by the boatloads.
Of course, it is obvious that such troths of exponential growth do not sit well with life cover. Yet, spurred by extraordinary incentives that can only come from heavily front-loaded cost structures (45% of Y1 premium, no less!), a bevy of insurance salesmen position ULIP as a best-of-both-worlds insurance product generating assured returns over months and years. The post-sale dissonance that naturally results (it is difficult to think a worse period of investor sentiment and market return than the last two years) leads to massive exits. Yet, unlike market instruments where such attrition is visible (and actionable), ULIP truancy figures are hardly the most advertised. Hence the ecosystem of under-informed investors, malintentioned agents, and lazy insurance firms continues to flourish unashamedly.
At another level, ULIPs represent a large (if invisible) problem for private sector insurance companies. There is a highly credible school of thought that unravels what drives this disproportionate focus on the win-today-worry-tomorrow rat race for the investable rupee. The motivation seemingly comes from higher capital adequacy norms for guaranteed (term insurance) vs market-linked (investment) assets. This makes minimization of life cover (per rupee vested) a lucrative short-term strategy. Unfortunately, this evanescence creates not merely an economic but a potentially significant social issue that can wreck us in the long run. In an under-insured nation like India, with rising healthcare demand (and costs) yet inadequate social security structures, such mis-selling of investment in the garb of insurance can lead to consequences far more dramatic than most of us care to think. (Term cover, after all, is for those eventualities of life that leave us at our most frail and disturbed.)
All this has been known for a while. Yet, aside from individual decisions like mine (big picture-inconsequential, likely), not much was attempted to correct this systemically (or if something was in the works, it was certainly not PDQ pace!). To this extent, the very public spat between our hyperactive market regulator and their largely somnolent insurance cousin was most welcome. In characteristic Bhave fashion, SEBI initiated measures to clear the mess under an investor friendly bias. In the ensuing turf battle, however, the IRDA came up trumps (SEBI's knock on the Supreme Court’s doors was in vain: GOI nipped it in the bud with an IRDA-primacy ordinance before milords could weigh in — all while CBB was away on business in Canada!).
Cynics in our midst ought to be unsurprised - the venerable J Hari Narayan has impeccable credentials to win any back-room battle. Years spent in the government have admirably equipped the ex-IAS officer to work the Establishment. (Interestingly, despite similar pedigree, Bhave does not have the same reputation.) Equally, while missing the visible zeal of his no-nonsense SEBI counterpart, the charitable can point to JHN’s record of not shirking from a tough stand in the face of controversy. In any case, he has Pranab-da’s mandate.
Regardless, the verdict in the territorial fracas is hardly the key issue. Of essence is whether and how the Govt and its now unequivocally empowered regulator finally set the house in order. Even if one were to ignore my arguably over-pessimistic predilections on the social impact of messing with the small saver, there can be little doubt that Shri Hari Narayan presides over a window of opportunity — to serve the lay investor well, while providing an overdue lifeline to ULIPs. Else, the victory, so to speak, may remain Pyrrhic.
To appreciate the context of the proposed changes, one must recognize that ULIPs have been sold in a manner completely antithetical to the fundamentals of the family to which they ostensibly belong. (Most people one knows, when buying a ULIP, actually believe they are taking 'smart' life cover.) The lure of entering an asset class where 'your money is not idle' but 'deployed to maximize returns' and offer 'better term cover', has been irresistible for the typical gullible investor, fed on years of stodgy state-run insurance firms’ (often unfairly so dubbed) unimaginative offerings and dull salesfolk. A general expectation of market efficiency over public sector sloth thus plays into the aggressively positioned ULIP schemes promising lay investors the moon.
Again, an investment offering of this kind, with significant dependence on market performance, usually comes into its own in the long run (and this is not 3 or 5 years that qualify as 'lifetime' to 25-year-olds nowadays). Think 10-15 years, or 20 if not more, and cyclical noise is factored out of markets and sensible stockpicking yields results fully. Admittedly, this is market investment spiel (for, say, equity MF) but unfortunately not what many newbie investors readily bite, obsessed as they are with 'timing' the market. The same investor, when thinking term cover, expects longer tenors in line with life expectancy. The resultant surge of patience, sweetened with promise of exceptional returns, draws savings to ULIP schemes by the boatloads.
Of course, it is obvious that such troths of exponential growth do not sit well with life cover. Yet, spurred by extraordinary incentives that can only come from heavily front-loaded cost structures (45% of Y1 premium, no less!), a bevy of insurance salesmen position ULIP as a best-of-both-worlds insurance product generating assured returns over months and years. The post-sale dissonance that naturally results (it is difficult to think a worse period of investor sentiment and market return than the last two years) leads to massive exits. Yet, unlike market instruments where such attrition is visible (and actionable), ULIP truancy figures are hardly the most advertised. Hence the ecosystem of under-informed investors, malintentioned agents, and lazy insurance firms continues to flourish unashamedly.
At another level, ULIPs represent a large (if invisible) problem for private sector insurance companies. There is a highly credible school of thought that unravels what drives this disproportionate focus on the win-today-worry-tomorrow rat race for the investable rupee. The motivation seemingly comes from higher capital adequacy norms for guaranteed (term insurance) vs market-linked (investment) assets. This makes minimization of life cover (per rupee vested) a lucrative short-term strategy. Unfortunately, this evanescence creates not merely an economic but a potentially significant social issue that can wreck us in the long run. In an under-insured nation like India, with rising healthcare demand (and costs) yet inadequate social security structures, such mis-selling of investment in the garb of insurance can lead to consequences far more dramatic than most of us care to think. (Term cover, after all, is for those eventualities of life that leave us at our most frail and disturbed.)
All this has been known for a while. Yet, aside from individual decisions like mine (big picture-inconsequential, likely), not much was attempted to correct this systemically (or if something was in the works, it was certainly not PDQ pace!). To this extent, the very public spat between our hyperactive market regulator and their largely somnolent insurance cousin was most welcome. In characteristic Bhave fashion, SEBI initiated measures to clear the mess under an investor friendly bias. In the ensuing turf battle, however, the IRDA came up trumps (SEBI's knock on the Supreme Court’s doors was in vain: GOI nipped it in the bud with an IRDA-primacy ordinance before milords could weigh in — all while CBB was away on business in Canada!).
Cynics in our midst ought to be unsurprised - the venerable J Hari Narayan has impeccable credentials to win any back-room battle. Years spent in the government have admirably equipped the ex-IAS officer to work the Establishment. (Interestingly, despite similar pedigree, Bhave does not have the same reputation.) Equally, while missing the visible zeal of his no-nonsense SEBI counterpart, the charitable can point to JHN’s record of not shirking from a tough stand in the face of controversy. In any case, he has Pranab-da’s mandate.
Regardless, the verdict in the territorial fracas is hardly the key issue. Of essence is whether and how the Govt and its now unequivocally empowered regulator finally set the house in order. Even if one were to ignore my arguably over-pessimistic predilections on the social impact of messing with the small saver, there can be little doubt that Shri Hari Narayan presides over a window of opportunity — to serve the lay investor well, while providing an overdue lifeline to ULIPs. Else, the victory, so to speak, may remain Pyrrhic.
Posted by Echohum at 6:09 AM 1 comments
Saturday, September 5, 2009
No More (Hopefully) Tax!
Some people are difficult to please. And when they belong to the tribe of left-leaning issue-hunting chatterati of our country, woe betide those that seek to propitiate them. So ran my thoughts on getting a buzz from the same Economics Einstein friend of mine who had played catalyst to my last post. He was incensed by my conciliatory gesture of a post — and the suggestion of using a credit-debit card driven payment system as antidote to the cash impelled parallel economy. He called it many names — but the tags principal to his argument were three: it was effete, elitist (Long Live Comrade Dasgupta!) and uni-dimensional.
To the last of these, let me plead guilty immediately — the idea of a carded economy was admittedly an appetizer to deeper policy action. As such, other thoughts that came to me at various times this week:
Almost in anticipation of this, my friend had pointed me to the PAN/ AIR project and its relative failure in achieving similar results — at least at the government end. He sent me an article from HT on 24 Aug too, with analogous lamentations. The sum and substance of this report went thus:
The fun times, however, are yet to roll. To my mind, far more than banking industry paradigms or designs of FinMin mandarins — or even technology’s constant down-spiral of prices and advances in user-friendliness — the real clincher is, literally, in our hands. The convergence of mobile-phone and computing is where my oracular protestations will be put to test. As more and more of India takes to the ubiquitous phone for functionalities beyond voice, they will buy in to its convenience for financial transactions too. If this adoption gets sweetened by promises of greater speed, increased transparency, and lower transaction cost (why ever not, one would think), then the inclusion revolution shall fly bottom upwards.
Empowered handhelds will thus achieve what its voice cousins have already done — bridge divides that most thought an impossibility in our context just years ago. Not only will this spread make the ‘card’ all pervasive, it will put pressure on high value transactions to conform and drive an enormously shrunk cash economy in the future. Hence, card, we dream… Goodbye elitism, farewell effete :D
To the last of these, let me plead guilty immediately — the idea of a carded economy was admittedly an appetizer to deeper policy action. As such, other thoughts that came to me at various times this week:
- Speedy adoption of VAT and GST, something that has been argued in these pages earlier, underscored here since they track the production process through the value chain and hence enable significant MIS
- Comprehensive implementation of UID (linked with PAN) — with all registrars computerised across asset classes as well as company registration, customs and excise, tax, passport, licences etc — and cross-tabbed as needed with HNI indicators like asset ownership and lifestyle spends
- Better enforcement of annual personal tax returns and perhaps early bird incentives, not merely penalty for delay or default. (No doubt my friend would be happier to hear words around greater powers to agencies but very rarely have our national issues been about legislation instead of execution, and we perennially run the risk of bad intention.) My only exception would be for relatively high visibility downstream impact like on personal rights of holding elected office, driving licence etc
- Clarity and continuity in wording rules and regulations, limiting the need for judicial interpretation that may be time-taking and (occasionally) contradictory. One can extend this to talk of faster determination of tax disputes but the need for specialized courts and higher judge-population ratio is a more widely-felt and urgently-needed action
Almost in anticipation of this, my friend had pointed me to the PAN/ AIR project and its relative failure in achieving similar results — at least at the government end. He sent me an article from HT on 24 Aug too, with analogous lamentations. The sum and substance of this report went thus:
- Compulsory PAN citation for all high-value transactions has not worked. Of the INR 55.7 Lakh Cr total value reported in 2007-08, 30% were missing PAN. For instance, in realty deals (a known home of Black Economy) of declared value over INR 30 Lakh, capture was ~25%; saving bank deposits of INR 10 Lakh plus, it was one-third etc (Folks with dark humour will savour the fact that ~10% of 3100 RBI bond sales over INR 5 Lakh got away without a PAN); and
- Cases of fake/ multiple cards abound, limiting the department’s ability to trace any transaction back to beneficiary. It is any ways over its head in water on the high-value AIRs for investigation/ matching with IT returns (rumour has it that the department has been trying to build 360 degree profiles of HNI’s — politicians, bureaucrats, corporate honchos, high-growth businessmen AKA people with flashy lifestyle not commensurate with known income sources etc) using AIR data for over three years).
The fun times, however, are yet to roll. To my mind, far more than banking industry paradigms or designs of FinMin mandarins — or even technology’s constant down-spiral of prices and advances in user-friendliness — the real clincher is, literally, in our hands. The convergence of mobile-phone and computing is where my oracular protestations will be put to test. As more and more of India takes to the ubiquitous phone for functionalities beyond voice, they will buy in to its convenience for financial transactions too. If this adoption gets sweetened by promises of greater speed, increased transparency, and lower transaction cost (why ever not, one would think), then the inclusion revolution shall fly bottom upwards.
Empowered handhelds will thus achieve what its voice cousins have already done — bridge divides that most thought an impossibility in our context just years ago. Not only will this spread make the ‘card’ all pervasive, it will put pressure on high value transactions to conform and drive an enormously shrunk cash economy in the future. Hence, card, we dream… Goodbye elitism, farewell effete :D
Posted by Echohum at 3:12 PM 0 comments
Labels: Economy, Finance, Government, Policy
Sunday, August 30, 2009
Waxing Tax Too
In response to last Friday evening's post, one of my left-leaning intellectual (tautology, really!) friends called me for a not-so-quick tête-à-tête. Though certainly short of acrimony, the censorious tone of this conversation was hard to miss. The upshot of the lesson in economic history — or indeed its trigger — lay in how my blog piece in question had seemingly glossed over the Black Economy of India (emphasis as supplied), the continued advance of this Public Enemy Number One, and the calamitous consequences thereof. In other words, direct taxation reform was a condemnable (the word bourgeois was carefully avoided) distraction.
Frankly, this set me thinking. It does not require Keynesian genius to deduce skews in any economic structure hampered by the presence of an illegal economy. The news gets worse if this parallel economy breasts the tape at one-fifth the total, as ours arguably does. So how does this work? In simple terms, high preponderance and resultant cultural acceptance make such an economy difficult to unravel. Again, unfettered access to markets minus the burden of tax makes its cash transactions cheaper. The consequently uncompetitive legal economy thence loses marketshare, profit, and investible surplus. Clogging growth implies less employment and more pressure on government – more so in a regime of floundering tax collections. Need to shore up revenues to fund government spending pushes tax rates north, potentially incentivizing further tax evasion and hence growth of the illegal economy.
So far so good (or bad), in theory. In our case, one could well retrace the path to the days we made our ‘tryst with destiny’. Illegal economic activity had mushroomed in the run-up to independence, typical of wartime economics across centuries, and ramped up further in post-1947 nation-building economic action. The Nehruvian model was resource hungry – revenue had to feed substantial public sector investments, but equally prone to lip-service. The result was aggressive taxation coupled with a maze of incentives ostensibly put in place to foster savings. The fledgling Indian state just did not have the wherewithal to overcome the resultant tax administration challenges.
As it turned out, the next few decades saw a pronounced socialistic tilt in our policy. The consequent licence raj added further question-marks around intent, to a tax regime with already suspect capabilities. While profiteering via artificial supply imbalances had been around for years, under the quota-permit system, policy formulation as well as enforcement became tools for malfeasance. (This in fact stays the biggest reason for celebrating the open-door approach in Direct Tax Code reform in my last post.)
Be that as it may, the most potent constituent of the parallel economy was the hawala-hundi system that enabled any ill-gotten gains to find their way to safe havens, as well as to become a tool to finance economic activity (leading to further proliferation) – and eventually, politics. Hence, even as the formal economy was constrained with pricing, taxation, forex and current/ capital account convertibility restrictions, enormous money transfers via the illegal market became a fact of life. If cash was in play as input or output (and what nefarious purpose doesn’t do both!) the answer in form of this high velocity-instant speed-currency agnostic money system became the oil greasing the Black Economy.
As various studies point out, these Augean stables have a far and deep impact. The endemic corruption bred by such a humiliatingly pervasive Black Economy saps individual will away. Hence, one does not need to conduct a Buddha’s Three Questions type of experiment to understand why it is well-nigh impossible to go without cash ("...is king") in life if registering a property, selling your car, or even making sundry household expenses. When the PM-in-waiting laments distribution losses, one sits up and takes notice!
Which brings us to now and whither the disconnect with my more learned friend, as one may ask. It lies in the essentially populist, two-dimensional corrective action he and his ilk typically advocate. Increasing taxes and duties changes the risk-reward equation making evasion more lucrative; adding legislative muscle to our inefficient executive breeds more corruption; and expecting a proletariat revolution that solves world hunger is, frankly, far-fetched.
So whence the solution (only followers of Marx have the liberty to merely preach symptoms without offering a meaningful cure!), pray? There must be many, but today let me merely place the Korea model (if one plug be allowed) for consideration. This involves a large-scale and comprehensive adoption of cards as the sole payment mechanism for a multitude of transactions (over a ceiling value, potentially) for individuals, with multifold, multi-layered benefits.
In short, being electronic, credit-debit cards can easily counter the ‘good’ of transaction speed and high-velocity rotations in the Black Economy value-proposition. With increasing computerisation, e-banking can work in tandem with such a payment system, also addressing the Government’s benefit end-user discovery issue. The data explosion thus generated would do wonders for risk mitigation for any self-respecting funding institution – also helping buyer and seller price credit right. The government could use this information to plug tax evasion at lower cost, greater accuracy, and faster speed. And if a clincher was needed, for a terrorism frontline state as ours, one can well imagine the internal security benefits from better enforcement.
But, better not to stretch my ‘one plug’ luck too much, even for the hand that feeds etc!
Frankly, this set me thinking. It does not require Keynesian genius to deduce skews in any economic structure hampered by the presence of an illegal economy. The news gets worse if this parallel economy breasts the tape at one-fifth the total, as ours arguably does. So how does this work? In simple terms, high preponderance and resultant cultural acceptance make such an economy difficult to unravel. Again, unfettered access to markets minus the burden of tax makes its cash transactions cheaper. The consequently uncompetitive legal economy thence loses marketshare, profit, and investible surplus. Clogging growth implies less employment and more pressure on government – more so in a regime of floundering tax collections. Need to shore up revenues to fund government spending pushes tax rates north, potentially incentivizing further tax evasion and hence growth of the illegal economy.
So far so good (or bad), in theory. In our case, one could well retrace the path to the days we made our ‘tryst with destiny’. Illegal economic activity had mushroomed in the run-up to independence, typical of wartime economics across centuries, and ramped up further in post-1947 nation-building economic action. The Nehruvian model was resource hungry – revenue had to feed substantial public sector investments, but equally prone to lip-service. The result was aggressive taxation coupled with a maze of incentives ostensibly put in place to foster savings. The fledgling Indian state just did not have the wherewithal to overcome the resultant tax administration challenges.
As it turned out, the next few decades saw a pronounced socialistic tilt in our policy. The consequent licence raj added further question-marks around intent, to a tax regime with already suspect capabilities. While profiteering via artificial supply imbalances had been around for years, under the quota-permit system, policy formulation as well as enforcement became tools for malfeasance. (This in fact stays the biggest reason for celebrating the open-door approach in Direct Tax Code reform in my last post.)
Be that as it may, the most potent constituent of the parallel economy was the hawala-hundi system that enabled any ill-gotten gains to find their way to safe havens, as well as to become a tool to finance economic activity (leading to further proliferation) – and eventually, politics. Hence, even as the formal economy was constrained with pricing, taxation, forex and current/ capital account convertibility restrictions, enormous money transfers via the illegal market became a fact of life. If cash was in play as input or output (and what nefarious purpose doesn’t do both!) the answer in form of this high velocity-instant speed-currency agnostic money system became the oil greasing the Black Economy.
As various studies point out, these Augean stables have a far and deep impact. The endemic corruption bred by such a humiliatingly pervasive Black Economy saps individual will away. Hence, one does not need to conduct a Buddha’s Three Questions type of experiment to understand why it is well-nigh impossible to go without cash ("...is king") in life if registering a property, selling your car, or even making sundry household expenses. When the PM-in-waiting laments distribution losses, one sits up and takes notice!
Which brings us to now and whither the disconnect with my more learned friend, as one may ask. It lies in the essentially populist, two-dimensional corrective action he and his ilk typically advocate. Increasing taxes and duties changes the risk-reward equation making evasion more lucrative; adding legislative muscle to our inefficient executive breeds more corruption; and expecting a proletariat revolution that solves world hunger is, frankly, far-fetched.
So whence the solution (only followers of Marx have the liberty to merely preach symptoms without offering a meaningful cure!), pray? There must be many, but today let me merely place the Korea model (if one plug be allowed) for consideration. This involves a large-scale and comprehensive adoption of cards as the sole payment mechanism for a multitude of transactions (over a ceiling value, potentially) for individuals, with multifold, multi-layered benefits.
In short, being electronic, credit-debit cards can easily counter the ‘good’ of transaction speed and high-velocity rotations in the Black Economy value-proposition. With increasing computerisation, e-banking can work in tandem with such a payment system, also addressing the Government’s benefit end-user discovery issue. The data explosion thus generated would do wonders for risk mitigation for any self-respecting funding institution – also helping buyer and seller price credit right. The government could use this information to plug tax evasion at lower cost, greater accuracy, and faster speed. And if a clincher was needed, for a terrorism frontline state as ours, one can well imagine the internal security benefits from better enforcement.
But, better not to stretch my ‘one plug’ luck too much, even for the hand that feeds etc!
Posted by Echohum at 12:31 PM 0 comments
Labels: Economy, Government, Policy
Friday, August 28, 2009
Waxing Tax
Earlier this month, the Government of India placed a paper on a new Direct Taxation Code in the public domain for discussion. Such progressive procedure is as uncommon as it is laudable in a nation where administrative opaqueness has often been used to create latitude for backroom manoeuvering. In fact, the play in influence-peddling is believed to be so potent and widespread (so difficult to miss in Dilli's flaunt-it-if-ye-have-it culture) that subterfuge of this kind is not merely accepted but expected. Drawing inspiration from the fortunes of sundry such power-broking carpetbaggers, if no other reason, it is incumbent on us to celebrate this wiki approach to policy formulation.
The jury, of course, is out as to the merits of the actual proposal. It certainly deserves minute scrutiny and my current inability to fathom its fine print is far too real to hazard judgement. Yet, it must be recorded that it heralds the resurrection of an eminently logical economic shibboleth, hitherto consigned to the dustbin. The premise of lower incidence promoting higher compliance had been anathema to North Block mandarins for years and finally seems to be coming of age. A second toast to the Finance Minister!
Unfortunately, not much of the succeeding discourse on the tax code may be available for ready view in the medium term. The promise in this citizen-friendly reform, however, gives one the confidence to ponder the fate of another far-reaching change — the GST. Similar streamlining of tax administration has already been accomplished by almost every self-respecting economy of benchmark size and scale. The Indian effort has, lamentably, fallen into a quasi-political quagmire. Given the federal nature of the country's revenue system, GST can only come by via legislation, including constitutional amendments, to junk existing laws as also the creation of a common dual (State and Central) framework it perforce requires.
Building universal consensus on the GST, though, has led to endless debate over its management mechanism, including creation of appropriate infrastructure, and on sharing of its spoils. Equally, it may be simplistic to expect that the fact of different political formations being in power in key States and the Centre, and the much-voiced 'loss' to the former (plus concomitant demands for compensation) is merely a coincidence. It is, more likely, a refined filibustering tactic.
It does appear therefore that the question of whether a nationwide GST is actually needed, is a moot one. Much like Direct Taxes, India's Indirect revenue regime is an elephantine and often conflict-prone labyrinth of state and federal levies that we berated when studying Economics in college fifteen years ago (it was not new then; it is not new now). The fact is that the framework carries the baggage of its roots in our colonial past, and is arguably anachronistic. Applying whatever little one remembers (not that it was ever entirely put to rote!) of economic theory, there are two clear wins in its reform. First, elimination of multiplicity simplifies tax structure and fosters compliance (similar to what Pranab da has already been commended on above). Second, creation of a common market and lower tax burden boosts production, directly and via increased investible surplus: the logic on which EU was born, or ASEAN thrives today.
While actual gains from the implementation of a reformed Direct or Indirect Taxes regime are either the subject of impassioned debate (my Commie friends anyway derive sustenance from chatter, especially of the idle kind) or entail expertise in macroeconomic theory more than is my métier, it is likely that xome April we may be raising ours for two and a half cheers to Mr Mukherjee!
The jury, of course, is out as to the merits of the actual proposal. It certainly deserves minute scrutiny and my current inability to fathom its fine print is far too real to hazard judgement. Yet, it must be recorded that it heralds the resurrection of an eminently logical economic shibboleth, hitherto consigned to the dustbin. The premise of lower incidence promoting higher compliance had been anathema to North Block mandarins for years and finally seems to be coming of age. A second toast to the Finance Minister!
Unfortunately, not much of the succeeding discourse on the tax code may be available for ready view in the medium term. The promise in this citizen-friendly reform, however, gives one the confidence to ponder the fate of another far-reaching change — the GST. Similar streamlining of tax administration has already been accomplished by almost every self-respecting economy of benchmark size and scale. The Indian effort has, lamentably, fallen into a quasi-political quagmire. Given the federal nature of the country's revenue system, GST can only come by via legislation, including constitutional amendments, to junk existing laws as also the creation of a common dual (State and Central) framework it perforce requires.
Building universal consensus on the GST, though, has led to endless debate over its management mechanism, including creation of appropriate infrastructure, and on sharing of its spoils. Equally, it may be simplistic to expect that the fact of different political formations being in power in key States and the Centre, and the much-voiced 'loss' to the former (plus concomitant demands for compensation) is merely a coincidence. It is, more likely, a refined filibustering tactic.
It does appear therefore that the question of whether a nationwide GST is actually needed, is a moot one. Much like Direct Taxes, India's Indirect revenue regime is an elephantine and often conflict-prone labyrinth of state and federal levies that we berated when studying Economics in college fifteen years ago (it was not new then; it is not new now). The fact is that the framework carries the baggage of its roots in our colonial past, and is arguably anachronistic. Applying whatever little one remembers (not that it was ever entirely put to rote!) of economic theory, there are two clear wins in its reform. First, elimination of multiplicity simplifies tax structure and fosters compliance (similar to what Pranab da has already been commended on above). Second, creation of a common market and lower tax burden boosts production, directly and via increased investible surplus: the logic on which EU was born, or ASEAN thrives today.
While actual gains from the implementation of a reformed Direct or Indirect Taxes regime are either the subject of impassioned debate (my Commie friends anyway derive sustenance from chatter, especially of the idle kind) or entail expertise in macroeconomic theory more than is my métier, it is likely that xome April we may be raising ours for two and a half cheers to Mr Mukherjee!
Posted by Echohum at 3:57 PM 1 comments
Labels: Economy, Government, Policy
Sunday, July 12, 2009
Welcome to the After-Budget Party
Our Republic's General Budget for 2009-10 is now in the public realm. Debate around it has been far from secular, pitting commentators along predictable political lines. That said, while repetitive, this periodic posturing is not sans moments of insight. As a sample, tune in to the laborious constructs of presumably neutral mainstream media (certainly chunks of its English-speaking contingent) to discern an overly friendly disposition to the Congress-led coalition (Padma awards do drive some value after all)!
Talking Budget, calls for a New Dawn were almost universal in the backdrop of an unexpectedly euphoric win and Opposition in utter disarray. Early noises via 100-day vision documents from sundry ministers were fairly path-breaking too. Measured against such epochal demands, Pranab Mukherjee's eventual business-as-usual pronouncements seem destined for footnotes, not glorious acclaim. The flip argument could be that nation-building is less about a spectacular agenda than solid action, hence closer to the FM's low-risk 2009 design. Let time tell if this workmanlike Budget was a winner.
Need of the hour, therefore, is to fix touchstones for our economic policy, leading me to my biggest peeve: the Aam Aadmi vs Big Business nonsense that circulates as truism (my last post). In the prevalent operating context, two axioms come to mind as pivots for Reform. First, increased goal-focus which implies turning the spotlight away from tasks to outcomes. For instance, Telecom is a poster child of how policy interventions can positively impact the economy at large (despite absence of China-like monolithic continuity in decision-making, a few highly visible recent coalition politics compromises, and some of independent India's biggest corruption scandals). Let me illustrate a few of the multiple levels where this can be seen in action:
This brings us to the second (somewhat trickier) postulate: growth is incomplete without redistribution. We are no strangers to sectoral imbalances or geographic inequity, but limited percolation of the spoils of Reform could bring the entire edifice down. This is not to disregard the need for a laggard manufacturing sector to pick up pace, agriculture to step beyond the Monsoon's shadow, the Hindi heartland to achieve Gujarat-velocity growth, or better infrastructure in general. However, these pale into insignificance compared to the damage potential of broader discontent. Doubting Thomases here could start by noting that a third of rural India (by GOI's own admission) already lies in the Red Corridor, under Naxalite writ.
General disaffection of a chunk of its population from the Reform process, thus, is one of New India's stark realities. A simplistic hypothesis for this deepening unrest is built around heightened awareness (a la Maslow's Hierarchy of Needs). For instance, growing up in mofussil India of the 70s, one encountered few visible objects of wealth to pursue. Model refreshes of the ubiquitous Amby, as a case in point, were too disingenuous for laymen to discern and covet: it remained an immanent part of the milieu. Thanks to a misplaced Socialist slant in policy, choice was limited. In effect, products were inelegantly sarkari or retrogressively shoddy, and often both. Not so today when the flashiest in the world is out competing for your wallet, lifestyles that TV broadcasts direct to your home.
This has clear implications for Reform. As the desire for the good life (alluring decadence even) is stoked to an all-time high, then means must be abundant for the game to be above board. For a nation with a relatively weak tradition in entrepreneurial wealth creation, it is not easy to ensure opportunities are adequate, despite intent. This is the principal argument for Redistribution as stated goal.
By definition, both axioms above are long term. However, Capital is a bugbear (typical of Emerging Markets) immediately. Our policy mandarins, busy congratulating themselves for managing the global meltdown's impact (an unintended by-product of delayed liberalization) need to be cognizant of this. With 9% gone, at least in the foreseeable future, and Divestment war-chest stuck in a morass of political confusion, funding equitable growth remains an open question (an anchor scheme like NREGA by itself will need INR 100K Cr to sustain). Far more than improved experiences with Market vs the State, it is this prospect of mounting government debt that may yet force Mr Mukherjee to push for a more effulgent dawn.
Talking Budget, calls for a New Dawn were almost universal in the backdrop of an unexpectedly euphoric win and Opposition in utter disarray. Early noises via 100-day vision documents from sundry ministers were fairly path-breaking too. Measured against such epochal demands, Pranab Mukherjee's eventual business-as-usual pronouncements seem destined for footnotes, not glorious acclaim. The flip argument could be that nation-building is less about a spectacular agenda than solid action, hence closer to the FM's low-risk 2009 design. Let time tell if this workmanlike Budget was a winner.
Need of the hour, therefore, is to fix touchstones for our economic policy, leading me to my biggest peeve: the Aam Aadmi vs Big Business nonsense that circulates as truism (my last post). In the prevalent operating context, two axioms come to mind as pivots for Reform. First, increased goal-focus which implies turning the spotlight away from tasks to outcomes. For instance, Telecom is a poster child of how policy interventions can positively impact the economy at large (despite absence of China-like monolithic continuity in decision-making, a few highly visible recent coalition politics compromises, and some of independent India's biggest corruption scandals). Let me illustrate a few of the multiple levels where this can be seen in action:
- Implicit in the mobilephone's transition from an aspirational lifestyle product to a ubiquitous one is a story of enabled livelihoods. Today your plumber is a call away, cutting out sundry middlemen-contractors, with obvious impact on the value chain;
- Connectivity bridged distances that investments in conventional infrastructure (alternative) would place prohibitively out of bounds. That distant aunt is a single-attempt call versus literally shouting over 1000 km, Delhi-Patna 'trunk call' or, worse, forced physical travel;
- What information availability (push or pull) has achieved is too complex to fully fathom. Central India's soyabean cultivator has the market at his fingertips now, with consequences on input/ output prices, in a fashion unimaginable in the Humble Farmer's reign;
- Supply is perhaps the highest in impact (after all, benefits remain theoretical minus access). From chasing the friendly neighbourhood DoT-man for an elusive connection, or rectifying perennially 'dead' telephones, to being wooed by tariff wars, freebies and retention packages, we have come a long way.
This brings us to the second (somewhat trickier) postulate: growth is incomplete without redistribution. We are no strangers to sectoral imbalances or geographic inequity, but limited percolation of the spoils of Reform could bring the entire edifice down. This is not to disregard the need for a laggard manufacturing sector to pick up pace, agriculture to step beyond the Monsoon's shadow, the Hindi heartland to achieve Gujarat-velocity growth, or better infrastructure in general. However, these pale into insignificance compared to the damage potential of broader discontent. Doubting Thomases here could start by noting that a third of rural India (by GOI's own admission) already lies in the Red Corridor, under Naxalite writ.
General disaffection of a chunk of its population from the Reform process, thus, is one of New India's stark realities. A simplistic hypothesis for this deepening unrest is built around heightened awareness (a la Maslow's Hierarchy of Needs). For instance, growing up in mofussil India of the 70s, one encountered few visible objects of wealth to pursue. Model refreshes of the ubiquitous Amby, as a case in point, were too disingenuous for laymen to discern and covet: it remained an immanent part of the milieu. Thanks to a misplaced Socialist slant in policy, choice was limited. In effect, products were inelegantly sarkari or retrogressively shoddy, and often both. Not so today when the flashiest in the world is out competing for your wallet, lifestyles that TV broadcasts direct to your home.
This has clear implications for Reform. As the desire for the good life (alluring decadence even) is stoked to an all-time high, then means must be abundant for the game to be above board. For a nation with a relatively weak tradition in entrepreneurial wealth creation, it is not easy to ensure opportunities are adequate, despite intent. This is the principal argument for Redistribution as stated goal.
By definition, both axioms above are long term. However, Capital is a bugbear (typical of Emerging Markets) immediately. Our policy mandarins, busy congratulating themselves for managing the global meltdown's impact (an unintended by-product of delayed liberalization) need to be cognizant of this. With 9% gone, at least in the foreseeable future, and Divestment war-chest stuck in a morass of political confusion, funding equitable growth remains an open question (an anchor scheme like NREGA by itself will need INR 100K Cr to sustain). Far more than improved experiences with Market vs the State, it is this prospect of mounting government debt that may yet force Mr Mukherjee to push for a more effulgent dawn.
Posted by Echohum at 2:34 PM 4 comments
Labels: Economy, Government, Policy
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