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 play early adopter to 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 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 large realty investment decisions basis 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, 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 10 yr US visa in 10 days/10K from some arbit Churchgate agent last week)! Frankly, if only less prolific, it would have been funny.

Think a broader context and the seeming helplessness of the Indian consumer to overcome this mess does add to general scam-season discontent. True to form, an irresolute, blundering UPA-2 has little to tell beyond a revised-twice-yet-missed 31 Mar deadline. With public attention on other more ignominious spectacles, they have actually been able to get away without saying almost anything. In fact, with 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, alloting 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 specatcle of DoT-TRAI ping-pong on the issue inspires little confidence in their appreciation for the task at hand or 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 know this...

Of Dreams and Skylines

Urban infrastructure in Delhi NCR is a question-mark that lurks behind 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 veritably showcase New India's ambitious dreams. Soar high in their alluring promise and you are up for a rude awakening: the grating sound of your car's underbelly being tested on sludge-filled, potholed dirt-tracks that often pass off 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 sarkaridom's contempt 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 realize 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 is difficult but 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 was how India did not really have much of a choice in the matter - at risk is our much vaunted demographic dividend itself.

Going beyond Shanghai, better utilization of scarce urban land can have significant economic and social benefits for our country too. This is true in the sense of upgrading our Tier 2 and 3 towns as well as replacing haphazard growth in larger cities with more planned and sustainable one. On the first, consider how amenities (or even look and feel) in city #100 in the US compares with NYC (except scale) and see the gaping hole between merely Delhi and Patna. I say this not simply enamoured by downtown skyscrapers in any American city of note, but the economic realities that support such growth, and quality of life for citizens 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, if 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 ubiquitious sarkari structures with modern high-rise apartment complexes. An important point is that this model benefits not just yuppies or 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 sending a highly-leveraged me twenty 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 and timelines, and only half complete).

No doubt there are other larger, more contentious issues. Land policy, subject of a typically token recent demonstration by the ruling party's Gen Secy cum PM-in-waiting, is prime among them. Or the need to stamp out corruption in implementation that 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 growth of infrastructure, far less stimulating 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.

Microcredit Miscarriage

Last week, following a rather spirited discussion on the economics and politics of interest rate ceilings (albeit in a Malegam context) I was sent a recent NYT article by Prof Muhammad Yunus (Sacrificing Microcredit for Megaprofits). In it, the Nobel laureate and visionary-founder of Grameen Bank lamented recent trends in Microfinance, calling special attention to developments in India to highlight the sector’s wrong turns.

The good Prof's premise is summarized thus: the model evolved in the 70s' in poverty-stricken Bangladesh as an alternative to the usurious stranglehold of moneylenders. Over the years, its success spawned emulators beyond its birthplace. However, last decade’s structural shift in many parts of the world from nonprofit to commercial lenders (he notably mentioned IPO-famous SKS Microfinance) has resulted in 'a new breed of loan sharks', striking at the sector's very raison d’être.

As arguments go, there is clear merit in what Prof Yunus postulates. It is not merely Mother India buffs who would be familiar with shenanigans of the Friendly Neighbourhood Lala – he was the ogre-of-choice till Hindi Cinema discovered the hate potential of the political class. Replace it with a faceless corporation and supposed implications are shareholder avarice, dubious fund sources 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 corporate may be worse suited to understand the borrower’s lifecycle. As such, wrong placement of credit increases risk of default. Worse, absence of community relationships may reduce ability to manage delinquency, further skewing the risk equation. The cascading impact on interest rates is 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 utmost care, given impact on the entire ecosystem (certainly the last needed is sundry politicos fishing in troubled waters - a la AP). Prof Yunus recommends an interest rate cap; plus a microcredit regulatory authority to manage administration, accreditation of specialized microfin banks and ensure transparency in lending and collection practices. These make sense in my limited view, with one major caveat: that overzealous governments not go overboard as is their wont, or misuse increased oversight to dole out favours to chosen few.

Subject to these key conditions, there is the not-entirely-theoretical question of whether the intermediary being necessarily nonprofit. Here lies the rub. The Indian experience has been most unfortunate: one where simple, straightforward products (or agencies) get twisted into something completely antithetical, hopelessly losing their original purpose in a web of intrigue and shortcuts (for instance, the Money Matters fiasco where Housing loans metamorphosed into a tool for highly-leveraged speculation; or entire industries hijacked – Insurance digressing into ridiculously-priced ULIP's instead of addressing the opportunity in inadequate cover for the average Indian etc).

At the heart of these BFSI snafus is information asymmetry between the buyer and seller. This is mostly a deliberate design to ensure low buyer appreciation of what he or she is buying. Microcredit has merely followed this trend. January is too early to be cynical though. Instead, hope shines bright with other examples: the Mutual Fund industry, forced to focus back on channelizing retail investment into stocks instead of short-term corporate business or skewed load based easy pickings. Needed, it seems, are a few gentle regulatory nudges – keep the chin up, folks :)

Rest Easy

The calendar's fourth quarter is notable for its disproportionate share of festivities; occasions when circumspect purse strings loosen, accumulating significant spends 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 Westernized 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 back a month and 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 till eternity. Yet, come last week of Dec and far from an upswing in the footfall frenzy, you may well discern a pall of gloom, the droopy shoulders of salespeople a telltale of dropping revenue.

So what has changed? Almost the entire action in town seems to have moved to a new postal address: Easy Day, opened a block away. In fact, with Wal-Mart pedigree in its wings, this shop appears to have drawn an expanded clientele (with very obvious results on Sohna Road traffic, any case prone to highly frustrating jams). 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 hypothesis is 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 (janata express, low staff etiquette, serpentine queues et al) not significantly different from SRS. Yet, for now, Gurgaon's yuppie and not-so- population is voting through their feet (and wallets) there!

The likes of Easy Day may have a larger destiny to fulfill though. In the last few posts we have agonized over a lasting fix for India's Food Security. Yet, despite an immediate inflation crisis and very obvious medium-long term supply inadequacy, our current governmental response is random at best (unless of course one believes conspiracy theorists that see a deliberate, nefarious design in repeated policy and administration failures). In any case, the Government's assertions of control are rendered meaningless by WPI (and more so, retail inflation) figures with sorry regularity. Thus, in mourning what ails Indian Agriculture, it is time to shift focus away from reactive tweaks that is the wont of democratic governments, or hope for one-size-fit-all solutions. Instead, we need to tackle the supply chain in bite-size-chunks. The most conspicuous opportunity seems in storage and distribution: we waste a shameful 20% (likely more) of the food we produce, an abysmal situation by any account (Animal Farm). Granted that our sarkari agencies are not up to the ask of delivering badly-needed supply chain upgrades, the logical option for investment and knowhow (say, cold storage infrastructure) is FDI in retail. Hence the pitch for Easy Day and its kin – the benefits delivered via their backward integration efforts.

This is not an easy cat to bell. We cannot wish away the fears, imagined or otherwise, of thousands of mom-&-pop kirana stores getting overrun. On the contrary, we ought to take a leaf from China’s book on extracting a pound of flesh when framing policies. Let organized retail serve a purpose, with policymakers, producers and customers, all aligned to ensure the best deal. And in time, hopefully, technology shall deliver us irrigation and yield increases; productivity improvements that cannot fructify in one easy day.

Dal, Not Boring

Vir Sanghvi's Rude Food is part of my reading staple most weekends. To get to it is not always a cakewalk though: one has to negotiate other HT Brunch features that are often hopelessly inane. Of course, Shri Sanghvi himself, his broad repertoire on his sleeve, is capable of giving any self-respecting foodie more than enough cud to chew. Frequently, his fare is extravagantly esoteric in choice of subject and idiom, more daunting than delectable for the average seasoned traveler. Yet, when confining himself to playing patron vs patronizing, his entrée does justice to his vaunted gourmand credentials - even the pungency of his strong opinions tickles the buds and makes for mild intellectual exercise appropriate for Sunday mornings. In either case, the studiedly exclusivist stance is unmistakable.

This week though, Rude Food was positively brilliant. It swung the spotlight on humble, ubiquitous Dal, justly extolling its virtues as the quintessential Indian dish. As Singhvi points out, though content to play second fiddle to other offerings, the Dal does not suffer from lack in variety. All forms of Indian cuisine profess a version and each civilization coming into contact with it has added to options. At one level it is in fact quite interesting how hard put you would be to find Dal oriented eateries when you think how every household carries its individual specimen; and even the occasional cook's experiments have enriched its pantheon. (My mother for instance, not much given to adventurism in the kitchen, still cooks a memorable Dal, and so one would suspect for assorted mothers, spouses and chefs of varying culinary expertise across the Nation!)

However, there is one facet that Shri Singhvi barely scratches the surface on - owing perhaps to his proclivity for intellectual snobbery, or simply his relative munificence. This is the continued spiral of rising Dal prices and its clearly deleterious consequences on household budgets (one speaks from personal experience of course). In fact, this has worried no less than the RBI, going by the commentary in its Q2 FY11 Monetary Policy Review. Well merited as it may be, it is too early in the weekend to attempt this fuller discussion tonight! Let me therefore leave that for later – perhaps tomorrow, after being fortified with my ritual Sat khichdi lunch :)

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 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 tools of New Age technologies. This promised a sea change in efficiency and effectiveness of Direct Taxes administration (on counts like evasion detection, internal security etc) making it a progressive legislation worthy of our 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 gamechanging 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 face of path-breaking promise. Even as these fears lurked, the Revised Discussion paper one heard of a few months back, too 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 the Parliament this week.

So how has the cheer of the finest's toast for Pranab da slipped to old wine-new bottle despair? Not merely for selfish reasons, my first disappointment remains the largely superficial personal taxation changes. In fact, the reams of newsprint dedicated to laud the 'extra income' (INR 24K at the upper end) through marginally tweaked tax slabs makes one wonder when our mainstream media will mature beyond homilies and cliché. (To avoid sounding like a stuck record, one must steer clear of media-bashing: though richly deserved, there is zero surprise in our Fourth Estate's centrist and arguably pro-Congress slant.) In any event, basic math of inflation on the ostensibly cast-in-stone slab values itself beats hollow the DTC's pithy positioning as windfall for the taxpayer!

Going beyond this, one must rue the potential in a truly simplified tax framework. With 6.5% of tax incidence sacrificed at the politically expedient altar of Exemptions, the Government had a clear shot at reducing cost and complexity. Moreover, removal of potentially distortionary criteria would have improved investment decision-making for aam aadmi and HNI alike. Equally, a move to EET could have meant a boost for long term Savings (PF withdrawal is an example) but has been belied. Perhaps most importantly though, the survival of Exemption regime has reduced the leeway to lower rates and punt on increased adherence, ultimately limiting the ability to fund the Government'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 profitbooking in March, followed by resumed long 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 if merely saved for a subsequent budget to reinstate)!

Of the pieces of fine print, the other notable revision in the Bill vs its draft is the compromise on corporate taxation. A strong argument exists as to how the Government thus 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 around lowering tax liability via investment led depreciation benefits. From usage as tool to 'manage' tax, investments could have come into their own and be evaluated for true CBA. Big Business lobby however (including relatively genuine voices from its capital intensive variety) has ensured we are left with Photoshop type interventions in form of lowered tax rates via elimination of cess, surcharge etc. If, as successive FMs had given us to understand, these were temporary inclusions in our tax regime, it hardly needed a large-scale DTC exercise to get rid of them. Again, there is no surety that some other flavour that suits 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 Cr annual kitty, without any redeeming expectation of increased adherence. A solitary hope remains - with the suspense and end Feb Budget jitters gone, we could leverage the 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...

Numb and Number

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, embodiment of its creaking infrastructure. A proliferation of overflowing cupboards, dusty files stacked wall to wall, cobweb-tarred 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 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 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 'Hindu' rate of growth and an economic has-been status. New Age technology enabled the emergence of a confident, vibrant India that we see generous glimpses of, today. Thus, it is only fitting that it provide the vehicle for our governance transformation, light in a pen-pushing paper-serving Black Hole where citizenry feared to tread.

Obviously, this goes much beyond paper. Of vital significance is technology's gamechanging capabilities in delivery of governance benefits. Indeed, no less than 27 mission critical projects have been put by the Government to this task. UID, or Aadhar as it 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 account numbers and personal statistics would enable policy analytics and monitoring at an unprecedented scale. Frankly, it is near 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 purposes etc, the risk in unfrittered 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 of system design. Imagine, its potential multilevel security solution and consider that this also address ease of accessibility, given a citizenry with varying levels of computer proficiency, safely assumed low in 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 - though solar panels were used to fill gaps in proof-of-concept stage, one must 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 teaches us that political will at the top goes a long way in overcoming what seems prima facie insurmountable. Similar commitment must be mobilized to tackle the issue of Data Privacy protection for our citizens. Not only is this a clear checks-and-balances need in post-UID India, it is high time time the Government realizes that misuse potential in a nation with lax, ill-defined laws is not restricted to its Internal Security agencies. Take this train of thought forward, and one would love to see proactive public debate around Aadhar's design and other postulates and concerns - different from 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!

U(r)LIP or Mine?

A couple of smug rookies posturing as 'Relationship Managers' at my banks, an almost equally miniscule minority that seek me out for speculative advice, and hordes of DNC disdainful telemarketers peddling insurance - all can stand testimony to my ULIP agnostic investment strategy. My stance is hardly original: most financial experts of any standing shun from including ULIP in their shopping cart must-haves. Despite this rare unanimity and strong arguments against the product class, it has drawn investor interest consistently. The reasons behind this ostensible paradox, or indeed the product's long term survival, have assumed centrestage with recent developments in form of the SEBI-IRDA jurisdictional battle. At the heart of this is regulatory changes that, as one understands, shall address opacity and investor-unfriendly practices that ail ULIP sale and service delivery, if not inherent in their design itself.

To fully appreciate the context of the proposed changes, one must recognize that ULIPs have been sold in a manner completely antithetical to the basic nature of the family to which they allegedly 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 return' and hence afford '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 salesforce. A general expectation of market efficiency over public sector sloth thus plays to 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 to 5 years that qualify as lifetime to today’s average 25 year old). Look out 10 years, or 15, if not 20, and cyclical noise is factored out of markets and sensible, old-fashioned stockpicking yields full results. This is clearly market-oriented investment spiel (say equity, MF) but unfortunately not one that a lot of neophyte investors readily bite, obsessed 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 return, draws savings to ULIP schemes.

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 via heavily front loaded cost structures (upto 45% of Y1 premium goes thus!), a bevy of insurance salesmen have positioned ULIP as a best-of-both-worlds insurance product generating assured return 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) 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, mal-intentioned agents and lazy insurance firms continues to flourish.

At another level, ULIPs represent a large (if invisible) problem for the last mentioned of these: private sector insurance companies. There is a highly credible school of thought that makes a case for what drives this disproportionate focus on win-today-worry-tomorrow rat race for the investable rupee. The motivation, arguably, comes from higher capital adequacy norms for guaranteed (term insurance) vs market-linked (investment) assets. This makes minimization of life cover per rupee vested an attractive strategy for quick gain. 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) but inadequate social security structures, such missell of investment in 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 these have been known for a while. Yet, aside from (big picture inconsequential) individual purchase decisions like mine, not much had been 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 action to clear the mess under an investor friendly bias. In the ensuing turf battle, the IRDA has come up trumps. (SEBI's knock on Supreme Court’s doors was in vain: GoI stepped in with its IRDA-primacy ordinance before the courtroom drama was fully played out - and while CBB was away on business in Canada!)

The cynical 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 Pranabda’s mandate.

Regardless, the verdict of 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 over-pessimistic doomsday 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.

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 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 spectacular agenda than solid action, hence closer 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 the multiple levels this can be seen in action, by a sample:

• Implicit in 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 on his fingertips now, with consequences on input/ output prices, in a fashion unimaginable in the Humble Farmer's reign
• Supply is perhaps the highest on impact (after all, benefits remain theoretical minus access). From chasing the friendly neighborhood DoT-man for an elusive connection, or rectify perennially 'dead' telephones; to being wooed by tariff wars, freebies and retention packages - we have come a long way

In short, we need an active marketing of outcomes. Dwell on our global leadership in airtime prices; or how one of India's most backward states is today the most spoilt for choice in telephony operators (almost all mobile). Similar stories from Banking, IT etc must establish that some nudges from the government (and occasionally despite them!) can create true win-wins. Celebrating these, 'selling' the Reform story as it were, is the key to consigning the People vs Business divide to the dustbin it so richly deserves.

This brings us to the second (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 Monsoon's shadow, 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, 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: products were inelegantly sarkari or retrogressively shoddy, 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 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.