Animal Farm

One of India's more watched news channels and its leading English daily recently ran an expose 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 to the outrage a tinge of rare immediacy. A call to action, so to speak, seemed incipient in the wave of national indignation.

Yet, it remains a moot question as to whether this will lead to tangible change. While the media may have chanced upon its grandstand newsworthiness now, the issue has been hanging fire for ages. My personal recall itself is from two decades ago - copious if not compelling lamentations on 'distribution losses', penned in the pursuit of an Economics degree - and the problem was not of recent vintage even then! Indeed similar protestations brought academic glory to many (not me!) over the years, with pithy math of mouths fed if gaps plugged etc. Yet to not much avail, as the sordid visuals from TV testify. For one, the agricultural supply chain has been hostage to political ambivalence for too long. Such has been the potency of notoriously enmeshed vested interests in its every leg, that all other actors need to be content with status-quoist survival play, mostly far too cynical to challenge it. A quick sample is illustrative of 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-marginal brethren are too fractured to wield any real political influence, clear from the typically lackadaisical, stopgap response to farmer suicide. Lack of organized credit in any case confines their choices - a fledgling microfinance revolution is still some time away. (This is not to undermine the fact that better contextual appreciation and economic timing helps sustain local moneylender-cum-intermediary strangleholds.) In this extant reality of stagnant productivity, the otherwise laudable NREGA and mostly reprehensible Maoist violence – both 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 storage and distribution of agricultural produce. Public sector agencies hold the key, but gunnies full of foodgrain don’t have a vote, and tackling post harvest waste remains low in their priorities. Other logistics players, only occasionally different from middlemen, have little motivation to drive efficiency, with infrastructure (and corruption) squeeze on margins, unless to profit from (artificially induced) supply imbalances. Lastly, wholesale through last-mile retail suffer from scale, subject to high rent, rising operating expenses and limited organized investment, disadvantaging honest trade.

Fact remains that our nation also drove a Green Revolution. The erstwhile stage was one of stronger political will, public memory fresh from ignominious PL 480 capitulations. In consequently sympathetic ears, AIR propagated research science prescriptions and rural India took to HYV seeds, fertilizer and irrigation in little time. (Incidentally, the most common critique of the Revolution's centres around land degradation, showing little appreciation of R&D’s evolutionary nature - science is a process of constant churn, not one-time infusion. Critics likewise gloss over the lopsided nature of fertilizer subsidy etc.)

In short, we must lean on science again. Be it input optimization, 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.

It would, of course, 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 anyways planning to focus on his new ICC Chair, when not engaged in periodic one-upmanship exercises with his professed ally). This is merely to request for not wilfully muddying the waters. We cannot afford to continue ludicrous supply-pricing games; with ill-advised and badly-executed (if not dubiously intended) market interventions missing economic sense.

Hypercritical of politics after a fashion? No. We should recognize the math by which 58 million tonnes of stock accumulates, double of actual need, Or how over a million tonnes were lost to storage and transit in the last 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 recent state elections. Good - they can now watch the tragicomedy play out live.) So if our political master 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 visionary - and allow full mobility and free markets in the sector. Food Security would then move from policy shibboleth to proud reality.

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.

Shoania, Show-Inane-Yeah

Incessant appetite for scurrilous gossip and celebrity obsession can hardly be classified as inventions of contemporary vintage. However, the heights (or depths, as seems a more apt description) this theater of the Absurd has attained of late is certainly without precedent. This is mostly an inevitable fall-out of advances in Media – its breadth leads some of its participants to stoop (competition, anyone?); and penetration allows its variegated output to become inescapable reality.

In the Indian context, media omnipresence has been inherent ever since one Pappu (Prince actually) fell down a tube-well and the nation woke up to Reality TV. Yet, its extent struck me this week when asked for my opinion on the ludicrous Shoaib-Sania tamasha over a meal with some office colleagues. Granted that a non-event like this must have an audience in TRP targets somewhere in our Great Unwashed, that it could wing it to more pretentious dinner table conversations is a potent reminder of how much of an equalizer TV has become.

At another level, other observations in the episode (soap opera, if you like) may interest the anthropologically inclined. One of these is clearly why so much collective consciousness need have been expended on this tragicomedy. Mind you, this is not elitist rant. One merely finds it difficult to turn from the fact (even for her most ardent fans) of Ms Mirza’s athletic prowess being decidedly higher on glamour quotient than sporting achievement. In fact, despite superior professional history, that it is Lee-Hesh’s occasional romantic dalliances or (not so occasional) fratricidal strife which has consumed more newsprint, buttresses the argument. Follow this line of reasoning and one can hypothesize that, culturally, embarrassing scrutiny is anathema to Indian culture. We revel in demi-god status for those with more immodest track records in any walk of life. In fact, but for moviedom (where controversy may well be courted in the name of publicity), we have mostly shunned discussions even remotely suggestive of human frailties of our icons.

Another distasteful (if not downright dangerous) facet of the media onslaught is the bevy of armchair experts only too happy to turn it into TRP-rich Indo-Pak confrontation. Neighbourly engagements in most part of the world are reasonably complex. Yet, ours with the failed westerly state is special even in these terms. With a few wars fought, not to forget an ongoing proxy one, and Terrorism, Kashmir, Nuclear Proliferation etc to queer the pitch, the last we need is trivial nonsense to whip up jingoistic frenzy. That more of this despicable posturing Shoaib & Co’s antics (or across the LOC in general) is immaterial. Some serious soul-searching is in order if India is not large-hearted and confident enough to dismiss such frivolity with the contempt it deserves. (Equally who cares what flag adorns Sania’s epaulette given the flimsy chances of her making it to the podium!)

Similarly trifling has been the attempt by some to use this occasion for characteristic Islam bashing. There may well be merit in debating Muslim Personal Law in India – standalone, or in insights vis-à-vis Shariat-governed Pakistan (or Turkey, or Indonesia) – but an important, complex social issue is sadly trivialized to link it with Ayesha’s marital status. Crucial debates on woman’s rights, legitimacy of telephonic nikah, polygamy etc make for little resolution with virtually administered polygraph tests for Shoaib Malik or Chand Mohammed’s sleeping arrangements. Such sensationalism loses us the battle – and the war is already lost.

Perhaps most enduring though, is an incumbent need for introspection in our media moguls (or at least their electronic brood). Fourth Estate is vital to a vibrant democracy but an overdose of the inane is a sad abuse of its reach. It is truly beyond me as to who and how decides that the attention of the entire nation needs be converged on Sania’s break-up with Sohrab, her choice of Shoaib, Ayesha’s copious (and credulous?) tears, and so on – across news channels and without break.

Extend the argument and ravings of assorted fanatics or pronouncements of perennially affixed (the same set is sought, and has pithily TRP-arousing views irrespective of topic) experts are all media-created monsters (raise your hands if you see less of Shri Laloo Prasad now that he has 4 seats vs 30 – and he has some popular support at least) under the sham of good copy. This circus, together with the adultery-rebirth obsessed tearjerker ‘general entertainment’ fare, makes one wonder which channels the media barons’ children watch. Cover it by all means, but for god’s sake, give us some choice!

Else let us all retire to watch Discovery Travel & Living…

A Follow On Inning

For a prolonged period in the Nineties the powder train of India's growth story provided a discernible fillip to equity values, including a booming primary market. To boot, some aggressive issue pricing meant even neophyte investors made a fairly consistent killing through a buy-IPO-sell-listing strategy. It was too good to last, and the market eventually turned a great leveler as it must. Some hangover of those glory days still seems to pull the retail investor (sample the now-thankfully-dear-departed 'MF IPO' mela) to this day though.

As it turned out, in this happy period, my college pocket money was hardly enough to afford any investible surplus. The result naturally was that my initial flirtations with stock-picking missed any skew from the confident swagger of tenderfoot success, nor adventure from lure of lucre. Learning the hard way (and armed with pearls from two notable masters: Messrs Buffet and Lynch) my confidence gradually crept up at least enough to venture my opinion on the table. And when for a few years in a row my portfolio reflected better returns on direct equity investments vs the Sensex (or those via the Fund route) the tendency to play to gallery won me to freely dispense stock advice!

Unfortunately, of late, my acquaintance grew with that familiar spoilsport: Time (or the lack of it). Consequently, most of my theories were tested vicariously - and though the results were not discouraging, the discipline to tend better to my portfolio was found wanting. It is in this backdrop (and to the accompanying bugle calls from a generally bullish market) that NTPC announced its mega FPO. Persisting with the axiom of my stock-picking being based on more mature considerations, here's how the issue stacked up:

• NTPC easily stood out as the largest Indian power utility, with reasonable historical revenue/ profit track record and operating efficiency in load/ availability factor terms
• The firm boasted of a healthy topline growth with plans to ramp up capacity by ~10K MW (over a third), assuming execution on track and equipment delays/ risks in control (Also important given its somewhat sub-optimal debt-equity ratio, affording scope for putting more equity to use)
• Significantly it was an infrastructure major with very low liquidity pressure atypical of the long gestation in the sector; and a comfortable funding position (~INR 17.5K Cr in cash alone) that weighed on its ROE as much as providing opportunity for backward integration
• Raw material pipeline was steady - a new 20 yr coal supply agreement with Coal India for 12 of its existing 15 units would get supplemented with captive coal mines and KG basic gas expected to kick in over next 2 years. Possible overseas mines acquisitions (hydro projects remain a concern) would provide increased flexibility. There was also strong partnership potential in 2000 MW nuclear power JV and ventures with BHEL and Bharat Forge to manage engineering and equipment needs
• Potential upside existed from sectoral deregulation, specifically unallocated power sale boosting returns or short term power trading (#2 player) and 3P modernization/ life extension practice

Yet, for the retail investor, the icing on the cake could only come from a price play. Indeed, it was key to whether the issue would draw more than institutional interest. The latter, some argued, would get committed any ways, a volume player being inelastic to entry point in view of the overall mood and potential. Given the value-unlocking protestations in UPA 2.0 policy (disinvestment being no more a dirty word at the very least) it was critical for the floor to be suitably defined so as to set the right tone for the aam aadmi investor.

Unfortunately, by any reasonable yardstick, the pricing and the issue came up short, saved the blushes only through 'motivated' subscription from SBI, LIC and other PSU players. The drama in the FPO (and my own prurient interest) were in itself well served by a simplified version of this script (rob Peter to pay Paul etc) but the back-room shenanigans transcended the staid approach the Govt and its hired guns usually adopt in such situations. In fact, far from commonly held misgivings on price, PSU entities actually bid at the high end, much higher than the floor price or the market - and that when FII interest was almost nonexistent! Extending the line, we had a series of seemingly unorchestrated sound-bytes (Goebbelsian devices that would have done any crafty market manipulator proud - case in point: Reliance Power) hinting at bear cartels that had been at work to drive price below its 'natural' 230 levels! And if any argument were left to be had, one merely had to look at the complete absence of commitment from NTPC employees. They knew!

In short, the promoter, the Govt of India, obviously needed the money - and as appears in retrospect, badly enough to brazenly flirt with the grey in an unprecedented manner. At the same time, it must be pointed out that such insidious conveyances could be but a short term tactic. Over the course of what promises to be a long summer, Fin Min mandarins would do well to imbibe better appreciation of their much professed principles of policymaking like public sector ownership by the public! Not only is the capital requirement in the current Grand Sale of PSU family silver way too high to afford being limited to incestuous bargains, but there is real fiduciary merit in spreading the spoils over a larger investor base. To boot, there may well be electoral arithmetic benefit in promoting an aam aadmi (or middle class, at the very least) lilt in any future auctions (even if at the cost of a marginal discount).

For now though the NTPC FPO kissa does leave more questions than it does answers, such has been the Government's conduct. And one thought the ignominy in a follow on was restricted to cricket!

Ode in Time of Crisis

Looking back the last few months, it is impossible to miss a humbling feeling of being amidst epochal events. Personally, last September was a heady high, a celebration of creation that rendered me well nigh unequal to the task of putting it to words! Time has flown since, each day a nouvelle discovery of wondrous joys, yet occasionally tinged with an undefinable sense of vulnerability. In my thirty-some years on the Planet, this pallete of emotions is sans parallel: cheer and blessing, joie de vivre, if ever!

The world, on the other hand, has been seized with circumstances of a lot less happy nature, best epitomized by episodes a year older. With the global financial system at its epicenter, an unprecedented and unrelenting series of economic upheavals have challenged life as we know it. Without getting into inordinate details of these trying times, suffice it to say that no walk of life nor section of society has been left untouched. Moreover, at least in some cases, things will never be the same again. Equally, though the worst is likely behind us, we are not fully out of the doghouse yet. It is clear that the speed, quality and sustainability of recovery depend on our generation's ability to rebuild the economic edifice. This effort must incorporate lessons from the current turmoil. Likewise, it is incumbent on us to have a sense of urgency lest the events and their aftermath fade from proverbially short public memory post recovery.

So what should constitute the bulwark of the Reset Economy? At the heart of reform must be a robust financial system that can not merely withstand future shock but proactively alert us to impending danger going forward. In fact the latter, curiously and completely missing in the run-up to the Lehman collapse or the events that followed, is the critical test for any proposed structural change. Unfortunately, at least for now, our response appears to me as coming up short. As a first step therefore, let me try and outline today a broad agenda, hoping to see the rest fleshed out in the New Year. (That which springs eternal in the human breast only magnifies early in a new year also a new decade, and when penning one's return blog after an interregnum!)

Firstly, we must recognize the character of the current downturn. Like someone put it, the crisis was a lethal combination of Market turmoil that eventually turned a Banking crisis and finally led to broader Economic consequences. Obviously such a debacle puts into the dock governments, central banks, regulators, banks/ lending institutions as well as corporates. It points directly to lack of coordination between these players, and piecemeal or inadequate appreciation of crisis drivers. Thus, a harmonized non-fragmented response and review is critical to future success.

Next we have the extent of the crisis and the pace of its transmission. For the malaise to spread like it did, the key ingredient was the interconnectedness of financial systems worldwide. This network is directly linked to ever increasing Globalization of world economy; and aided by rapid advances in Information and Communications Technology. In tandem, these ensure an all time high factor mobility, making the butterfly-in-China-shapes-NYC-weather connectedness an extant reality than mere Chaos Theory shibboleth.

Does this mean we turn contrarian to the forces of Globalization? One would think not. Not only is this fungibility not easily reversible, there are clear benefits the world has derived from them. This holds true for Technology too. In fact even contemplating any (even if theoretical) reversal effort suggests a need for a lot more calibration than the opposite - a coordinated global effort at crisis-corrective actions. Hence the near-consensus currently seen in implementation of near term solutions must stay the course for the longer term root cause fixes. With the plethora of stakeholders involved (and assuming you agree with me on the low feasibility for an outside observer to grasp its nuances), governments the world over have the primary onus to navigate through the intricacies of (micro and macro) prudential and accounting policies.

The logical extension to this argument is that we cannot let our focus waver even on exit strategies for the short-medium term policy and market interventions. Harmonizing these globally may be a tougher ask despite broad unanimity on its goals - sustaining the nascent recovery, maintaining financial stability and protecting a global level playing field. Policymakers would do well to use risk of unintended consequences as the touchstone for their formulations than unidimensional desired results. For instance, instead of getting swept off the feet by the obvious, namely increasing capital standards, consequences like drop in capital availability and inefficiency in the banking system, must be factored. (Interestingly, subprime mortage, now such a dirty word, was the output of one such political agenda, namely incentivization of housing ownership, where side-effects were not considered!)

Looking into 2010, the ball, as it does for most largescale change initiatives, is in the court of the Political kind (bureaucracy included by definition, for simplicity). The stakes are enormous, probably never bigger. Is the species up to it?

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. He was incensed my conciliatory gesture of a post – and at the suggestion of using a credit/ debit card driven payment system as an 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 made as an appetizer any ways. Some of the thoughts that came to me at various times this week:

• Speedy adoption of VAT and GST system, something that has been argued for 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 computerized across asset classes as well as company registration, customs and excise, tax, passport, licences etc – and cross-tabbed (if needed) with HNI indicators like asset ownership and lifestyle spends
• Better enforcement of annual personal tax returns – and perhaps early bird incentives than merely penalty for delay or default. (No doubt my friend would be happier to hear words like greater powers to enforcement 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 license 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

And now, the other two charges. At the core of my premise of effectiveness in advocating an electronic payment system was its ability to capture information in a digital form, coincident with the actual transaction. Equally, the effort in its transmission, storage or retrieval would be marginal save for the investment in scaling up transaction infrastructure in a country as vast as ours (but which, in my defence, shibboleths of Financial Inclusion and Productivity would any ways force on the banking system). The data thus recorded could be mined to model smarter risk-based pricing solutions to help customers and banks, while sharpening the I-T department’s claws.

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 had 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 around 25%; saving bank deposits of INR 10 Lakh plus it was one-third etc (Folks with dark humour will savour the fact of ~10% of 3100 RBI bond sales of over INR 5 Lakh gettinh away without a PAN!)
• Moreover, cases of fake/ multiple cards abound, limiting the department’s ability to trace any transaction back to the beneficiary. It is any ways over its head in water on the high-value AIRs for investigation/ matching with I-T 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 – even people with flashy lifestyle not commensurate with known income sources) using AIR data for over three years

But perhaps we write the epitaph of this effort too soon. We can equally note that high-value transactions capture was up 2X between 2007-08 and its preceding year – clearly denoting detection successes than economic boom. Equally, the march of technology in the banking industry is relentless, making the switch to electronic financial administration easier by the day. Or, for that matter, let us not ignore the large-scale adoption of computers by Indians at large. Mind you, this is not the super-bright precocious pre-teens of the current day, the trend is equally discernible across age and economic strata. (My father, loath to the PC most of his life – or perhaps never having needed to take to one, courtesy a sarkari lifestyle – is now not merely a ‘Friend’ on my social networking account, but was actually preaching the virtues of Skype to me the other day!)

The fun times, however, are yet to roll. To my mind, far more than banking industry paradigms or designs of Fin Min 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 will be where my oracular protestations be put to test. As more and more of India takes to using 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), the inclusion revolution shall fly bottom upwards. Empowered handhelds will then achieve what its voice cousins have already done – bridge divides that most thought an impossibility in the Indian context. Not will this spread make the ‘card’ all pervasive, it will put pressure on high value transactions to conform, given an enormously shrunk cash economy in the future.

Hence, card, we dream… Goodbye elitism, farewell effete :D