Who's Afraid of Welfare Wolf

I have been off the air for a while. Assorted reasons drove my idle state — I can safely say that paucity of time and not a lack of noteworthy content would rank high among them. Our national mood has, in fact, stretched the arc of the pendulum in this hiatus. A cricket World Cup victory transported India to a euphoric seventh heaven even as a sustained corruption soap opera on national news tested the other extremity.

Amidst this topsy-turvy madness, a widely anticipated Union Budget went by without unduly troubling history. Two months on, I found it uncommonly difficult to recall its details last Tuesday (finding much relief in the fact that my conversation partner, usually a highly aware sample of our species, struggled similarly). The catalyst for our discussion was a BS blog that argued for a tax-stimulated Welfare State in India. To my mind, the post was most instructive — both the merit in its core logic (an established part of neoclassical economics) and the vitriolic reactions (including some regrettably personal ones) it drew.

It is not difficult to understand the clamour for lower taxes. Individuals always want to maximise take-home from gross income (economics = limited-means-unlimited-needs etc). India's historical stress on thrift imparts to this global truth an additional fervour. This intensity is likely rooted in political subjugation and consequent economic travails of the last few centuries. It may run even deeper — the relentless onslaught on our land by variously hued invaders rendering a psyche eschewing 'worldly' pursuit in favour of a productivity focus. In any case, our sociocultural abhorrence of resource waste is singular (consider a humble beverage PET bottle's multi-stage journey in an average Hindustani household to gauge our resource consciousness). Parting with hard-earned income to an ill-performing State is, thus, a tough sell.

On the other hand, if the governance deficit — GOI's 'trust factor' must be at all-time low currently, explaining the cynicism that greeted the post — were to be bridged, then taxes would likely not be branded undesirable waste. Therefore, the idea of taxes-for-welfare merits exploration beyond academic interest. Europe's State-run healthcare framework i(as different from the private sector US model), for instance, would be worthy of deeper analysis and potential emulation.

Two other reactions to the post need unpeeling. First, it is an overly simplistic position to tom-tom tiny city-state successes against the practical realities of India's size and complexity. Next, we put at risk the lessons of GFC 2008 if we continue to pretend that free markets and private initiative are a panacea to all the world's problems. The anti-government intervention refrain in the comments, therefore, was mostly an outcome of the corruption-inflation-misrule that the current Raisina Hill dispensation has come to symbolise.

It behoves us to ask whether the resources to pay for welfare can be mobilized without tax rate hikes. An obvious opportunity is coverage — going by filed returns, an abysmal 3% of Indians pay taxes (vs the US's 45%, say). This has been a tough nut to crack historically. Technology (particularly UID and bolt-ons), however, may provide a way out in the not-so-distant future. Stronger sponsorship must be built for these efforts, including better articulation of benefits and timelines. Saddling the taxpaying salaried minority with more levies ought to be the last resort in this sense (you could say that my stance is partially inspired by a month-end routine of agonizing over the payslip!).

In summary, the post provoked some interesting (even if open-ended) chains of thought. At the very least, its advocacy of a Welfare State underscored a key policy shibboleth — inclusive growth. The question is whether those at the helm think economics beyond competitive populism (commitments in the ongoing state elections, for instance); and how they win back that precious commodity called public confidence — the key to driving larger participation in nation-building. Woh subah kabhi to aayegi...

Judgement Call

Amid the controversy regarding Shri Justice KG Balakrishnan and his family's recently acquired munificence, I heard a few judicial fraternity old-timers urge him to go the extra mile in clearing the air. 'Caesar's wife should be above suspicion' was the dictum they asked to be upheld; exhorting the immediate past occupant of the exalted chair of India's Chief Justice. Messrs Iyer, Verma and Nariman, luminaries all, should know better — given their long, distinguished career records serving the law and jurisprudence. Oft-quoted as the tenet is, I appreciate and endorse it as a touchstone of propriety in high places. Yet, I found the suggestion hopelessly naive and frankly puerile.

First, the allegations: the litany of charges against Shri Balakrishnan is significant as it is shameful. Coincident with his tenure as CJI, the fortunes of multiple members of his family (son-in-law, brother, nephew, and so on) are reported to have skyrocketed. The asset accumulation is rumoured to be in tens of crores — houses, farms, jewellery shops, hotels, and other business interests — presumably by peddling favour in judicial verdicts and administrative decisions. He also stands accused of playing godfather at large, shielding A Raja, the 2G-scam kingpin and Middle India’s reigning bête noire, from prosecution for attempting to influence a Madras HC judge in a corruption case against one of his cohorts. It’s complicated; or is it?

Next, consider the nation’s mood. Our collective consciousness is beset with an unending saga of corruption. We may not end up as a Tunisia or Egypt, but despair over this disgraceful dance of adharma is palpable. In this widespread morass, our higher judiciary’s stellar activist tilt has been the aam aadmi’s last refuge for over two decades. Having presided over this venerated arm of our government (for one of its longest recent tenures), much better could have been expected from Mr Balakrishnan. Instead, one is presented with the ungainly sight of his portly form scurrying away with an inane smile, TV journos in pursuit. It is not quite the picture of one with ‘nothing to hide’. It is also farthest from what is desired, in our current national context or the dignity of his former office.

Unfortunately, there’s more. Yesterday Mr Balakrishnan said no to sharing information on his or his family’s assets. This is piquant. At a time when his supposedly illicit gains weren’t yet the talk of the town, he had led the higher judiciary’s resistance to publicly declaring its assets. I had been surprised — the wise men in black robes had uncannily called right India's public mood on every issue since the late 80s. Yet, under his leadership they inexplicably refused to play ball, when they could have easily continued at the vanguard of probity. Given the monolithic, opaque nature of its functioning, it is difficult to surmise to what extent the erstwhile captain moulded the team’s stance. They were, in any case, made to yield, but not before an unseemly fraternal spat; thereby ceding the high moral ground in a manner unprecedented in recent memory. The ex-CJI’s latest denial to an RTI query casts a distinctly macabre slant to those developments.

Noteworthy too is the purported reason for the nay-saying stance: the information sought was not of public value! If talk of malfeasant millions flying thick and fast, the erstwhile CJI-ship, or incumbency as NHRC head doesn't qualify as community interest, it stretches one’s imagination to think what truly does. His may be a nuanced legal view, a disdain for the spirit of the law, or simply a case of PR hara-kiri; but if unchanged, the aforementioned eminent jurists’ conscience call has no hope. Unless, Your Honour...

PS: No surprises in the redoubtable Law Minister’s hasty endorsement under an equally specious argument (no questioning folks in sensitive positions, or words to that effect). The wily Karnataka politician had readily absolved Shri Balakrishnan in the Raja tangle too. Lesson then: swear by the forwarding letter, ignore the attached actual. And now: (apropos the Rajas, Kalmadis, and Chavans) no uncomfortable enquiries please, we’re Indian. Let’s just send them flowers!

Today: 10-to-11

This Saturday, HT City carried a feature depicting eleven game-changing Hindi movies from the last decade. I am not sure if these movies — or at least all of them — were pathbreaking in the fashion described, but they nevertheless offer a fair representation of popular cinema between 2001 and 2010. It would also be in order to mention their marked commercial success, remarkable in the sense that box-office recognition is a clear shibboleth of mainstream moviemaking. But let us talk about the movies first.

Two on the list hailed from 2001. Ashutosh Gowarikar's Lagaan was a period drama that combined standard-issue patriotism, chart-busting music, and India's cricket-obsession to hold the audience hostage until a literal last-ball six symbolising victory of good over evil. It also spawned an early strain of MBA-speak (email forwards were in vogue then), touting it as a case study for teamwork and sundry management principles. Farhan Akhtar's Dil Chahta Hai was a coming-of-age story, set against a youthful, affluent urban setting long before our "demographic dividend" became policy boilerplate — though the economic prosperity subtext was already flashing neon. I know enough folks that identified with DCH’s college-and-after situations, or with one of the protagonists: the brooding Sid, perpetually-lovelorn Sameer, and merry-go-lucky Akash (for those of you that remember, I also know a Subodh!) in a fashion unprecedented for Hindi cinema.

Moving on, 2003 claimed two entries as well. Koi... Mil Gaya was a ritual Hindi movie saga of underdog triumph most notable for starring Jaadu, a pint-sized desi ET that brought director-producer Rakesh Roshan king-size success. Its gentle treatment of a developmentally challenged character was a modest baby-step, and the overt sci-fi setting a pioneering attempt in a cinema mostly known for its formulaic approach. Likewise, under Raju Hirani's baton, Munnabhai MBBS trod a new path, concocting a winning dynamic of two dons: one a do-gooder bhai, other a stickler university professor. A commentary on med-school exam system, lady love's hard-to-get-with-a-difference act, Bombaiyya lingo and avuncular humour in the otherwise morbid hospital setting — it was a class act.

Cut to 2006 and Rang De Basanti redefined cinema's societal impact. High on patriotism, the Rakeysh Mehra-helmed film was a brilliant expression of youth angst, starkly contrasting contemporary political rot with inspiring idealism from our Freedom Struggle. Much beyond storytelling, RDB’s veritable clarion call against corruption, or mobilisation of the collective aggrieved, remains no less pertinent today. Youth and the Great Indian Middle voted with their wallets and feet, the latter a glimmer of hope for causes lost in the sticky mire of vested interests in our country.

2007 secured no less than three spots. Imtiaz Ali's Jab We Met was an uncomplicated, lighthearted romantic affair — very accurately described by HT as 'a breath of fresh air' — with the spunky Geet driving the only heroine-dominant plot on the list. Shimit Amin made Chak De! India the same year, another nationalism-meets-athletic achievement drama that, at the very least, succeeded in getting our national sport back in public consciousness. Aamir Khan's fairytale directorial debut in Taare Zameen Par was a landmark too — challenging educational system stereotypes in our notoriously conformist society. Against the backdrop of our impending demographic dividend, its advocacy of innovative career choices and empathetic portrayal of special-needs children was outstanding.

From 2009, HT's choice of Hirani's 3 Idiots was a shoo-in. Well-deserved questioning of learning-by-rote and over-hyped, narrow definition of scholastic achievement was at the film’s core, tempered by a subtle Roarkian undercurrent championing excellence, blended with a humourous take on college hostel life. Unsurprisingly, the movie captured the imagination of far broader demographics than just the youth anchoring its frame.

The only movie from the list I have not seen (unintended; to be corrected shortly) is Shankar's Enthiran (Robot) from 2010. It is also the only feature — and it is telling that I can aver thus with complete confidence, without having actually seen the film! — incomplete without a panegyric to its hero, the inimitable Rajinikanth and his flair for shattering box-office records.

I shall pause here. Dabangg, is presumably too recent to need me to jog those grey cells. Save for a much-hyped item number, I found it passable fare at best — not in the league of the others listed (no elitist rant, just that Salman rarely steps out of the banal). Equally, lest I be accused of lead actors overly influencing my rating, I present Aamir Khan, a bigger presence in this pastiche than any other, yet one who taught me the lesson of not judging a book by its cover. But that’s a story for a later day...

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.

Carry On 2011

It is never easy to connect the dots in various socio-political and economic trends in the world around us; least of all as it limps back post after the massive upheavals a couple of seasons ago. On balance, at the dawn of 2011, the mood in India is sombre — the scars from a rash of high-profile scams last year have barely begun to heal. At the same time, we are much better off globally than where we ended 2009 (and most certainly 2008) — the world economy appears to have allayed double-dip recession concerns, with recovery on track even if not fully out of the woods.

What would this year be like? I can stick my neck out to venture that it may be more difficult than the one gone by, with initial momentum from a rebound mostly dissipated. Global deleveraging remains a long haul — as we speak, we have merely shifted private debt onto public balance sheets. Recovery, too, is multi-speed, with stars in Emerging Markets but concerns in parts of the West. In the QE2 context, this implies that fiscal stimulus will stay a while, notably in the US and EU. Equally (though this may not impinge on the Indian story much), the highly correlated rates of change in economic growth trends (even if actual values vary) demonstrate the intertwined nature of modern markets. Given the massive relative size of the First World economies, this means national fortunes remain inextricably tied together.

There are other concerns too. The most critical is commodities — oil should already be giving sleepless nights to all energy-deficit governments. It is the tip of the iceberg — most essential items, notably foodstuffs, have high-strung demand-supply equations that can poop the 2011 party. Equally worrisome are rising inflation and asset bubbles threatening to derail the Emerging Markets narrative. Last but not least, the EU has to manage a mismatched fiscal belt-tightening (austerity measures in Greece and others that actually need monetary elbow room; and the absence of any in Germany, France — economies that can afford tighter policy!) and the Euro’s Draupadi-like nature. Obviously — an outside chance, nevertheless — a sovereign debt default will set the cat among the pigeons.

Not unlike 2010, the key remains a coherent, calibrated, and effective policy response. This is also my biggest concern. In a multi-speed recovery world, domestic political pressures can easily upset the current global consensus. Such a breakdown is not unimaginable. It could manifest as First World protectionism born of persistent structural unemployment, or as rampant Chinese assertiveness. In fact, how the world manages an unavoidable rebalancing of global power would be this decade’s most significant megatrend, apart from the transnational commodity supply crisis and the ogre of terrorism or localised discontent.

No doubt we will watch much of these trends unfurl this year and going forward. In my first post in 2011, however, I sign off on a happy note — a tribute to Mankind's achievement on two fundamental metrics — average income and life expectancy, over the last two centuries. Go watch!

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.

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.