Who's Afraid of Welfare Wolf

I have been off the air a few weeks. Assorted reasons drove my idle state: I can safely say that paucity of time and not lack of noteworthy content would rank high in them. In fact, our national mood has stretched the arc of the pendulum in this hiatus. A cricket World Cup victory transported India to euphoric seventh heaven. The other extremity was equally tested by a sustained corruption soap opera on national news.

Amidst these topsy-turvy madness, a widely anticipated Union Budget went by without unduly worrying history. Two months on, I found it uncommonly difficult to recall its details last Tuesday (with more than relief in the fact that my conversation partner, usually a highly aware specimen 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: apart from obvious merit in its core logic (an established part of neoclassical economics), the vitriolic reactions (including some regrettably personal ones) it drew was quite telling.

It is not difficult to understand the clamour for lower taxes. Individuals always want to maximize take-home from gross income (economics = limited-means-unlimited-needs etc). India's historical stress on thrift imparts this global truth an additional flavour. This intensity is likely rooted in political subjugation or consequent economic travails of the last few centuries. It may even be related to facts yet older: the relentless onslaught on our land by variously hued invaders; hence subconscious downplay of 'worldly' pursuit and productivity focus instead. In any case, our sociocultural abhorrence of resource waste is singular (consider a humble beverage PET bottle's multi-stage recycling in an average Hindustani household to sample 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 (Government's 'trust factor' must be at all-time low currently, explaining the cynicism that greeted the post) be bridged, then taxes may well not be branded undesirable waste. Therefore the idea of taxes-for-welfare merits exploration beyond academic interest. In specific, State-run European healthcare framework (different from the private sector US model) is worthy of deeper analysis and potential emulation. Also, to one theme in the post's responses, it is over-simplistic to tom-tom tiny city-state successes against practical realities of India's size and complexity. Likewise, we put at risk lessons of GFC 2008 if we continue to pretend that free markets and private initiative are panacea to all the world's problems (in fact the anti-government intervention refrain too may be in reaction to the corruption-inflation-misrule that the current Raisina Hill dispensation has sadly come to symbolize).

Logically, the other question is if resources to pay for welfare can be mobilized without tax rate raises. An obvious opportunity is coverage: using the metric of filed returns, an abysmal 3% Indians pay taxes (vs US's 45%, say). Sadly, fixing this has not been easy historically. Technology (particularly UID and bolt-on's) however may provide a way out in the not-so-distant future. It is worthwhile to build stronger sponsorship for these efforts, including better appreciation 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 monthend 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. Question is whether those at the helm think economics beyond competitive populism (sample: commitments in the ongoing state elections); and how they win back that precious commodity called public confidence, key to driving larger participation in nation-building. Woh subah kabhi to aayegi...

Judgement Call

In context of 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 shibboleth 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: with long, distinguished career records serving the law and jurisprudence. Oft-quoted as the tenet is, I appreciate and endorse it as touchstone of propriety in high places. Yet, I found the suggestion over-hopeful, and somewhat puerile.

First, the allegations: the litany of charges against Shri Balakrishnan is significant. Coincident with his tenure as CJI, fortunes of multiple members of his family (son-in-law, brother, nephew etc) 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 etc; presumably by peddling favour in judicial verdicts and administrative decisions. He also stands accused of playing godfather at large, shielding A Raja, 2G-scam kingpin and Middle India’s reigning bête-noire, from prosecution on attempt 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 aam aadmi’s last refuge for over two decades. Having presided over this venerated arm of our government (for one of its longest tenures), better could have been expected from Mr Balakrishnan. Instead one is presented with the sight of his portly form scurry 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 desired, in our current national context or dignity of his last 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 their assets. I had been surprised: the wise men in black robes had uncannily called right India's public mood on every issue since late 80s. Yet, in an ostensible no-brainer, where they could have easily continued at the vanguard of probity, under his leadership they refused to play ball. 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; thus ceding the high moral ground in a manner unprecedented in recent memory. The ex-CJI’s latest denial to an RTI query adds a somewhat macabre slant to those developments.

Noteworthy too is the purported reason for the nay-saying stance: information sought is not of public value! If talk of malfeasance, millions flying thick and fast, CJI-ship incumbency (not to forget existing stewardship of NHRC) etc don’t qualify as community interest, it stretches one’s imagination to think what does. His may be a nuanced legal view, disdain for the spirit of the law, or simply PR hara-kiri; but if unchanged, the afore-mentioned 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 page depicting eleven gamechanging 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 make a fair representation of popular cinema between 2001 and 2010. It would also be in order to mention their marked commercial success, remarkable for me in the sense that box-office recognition is a clear shibboleth of mainstream moviemaking. But lets talk the movies themselves first.

Two on the list were from 2001. Ashutosh Gowarikar-directed Lagaan was a period drama that combined dollops of patriotism, bestselling music and uniquely Indian love for cricket to hold the audience in thrall till a literal last-ball six symbolizing victory of good over evil. It also spawned a level of MBA-speak (email forwards were in vogue then), touting a case study for teamwork and assorted management principles. Farhan Akhtar's Dil Chahta hai was a coming of age story in notably youthful and upmarket urban setting much before our demographic dividend was taken as a given, though the economic prosperity subtext was well established. I know enough folks that identified with DCH’s college-and-after situations; or with one of the protagonists: the broody Sid, female-felled 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 had two entries as well. Koi Mil Gaya was a ritual Hindi movie saga of underdog triumph most noteworthy for a starring role for Jaadu, a pint-size desi ET that brought director-producer Rakesh Roshan king-size success. Its friendly treatment of a mentally challenged character was a subtle baby-step, 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 tread a new path, making a winning concoction of two dons: one a do-gooder bhai, other a stickler university Prof. 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 impact on society. High on patriotism, the Rakeysh Mehra directed film was a brilliant expression of youth angst, starkly contrasting contemporary political mess with inspiring idealism from our Freedom Struggle. Much beyond storytelling, RDB’s veritable clarion call against corruption, or mobilization of the aggrieved many, are 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 mire of vested interests in our country.

2007 had no less than three mentions. Imtiaz Ali's Jab We Met was an uncomplicated, lighthearted romantic affair, very accurately described by HT as 'a breath of fresh air', the spunky Geet making it the only movie on the list with a heroine dominant plot. Shimit Amin made Chak De the same year, another nationalism-meets-sporting achievement offering that, at the very least, succeeded in getting our national game 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. In the context of our impending Demographic Dividend, its advocacy of innovative career choices and empathetic handling of special children was outstanding.

From 2009, HT's choice of Hirani's 3 Idiots was a shoo-in. Well-deserved questioning of learning-by-rote or overly-emphasized, narrow definition of scholastic achievement was at the film’s core; and a subtle Roarkian undercurrent on encouraging excellence blended with a humourous take on college hostel life. One more that captured the imagination of more than the youth around whom it was pivoted.

The only movie from the list I have not seen (unintended; to be corrected shortly) is Shankar's 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 Rajnikanth and his flair for shattering box office records.

I shall pause now. Dabangg, I presume is too recent to need me to jog those grey cells. Any case, but for an overly hyped item number, I found it a decent watch if not in the same league as others in the pantheon (no elitist rant, just that Salman does not much agree with me most times). Equally, and on the topic of my rating being influenced by lead actors, I present Aamir Khan, a bigger presence in this pastiche than any other, and who taught me the lesson of not judging a book by its cover! But that’s a story for a later day...

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 :)

Carry On 2011

It is never easy to connect the dots in various socio-political and economic trends in the world around us; and least as it limps back post massive upheavals a couple of seasons ago. On the balance, at the dawn of 2011, the mood in India is sombre: the scars from a slew of high profile scams last year yet to start to heal. At the same time, we are much better off globally than end 2009 (and most certainly 2008): 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 it may be more difficult than the one gone by, with initial momentum from a rebound mostly dissipated. Deleveraging of the global economy is clearly a long haul - only a shift from private to public debt has been achieved as we speak. Global 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 shall stay a while, notably in the EU and US. Equally (though this may not impinge the Indian story much), the highly correlated rates of change in economic growth trends (even if actual values vary) demonstrates 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 an iceberg: most essential items, notably foodstuff, have high-strung demand supply equations that can poop the 2011 party. Worrisome too is inflation and possible asset bubbles that can derail the EM script. Last but not least, EU has to manage a mismatched fiscal belt-tightening (austerity measures in Greece etc that actually need monetary elbow room; and 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 can come via protectionism due to the First World’s persistent structural unemployment, or even 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 localized discontent.

No doubt we will watch these trends unfurl going forward. In my first post in 2011, I sign-off on a happy note though: a tribute to Mankind's achievement on two basic metrics: average income and life expectancy, in 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 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 is Meat (rhyme Small is Big)

My idea of a delectable meal often subsumes 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 shy of conspicuous consumption of the non-vegetarian kind. It is equally easy to remember my preaching from the pulpit to those missing out on similar indulgences.

Alas what use is a tale without a twist, and mine came up against one via marriage when my six-seventh dedicated 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 to think my last post (Dal, Not Boring was my first on food; built around an eminently vegetarian delicacy) to be an ‘inspired’ choice! Yet, apart extenuating domestic circumstances (an outvoted minority status), 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 mentioned earlier. 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 officialspeak 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 burgeoning population and changing consumption patterns (economic progress whets 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) display any urgency to increase areas under pulses 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. Else declared national goals like chasing Security Council seats are entirely meaningless.