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Sunday, December 07, 2003

Political entrepreneurship - is India ready for it?

I sense a feeling amongst many of us today that our only political options are either the BJP or the Congress (with the myriad other parties throwing their weight behind one or the other), and that we have to put up with all their negatives in the hope that the negatives of either of them (or even both) will somehow disappear over time.

If this were a market scenario, I'm sure there would be at least a handful of punters willing to seize the opportunity and bet that starting a new outfit afresh (free from the past baggage, the vested interests and the geriatric leadership) would stand a very fair chance of success over time. There are enough instances of successful late entrants in the business world for us to take heart. Why, there's even an example in politics right here at home - the Telugu Desam Party (TDP) started out quite late to provide an alternative to the Congress and has quite successfully established itself.

I think there's much more than a fighting chance for a new and well organised party, starting from scratch, to gain a substantial mindshare and influence the political agenda of the nation. The initiative towards starting a new party - the Liberal Party of India, is one such step in that direction. Of course, it will be a long haul and will take a lot of doing - but are the majority of us aborting action on this front even before contemplating it, overcome by the enormity of the challenge?

We need political entrepreneurs today just as much business entrepreneurs, may be more so. Can (or will or should) some of the successful business entrepreneurs look to turning political entrepreneurs? In many other countries, successful business entrepreneurs have gravitated to politics in their later years - a trend that has been on the ascent in recent years. Narayana Murthy (NM) of Infosys is a name that comes to mind as an possible example of someone who could do the same in the Indian context. NM has built up a very successful organisation from scratch and commands a phenomenal amount of goodwill and equity from the middle classes to be able to ignite the hope that a newly launched political entity can be successful and actually go on to mobilise people towards turning that hope into action. I think he can do it if he chooses to.

If NM were to think about this, he might ask himself if he should focus on business (Infosys) or politics (the nation), going ahead? Are the two options largely mutually exclusive or can he do both simultaneously? One could argue that serving Infosys and continuing to help it grow is itself the best way for him to serve the nation, but is that how he can add the most value, being who he is and given his experience and stature?. Going back over a hundred years, many leading successful (wealthy) lawyers of the day (among them Patel, Rajagopalachari, (Motilal) Nehru, Rajendra Prasad and others) thought it necessary to also be politically active alongside pursuing their professions to make a living, and eventually managed to help the nation become free. Is it the turn of successful businessmen to do something similar now to catalyse and hasten progress?

In addition to successful entrepreneurs, can salaried professionals from all fields also get involved in politics part-time, in addition to their normal professional activities or does politics absolutely require full-time commitment which is possible only for either the very wealthy who have no need for any other means to make a living or the opportunistic folks who get into politics to make a "living". I think involvement in politics outside of work time is very much possible and quite necessary. A political entrepreneur can count on this huge constituency of professionals if he or she is able to paint an attractive vision for the future along with a plan to get there and convince this large constituency to buy into it.

Why I can't vote for the BJP

I thought I'll carry the discussion further here. So the reasons I can't vote for the BJP are:

1. Amitav Ghosh is absolutely right. The BJP's reading of history, indeed their construction of it, is a huge problem. The sheer ethnocentrism is such a put off.

Their reading of history and current ideology, finds no place for the plurality of Indian life--languages, cultures, religions, festivals. I enjoy the plurality so much, that I find it impossible to think of lending support to anyone, any party, or any philosophy that opposes it.

This is a very big debate and I dunno if Indian Economy Watch is the right place for it.

2. There have been a lot of comments about the possible emergence of the BJP as a respectable center-right (conservative) party. Rueben looked forward to their becoming something like the New York Republicans. I also think its a good idea. In any democracy, as in any blog, its helpful and fun to have disagreements. A centre right BJP and a centre left Congress would be useful.

But I think this argument ignores the metamorphosis of the word "conservative" that is taking place right in front of our eyes. I use the term "conservative" as most Americans use it denoting a free market ideology, small government, perhaps a hardy culture of self-reliance. Conservatives are the sort of people who more or less look to Milton Friedman as their guiding light. And even though I disagree with conservatives on most issues, I respect them. I think India would greatly benifit from more people of the sort. We tend to look to the government for, frankly, too much.

But the BJP is not such a party. Nor for that matter are the Republicans, or the Le Pen right in France. They are increasingly, er, National Socialist. I am not just saying that. The working class is increasingly voting right and all the three parties I mentioned have very strong Nationalist rhetoric.

The BJP actually was never a free market party, all they believed and still believe is in transfering government sops from the poor to the relatively better off.

Can you imagine the followers of Milton Friedman demonstrate against the scrapping of the rent control act?

3. Mob rule. Ghosh makes this point better than I do. But I tried to write about in an article in the Business Standard, "Tea with Mussolini". It's archived here. Having read Hannah Arendt, Samantha Power's account of the genocide in Rawada, and lately Kaushik's reply to Brad Delong, in which he wrote:

I guess it touched me in the raw because the BJP is indeed a nasty piece of work. Its leadership is full of terrible, Neanderthal men whom the Vajpayees think that they are exploiting to stay in power. And India will pay a price one day. It would have taken generations to have really gotten over partition. And now we have Godh[r]a.

I am scared about banality of evil. The mob the BJP excites will get out control and dictate policy. Already Togadia feels no obligation to be civil to his parivar members. This is too dangerous a game to play and Advani for all his TV composure has played it too long.

4. The human element of the Hindutva. Hindutva is all about taunting the minorities, its about making them blast crackers when Sachin hits a century, its about making them prove their fealty to "India", its about degrading them for who they are (and have no choice about) and its about excluding them from national consciousness.

Why would I support such a party?

Obligations of governance

This post is a little off topic. In a comment responding to Vivek's remarks on the recent state elections in India, I expressed my distaste for pretty much the entire line up of national parties. Let me first reproduce here the key points that I made:

"I am NOT a fan of Sonia Gandhi's leadership. My support of Congress is grudging and lukewarm - for lack of anything better. This is largely because, post Gujarat riots, with BJP, we would always run the risk of something really terrible happening.

I like the communist parties even less. I am familiar with the impact of the destruction of the public school system, the flight of industry and the utter, utter hopelessness that forces the rural youth to join the communist parties in Bengal today. I would have to be dragged by a mad elephant to support them.

So; Sonia Gandhi. It is much more fundamental than your or my like or dislike of Sonia Gandhi. With her on the masthead, The Congress will always lose a huge chunk of the electorate unless of course BJP screws up really gigantically.

I also think that caste based politics has the potential to destroy whatever little social fabric is left to non-Metro India. Congress needs to find a soul and a leader who really actually believes in that tired cliche''when you reach for the stars, you dont settle for the trees' Unless it gains that, it is gonna remain business as usual ...."

With so many caveats, you may wonder why am I rooting for the Congress anyway; since the economy has started responding under BJP's stewardship. It is actually quite simple. A year back, one of my favourite writers, Amitav Ghosh wrote a column on the subject. He said it much better than I could. So let me simply reproduce part of it:

"There are certain obligations of governance that admit of no dilution for ideological purposes: they are binding and absolute. The first of these is the obligation to maintain the rule of law..... But in choosing instead, to encourage retribution through mob violence, the government has permanently endangered all its citizens, including those whose interests it endeavoured to advance. .....

Secondly, a modern State is by definition under an obligation to establish a monopoly of sanctioned violence within the territory under its control. Any State which attempts to dodge this obligation, for no matter what purpose, does so at its own peril. There is no better illustration of this principle than the fate of our neighbour, Pakistan. Zia ul-Haq attempted to tighten his grip on power by creating extra-governmental militias: in the end this policy undermined the very foundations of the Pakistani state ....

Finally, one of the least remarked but most important foundations of government lies in the ethical authority that is vested in it. Citizens look to their government not only to maintain order and deliver goods and services, but also to serve as a forum for the conduct of a collective ethical life: it was in this sense that Hegel called the modern state a ‘conscious ethical institution’. This unacknowledged duty is in fact one of the invisible pillars of legitimate government: it was precisely on ethical grounds that Mahatma Gandhi challenged, and eventually toppled, the British Raj. In publicly endorsing the actions of a mob, the present government has undermined the Indian state’s ethical claims to legitimacy. "

Saturday, December 06, 2003

AT&T sells stake in BPL

Looks like AT&T is getting ready to quit the Indian mobile phone market (their last remaining investment is in IDEA cellular), even as a record 1.9 million subscribers were added in November alone. Analysts suggest that Ma Bell has sold its stake (which it acquired at about $150 million) at a considerable discount.

The question is whether Ma Bell's decision had anything to do with the unified licence regime (wireless and fixed-line) announced by the government, a move that was predicted to start of a wave of much-needed consolidation in the Indian mobile phone industry.
Success has many fathers

So now every political pundit can find something nice to write about the BJP. Talking heads are spanning the length and breadth of television studios to reveal the reasons and the impact of the BJP victory. Suddenly, they are a young and dynamic lot, lots of fuss is being made about Pramod Mahajan's lap-top boys (as if he ran some complex election mathematical models on the dam thing to figure out strategies...) , Arun Jaitley's (ugh) strategic sense, Vajpayeeji's charisma. Without bothering to say why, political pundits now think the election victory is an endorsment of economic reform. None of these pundits caught which way the wind was blowing before the election results, so now they are playing catch up.

All very well, I suppose--to the victor go the spoils.

Moreover, one shouldn't judge pundits too harshly. Its genuinely difficult to figure out the Indian voter, and more importantly the first past the post system can make a few percentage difference in vote share seem like a land slide.

However, I shall stick by my party. The BJP, with few exceptions, in my view is a rotten lot.

And the fact is that all four Congress Chief Ministers were excellent Chief Ministers. All four were modern, clean, and efficient Chief Ministers. And their tenures have visibly--and not so visibly--improved the condition of people living in their states.

Madhya Pradesh and Rajasthan, for example, have both started to pull out from the BIMARU trap in their Digvijay's and Ghelot's tenure respectively.

Digvijay's de-centralization and land re-distribution program is to be genuinely applauded. Any Ghelot fought 4 years of drought vigorously. Food and work reached the farthest corners of the desert state--a point often missed by Delhi/Bombay types. Most emphatically the states will be worse off without them.

All pundits have, as usual, begun writing political obituaries for Sonia Gandhi. Let me just say that if she was good enough to pick and stick with Ghelot, Dixit and Digvijay, she is good enough to be my Prime Minister.

Branding India

A few weeks back, we were all rather excited about the Sekhar Kapur interview that Edward posted here. Being the 'realist' that I am, I had tried to throw some cold water on his theory. Now, Sandipan has an interesting article up in Outlook which questions some of my premises.

"What is a brand? In business school, they teach you that a brand is a "basket of attributes". Hindi films did not consciously try to do any branding for India. It just happened. The attributes are what the audience perceives. In the Asia-Pacific region, India—as communicated by Hindi films, as interpreted by the fannish legions—stands for beauty, joy, hope, and Asian pride. In Morocco, Egypt and large tracts of the Islamic world, it stands for rock-solid family values, the inviolability of contracts made for human relationships. In the West (in a small town in Georgia, US, a friend met good Southern Baptists who knew of Preity Zinta), it stands for unbounded passion, for a sovereign energy, about a freedom from the should.

Can these involuntary and contradictory brand appeals for India be harnessed together to build a velvet battering ram for the worldmind? Yes, of course. Don't ask me how. I am just a tourist. One request though. Can we stop defining ourselves by an LA suburb? Can we stop calling our film industry Bollywood? It'll be a start. "

In a powerful and balanced accompanying piece, Manu Jain examined what does India, the brand, represents and if it is possible to leverage it. Both the articles are very well written and worth reading in their entirety.

Friday, December 05, 2003

What will the defeat mean ?

What will the defeat of the Congress in the 3 states mean for India, I wonder.
Will it mean that all non-NDA parties come together?

Well I certainly hope so mostly because I am a partisan hack. I hate the BJP more than anything else in the world.

But also because I think the BJP is the wrong party to carry India's economic reform further. Their support base--urban, upper caste Hindus and increasingly "brahmanized" intermediate castes (like Uma Bharti) are the principal beneficiaries of the current economic system like free higher education, LPG subsidy, in the villages fertilizer subsidy, virtually free water and power , jobs in public sector undertakings, rent control etc.

Economic reform in essence means uprooting a lot of this structure. The BJP, like every other political party in the world, will be unable to go against its own supporters.

What it means is that the Congress must ally with the Communists, Mulayam, Laloo, Paswan and whatever else is left of the old United Front government if it wants to form a government next year. But how the hell will Manmohan Singh as finance minister convince the communists to support the government over PSU divestment, or labour reform? The BJP is unlikely to be magnanimous and lend their support as the opposition just as the Congress hasn't supported Arun Shorie over privatization.

I still think the Indian economy will grow fast enough. The impetus for economic change/ growth comes from deep within the fabric of the country. There is only that much that any government can do to stop this thing we've started.

However questions remain...

Thursday, December 04, 2003

I won't watch TV today...

Or tommorow, the day after, maybe for a week. I can't bare to watch that loathsome Arun Jaitley gloat on my TV screen.

As you probably know, the Congress lost three states today... :( Two of my favourite political leaders--Digvijay Singh and Ashok Ghelot won't be Chief Ministers. There is no justice in the world.
We're not in Kansas Anymore

Following straight in behind Atanu's last post, the recent Business Week cover story really does seem to be making waves. Among the the latest 'shocks' in the breaking news: the fact that even the MIT open courseware itself is now being outsourced. I'll let my friend Marcelo explain by republishing his original Bonobo post.

When do you know, positively, clearly and down to your very bones, that the world you're living in isn't the world where you were born? When Italian mammas have to be incentivated with cash to have more kids? Or when the MIT, one of the world's foremost centers of education and research in science and technology , outsources to an Indian company the core of the software programming it took to "Open Source" its educational materials?

None of this will really be surprising to Bonobo readers, as Edward has been writing for longer than most about the demographic and economic currents driving these events. Yet it's a bit of a shock to realize that they aren't even very surprising to the public in general. Like the proverbial frog in the pan, we get used to trends long before we have fully grasped their implications.

The problem, of course, is that the water in the pan eventually boils...

Update: from Edward

Apart from the fact the post linked to about MIT is interesting in itself, the comments column is fascinating, and some good arguments are made all round, including this one:

We're slowly killing our talent pipeline - the best senior techies start out as programmers and junior technical staff and learn the business from the ground up. The same goes for analytical talent. If you're somewhere in the lower levels of management and came up through the technical ranks, you've got a decent career ahead of you. Half of your peers have probably changed careers - and there is no one coming up the ranks behind you to compete with you. I suspect we're going to see a real problem finding truly competant project managers and development team leaders in a couple of years once the recession is over. Due to the staff cuts and lack of talent nipping at my heels, I'm the top person in my field at my company at age 30. Yes, I really am that good - but I'd have a lot more competition if we hadn't laid of most of our junior analytical pipeline three years ago and dumped half of our senior staff in favor of cheap offshore folks. It's not a problem until you need someone to talk to the client or senior management - then you're screwed. You've then got the choice between charming airheads or incomprehensible technical folks.

The Law of One Price

Why the law of one price astonishes people is astonishing to me. BusinessWeek Online of Dec 3rd has a story about US programmers at overseas salaries. The story reports that someone came up with a novel solution to the problem of the off-shoring of US programming jobs. The "novel" solution is for employers in the US to bring the salaries of US programmers more in line with the costs of hiring an off-shore programmer. Now, I would have thought that anyone who has had even a nodding acquaintance with Econ 101 would have figured that as the most natural outcome of market integration. But I am mistaken. It appears that some people do get astonished when they see markets work.

US programmers cost approximately $80K per year. Contract programmers from India cost about $40K per year (although the programmer gets a lot less because the jobs are intermediated through firms that have to have piece of the action.) The market for programmers worldwide is not maximally inefficient -- that is, it is not a fragmented market. So naturally, the law of one price is going to hold. In other words, Competition rulz.

Here is an excerpt from the tail end of that piece:

What if other companies begin taking the same approach -- offering Indian-style wages to American workers? On the positive site, we could begin to solve our job-creation problems. But on the negative side, America's standard of living would inevitably decline. There's only one way to find out for sure how it all might shake out, and that is for other executives to replicate Jon's experiment. The results could be quite interesting.

The implicit assumption in the question above is that GOD has decreed that the American standard of living is sacrosanct. The Americans must continue to consume a disproportionate share of the world's resources and thus maintain their standard of living. Other people -- Indians, for instance -- should be content with a meagre share of the global resources. All the breast beating about the grave threat to the American standard of living is grotesque when one sees the pitiable living standards of a couple of billion humans who don't happen to be Americans.

Wednesday, December 03, 2003

Is India really shining?

Mohan Guruswamy, Abhishek Kaul & Vishal Handa of the Centre for Policy Alternatives, an independent think tank in New Delhi, present a sobering perspective in an op-ed piece in The Hindu. The main points being a. India is behind China on most development indicators - catching up on growth rate alone isn't enough and b. China is an industrialising country whereas India seems to be entering the post-industrial phase without having industrialised.

A comparison of the first ten years of the economic performances of India and China after reforms (1992-2001 for India and 1979-88 for China) is instructive. China entered the first decade of the reforms as a fast developing and modernising country with an average decadal growth rate of 5.52 per cent. But more important than this was the performance (1980) of reducing infant mortality to 42 per 1000; elevating life expectancy to 67 years; raising adult literacy to 66 per cent. India by contrast had a better growth rate of 5.7 per cent in the 1980s but came burdened with an infant mortality of 119 per 1000; life expectancy of 59.2 years; and adult literacy of 48.41 per cent. Many reasons have been advanced for China's stupendous performance. Few are as valid as what Amartya Sen wrote: "China's relative advantage over India is a product of its pre reform (pre 1979) groundwork rather than its post reform redirection."

Yet another comparison would be even more instructive. In 1978, at the inception of its reforms, China's per capita GDP (in constant 1995 U.S.$) was $148, whereas that of India in the same year was $236. Seven years after it began its reforms, in 1986, China caught up with India in per capita GDP terms ($278 vs. $273) and a decade after reforms in 1988 was comfortably ahead of India with a per capita GDP of $342 compared with India's $312. In the first post-reform decade, the Chinese economy grew at 10.1 per cent while the Indian economy grew at 5.7 per cent in the corresponding decade. Quite clearly that was India's lost decade.

But what did we achieve in the first decade of our reforms? In 1992, the first year of its reforms, India's per capita GDP was $331. This grew to $477 in 2001. In the same period the Chinese per capita GDP surged from $426 to $878 in 2001. In the 1990s China grew at the rate of 9.7 per cent while India grew at 5.9 per cent. Quite clearly far from beginning to catch up, we fell well behind.

It is true both countries have transformed themselves after they embarked on the path of economic reforms. But the transformations were entirely different. In 1980 the sectoral break-up of China's economy was as follows: agriculture 30 per cent, industry 49 per cent, and services 21per cent. In 1990 that changed to agriculture 27 per cent, industry 42 per cent, and services 31 per cent. In 2000 that picture transformed further. Agriculture fell to 16 per cent; industry grew further to 51 per cent while services steadied at 33 per cent. Note the growth in the share of industry now. This was primarily made possible by overseas investment, which amounted to $293 billion during the decade, which also created millions of new jobs. Apart from the millions of new jobs created, the role of FDI in making China a major world-manufacturing centre is seen in the share of FDI enterprises in total exports. This rose from under 2 per cent in 1978 to 45.5 per cent in 1999. Today China accounts for 3.79 per cent of world trade while India's share is just 0.93 per cent. Consequently, China foreign reserves have burgeoned to $383 billion while India's is $92 billion.

The Indian picture makes for a study in contrasts. The share of agriculture fell somewhat from 31 per cent in 1990 to 28 per cent in 2000. The share of industry too fell from 28 per cent to 26 per cent. Services grew from 41 per cent to 46 per cent. Software exports apart, the biggest contributing factor to the growth of India's services sector has been the growth of public administration, which has been bounding at an average rate of 32.5 per cent each year from 1993-94 onwards. In 2001 Central, State and local government salaries together topped Rs.167, 715 crores. This kind of spending was not what Keynes had in mind when he advocated public spending to stimulate the economy!

Tuesday, December 02, 2003

The Tourism Conundrum

Francois Gautier is not my favourite journalist. For that matter, I don't even think he is much of a journalist. But, give the devil his due. In this piece, he makes a great deal of sense and reveals why India's tourism industry is in such a funk.

I often shuttle between Chennai and Delhi. A return ticket by Indian Airlines or Jet (which is more expensive) between these two cities costs more than Rs 22,000. For that price, I can fly from Paris to New York, which is triple the distance. And that is economy only: it will cost you a whopping Rs 34,220 return fare for a business class ticket on Jet from Chennai to Delhi. If you have the misfortune to be a foreigner, you will have to pay 30% to 40% extra, depending on the dollar exchange rate, which means you will have to disburse Rs 42,000 for a business class return Chennai-Delhi. For that price you can fly to Europe and back in economy!

The funniest thing is that there is sometimes a 15-day waiting list to travel by train from Chennai to Delhi (or the other way) in second class A/C sleeper, which costs a little over Rs 2,000 and takes 36 hours -- that is when the train is not a few hours late or does not have an accident. If Indian Airlines or Jet had the intelligence to offer Chennai-Delhi tickets at Rs 3,000, regardless of the dates, people will gladly shell out another 1,000 bucks, just to avoid the 36-hour trip. IA could easily fill up six Airbus-320 aircraft a day and make a handsome profit, instead of hiking up its prices four times in the last five years.

And what about Indians paying Rs 20 to see the Taj Mahal or at Hampi and foreigners being asked Rs 500? Are we cows to be milked? Does the Indian government think it is going to earn the goodwill of tourists and guarantee their return, when they are discriminated against?

Moreover, the hassles faced by foreigners in India are not only financial. Take visas for instance. In Sri Lanka, all foreigners are automatically handed a one month visa upon their landing at the airport. But not in India. One has to apply to sour faced, underpaid staffers at Indian embassies abroad -- and forget about five year visas, even if you have been visiting India for 35 years.

These archaic price discriminatory tactics the Indian govt uses against foreigners is something that has annoyed me for a long while, not to mention the crazy visa policies where practically everyone needs a visa to visit India, as a tourist or otherwise. It's part of the we-are-so-great-you-must-feel-privileged-to-visit-our-country mentality that has not gone away despite a decade of reforms. Is it any surprise then that India (with its unbelievable potential for tourism) gets about as many tourists in an entire year as France gets every two to three weeks?

Monday, December 01, 2003

State Government Finances

Here is a site you should check out. It's the Punjab Government site. There is a special features section in which there is the report of the Expenditure Reforms Commision. It's a good read, 90 pages or so--if you have nothing to do on the weekend. Basically one gets some idea of why state government finances are in such a mess.
AIDS and India

There is a nice Amy Waldman story in today's NYT on India's plans to provide free AIDS therapy. As she notes:

By April of 2004, the government hopes to begin providing free antiretroviral therapy to all H.I.V.-positive new parents, all children under 15, and eventually, to all patients with full-blown AIDS in the six states with the highest rates of H.I.V./AIDS. The decision amounts to a significant policy shift for India, which has not previously tried to offer antiretroviral treatment on any significant scale, though it does provide drugs to try to prevent AIDS transmission from mothers to babies in childbirth.

But several obstacles must be overcome by spring. The government must still reach a final agreement with the country's pharmaceutical companies, who manufacture generic versions of antiretroviral medications, to reduce their prices, as these companies recently agreed to do in Africa and the Caribbean. The government has yet to identify "budgetary support," the money to pay for drugs for as many as 100,000 people, the number it estimates would be served in the first year. It also will have to recalibrate its weak public health system to provide for far broader testing, and train doctors and nurses to monitor the dosage and effects of antiretroviral therapy.

India is estimated to have at least 4.6 million people with H.I.V. — the second highest number in the world, after South Africa. More than 600,000 new cases occurred in 2002.

Doctors in India prescribe antiretroviral therapy, but at $1 a day, it costs too much for most people. India's per capita income is less than $500 a year.

People often underestimate the danger that AIDS poses to India. An article in last Dec's Foreign Affairs magazine (now unfortunately unavailable online) made a very pursuasive argument of how AIDS is not just a humanitarian tragedy, it has the potential to spread into a pandemic and destroy the economic potential of three pivotal countries, India, China and Russia.

I had written a little bit earlier about the problems that India faces in fighting AIDS. I am very glad that we are finally responding to the crisis; though from what I read between the lines, we seem to be indulging in a bout of pennywise, poundfoolishness:

For two weeks, the companies and government have been in what one participant called "back-breaking" negotiations over those issues. Ms. Swaraj has made clear that she would like the companies to provide lower prices in India than those agreed to with the Clinton Foundation. "That's only natural because these are companies based in India," she said. Industry representatives say the government needs to understand the business imperatives of companies that have become Indian success stories and wealth creators. The Clinton Foundation agreement, they say, has left them a small margin of profit that will allow their businesses to keep growing and appease shareholders. To go any lower, they say, will require concessions from the government, like exemptions on sales and excise taxes.

Ms. Swaraj announced at a news conference Sunday — the day before elections in four important states — that an agreement with the companies had been reached, but privately industry and government officials said negotiations were continuing.

In an entirely different context, in my home state of West Bengal, the state government is indulging in similar shortsightedness and a deal to offer computer literacy to school children is now in danger of falling through ...

Saturday, November 29, 2003

Why isn't Mayawati a reformer?

This is something that puzzles me. Why isn't Mayawati an economic reformer?

Shouldn't she be? Why doesn't she make divestment an election issue. Most public sector sector employees are upper caste, Brahmin, Rajput, Baniya types. It's understandable that a manuwadi party like the BJP is struggling to sell loss making PSU's, but why is Mayawati not kicking up a fuss? Why isn't she telling the dalits, that these inefficient upper caste employees are one reason they don't get proper health care? She should promise that if elected she will sell loss making PSU's and use the money for health care.

Why doesn't she say that the fertilizer subsidy should go? The dalits after all don't own land. The rajput types and now the Jats, Yadavs and Kurmis do. Why doesn't she say that get rid of the fertilizer subsidy and use it to provide dalits with proper education?

What stops her? Any thoughts?

Friday, November 28, 2003

Chandigarh Sleeps No Longer

Another interesting piece from the NYT about Chandigarh (at least interesting for me, since I knew nothing about it before). I can almost here Atanu coming to tell me now: this is all vacuous hype, this is no solution to India's real problems. This may well be, but the interesting point is that this kind of movement will be economically driven, by the steadily increasing wages in places like Bangalore, as the article itself indicates.

Thirty years after a "green revolution" turned the plains around this small city into India's breadbasket, a cadre of ambitious government officials, pricey consultants and local high technology entrepreneurs is trying to accomplish something almost as ambitious - transforming this sleepy farm state capital into the "technology hub of northern India."

"Chandigarh," glossy brochures declare to prospective investors, "the city with brains."

Chandigarh was designed and built by the Swiss-born modernist Le Corbusier in the 1950's as a replacement for the former Punjab capital, Lahore, which had been absorbed into Pakistan after partition. Now a city of 900,000 people, it is the joint capital of India's two most prosperous farming states and one of half a dozen cities and states furiously competing for the call centers and software parks that American and Indian companies are opening across India.

As tens of thousands of service jobs continue to flow to India from the United States and Europe, small cities like Chandigarh offer even lower labor costs than India's "first tier" technology hubs, places like Bangalore, Hyderabad, Bombay and Gurgaon, outside New Delhi.

Manisha Grover, a Bangalore-based consultant hired by Chandigarh to aid its marketing efforts, said those cities were running short of skilled workers. "It's maxing out," she said. "The pace of finding people is definitely slowing down."

Officials from Bangalore disputed that claim, saying the city's talent pool remained vast. But businessmen here said that wages were far lower in smaller cities like Chandigarh, where a starting call center operator makes roughly 7,000 rupees, or $150, a month. A starting worker in a "first tier" would be paid as much as twice that, they said.

US Protectionism Doesn't Only Extend to China

I still can't work out whether all this move towards protectionism is simply a way to stitch up the democrats - presumeably many working class voters demanding protectionism vote democrat, and doing it this way the Bush team rob them of a campaigning issue - or whether this is for real. Whichever way, the momentum is growing as this piece from the NYT illustrates:

Citing the need to protect local businesses, the state of Indiana terminated a software contract it had awarded to an Indian company--a move indicative of growing opposition to offshore outsourcing.

The cancellation is part of a new initiative, dubbed "Opportunity Indiana," to review the state's procurement process. Governor Joseph Kernan announced the program last week. The program's objective is to offer greater opportunities to local companies.

TCS America, a subsidiary of India's top-ranking software and services company, Tata Consultancy Services, was selected to upgrade the unemployment insurance computer system of the Indiana Department of Workforce Development earlier this year. TCS has won several contracts in the United States, with most of its annual revenue of $1 billion coming from North America.

A TCS representative said calling off the deal "was a decision for the state of Indiana to make, and TCS plans to abide by it."

Outsourcing to offshore companies, particularly to Indian companies, has raised the hackles of local groups that fear job cuts. A number of U.S. corporations have stationed their technical support facilities in Indian cities.

Earlier this week, Dell announced that it was diverting calls for tech support from its call center in India to its centers in the United States, after customers complained.

"The difficulty we had with this contract was not with the company itself," Governor Kernan said in a statement. "After having a chance to discuss our vision of how the state should do business, and how we can provide better opportunities to Indiana companies and workers, we concluded that this contract did not fit in that framework. The procedures we had in place virtually knocked Indiana companies out of the running."

Thursday, November 27, 2003

Moore's Law As Applied To Humans

Sorry, I'm back. I've been keeping myself kinda busy over the last two weeks. On my travels I met what you could consider to be a pretty bright programmer: he writes spider programmes. Now if you were silly enough to want to sit in the first few rows of a concert from some mediocre but popular pop star, you would probably want to be cursing him: for his boss and his spider programme would already have the tickets. He works for an entrepreneur in a nameless but extremely large country, who buys up all the tickets for 250 dollars and re-sells them at around a thousand a go. He told me that at first this work was easy, but recently things have gotten more difficult. The concert organisers have tried to overcome the practice by having an image inserted to which you have to manually type some given response. Problem solved you might think. Well no: this is where ingenuity and globalisation come in to guarantee that 'real' entrepreneurship will not be thwarted.

His boss responded creatively: he contracted a hall with 200 workers in India. These workers spend their day typing the image responses manually into a data base. Currently they have entered something like 500,000 images. (It also occurs me that systematic spam must do something like this: the bacteria-antibiotic effect). The recounting of this story lead my Argentina blogging friend Marcelo to make the following highly perceptive observation:

The image of the wharehouse of people defeating the turing-test safeguards is extremely interesting. At the risk of sounding callous, I think that an interesting way of conceptualizing what's happening in India and China is that Moore's law is applying to humans: the capacity of a person you can rent for $1 is increasing fast, thanks to a bigger pool of people and better technology to teach and connect them. Of course the pool of people is finite, and eventually you start getting higher wages, but the principle is the same - and if stuff like MIT's Open Courseware works well, the trend might well continue.

Now I think he really has a point here. The internet skeptics are so busy being skeptical that they don't notice when the roof is falling in around their heads.

On my website deflation page I identify three factors which might be contributing to a global deflationary environment: OECD ageing, surplus labour in China (and now, increasingly, of course, India), and the falling price of information. Now I have never really been to clear where to go with this third one, it was more a case of reading Kurzweil and extrapolating what to me was the obvious. Now Marcelo has come along and put it very succinctly: Moore's law as it applies to humans. And like the other version of the law, the only remaining question is how long can this run till we hit specific physical limits. I think Kurzweil's answer would be: farther than you imagine.

Wednesday, November 26, 2003

The idea of a nation/state continued

A few days ago I was wondering about the idea of the nation/state. I wanted to get a better idea about what it means to people to belong to this particular political-economic arrangment. What do people (rightly or wrongly) expect that membership--the legal term is citizenship--will provide them. It was obvious to me that "the nation" meant to more people than just the Hobessian idea--providing security in return for allegiance and obedience. I wrote:

The idea of a Nation or in this case a State. It's obviously a complicated, imagined and for the purposes of this post a parochial and un-meritocratic, idea. The Shiv Saniks went on rampage because, in essence, they think that since Mumbai is a city of Maharashtra, it is legimitate for Maharashtrians to demand a certain amount of preference in how the resources (including jobs) of the state are allocated regardless of efficiency concerns. Basically, "I should get a job in Mumbai even though he will make a better gangman than me, because my name is Wadekar (Maharashtrian) and his is Kumar (Bihari)."

Amy Chua has an excellent article on something related in The Wilson Quarterly. She writes:

A World on the Edge
by Amy Chua

One beautiful blue morning in September 1994, I received a call from my mother in California. In a hushed voice, she told me that my Aunt Leona, my father's twin sister, had been murdered in her home in the Philippines, her throat slit by her chauffeur. My mother broke the news to me in our native Hokkien Chinese dialect. But "murder" she said in English, as if to wall off the act from the family through language.

The murder of a relative is horrible for anyone, anywhere. My father's grief was impenetrable; to this day, he has not broken his silence on the subject. For the rest of the family, though, there was an added element of disgrace. For the Chinese, luck is a moral attribute, and a lucky person would never be murdered. Like having a birth defect, or marrying a Filipino, being murdered is shameful...


It's an excellent article. Read it if you haven't done so already.

Tuesday, November 25, 2003

YES, finally

The Indian Express writes:

Lifer for 12 in Gujarat massacre case

Press Trust of India

Ahmedabad, November 25: The Nadiad sessions court on Tuesday sentenced 12 people to life imprisonment and three to two years' rigorous imprisonment for massacre of 14 Muslims of Ghodasar area in the rural part of the district during post-Godhra communal riots on March 3 last year.

Sessions court judge C.K. Rane had on Monday announced the conviction of 15 and acquittal of 48 in the case and had reserved the sentencing for Tuesday.

Should have given them death, though.

More social science research?

A few days ago on my way to work, I glanced at the book a fellow passenger on the train was reading. It was a 12th grade book and the subject was nuclear physics. It had diagrams of protons, neutrons, and electrons orbiting the nucleus and all that sort of stuff. After a bit, I asked the teenager why he was reading nuclear physics. He said that it was required. But, I asked, was he interested in the subject. No, he wasn't but he was in the science stream and therefore he had to learn that. Did he study any economics, psychology, history? No, that was not part of his curriculum.

I went back to my newspaper. On the op-ed page of the Business Standard of 18th November was Prof Kirit Parikh's opinion: Needed -- Indian institutes of social sciences. "We need toset up institutes of social sciences on the same high standards asthe IITs," said the sub-title. The piece started off with the observation that the returns to R&D are very high in areas of science and technology. Admitting the excellent results of insitutions such as the IITs, CSIR, ICAR, etc., he noted that the number of researchers per million population was not very impressive for India compared to other countries. In the mid-1990s, he reported, India had 150, Japan 4,900, Singapore 2,300, Korea 2,200, Mongolia 900, and China 450. Very interesting.

Then he went on to write:

We have had strong political support for science and technology. A strong case can be made for government support for research, for basic research, for crop variety research, for birth control or for environmental research, for defence or research related to critical so-called dual-use products and research in special areas that require the concerted efforts of many institutions. ...

... We need social science research to promote good governance. Economic and political research can help identify policy options and alternatives. It can also assess the costs and benefits of alternatives that help in selection of policies... social science
research is as important for development as scientific and technological research..."

With due respect to Prof Parikh, I would have to disagree. Mind you, I am not disagreeing with him on the importance of research. Some of my best friends are researchers. I am questioning the wisdom of spending resources on research when we have not yet neither learnt nor used what is already available for free in any well-stocked library.

Let me use an analogy. Suppose I have a very large stock of very nutritious basic food sitting at home unused. Suppose my family is starving. Further suppose that I am broke. And now suppose I decide to go out and spend money on buying expensive food which will be delivered in a few months to feed my family with. Would you call me stupid or what?

The stock of knowledge that is available for almost free is stupendous. We have yet to apply even a little bit of that in our policy making. We don't teach those fundamentals to our kids. They grow up to be intellectually uni-dimensional morons who cannot have an innovative idea in their heads. And then we propose that more research be done at more ivory tower institutions spending scarce resources that have a very high opportunity cost.

Coming back to that teenager: he will probably be able to rattle off the value of the electrical charge of an electron from memory. Or tell you the chemical structure of a sugar molecule. But he would not be able to solve a simple problem involving some degree of problem solving abilities. He probably has not the faintest clue about how markets work or how people interact. Imagine going easy on the structure of the atom bit, and giving him a bit of understanding of the prisoner's dilemma. Knowing the structure of an atom is important, but it should not be more than an afternoon's work at best to get that across. However, understanding what the prisoner's dilemma is and then considering the implications of that would take a lot of time and would teach
very valuable skills to the student.

Why this dismal state of affairs? Because the teachers themselves are clueless uni-dimensional card-board cutouts. They are as capable of entertaining an original thought as I am capable of holding a tune. It does not surprise me in the least that the
Indian educational system is a sad mockery of an institution that forms the bedrock of any sustainable society.

Is there a way out? I think there is. What we have to do is to actually create the curriculum ourselves. We have to create the content, then. After that, we have to use tools that are fortunately available from information and communications technologies to deliver the content. And I have a sneaky feeling that all this can be done profitably.

George Bernard Shaw had once remarked that when he wants to read a good book, he writes one. I think our desire to have a well-educated society must motivate us to educate our society well.

The education debate

Tsqaured: yes I think I misunderstood. Sorry about that. I also think you are right that Indian taxpayers wouldn't mind paying up if they knew that the money was being transparently and effectively used for primary education.

So I think, it might be worth charging a primary education cess like the National Highway Program. A few rupees surcharge on everybody's tax return, 1% in new VAT etc etc and use the money exclusively for primary education/mid day meals. Pass a law if need be, so that the government cannot use the money in their general budgeting.

However, I oppose giving any tax breaks to anybody, mostly for reasons pointed out by the Kelkar committee--lack of transparency and price distortion. All social objectives should be funded directly by government so that the Public Accounts committee can review it. I am not sure if such special purpose vehicals fall under the purivew of the CAG, but I can find out. If they do, all the better.

I agree with tsqaured that for all intents and purposes primary education will have to be funded by public money. No NGO, however, savvy can be expected to raise the sort of money we need. Since government money is going to have to be used anyway why shouldn't the government be involved in the running of schools?

The broader point I am trying to make is that primary education is the responsibilty of the government. What is the need to outsource it to NGO's or the private sector? What incentive does an NGO have to run a school properly? What oversight exists? Why wouldn't they just siphon off the money? (it happens). There are good dedicated NGO's and there are bad corrupt NGO's. I would have supported the private sector entering the education sector funded by government vouchers, however there seems to be some bad news about vouchers lately. Besides, I am having second thoughts about vouchers in general.

So the solution, if government is not doing its job properly is to make it do it properly, not bypass it. Easier said that done, you say. True but I just don't see any other way. I might add this is source of all my disagreements with liberatarians. The government has all the incentive to provide elementary education. By some estimates the return on primary education is 15%. If Vajpayeeji was my fund manager I would want him to invest my taxes in primary education. Besides, there is parliamentary and possibly auditor oversight, Public Interest Litigation, pressure of press and civil society not to mention the prospect of being booted out in the next election. A self interested citizenry would make use of all this tools to make its government deliver. The trick is get government down to the right level. Panchayats have been very effective in running their village schools. Sitting in Delhi its difficult.

So you ask, if everything should be so hunky dory why has the country not done better. Well, ideology, illiteracy, religion, caste, languange complicate the picture not doubt. But there is increasing evidence that the electorate is willing to reward good governance. Witness Chandrababu Naidu and now, hopefully, Shiela Dixit.

Involving the private sector in school education

In comments to a previous post, both Tsquared and Vivek, raised interesting points on involving the private sector in school education, which I thought are worthy of more discussion and so I've moved the discussion to a new post.

Tsquared and Vivek raised the following points:
- There will be transmission/distribution losses and poor efficiency as well compared to the private sector, if the goverment is to invest in education directly.
- Channeling government funds into education through the private sector (through tax-credits, vouchers and other mechanisms) can help in overcoming the T&D losses as well as in increasing operational efficiency.
- Primary education must be available free (or at very very nominal cost) for everyone to benefit, especially the poor.

Vivek raised a relevant question on why private companies would want to invest large sums of money in education (apart from gaining from the tax credits they would get for doing so), especially if the schools were non-profit schools. I think we need to clarify what we mean by non-profit here (and in general). Non-profit organisations are mostly not (and should not be) organisations with no means of raising revenue except through large grants from the government or donor agencies. Any organisation subsisting purely on such grants, will be in trouble if the grants dry up - and they almost always will at some time. The Non-profits must find a way to generate some recurring income in return for services it offers, to cover most of the operational costs at the least (see this recent report on Action Aid's fund-raising strategy - Action Aid are offering tangible value in return for your and my money, though they're still terming it as "Donor Benefits" for marketing reasons). Non-profit doesn't mean non-profit-making, but only non-profit-distributing. The Non-profit must aim to make profits, only the profits can't go out of the non-profit entity as dividends or any other means to the trustees or any other individuals or organisations involved in running the Non-profit.

So if the government was to tell any private sector company that if it set up a trust to run schools (and got some tax credits just for setting up the school) and if the school makes profits, then the company that set up the trust and runs the school is eligible for more tax credits based on the profits, with the profits used to set up more such schools. Incentive for profit can thus be built in. When we say private sector company, it need not be just a company in the legal sense - the same tax credits (in the form of grants from the government) could as well also be offered to Panchayats that decide to invest in setting up a local school and operate it profitably.

Now the challenge is to address the issue of how a school can make "profits" if it is not to actually charge fees (or only charge very nominal fees) from its customers (the students/parents). I think we must look at alternative models whereby the school creates value for some other set of customers who will pay for that value, by leveraging the non-paying customers(students/parents). To provide an analogy, when we watch a free-to-air television channel, we as the viewers pay nothing to the broadcaster. The broadcaster leverages us (the audience) to deliver value to advertisers who pay the broadcasters for aggregating the audience they want to communicate to. Let me emphasise that I'm not for one moment saying advertisers paying the school for aggregating an audience of children is the model for schools - the above analogy is just to show how there are working models with one set of non-paying customers who demand quality and in return help create another set of paying customers.

I have been thinking about such models for a few years now and have described one possible model in the context of undergraduate education in a previous post where a college can generate additional revenues by leveraging its students.

Monday, November 24, 2003

On rural telephony

There is a thought provoking article on rural telephony on the current issue of Business World:

"Policymakers have been tinkering with the noble goal of universal service for some time now. Historically, the incumbent Bharat Sanchar Nigam (BSNL) has been responsible for it, receiving subsidies through the access deficit charge. When telecom was privatised in 1997, the rural obligation was included in the licence conditions for private players. That didn't work out at all - the private basic operators chose to ignore the obligation and pay the fines instead. Also, as the definition of rural connectivity asked for a mere point of presence, or village public telephones (VPTs), some basic service providers created the VPTs without giving the actual connection. The result: while private basic operators promised to put up 98,000 phones, they have set up just 12,000.

So the National Telecom Policy 1999 announced the setting up of a Universal Service Fund (USF) in April 2002. This fund gets 5% of the revenue share of all private telecom players. Companies are invited to bid for rural tenders and the winner is the operator that asks for the least subsidy from the fund. Thus, the USF expects to disburse $2 billion over the next five years.

On paper, the model appears flawless. It is based on a competitive model of bidding (the tenders are auctioned); the financial burden is equally spread (all private players contribute to this fund) and the selection is based on parameters other than cost. The model works on the principle that if the losses incurred in rural telephony are adequately covered, then companies will eagerly do their bit for rural India."

Dhawan goes on to cite the example of Bangladesh to demonstrate that universal access is indeed possible in the South Asian context and talked to n-Logue which has an alternate vision of what can be done to achieve universal access.

Brad had posted a story on his weblog sometime back which quoted TRAI as claiming that it expects the country's phone user base to cross 70 million by March. At that time, I commented that the million PCOs in India go a long way towards meeting the needs of the rural poor. Now I am not so sure. It would be interesting to look at how those PCOs are distributed geographically.

But any which way you look at, the existent incentives to jumpstart rural telephony is not working. But I guess the good thing is that at the rate at which we are going, we are poised to add 20 million telephone lines in a year's time.

Incidentally, TRAI rolled out its new recommendations on unified licensing regime sometime back. Hindu Business Line is not too impressed.

NYT had an article a few days back on Chandigarh's efforts to become a service sector hub in Northern India (via GigaOm). I am not very familiar with the city. But worries about the resource pool capping out sound justified.

Saturday, November 22, 2003

Demographic dividend or disaster?

A recent op-ed in the Economic Times, titled "Demographic dividend or disaster" analyses the implications for India of projections from a recent Goldman Sachs report titled "Dreaming with BRICs: The Path to 2050" (pdf - 580kb).

China, US and India will be by far the three largest economies in the world by 2050. Each of them will be more than four times as large as the next largest economies - those of Japan, Brazil, Russia, the UK, and Germany. The report estimates that the US' GDP will be $45 trillion, China's $35 trillion and India's about $28 trillion, whereas Japan's will be about $7 trillion.

The principal factor contributing to the huge sizes of the Chinese and Indian economies if they continue on their development paths is demographics. Both countries have huge populations. And since demographics are such an important factor in these projections, let us consider the implications. I will highlight four.

The first is that demographics can be predicted with much greater certainty than almost any other variable that goes into econometric models ...and its contribution to Goldman's projections makes the results worthy of serious attention.

In 2050, even though India's GDP will be more than four times that of Japan, the UK, and Germany, India's per capita GDP will be less than a third of the others. This has two implications.

One is that, on average, Indians will not be able to pay the same high prices for products and services as people in the smaller but richer (on per capita basis) economies. Therefore, for the size of the Indian economy and especially the extent of its growth to provide an attractive market for companies, they have to develop product-price propositions that suit the large Indian market.

The other implication of the demographic boost to the size of India's economy is that India can have a competitive advantage in labour costs that can be sustained through 2050 even as the country becomes one of the three richest economies in the world in terms of gross GDP.

It is estimated that by 2020 the US will be short of 17 million working age people, China 10 million, Japan 9 million, and Russia 6 million, whereas India will have a surplus of 47 million. The emerging youthfulness of India leads to the fourth implication of demography as a principal factor contributing to India's economic growth. The country can benefit from a demographic dividend or suffer a demographic disaster. Unlike other resources such as capital and natural resources that count in econometric models, people have a unique quality - they are, well, people! They have emotions, hopes and disappointments. Moreover, they are "appreciating assets" that, unlike machines and money can improve their own abilities when motivated and provided with the requisite learning environment. Young people can learn. Young people have energy. But young people are easily frustrated and they can be headstrong.

A huge demographic wave is arising, unprecedented in history. To ride it, and not be swamped by it, India urgently needs a dynamic education system as a surfboard.Therefore, it behoves our policy makers to give the highest priority to strengthen the education system. Along with more primary education at the grass roots level, we need more effective vocational and professional education. People want jobs. Therefore education must be continuously tuned to emerging opportunities for gainful employment.

Atanu pointed out in an earlier post that "every damn problem that India faces is exacerbated by the population problem". True both in the short and long term, only differently. Though solutions need to be found in the short term (which can only alleviate the problem to an extent), the real challenge is going to be in the long term - that of educating our workforce of tomorrow who will need jobs to sustain the country's growth.

This means that the demand for both primary and higher education (backed by the readiness to pay for it, even out of future earnings if necessary) will be be huge, along with demand for other basic needs like food, clothing, shelter, healthcare and communication. The state education system neither has the funds nor the efficiency to meet this demand. The unorganised private sector which currently comprises the major chunk of the education sector is ridden with quality and scalability problems. Organised private sector players will have to rise to the challenge sooner or later. The organised private sector is active with multiple large players and multiple models in all other basic sectors (food, clothing, shelter, communication etc.) but not education yet. The Reliance group's foray into education is a very small step (don't know if they have a larger game plan in the education sector).

An incipient liberal awakening in India

Last Thursday, I attended the second Minoo Masani Memorial Lecture at the Bharatiya Vidya Bhavan auditorium in Chennai, organised by the Indian Liberal Group (ILG). The speaker was N. Vittal and he spoke on "Corruption mocks at liberalisation" (I will post a summary of the lecture separately). The ILG seems to be fairly well organised and I plan to become a member of the ILG myself, but they are apolitical in the sense of not formally being or wanting to be a political party.

For a couple of years, I have been thinking about the need/opportunity for a new political party with a liberal stance driven by a new set of people outside the current political class. After learning about the ILG, I did a little bit of googling and came across a very interesting "business plan" (ppt - 350 kb) for a new political party in India - a liberal party.

There is in fact quite a comprehensive web site already up for the Liberal Party of India, which is yet to be launched. This initiative is being driven by Sanjeev Sabhlok and the India Policy Institute.

A workshop and seminar are planned for early January 2004 to propose "India's liberal political strategy: 2004 and beyond" for consideration and as a lead-up to the launch of the political party.

It is encouraging to seem some activity towards building a liberal movement in India.

Friday, November 21, 2003

The Problem with 2200 seats -- Part 2

I am moving the discussion from the comments section of a previous post. Here is Vivek's comment
Actually, I think most applicants wouldn't be the very poor relatively speaking.
I suspect most applicants want the job because they are risk averse...they want the security of a government job. It ok to be risk averse, so can you pay the social cost of it.

By auctioning jobs you ensure the relatively better off among the lot pay to secure employment with perks. You use the money to modernize railways/ capital expenditure of governement (both will create more jobs). And you get rid of the queue. Highest bidder gets to be a gangman.

I think most applicants for the job were poor. I got home late around 11 pm on Saturday night. On the way back, I saw thousands of them sleeping on local train platforms. I did not know what was going on then, but I wondered how the number of homeless could shoot up so abruptly.

Regarding using the money raised from auctioning off the 2200 jobs: I am not sure I understand the arithmetic. Assume that the gangman jobs pay Rs 5000 a month. The net present value of a permanent job paying Rs 5000 a month cannot be more than Rs 500,000 or Rs 5 lakhs. That is an upper limit. Judging by the sample population I saw sleeping on the platforms, I would guess that they would be hard-pressed to come up with even Rs 25,000. But let us generously assume that 2200 of them could bid Rs 100,000 each. So the total sum raised would be Rs 22 crores (Rs 100,00 x 2200 or approximately US $5 million).

Rs 22 crores is probably about 0.001% of the total budget of the railways. It is so vanishingly small that it is not worth talking about. It is much less than the rounding errors usually seen in government undertakings. Precious little imporovement can be done with that sort of numbers.

But all this debate about auctioning is missing a more important point and that is the sheer economic waste of the entire exercise of filling 2200 low-level public sector jobs. Assume that each of the 0.65 million applicants spent an average Rs 400 on the whole exercise of getting to Mumbai from all over India and other expenses. Suppose it cost them 2 days per person. Therefore about Rs 260 million (US$ 6 million) was spent directly. Total days lost was 2 x 0.65 million, or 3,560 person years were lost.

Let's repeat that: Rs 260 million in direct cost and 3,560 person years lost. Assuming that per capita production in terms of purchasing power parity is $1,000, that translates into an opportunity cost of $ 3.5 million.

This is only one of a few thousand futile idiotic wasteful things that the people of poor countries such as India do. Add up the waste, and you could easily cross the $100 billion mark of waste. Is it any wonder that India is poor? I don't think so. India is poor for a set of very easily understandable reasons. Figuring out that set is very important and it is primary to figuring out the solution. One of the most essential tools for the whole exercise is a firm grasp of arithmetic. As John McCarthy of Stanford University repeatedly said, those who refuse to do arithmetic are doomed to speak nonsense. I pray that we teach our students the ability to do arithmetic.

The Indians are coming

The Economist has a story on a new trend in the Indian IT industry, one that might help change its image from being just the sucking sound from the east -- hiring people in America.

This month, two Indian conglomerates, the Godrej Group and the Essar Group, each said they were to buy a struggling American call-centre firm. Wipro, an Indian IT services firm, has announced the purchase of two small American consultancies. Scandent, another Indian group with interests in the IT industry, has bought a minority stake in North American Benefits Network, which administers company health and benefits plans. Other firms flush with cash, such as Infosys, a big rival to Wipro, are said to be seeking deals.

Officials at Nasscom, the Indian software industry's trade group, say that their members have made cumulative investments of $350m abroad recently, most of it in America. Having cut their teeth subcontracting for big western firms such as IBM and Accenture, the Indians now want to build closer relationships with customers—big firms that are outsourcing everything from systems maintenance to accounting. To do that, Indian firms need to offer the ability to run call centres and the like from America as well as from India.

Thursday, November 20, 2003

The Problem with 2200 seats

Vivek wrote about the problem of 650,000 people applying for 2200 jobs and the Shiv Sena going on a rampage. When will the idiots who make policy wake up to the population is growing out of control?

Every damn problem that India faces is exacerbated by the population problem. In a world where jobs are severly limited and the number of applicants nearly limitless, could one expect anything else than what the Shiv Sena is demanding? Let's do the numbers. For every vacancy in the gangman job, 295 aspire. Assume that the top 10 percent of those are wonderfully qualified to do the job. So 30 people compete for a job that every one of them would do very well. Only one is going to get it. Assume that 15 of those qualified to do the job but did not get it were Marathi. Assume that only one of them gets pissed off (7% get pissed off, assume.). Assume that this one pissed off person is not a rocket scientist, and therefore is not going to consider the finer points of the argument that the jobs are Central Govt jobs and one cannot discriminate etc. Now apply that to the total population of job applicants and you have a very large number of very pissed off people.

OK, 0.65 million applicants. Assume half of them Marathi. Assume only one percent of those get pissed off. So you have 3250 very angry people. Now consider that only 100 ransacked the railway office. I would say that it shows incredible restraint on the part of the affected.

My basic argument is that there is a problem, and it ain't 100 people ransacking an office or that they are Shiv Sena goons. The basic problem is that our population numbers are out of whack when considered in relation to the job numbers. One can come up with very clever tricks to dole out 1 job to 300 who want it, but at the end of the day it would not amount to a hill of beans.

We could auction these 2200 jobs till the cows come home, but it will be totally futile. We need to address the causes of the problem. It is time to seriously consider the auctioning of permits to have a child. Each person above the age of 18 (say) would get a permit free. They can hold it or they can sell it in the open market. If Laloo Singh wants to have 10 kids, let him buy the extra nine permits. For added effect, add a whopping high tax on the sale of permits. Take the proceeds of that tax and use it for education of poor children.

Wednesday, November 19, 2003

Auction the 2200 seats

Just so that you know I am not a total lefty. I was thinking why doesn't the government auction off the 2,200 seats for class D employees. This is assuming ofcourse, that a gangman's job is not exactly rocket science (or it wouldn't be class D). A cursory google search seems to support the view that most sane, responsible men/women would be able to carry it off (being a gangman).

An auction would get rid of the queue. Only people who value the job--and the job security--and willing to pay for it will apply. The Indian Railways could use the money for its own modernization.

Ok I haven't thought this through totally. I wonder what Prashant thinks about it? We need liberatarians.

Just BTW there is an excellent post on queue's at Brad's site. Read it if you haven't. And lets think through this. Perhaps one of us can write an "India-Economy-Watch-solves-the-Indian Railways-recruitment-problems-and-other-social-tensions-in-India" column in the Business Standard. I volunteer.

Auction the 2200 seats

Just so that you know I am not a total lefty. I was thinking why doesn't the government auction off the 2,200 seats for class D employees. This is assuming ofcourse, that a gangman's job is not exactly rocket science (or it wouldn't be class D). A cursory google search seems to support the view that most sane, responsible men/women would be able to carry it off (being a gangman).

An auction would get rid of the queue. Only people who value the job--and the job security--and willing to pay for it will apply. The Indian Railways could use the money for its own modernization.

Ok I haven't thought this through totally. I wonder what Prashant thinks about it? We need liberatarians.

Just BTW there is an excellent post on queue's at Brad's site. Read it if you haven't.

The idea of a nation/state

So the Shiv Sena went on a rampage yesterday at Mumbai Central Railway station (perhaps the only building standing in Bombay not be named after Chhatrapati Shivaji). They ransacked the office of the Railway Recruitment Board. At issue were "2,200 vacancies for gangmen, khalasis and other categories which come under Class D". The Times of India reports :

MUMBAI: Members of the Akhil Bharatiya Vidyarthi Sena (ABVS), the Shiv Sena's student wing, ransacked the office of the Railway Recruitment Board at Mumbai Central on Tuesday morning to vent their anger against the board's hiring of non-Maharashtrians.

The mob demanded that the Class D recruitment examinations, currently under way, be postponed since 40 per cent of the applicants were non-Maharashtrians.

When board chairperson Anil Mittal stated that he could not concede to the demand since this was an all-India examination, about 100 youths ransacked his office, smashing the window panes and damaging the furniture and computers.

Mittal suffered a cut on his forehead. "Biharis and UPwallas keep pouring into Mumbai for jobs in central government establishments such as the railways. Marathi jobless youths can't be expected to twiddle their thumbs," said Raj Thackeray, ABVS chief and Sena leader, pointing out that Assam too was facing a similar situation...

There was a similar problem in Assam the other day. There were allegations that people from Bihar were prevented from appearing in a Railway recruitment test at Maligaon in Assam on November 9.

A day or so later, Assamese passengers travelling through Bihar were roughed up and the The All Assam Students' Union (AASU) called for a 24-hour Assam bandh on November 17 to protest against the mistreatment of Assamese passengers. Ten people were reportedly killed in related violence.

I'll leave Assam for the moment to write something about Mumbai. About 6.5 lakh (650000) candidates had shown up for the 2200 seats on offer. They mostly squatted in an around the Mumbai central railway station as most of them couldn't afford to buy their way into a lodge. I could (and probably should) try and imagine and write about their desperation. However, I want to write about something else that I have been thinking off for the last few days.

The idea of a Nation or in this case a State. It's obviously a complicated, imagined and for the purposes of this post a parochial and un-meritocratic, idea. The Shiv Saniks went on rampage because, in essence, they think that since Mumbai is a city of Maharashtra, it is legimitate for Maharashtrians to demand a certain amount of preference in how the resources (including jobs) of the state are allocated regardless of efficiency concerns. Basically, "I should get a job in Mumbai even though he will make a better gangman than me, because my name is Wadekar (Maharashtrian) and his is Kumar (Bihari)."

In the particular case of the railways, the Shiv Sena chose a wrong target. The railways is a central government undertaking. It cannot make preferences of this sort.

It's an idea I want to get understand better. Any idea on how I should go about it?

Monday, November 17, 2003

Fortune on Bangalore

India, or rather, the loss of U.S. jobs to India seems to be the flavour of the month. Lou Dobbs can't seem to stop talking about it. Now, Fortune is carrying a lead story on Bangalore it calls Where Your Job Is Going. For a lead story, it's a mostly blah-blah article with nothing new to say (serves as good background reading if you don't really know much about India), but since it's about Bangalore, I figured I might as well post it.

The world is lousy with places claiming to be another Silicon Valley. But in Bangalore the claims have an eerie ring of truth. For one thing, as in Northern California, the climate is a big draw--Bangalore is 3,000 feet above sea level and thus has the most bearable summer weather of any Indian metropolis. What's more, like the San Francisco area it boasts fine educational institutions (foremost among them the Indian Institute of Science, founded in 1909) and an openness to outsiders--born of the city's status as a big army garrison since colonial days and as the home of India's defense and aerospace industries since independence. There's even a wine country (okay, one winery) north of town.

The real clincher is that despite constant complaints about the city's insane traffic, skyrocketing real estate prices, and fickle workforce--and constant efforts by other cities, especially Hyderabad and Chennai, to get in on the action--companies and people keep coming to Bangalore. Which, of course, sounds exactly like Silicon Valley in the late 1990s. And while Bangalore was a graveyard of failed startups in 2001, just like the Valley, the very corporate cost cutting that has meant continued lean times in California has brought tons of new business to South India.

Nandan Nilakeni, the CEO of Infosys has the last word on the trade issue.

India at its best is a lot like the U.S. at its best--a nation of staggering ethnic and religious diversity that somehow holds together by dint of tolerance and a sense of shared destiny. And now that India wants to join the material world, it seems churlish for Americans to begrudge it entry. "For the last 20 years, you've been telling countries like India and China to adopt free markets and join the global economy," says Nilekani of Infosys. "Now that we're doing it, you can't just say, 'Stop it!'"

Saturday, November 15, 2003

Export of cultural products from India

I am afraid it is a rather long post.

A few weeks back Edward posted a dynamite interview with Sekhar Kapur in Rediff. It is something I wanted to comment on. But unfortunately, it took me a while to get to it.

I have always been a big fan of Sekhar Kapur's films. But I did not know that he packs so much intellectual firepower .....

I am with him on the size of the prize at stake. But I have serious reservations about the ability of Indian entertainment industry to exploit it. I think Kapur is seriously underestimating the ability of Western advertising-image making-entertainment complex to co-opt and influence local pop culture and sensibilities to meet its programming needs.

The effect of Western visual culture on Asia is subtle and incremental. Occasionally, its impact on an unsuspecting and otherwise unprepared people can be devastating. I read a depressing account of it in The Guardian sometime back. The kingdom of Bhutan was the last Shangri La of South Asia. The king has not allowed television into Bhutan till about a year back. Some people contend that what happened after cable got unfettered access is not a direct effect of TV. It was bound to happen anyway. But an increasing number of people are tying the ensuing wave of crime, drug problems and unexplainable violence to the pent up unmet wants created by cable.

In Butter Chicken in Ludhiana, Pankaj Misra narrated the tragicomic stories of the wants created among the noveau riche of suburban India in the eighties. This was right after Mofussil India got 'Dallas' and 'Santa Burbara'. In the decade preceding that, Pico Iyer went looking for Asian culture and instead found Video Nights In Kathmandu.

Now, I am not claiming that similar cultural export from the east is impossible. Just consider Japan's gross national cool. Its worldwide influence can be seen in everything from animation to religion. But it is rather hard and too often it results in superificial iconization for Western consumption rather than resulting in a dialogue.

My question is more over the ability (or even the creation) of an Indian entertainment complex that can successfully exploit the market for Indian entertainment products in the diaspora and at the same time cater to a larger International market. My doubts are because of two different reasons. One is the increasing creative bankrupcy of mainstream Bollywood filmmakers to develop products that the market wants (which should not be construed to mean Indian creative bankrupcy). "In 2002 Bollywood lost $50m and in the first four months of 2003, another $15m has gone" (link).

Then there is the question of building an infrastructure that can create such products. One of the reasons, Bollywood can continue to churn out such an amazing number of loss making films is because there is so much underworld mafia money going into the film industry. In a story published some months back, Hindu Business Line found that despite RBI's best efforts, less than 5% of financing in the vast majority of mainstream films are coming from institutional, organized financial sources. As it says, structural difficulties of streamlining the filmmakig financing in India is considerable. Unless that is sorted out, Bollywood would continue to be in a mess.

In the mean time, television has been growing at the expense of cinema and music. And where do you think that growth is going?

Enter Mr. Rupert Murdoch. He runs the second largest media company in India now. Most of the popular soaps are on Star. It is now stuck in the middle of all sorts of regulatory wrangles in India (The Economist has good ongoing coverage of the fight over StartTV and the perennially emerging Indian broadcasting regulations. But those stores are all priced. But here is an angry Hindu editorial ).

So, yes, I would like to believe in the vision that Sekhar Kapur showed us. But India is simply not prepared. And I find his optimism slightly scary.

Lastly, I am not even sure about the desirability of such an entertainment complex. The changes that we see in India now are not because of any deliberate attempt by an organized band of cool merchants to influence public taste. It kind of happens. The US is different. I am not sure that popular taste here is really bottom up. It gets influenced in myriad small ways by various arbiters of popular taste. Are we sure that we want that to happen in India?

This is one of those areas where I have not sorted out my thoughts. But the subject is of enormous importance and will determine more than anything else the future shape of South Asia.

Growth of Private Schools in India

Extensive piece today in the NYT about education in India. As one parent is quoted as saying: "Since ages, we are doing manual work..........Why should they........They should have a good profession." I smell Pele-Ronaldo. I'd be interested to know what Atanu thinks.

In this democracy of more than one billion people, an educational revolution is under way, its telltale signs the small children everywhere in uniforms and ties. From slums to villages, the march to private education, once reserved for the elite, is on.

On the four-mile stretch of road between this village in Bihar State, in the north, and the district capital, Hajipur, there are 17 private schools (called here "public" schools). They range from the Moonlight Public School where, for 40 rupees a month, less than a dollar, 200 children learn in one long room that looks like an educational sweatshop, to the DAV School, which sits backed up to a banana grove and charges up to 150 rupees a month, or more than $3. Eleven months after opening, it already has 600 students from 27 villages.

There are at least 100 more private schools in Hajipur, a city of 300,000; hundreds more in Patna, the state capital; and tens of thousands more across India.The schools, founded by former teachers, landowners, entrepreneurs and others, and often of uneven quality, have capitalized on parental dismay over the even poorer quality of government schools. Parents say private education, particularly when English is the language of instruction, is their children's only hope for upward mobility. Such hopes reflect a larger social change in India: a new certainty among many poor parents that if they provide the right education, neither caste nor class will be a barrier to their children's rise.

Thursday, November 13, 2003

Over 40% of IT Development Work Now Outsourced

India is the preferred offshore provider
According to the META Group, about 41% of all information technology development work for U.S. businesses is now being outsourced, with India continuing to be the preferred offshore provider. The number is up from a year ago, when about 36% of development work was outsourced, META said. The firm said that Russia, the Philippines, Ireland, Israel, and China are "the up-and-comers to watch" in the offshore IT development market.

Question: As per Nasscom total software & services exports (including BPO) was US$ 9.5 billion during 2002-03, out of a global IT services market of more than US$ 600 billion (this doesn't include software products or hardware). So, what does that 40% mean?

Wednesday, November 12, 2003

10 Reasons to Invest in India

Rediff is carrying a slideshow full of feel-good factoids on why India is a great investment destination. They include...

-->Among the highest rates of returns on investment. Profitability of US investments in India: 19.33% in 2000 (according to US Department of Commerce).
-->2nd largest English-speaking population.
-->Abundant, high-quality, cost-effective, competitive manpower. Over 100,000 IT professionals added each year.
-->India rated as the most attractive destination for offshore business processing by global consultancy A T Kearney.
-->IT Industry $14 billion; growing at 50% p.a. Exports $12 billion; 2008 exports target: $60 billion, to be 35% of India's total exports.
-->Prevalence of foreign technology licensing - Rank 1 in the world.
-->Availability of scientist and engineers - Rank 2.
-->Quality of management schools - Rank 9.
-->Firm level innovation - Rank 12.
-->Firm level technology absorption - Rank 16.
-->Company spending on R&D - Rank 32. (Source: Global Competitiveness Report, 2003)
-->India rated best destination for outsourcing and 6th most attractive destination for FDI, according to AT Kearney.
-->Global competitive report ranks India at first place in terms of prevalence of foreign technology licensing.
-->Among top 10 tourist destinations. Major destination for foreign venture capital funds.

etc etc...

A few observations. I don't think rank 32 on private R&D or 12 for firm-level innovation is any good. It has to be much higher for real innovation to be spurred in India.

The top 10 tourist destination is probably a reference to the CondeNast story on India being one of 10 best destinations to visit. However, if you actually looked at tourist arrivals (or revenues), I am guessing you'll see a very picture. India gets about 3 million tourists a year, I think. Compare that with tourist arrivals in France at over 60 million or even Egypt which gets over 5 million. Everyone in the govt seems to talk about tourism as a growth area, but even today, NRI's and foreigners have to play a HUGE premium (60%+) on everything from airline tickets to hotel rooms. Citizens of practically every country on earth require a visa to visit India (even Sri Lanks offers waivers to 49 countries, including India). Unless such absurd artifacts of the socialist era are removed, I don't think tourism is going anywhere.

This tourism story is very similar to SME sector which is full of entrepreneurs who cannot scale up because of the absurd incentive regime in place for the sector. The Indian govt lowered entry barriers post 1991, but doesn't seem to understand the importance of exit, which if not present can become an entry barrier by itself.

I leave you with the World Bank's Doing Business Index. It takes 88 days to start a business in India, compared with 46 in China and 4 days in the U.S.