Sunday, October 12, 2014

The beta tested society

India is a very old civilization. If astronomical observations in some of the vedas are to be taken, then we  have been a civilization for  a minimum 6000 years old. We have diverse climate, soils, people and problems which required different approaches to managing our society and civilizations. In complexity, India is more than a continent. Like an old monkey, we have tried every trick in the form of social organization. Our proverbs, aphorism, myths, stories, epics and even humour are testimony to it.

In the field of management, we try to learn from past practices and mistakes so that we do not repeat  the same. So people who want to become experts in management go to a Management School instead of trying everything afresh but in running societies and civilizations the same principle is not applied. Other civilizations instead of learning from us want to convert us into their untested ways. This is like running an Apple Macbook Pro not on Apple software but on a  new and exciting software written by some new funded start up in Bangalore that started yesterday.  The current tragedy is that you have tested software to run a civilization and from a vendor who is open source and willing to freely give tech support - and yet no one wants to learn and on the contrary they want to impose on us  their  untested software which is showing signs of great instability and may crash  on that vendor !

In understanding concepts like marriage, family, rights, duties, clan, caste, war etc our understanding is very elevated.  Not because  we  are smarter but we have done more mistakes than others too and moved on. Is it not true that one of our own tried out the ISIS type violence in Kalinga and lived to see the utter futility of violence without any meaningful results and gave it up completely ?

In the Hindu marriage, for example there is little place for romance in decision making. Romance may happen if you are lucky. Marriage is a institution to carry the family line forward. It is more about demographics and carrying forward genes, professions, knowledge etc than looking into someone's eye and feeling one with them which doesn't last too long. How did this knowledge come from - fiat, practices, observations ?  Could the West have learnt from us in this aspect and saved themselves so much anguish ?

Many of things we consider "not politically correct" teachings of people like Chanakya are now corroborated by social research in America. The website the Fatherless generation pretty much says the same thing that Chanakya said i.e, that houses in which  there are no men and women are leaders are likely to have severe problems and are to be avoided.

Why won't it ? Chanakya must have merely observed cause and effect of the same thing when it happened here hundreds of years ago. Is it not highly likely that at some point in time, India had run through same problems faced today by US and Chanakya had merely been a social scientist tabulating the results in pithy aphorisms ! 

Is it a coincidence that our study of health is called Ayurveda and not Aushadveda ? As citizens of this planet,  do we really need to again struggle with Aushadveda  like the US where medicine accounts for 1/5th of their GDP with no end in sight and then think of finding solutions which eliminate root causes - when this knowledge was present somewhere else a long time back ?

The objective of writing this post is to not to make the case that we are smarter than other civilisations. It is to make the case that we have tried out more things, run more betas, failed, succeeded and altered things more than others can even begin to imagine due to our long stint as a civilization.

FDA imposes strict methods on testing new molecules and drugs but rules to run a civilization are run as experiments in which neither past knowledge, experiences or precedents are taken into account ! 

In the same manner we send kids to schools and colleges  not because all that they say is right but because they have a lot of knowledge and/or wisdom to offer, other civilizations would gain a lot and reduce their sufferings if they were to observe and learn from our long  experience  instead of dismissing us as a primitive, backward or unscientific society.

Even the response to westernization is so different in India and Islamic societies. We are trying to run with Westernization and see how we can fit some of it into our civilization.  Our experience in absorbing  democracy, technology, food and working with it stands testimony. We have the strength to run the program for sometime and finally even reject large parts of it as we have done in the past with programs that did not work ! 

This is the real reason India deserves to be the Jagat Guru. We  are like the Silicon Valley of civilization. We have the openness to try a lot on on ourselves, learn and carry a lot of knowledge which is tested by time, place and numbers forward.

As individuals, the sooner we try to understand the extent of knowledge available in our country and try to make sense of it the the better for us - else even at a personal level we risk exhausting ourself making old mistakes again  and turning ourself  into more modern "case studies " for future generations !

Monday, September 8, 2014

Reform by a thousand cuts

Recently a friend called me up to ask if I though there was any real reform happening in India since the ascendancy of Shri Narendra Modi to the Chair of the Prime Minister. This friend, who is in the financial markets, said there is currently a view among many that the PM is only doing things which are  not good for the country such as giving bank accounts to poor people, freebies in the form of free insurance, loans and is not really doing anything substantial.

I thought about this and tried to make a list of things that have been done since he has come to the PM's post. Here is a list of which gives a flavour of the kind of things going on

1. Proposal to merge all hydroproject companies into one big company. This is the kind of decision usually a private corporate group takes. It is based on improving  economics, efficiency and reducing costs - all alien concepts to traditional management of PSUs.
2. Instructions to bureaucrats to reduce all forms to 1 page.
3. Proposal to accept citizens self attestation instead of notarized documents
4. Firing of all political appointees from board of PSUs of national strategic importance
5. Closing tax loophole in debt funds by which the ultra rich were not paying tax on their Fixed deposits and making the country lose thousands of crores.
6. Cleaning all government offices and making them organized . Incidentally this is one of the principles of Kaizen. When the Gemba (work place ) is clean, many problems become self evident.
7. Announcing policy to build toilets in all schools and giving clueless corporates a hint and a direction for their CSR programme.
8. Building relations with enemies of our enemies. Sending a clear message to China to decide if wants dhandha with India or territorial ambitions .
9. Fast tracking cases against MLAs and MPs. This changes the incentive to stand for elections completely. If you are a criminal, it would be best if you did not stand for elections in such a regime.
10. Proposal to release under trials who have already served more than half the maximum sentence possible for the crime of which are accused. This has the ability to reduce cases, decongest jails and speed up the judicial process.
11. Nuanced removal of retrospective judgement provision with  losing its teeth. Now the Junior assessing officers have to send their order to a central committee - who will study, vet the order and then issue it. This keeps flexibility to nab crooked companies while removing the powers of junior officers to ruin our nation's reputation by their vile acts/ignorance.
12. 100% FDI in Railway projects.

This is just a top of the mind list. I am sure daily readers of newspapers can write many many more.

None of these by themselves will be great but each of them are a cut on the old establishment. They are a clean break from the old style of doing things. They will have an impact. None of them can be called big-bang but each of them is a small step towards building a new India. 

No one improvement seems to be big but the total will provide massive change. This is very similar to the Japanese movement of Kai-zen - perfection in small steps.  Also most of these ideas have come from those who are working in the area and they have buy-in from those who have to implement the ideas and are not something thrust on them from the "high command". Finally each item is small so there is not much resistance to it.

This way of doing things is to keep making small and steady improvements in each and every activity as you come across them, while also working on the possibilities of the bigger things. In such a scenario there  may be no real big Bang which news anchors can discuss at length at 9 pm. These small changes and improvements  may work quietly and silently and perhaps the big bang may be heard only  during the next election results !

Till then, all we may see is change of the status quo by a thousand cuts.

Thursday, June 5, 2014

Saving the cement industry from itself

The cement industry is in a peculiar situation. They are having almost 350MT of capacity. They are using only 220MT. Seen in a historic context, this is an alarming situation. Such a low capacity utilization should have led to the industry been in doldrums but somehow that has not happened.

Despite the low capacity utilization, they are adding capacity constantly - a truly unfathomable move especially by many players across the industry further adding pressure among them to keep cement prices high. In fact this low capacity utilizations, coupled with price hikes and new capacity additions itself may be proof that the industry is now working in an above board manner.

This phenomenon is causing high inflation in cement prices and waste of national capital. If one takes 85% to be a fair capacity utilization then  the industry is carrying almost 100MT extra capacity. This means about Rs 70000 cr of bank loans are being wasted.

 It is time the the government has a dialogue with the industry to make them understand that they are supposed to earn fair rate of return on assets at capacity utilizations of 80%+. Also since we have also enough capacity the RBI and Government of India should ban fresh loans  to cement industry until the capacity utilization reaches 80%.

Wednesday, May 21, 2014

Introducing Indian Cinemas Leading Villain ..

I was watching an interview with Mr. Arshad Warsi on TV. He said that despite Indian cinema doing the hard work it is not getting the recognition it deserves.

Indian cinema has operations of a global scale. More movies are made even in regional languages than perhaps in Hollywood. Yet Indian cinema has not become a global powerhouse. Why ? The answer to this came recently when I watched a movie of Arshad Warsi.

The reviews of the movie and the feedback of the fans on Arshad Warsi's twitter handle made me think I am living in two different planets. The fans loved it, the theatre was in splits but the reviews said something else. The review measured how good an idli was a cup of filter coffee. The movie was reviewed as though it was from some other genre. If you review a comedy as a method film, what would one expect ?

Who is the villain of the piece here ? Payola - (see FCC website) i.e, paying journalists to get a good review of their product. Payola is not a violation anymore. It is the business model of the big stars and business houses.

Further more, there is a dharma in indulging in unfair practices too. The big houses can get a good review for themselves and let an honest review be done for other films. I found that is not possible, The big houses insist on good review for themselves and trashing other films.

So small well made movies have very low real chance of making it unless

The domestic market is rigged and hence not competitive. So innovation and creativity is being stifled. Few production houses, stars and TV and print  journalists are holding the future of lakhs of cinema industry workers to ransom.

So I say, Payola is the leading villain of the Indian Cinema industry.

Are there any solutions ? Yes. We have reached the climax scene and in this movie you  the movie-goer and movie loving Aam fan is the  hero.  If you indeed find that the hype of the leading houses and actors too much and the reviews of movies do not match with your assessments, please consciously stop using these sources of information.

Use other sources of information such as Twitter handle of the stars, hashtags of the movies, friends who have watched the movie and whose taste matches yours.

If we fix this problem, there is an opportunity to create multi-billion dollar export industry from this.

I request  the Competition Commission of India to treat this as a little birds whisper and take this matter up suo-moto.

Monday, April 28, 2014

Cleaning Pune's voter role

The problem with Pune's voter rolls (and I guess Maharashtra's too)  is that it is made in such a way that the work of checking it cannot be delegated. Every voter has to check his name before every election.

For example in a building or society of say 200 voters, the Chairman or some enthusiastic volunteer can't check the voter roll as the voters are not registered under one building. As per Election Commission guidelines they are supposed to give a section number  to each building  and a Part number to the part of the constituency to which it belongs and register the voters under that Section no. This is not done.  I have seen that they register a voter under any section or sometimes in some other parts even if you write down the section and part number of your neighbour when you register. In Aundh Pune there is a building which is a bungalow plot conveted to a flat. It has 11flats and it has 1500 voters,

Our government servants are intelligent people.  The way the list is organized is worse than a 6 year old organizing his toys. This level of mistakes suggest that his design. If the section and part no were given correctly any citizen volunteer can scan the voter list and see where additional voters are not registered, locate those voters and make efforts to register them and make a perfect voter roll.

If it is done in the current way it is very difficult to do it,

For example, If I know the EPIC number of some one living in my building I should be able to reach that building's pdf files and check the names very easily if the database was right,

So given these problems how do we go about cleaning the voter roll ?

We should force the people making the roll to create a section for every building/ society. Then we should collect the EPIC  number of all the voters in that society and the Chairman should write a letter stating that there are errors in the roll and asking the EC to add his building into a separate section and add these voters into this Section and delete them from elsewhere. Once this is done for big buildings in each area, we can go on to the next level of buildings. In this manner the voter roll can be cleaned up.

If this is done politics in Maharashtra will change very quickly and Maharashtra will be on its way to becoming just  that - a Great State !

Tuesday, April 22, 2014

VSNL land : UPA leaves cash on the table for incoming government

The inefficiency of the outgoing government has created some opportunities for incoming Central government. One of them is the  excess land  which was part of VSNL at the time of the divestment by the government, At the time of the de-merged the land was to be returned by Tatas to the Government and the shareholders of VSNL by de-merging it into a separate company.

It was not visualized who will pay the stamp duty at the time of the de-merger. This issue was  not resolved and this land bank was lying idle, If the government can  resolve this issue and expedite the sale of the land/holding company it will be a source of funds.

The government could get funds to the tune of Rs 3000-5000 cr ( see here and here).

Oh these kids nowadays ...

Today's children have scant respect for elders, traditions and practices. From a traditional perspective It is really bad but there is a great blessing hidden in it. They take nothing at face value. They want an explanation. If you can find the explanation and give it to them they will become the greatest defenders of the same tradition. So the question we should ask ourselves is are we going to keep cribbing about the next gen or take up this as an opportunity and find out the scientific roots/ rationale of our culture and traditions and lay a very deep foundation for the future ?

Taking Indian Heritage to every corner of India

One of India’s unique advantages and great treasures is our cultural heritage consisting of music, dance and other art forms. Today this is not available to most of the youth in this country..
Many organizations like SPIC MACAY tried to do this by introducing the lecdem (lecturedemonstration) format to present Indian classical art forms in a comprehensive manner in front of today’s youth, who have little or no understanding of it. The meanings of the basic mudras and bhavas and the structure of the ragas had to be explained. This change in presentation has been instrumental in popularizing our art forms amongst the youth.
While  such organizations were successful in urban areas and towns, they have not been able to take our culture to every part of India – they have not been able to reach villages, smaller towns, and remote areas. A lot more that can be done to present this valuable national heritage to all citizens in every corner of India, if we can understand and overcome the contraints.
The constraints – The why?           
Our heritage is taken in the form of live performances by accomplished artistes. There are many constraints that prevent the scaling up of this activity.
·       The number of accomplished artistes is limited,
·       Many of them have hectic schedules and spend many months touring various parts of India and overeas.  Some of them live abroad for some part of the year.
·       Students don’t have the werewithal to pay for these live programs. Sponsorship is not easily available for this kind of activity.
·       Since the artistes also have to be economically sustained, the time they have available for giving programs for small honorariums is limited.
·       The population of India is increasing and we have great geographic spread.  Live performance limit performance to destinations with very good train or plane connectivity and good auditoriums – this immediately precludes most village schools.
·        Logistics and cost factors also severely limit the ability of any organization to take to the masses.
·       To have live performances at different places requires a large on-going organization at every location – a very difficult and costly affair.
·        In many of the cities, parents are working and with the weakening of the joint family concept, it is becoming difficult for children to attend these concerts and they hardly get to experience this national heritage. 

Due to these practical difficulties, India heritage and art form is not reaching areas beyond 300 towns – thus a large portion of India’s children are growing up without experiencing our rich heritage.  This is a very unfortunate situation and we as a society need to find a creative response to solve this problem and we need to universalize access to our Indian heritage and make it available to one and all. 
After much thinking, we believe there is a way out and perhaps it is the only way outTechnology.
The Concept – How?
Today’s communication technologies namely Radio, TV and internet offer an excellent opportunity to take this heritage to all corners of our country. We have done some blue sky thinking and believe that if we as a nation, use technology in the following manner – we can take the best of Indian heritage to each and corner of this country.
·       Create one National AM radio channel for Indian music and art forms:  This should be located centrally in a location like Nagpur with sufficient power to reach all parts of India. This will minimize management requirement of managing the channel.  It should be managed by All India Radio (AIR). This could be done simultaneous to the opening of national AM channels to other commercial broadcasters.
o   Why one channel? It will be very costly and difficult to have several channels across the country and manage them.
o   Why AM? AM channels are not favoured these days by commercial broadcasters as the music fidelity is low and most of demand is for FM channels which are used primarily for entertainment. Most of India’s AM bandwidth is unused and there is currently no opportunity cost of using AM channels.  This will also help in increasing penetration of AM across the nation.
o   Why AIR? AIR has adequate staff, studios, technology and infrastructure which could be used without any new expenditure or with marginal expenditures.  Protecting and spreading our national heritage is a national cause and the right and best entity to do it will be the National broadcaster.
o   Why simulaneous opening of commercial AM radio channels? Since infrastructure will need to be set, this will involve costs and fund outgo.   This tower infrastructure could be used to co-locate more AM channels and the tower costs could be shared by simutaneously auction of several national AM channels. The government has also set national goals for using ICT for education.  This will aid AIR economics and the running costs of this channel could come from the co-location costs and licence fees from the channels.

·        Create a TV Channel or Slot: A similar TV Channel or adequate slots on existing channels is also necessary because visual arts like Bharatnatyam, Kathak, and Kudiyattam among others require a visual medium. Since there may not be adequate content to fill the TV channels everyday, we could have a dedicated TV channel operating only a for limited hours or alternately we could take up time slots on existing TV channels. The TV channel should have very high reach thro terrestrial, cable and DTH platforms. This should be managed by Doordarshan as they can optimize on all resources such as studios, network and broadcast infrastructure.
·       Internet website: This could be used to reach areas which have signal problems or which have scheduling problems (different school schedules – dailiy timings and holidays, area with chronic power cuts).  Schools and colleges, parents could download this content and show them to their children.
Organization structure – How to do it?
In order to make it a success, this should be done is such a way that the entity which has experience take up the right task ie right man for the right task principle.  Thus the Government arms namely AIR and Doordarshan can fully manage the carriage and the network infrastructure for which they have the competence and the resources available readily.  
The government should outsource the task of creating content ( Like the program Satyameva Jayate ) to agencies  willing and able to take on the task of creating and providing the content for all the mediums. In today's age it is not enough to high quality content. Presentation has become very important especially for the youth. This is not the time to debate this issue. We have to accept it and use it constructively by creating world class presentation of these programmes.
These agencies will work closely with DD and AIR in the production of the content.  The management of the website could be given to a competent third party.
Benefits of this arrangement
Creation of national culture mission with low resources:   This will ensure that we have created a national culture mission at a very low cost without any duplication of effort or resources.  We will create a national culture mission without setting up any more studios, offices or hiring more management staff or creating more entities.
The assets created for National AM channel could be used for also increasing national AM penetration goals, raising revenues by auctioning more commercial AM channels which can be co-located on the infrastructure.  This move will bring in licence fees, auction fees, service taxes and will actually be revenue positive to the Government of India.
Meeting larger national goals and better use of resources: Currently AM is a vastly under-used medium and it is the only medium that reaches interior parts of the country. The citizens in leading towns and cities have access to numerous FM channels but those in interior areas have limited choice. If we set up a national AM channel under AIR, the network infrastructure set up can be easily used to also open up and auction more AM Channels and for Educational ICT goals.  This will also ensure that we as a nation have greater AM penetration – one of the goals of the Five year plans.
Better use of AIR and DD resources: The Government has adequate staff and technology and infrastructure which could be used more productively.  AIR and DD are also the right entity to manage the carriage infrastructure and all other managerial matters. With provision of news and entertainment by private entities, many issues are raised about rationale for a Public broadcaster. This move will create a clear rationale for a public broadcaster.
Outsourcing of expertise in managing content: In this day of outsourcing, where Government is  reaping the benefits of outsourcing through higher efficiency, effectiveness and lower cost ( Example: tasks such as PAN CARD processing (very senstitive),  Credit history maintenance, production of armanents of high national and strategic import   are being outsourced),  this partnership will ensure that this program can effectively run at a very small cost.This will be a highly productive and cost effective solution for the Government.  
Last but not the least: Almost 75% of India is Hindu. So the budget for this should be allocated based on the ratio of population of India belonging to each religion as per the last census. This is not to exclude anyone - the content of each community is available to all but merely to avoid certain sections of society from politicizing this  issue in terms of "communalism" and "secularism." 

insurance policy for democracy

This is my second post on the postal department (See link). The postal department has a deficit of Rs 6000 crores per annum. Yes it is bad but instead of focussing on the negativity in the situation there are a few things we can do which can reap huge returns from even this department.

When we buy an insurance policy we get nothing tangibly in return for that expense. We can convert the postal department as an insurance policy against undemocratic practices by cunning politicians which weaken democracy and causes losses to exchequer running in to lakhs of crores. How ?

The postal department can be made in charge of voter registration

The bed rock of democracy is one citizen one vote. All citizens above minimum age gets to vote. In our country this exists only on paper. Various clever ways have been found to abrogade this right. This document written in 2009 highlights the methods use to make democracy weak by rigging the voter rolls.

The voter rolls are rigged so scientifically.  Till these last few elections it was difficult to find out but now with searchable online databases and pdf files. The agency in the country which has some touch with every citizen is the postal department. Letters from children to Presidents  and Prime Ministers have found their way to the Presidents table despite having hardly any address where many other parts of the government cant even locate a citizen standing in front of him. Also the post office has an establishment in each PIN CODE of the country. So it makes sense to give this work to the postal department.

Globally many countries have used postal department to maintain the voter rolls. So this can be easily studied and a top class system instituted.

There should be a proper information technology back end for this. This should combine with the inque identity database (whether it is Aadhar or called by any other name).

Good governance will save lakhs of crores and the postal department loss will pale into comparison in relation to this savings. An accurate database of  residents will also have many other uses.

So even the so called loss making department can be a source of great change in India.

Thursday, April 10, 2014

A deeper look at todays' problems

Todays problems in our countries are quite solvable if a person takes the whole picture. Let me give a few examples.

Problem 1

We have problems of soil poisoned with excess nitrogen, shortage of carbon in the soil,  very high fertilizer subsidy due to indiscriminate use, low yield due to wrong use of fertilizer and also problem of disposal of urban waste, health and sanitation issues in cities, loss making Doordarshan (Public service broadcaster)

Essentially these appears as very difficult and different problems across geographies, ministries and agencies affecting a cross section of people. But essentially it is one problem. The answers to all these problems are in testing the soil and making farmers understand their soil and what needs to be done. This will lead to lesser application of chemical fertilizers and more application of bio-fertilizers - which in turn will increase the demand for bio-waste and making conversion of city bio-waste into fertilizer which can increase the carbon content in the soil.  This will reduce the problems related to fertilizer subsidy This knowledge needs to be disseminated to the farmers - no private channel is going to do this as it is unlikely to be profitable and it will fall squarely in the domain of the public broadcaster.

Problem 2

There is problem of  availability of high quality  education seats in Engineering, Management and Medicine. There is a shortage of doctors so much so that Homeopath Doctors are being used as Duty doctors at hospitals.  The shortage of good quality engineering colleges is definitely affecting our ability to produce output and also attract FDI.  In the mad rush to some how get into good colleges people spend very large sums of money on coaching for the entrance exams. This in turn affects the development of youth who turn into machines primed to crack exams rather than thinkers, doers and problem solvers. People who have resources and are willing to pay send their children abroad to study bleeding the country of forex and the education sector of its best possible customers. Many of these students do not return leading to brain drain and problems in such families.

The solution to this problem is to increase the capacity in high quality education by giving admission even to those with resources at a higher fee. More on this in my earlier blog here.  Also if we simply change the entrance exam from being simple multiple choice to some thing which requires aptitude ( it is possible even using multiple choices f a more complex variety), the same coaching sector which is helping students crack the exams will be forced to make them think and learn.

So we need to look at all our problems in a much deeper and wider way and it is my belief if we do so that a way can be found to solve these problems.

Creating a crore post offices at almost Zero Cost

Indian Post makes a loss of over Rs 6000 crores per year.

Their traditional sources of business have dried up and their new sources of business are not being developed fast enough. With the advent of email, mobile phones (SMS and  and Internet banking the use of post for sending letters has declined but the traffic for parcels has increased tremendously.

This situation was faced by developed nations too and they quickly created means to deepen the market for parcel post. This was done using software  called Endicia which makes every internet connected computer and printer into a post office. United States Postal Service has implemented Endicia's solutions.

What does Endicia do ?

It helps the Customer of the Postal Department weigh the parcel and print a poster label. This label is the equivalent of the postal stamp with details of sender and receiver and postal fees. The amount is debited from the Customer's account.

The postal department gets details of the package and these are in turn sent to the hand held device of  postman who icks up the package on his way to deliver the packages. This increases the postman's effectiveness by making his trips a two way exercise.

Essentially like every net banking user has become a bank teller, every person who opens an account becomes a new post office.

The Indian Government needs to do the same.   They could write this software themselves or buy it from established agencies such as Endicia. This is a make or buy decision that is best left to techno-commerical experts.

Indian Post covers all postal pin codes where private couriers cover only a fraction of the Pincodes. If these steps are taken in addition to cost management, modernization and widening and deepening of their existing services etc their losses will come down but more importantly they will provide a very good boost for the SME sector, artisans from interior areas.

This will help Indian post undercut couriers and become very competitive.

If this is implemented, far from being a fuddy duddy sector, Indian Post will start having hot growth prospects like Internet retailers like Flipkart or Jabong.

The path to being an Export Powerhouse

A lot of soul searching is going on on how to make India and export powerhouse. We do not have oil and yet we consume a lot of it. We need to export equivalent value of our imports to be a healthy economy and we are unable to do so.

In this blog, I shall explore some deeper reasons for our inability to mature to being an export powerhouse.

I am offering this blog as an example of how the following steps will make India an export power house

1. Improving domestic competition, lowering barriers to entry and removing barriers to trade inside the country

This will automatically increase exports. The alcohol industry is used as an example where the limits placed on the industry make it unfit for exports on large scale.

I am neither pro nor anti alcohol.  I take it as a reality that some people need alcohol so it is  better to accept it and make laws which suitably govern the production, distribution and consumption.

The alcohol industry has state-wise legislation of production, pricing, distribution and sales. Regulation varies from state to state with Tamilnadu being the most regulated where the state is now an integral part of the alcohol business and Goa where it is relatively free.

There is massive imports of alcohol due to overseas travel. The conventions on duty free allow each adult passengers to bring in two litres of alcohol. Funnily the internal laws do not allow the same.

As a result, our domestic alcohol industry suffers from poor quality lack of brands as there is no national market. It is not enough to make a good product and be able to market it well, You need to have politicians and government in your pocket and in many cases adopt them as your partner.

We have some of the best quality grains, fruits, flowers in the world and an unique culture of making alcohol without using grain products. Yet we have not international brand in alcohol. The reason is that our domestic market is constrained. Very little innovation is possible - racketeering is the order of the day.

Our nation has a very large population with very diverse tastes. This is a natural advantage if we allow creation of competitive national markets. Any good new product will find a large enough volume of takers which can give it volume and critical mass leading to profitability. This in turn will automatically lead to exports.

Let us  see what happened till two - wheelers and cars industry was licensed and controlled.  There was no innovation, no competition. There were imports and hardly any exports. Now we are exporting a lot of 2 wheelers and cars and are turning into worldwide production hubs for two-wheelers and cars.

2. Dismantle Licence Raj ...

A easy to attach national market creates a lot of innovation. A young Engineer or Designer straight out of college can launch a new product and challenge the status-quo and create a successful organization.
No one will come to work for you if you dont have good toilets. You dont need inspectors to check these things. We need to keep self regulation and punish violators like Union Carbide not waste time and police vibrant people who want to create new products and organizations.

There is a very large hungry base of young people.  Even if they do not find jobs, they will become entrepreneurs due to lack of choice but unless the eco-system is provided for these fledging businesses to thrive, they will all end in failure.

3. Government should tip the scales very subtly in favour of Indian companies

This is a lesson to be learnt from Unites States of America. Many new technologies are partially funded by the government so that the country gets an advantage.  The government also buys their own country's products so that these organizations gain vitality. Their is a lot of strategic intent in their buying behaviour.

Our country's government not only does not support firms which could create exports. It harasses and penalizes such companies so much so that they think that it is is mistake to be in a business where the government is a big buyer or has a big role ! Many examples abound: A company recently created capacity for Technical Ammonium Nitrate, an industrial explosive of high quality learning and absorbing new technologies in the process. Our government companies would rather import fertilizer grade explosive and use them rather than buying from this innovative company.

There is a company  called Encore Software Ltd which made a product which could have aided the armed forces during the terrorist attack in Mumbai in 2008. Unfortunately this product is yet to see the light of day as the decision makers in government  do not support them and to add insult to injury expect to be support them. Any surprise we have no exports of arms from India  and are dependent on imports ?

Sell the Cigarette factory

Indian insurance companies and  Special Undertaking of UTI owns 32% of ITC Ltd.  (see shareholding pattern). In comparison the promoters of ITC Ltd namely Britich American Tobacco (BAT) owns about 30.4%.

It is quite contradiction of sorts that the Government which is making smoking more and more difficult is owning such a large chunk of a cigarette manufacturer. No doubt ITC does a few other things but almost all of its profits come from cigarettes.

Cigarette smoking has been shrinking in the US and most  of the  developed world for the last three decades. See the following graphs

There are no indicators to show that we wont be part of that trend soon. Current sales and volume growth shows slow down in cigarette consumption. If the government decides to be proactive, we could hasten these changes. This company trades at a lofty 32 times earnings.

As the following TABLE shows most of the profits are from Cigarettes.

The nation also needs money for various important needs such as recapitalizing banks, creating infrastructure etc.

It makes eminent business sense to sell ITC shares to BAT. This will gather about Rs 90000 crores in the coffers of LIC, GIC and subsidiaries and the Special undertaking of UTI which could be used more productively. The funds received by LIC could be used to buy shares of PSUs which could be off loaded by the Government to LIC making it a backdoor divestment.

And perhaps a portion of the proceeds could be used to fund campaigns on Television and Social media to reduce cigarette consumption too !

Undoing MNREGA elegantly

There is a lot of worry regarding the employment guarantee scheme among people concerned about the future of India. It is vitiating the work atmosphere and making prefer idleness to work. It is also spoiling the finances of the nation.

If we consider labour as a commodity, its rate goes down when there is dumping. Labour like airline seats is a perishable commodity and its price drops when there is no demand. There is dumping when there is no demand. There is usually no demand for labour only in select pockets of the country. These districts are prone to large migration.

A tightening of the disbursement and monitoring will definitely help reduce the cost of MNREGA but it will not reduce it fully.

If the Central Government can identify the districts with the poorest prospects of jobs and improve these districts on a war footing, then this would reduce migration. This could in turn drive rates of labour in other states much higher and make labour rates far above MNREGA rates. In short, it would have a very amplified impact on the labour markets. For example, improving electricity, law and order and creating of  Industrial estates in poorest districts of West Bengal, Orissa, Bihar and UP will drive up wage rates all over the country especially in Tamilnadu, Karnataka, Delhi, Punjab and Maharashtra.

This could reduce MNREGA substantial in an elegant manner at least in the richer states.

Thursday, February 20, 2014

Corruption : Tat vam asi Part 2

This is in continuation of my first post int his topic (see this link).

Every corrupt government which demits office leaves a lot of money on the table due to its corruption. Usually this weakens the finances and forces the new government to tax the same people who are paying tax and not the people who have benefitted from the corruption.

If the in-coming government can think of opportunities for the state arising from the past corruption the same would be very big opportunities, Recently some one was mentioning that there are 2 lakh properties which have not paid taxes for last 8-9 years in a large metro, These assessees bribed the officer and got out of paying taxes.

Even if each of htese properties have to pay just Rs 10000 p. a as tax then 2 lakh properties for say 8 years amounts to Rs 1600 crores, With a 100 % penalty the could come to Rs 3200 crores. So mal-governance also provides opportunities for those coming in to rule. In addition it would also increasing the coffers by Rs 200 crores every year.

Apart from this capturing tax revenues, a clear message goes out that there is no incentive to bend break rules. Those who benefited from this will realize that in the end, evasion and corrupt practices turned to be more costly. This may also provide opportunities to trim the government workforce and/or put the fear of God into them.

Thursday, January 30, 2014

Using status goods for betterment of society

Today there is very large demand for status goods :  Top end cars, gleaming houses, expensive holiday homes,  private planes and boats,  IPL teams , EPL teams and even islands . In this blog will not go into the right or wrong of it. In this blog we will see the positive side of this need for status goods and see how it can be used for the betterment of the nation.

Status goods serve a real need for many people. The need to be looked up to by other in society. This has been there since time immemorial. People are going to be doing things that can give them a higher status.  In the current context most of all the above mentioned status goods are private goods

Status goods are demanded by people of action: those driven by Rajas. Such people are capable of doing the work of ten men and sometimes even a hundred. Many of them have an inner desire to be acknowledged for their strength and capacity for action. Many do not even begrudge, if their fruits are taken free by others. This concept of free rider problem which ails public goods is alien to our Indian mindset. If the man of action, the hero is celebrated in society, he goes on to even greater deeds as long as enough is provided for his physical and psychic well being. At least from the Indian point of view,  I believe that Ayn Rand got it wrong. The man of Rajas does not want all the fruits of his action to be his. He wants the credit to be his.

So instead of bemoaning the need for status goods, it is better to find a way of harnessing this. This could be done by creating public goods which are status goods.

Why should we create status goods which are public goods ? We need to create them to reduce the in your face class differences which arise from private goods. Creation of public goods also reduces the experience of life of a rich and poor man without deducting from the experience of each.

Let me give an example: if a large temple in Chennai takes a donation from a wealthy donor and makes him Guest of Honour for a important festival - the gap in the experience of poorest and richest in this status good is much lower than if the patron had bought the costliest German car in the market. Such public status goods  while at the same time giving a boost for joint social participation in society. In some ways, one car argue that the Hero has actually won a more genuine status symbol - something he can enjoy with all his heart.

It is my surmise that a lot wasteful expenditure is going into private goods because the avenues for putting them into public goods is lacking. We need to create status goods tout of public goods. This will take the need for status and make them sublime out of it.

The lack of status goods is leading people to do crazy things like buy Rajya Sabha nominations,  "influence" awards such as Padma Shri etc. In fact one can go little farther to say that since there is shortage of public goods that give status people are going to the extent of trying to corner whatever public goods are there ie we have a supply side problem  with public goods.

Here are a few public  goods that the government could create that will help create public goods that could also be enjoyed by one and all

  • Creating more government educational institutions and universities  and auction the rights to be named  after individuals: Imagine getting Rs 100 crores for setting up a Petroleum  and Energy institute named after Dhirubhai Ambani.
  • Creating chairs at government universities
  • Temple events: They offer tremendous scope for creating public goods. Cultural and religious events dot the calendar through the year and each of these could be opportunities for creating public goods. The Jain temples still have this practice and the Hindu temples need to re-incorporate these practices. This will bolster art, take it to every person in society and also provide tremendous vitality to the temples. But for this temple should be managed by right people and not bureaucrats.

Last but not the least - this is a very old idea. I am just refreshing them as it is not active in the thought process in society.

This blog is meant to be an interactive forum for development of ideas. If you have any ideas, criticism, please write in the comments section.

Wednesday, January 29, 2014

Shotgun weddings

Our nation is facing an unpleasant mess of bad loans of the public sector banks.  Public sector undertakings (PSUs)  have a lot of cash on their balance sheet and domain expertise in many of these industries. Banks are unable to find a way out of the mess. The private promoter are Abhimanyus who have no solutions to come out of the mess they have landed themselves in. They only knew how to go into this mess !

These promoters cannot raise any money as their share prices have rightly collapsed as the market has learnt about their modus operandi.  There is a market for the product or the service these assets produce but there are severe financial problems ailing these businesses.

The best solution would be a sale of the private company asset at debt value to the relevant PSU.
In case the value of the asset is lower than the debt, then the banks could sell these assets at these prices and could take some options on the PSU as part of compensation so that as these assets perform they could benefit. This way the losses that banks made would be recouped by the government through either the PSU or the bank.

This will also quickly add to the supply and remove shortages. There is a precedent for such as a move in the merger of Oriental Bank of Commerce with Global Trust Bank. It was simply forced on both the parties.  We need to similarly forcibly move the defaulter assets into well managed PSUs.

Coal and power assets would benefit greatly by this measure.

It will be akin to killing all of the following problems in one stroke

1) The problems of funding the losses of the banks will be solved. Instead of the banks taking the hits the promoters and investors will take the hits. Money saved in this regard will run in lakhs of crores and can be used for other nationally relevant projects.

2) Reforming crony capitalism: When promoters lose their companies and their share value goes to zero, all promoters in future will think a thousand times before they want to con a bank. Making example out of a few is the easiest and time tested way to establish fear of law.

3) Supply side problems in some industries would be solved - namely coal and power and this would spur economic development.

4). Investible company universe is shrinking rapidly in this country. Investment culture is dying as a result. Investors are scared that PSUs will mis-use the cash on the diktats of bureaucrats and ministers. If the PSUs were to use their cash to buy good assets at distress prices, this would remove the fears of the investors and actually substantially increase the prospects of these companies (see my earlier blog on PSUs). The listing of FERA companies in late 70s and 80 created an investment culture which was responsible for creation of many of your good companies.

5) If these problems are fixed the government would actually benefit from this crisis  in the form of higher valuation of the shares of the PSUs or banks.

Monday, January 27, 2014

Handicraft and hand-made products : Can they made the new status symbols ?

The negatives of handicrafts are its greatest positives.

The industry is not scaleable. There is not enough production.  The children of artisans do not want to carry on the trade and want to educate themselves and join the job market. By all accounts, handicrafts industry should be on road to extinction - but all of these negatives are its best hidden blessings.

Whenever some things becomes rare and difficult to obtain they also become costlier and the costlier they become, they have the makings of status symbols. and funnily the more costlier status goods get  it the more they sell  i.e, demand increases as prices increase, a category of goods known as Veblen goods.  In fact, one can argue that these goods are the real natural status goods as it is difficult to increase the supply unlike iphones or high end cars where automated production technology can be used.

Can we find use the negatives, nay positives of the handicrafts industry and find ways of improving design and execution and marketing of handicrafts and market them as the new status symbols ?

If this succeeds and the artisans becomes prosperous, more people will take to producing handicrafts and the production will increases substantially. This will puncture the  Veblen bubble of increasing demand by increasing prices as there may not be much status left in a product whose product volumes are rising and everyone is having one at home.  But that too would be an excellent outcome as the handicrafts would attain vitality because it would have a large base of producers and consumers.

So here is a challenge for all those in these areas. If you find any dying handicraft, can you create very high end status symbols products from handicrafts ?  

Would this be true of art forms also ? Can we create events which are status symbols from such art forms ? The cogniscenti would argue it would be an insult to the art form. No doubt it would be, but would it not be a greater insult to let the art form die ?

Thursday, January 9, 2014

The scarcity mindset and the real scarcity in India

For a long time after independence we still believed that resources are in shortage and everything needs to be rationed and controlled else things will go horribly wrong. This closed scarcity mindset led to policies which caused shortage of telephone connections, scooters, cars, foreign exchange, food grains  etc. The other side of the scarcity mindset was to protect the person producing these goods or services - whether it was inadvertent or not I leave it for you to judge. The field was not opened to competition even among domestic players.  so you had two car manufacturers for almost 35 years, one telecom provider for 50 years and so on.

With great difficulty, we have expelled this in many areas of life such as goods of consumption, electronics, automobiles etc but wherever the government is still  the main producer or the Government controls the activity tightly and the licences are not on tap - the same situation is seen. Needlessly to say all natural monopolies are suffering.

Let us take railways as an example and apply the scarcity mindset on it. 

Here is how the scarcity mindset works and the solutions it brings out:  
Railways is an important national asset. All classes should have equal claim on it. The rich and upper castes cannot dominate the field. We need to be more fair in the allocation of capacity on railways. So we propose following solutions
  • There are not enough resources to create additional rail capacity. So we should give reservation on the rail seats to poorer people - so we shall have 22% reservation in  seats on trains  for SC/ST and 49% reservation in seats on trains for OBC.
  • Ticket prices will be capped and will be decided by the Government ( not by regulators or by the management of Railways) as people cannot afford railway tickets.
  • Capacity of a/c coaches will be reduced as the rich eat into the capacity of the poor.
  • There are not enough jobs in the nation so we need to reserve jobs in Railways for SC/ST and OBC. We need to reserve slots in promotion for OBC. 
  • Private sector cannot be trusted -we have to do everything
Even if all the statements made by this mindset are true and the people are "honest", the result of such a mindset is that it removes vitality from this field and leaves it stagnant for decades.
Thankfully no politician has thought of these things in Railways yet - but you never know !!

Here is how an expansive mindset works:

Railways is a key asset for the nation. It has a great multiplier effect on trade, spread of knowledge and skills and tourism. Hence we need to create capacity for the railways to handle as much traffic as may be necessary
  • Railway has demand from rich and poor. the rich are willing to much more for air travel so they will pay good amount for train travel. They otherwise spend a lot and fly or drive. So treat this spending power  as a blessing and have lot of capacity at the top-end with very high end product. Use these profits to provide more services at fair price at lower end. This is essentially a variant of the Free-mium model.
  • There is a lot of footfalls at the railway stations. Railway stations are early 20th century buildings. The land is used poorly There is tremendous scope to change them and create  malls, ATMs, food courts and boost the cash flow of the railways. 
  • Railways should do what it does best and outsource the rest - just because the honey collector will lick his fingers and steal some honey, we should not go and collect honey.
  • Railways can touch the lives of tens of crores of people indirectly and just 10 lakh people directly. So it is better to keep it efficient. At best, 5-6 lakh jobs can be given to "disadvantaged" but an efficient railway can get  economic mobility  to crores of people. So we should not interfere in running of railways and reduce its efficiency.

You can substitute railways for education- schools, colleges and technical training institutes, electricity, water  or for that matter anything  else for which there is a shortage and you will find the mindset  and its downstream effects namely stagnation or inefficiency and shortages.

The other aspect that needs to be exorcised from the national political conscience is to control everything and try to give an equal deal not a fair deal. The quest for  equality have led to creation of important national assets at the wrong places. Picturesque Himalayan landscapes have been industrialized  using artificial incentives which distort the market so much that even a honest businessman could not stay away lest he lose in the market place. Once these incentive periods ran out, these assets are getting shut down as there is no logic in keeping  them there without the incentives. No one gained from this attempt at artificially increasing the industrialization of the Himalayan landscape to the same extent of industrial clusters in say Maharashtra or Karnataka or Tamilnadu. Perhaps all that was required to provide an economic plan suited to its ecology and its strengths.

Another example is the setting up of IIT and IIMs in places which have no ecosystem to support them. IIT Bombay attracts hundred of applicant for faculty positions and IIT Jodhpur hardly gets any applications and even if some one does join he leaves in short time as there is nothing to do for his spouse - a very real criteria in todays day and age. So we have problems of plenty at one institution and utter drought at another. Instead the government could have surveyed what the public in Jodhpur wanted and perhaps given them infrastructure to  say double tourist arrivals.

The aspirations of the country are exploding. In most areas, no amount of fairer division of the output can satisfy the public's demands as there is not enough output  or output of desired quality. The solution is to have an expansive mindset and expand the productive capacity of the nation.

We need to scale up services and goods in short supply. Even the most intelligent and honest leaders with the scarcity  and control mindset cannot really solve these problems. It is not honesty or intelligence that is the missing ingredient, it is the expansive mentality that things can be solved by expansion of human endeavours ie a "We can" attitude.

The scarcity and control psyche is so deeply embedded in our country's psyche, perhaps due to the 200 dark years from 1750 to 1947, that it is taking a long time to go away.

For example if we can expand the production to top class engineers from say current 50000 per year to 300000 per year and expand production of skilled workmen in similar proportions we can have the world auto industry and light engineering industry for breakfast.  These may appear impossible but we should not forget that the right leaders and right policies could expand mobile tele-density more than 100 fold in 6 years from 2001 to 2007.

There is no real shortage of anything in India except that of 
1. exceptional  leaders who do not have a scarcity and control mindset and that of 
2. citizens who will recognize such a leader and give him the mandate to rule.