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.

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.

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.