Saturday, December 31, 2011

Virtual water-the case against exporting/producing water intensive crops.

 Laissex fairez would advocate the free market as the best arbitrator of allocation problem, but the rampant market failures in agriculture(manmade and nature induced) make governments step in even in the emerging economies, to "solve" the issue.

With the water wars heating up in Southern States of India(as witness the Kerala-Tamil Nadu war of words over the safety of the ancient Mullaperiyar dam) and Africa(where the 4 upstream nations of the Nile have reached an agreement increasing their share without the 'ratification' of the downstream nations like Egypt), water politics are attaining a zenith. Even the reputed Indian Infrastructure Report 2011-published by IDFC and coordinated by IIT/IIM-focuses on the issue of water scarcity, and its implications for development and growth in years to come. Given that this publication is not prone to exaggeration, and has been often ahead of its time on issues like urbanization, contract structuring etc, its views should be taken with respect.

I stumbled across a dissetation by Suvi Sojamo, titled Merchants of Virtual Water – The ”ABCD” of
Agribusiness TNCs and Global Water Security,
prepared for Msc(water science) at King's College. Read it here 
The paper argues that major global agribusiness players(ABCD of agriculture) are major global water managers due to their remarkable shares of international virtual water 'flows' embedded in agricultural commodities. The entire report makes for interesting reading, but the takeaway I got was that crops like corn, soyabean, wheat(and in Indian context, rice/sugarcane/cotton) may have high margins but a better public policy measure would be contribution/profits per unit of water used. And thanks to the underpriced water in India, the apparent profits would be high for those crops as the social cost of water is not factored completely.

At the very least, this issue needs study in India while fixing MSPs of crops, designing export incentives for primary produce etc. Otherwise, we risk spending heavily to fix the water scarcity issue, while spending elsewhere on encouraging production/export of those very crops which aggravate the issue.

Saturday, December 17, 2011

Learn proper English and do due diligence before transacting online

In these days of financial inclusion/inclusive growth/bridging the digital divide, businesses are actively trying to make to easy for non English speakers to use their services. Be it Google(search in 8+ Indian languages), multi language websites using Google Translate, multi lingual call centres etc, efforts are being made. However, the terms and conditions(be terms of use/conditions/fine print) invariably stays in English(or English IS the authoritative version in case of differences). Hence, people who know just a smattering of English may even be able to transact online, but they cannot/do not make the effort to completely understand the product/services/perform due diligence. That is why so many people get conned, when just a simple Google search and some critical thinking would have warned them. Some evergreen cons:
  1. Send money before getting the appointment letter
  2. Multi  level marketing
  3. Nigerian lottery scams
  4. Online shopping sites of dubious repute
  5. Time sharing at holiday resorts
All these are chronicled with ample depth online(even by RBI/regulatory agencies). And yet, people get conned. I'm not passing a value judgement/stereotype here, but in the 4-5 consumer complaint sites I've visited, bulk of the complaints have been written in ALL CAPS, broken English, insulting tone, incomplete and childish manner. People have obviously not tried to research it online/write a letter to the company but expect that by posting their complaint for free on a random website, a magic genie will resolve the problem for them. When will the morons learn that nothing of value is free?

Of course, getting conned happens even to those who speak impeccable English and who should have known better(for example even a bank manager(!) got conned in the Nigerian lottery scam). But a majority of those who helplessly seek advice from strangers are of the type I mentioned. Unfortunately, good written English and persistence is needed to navigate the consumer care labyrinth of most companies. Having extracted refunds after multiple attempts, from Airtel, Uninor, Dell, HDFC and ICICI, I can vouch for this with abundant experience. So if people expect that the invisible hand of the market will protect them who only transact blindly, then they are in for trouble.

Tuesday, December 13, 2011

US type IPR framework for India-absurd and utopian

If I'd a rupee for everytime I saw an IPR reform proposal referencing USA, I'd be a rich man! Besides those who see USA as a panacea for every Indian ailment(despite its creaking education/healthcare/fiscal issues), even absolutely rational people point to USA, correlate its global power status to its innovative nature(so far logically plausible) and then make the logical leap of faith to connect it to its IPR. Now,trying to match the same format is absurd in India because of the factors outlined below. For the record, by US type IPR framework, I refer to a system friendly to the inventor rather than public interest; where fast track courts settle disputes; where IPR violations are stringently punished even at consumer level by fines/barring ISP connections and where an entire ecosystem(patent trolls, lawyers etc) extract rent from the system.

  1. IPR protection not embedded in Constitution:-Patent Protection is a constitutional right in USA, while the Indian Constitution does not even guarantee right to property!
  2. Traditional Knowledge and Different culture:The traditional Western model of IP does not sufficiently protect traditional knowledge, and presumes that people need only a monetary incentive to invent. Prof Anil Gupta's work at the National Innovation Foundation, proves that that is not the case.  
  3. We are still net importers.:-India does import IP whether it be directly(royalty payments by Maruti to Suzuki for example) or indirectly(mobile manufacturers paying Qualcomm etc ). And of software, I'm hardpressed to name a single Indian produced software 
  4. And countries grew rich by not paying for IP:-Be it USA(for books), UK(for machinery), South Korea/China(for technologies), even countries topping the innovation charts have stolen their share of IPR. Is India in a position to pay for IP? In a land where good foreign published books can cost a week's average income, is it fair to penalize students for piracy? 
  5. Our legal system would crack:-Intellectual property being a legal right, its ownership.validity can ultimately be decided only in court. And IPR being subject to fast erosion of value if subjudice, not having fast track courts/speedy justice does defeat the purpose. And it is a matter of public policy to decide whether IPR law should get priority over a host of other laws when it comes to justice enforcement. When not even TRIPS requires this, I doubt this will happen anytime soon in India. After all, setting up new fast track tribunals for law/tax cases has been hanging fire. 
I know the above arguments have some logical fallacies(like #4 has the fallacy that two wrongs make a right), but I feel it is not in India's interest to accord that same level of IP protection. If I was a content creator, I would use cloud computing etc to protect my rights via technology, instead of lobbying for changes that overall affect the country. So which kind of a system would I prefer? Something on the lines of utility patents(cheap, simply, for proven useful IPR). I'll do a follow up on this after more research on the subject

Monday, December 12, 2011

Why financial innovation IS necessary and useful

Judging by the number of books/articles/blog posts and Steve Job memorial mentions, one would think that innovators are the most valued ones in this economy, and that innovation is good. But recently, two facets of this debate struck me.
  • Students's dream jobs are now in tech companies like Apple, Google and Facebook-which are all glorified despite significant concerns about privacy, impact by creatively destroying other industries..
  • Occupy Wall Street(OWS) students ambushed recruiting sessions at Yale of Goldman Sachs/Bank of America and harangued them about how their rocket science had resulted in evil.
 It is fashionable to trash the financial sector for creating instruments and structures which induced helpless real world borrowers to spend more, buy homes beyond their reach, and deceived governments to maintain unbalanced budgets. But even leaving aside this simplistic explanation for a moment,  one cannot deny that many financial structures are products of extreme creativity and innovation, and were originally crafted to address real world issues. So why are they now villifed as rocket science/web of illiquid complex assets etc?

Recently, Mr Masaaki Shirakawa, Governor of the Bank of Japan gave a keynote address, at the
Netherlands Bank conference in honour of Mr Nout Wellink on “Welfare effects of financial
innovation” . He focused on the special aspects of financial innovation, and the speech can be read here( The main points he made were
  1. Innovation means changing the way business is conducted in order to better serve the clients
    of the business.changes, which provide the same or better service to clients at lower cost, are certainly innovations in the usual sense of the word.
  2. Innovation can be technology driven or modality driven. Technology-driven innovation
    crystallizes when the application of technology results in a better way of doing business(like ATMs). On the other hand, modalitydriven innovation aims at rearranging business processes for the better(like derivatives risk transfer)
  3. Technology-driven innovations are more likely to be beneficial, because, when the innovator is deliberating on the application of technology, the client cannot usually be ignored. On the other hand, in the case of modality-driven innovations, one can easily lose sight of the client when cutting and dicing existing businesses(emphasis added). Very often, modality-driven innovations are the result of efforts to circumvent regulations, taxes, and accounting rules imposed on the financial industry
  4. Problems seem to have arisen when a product or service is insufficiently anchored in inter-mediation or facilitation of payments(the core function of banks)
 The above chain of arguments would lead one to the premise that unless the financial innovation is anchored in 'basics of banking' like cheaper intermediation/payments system, then its utility is doubtful, or at the very least, subject to more layers of scrutiny.

However, the financial inclusion agenda of regulators, would require banks to adopt technology driven innovations, while the infrastructure financing needs would probably need modality driven innovations to come up with innovative financial structures, eschrow mechanisms and build in adequate safeguards(like MIGA guarantee etc) so that the players would have rational incentives to keep up to their word. And more modality driven innovations would be needed for risk transfer. One can certainly argue that the basic bank and investment bank should be split, but that may make both individually riskier(no diversification) and increase capital costs.Hence, before trashing the rocket science/quants/legal eagles of banks, one should also think of their positive uses.

Thursday, December 8, 2011

The case for prosecuting Tamilnadu CM Jayalalitha for corrupt practice for her photo on free laptops

In Sep-11, the scheme was finalized to distribute a free laptop to lakhs of high school students in Tamilnadu, ostensibly to help with their education. The laptop configurations could have been better, used open source software and included a webcam to allow students to benefit from elearning(as pointed out in this Tehekla article, but otherwise the scheme seemed to be have covered all bases. I was impressed to see a scheme benefiting students instead of distributing colour TVs/washing machines/radios etc. But when I saw the pictures of the first batch of laptops, then the diabolical genius of the scheme hit me. As evident from the photos of the laptop cover in the Mint article(, each laptop has the photo of the CM herself! Even if the laptop life is 3yrs, the students(future voters of tomorrow) and their immediate families will constantly see that photo. This is more effective than any transient publicity like newspapers, TV, handbills..

Now, some may call me naive, or may dispute the efficacy of the scheme's publicity because
  • Every ruling party releases full page advertisements with the party leader's photos, dwarfing the scheme/project for which the advertisement is released for..
  • The CM is an iconic figure in the state, so what difference would it make if her photo is there in one more place?
  • The initial impact will fade away after sometime. 
  • People should be having sufficiently developed voting sense, not to vote for someone just because such a 'populist' scheme is made.
Whatever the case maybe, one cannot deny that she is benefiting from state funds to get her photo into the home of 7 lakh students and thousands of schools.  One would be outraged if school assemblies had the CM's photo prominently displayed, but this  photo display is as bad as that.

Section 13 of the Prevention of Corruption Act 1987 on criminal misconduct by public servants states that (1) A public servant is said to commit the offence of criminal misconduct,....- (d) if he,-..(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage. Publicity and association of the government funded scheme to the personal offices of the CM via the photo, is certainly a valuable thing, if not monetary. 

The hitch with the case is that only a police officer of ACP/above can take up the case, also the person competent to remove the CM(Governor) must give prior sanction, which would invite accusations of witchunt from the opposition, which is already on the warpath and remembers the use of Article 356 to unfairly dismiss earlier CMs. That is a pity, because such a test case would really deter politicians from blatantly benefitting from public funds for their own publicity. It is one thing to claim things in campaign material/rhetoric, and yet another to permanently emboss your image on state funded property.

Tuesday, December 6, 2011

Time for India to derecognize/stop student loans for bad courses?

NASSCOM, FII, industry leaders claim that anywhere from 10%-25% of India's graduates are directly employable after they graduate. Now, one may argue that college is not a trade school, so companies should not expect colleges to do the hard lifting and tailor the curriculum to their needs. Well, that is true especially when it comes to technical subjects where the pace of curriculum revision is slow so companies do not find the contents relevant to their needs. But as it turns out, the issues are with very basic technical skills(coding, logic, knowing accounting principles) and soft skills(English, writing, reading, etiquette, critical thinking etc). Recruiters can quite easily teach technical skills to those with the requisite aptitude but to teach soft skills to 20year olds, is something which should have been handled at school and college levels. So what is the result of this?
  • Low proportion of employable, this is opening the route for 'finishing school' institutes like Purple Leap, NIIT and others. 
  • Enormous application/job ratio for 'safe' PSU jobs
  • Very low level of English and critical discourse on public forums. For example, when someone posts a job with clear instructions to email  the CV, some retards reply with comments under that asking the recruiter to consider their applications.
  • High level of plagiarism and deterioration of writing skills, as students copy/outsource project reports and assignments. 
 While one can go with the finishing school option, this is a clear recognition that the system is broken. But thanks to the powerful education barons(many of them elected legislators) owning these colleges, there is little likelihood of change in the system, despite what AICTE/UGC/NAAC may do. So what is the way out? Social media reviews of colleges, compulsary national level passing out test on the lines of GRE, which would be used to measure college quality at an aggregate level etc. These scores could be then used by colleges to fix filters for the college programs eligible for education loans.And if tracking the employment status is possible, even that could be used as a metric, as also student rating of the college after graduation(via social media/forums)

In the present system, the false notion of education inclusion makes banks extend loans even to colleges they know are worthless, and to students for enrolling in those colleges. This has already lead to increasing education loan defaults, though not on the scale prevalent in USA. Maybe its time to do what China did( and pull the plug on ineffective subjects. I recognize that these would include many arts/commerce courses besides engineering, and while I do not have an elitist bias or prejudice towards any stream, one should recognize that if this present situation continues, the education bubble may set into India as well/.