Category Archives: Socio-Economic

Fuel subsidies in India

Cost of sending an indigenous unmanned mission to the moon: Rs. 400 crores.
Cost of putting that unclean fuel into that gas guzzling tank of yours: Rs. 1,00,000 crore.

Use your math knowledge to figure out which is higher and by how much. Use your sense to figure out which is an asset building measure and which is slow poison. Shut up and think about these numbers the next time you want to crib about how the government is raising fuel prices.

You may argue that its the taxpayers’ money that is being used to foot the fuel subsidies and that you honestly pay your taxes; as such, you are entitled to such a favourable situation. Well, i too am a taxpayer and i do not want my money being used to help you fill your tank at such a steeply discounted prices. So, the next time you are stuck in a fuel line with umpteen others like you, grumbling about how things will never be right, be a human for once and think rationally.

Ayn Rand vs Che Guevara

The past weekend, i completed a relatively unique double of reading through two distinct texts with strong communist influences; The Motorcycle Diaries and Animal Farm. The former recounts the journey carried out by Ernesto Che Guevara accompanied by his friend, Alberto Granada aboard ‘la Poderosa’ while the latter describes the Orwellian tale of an uprising staged by animals of various “classes” in a farm in England in hope of better living conditions.

While “The Motorcycle Diaries” chronicles the formative years of Che’s eventual revolutionary life, these very influences are presented in a very subtle manner wherein Che encounters deep class, societal, cultural and economic divides in his travels across Latin America while he himself battles tough medical and economic conditions. What essentially starts of as a humourous series of thoughts and situational anectodes penned down by Che towards the start of the journey eventually transcends into a soulful recording of the punishing conditions the native Latin Americans are subject to in their own lands. All this, while Che manages to keep the humourous thread running and at the same time, provide a poetic narrative of the mystic and enchanting lands that he visits as a part of his expedition. That the text might be called ‘Motorcycle Diaries’ while ‘la Poderosa’ gave up less that halfway through might appear strange. That is an academic anomaly in an otherwise thoroughly enjoyable book that does not give much of a scope for one to crib through.

In addition to these texts carrying deep socialist undercurrents, i have also had the privilege of reading throught the thoughts of one of the faces of capitalist societies: Ayn Rand. And the distinctions between the two are pretty easy to see. Reading through Ayn Rand’s Atlas Shrugged had left a lasting impact on my thoughts at that time and it was very difficult for me to think in any other terms other than those propounded by those in Ayn Rand’s utopian world. And in hindsight, i must admit that they tend to be quite damaging, especially given today’s glocalization and mass movement of economies world wide to a democratic setup. Ayn Rand’s societies consisted of few men [and women, yes ok!] of strong virtues pitted against a mass society that tended to be parasitic in nature. And this corruption of character manifested itself not solely in individuals in trade but also those who practiced and created art. And her argument against the corruption of such societies was to revolt against them through non-cooperation. And in this manner, it had a very Gandhian edge to the revolt. But while the Gandhian way of life talked about reformation of the instigator, Ayn Rand preferred to profess destruction of the corrupt society in the absence of the ‘prime movers’ of the world.

But coming back to why i felt this outlook could now present damaging consequences, the basic fault lies in the very utopian society created by Ayn Rand herself. The only parameter against which an individual was judged was by his/her virtues to individualism while leaving out a number of very pertinent factors [which are prevalent today] like culture, historical class bias and education. And these are the very factors [or biases] that caused Che to eventually don the revolutionary streak.

History has been witness to the vast social injustice inflicted upon various races by colonialism ranging from suppression to mass extermination of races. These consequences of colonialism are most apparent in some of the most troubled of states today like African states of Zimbabwe and South Africa, contensted territory like Kashmir and vast colonization of Australia by European colonists after mass extermination of native populace.

This note is not meant to serve as a treatise against colonialism; what i am trying to convey is that Ayn Rand’s vision of the world was extremely lopsided and could not account for a number of factors that would eventually present themselves to the global polity and economy in the times to come. And with the divides across the world today brought down to their knees by equalizers like the Internet, free trade and consumerist culture, Ayn Rand’s vision of individualism reeks of a defeatist attitude that would not do the world any good.

The world economy today needs new consumers and new markets. The success of an individual today depends upon another individual halfway across the world; the failure of one also brings down another equally antipodal. So the essential need to is general upliftment of peoples across the world, making them contributors to the world rather than subjects of charity and building a local market thus perpetrating general good. And in this, Che’s vision of upliftment of the suppressed classes makes more sense that Ayn Rand’s vision of their destruction.

Hungry kya?

George Dubya Bush has often been credited with having made political statements that have lacked either intellectual depth or logical sense or, as in most cases, both. Hence, it came as no surprise that when he, in the recent past, made a political statement, and this time concerning India, he was again criticized from all corners and this time, including India.

While Dubya was primarily defending his decision to use food grains like maize for the production of bio-fuels like ethanol, the additional point he was trying to put across was that rising per-capita income levels in emerging markets like India and China had given rise to additional demand to quality food grains from that segment of the population. And while he should be kicked in the rear for converting edible foodgrains in fuels, he is quite right when he says that India and China are contributing in a large way to the global food crisis.

Closer home, its not just rising demand from the burgeoning middle class that is sole contributor to rising food costs; studies have shown that per capita food production has fallen to the 1970s levels. That is, indeed, an alarming statistic and what is even more incredulous is the fact that the downtrend is not an overnight turn of events; the stagnation in the agricultural sector has been prevalent for the better part of the decade. That is a sorry tale to say of a country that still boasts to be agrarian and whose populace is largely deemed to be dependent on the farming sector. So what caused this dramatic turn around?

Since the very nature of the issue forms a vicious circle, it is impossible to point out just a couple of factors. The primary reason for the fall is the lack of irrigation water supplies at grassroots level available to farmers and the ill use to technology to aid in crop yields. As a result, farmers have to depend on erratic monsoons and age old techniques to boost crop yields. Bonanza schemes like loan waivers end up being zilch down the road since the basic problem still exists; the only effect of such schemes is to worsen the fiscal deficit.

Down the road, further problems arise due to the sales from the yields. The Govt. of India is the largest buyer of the food grains from these farmers and the price is, of course, dictated by the Govt. Termed MSP [Minimum Support Price], these prices are usually lower than global market prices [though, they are revised every year]. The differential between MSP and the global prices deny the farmers the true market worth for their grains. Their problems are also compounded by the restriction on exports of essential food grains like rice and pulses. In such a situation, most farmers reserve vast tracts of their land for the production of cash crops like rubber, sugar cane etc., the prices of which are entirely market driven and have no export restrictions.

It only needs to put two and two together to understand this does not foster a positive enviroment for a farmer; however, incredibly the problems do not end there. The food grains procured by the Govt. is distributed by an archaic channel called PDS [Public Distribution System]. While PDS incredibly suffers from manpower concerns [due to migration of unskilled labourers to cities aided by opportunities in real estate sector] for acts as simple as loading and unloading of foodgrains, the actual problems start once these foodgrains are collected into the distribution warehouses. After the foodgrains pass through various levels of rampant corruption, the supplies lying around in the warehouses are subjected to waste by the single largest consumer of foodgrains: rodents!

With limited supply from farmers and a pathetic system to distribute whatever little does get filtered through, its no wonder that inflation is climbing to double digits. Artificial counter measures like tightening exports and banning futures trading on commodities serve no purpose than to artificially set prices to hold down inflation. These, in turn, causes an imbalance in the global markets since supply from India is minimal; most countries have used this approach to contain inflation as a result of which globally prices have increased.

Hence, you would now assume that the fault does not lie at the doorstep of the United States. Of course it does. The most important factor in all this is the suddenness in the rise of prices globally; that cannot be the fault of India’s archaic PDS. That is due to the weakness of the dollar against all other currencies.

The dollar is weak because the US Federal Reserve has been relaxing interest rates over the last few months; this makes investing in other countries with higher interest rates more attractive. Which in turn infuses a larger supply of the greenbacks versus the local currency, hence devaluing the dollar.

And why is the Federal Reserve reducing interest rates? Try searching for sub prime.

Of twisted tongues and scripts

It was a special Sunday morning when i was flipping through the multitude of channels and i paused my browsing when i got tuned into the Doordarshan frequency. Its not everyday that anyone gives a second glance at Doordarshan nowdays, so that’s what made it all the more special.

The morning transmission was on and Rangoli (literally meaning a floral decor), that had survived over fifteen years of viewership and broadcast was being telecast. For the uninitiated, Rangoli is a Hindi music programme aired every Sunday telecasting popular Hindi movie songs ranging from the old classics to the newer hits.

Normally, i would not have given a second glance to the broadcast, but this time something was different from what i had seen fifteen years back. The songs being played also had karaoke style lyrics scrolling across the bottom half of the screen. That pretty much kept me hooked for the next half hour, while i sang along with songs that i had heard years back but had never managed to get the wordings of. It seemed like a smart idea at the time, but i never ended up tuning back to it ever again.

That memory was buried somewhere deep inside till i recently chanced upon an article about the concept called “Same Language Subtitling” [SLS]. Championing the cause is Dr. Brij Kothari, an associate professor at IIM Ahmedabad who hit upon the ground-breaking idea of spreading literacy by marrying together the entertainment and the visual media together. In his own words

It struck me that early literates — those who cannot read a newspaper or a letter, cannot write or even read a bus board — in India could benefit if Bollywood songs had subtitles in Hindi. Hence, the concept of Same Language Subtitling (SLS)

The project is now supported by the Google Foundation but it continues to battle the policies and bureaucracies rampant in the broadcasting ministry who do not see the apparent benefits of the idea. The programme saw enough success to see Dr. Brij Kothari introduce SLS during Chitrahaar, another popular programme that occupies prime time slots in Doordarshan. The added benefits of wide reach coupled with low-initiation costs make this idea extremely promising and heartening. That social measures coupled with mainstream entertainment can help solve a deep-rooted problem is, indeed, a refreshing principle to wake up to.

A corollary also helps someone learn foreign languages phonetically as i learnt when i watched the Academy award winning Lives of Others a couple of days back at a cinema. i learnt enough of German that day to wish everyone ‘Guten Tag’.

Subprime or Sub-subprime

In view of the turbulent subprime mortgage crisis that has swept financial institutions the world over, its extemely pertinent to throw a glance at microfinance institutions like Grameen Bank who, in the face of it, are doing much better for themselves. The important case in point here being the traditional customers for a Grameen Bank do not have any credit history at all and can avail of loans without any collateral at all. This, by definition, would make such sort of borrowing sub-subprime, if you can call it that.

Mr. Muhammad Yunus, founder of Grameen Bank and Nobel prize winner, echoes just that in his interview with Wall Street Journal where he takes positions against the profit-driven measures taken by traditional institutes against the “social business” measures advocated by Grameen Bank. His views of liberating the critical mass at the bottom of the pyramid by way of a business model turning these sub-subprime borrowers into entrepreneurs in their own respect are commendable and thought-provoking at the same time.

Of course, the comparison between a Citibank and a Grameen Bank is unfair due to the sheer differences in the volumes involved. But one aspect, in the face of the crisis, that certainly cannot be escaped is the nature of the borrowers. Grameen Bank trusts the borrower to repay the credit and the way it manages this is via a strong social construct formed among the borrowers. Besides the peer pressures from your social support group to repay the loan non-withstanding, regular repayment raises the social standing of a borrower enriching the credit history and strengthens their self-respect.

It certainly makes you wonder which one makes for a better business model: cut-throat economics with distrust thrown all over the place or a social initiative which leverages the long tail of finance and liberates the masses there for a general good, both economically and morally.

Governments- the business model

Upon close scrutiny, the most successful business model that has stood the test of time is employed by the government. Once you get past the humourous undertones to the statement and analyze the fundamentals of it, you’d realize that is essentially sound and workable.

Its got an exponentially growing customer base, assured revenues through taxes and no known competitors. The services that are provided [like security, infrastructure and accesses to resources like power at low enough costs] will always be termed essential.

The cost of “choosing” another government over the current is exponential or extremely high where it is possible. The large cost can be attributed to various factors like

  • low mix of cultures between peoples represented by their governments, lending to lower volumes in the business
  • low income levels among a huge percentage of the peoples thus denying any sort of accesses, be it via Internet or any other media

Considering a hypothetical situation wherein these costs are lowered to reasonable levels and other border control restrictions relaxed, multiple governments around the world could face large-scale exodus by their peoples into other friendlier governments promoting competitiveness among governments. Some may also choose to set up franchised operations so that geographical boundaries do not stop a people from choosing their free will.

Of course till such a time comes around, i do believe that governments have a utmost sound business model and its a shame that most of us cannot achieve such a parallel.