Make In India’s Obstacles

People often complain that they are being underpaid or overcharged yet continue to work with the same employer or continue to buy the same overpriced product. Why ? It is because the alternative is even less paying job or even more overpriced and bad product.

The real “fair price” or “fair compensation” has nothing to do with what a person wants or needs or deserves but rather what is the alternative.

Even though none of us realize this, we continue to use this principle in our everyday lives. We chose to fly a low cost but cramped flight because train is bad, we chose to use BSNL’s shaky broadband because alternative simply does not exist. Yet, we complain about low cost airline’s legroom and BSNL’s non-existent customer service.

Today’s complains are tomorrow’s products, so said a management prof. and he is correct. But is it the case that airlines have a secret deal with Knee doctors to hurt your knees ? Or BSNL is so sadist that is loves when its customers are left clueless without a customer service ?

The reality is that the airlines or telecom operators have not figured out how to give the customer those things without making significant loss. The very reason why low cost airlines can keep their fare that low is because they resort to many tricks including reduction in legroom.

If we purely look at the alternative costs of these transactions we realize that both the passenger and airlines gain by reduction in legroom. Airline makes tiny profit where as passenger takes a more comfortable journey than lengthy and unsafe train journey.

The government. 

These sort of transactions are called “positive sum game” which means both parties who are willingly getting into this transaction gain in the process. They may not acknowledge this gain themselves, but it is visible as we see more and more such transactions with time.

There is always an expectation mismatch despite the positive sum game. The passenger would always love more legroom for the same price and the air-line would love to increase its profit.

Both are perfectly right in their motives. It is these sort of motives that drive people to crating amazing new products and services. But every now and then, one of the party uses the government to achieve its end.

For example all the passengers can gan up together go to consumer court and demand that the airline should increase the legroom. Governments always know which side to take in such cases.

When government steps in to maximize the interest of one of the sides, the other party’s gain reduces substantially and hence the other party increasingly seeks to “engage less and less” in such transactions.

One of the finest example was of Movie Theaters. Government made laws where government would set the ticket prices so that poor people could afford to watch movies. This law actually kept the number of screens to minimal in India. No one would invest in move theaters because the profit they could make was extremely limited.

Despite the fact that India is a movie crazy society, our movies remained small budgeted.

With the rise of multiplexes everything changed. India saw 20% increase in available screens year on year. The ticket prices in some multiplexes increased but they decreased substantially in large theaters.

Today many movies make 100-crore business in the first week itself thanks to large number of screens. Note that, no movie is house-full these days. There are always empty seats. But yet movies make obscene amount of profits.

Applying the logic to Make in India

India is a country where people give undue importance to “job security”. Indians think that “job security” is more important than good products of service, competence at job, price of products and services, future of children, quality of education and employment in general.

One reason why government services are so pathetic is that government servants can not be fired from their jobs very easily, surely not for incompetence.

Just like the law I have mentioned above, government has made draconian laws, that take side of the employee, labor as a result the “other party” the Employer is less and less willing to participate in “giving jobs”.

Arvind Panagariya in TOI.

The high-profile launch of the ‘Make in India’ campaign today is a good occasion to remember the development experience of East Asian economies such as South Korea, Taiwan and Singapore in the 1960s and 1970s and China more recently. East Asian economies principally relied on growth in labour-intensive industry and accompanying expansion in jobs at ever rising wages, as the principal means of prosperity for the bottom half of the population. India focused more directly on social protection for workers through legislation, foregoing good jobs and to a great extent growth as well.

In the East Asian economies sustained rapid growth of labour-intensive manufacture created well paid jobs for the low skilled and paved the way for the migration of vast numbers of agricultural workers into manufacturing. As a concrete example, South Korea grew at an average rate exceeding 8% between 1965 and 1985. During the same years, the employment share of agriculture fell from 59% to 25%. Industry and services absorbed the workers so released.

In subsequent years, especially under Prime Minister Indira Gandhi, India brought legislative changes that further raised protection to organised labour by imposing restrictions on the use of contract labour and forbidding layoffs of workers in firms with 100 or more workers. The outcome was devastating not just for owners of large-scale firms but for workers themselves.

The great Bombay textiles strike under union leader Datta Samant saw once flourishing textiles industry uprooted from the city, with its 1,50,000 workers thrown out of employment. Later large mills and their workers in Kanpur, Ahmedabad and Kolkata met a similar fate. Most of these workers had to eventually find jobs in the unorganised, informal sector.

 

 

A telecom idea

I have an idea for some large telecom companies. In my opinion the scope communication in our life is much more than talking or SMSing. Currently most of the companies are acting like landlords. They give you three services. Voice, Sms and Data. Voice and SMS rates are dirt cheap because of ugly competition and Data rates are unaffordable. The kind of infrastructure that these companies have built is huge and in my opinion can be used for much more.

Let me explain my idea. Most of the people use internet for email, casual surfing and social networking. They also use internet without it’s explicit knowledge through various apps such as FourSquare and Flipboard. The telecom operator merely has a link that connects consumer and this service provider. While Gmail might be free for you, you end up paying around Rs 2 to this telecom operator each time you check your emails. While Google can afford to give you a great service like email for free, the telecom operator is charging exorbitant amount of money just to provide you the link. It is like getting an apartment for free but you have to pay for using the elevator that takes you there.

Because of these high costs of the link, there is serious limitations on what consumers can use and what service providers can provide. My internet usage is around 6 GB per day. which is around 180GB per month. By the prevailing 3G rates I will end up paying Rs 90,000 per month if I have to rely on 3G. It hurts my productivity deeply and I dont use 3G at all and the company is losing a customer. I think to be successful the telecom company must understand that the service they are providing is priced way above the value it is adding to our life. To balance things it should do two important things.

1. Reduce the price by restructuring the revenue streams.

2. Think of adding more value than just providing a link.

My grand plan for a hypothetical company is like this.

The company first sets up a huge data center in India. This will provide cloud based services just like Rackspace/Amazon. In fact the telecom company may tie up with one of these to build this cloud.

The company declares that any data usage accessed through this data center will be absolutely free for the consumer. This is viable because there is no international bandwidth used hence the cost incurred by the telecom company is much lower. So a company like BookMyShow.com sets up their server in this cloud and starts providing this service for free. BookMyShow.com may use international bandwidth for various things and it will pay this charges to the telecom company. Telecom company can add a great amount of value here. For example Telecom company knows your phone balance hence it can let the consumer buy a phone ticket by using his phone balance it self.  Telecom company can charge 1-2% of the total transaction value hence each time BookMyShow.com makes money, telecom company makes money too.

Telecom company can actually start giving almost all their services as APIs to third party developers. For example, let third party developers upload funny ringtones and caller tunes and each time it gets purchased both the developer as well as the telecom company makes money. Telecom company doesn’t have to create content it can rely on the huge population of creative people out there. On long term even the whole customer service thing can be outsourced like that. For example ,  currently when you want to activate certain plan on your connection you have to call up some customer service agent. With this new framework you have to only visit a website and click a button.

Real winners will be the video streaming websites. Currently this space is dominated by Google’s YouTube. With the localized data centers almost all Indian T.V. channels will start hosting their content for free on Telecom Company’s cloud infrastructure. They will put video advertisements in their programs and it’s revenue will be shared with the telecom company. Since the data usage is free users will not hesitate to watch as many videos as they want.

Most telecom companies also own wire-line broadband. Using this they can setup wifi hubs at all major public places such as restaurants, railway stations, hotels and so on and provide he exact same service via much faster and free wifi.

With the current model, there is a great limit to the earnings of a telecom company especially when the prices are high. With this new model, the telecom company becomes a little more than just a link provider and owns a stake in what is transferred over the link as well. Thus as companies across the country come with innovative products telecom company will earn a share no matter what. Large companies like Facebook and Google will never host anything on telecom company’s infrastructure but appropriate models may be provided where telecom company manages to extract some money from these large companies.

It is unlikely that any of these telecom companies will ever do these kind of things. I hope one of the Indian telecom companies get acquired by Google or Apple.

 

Weekend Reading

Three news articles are on my reading list for this weekend. They may not look interconnected but they are.

First is the news report that Dr. Amar Bose donates his company Bose Corp. to MIT his Alma mater. Bose is will known for its high quality and extremely expensive speakers. One has to only experience their speaker systems to believe how wonderful they are.

There is nothing new about a student giving back to his college but when you see a person giving away almost everything back to his college it is logical to conclude that the student believed that he owed a lot to that institution. That sort of love and bonding doesn’t come easy. That is probably the strength of United States. They have built those wonderful universities that build characters like Amar Bose. Note that Amar Bose is an Indian he did not study at IITs.

In India probably only IITs have managed to develop that sense of pride among it’s alumni. However there is nothign great about IITs. They only do an average job. IITs are elite institutions not because of its systems and legacy but more because they get top 0.05% of India’s student population. These students who manage to beat almost everyone else in cut throat competition will probably succeed wherever they go. Real test of IITs will be when there will be around 50 IITs in India giving degrees to top 5% of student population.

Second article is about the so called civil society and their so called fight against corruption. Indian Express has been consistent in it’s criticism of the fight against corruption. I don’t know the reasons behind it but many of them resonate perfectly with me. In this news article  Adv. Shanti Bhushan who has been at the forefront of the movement for so long claims that the root cause of corruption is the post 1991 economic reforms which resulted into privatization.

Any person who is above the level of “idiot” can see that if there is any reason why the middle class in India like me and perhaps many of my readers can hope for good future is because of these reforms. Which again were not bestowed by Dr. Manmohan Singh but India was forced to do so otherwise it would have simply collapsed.

Another person named in that news report is Ms. Arundhati Roy. This attention whore does not need any introduction. When I saw Swami Agnivesh joining the movement I knew this lady will soon follow. When you see people like her joining a movement it is simple to predict where this movement will go.This lady has deep contempt for almost everything that the Indian middle class has respect for.

Despite this the middle class has been supporting this civil society which demands more government controls everywhere. Any person with an IQ level above that of a retard would perhaps see what is wrong with his argument and what it means for the middle class

“Liberalisation gave rise to the industry of privatisation. In the name of privatisation, and disinvestment, the government is now in a position to transfer thousands of crores of public money in the public sector undertakings to private hands. A similar thing happens when the government gives away natural resources, like oil or gas, to private companies. This has led to the creation of a corporate mafia,” Bhushan said. He claimed that futures trading, “speculative” market mechanisms and “non-transparent financial instruments” were all contributing to corruption.

Taking a swipe at the judiciary, Bhushan said that the new-found enthusiasm of the courts in matters relating to corruption was only a result of “a huge public awakening”.

I cant write more about this because I cant control my anger.

Third news item is the most important one. I am impressed with quality of articles that WSJ keeps coming up with.

While the civil society seems to be socialists with a different tag, this article explains why India is still so desperately poor and implicitly shows us why we have so much corruption.

Why are we so poor? It is because the economic activities that I can engage in are very limited. I would love to setup my own company, employ a small team and find an investor. But that wont happen so easily because as the article explains

A new start-up is required to go through 37 procedures to obtain a construction permit and obtaining a permanent water connection permit requires a waiting period of 45 days. Further, the overall cost of starting a business in India is currently the 99th highest globally, at a staggering 66% of per capita gross national income (compared to China at 4.9% and Russia at just 2.7%).

That explains why India is not very likely to have its own Google or Twitter or Apple. All we will have is X brothers running illegal mines and minting money.

This is not a co-incident. This is a plan. The ridiculous regulations and incompetence of our systems is not mere a reflection of our mentality but it is by design. These regulations act like entry barrier. What stands between you and wealth is this wall of regulation. To cross this wall you have to bribe. Everyone including a clerk to the minister.

The world behind that wall of regulations does not have intense competition and you pay bribes precisely to ensure that. Once competition is limited, there is very little scope for new ideas to come in which limits the innovation and hence opportunities. Thus the people who either cant pay bribes or don’t want to pay them continue to suffer and remain helpless and poor.

Slowly these people accept that this suffering is their destiny. They try to get close to the leaders who can sometimes let them make a little extra money. They develop this Stockholm syndrome and think that they are privileged.

That is why you see so many young lads in Panaji wearing t-shirt with “Babush” written on it. They think that by occasionally paying their hotel bills and lending them money sometimes the leader is doing a great favor to them. In reality he is the one who is standing between them and a fortune.

The end of corruption will not come by shouting slogans. Not certainly by joining hands with the civil society who demands more government controls and regulations.They are escapists who are taking path of least resistance and which certainly is a wrong past.

This change will come when we our-self get into politics. Writing blogs and posting cool and smart Facebook statuses is not the way. We must act in a way that has very direct impact on the political landscape around us.

Unfortunately we feel that the cause we fight for must be realized in our own lifetime. I don’t think that is necessary. It may or may not get realized. If it gets realized nothing like it. If it doesn’t, our predictions about the doom will come true or else it will teach us humility.

It is surprising how many people like this are working in this direction, may their tribe increase

And do not for a moment believe you are alone…There are many with you…many like you and me…people-like-us…Think of Nisha Singh. Read about Geeta Gokhale and Prahlad Pandey and Ujjwal Banerjee and many others, such as Deepak Mittal, Dr JP Narayan, Dipinder Sekhon, Sanjeev Sabhlok, Suneeta Dhariwal, Somnath Bharati, Sanjay Sharma RV Krishnan and his colleague KK Iyer, Surya Prakash, Vijay Anand, R K Atri, Promod Chawla – to name just a few…and of course stalwarts such as Swami Ramdev – who has publicly announced his intention of getting involved in active politics… [Source]

The illusion of freedom and the reason why we are poor

Atanu’s writing have been always very insightful. He is repetitive for someone who has been reading him for a long time but most of the points he make are worth repeating.

In the April issue of Pragati he write about our illusion of freedom.

It is worth noting that Indians do quite well outside India. In the US and other developed countries, they are extraordinarily successful. Their ability to prosper outside India is in sharp contradistinction to the inability of their counterparts within India to prosper. Could that imply that it is not nature but rather something in the Indian environment which accounts for Indians not prospering in India? Since it is the government which largely creates and controls the environment, could it be that India’s greatest handicap is the quality and nature of its government? [Source]

Transforming India into a developed country within one generation by 2040, is possible if, among other things, Indians gain comprehensive freedom. For that to happen, a new set of politicians and policymakers have to enter government and in effect change the government objective. Given India’s democratic setup and the Indian preference for non-violence, change will have to be brought about at the polling booth. This means that the voters have to elect a different set of people to office, people who are honest, committed and visionary.

Change of awareness precedes change in behaviour. Therefore for the citizens to vote differently there has to be a change in their understanding of reality. Most Indians would reject the idea that they are not really free and that the government may not have their best interests at heart. As Ram Dass pointed out, “If you think you’re free, there’s no escape possible.” The illusion of freedom is as good a prison as ever constructed. For India’s transformation, the challenge therefore is to make people aware that they lack freedom and that they have to struggle to get them. [Source] [Emphasis added by me]

We lack in economic freedom. To do any economic activity you have to take a zillion permissions which are entirely at the discretion of the people in power. May it be Sarpanch or the Minister. You are completely at his mercy. It is that power that helps them gain money through illicit means and probably is at the root cause of corruption. Unfortunately the recently discovered “Civil Society” is supporting more government control instead of freedom in the name of fight against corruption and the middle class who is the beneficiary of any little freedom we have is actively supporting it.

Many people claim that the early leaders had no idea about the kind of corruption their polices might lead to. Well, there is a negative evidence. Read what Rajaji had to say about Nehru’s policies.

Centralization and Over-government was growing in such a manner that even the Panchayati raj, Rajagopalachari charged had turned out to be a fraud to get the Conrgess Party’s work done at the state expense.

How many frauds has this party caused since then and we still continue to hail its leader as visionaries and name our toilets to ariports after them.

 

The 1.7lakh crore scam and lost business opportunities

Just as when I had typed the title of this blog,  my Google reader informed me about Atanu’s new post on the same topic. He has explained which in my opinion did not require such a long explanation, but then he is an economist and we are lay people.

To summarize the scam which is estimated by media to be somewhere around 1.7 lakh crore does not mean Raja has stolen 1.7lakh crore rupees and stashed somewhere in Chennai/Swiss-bank,under the bed etc. If the spectrum was auctioned with the highest bidder getting the max spectrum then probably government would have earned 1.7lakh more than what it was earned it now.

Media has managed to misguide the people on this issue quite nicely. I suspect that this might be done by the congress party or some telecom giant. People are now blaming Mr. Raja for causing the government a loss of Rs. 1.7lakh crore.

In my opinion people are actually benefited by this instead. Clearly if government had to obtained Rs. 1.7lakh crore it would have burnt it over schemes which wouldn’t have reached public. But this astronomical amount of money wouldn’t come from thin air. The telecom companies had to pay for it. That too only for 20 years.

Now that they have paid such huge amount they have to recover it in 20 years from their customers. Imagine the effects it would have had on call rates and over all communication business in India.Communication infrastructure is very important for knowledge and information based industries. That is an area where many new types of business are supposed to come up. But if our telecom companies had the liability of Rs 1.7lakh cores I think that will slow down most of the things unnecessarily.

Having said all this, I by no means intend to call Mr. Raja a paragon of virtue. How did he allocate spectrum is no known to me. It is likely that he took bribes from some telecom companies and favored them without thinking over the consequences. The amount of bribes I supposed is no where close to 1.7 Lakh crores.

In my opinion, what the ministry should have done is something like below.

Let all the bidders tell what more things they will do with the additional spectrum besides continuing the existing services.

The focus should be such that these new additional services can help more businesses come up dependent on the telecom company as service provider. Such models exist in Japan where carrier lets other companies provide services over their network and shares 10% revenue with this third party.

The most crucial service for this to happen in my opinion is the data service. If users can access unlimited internet on their mobile devices at 3G speeds for something like Rs 100 a month, that in my opinion can open a pandora’s box for many entrepreneurs. The opportunities are virtually unlimited. From online payments to tele-medicine and from business applications to entertainment many start-ups could make a fortune.

But I don’t think Mr. Raja who is in the shoes of Dr. Shourie and Pramod Mahajan had any thoughts over this matter.

The results are evident. No telecom operator will concentrate on provide data services. They will try hard to keep any third-party service provider/ app developers at bay.

Imagine this.

1. Tata Docomo provides internet facility on their device at 2 Mbps unlimited somewhere between Rs. 100 – Rs 300.

2. It creates an API which works with a unique developer key. [The process of getting this developer key might involve identity verification].

3. This API lets the application fetch user’s personal information such as balance etc.

4. Developers can build application and put them up for sale on Tata Docomo application store. The applications can be as cheap as Rs. 5 deducted immediately from user’s balance. Tata Keeps Rs 4 and the developer gets Rs. 1 per download.

5. What kind of applications can come up on such a platform ? One can look at the success of iPhone App-store and figure out the answer.

We will have to wait for few more years to see if our telecom companies find innovative ways to make fortune for themselves or they continue with their strategy to milk a few customers dry.

How often are we close to failures?

A lot has been said about CWG these days. Apparently the 20k crore + project is a failure.

But thinking of that I wonder how close are we to failures often? If I think for myself I consider my undergraduate studies as complete failure. The college was a failure because it failed to harness the potential of students. But they managed to get 75th rank all over India. I dint deserve to get the degree given what I studied and I too was a failure but then I too ended up getting a degree.

In several subjects I take here sometime I manage to pass even though my heart tells me that I deserve a sure shot FR. I end up getting an AA even though I know in my heart that I haven’t put enough efforts but purely managed to put on a good show.

When it comes to writing software I always wonder if the piece of code I write is usable for someone else. 90% of the code I write goes into oblivion without anyone else using it. Well the half a million pound project I worked on with my previous employer, which was a startup dint see the day of light despite the tremendous efforts that were put into it.

Many of my freelancing projects were delivered and were put to use too. One just featured on the rediff homepage. But then when I look at the quality of the code I personally find it sub standard. There is always a possibility to improve.

I have taken by bread and butter job seriously. E-yantr.org is a MHRD project that I work on. I am maintaining their website and the objective is to make it popular among all students. I am using resources that very would ever get their hands on. Two-way SMS API, Rackspace Cloud, Google Adwords, Press, Free T-Shirts to the user and so on. Let’s see how I can pull this on.

I feel most of the times we fail, our failures dont get highlighted because they are smaller in magnitude or we work in an environment where other seem to fail as many times as you can.

CWG’s failure is grand because the money involved was grand. Also, other nations who organize such events put up a good show compared to what our leaders have managed. CWG is not Indian leader’s only grand failure. Indian leaders have failed n number of times. The best example is once we were compared to china on every parameter. Today China is supposed to be 20 years ahead of us. We did not notice.

Cost Value and Money!

Our Information Technology Project Management professor was explaining how value of substance depends on it’s attributes which sometimes is marked by a label.

“Johny Walker scotch comes in different brands, red label 3 years old, black label 6 years old, green label some 12 years old etc. I can’t tell the difference but some people say they can, and that is why a green label costs more than red label. “

The same professor also described the difference between value and cost.

A Rs 15 pen that my son gifted me from his money he had saved, has insignificant cost but it is very valuable to me.  I have saved many inexpensive but extremely valuable things in my safe which probably be thrown in dustbin after I die.

In last few years India has seen sudden growth. Those people who managed to get themselves good education despite the problems government created in their path have managed to offer themselves a good life style. But then these people have become rich suddenly, they spend  a lot in Multiplexes, Malls and Spas.

A good movie show ticket cots Rs 250 in multiplex, the most ordinary branded shoes will not cost less than 3k, a humble meal at a good restaurant is never less than Rs. 500.  I see a huge crowd going for all these goods are services which are smartly branded as “only for rich”.

It reminds me of story of Eklavya. Dronacharyaa refused to educate Eklavya because he did not belong to the varnam that deserved to get education from Dronacharya. During those times the determining factor for varnam was birth by default. today varnam is replaced by entrance examinations like JEE and GATE.  [It’s ironical that the so called champions of so-called backward classes are demanding that “birth” be used as a criteria instead of merit].

Eklavya learnt everything he wanted to learn without any help from Dronacharya. But he wanted “Authority”, he wanted “certification” and he wanted it from someone like Drona. Hence when presented an opportunity he did not hesitate to sacrifice even his thumb for that certificate. Because he knew that, his sacrifice will also mean that Drona has accepted him as his disciple. Drona too knew Eklavya’s wish and exploited it to make sure that Eklavya will not become a threat to the ruling class.

Just like Drona, the companies which have established themselves as brands-for-rich have successfully exploited young people who are dieing to prove themselves as rich. This certainly has not happened by offering services and goods that have value equivalent to their cost but sometimes even far inferior value.

Rickshaw-drivers who never keep change, waiter’s who expected extra tip, Courier delivery boy who demands “Bakshish” for doing his duty, Policemen who makes a point to catch a non-resident-techie, landlords who demand extra deposit from software developers are all such exploiters.

The union budget: A primer from a non expert.

Because this was en election year only an interim budget was presented by Pranab Mhukharjee this April. Now that a stable government is in place, he is expected to present the final budget.

Like most of the people even I thought that budget and it’s impact on my life is insignificant. Even the tax exemption levels affected me very little. However my opinion has changed over last few months. Thanks to me reading lot many things about economics.

Causes of most of the problems lie essentially in the economic policies of current and past governments. Why am I so poor? Why our roads suck and cities stink ? Why is that a few million children below my age have to sleep without proper food? Many of these question directly depends on economic policies and budget is where those polices manifest themselves.

Economics has two major components. Macro and Micro. While Macro talks about the high level stuff that only experts understand. Such as fiscal policies, currency depreciation (whatever it means) and so on. Where as micro economics is what we do everyday. Why I stopped buying Times of India, stopped watching doordarshan, switched from Airtel to Idea and so on. Budget touches both the aspects of Indian economy someway or other.

“Sir, with these words, I commend the budget to the House.” These words, traditionally said at the end of the finance minister’s (FM’s) budget speech, mark the culmination of perhaps the most complex annual economic exercise in the country. Budget speeches have helped chart the country’s future direction at the macro level (such as when Manmohan Singh allowed 51% foreign direct investment in certain sectors in 1991) to the micro (such as when Morarji Desai specified the number of matchsticks (50) that a matchbox could contain in order to get excise exemptions in 1962).

[Source : Livemint]

Most of my knowledge about Budget is derived from Yeshwant Sinha’s biography. “Confessions of a Swadeshi Reformer”. When India was in economic crisis, when India had to keep its gold with world bank to secure loans, when it was about to go bankrupt this man was the Finance Minister. It was just before Narsimha Rao Government.

India right from Nehru’s days had adopted socialist approach to the economy. The 5 years plans. Planning Commission. Mahalobnis model etc. In these models the most natural principle of economics that “demand-supply” relationship was violated. The Government controlled all the resources by means of license quota raj. Most of the companies from BSNL to Indian Oil to Air India to you name it were owned by government. Even private companies were not given freedom to produce what they want.

For example. Say I was rich enough to start my own company that would manufacture polythene bags. In such a case I had to first put an application to the government that I want to start one. Then government issues me an license. That license would also put and upper and lower limit on production. I will have to take separate licenses to import machinery, to buy land to get electricity etc. I will not have any freedom to decide how much I will produce with which machines and at what price I will sell it. All this is decided by the government officials who sit in the government offices.

The idea (and I don’t find it noble) was that the government officials were in a better position to decide what the society needs and how much. Smart people would indeed quickly notice that this gives immense power to the officials. Hence a license may be issued to produce polythene bags but license to import German Machinery may not be given which would get me on my knees. The officials then give me the license only after I pay a bribe of few crores.

Thus someone like Dhirubhai understood the rules of the game a prospered. Many perished. Among those who perished , the common man was the most important one. The state could not protect the interests of common man and secondly it gave a great boost to corruption.

The concept of “state control” was right from British Days. British wanted to control every aspect of economy so that they could hold everyone at ransom whenever they needed. British went the people like Jawaharlal Nehru decided to continue the system because they too wanted the control in their hand. Its absolute power. They glossed it as some “pro-poor” policies.

That is why when the whole world told us that we should give up this license quota raj, our politicians did not listen. They continued till their ass became sore. It was under Narsimha Rao’s government that they had left with no choice but to bring in reforms. He ordered Manmohan Singh to present a budget full of reforms for which he is being hailed even today. No one asks the simple question “Why was it not done before?”.

It happened in 1991. China had started it’s reforms in 1978. Those 10-12 years made a huge difference to us. China’s per capita income was well below India’s in 1978. Today its thrice ours. Which means china has far less poor, hungry ,dieing people than India. Does that mean that India’s poverty, illiteracy must be blamed on the anti-reforms mentality of our leaders? yes certainly it is.

Budget is prepared by a team of few IAS officers who get unreasonable demands from each department of the government. They are locked up in a room in Delhi where they prepare the budget. Only two men can move out of that building. One is the FM another one is the Finance Secretary. The budget and it’s key points need to be approved by the PM before it is presented to the house.

The budget is not just about one year. Firstly it needs to present year before years closed books. Actual figures of revenue and expenses of last year and projected revenue and expenditure of coming year. We mostly focus on last part.

The trade off between political objectives and economic objectives of a budget are significant. A politically oriented budget would find stuff like Loan Waivers a great idea. Where as for an economist it is essentially a nightmare. Economist would always want less and lesser government control on everything while politicians want absolute control over anything. The time has proven that lesser government intervention helps an industry to grow leaps and bounds. Best example is telecom. As soon as FDI in telecom was allowed we have seen a boom. But on other sectors which see strict government control such as Aviation Infrastructure or the general infrastructure are sick.

If you ask me India’s economy is a tale or sins and redemption. A budget is most of the times either a confession/attempted redemption or it is another sin that tries to hide the previous sins.

funny quotes on Inflation

Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.

Law of inflation: whatever goes up will go up some more

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price.

Some idea of inflation comes from seeing a youngster get his first job at a salary you dreamed of as the culmination of your career

“Invest in inflation. It’s the only thing going up.”