Tuesday, September 15, 2009

Issues with Nandan Nilekani in the Unique Identification Project

I was reading through an interview by Nandan Nilekani, the Chairman of the ambitious Unique Identification Authority project by the Government of India. The objective is to provide a unique identification number (not a card) to every citizen of India, so delivery of government services would be efficient. Nothing like it, if it works.

While I expected the interview to be a normal one, I was shocked with lack of clarity in Nandan's answers. Here is the link to the interview.

Unique ID will enable more effective public delivery

Let me tell you why I found it shocking..

1. Nandan is too curt.

Nandan holds a position which is the equivalent of a Cabinet Minister. It was not a democratic way of selection and he has some sweeping rights to implement the project. Hence, Nandan needs to explain himself more unlike his Corporate days when he could afford to be curt. Through out the interview and in other interviews with the media, he doesn't seem to expand into his answers.

2. Lack of answers to pertinent questions on security, misuse, replication, etc.

Nandan never answers any of these questions in detail, while these are absolutely legitimate questions in a country like India. Absolutely crucial post-implementation also as it is a pubic system and there is bound to be vested interests or politicians who would like to take advantage of it. It is corruption served on a silver platter, if accessed inappropriately.

3. Nandan does not talk about how other smart card projects will be tied into the system

While he does talk about the source of his numbers (PAN, ration cards, etc), he does not talk about the huge investments the Central and State Govts are making in delivery of social services (RSBY, NREGS, etc) through smart cards already. Only if these systems are tied together in the beginning, can the cost remain low and efficiency high. We cant afford to operate 10 large parallel IT-based projects for a population of 1 billion.

4. Nandan uses the Govt as a gauntlet in certain instances -
"The Government has come to the conclusion that this project is stragetic and worth it. I have been invited to lead this project. I believe that it is viable and I will do my best to make it viable.")
He seems to already buy into the idea of this system rather than being the critical outsider so it would add more credibibility to the implementation. I am sure he is capable of doing more diligence into it, if his past is any example. Else, its a one-time investment of Rs.1.5 Lakh Crore Rupees over five years into something that 'could' not be as beneficial on ground.

Or maybe it will.

Nandan Nilekani will do a lot of things right and maybe way better than others, but doesn't mean he wont do some things wrong either. The media that is supposed to be critical about the whole project, has just made him a darling you cant ask tough questions to. Or they just dumb to understand the technicalities. The devil's in the details, afterall. Nobody would know better than Nandan, or atleast I hope so.

Saturday, August 22, 2009

Vikram Akula's Response to WSJ's article on Microfinance in India, by Ketaki Gokhale

Letter to The Wall Street Journal

Managing Editor
The Wall Street Journal
New York, NY

Dear Sir,

This is in regards to "A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum" by Ketaki Gokhale on August 13, 2009.

We are deeply disappointed and shocked by this unbalanced and misleading portrayal of microfinance in India.

Ms. Gokhale reports that there is an over-indebtedness problem in one slum in one city in one state of India and goes on to assert that this indicates that there is a "credit crisis brewing in 'microfinance." Such a sweeping generalization based on anecdotal information from one neighborhood is absurd.

To the contrary, the data suggest a very different picture. Microfinance institutions in India, which serve 22 million clients, have consistent repayments rates of 95% and above—repayments that clients could not make if they were not generating regular income, given the weekly repayment schedule that most microfinance institutions follow.

In fact, the Microfinance Information Exchange (MIX), the Washington-based non-profit information platform, reports that the average repayment rate of leading MFIs in India—which have the lion's share of clients— is 98%. My own institution, SKS, which serves over 5 million clients spread across 70,000 villages and slums of India, has a 99% repayment rate. Meanwhile, our portfolio received a PR1+, the highest safety rating, from an independent external rating agency, for a debt instrument slated to list on the Indian stock exchange. The reporter did not even mention these high repayment rates or the fact that in tens of thousands of villages and slums across India, millions of microfinance customers are thriving and climbing steadily out of poverty—as shown by a number of independent studies.

It is surprising that such facts were deliberately excluded when talking about a "repayment revolt [that] has spread to other communities…and could reach further across India." In fact, this statement is attributed to an unnamed observer. Who is the observer? What is the data that is the basis of this assertion? And how does this data compare with industry data or at least the data of the market leaders, such as those reporting to the MIX?

The reporter goes on to say that "Shantytowns in Ramanagaram, India, like this one are getting 'carpet-bombed' with loans from microfinance firms." What other shantytowns are getting carpet-bombed? How many did the reporter visit? Where is the data or the study that suggest this is a widespread phenomenon—or even that it is more than an isolated occurrence? The reader should have a chance to arrive at a conclusion from facts not assertions from unnamed "observers" or anecdotes.

The one pair of researchers mentioned by the reporter is the team of Rajalaxmi Kamath and Arnab Mukherji. But their study, "Ramanagaram Financial Diaries" involves a sample of only 20 clients over a short 3 month period of time. Clearly, this brief snapshot cannot suggest anything about the broader universe of microfinance in India. In fact, the researchers themselves even qualify their findings, writing, "are MFIs 'dumping money on borrowers' or is there an insatiable hunger for credit which they are fulfilling? It will be difficult answering these questions given the scope of our pilot study." Moreover, it is worth noting that the study's major finding is that the "greatest proportion of the total borrowings during this period went into repaying other loans (informal loans – moneylender, chit-funds, finance companies)." That is, according to the study, when clients are paying off other loans with microfinance borrowings, it is to primarily pay off high-interest moneylender, chit fund, and finance company loans—not to pay off microfinance loans, a fact conveniently omitted in Ms. Gokhale's article.

Granted, it is still problematic that the loans of these 20 clients are not being used for productive purposes, as is more common in microfinance. But if lower interest microfinance loans are used to pay down higher interest moneylender or chit fund loans, this is not necessarily a bad thing.

As to the question of why loans in this neighborhood were not being used for productive purposes, there are several inter-linked causes—from the impact of the recession on the silk industry (in which many clients in this locale were engaged) to Hindu-Muslim religious tensions (which today are common in the state of Karnataka, in which Ramanagaram is located) to patriarchal hostility towards lending to women to intimidation from politically-connected traditional loan sharks. Unfortunately, the reporter fails to even mention such issues.

Coming back to the question of what the data says about over-indebtedness and repayment issues, there are in fact more comprehensive studies than that of Kamath and Mukherji. Consider, for example, a study by Karuna Krishnaswamy that analyzes qualitative data as well as quantitative information from a data set of over 500,000 client loan and repayment records from seven MFIs in Andhra Pradesh, one of the states in India that has even more microfinance penetration than Karnataka. The key finding of this study is that multiple borrowers have an equal or lower arrears rate than their single borrowing peers in the same branches and lower than the average rate for the overall sample. Moreover, a majority of the multiple borrowers interviewed said they used their loans primarily for investment purposes, none reported repayment difficulties, and there was no other evidence that multiple borrowers are experiencing repayment problems.

Ms. Gokhale unfortunately did not take the time to look at such statistically robust studies but relied instead of the 20-client pilot study.

Worse yet, Ms. Gokhale draws a parallel between microfinance and the U.S. mortgage crisis. Yet she neglects to explain how different the process of microfinance is from that of mortgage approvals in the US; the reader is misled into believing that loans are disbursed willy-nilly. On the contrary, leading microfinance institutions like SKS follow a strict process to ensure loans can be comfortably re-paid.

We first require potential members to take three hours of financial literacy training and pass a test indicating they understand interest rates, loan installments, and other product features; we make small loans exclusively for income-generating activities, not for consumption; we lend only to women who borrow in interdependent groups of five and who are known to be more careful with their use of loans than men. SKS' rigorous process of approving loans is completely different from the lax system in the US for approving mortgages that led to the sub-prime crisis. Some microfinance institutions—particularly new entrants—may violate these norms. But to go from the exception to a sweeping generalization about the sector is at best unbalanced; at worst, downright irresponsible.

She also makes the claim that microfinance is similar to the US mortgage industry because "in India, microlenders' field officers are often paid on commissions, giving them financial incentive to issue more loans." Had the reporter checked with the vast majority of microfinance institutions in India, she would have found out that this is simply not true. At SKS, for example, we have no loan officer commissions for larger loan size. Even if some microfinance institutions in India incentivize their loan officers this way, isn't it incumbent on the reporter to mention that the majority—with the lion's share of clients—do not?

There are other glaring examples of amateurish imbalance in Ms. Gokhale's story. It is bizarre that the reporter quoted an investor in Luxembourg who comments about a "bubble" in microfinance in India, but whose fund focuses on regions other than India and "has no exposure to India." It raises the question as to why she did not reach out to any of the investments funds that participated in the 54 deals in India in the last 18 months, mentioned by the reporter herself.

The reporter also makes far-fetched leaps of logic. For example, she cites the fact that "average Indian household debt from microfinance lenders almost quintupled between 2004 and 2009, to about $135 from $27." She goes on to say that the industry is expected to grow another 20%, suggesting that this is worrisome. But she failed to find out that the reason for the quintupling of loans is that microfinance institutions deliberately start with small loans sizes and increase the loan size year-on-year as a borrower demonstrates her credit-worthiness each year. This gradual increase in loans is a substitute for the lack of a credit score among the poor—something that this neglected and largely undocumented segment do not have—and is a standard practice in the microfinance model pioneered by Nobel Prize winner Muhammad Yunus.

Moreover, even at $135, microfinance institutions are still lending well below the typical credit need of a poor household in India, which is $400 (based on survey data from an independent study commissioned by the government's Small Industries Development Bank of India). This data suggest that, on average, there is no over-lending issue for the sector.

In addition, the statement that microfinance institutions do not disclose their accounts is downright false. The microfinance institutions mentioned in the article, along with other large players such as SKS, disclose their financials to the MIX, the Washington-based non-profit, which posts this on its website. SKS also files its financials with India's Ministry of Corporate Affairs and it is available to the public on the Ministry's website.

Finally, the article implies that micro-lending to Muslims has stopped. This, Ms. Gokhale says is ironic because, for years, "Indian microlenders have touted themselves as bankers to the nation's impoverished minority Muslim community." First of all, microfinance in India has made no such claims. Moreover, the assertion that microlenders have stopped lending to Muslims is not consistent with the data. In reality, the sector serves a disproportionately larger segment of Muslims than in the general population because microfinance targets the poor—and Muslims are, as a group, more impoverished than the general population. For example, at the end of the fiscal year in March 2009, 18% of SKS clients were Muslim compared to the 13.4% of the general population that is Muslim.

In microfinance, there is a similarly disproportionately large representation for other impoverished groups, such as lower castes and other minorities. If the reporter had sought out the data, she would have realized this.

For all these reasons, Ms. Gokhale's article is a poor and irresponsible piece of journalism. We normally have high regard for The Wall Street Journal and have worked closely with and have great respect for other WSJ reporters. It is a shame that the esteemed journalistic standards normally found in your newspaper have been trampled upon with this story.


Vikram Akula

Friday, January 30, 2009

An Anatomy of Asian Economic Woes – Questioning the Economist's assumption

Article Link:

"Asia’s low rate of consumption and borrowing means that it has huge scope to make consumption the engine of growth over the next decade."

But should Asian economies, like India, make consumption the engine of growth? With how unregulated consumer spending (not Wall Street greed) has been the centre point of the recent recession (even questioning the merits of capitalism), is this a valid assumption for emerging markets with far little regulatory mechanism and much larger class and economic stratification? Are the economies strong enough to cushion the fall at times of crisis, and support such massive populations?

Why Yes?
Increased consumption definitely helps in generating more revenue for the government, increases competition, and fundamentally puts the consumer in the driving seat. The world revolves around the consumer, and so it’s all good. The governments can incent the end consumer at a time of crisis to spur growth in the economy, hoping it would lead to a domino effect (like Taiwan distributing spending vouchers to its citizens) leading to stabilization followed by a moderate or high-growth trajectory. Now, has it worked before, and will it work this time? I don’t know as I don’t have the facts.

Why No?
What are the perils of the government being overly betting on consumerism to drive growth? How has India fared with opening its markets since 1991, both positively and negatively? Has it been inclusive? Has consumer spending grown at the same rate in urban and rural pockets? What are the implications of such unequal growth on the social fabric (IT engineers with ever expanding wages to farmers depending on unpredictable rains)? Considering a very large unorganized sector in India, how does it play into this assumption derived by mere and incomplete statistics?

Consumerism pushed too hard creates a spending culture (with excess credit, etc) that could go unchecked, and ties a common man into the vicious cycle of consumer spending-economy-growth. With no cushion to fall back on (social security, etc), does the consumer make himself vulnerable to all the perils of an advanced economic system? Does consumer spending mean making a sustainable Rajastani weaver produce and consume more, and in turn tie him to the cycles of the financial world, something that is not part of his simple way of life as much?
Philosophical rant: The word ‘advanced’ is subjective. Is advancement purely a factor of technology and more power to consume, and being better plugged into the increasingly globalizing world? Or is it evolving as humans to live at peace with each other, and go to bed happier than the previous day?

I think the Indian government should find a balance between opening up markets too soon too fast, and being over protectionist so it doesn’t hamper productivity. I do not care about 10% or 15% growth, but rather a modest yet inclusive and sustainable growth. If it has to come with a combination of consumer spending and restraint, so be it. We need policy makers with both brains and heart, not follow advice of economists who are masters in statistical wizardry and logical thinking guided by conventional wisdom.

Oh! Clearly, it’s the Economist, and they know it all. Haven’t we thought so before?

Wednesday, October 29, 2008

Viswanathan Anand wins 2008 World Chess Champion


Draws with Vladimir Kramnik in Game 11, winning the title with a margin of 6.5 to 4.5 points.


Monday, July 14, 2008

Fuel Hike– A solution at the pump?

Many people around the world are (finally!!) coming to terms with the fact that fuel price hikes are here for good. Personally, am quite happy with that and think it would encourage car owners to think twice about driving around recklessly, and maybe think more about car pooling. However, am a bit concerned about the “aam admi” (common man) who uses public transport (bus, local trains, etc) or two wheelers. A price increase of even a few Rupees is quite a lot in his monthly budget, also given the inflation that’s going around. The government, for fear of popular backlash has resorted to very small hikes, thus leaving the government owned oil companies reeling under extreme losses while taking a personal tab to the tune of 1,80,000 crores a year at present fuel prices (http://www.pmindia.nic.in/speech/content.asp?id=687). That’s a huge amount considering India is a developing country and that money could be diverted to the social sectors.

It’s easy to be angry with the government and be a punk (which I don’t think is cool anymore!), but to think realistically would be the best way to go forward. Now, what would be a solution for the government to not fear a popular backlash while reducing the burden on the government exchequer?

I think the ideal way to go about would be to pressure the oil-producing countries to pump out more oil, or maybe put more checks around certain financial practices (hedging, etc), or maybe actively invest in green-friendly public transportation. I don’t find any of this realistic, atleast in the short term or given the geo-political or economic setup that exists in the larger scheme of things. Now, that leaves the government with very few choices. Looking into the entire distribution network and the consumption of fuel makes me think that the best place to start would be the fuel station. I think the oil companies could be a bit more creative about this. What if they price fuel differently for different segments of automobile users, or say design a pricing system that impacts different consumers differently?

The fuel stations could have different pricing slabs for say under 5 litres, between 5 and 10 and over 10 litres for private vehicles. Considering two wheeler users do not use as much fuel as private car users and also account for the majority of them at the fuel station, they are not as impacted by sudden global price surges. More importantly, this doesn’t affect their monthly budget while it helps to effect a change in the mind of the private car user. On the flip side, the government could stay popular among the “aam admi”, the exchequer could save a chunk of the Rs. 1, 80,000 crore annual tab and we can move closer to a more responsible green society.

It is so in the world that all the problems created by the minority are shared by the majority, including pollution, use of water, wastage, price hikes, etc. Maybe its time to turn around this unfair and unspoken rule of the world, and I think this is where the government could help. I am not aware of public-private-partnership (3Ps) or any of those fancy terms, but I think NGOs and policy think-tanks should be facilitators between the government and the people and not enforcers, similar to how the media should be. They could help the government frame policies that are friendlier to the majority while making the minority accountable for their actions as “polluters”. I am not saying the majority does not pollute at all, but given a choice the right way, they are open to change unlike the adamant and mindless minority. A good example would be the movement from “pay-and-use toilets” to the successful “use-toilet-get-money” setup by SCOPE Trichy and the local public authorities (http://www.scopetrichy.com/).

I feel good every time I ride in a CNG-friendly vehicle, but am also aware of how things have gotten difficult for the bus drivers in the nation’s capital (http://www.thehindu.com/2007/01/09/stories/2007010914920400.htm). As a student of engineering, I think it’s an efficiency problem in the evolution of better CNG systems, and could be rectified in time. Cycling and walking are options for short distances, still J

The majority, as I see it, seems to share the burden from the excesses of the minority while, ironically, the excess itself is never shared. This could be extrapolated to global problems, country to country.

Sunday, June 01, 2008

Indian Premier Leageu: A Behavioral Case Study?

The Indian Premier League (IPL), the shortest version of the game of cricket that exists has been hogging the Indian media space and also people’s minds for the last two months, if not more. The passion for cricket has grown manifold and has entered households during primetime by competing with Bollywood, reality shows and game shows. Ironically, the game show hosted by India’s biggest star Shahrukh Khan faded in comparison to his averagely performing yet profitable IPL team, the Kolkata Knight Riders. Bollywood in the last two months has been kicked into oblivion with all the attention turned towards the cheerleaders in IPL, the glam quotient in cricket stadiums, blockbuster entertainment, and most importantly the extremely high scoring format that is refreshing and fascinating at the same time. This is if one doesn’t count the controversies in the game itself, all of which received more attention than any single event in the recent past. These involve the controversies surrounding Shoaib Akhtar’s life ban by the Pakistan Cricket Board, the Harbhajan-Sreesanth slapping episode, racism against black cheerleaders, the outlandish comments of Vijay Mallya, the firing of Charu Sharma, the horrible performance of a well-balanced side like the Deccan Chargers, the dramatic exit of Mumbai in true Bollywood-style, and/or any other incident remotely related to IPL. The closest real news that mattered around this time that I can think of would probably be the Arushi murder case, the blasts in Rajasthan (of course with an IPL angle to it), Gujjar riots and the life term sentences against the Yadavs in the Katara murder case. Else, the media has completely submitted itself to the cricket frenzy fans of India although ironically, they were not happy with IPL’s media rules and had planned to boycott initially. However, the enigmatic CEO of IPL, Lalit Modi, got his way around the problem by successfully hijacking the media itself.

During the course of the last two months, I have been thoroughly fascinated with the new found professionalism of a sport in India, the team names, the brands and icons associated with them, advertising and aggressive marketing, the bidding and more importantly the reaction of fans to their favorite teams. I did, many a times, think about looking at this entire spectacle from a different perspective. Given my limited knowledge of the sport, statistics, the players, I turned my attention into the team selection process and how it relates to the people of a certain city and its vibe, owners and captaincy.

Mumbai Indians
The team representing the entertainment and business capital of India is owned by India’s richest man Mukesh Ambani and captained by India’s biggest cricket star, Sachin Tendulkar. The team had no lack of star power on the sidelines with most of Bollywood rooting for the Indians, but for the brand called Shah Rukh Khan who sucked a sizeable chunk to support his team in Kolkata. The team also is the most expensive standing to its owner’s reputation of doing everything big. The fans of the Indians are either the million fans of Tendulkar or the city of Mumbai, and that would squarely put their fan base much higher than any other team. Not many cities in India could boast of such love from far and wide. This team is the equivalent of the New York Knicks in the NBA, and quite coincidentally has just one star player and also missed out on making it to the knockout stage. The team would definitely break even next year with its superior location and fan base, however success would largely depend on more focus on the team and less dependence on Tendulkar. He has been largely successful in his own right at the national level, although most of his success rarely translated to success for the national team. The latest Bollywood equation seems to be many stars and maybe the Indians could test that strategy.

Kolkata Knight Riders
This team represents a lot of passion and aggression as is evident in the people of Kolkata for everything Kolkata and Bengali. And a cricket team representing Kolkata could possibly not have a captain other than Saurav Ganguly aka “Dada”. That would otherwise result in a strike by the Unions and a street play by one of the famous Bengali playwrights to highlight the injustice. And hence, that was one player that the owner could possibly not bid and came with the franchise. The presence of Dada automatically brought the entire state behind the team and along with the star power of Shah Rukh Khan, proved to be a deadly combination. Not to mention the controversy ridden Shoaib Akhtar who always brings humongous media coverage along with his controversies. This team, on paper, looked like the one to stop although it dint perform as well as expected, except for a few passionate appeals. However, as of now, it looks like the only team that would end up being profitable in its first season of existence. As they say in Bollywood, “Anything Shahrukh lays his hands on is a success”. I would think so too. His brand equity rose 30% or so during this period and he has stayed the most admired and passionate owner among his lot.

Delhi Daredevils
The Daredevils seem like a well balanced team on paper but for their weakness in making a case to the media due to lack of any media savvy players in their team. Their captain, Virendra Sehwag, is one of the least interesting persons on Planet Earth. The owners, I think, forget IPL is business at the end of the day and it was absolutely foolish not to have the ammunition to create buzz in the media capital of India. They did pretty well, and with their last minute surge made it to the semi-finals only to lose to Rajasthan, the strongest team in the fray. However, Delhites would be happy to have made it to the last four, only because Kolkata and Mumbai can not claim the same. In fact, I would even think at the end of the day, that’s all that mattered for their fans. As I see it, they had a short-sighted vision in terms of the game as a sport and as a business. It definitely needs a star for its future earnings potential. Until then, the Daredevils would only be liked and rooted for by their fans and local RJs. Even the majority Punjabis in Delhi would prefer the Mohali franchise.

Punjab Kings XI
A great team on paper and co-owned by Preity Zinta more so because of her rich and business savvy partner Ness Wadia. A passionate team with a very passionate fan base led by the very candid Yuvraj Singh, second-in-command in the national cricket team. It had three competitive Aussies who all played well and the recently mellowed down Sreesanth, a very good player to create buzz on- and off-field. This team was successful, had star performers, won some big games and even finished the last game by beating the Rajasthan Royals, the number one team. However, they just couldn’t keep the momentum going into the semi-finals, largely attributed to bad leadership and poor team effort. With the Kings’ elimination, a media darling exits although am secretly happy that I don’t have to see Preity Zinta in every frame and listen to her players’ overly praise of her as the most generous and darlingest owner.

Chennai Super Kings
This team owned by the India Cements group, a reputed business with deep roots to the game of cricket, understood the nuances of the format with respect to its part of the country. The owner, Srinivasan, is one of the most passionate cricket fans in the state and has been generous with his endowments in the past. The team, from the beginning, has been local-centric starting with its name. Super is one of the most widely used words in Chennai, say it be Superstar Rajinikanth or a simple question like “How was the movie?” that would elicit a response “Super!”. As ridiculous a name as it might be to people from outside the state, this word I am sure appeals to its regional fan base. The state of Tamil Nadu has been one with a history of leadership (usually people who migrated from another state) following and loyal supporters, be it movie stars who became Chief Ministers or again, the example of Superstar Rajnikanth. The Super Kings team sort of represents the same, with the captain of the national team Dhoni (from Jharkhand) playing the all too familar captain role for this young team. The other casts in this team is a good mix of local players and outsiders, thus paving the way for long-term team building with a regional touch. This team might probably be the only one with media icons (Vijay and Nayanthara) who are not known outside Tamil Nadu, again playing to the strong local sentiments. The team has been very successful, though it was shaky in between, and has reached the finals of the inaugural IPL event. Considering people down south (with the exception of Vijay Mallya who is from a different planet) are not flashy or flamboyant, the team players are probably the least recognized, although they pulled decent media attention thanks largely to Dhoni and their good performance on-field.

Rajasthan Royals
The Royals, an absolute underdog when the event started have been superbly consistent with their performance on-field. This team, owned by god knows who, has stuck to the stereotypical Marwadi trait of maximum returns on minimum investment. The shoe-string budget team Royals is captained and managed by Shane Warne, the only foreign-born captain among all the 8 teams. Even with a decent yet inexperienced cast on paper, they have proved that playing as a team and staying the course is all that matters. Also, with Warne’s incredible Aussie smartness, aggressiveness and adaptation of the game, the team has the odds stocked in its favor to win the DLF IPL cup. The team has performed really well and hence been successful in attracting decent media coverage although it lacks any recognizable star power to make heads turn. This is another team that could just about break-even in its first season. The Royals have been quite consistent and unaffected even with the blasts in Jaipur and the Gujjar riots in parts of the state, again highlighting Warne’s leadership qualities. A very non-exciting team but, nevertheless, number one when it comes down to business on-field.

Bangalore Royal Challengers
The only list where the Royal Challengers are in the top is the Fair Play table, tucked nicely between its southern neighbors Super Kings and Deccan Chargers. This team, owned by the I-am-too-flashy-for-my-own-good Vijay Mallya, has been a total wreck right from the beginning. Mallya, more recognizable than most of his team’s players, is the master of entertainment and IPL set the perfect platform for him to showcase his ability so people in rural Jharkhand would recognize him. However, he crossed the thin line between cricket and business, by firing his CEO and showing anguish at the captaincy of the best stroke player in Indian cricket, Rahul Dravid. He did all of this in the middle of the IPL spectacle thus receiving severe criticism from media and cricketing experts. His team however, has the stupidest name among all of the 8 teams and this could again be attributed to his lack of reading into the business of cricket.

Hyderabad Deccan Chargers
This team has been the worst in terms of success on-field and off-field. The Deccan Chargers lost, lost more and they just made a habit of losing until they couldn’t lose anymore. It is appalling considering it is one of the more balanced teams in terms of bowling and batting, experienced players and captaincy. They were a team that lost hope very early in the season. I can’t stop but think there was a huge communication gap inside the team where nobody figured out their roles on-field. Considering I rarely saw them in media, I could safely say they do not have adequate star power either. In all, the Chargers could be sold to a more deserving city where the stands could be filled by people and not just chairs.

Cochin Coconuts
This is the name of my fantasy team. It is a work in progress and I do not like to divulge any details at this point of time. However, I have chosen Mamooty to be the youth icon of the team.

Saturday, May 31, 2008

Why WB's 2-dollar definiton of poverty is STUPID?

My two cents on the two dollar definition of poverty:
"Under two dollars a day definition of poverty is an affordability exercise for consumerism.

A broad comparison of PPP for the world is a bad measure and I completely agree with Reddy and Pagge's explanation. In fact, its even hard to define 'poor' in India, as its a relative measure. $2 can buy different things even within India. $2 roughly translates to Rs.80, which is a decent wage per day if you are a weaver in a village in Rajastan. However, this might not be the case if you live in Mumbai where your cost of living (basic roti-dal-chawal, housing, etc) is expensive. This in reality leaves the Mumbai auto driver a 'poorer' guy than the Rajastani weaver. However, if I were to use the $2 standard to measure poverty, both would be termed 'poor'. Am not sure if the Rajastani weaver would be too happy being termed 'poor' by the World Bank economists, while he has a house for himself and makes 'good enough' wage for decent living (just because his consumption of certain commodities by 'benchmark standards is low!)."

How Not to Count the Poor?

A Reply to Reddy and Pogge by Martin Ravallion

A Reply to Ravallion

Is Globalization Working?

James's comment:
"poverty can only be defined by the exclusion of wealth.

under these metrics, the village weaver is not impoverished, but merely broke. while the bombay day laborer is impoverished by nature of his proximity to vast private wealth.

private wealth depends on the 'bottom of the pyramid.' Which is funny, because everyone and their mothers want to unlock value there, or empower the work force there -- but the bottom of the pyramid is the foundation! The vested interests in keeping them consuming at the same clip in which they earn will ensure that the idea of class mobility remains a very pretty little fantasy."

My comment:
"thanks James! income poverty (measured here) is only aspect. other indicators of poverty being, based on under-nutrition, infant mortality, access to health svcs, availability of skill jobs, etc. the latter are more realistic indicators and are universal. they can be benchmarked globally with relevance to proximity standards (% national gdp, quality of public hospitals, etc).

it is not right to even accept the WB's standard as a measure of global poverty because it is extremely hard to identify a reference bundle of commodities that must be commanded in order to avoid being poor (poverty inherently doesnt have a reference point). moreover, the equivalent ppp varies considerably depending on the reference bundle chosen. people in the BOP do not care as much about this bundle (movie tickets, etc) as they care about being healthy to do a skill based job and make enough to make ends meet (~ a middle class family above the poverty line)."

Tuesday, February 26, 2008

environment - socialist or capitalist?

i had a thought provoking conversation with a friend of mine who believes in basic socialistic principles like public education and public health. i would consider myself as somebody who has capitalistic principles (or lack thereof) in my system and try to address social issues (education, health, etc) applying those principles. i look at things like efficiency, maximization of resources and even sometimes try to apply free market theory to them. however, i am also quite conscious about issues related to the environment, overuse of natural resources, etc. at this point of time i wonder if our environment, given a choice, would want us to be capitalistic or socialistic. a good part of my head tells me it would ideally prefer a socialistic system as it would be good for its longetivity. but let me see if i can dig deeper.

from an economic point of view, socialism refers to ownership by the state of both production and distribution. and capitalism refers to the system where the system of production and distribution should be left for the market to determine.

environment is quite broad of a subject, so lets take natural resources. finite and abundant. given the present outlook of, say, oil (peak oil phenomenon, rising oil prices, etc), we might think that conserving oil would be the best way to prolong our use of it. socialistic principles would guide us to minimize our dependance on a finite commodity like that, and share what we got equally. this would keep the prices affordable but wouldn't cut down our absolute use of it nor motivate us to find alternatives to it. a capitalistic system is heavily dependent on oil and hence, there is absolute need to have it at all cost. the system's productivity is directly related to the price of oil and availability. there isn't an option to reduce its usage as it affects productivity directly, resulting in failed businesses. since the growth of the economy in a capitalistic system is heavily dependent on it, there is also the need to access more of it by digging deeper into earth. given the fact that its finite and is only going to get more expensive, there is a strong need to find alternatives to replace oil as a driver. which is what many corporates are doing - they are
betting on more eco-friendly cars powered by batteries and fuel cells.

maybe i am biased towards capitalistic principles and try to address all issues with that lens. or maybe am not as aware of socialistic principles to address the same. or am just ignorant of other ways to deal with issues like these. at this point though, i am not sure. but i do see a capitalistic society needs oil the most for sustaining it and hence more inclined to find alternatives to replace it.

Monday, February 18, 2008

market and human sentiments: getting a gift on time or a bit late?

one of the major theories in the market is the boom-bust cycle. the economy is doing well. stocks are rallying high. investors are making a lot of money. then the slowdown begins, with stocks taking a hit and investor confidence slowly and steadily eroding.thats usually when the central bank steps up its game to save investors - by either pumping in money into the market or cutting interest rates. this sustains confidence for a while, before the market again goes down. or sometimes, the slowdown is actually 'slowed down'. so what the central bank actually does is to 'sustain' the boom period for as long as it can before it goes out of its control.

now i would like to draw a parallel to our day-to-day lives. our birthday. a day when everybody around us makes us feel special. it includes the ultimate competition of people calling you at midnight to be the first to wish. and your close ones trying to make the entire day special and full of surprises (for the lucky few!!). then the day is over. u lived the best day of your life in a year and probably felt the most special. one, this day of yours appeals to everydbody - wife, kids, family, friends, colleagues, etc. unlike a mother's day or father's day. we could compare it to an absolute state of market boom. everybody is happy and in turn makes u feel happy and special. the next day you still feel a bit special, but not as much as the previous day! say some of your friends wished you a few days later (yeah! happens a lot i know), you feel a bit special that day. but nothing compares to the day of your birthday.

think about this scenario - your friends and family plan it in a way that they surprise you for a month after your birthday. like make it the 'birthday month of ravi' or something. it might dilute how special you might feel but still sustain some interest. even the constitutents (family, friends, etc) might not be as enthusiastic about your birthday. this is pretty much like the central bank cutting interest rates to sustain the economy or get it back to normal. it just wont help as long as people are not confident or enthusiastic about the economy. its in the mindset, not in the rate cuts, atleast not as much as many think! and its pretty normal for the market to act that way. afterall the market is guided by human emotions.

it opens a pandora box in my head...with a lot of questions.

why do we like surprises? what can we learn about relationships, from economic theory and market cycles? how do we encourage shopping behavior?

i will cover this the next time when am not blogging from work :-)

personally, i love my best gifts (the ones from the closest people) a bit late, thats if they choose to give me one :-)

Sunday, February 17, 2008

female aggressiveness - less aggressive in 'making money by being overly aggressive'


a very interesting case study considering a hedge fund is the absolute example of alpha male overconfidence. my takeaway from such a cognitive study is a bit different from the bloggers'. my short analysis on why i think the trading performance actually improved with the female harmones.

"hedge funds are dominated by the aggressive male types. in such an environment, there is a constant void that gets bigger when u climb high up the ladder (from a junior trader to the showman). this void is the lack of women in the business that they can interact with or sort of share a different perspective. its the same case with ppl who put their money in hedge funds and people who do business with them...so its an almost-male dominated environment. now, when a man acts less aggressive and a bit more compassionate with his clients (like the junior trader Tong) or investors, there is automatic trust that builds around him and his portfolio, resulting in better trading performance."

we can kind of extrapolate this theory in dealing with aggressive markets where conventional wisdom says, the more aggressive you are the better your outcomes. it could be that cutting down on the aggressiveness and showing a more feminine side (=compassion) would actually result in the audience appreciating your stuff. am not saying women are 'soft' when i used the word compassion...its more like less aggressive in making money by being overly aggressive!!

Tuesday, February 12, 2008

Private sector jobs - religion and caste based discrimination

The story that led to the analysis

I think we need reservation based on caste in India. Until the time when my maid's son and my neighbor's son would goto the same school, have access to the same information and have the same lifestyle without being intimidated, I would support reservation. I know reservation could be a two-edged sword (in some cases) and not the only thing that will make education/jobs equitable, but it definitely is the best way to get there. And if done efficiently with strong underlying research, it can change things around. I think it is being done for the most part with strong fundamental research, with a bit of politicization that is unavoidable.

Just consider the number of people who have access to quality education from 40 years ago, look at the schools which are diverse (still low considering economic backgrounds), diversity in jobs, etc and you would get a fair idea how we have 'progressed'.

I recommend this article and go on to support the casue of reservation in the private sector too.
The author is Chairman of the University Grants Commission.

And about employers who choose people from a higher caste, you have to look at people up there who make those decisions in the private sector. They are part of the high caste mob who are as mindless as the rogue politician. Just that they wear a suit!! This study provides statistical merit to such an argument. At the end of the day, the responsibility of the government is make growth 'inclusive' given we still have gross bias, without our houses and our larger society. Let me reiterate the point that given the same opportunities under similar circumstances, caste or religion dont play a big part. However, that level platform has not been reached yet!!

I am from the so-called 'higher caste' but fortunately studied in a school in a small town with people from diverse backgrounds, and not in a school that picks only the brightest kids and spits out the brightest 10 years later!!

Medical tourism - Does private hospitals affect public health care in India?


Q: How does growth in private hospitals affect public health care in India?

A: There is an assumption in the view often expressed in the media in India and Europe, for instance, that when private hospitals in India provide care to heart patients from England, the hospitals are somehow taking care away from poor people in India. The assumption seems to be that if medical tourism was banned, the doctors in question who were catering to wealthy patients would suddenly, as a practical matter, move to a village. It takes a different set of individuals, a different set of infrastructure circumstances to create that scenario. We need good scholarship to verify the idea that there is a potential substitution between caring for sick people from England and providing medication for malaria in an Indian village. I'm not aware of such analysis yet.

My guess is that the bulk of India's problem is primary health, and has nothing to do with tertiary care. And the primary health problem is not going to be addressed by a private hospital for the most part anyway. These are almost different industries. If someone analyzes the landscape and discovers that there is substitution between care, then there is a real public policy issue that needs to be debated.

Some options for india:
1. govt step up primary health care
2. make PHC more lucrative for fresh doctors
3. mandate private hospitals that benefit from medical tourism to open up free clinics in rural places or provide quality free healthcare for the urban poor
4. an entirely different angle - make rural india attractive and economically more viable (by creating jobs and enabling reverse migration) so tier-2 hospitals would look at villages/towns for 'business' growth, considering urban area is crowded and more competitive for them

As a good friend of mine, a doctor and a primary health care consultant, put it
"I do not think this is a substitution phenomenon but a general failure of primary care worldwide." Bull's eye.

Thursday, January 10, 2008

tata small car: cheap answers to big problems or cheap copies of worst habits?

Tata Motor's launch of the small car (Nano from unconfirmed reports in the media) has caught the attention of the world with everybody throwing in an opinion whether its good or bad? This includes articles like the ones below..




Being part of the young generation of Indians who can afford much more than the small car, I have the moral responsibility to join this debate. And when I start to think of it, I just cant seem to make up my mind. There is no one answer to the analysis. It even becomes a moral dilemma at one point to say that lower middle class Indians cannot drive a car that they can afford only because it affects the environment (while the present gas guzzling cars already do that!!).

On the one-end there is the rising economic power that India is and am proud to be part of the country which has been innovative by producing products for the masses (from the Re.1 shampoo satchets to technology enabled fisherman and so on). However, this is the first time I am at crossroads with this practice of 'inclusiveness'. Maybe because it is loggerheads with major and very real issues like environmental sustainability and global warming.

First of all, I have a lot of respect for somebody like Ratan Tata. He is just inspiration beyond mention. And he did what he thought was right - to expand his business while also considering the common man. This has been how the Tatas do their business - there is a lot of social responsibility, morality and patriotism in what they do. There is no questioning the righteousness of what the Tatas did and in no way matters to the issues on the discussion table. If they dint, some other manufacturer would have done it. And they already have, including Bajaj, Renault-Nissan et al.

The question is now thats its here, how do we deal with it? Or does the government even take a different outlook to this issue? How should the urban authorities of major cities deal with the new influx of four-wheelers on a mass-scale? Where do we draw the line in 'dealing' with this issue? Does the govt draft a policy to deal with similar problems in the future? And what would they possibly be? Here is my two cents...

The car should not be looked at as a single component. It should be looked at a 'luxury' good which has to be taxed based on its impact on the roads/environment/society/etc. The tax should be an equation of this impact. For example:-

Car tax = f (weight+pollution discharge+size+no. of cars/no. of adults in the household+neighborhood of owner)
...maybe am missing a few more components in this idealistic equation!!!

Now I would like to elaborate on the last two aspects of the equation:
# of cars/# of adults in a household - this would discourage wealthier families to minimize the purchase of cars just because they can afford it. it would help to rationalize the purchase and make it one of necessity. just take the instance of chennai and delhi that have huge differences in the way people think and make purchasing decisions. in chennai, most households have just one car and share it among the family. however, in delhi you have more motor cars per household. this could be attributed to cheaper car prices and longer distances to work also. but foremost, it is the mentality that affects a purchasing decision or lifestyle!! so its important for the government to consider this - so delhites (and likes) make rational decisions while purchasing four-wheelers and chennaites (and likes) dont get lured into the manufacturers' trap of low-interest cars/etc when there is an efficient transportation system that connects a good part of the city (MRTS). The same holds true for traffic congested urban metropolis like Mumbai, Bangalore, etc.

The second point I would like to discuss is quite controversial but I hope I can justify why it is important.
Neighborhood of owner - this might be something that might not seem important but I think it is. take the example of a lower middle class and an upper middle class family. the lower middle class right now owns one or two two-wheelers and have enough parking space in the neighborhood they live in. the houses have been built with two-wheeler parking in mind (how many ever years ago!!). well, say there are 100 families that live that way. now even if 40 families choose to make the decision to buy the 'dream car', we face serious problems - encroachment into others' private space, using up public roads to park, etc. this is an already prevelant situation in upper middle class neighborhoods in Delhi (where instances of neighbours fighting over parking space and even a shootout over the issue is common these days). people in the low income neighborhoods can now question the government and think its unfair on them but then reality is reality. many things in this materialistic world are guided by where you stand in the society - the school you choose for your kids, the neighborhood you live in, the restaurants you eat, the class system in airplanes, ticket prices in movie theatres, etc. well, this is another one. even if it comes at the cost of saying a higher earning person can pollute more than a lower earning person, yes thats how it should be because the higher earning person can 'offset' his luxury by paying higher taxes. BUT the government which takes this stand should also tax the higher earning person heavily to 'offset' for the environmental impact. and use the money to invest in clean and efficient urban transportation systems. there is no two ways about this!!!

lets get to the fundamental question of taxing at source - car manufacturers. well, its much simpler than addressing the customer side of the problem. however, it will only act as a restraint to the economy/competitiveness/etc. moreover, this problem can only be addressed by addressing people's mindsets, and this can be done by making them responsible monetarily. if its left to their choice, they would always pick the easy way out - hoping the neighbour would comply and he/she can stay away from issues!!!

also, congestion pricing like in london and nyc is an excellent way to address this problem. and there is obviously no questioning other solutions - better transportation system, eco-friendly fuels, etc. however, all thats gonna take quite a long time and much longer in a country like India. so the government has to address this issue with long-term sustainibiligy of the society in mind rather than succumbing to vested interests. i just hope common sense prevails over morality in how the government handles this case.

my dad has been with a leading indian automobile manufacturer for over 30 years now and personally for me, this is a moment of pride when an indian company has developed a quality and complete product indigenously. and the fact that it is for the masses from the Tata group is the cherry on the top. am a proud indian today and nobody is gonna take it away from me. not even thomas l friedman...

Tuesday, May 29, 2007

BOP Debate: CKP vs Karnani and the rest

Aneel Karnani and CK Prahalad are both reputed Professors of Michigan's Stephen M. Ross School of Business. CKP is the author of the now very famous BOP theory.

Here are a few times he has had to explain himself since the study was published three years ago.
CKP's response to Aneel's controversial paper"Fortune at the Bottom of the Pyramid: A Mirage" is here
CKP's interview in Fast Company

Also, Al Hammond's (Vice President for Innovation and Special Projects at the World Resources Institute) response to Aneel is here

Although intellectual wars are common in the academic world, the title for the paper chosen by Aneel is a cheap trick to gain attention and leverage upon that to push his idea (its obvious he doesnt command the same stature as CKP whose work was "fresh and real"). Although he does make a valid point, its more like biased television channels that pluck just a line or two from a whole speech and try to focus coverage on that. I think CKP presented a very convincing response to convey this message across subtly, while also substantiating the validity and relevance of his work.

I hate to take sides in these cases, but I think Aneel played a very cheap trick that reduces my respect for him. I would like to read his paper as it supposedly has a rich data set that can be used by businesses to implement emerging markets strategies quickly. Mmm...

Tuesday, February 20, 2007

Coarse Thinking and Persuasion

A very interesting paper on "Coarse Thinking and Persuasion" by Sendhil Mullainathan et al. Such a treat to read./starting from the problem design and how its approached from different ways to present a thorough analysis.

Another paper I found very interesting is Abhijit Banerjee and Esther Duflo's paper titled "The Economic Lives of the Poor"

Bonus: "An interview with Eugene Fama", considered the father of efficient market theory.

Sunday, February 18, 2007

Undercover Economist

"Undercover Economist" by Tim Harford. One of the best books I have read since "Freakanomics".

Tim Harford also writes in FT, Forbes, Slate, BBC and NYT. His column in the FT titled "Dear Economist" looks at everyday problems through the eyes of an economist. It is a lot of fun to read some of the problems and his solutions to those :-)

And here is a list of famous indiblogs