Some pending Reforms

The UPA-2 government has been branded as left-leaning despite the absence of left parties in the alliance. Dr. Manmohan Singh has been a man of great foresight and vision but maintained a stony silence in addressing urgent reform issues like retail and subsidies. The ideal case would be if Dr. Singh takes things in this stride and announces some hard nosed and urgently needed policy decisions. There are a host of sectors in which reforms are essential and some of them are labor sector, Multi-Brand Retail sector,Fertilizer subsides, Decontrol of Administered prices of petroleum products and decontrol of Sugar sector.

India has restrictive policies on hiring of labor. Industry experiences cycles of boom and bust. It is difficult to sack employees due to down turn in the industry. This has held back companies from hiring larger number of workers. Such rules which restrict companies from firing employees have to be relaxed.

Fertilizer prices in India are controlled by a strange set of rules which effectively restricts fertilizer supplies. It has been ages ago that a new fertilizer plant has been started and the existing ones are making losses. The government should allow differential pricing of fertilizers and allow two categories of fertilizer sales. One subsidized and sold only to poor farmers and other category of Non-Subsidized or commercial sold to larger farmers and in the open market. Also the government should allow imports of fertilizers and sale at market determined rates. Fertilizer is an essential ingredient of agriculture and adequate quantities of them have to be used in order to achieve higher productivity.

There have been discussions on opening up multi-Brand retail to foreign players.The government should go-ahead and open up the sector to large retailers so that the ensuing competition leads to lowering of prices. Presently the retailers profiteer when prices of some vegetables goes up. This is because there is little competition in retailing. Consumers are at the receiving end of all this. Kirana store owners are already so rich that they can support themselves without any earnings in the future. Opening up of retail sector to multi-nationals will not harm them much and consumers who are being taken for a ride will get relief.

Reforms in petroleum pricing is currently under way and petroleum companies who have been burdened with subsidies have to be provided relief by rolling-back subsidies completely. Simultaneously taxes on petroleum products should be reduced both by central and state governments to reduce price rise for the end consumer.

Finally farmers producing products such as rice, wheat and sugar cane should not be forced to sell their produce to government agencies, such as FCI and crushing factories, and the minimum support price should be just that, a recourse to be taken by farmers when market prices of farm produce is too low.

These are some of the sectors in which urgent reforms are essential to set right the wrongs that have been committed in the past.

A compelling case for the twelve digits (UIDAI, UID Project)

A unique identity number or aadhaar for every person in the country is expected to yield enormous efficiencies for banks and government departments. A recent McKinsey report suggests potential five-yearly savings of 1.4 lakh crore for the government. The report contends that people benefit to an extent of 14 lakh crore in a five year period from the government and a conservative estimate of ten percent savings is made here. Central to the project is the twelve digit Aadhaar and surrouding it will be a plethora of applications some of which are listed below.

1. There are clearly, immense benefits from a mechanism that uniquely identifies a person, and ensures instant identity verification. The need to prove identity only once will bring down transaction costs for the poor^[1].

2. A clear identity number would also transform the delivery of social welfare programs by making them more inclusive of communities now cut off from such benefits due to their lack of identification^[1].

3. It would enable the government to shift from indirect to direct benefits, and help verify whether the intended beneficiaries actually receive funds/subsidies. Among the merits and rationale of this project the most compelling one is the accountability in distribution of benefits whether it is discounts on grains, school fees for children under Sarva Shiksha Abhiyan(SSA), pension payments for the elderly or Conditional Cash Deposits(CCD) such as the Janani Suraksha Yojana(JSY).

4. A single, universal identity number will also be transformational in eliminating fraud and duplicate identities, since individuals will no longer be able to represent themselves differently to different agencies. This will result in significant savings to the state exchequer^[1].

5. Several banks are trying to issue a customer ID so that they can track their customers interaction with the bank. Until now a customer can choose to apply for a new ID in case he wants to hide the fact that he has made transactions with the bank earlier. AADHAAR will clean up the customer databases of the banks and help in their marketing pitch. It is also going to benefit the credit information bureaus which can track a person’s credit history^[2].

6. When Aadhaar is linked with PDS and authenticated sale of grains is made, the fair price shop(FPS) during the replenishment cycle will be allocated an amount of grains equal to the actual sale made and not the planned amount of sales in the next cycle. The government is guaranteed to save at least a few tens of thousands of crores in PDS alone^[1].

7. A student tracking programme would help admit street children and destitute children into schools. Continuous assessment through UID linked score card would benefit children when they migrate from one school to another. A truly cumulative report of a students performance can be hosted at a suitable government portal^[3]. There are reports of a system where fingerprints are to be logged for attendance of teachers in schools. This is not a new phenomenon as most colleges have implemented biometric scanners to log attendance.

8. Issue of Aadhaar numbers is expected to precede rollout of a host of E-governance initiatives such as linking land holdings, PDS benefits and LPG and petroleum subsidy with Aadhaar and a nationwide rollout of a network of MicroATMs to perform cashless payments and banking services(Funds transfer, Micro credit, Micro pension, Micro insurance). The MicroATM network, estimated to be at least two such devices per village for six lakh villages, would mean 1.2 million branchless banking points. Add to this a few tens of millions of Point of Sale terminals at kirana stores and other establishments to service the purchase requests through cards issued by banks^[2].

9. In an increasingly cashless economy Aadhaar linked bank accounts could be used to promote cashless payment transactions thus aiding the capability of the government in monitoring money flows and resources^[2].

10. It was reported last year that Apollo Hospitals had written to the UIDAI and to the Knowledge Commission to link UID numbers with health profiles of individuals and offered to manage the health records (Business Standard, 27 August 2009)^[4]. It has already embarked on a project “Health Superhighway” that reportedly connects doctors, hospitals and pharmacies, who would be able to communicate with each other and access health records. With Aadhaar efficacy of medicines can be monitored real time whereas presently after human trials medicines qualify to be administered and there is no way a case by case report card could have been prepared. Medicines, once dispensed, such a note can be made in the person’s medical records and should be open for audits by other doctors. This might lead to evangelism in doctor profession where the brand of medicine prescribed will be openly known to the system and the doctor can be held accountable for any bias towards higher priced medicines. The government and health insurance companies can tie up to finance the cost of consultations and medical expenses. Government doctors could be paid through a system where they are expected to attend to a minimum number of patients.

Controversies are not new to the country and some of them have been successfully quelled by UIDAI.

1. When the controversy over whether UID is designed only for citizens of INDIA and is intended to throw out illegal immigrants arose Mr Nilekani categorically stated that UID is for identification and not as proof of citizenship, the first hurdle was crossed.

2. When the problem of enrolling infants without biometric details arose UIDAI chose to link the parents biometric details with a sort of shell UID with biometric details to be posted at a later date when the child is 5 years old or later.

3. When people whose fingerprints have worn out have to be enrolled and authenticated the use of demographic details to authenticate would have left a gaping hole in the security system of the AADHAAR authentication, Mr Nilekani and team chose to authenticate such people through passwords.

4. When people concerned about privacy raised doubts about the security of the database UIDAI dispelled all doubts by making it clear that demographic or biometric data will not be shared with anyone and authentication requests will be served with a ‘Yes’ or ‘No’ response only.

Criticism not yet addressed

There have been concerns from civil rights activists about surveillance that the government can potentially impose on the residents. Recently the home minister announced a project called NATGRID under which twenty one databases with the government such as ration card holders, Voter ID card holders, PAN card holders, provident fund accounts, Driver’s license holders etc will all be linked with each other with the help of the Aadhaar number. The reason this is done is to detect patterns, trace sources for monies and support, track travellers, and identify those who must be watched, investigated, disabled and neutralised. It is obvious that criminals and undertrials would also be enrolled under the scheme. Someone even suggested that a DNA bank of criminals will be created. The police under pressure to solve cases might impose needless authentication on the civilians. Anyone with Aadhaar would be a suspect which would be a serious breach of privacy.

Another serious issue which is yet to be resolved is the potential of internal sabotage or misuse and external breakin of the CIDR. The under discussion bill seeks to impose hefty fine on anyone who is caught with such a ploy. The fine is mentioned as upto one crore whereas the value of data in the CIDR would easily exceed a few hundred crores. With inflation eroding the value of the rupee one crore a few years from now would be next to nothing. Mentioning a maximum quantum of fine in the bill would invite periodic amendments, which have never occurred, for which we have evidence in other outdated criminal laws. Instead a fine amount should be decided by the courts on a case by case basis.

References:

[1] UIDAI Strategy Overview Document 

http://uidai.gov.in/UID_PDF/Front_Page_Articles/Documents/Strategy_Overveiw-001.pdf

[2] UIDAI Micropayments 

http://uidai.gov.in/UID_PDF/Front_Page_Articles/Strategy/Exclusion_to_Inclusion_with_Micropayments.pdf

[3] UID and Education

http://uidai.gov.in/UID_PDF/Working_Papers/UIDandEducation.pdf

[4] Apollo begins project to connect health players

http://www.business-standard.com/india/news/apollo-begins-project-to-connect-health-players/368246/

Charms of a Resurgent India

While it might have become ample clear reading all my blogs that I am a nationalist and most of them have a splash of patriotic fervour which never ceases to abate. All of my posts relate to the trials and tribulations our nation has faced and which has taken a dramatic turn towards the better in recent times. It has been a Topsy-turvy ride of sorts since the days of liberalisation and doordarshan. What I have set out to write is something of a feel good factor that sets in when the going gets smooth. The years of good economic growth such as '96,2003,'06,'07 had some charm in them. They signalled an India on the path to prosperity. The miracle economies of south-east Asia have experienced such times and passed through phases of blistering growth. It's now our turn and surely we will go the whole distance.

While officially we are growing at 7.4% last year(2009-10) and 8.8(target) this year our actual growth in inflation adjusted real terms is somewhere around 4-6%. The number of poor living below the poverty line of 2$ a day is nearly 830 million out of 1190 million. That leaves just 360 million people in the middle class and a small percentage of about a million people in the rich category. A poverty line of 1$ a day means there are 20% poor whose absolute number is about 240 million. These are large numbers of poor indeed and should have been a cause for worry in themselves. The silver lining is that these numbers are reducing steadily. Five to ten years of continuous 9% and above growth would surely make a large dent in the poverty numbers.

Our GDP in nominal terms is 1200 billion, growing at 8-9% we will reach 2 trillion by 2016 and 3 trillion by 2022. Per-Capita income of $1050 per year is going to double to $2000 by 2016 and treble to $3000 by 2022. This means that an average Indian will be earning about Rs. 90,000 per year in 2016 and Rs. 1,35,00 per year in 2022. Poverty has been so much a part of our existence that we stand as a benchmark for other countries. Perhaps when faced with the prospect of unbelievably low levels of poverty the developed countries were forced to redefine the poverty line to $2 per day from $1 exclusively meant to keep a large population in India below poverty. It is pretty much clear that when Mr. Obama exhorts the American students to study science and compete with Indian students, He is ignorant about the pathetic Indian education standards.

With more money in our pockets we Indians would splurge like never before on food, clothing, housing, consumer durables etc. Only sky is the limit for land and property prices. Population density of about 340 per sq-km will rise to 500 per sq-km causing huge burden on natural resources like water. Energy prices already sky high will rise further causing wide spread inflation and starvation. Petroleum stocks the world over are expected to end in another twenty years. Developed countries being more reliant on energy would be more impacted with reduced fuel. While this situation looks grim at the outset, there is lot of hope as renewable energy sources will save the day for the world and might circumvent a recession.

As far as India is concerned we sit in a pretty position as we still are not that dependent on petroleum products as much as others. Indians are lucky that our growth is peaking at a time oil sources are dying out. This will cause a shift in our growth to favour renewable energy.

Implementation of the Aadhaar would lead to prosperity among the poor. The UID project would then be copied by African countries and most of the countries will have biometric based identity systems the world over. Out of the entire history of India this is the best period to be born into as so many social and economic changes are happening and there is all-round development.

And now PCs from india

India was once a country renowned for a variety of products such as cotton,spices,textiles,gems and jewellery. A brief period in the history,when we were ruled by the British, caused a lot of suffering and misery in our country-men's lives. We came to be known as a third world country and our country was plundered and looted of the many riches that people owned. After about sixty years of independence we have now almost completely erased the memories of this brief episode of poverty.

It comes as no surprise that now personal computers are being assembled in our country not only for domestic consumption but also for exports. Indeed we have come a long way now that our country is in no way a third world country and on the way to get a developed status. The pace of development seems to amaze everyone. Our people were unsure of their next meal just a few decades back. It is with bated breath that i am awaiting to see the poverty levels fall below 20% in India (currently at 26%). Now we are self sufficient in agriculture. But we have a few issues that need to be tackled well. It will be a challenge to anyone who will be running the affairs to steer the country out of problems of inflation, food scarcity and law and order. It is also thrilling to see India making a mark in the computer field and also our country launching a mission to the moon which finds water there. Many predict that the world will have serious energy crisis with petroleum stocks ending soon.

World population is at a very high level and this might not be sustainable. Eight to nine billion people in the next ten to thirty years might be too near the tipping point for any comfort. There might be mass starvation and deaths in case alternate sources of energy do not fulfill the demand. Global warming in all likelihood is true and we are already experiencing the fallout of this. Sea waves are expected to eat away a large part of the shorelines of almost all countries. Acid rain will reduce fertility, depleting ground water will cause desertification and reducing forest cover will increase temperatures.

With such a bleak future humanity has to steer on a narrow path. A mistake will be catastrophic. Urgent action needs to be taken to save the forests. Developed countries have exploited forest cover in poor countries while keeping their own forests untouched. Developing countries should stand up to this exploitation and ban export of timber. We should also make efforts to reduce our population growth. We should reduce our reliance on ground water by conserving rain water. Electric vehicles should be encouraged. A planned phase out of fossil fuel should be coordinated worldwide. Rich and poor countries should unite in their efforts to contain global warming. One way for that will be to reduce demand for product shipment by locating manufacturing plants near to the market.This would have a side effect in reducing the income disparities between the rich and the poor. Mahatma Gandhi's vision of small scale industries might come true as transportation costs increase.

India has a great future because we are a country of hard working people. We have the demographic dividend of a relatively young population and we are going to be the second largest country in terms of GDP in the year 2050.