Game Theory and Traffic

The below rant got published in GovernanceNow.

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Game Theory of Traffic

For those of you who have ever argued with me, you would know how I ascribe the traffic conditions on Indian roads to low IQ. That obviously is hyperbole but, this is my attempt to coherently put down my thoughts on it. Arguing that it essentially is a failure to solve a repeated prisoners dilemma game.

Driving on a road can be modeled as a game. I can choose to cooperate and be stuck behind the car in front of me, or I can choose to not cooperate and not cooperate and overtake the car. Now, let us break this down.

Round 1: If I am new to a city/country/planet and am only going to be there for a day. I see that I am stuck behind a car whereas the opposite lane is completely empty. I have every incentive to not cooperate and switch to the opposite lane. Thus saving time and I win.

Round 2: Other people see this and see that it is in their interest to not follow lane rules and decide to not-cooperate. Which brings us to a situation where it is a loosing strategy to cooperate and everyone loses out due to the sub-optimal Nash equilibrium.

Hence, it can be argued that the chaos that is driving in India is essentially a sub-optimal Nash equilibrium.

Now, things get interesting. the way around this dilemma is to repeat the action of the opposing player i.e. if he cooperates, you cooperate in the next round, if he does not cooperate, you punish him by not cooperating in the next round. This is helpful if one of the players is illogical and there is some amount of randomness in the choices he makes. If on the other hand, everyone is logical (as economist are wont to argue) one bad move or initial condition, and the system again gets stuck in a sub-optimal equilibrium. The solution to this problem is “altruism” i.e. you need to forgive the other player after a certain number of moves. If everyone is logical then at some point, an optimal equilibrium will be achieved.

In 70 years, Indian drivers have failed to solve this basic problem hence my argument that the sub-optimal driving conditions result from either a low-IQ or a lack of social capital. The development of social capital is beyond the scope of this post so let us leave it here and assume that it has been achieved.

At some point in the future, let is imagine that India becomes like Germany and everyone chooses to cooperate every time. Now let us play the game again. Do I cooperate or not? If I choose to not cooperate, I have an empty lane to take advantage of whereas all the lemmings follow the rules! Oops!

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Regulation in the 21st Century

In 2012, the state of Minnesota in the US briefly banned free online education. That’s right, a government thought it was a bad thing for people to educate themselves for free. The government essentially banned universities from offering classes online without taking permission from the regulatory body which included a registration fee. We in India are no strangers to stranger regulations; the banning of surge pricing by taxi platforms in Delhi in April 2016, during the odd-even experiment, is one of many examples. However, the Uber/Ola debate does not seem to go away. Recently, taxi unions in Delhi were on strike (again!) protesting against aggregators taking away their jobs. This is nothing new and strikes have been happening in Delhi and Mumbai since Uber and Ola set up shop. For that matter, textile workers in the 18th century broke spinning jennies to protest the imminent loss of jobs. In fact, Uber has faced challenges in almost every jurisdiction from strikes by Paris taxi drivers to falling foul of New York city’s transport authority.

The “gig economy” or the “sharing economy” refers to online platforms that let workers sell their services or products directly to consumers on their own time. The 20th century was characterized by people staying in one company for their lives. The corporation was the mode via which the workforce was organized. The current workforce changes jobs several times in their lives. The gig economy is an evolution of that trend where people work when it suits them or when they need money. There are many benefits of a gig economy. It enables better utilization of resources, increasing supply. By lowering prices, it adds to real disposable income, stimulating demand. It creates new markets which generate employment opportunities in other sectors. Online platforms also enable more efficient pricing and better supply-demand matching. Its impact in developed markets has been powerful, increasing supply, reducing prices and compressing profit margins and surely raising consumer welfare.

The advantage of the digital economy is the reduction of transaction costs which make customized transactions viable and thereby reduce under-utilization of assets. Data is at the heart of this revolution and manifests in the way that people consume goods and services. This results in a challenge to an existing player that is subject to existing government taxes and regulations. Their favoured response, that is, to strike informs even more people about the existence of alternatives and is akin to shooting oneself in the foot. The challenge for regulators is to avoid stifling innovation but at the same time ensure equitable application of rules that have been set up to regulate businesses and protect consumers. Platforms are able to provide solutions to some governance failures too. There is a security concern in using shared services. But, by verifying identity and reputations, platforms can mitigate such scenarios. They can also enforce requirements for criminal checks or insurance.

The government must remember that the ultimate purpose of regulation is to tackle market failures so that commercial exchange is not stifled by information asymmetries or blocked by firms with too much market power. Profit is a more powerful driver for quality than regulatory compliance (in the presence of competition). In the gig economy, reputation serves as the institution that protects buyers and prevents the market failure that policymakers worry about. Regulation to maintain quality is an option but if a hotel room is dirty, a bad rating and review on TripAdvisor would hinder future business and act as an incentive to maintain quality.

Reputation is definitely important in the gig economy, but biases may affect ratings. In a society cleaved by differences for millennia, we cannot afford to let these propagate as they would further the economic and social exclusion of individuals. Algorithms need to correct for biases so that these reputation systems don’t create a barrier to access. Biases exist in the traditional workplace too but as we look forward we should aim higher. With big data and artificial intelligence (AI) developing fast, it should be possible to correct these. Reputation is going to be the gateway to access and the government can mandate supervision of algorithms to recognize bias and remove it. This works the same way as anti-discrimination laws. As an example, credit card approvals were fraught with biases in the 1980s in the US against black applicants and applicants from certain locales. But, banks recognized this and have designed credit scores that calculate the probability of fraud more objectively and minimize bias.

Arguments can be made against some aggregators on the basis of predatory pricing. It would be interesting to see how they fare without subsidizing consumers and service providers. There are also arguments to be made that sharing platforms have economies of scale that encourage a monopoly and should be regulated like utilities. But, these platforms are not silent intermediaries. The seek to actively shape markets they create. Because the potential of these platforms is huge, they will be highly disruptive in the short term. The government has a very important role to play in establishing contracts but should be careful to not try to guide development with too little information. For even with a lot of information, the platforms themselves are not sure yet and are experimenting with various business models.

The internet has rapidly evolved from information sharing to e-commerce and now into a method of accessing real world services. This takes us back to the basic tenets of capitalism where everyone is capable of being a business owner and set prices for their services. The growth of sharing economy companies like Taskrabbit or Elance has enormous implications for how we look at work in the 21st century. Social security, labour laws and retirement plans will need to take into account the greater prevalence of freelance workers. We will soon be facing a world with driverless cars and the government should be aware of the changes it would need in terms of regulation to allow them. AI bots are now being employed by law firms, call centre workers will soon be replaced by Siri. Do we know how to respond?

This article first appeared in Livemint

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Payment Banks – A mobile wallet is a depreciating currency

It comes as no surprise that after Cholamandalam, Dilip Sanghvi along with IDFC Bank and Telenor Financial Services have decided to give up their interest to start a payment bank. The entities that were granted an in-principle approval for starting a payments bank were given a year to launch the bank and in turn gain a payment bank license. After eight months, a JV between a group with deep pockets, a bank, and a telecom player decided that it made no economic sense to start and operate a payments bank. Considering the stringent regulations and restrictions on operations, it seems very likely that more players will drop out of starting small and payments banks in the near future. The RBI had engineered a similar fiasco with the Local Area Banks in 1997. Of the 10 licensees, only 4 are in existence at present. The LABs were similarly constrained by regulations requiring them to remain in unprofitable rural markets and allowed to open only 1 branch in an urban area per district (maximum of 3).

The basis for the payment bank model has been envisaged based on the success of m-pesa in Sub Saharan Africa. A study by the Bill and Melinda Gates Foundation identified four reasons why m-pesa was able to reach a level of penetration that banks did not in Kenya. One, the cost of transferring cash to the villages from the cities was extremely high (sometimes 20%). There was also a lack of safety in sending cash. Two, Safaricom, a telecom company, is a highly trusted brand, more so than Kenyan banks. Three, Kenyan banks were restricted from utilizing banking correspondents beyond a certain distance, thereby limiting their scope of reach. Four, for nearly five years, Safaricom enjoyed a monopoly because banks did not have branches in remote areas due to high costs and because Safaricom made m-pesa easily available by strategically tying up with those vendors who provided mobile phone services and recharge.

The extent of similarity between India and Kenya ends is limited to lack of bank branch networks in remote areas. India banks too find it unprofitable to have branches in rural areas. Cost of transferring money in India is very low. Once bank accounts are opened under the current push under Pradhan Mantri Jan Dhan Yojna, operating bank accounts via mobile or through banking correspondents which include payments, savings and in limited cases credit services is not very hard or expensive. One wonders if a mobile money system would not be tantamount to a platform which already exists in the banking sector viz. National Payments Corporation of India and Universal Payments Interface.

Under the current regulatory framework, payment banks are not allowed to lend so their classification as banks in itself incorrect. Their only purpose is to make payment services ubiquitous, which means, they may be more appropriately governed under the Payments and Settlements Act 2007. Payments banks have been mandated to hold 75% of their liabilities in SLR securities (yielding ~7.3%) and the remaining 25% as deposits with other banks (yielding ~8%). This means that payment banks have no risk on the asset side of the balance sheet. Assuming that the cost of funds for these payments banks will be comparable to current scheduled commercial banks, (we are stretching our imagination here), that leaves absolutely no net interest margin for these banks to cover their costs.

The cost of funds for payment banks (and even small banks) will definitely be higher than full service banks which have better credit as well as access to inter-bank and RBI for overnight liquidity requirements. To counter this, the balances held with payment banks will give lower returns than the balances held with scheduled commercial banks. There will thus be no incentive for customers to hold deposits in these payment banks. This leaves charging for payments as the only possible source of revenue for payments banks. This begs the question why would anyone keep any float in a payments or small bank account which presumably would not pay any interest (paytm wallet, m-pesa or airtel money earn no interest currently). Almost all banks in India have implemented a core banking solution and are able to provide payment services via internet banking at almost negligible cost. There is a near zero transaction cost for a consumer (on most platforms) on transfer of money to anyone else in the country be it a business or another individual via NEFT or RTGS. Debit cards and ATM machines are also available widely but with an urban bias for now. The assumption seems to have been that payments banks will leverage technology and have minimal operating costs. Payments business is different from banking. It enables the transfer of funds from a payer to a beneficiary. Banks, payments networks like Visa, Mastercard and cash were the only mode of payments for a very long time. In the last decade with the advent of technology, banks have faced a challenge to their monopoly on payments by a clutch of technology and telecom companies, most notably; m-pesa, apple pay, google wallet and the like. India has been at the forefront of the payments revolution with systems like NEFT, RTGS and ECS which were promoted by the RBI and led to massive improvement in performance and customer services by banks. In the second version of this revolution companies like paytm and other digital wallets have garnered a lot of traction with technology savvy consumers. Payment services like m-pesa or airtel money however have not taken off like they did in sub-Saharan Africa.

What the RBI needs to consider is that there are not many telecom or financial companies more trusted that some of the big PSU banks in India. They have a reach and presence that is unmatched by anyone else anyone else apart from India Post. A mobile wallet is a depreciating currency in the sense that every transaction incurs a transaction fee. Would the poor not prefer to transact via normal banks and not mobile money if a similar payment and banking services are provided by banks? It was obvious that because of the restrictions imposed by the RBI, payment banks have no business model. Of all the payment banks licensed, only telecom companies, IT players and retail chains have a different cost structure and technology platform than regular banks. These players were already in the payments business via wallets and mobile money applications. If only these companies had to remain in the fray, the RBI need not have gone through the whole licensing charade, instead the RBI could have taken marginal yet effective measures to legitimize and rationalize the operations of existing players in the field.

This article first appeared on Financial Express.

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Designed to Fail – Payments Banks

This was written about 6 months ago but it became appropriate to bring it out from the cold storage given recent events. Updated a bit…

After Cholamandalam, Dilip Sanghvi along with IDFC Bank and Telenor Financial Services have decided to give up the in principal approval to start a payment bank. The entities that were granted an in-principle approval for starting a payments bank were given a year to launch the bank and in turn gain a payment bank license. After eight months, a JV between a group with deep pockets, a bank and a telecom player have decided that it makes no economic sense to start a payments license.

The Reserve Bank of India had granted 11 licenses to companies for starting so called “payments banks” in India which are licensed to provide payment services in the country. Following which, the RBI granted 10 licenses for starting small banks which are allowed to provide a whole suite of banking products like deposits, credit but in a limited area of operation. The stated objective for these licenses is to promote financial inclusion in the country and provide banking services to areas and people where they do not exist.

Considering the stringent regulations and restrictions on operations, it seems very likely that more players will drop out of starting small and payments banks in the near future. The RBI had engineered a similar fiasco with the Local Area Banks in 1997. Of the 10 licensees, only 4 are in existence at present. The LABs were similarly constrained by regulations requiring them to remain in unprofitable rural markets and allowed to open only 1 branch in an urban area per district (maximum of 3).

Payment banks by regulation are not allowed to lend so their classification as banks is incorrect and they may be more appropriately governed under the Payments and Settlements Act 2007. These payments banks have been mandated to hold 75% of their liabilities in SLR securities (yielding ~6.5%) and the remaining 25% as deposits with other banks (yielding ~7.25%). This means that payment banks have no risk on the asset side of the balance sheet. Assuming that the cost of funds for these payments banks will be comparable to current private sector banks (we are stretching our imagination here), that leaves absolutely no margin for these banks to cover their operating costs. The assumption is that payments banks will leverage technology and have minimal operating costs.

The cost of funds for payment/small banks will definitely be higher than full service banks which have better credit as well as access to inter-bank and RBI for overnight liquidity requirements. To counter this, the balances held with these banks will yield less than balances held with SCBs. There will be no incentive for customers to hold deposits in these accounts.

This leaves charges for payments as the only possible source of revenue for payments banks. Almost all banks in India have implemented a core banking solution and are able to provide payment services for free via internet banking. There is zero transaction cost for a consumer (on most platforms) on transfer of money to anyone else in the country be it a business or another individual via NEFT or RTGS. Debit cards and ATM machines are also available in most places now. This begs the question why would anyone keep any float in a payments or small bank account which presumably would not pay any interest (paytm wallet, m-pesa or airtel money earn no interest currently). There is also a matter of a transaction cost however small that a payments bank may charge whereas bank payment services are free.

It was obvious from the start that payment banks under the restrictions of the RBI have no business model. Of all the payment and small banks set up, only telecom companies and IT players and retail chains have a different cost and technological platform than regular banks. These players were already in the payments business via wallets and mobile money applications. In the end if only these companies had to remain, the RBI need not have gone through the whole licensing charade but could have legitimized their operations.

Payments business is different from banking. It enables the transfer of funds from a payer to a beneficiary. Banks, payments networks like Visa, Mastercard and cash were the only mode of payments for a very long time. In the last decade with the advent of technology, banks have faced a challenge to their monopoly on payments by a clutch of technology and telecom companies, most notably; m-pesa, apple pay, google wallet and the like. India has been at the forefront of the payments revolution with systems like NEFT, RTGS and ECS which were promoted by the RBI and led to massive improvement in performance and customer services by banks. In the second version of this revolution companies like paytm and other digital wallets have garnered a lot of traction with technology savvy consumers. Payment services like m-pesa or airtel money however have not taken off like they did in sub-Saharan Africa.

Small finance banks are subject to most of the prudential norms that scheduled commercial banks. They need to maintain a cash reserve ratio (CRR), and statutory liquidity ratio (SLR). 75% of the credit advanced by small finance banks will need to go to sectors that are part of the priority sector, which includes agriculture, small enterprises and low-income earners. Commercial banks have to mandatorily lend “only” 40% of their net bank credit to such sectors. Small finance banks also have to ensure that 50% of their loan portfolio constitutes advances of up to Rs.25 lakh. Such a scenario would definitely put a pressure on the net-interest margin (NIM) of all small banks. They will need to go through this period of low profitability before they are allowed to convert to full service banks.

A study commissioned by the Bill and Melinda Gates Foundation found that part of the reason why m-pesa was able to reach a penetration that banks did not in Kenya were 1. The cost of transferring money to the villages from the cities was extremely high (sometimes going upto 20%) there was also a lack of safety in sending cash 2. Safaricom is a very trusted name and more so than Kenyan banks 3. Kenyan banks were restricted from utilizing banking correspondents beyond a certain distance 4. For nearly 5 years, safaricom enjoyed a monopoly where no banks or other companies were allowed to exist leading to the large scale adoption of m-pesa. The main reason in Kenya of why banks did not have branches in remote areas was that it was too expensive for banks to have branches there whereas Safaricom’s m-pesa could be accessed via the same vendors that provided mobile phone recharge and services.

India is very similar in this regard. Banks find it unprofitable to have branches in rural areas. However, cost of transferring money in India is very low. If bank accounts are opened once as the current push under PMJDY has been, operating bank accounts via mobile which include payments, savings and credit services is not very hard. The same amount of familiarity with a mobile as that required for operating m-pesa account would be required. One wonders if a mobile money system would not be tantamount to providing a substandard product to the consumer.

Brazil’s Correios is regarded as a world leader among postal providers for its innovative use of strategic partnerships with the government and private players. Banco Postal leverages its extensive network of retail outlets in the most remote locations for provision of consumer financial services to the poor and underserved. It operates a network of over 12,000 consumer outlets in more than 5,000 municipalities. It also operates ~4,000 community post offices and another 1,000 franchisee post offices. The post offices provide over 100 products and services like electronic voting, government applications and permits. By giving a payments bank license to India Post, the RBI has done a great disservice to it. Going by the Brazilian example it is amply clear that India Post can function as a full-fledged bank and not just another payment system.

If the goal is to provide payment and remittance services where none exist. To the poorest of the poor in the undeveloped parts of the country, it would be fair to presume that internet banking would not work. The African experience tells us that m-pesa was immensely successful in providing payment and remittance services where banks could not go via a network of merchants who could “recharge” m-pesa accounts.

What the RBI needs to consider is that there are not many companies more trusted that some of the big PSU banks in India. They have a reach and presence that is unmatched by anyone else anyone else apart from India Post. Would a relaxation of the BCs norms further financial inclusion more? A mobile wallet is a depreciating currency in the sense that every transaction incurs a transaction fee. Would the poor not prefer to transact via normal banks and not mobile money if a similar payment and banking services are provided by banks?

The only major difference between the current small banks and LABs is that the Small Banks may have a national footprint. With the LABs, there was an effort to open them in financially excluded regions. There is no such requirement with small banks. The path towards financial inclusion is going to be paved by technology. Mobile is surely a way to go, so are banking correspondents and India Post. Financial inclusion is just one side of the story. People should have faith in the system and adopt it and not just open bank accounts. DBT and payment services over a period of time will go a long way in building that trust.

From the companies that were given a payments bank license, it seems that RBI has chosen for itself the business model that may be most successful with 4 telecom companies and 3 companies with large retail distribution networks in terms of a future banking correspondent model. In its defense, the RBI also granted a license to paytm which is already in the space with a completely digital footprint.

India is not blessed with a very competitive banking sector and a few public and private sector banks dominate. In such a scenario, the RBI along with other regulators must ensure that the environment is conducive for the most efficient and customer friendly business to win. The RBI should provide for the most competitive banking environment. Regulation should not determine the winner in the payment or banking business.

PS: Since writing the update, Tech Mahindra too has returned its license. HAHAHAHA

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Peer to Peer Lending in India

In response to the financial crisis, banks improved their credit standards and one of the silver linings of the crisis has been an increase in financial creativity in how people raise money. Its not very clear if this is temporary or a structural change in the financial system, however, it has left certain profitable niches where smaller companies the so called “fintech” are trying to make their presence felt in the financial landscape.

Peer-to-Peer finance has been getting increased attention in the past few years. Its potential impact may be similar to what Napster did to the music industry. P2P platforms provide a web-based system which brings lenders and borrowers together in a market place. P2P lending is a form of crowd-funding unsecured loans which are paid back with interest.  One of the major reasons for their popularity is that they are able to provide lower rates than those offered by moneylenders and offer higher returns to investors than what is available via conventional investment opportunities.

P2P platforms enjoy three advantages over traditional banks: (1) absence of legacy operating costs like branches (2) no need for access to payments infrastructure and (3) no capital requirements or charges for deposit guarantees.

Though it has not yet become a huge market in India, the cumulative lending via P2P networks touched GBP 5.1bn globally in March 2016 [P2PFA] (some estimates put it at a couple of orders of magnitudes higher than this as in essence chit funds are technically P2P lending). Key factors that may facilitate crowdfunding are: (1) Regulatory framework that leverages the transparency, speed and scale of the internet (2) Online marketplace that facilitates capital formation while providing prudent investor protection and (3) Collaboration with other entrepreneurs, events and hubs that creates trust in the marketplace.

The Reserve Bank of India recently released a consultation paper to regulate the nascent peer-to-peer (P2P) lending business in India. Overall the recommendations of the RBI are well thought-out. However, they also show a lack of understanding of the business. Firstly, since the lending is from an individual/group of individuals to another individual/company, the concept of leverage should not arise. The platforms only operate as facilitators or as a marketplace and do not invest their own capital. Flowing from this, the minimum capital requirement of INR 2cr sounds prudent but in an unnecessary requirement and will raise the cost of starting a P2P lending service and hamper its development. If the capital is used to create capital buffers or some form of investor guarantee/insurance it would improve trust in the platform. Secondly, the proposal that the money should not be held in an escrow account but be directly transferred to the borrower takes the benefits of a platform away and makes it more burdensome for borrowers to monitor and repay. This recommendation should be repealed.

P2P lenders currently use CIBIL scores and their own proprietary methodologies to assess the creditworthiness of borrowers. The lenders on the other hand are made aware of the risks in investing in such products. Since transactions happen via bank accounts, RBI deems that the KYC has been done by the bank. In such a scenario, the recovery process and investor protections needs to be looked into. This could be a source of pain during an economic downturn and we would risk throwing the baby with the bathwater like it happened with microfinance.

The interesting thing about P2P is that it shows that it is possible to separate the business of deposit taking, payments and credit (this is not really a surprise because that is how banking originated). While banks and P2P lending are fungible from a borrower’s perspective, on the lending side, the investors are fully exposed to the credit risk of the borrowers. The threat to banks from P2P lending platforms is hence limited to the extent to which these platforms can mitigate credit risk and create capital buffers for investor protection.

In theory P2P lenders should be able to poach safe retail borrowers from banks due to their operational and regulatory cost advantages and thus generate superior risk adjusted returns. For startups crowdfunding has had moderate success while, for institutions with greater capital requirement, P2P lenders will not be able to match the quantum or quality of service.

As P2P networks grow in size, they will have a non-zero effect on financial systemic risk and monetary policy. The effect on economic cycles of this distributed financial network will need to be studied in the near future. Central Banks and other regulators will need to be prepared for a shock and whether adequate buffers exist in the financial system. This would also bring into focus the relation of the non-bank credit sector better known as “shadow banking” to systemic stability. In general, P2P lending would introduce more equity in the financial system, bring down the gross leverage which would be a good thing and should be encouraged. In essence, P2P lenders are like a 100% equity funded bank.

From a credit and regulatory perspective, if the assumption of credit risk by individuals turns out to be desirable, peer-to-peer lenders will have a structural advantage over banks and continue their explosive growth. In such a scenario, P2P loans can be considered an alternative to high yield bonds and could constitute a new asset class. The current low interest rate environment would contribute to the attractiveness of these platforms from an investor perspective.

If lenders on P2P platforms prefer the additional returns but are not pricing the risk correctly, the growth of P2P networks may be halted once the lenders become aware of the risks or face an economic down-cycle with increasing defaults. If they deem this risk as non-desirable, P2P lenders would have to build out their risk management capabilities or provide some form of credit guarantee/insurance. On the other hand, financial institutions may start issuing loans on P2P platforms since they may have better mitigation and recovery mechanisms. This is already being observed in the case of the biggest platforms in the US and UK where financial institutions have become among the biggest lenders (40% of the lending on Lending Club and Prosper is from institutions). Financial institutions have the option of cooperating with and these networks to mitigate risk and simplify loan origination. In essence, these platforms may become the front-end interface for the asset side of the financial system.

This blog first appeared on: Pahle India Foundation

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Universal Basic Income in India

Every 5 years we have an awakening of our collective consciousness and we are at such a time again. There is not much to praise about what has happened in the country in the last 10 years, but the government has implemented 2 much maligned schemes whatever the motive; MGNREGA and The Right to Food Act. I propose that we scrap these and implement a universal basic income. No discrimination between below/above poverty line; every adult over the age of 18 gets a certain sum of money in his bank account every month. People will complain that it will make people lazy and use the money for alcohol abuse, sure some may, but the point is to have sufficient money for food and board nothing more. Despite the laziness argument, we should as a people be able to take a more positive view of human nature. So the majority of people would still be working. The idea makes other poverty reduction programs redundant and any incremental social security would be in terms of healthcare and other aspects of well-being. The security would not only eliminate poverty, it would allow workers to ask for better working conditions and improve their quality of life.

The idea of a guaranteed basic income is not new, philosophers and economists from Keynes to Hayek have considered the thought. Keynes believed that as human productivity increases we will increasingly move towards a “leisure society” where people will have more and more free time. One of the reasons this has not happened is “relative need” i.e. our needs have grown. In the current context, we may not be able to provide everyone with an iphone but we certainly can provide for the basic needs of everyone in the world. The major obstacle to this is the inequality between countries. The Swiss will soon hold a referendum on universal basic income, but the numbers just do not add up for a country like India where productivity has not reached the levels of the developed countries.

Numbers for India:

  1. Assumption for minimum income: 1000 (poverty line; Tendulkar 2009)
  2. GDP 2011: 52.44 trillion
  3. Number of people over the age of 18 (2011): 9.2 billion
  4. Expenditure as a %GDP: 17.5%
  5. Expenditure to be cut:
    1. Food Security: 1.3 trillion (FY15 est)
    2. Food Subsidy (PDS): 730 billion (FY11)
    3. Fertilizer Subsidy: 700 billion (FY11)
    4. MGNREGA: 400 billion (FY11)
  6. %financed: 34%

It is definitely not possible to implement this in India at the moment. Considering the defense budget is only about 5% of the GDP, it will take a lot of growth before we can implement something like universal basic income.

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Life and Times

Its time to move again. Its surprising how your life can be packed into a few boxes leaving no trace of your existence except a concert ticket, some papers scribbled with various stages of sanity and a lingering smell of familiarity. You tell yourself again and again “time to tread new paths…new horizons”, “new opportunity” and the like. As another phase comes to an end you believe those words to be true. But when you see the boxes, you realize that they don’t contain your life. Its more ethereal, it is you or as I am wont to say now “our-soul” (sorry atma!). Personally, I think my backpack comes pretty close.

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Hmm…

There is a legend about a bird which sings just once in its life, more sweetly than any other creature on the face of the earth. From the moment it leaves the nest it searches for a thorn tree, and does not rest until it has found one. Then, singing among the savage branches it impales itself upon the longest, sharpest spine. And, dying, it rises above its own agony to out-carol the lark and the nightingale. One superlative song, existence the price. But the whole world stills to listen, and god in his heaven smiles. For the best is only bought at the cost of great pain….or so says the legend.”
– The Thorn Birds

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Let Freedom Reign

Marx believed that the most significant social change occurs through outright violence. A government derives its power from its monopoly over the use of force. Once the threat of violence by a government tips over into the actual use of force, the government forfeits its legitimacy and loses its raison-de-etre; i.e. to protect the life and property of its citizens. The power of the revolution lies in the willingness of the people to die for their cause. It lies in the power of ideas, of belief, of faith.

“Beneath this mask there is more than flesh. Beneath this mask there is an idea, Mr. Creedy, and ideas are bulletproof.” – V

Not since the days of the Islamic Revolution in Iran has the possibility of a popular revolution been so strong. But the protests are dispersed and the military or the authoritarians may yet have the last laugh. Tonight I shall drink to the people of Egypt.

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