Friday, April 18, 2008

India’s Access To Nuclear Fuel & Technology

A limited strategic partnership with the US is beneficial for India, the UPA, and the Left.

Shyam Ponappa / New Delhi April 3, 2008

An exciting move if ever there was one: the Tata group’s acquisition of Jaguar and Ford. Unthinkable some years ago. Yet it is credible now, especially after Tata Steel’s acquisition of Corus.* Real potential for cooperative gains, although there are risks.

Meanwhile, in India’s public space, the bid for nuclear fuel and technology is faring badly. Caught in an almost surreal wrangle between the Congress-led UPA and the Left, with the BJP in a huff playing irresponsible spoilsport. What insights might a collaborative approach bring to public policy? Here’s a look from the perspective of game theory.

Many real-life situations can be viewed as non-zero-sum games, including the UPA-Left contention on the 123 Agreement, because one side’s gains do not necessarily have to be at the other’s expense. Game theory provides two critical insights to understanding how cooperation can lead to better outcomes. These are:

a) When players make rational choices in their perceived self-interest, their actions perversely lead to a ‘least-benefits’ or Nash equilibrium. This non-cooperative equilibrium is the norm for selfish strategies, and neither party can benefit by changing its strategy unilaterally. This is where the UPA-Left discussion on nuclear access is today.**

b) By cooperating, both parties can get beyond least-benefits equilibrium to greater gains. This is the principle of coalitions and obviously well known. However, analysing the elements of the situation can help to show how to get past deadlocks.

The Nuclear Impasse

Figure 1 shows the present impasse between the Congress-led UPA and the Left.

Assume that the Congress/UPA’s objective is to maximise access to nuclear fuel/technology, i.e. to move right along the horizontal (X) axis. Assume the Left wants to minimise India’s alignment with the US; this decreases down the vertical (Y) axis. The UPA and the Left both want to be as far along the right axis as possible, while the Left wants to be as low on the vertical axis as possible.

Legitimate access to nuclear fuel and technology is possible solely through the Nuclear Suppliers Group (NSG). For this, it is necessary to have America’s approval, i.e. some degree of partnership. For instance, if the Left wants fuel and technology from China or Russia, this is not feasible without the approval of the US, the International Atomic Energy Agency (IAEA) and the Nuclear Suppliers’ Group (NSG) of 45 countries.

India’s starting position in Figure 1 is where the X and Y axes meet at non-cooperative or Nash equilibrium, with no access to fuel or technology. This position can improve only if the UPA and the Left cooperate and move away from this point.

The UPA’s initiatives on the 123 Agreement demonstrate a willingness to partner the US. The extent of partnership must be sufficient to elicit US approval; otherwise, the denial of access to fuel and technology continues, and to other equipment and technology barred by the US because of this. This includes, for example, anti-terrorism surveillance equipment that can be deployed high above the earth. Unless the Left is willing to accept the extent of partnership indicated by movement up the vertical axis to the level of the 123 Agreement in Figure 1, there will be no access to these technologies.

If the Left accepts a pragmatic partnership with the US, the next steps are IAEA and NSG approval followed by the US Congress’s approval, as indicated in the diagram. As India has already discussed supplies with France and Russia, these are the likely first sources of supply. Thereafter, Japan might be a supplier, although a supplier’s nationality may be moot, e.g. Toshiba owns Westinghouse Electric. Arguably, China could also be a supplier, which the Left could want.

If the Left is unwilling to tolerate US partnership, nuclear access is simply infeasible, as shown by the lower line indicating unrealistic wishful thinking.

Coordinated Solutions

What if the contention between the UPA and the Left is taken as not being primarily about nuclear access, nor about the degree of partnership with the US, but about the perceived effects on the electorate, i.e., staying in power? If this were so, game theory could help point the way to collaborative solutions that not only provide access to nuclear fuel and technology for India, but also improve both parties’ electoral prospects.

Recasting Objectives

As mentioned above, contending on whether or not to partner with the US defeats the aim of obtaining nuclear fuel and technology access, because a degree of US partnership is absolutely essential. However, what if the UPA were to limit the extent of partnership it advocates with the US? Might the Left back away from opposing all engagement with the US? If both sides do cooperate, they could possibly:

a) engage in a partnership with the US to access nuclear fuel, and

b) increase their chances of electoral gains by redefining their objectives.

Assume the UPA and the Left agree on the partnership with the US that is central to breaking past nuclear technology isolation, and set themselves other objectives. Suppose that the Left’s goal is lower prices through reduced indirect taxes, customs and excise. Suppose the UPA’s is maximising nuclear energy capacity. Figure 2 shows a possible solutions space, with L being the Left’s response function, and U the UPA’s.

The Left’s ‘Bliss Point’ could be at BL, and the UPA’s at BU. The line joining the points (where the indifference curves around the bliss points are tangential to each other) defines the potential collaborative Contract Curve, and a point C on it is best for everyone (Pareto optimal). What if there are constraints such as a maximum level of partnership with America (once China supplies fuel?), or a tax cut requirement that exceeds the UPA’s initial offer, but is nevertheless acceptable? If the constraints are as shown, the point S provides the best-feasible-solution. While not optimal, it is much more beneficial to both parties as well as to the public interest than non-cooperative equilibrium, because the stalemate denies nuclear access while engendering higher risks of worse electoral outcomes.

Whatever the Left and the UPA decide to do, the Tata group has shown the way to the high road to potential cooperative gains.

* For an evaluation of Tata Steel’s acquisition of Corus using game theory, see ‘Tata’s Corus Buy’ (BS, Nov 2, 2006), available at:

** For a description of why not cooperating while acting selfishly in one’s perceived best interests results in the worst outcome, see ‘Prisoner’s Dilemma’ at:

Thursday, April 17, 2008

The Burden of High Interest

Shyam Ponappa / New Delhi March 6, 2008

We need low interest rates for many years of double-digit growth in India.

I first saw ‘Whack-the-Gopher’ years ago at Billy Bob’s in Fort Worth, Texas. This place, famous for country entertainment, has a pro bull riding arena, a huge dance floor, many bars, and a Texas BBQ. It also has Whack-the-Gopher. Stand with a mallet in front of a raised ‘yard’ with a number of gopher holes. As the varmints pop out, whack them back in.

RBI’s Nostrum: Whack the Gopher
The RBI has its own variation. Every time the economy picks up, whack it with high interest rates, talk about inflationary risks to fuel uncertainty — and watch it fall back.

If anyone is chuffed at 8.7 per cent growth, stop to consider what kind of sufficiency leaves growing swathes of the country subject to violent attacks by extremist rebels, while most of it has no basic amenities (sanitation-water-health-education). In contrast, China apparently defines a growth rate at which employment fails to keep up with new entrants into the labour market as “economic stagnation”.* What will it take for India to plan and achieve the rising tide that, starting from Japan in the 50s, many countries have had the sense to figure out and make happen? Everyone including the Left must realise we can only aspire to any decent living standards after coordinated efforts to get 10 per cent growth for at least 10 years or more.

The RBI’s charter needs to be redefined, stressing growth and employment primarily, and inflation control secondarily, instead of the other way around. We would do well to remember that while countries that grew fast experienced occasional crises, they still grew faster than countries with smooth credit conditions.**

Interest & Profits
The chart shows Interest Expense as a percentage of Revenues, Expenses, and Net Profits from FY2000 to FY2007 on the left vertical axis, and the minimum Prime Lending Rate from FY2000 to date on the right vertical axis.

Interest costs amounted to as much as or more than net profits from 2000 to 2002, then dropped to around 20 per cent by 2007. From the way costs varied with rates, we know what will happen to profits. A study of quarterly interest rates and GDP growth in India for 2000-2006 corroborates this, as does an IMF study of other emerging economies I have cited earlier.#

Investment and planning are driven by perceptions of growth and profits. If revenues and profits (and expectations of them) grow at near 20 per cent, companies will continue to invest, and investors will keep buying stocks at high valuations. More enterprises will come on stream and do well, with additional growth in employment (i.e. further increases in output and employment). This is a virtuous circle for India with its demographics and headroom, because a large proportion of the population has room for appreciable improvement to attain reasonable living standards. This provides

massive scope for additional housing, transportation, energy and other infrastructure, durables and consumer products, as well as services. And it can only happen if enterprises and individuals continue to invest and act with optimism, buoyed by the prospects of growth and profits. Remember how years ago, good multinationals had consistent PE multiples of 25 when the market was at 15? This is why. And yes, there are reasons to justify such valuations for good Indian companies for the foreseeable future, provided our monsters don’t all rise.

Defenders of the Faith

A theoretical argument for high interest rates is that they can’t be lower than inflation. However, consider the examples in the table for India, China, Malaysia and Thailand:

Inflation in these countries is in fact higher than their interest rates, while borrowing costs in India are double these countries. A one per cent lower rate in India in 2007 would have resulted in increased net profits of about 3.5 per cent (based on a sample of companies). So, if Indian companies paid 3 per cent less for debt, their profits would increase by 10 per cent.

Of course, you might say: what about more profits that could accrue from a rationalisation of taxes, of better infrastructure, e.g. lower power costs and no standby requirements, better transport with improved logistics, government services provided efficiently over the Internet, and so on? You would be right. This is why there is potential for growth in profits of 20 per cent plus for many years together as all these kick in, provided we do what it takes to realise the potential.

Actionable Steps

What can the government do?

- Get the RBI to focus primarily on growth and employment, with a secondary emphasis on inflation.

- Take equivalent steps starting in the finance ministry on fiscal discipline, extending to all ministries and states; avoid populist giveaways.

- Set clear goals and coordinate all policies and actions across ministries and states and between the government and the RBI to achieve them, e.g.:

a) Lower expectations of inflation by:

- Cutting and rationalising taxes;

- Building policies and practices to deliver additional supplies of foodgrain, pulses, and edible oil as in the next paragraph.

b) Develop and execute sector-specific supply strategies, e.g. for foodgrains, pulses and edible oil: acquire additional stocks with better pricing; formulate strategies for additional production through better analysed and managed cultivation, i.e. better scientific inputs, extension and practices, and strategies such as offshore joint ventures.

c) Maintain a lower interest rate structure. Avoid inappropriate rate increases when limited supplies cause prices to rise; instead, coordinate fiscal and monetary policies (macro plus sector-specific) to improve supplies.

d) Develop and deploy systems and procedures at the operating level to facilitate lending on a sound basis to sectors such as construction, housing, durables, transportation and automotive products, i.e. more emphasis on the RBI’s banking operations charter. Good systems and procedures for sound credit will accelerate productivity, growth, and employment. As cited in an earlier article, the IMF found that it is indiscriminate lending without proper credit evaluation and/or repayment projections that lead to crises.@ This is important for an economy that relies heavily on bank credit, and does not have a well-developed bond market.

Such steps will help many of the gophers get up and away.


* ‘Harsh winter raises specter of “Chinese stagflation”’, Simon Rabinovitch, Reuters, January 20, 2008:

** ‘Crises and Growth: A Re-Evaluation’, Romain Rancière, Aaron Tornell, and Frank Westermann:

# ‘Exploring the inflation, interest rate, growth nexus’, A. Vasudevan (former RBI Executive Director heading Research), (, and “Business Cycles in Emerging Economies: The Role of Interest Rates”, Pablo A. Neumeyer & Fabrizio Perri, cited in the BS June 7, 2007:

@ Cited in the BS September 11, 2007: ‘Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies’, July 2005(, see

Initiatives For Renewable Energy

Shyam Ponappa / New Delhi February 07, 2008

There is an urgent need to organize for solar power & biofuels in India

...We need a comprehensive and integrated, silo-busting, problem-solving approach. This is in contrast with coasting along on a post-feudal-colonial mélange of currents and tides, with the brigandage of opportunistic politics fed by our (the voters’) greed for short-term benefits, resulting in our grotesque populism...

...Our leaders acknowledge repeatedly that infrastructure is India’s great need. Yet, they take no steps to marshal forces to draw up a credible strategy and execution plan. This is what needs doing...

...We have to “engineer” our way ahead, i.e., take active steps to build and develop our solutions, not passively wait for something good to happen...

Recent developments in renewable energy, e.g., cellulosic ethanol and concentrating solar power, underscore the urgency of pulling ourselves together on these fronts.

Cellulosic Ethanol

At the Detroit Auto Show in January, General Motors made a startling announcement: it had invested in a biofuel startup. This startup, Coskata, is one of uber-investor Vinod Khosla’s bets in renewable energy. Coskata claims it can produce ethanol from cellulosic sources at reasonable cost. The feedstock can be woodchips, grass, straw and agricultural waste from crops such as corn and wheat, even plastic and other carbon waste such as old tires. Coskata’s process needs much less water: less than the volume of ethanol, not three to four times as for other methods. Argonne National Laboratory reports that the process generates 7.7 times the energy used, and reduces CO2 emissions by over 80 per cent compared with petrol. However, this is in the laboratory, and Coskata has to prove it can scale up. This is planned by 2011, starting with a pilot plant this year.*

Coskata converts feedstock using heat into synthesis gas or syngas, comprising primarily carbon monoxide, hydrogen, and carbon dioxide. This gas is processed by proprietary microorganisms to create ethanol and water. In contrast, other bio-fermentation processes usually create a number of complex alcohols in addition to ethanol. Coskata’s microorganisms reportedly have greater tolerance to impurities in syngas than processes that use chemical conversion. The ethanol and water are separated using a membrane technology that is estimated to cost only half as much as processes such as distillation. Overall, Coskata achieves the highest conversion efficiencies for ethanol.

Solar Power — No Rain In Spain

Southern Spain is known for its sunshine and scarce rain. Capitalising on this “deficiency”, Spain is becoming the leader in the revival of Concentrating Solar Power (CSP), i.e., focusing heat from solar radiation to generate electricity, pioneered in California. In the 1970s, nine solar thermal plants were built at Kramer Junction in the Mojave Desert to produce 354 Mw, then forgotten in the rush for fossil fuels.

Outside Seville in Spain, 600 reflectors focus solar radiation to the top of a concrete tower 40 storeys high. This is Abengoa’s Solúcar project, which converts radiant energy into heat, driving steam turbines that generate about 10 Mw of electricity at an estimated cost equivalent to $50-70 a barrel. The capital costs are high but the fuel is free, and there are no noxious emissions. Photovoltaic generation costs nearly double CSP, but has the advantage of modularity: small units can be used for individual homes, while CSP needs large amounts of capital and land.**

A different CSP design using parabolic troughs is used by Spanish company Acciona in a 64 Mw plant commissioned last summer near Las Vegas in Nevada.**

Relevance for India

These are instances of developments that deserve focused attention in India — another area where we have an urgent need to set about organising ourselves out of our chaotic ways. My aim — fond hope — is to initiate or precipitate action. Ideally, through an agglomeration of our imagination and ability, we will develop a sound process of analysis, goal setting, and then proceed with the follow through to achieve these goals. But we have to apply ourselves for this to happen; these are complex issues, and need informed analysis and decisions.
We need a comprehensive and integrated, silo-busting, problem-solving approach. This is in contrast with coasting along on a post-feudal-colonial mélange of currents and tides, with the brigandage of opportunistic politics fed by our (the voters’) greed for short-term benefits, resulting in our grotesque populism, in lieu of the much greater deferred gratification of pleasing cities and countryside with the appurtenances of proper governance: sidewalks and drains, transport, administration and order, hospitals and schools. We have to “engineer” our way ahead, i.e. take active steps to build and develop our solutions, not passively wait for something good to happen.
This applies across the board in the broadest “spatial planning” sense that integrates housing and land use at all levels with commercial, industrial, cultural and scientific activity, transportation, and all governance and infrastructure: water, sewerage, energy, communications. Infrastructure being the first level of enablement, it is an essential starting point.
Plan Outlays — Necessary But Not Sufficient

Our leaders acknowledge repeatedly that infrastructure is India’s great need. Yet, they take no steps to marshal forces to draw up a credible strategy and execution plan. This is what needs doing. Only money won’t do, because delivery systems and processes have to be developed, i.e. planned, then built from scratch.
Finance is certainly a requirement, but it is not the only one. Equally critical is coordinated implementation. This needs human resources and organisation, with the technology, systems and processes to make it work. All these must mesh in a goal-oriented organisational form in an enabling environment for good outcomes. This requires a combination of the regulatory aspects of government together with the social aspects of human dynamics, including the availability of trained people for production and delivery, and well-developed markets with all the necessary attributes, starting with demand. Therefore, funding is only one critical step.
Creating Institutional Delivery Systems & Processes

Our need is to create the requisite institutional systems and processes. This is probably best done with an open, collaborative approach — if we can pull it off. “Our need” means primarily for the government to act, and secondarily for all of us, given how we are set up. We — in all our spheres: private, corporate and governmental —have to do this ourselves, and stop hoping somebody else will do it for us.
No individual or single-domain point of view can do the job. Just as considerable national effort is directed at expanding India’s access to fossil fuels, there needs to be serious, coordinated effort by people with diverse skills and expertise to aggregate, analyse, present information on developments, and help make decisions in these alternative energy areas. We don’t need more government agencies, but we do need to configure a group to get the job done. The key is to aggregate the domain and process expertise — from existing ministries/departments, agencies and the private sector — focused on the purpose at hand.

Price Discovery & Spectrum Auctions

Shyam Ponappa / New Delhi January 3, 2008

Why spectrum auctions make no sense for a developing country

Some eight years ago, a much delayed telecommunications renaissance began in India. This was ushered in by the policy changes in the New Telecom Policy of 1999 (or NTP 1999). Though botched by its confused goals — despite my involvement — it was redeemed by one path-breaking feature: the renunciation of the onerous licence fees resulting from the auctions of 1994. These auction fees were replaced by a policy of revenue-sharing between the government and private operators. The outcomes have been nothing short of revolutionary.

We need to remind ourselves that the preceding imbroglio was because of the Indian government’s price-discovery-by-auction approach to the development of this most effective (in terms of bang-for-the-buck) form of enabling infrastructure. The primary reason for “success”, defined as growth in the number of lines, was the government’s willingness to give up this venal approach and shift to revenue sharing.

Just as it did then, the government — the Telecom Regulatory Authority of India (Trai), the Department of Telecommunications, the Finance Ministry… — should be questioning the logic of indulging in price discovery through auctions for building enabling capacity in essential services, in this case, of wireless spectrum. If the government is not actively seeking to build enabling capacity in this form of infrastructure in the public interest, it needs to consider why not.

Not asking these fundamental questions results either from a lack of application of mind, or from the flawed thinking of misplaced orthodoxies. These can be of many sorts, such as of market fundamentalists, libertarians, and neo-liberals with the belief that “the market knows best”, that economic liberalism is best for promoting development, or that every interaction should be a market transaction in open, competitive markets. Or of the neo-cons, who take the approach that those who can afford whatever it is can have it. Or of those who believe that cabinet decisions once made are sacrosanct and should not be questioned. Or of those who think the Indian government should make as much money as governments in developed countries have made from the sale of spectrum and other assets. This latter argument is put forward not only by representatives of the government, but also by economists, e.g. V Ranganathan of the IIM, Bangalore, and his students Darshit Shah, et al.*

These articles and arguments ignore the essential purpose of the exercise, and divert attention from the central issue, i.e., Peter Drucker’s dictum: what is your objective? The purpose of distributing spectrum in India as for awarding franchises in infrastructure is to build enabling capacity in the public interest; it is not to collect maximum fees for the government.

This is because infrastructure is a fundamental determinant of productivity at India’s stage of development. Essential services such as telecommunications (and energy, transportation, water and sanitation … etc.) are a basic need for people to be productive and have a reasonable quality of life. These aspects of essential infrastructure provide the underpinnings of the cost structure of the economy. If these services are unavailable or available only at a high cost, several consequences follow. One relates to the cost structure of outputs, which determines competitiveness in domestic and external markets (remember the IT services revolution and how Indian companies got their first break in foreign markets). Another is access deprivation because many people find these services unaffordable. These aspects affect productivity and competitiveness as well as the quality of life.

So, if growth in fixed and mobile lines is not an appropriate measure of success for telecommunications services, what might be a better measure? What if the government focused on user needs, instead of collecting more money for allotting the right to provide telecommunications services, or considering other factors such as incumbency, technology assumptions, the bogey of the efficient use of scarce resources — the rationing and scarcity mentality of our past and present? We could perhaps develop an alternative scenario starting with desirable outcomes, and work backwards to specify the conditions and processes required to achieve these outcomes through a process flow chart or logic diagram. Let us assume this goal is ubiquitous, true broadband (at least 500 kbps) for as many as possible in India, accepting for the moment that this would provide a basis (provided the rest of the systems follow) for hitherto inconceivable opportunities for education/training, health care, public services delivery, commerce and enterprise, information and entertainment. The question is, what mix of policy norms and incentives could deliver this result?

With the caveats that this perfunctory exercise is merely indicative, limited to a conceptual level, and necessarily simplistic, consider how broadband might develop with attractive incentives for achieving this goal. The incentives could be of many kinds, and could include, for instance, additional spectrum for wireless networks, reduced duties and taxes, area franchises, public property usage rights at favourable rates, and reducing fees as a share of revenues. These incentives could be structured to increase with incremental achievement, e.g., higher tax breaks, larger spectrum allocation levels, and reduced revenue share.

In order to be practicable, there are several levels of detailed requirements. The first prerequisite is of basic political will, a concerted multi-partisan convergence to undertake such a complex task over a reasonable time frame of months and years — and not, as a stalwart in the government in the past once told me, something that needs no more than 10 days. Such an effort requires not only the setting aside of greed and opportunism, but also of incompetence. Perhaps this is an unachievable prior condition in India, and no such effort is possible; perhaps it is.

In reality, such an effort would need to be worked out by a diverse group comprising government and private sector participants, with knowledgeable facilitation capable of understanding the technology underlay, content domains for different product-market spaces with adequate segmentation, e.g., within education and training: primary and secondary schooling, undergraduate, postgraduate, specialised modules including technical training and all-round skills such as in presentation and succinct writing, project management, group dynamics, quality, etc., as well as domain expertise, whether in telecommunications and engineering or in finance, economics, biology, sociology, history, the arts...

* “Auctioning spectrum best for the country,” BS December 7, 2007:

“How to run a good auction”, BS October 12, 2007:

Dirty Coal, Clean Water?

Shyam Ponappa / New Delhi December 06, 2007

Choosing Between Coal-Fired Power & Hydroelectric Power
It's not so simple, and good decisions need informed analysis

The fracas over the 123 Agreement led to a very useful result: finally, information is being made available about what it would mean to be able to import nuclear supplies, the pros and cons of recent developments in nuclear power generation technology versus other fuels, and the benefits and costs associated with choices. What if this process of impasse-and-reluctant-communication — a grudging divulgence of information — were reversed? Imagine how it might be if expert information from various perspectives were aggregated and disseminated early on in a process, if the public and parliament were educated about the possibilities, choices, benefits and costs. We might actually achieve some rational decision-making.

Of course, this is not our way. Our way is either by political accommodation or by committee. Political accommodation is inappropriate for engineering and management decisions, e.g., for telecommunications, and can lead to outcomes like the regulatory confusion and low level of true broadband (at least 500 kbps), or the problems of electricity supply. Solutions that depend on science, engineering, economics, and/or management simply do not work if they are based on accommodation instead of rational analysis. Committees should be able to do the aggregation of information, analysis, and problem solving to arrive at informed conclusions. However, in our environment, they can take to obfuscation or delay, or worse, resort to decisions by accommodation.It is time we adopted better reasoning as our way. Dealing with issues that affect our lives with more rationality and expertise, so that the facts surface, are subjected to expert inputs given the state of knowledge, and we can watch and contribute to having informed opinion give shape to decisions. Begin with information and facts made public, elicit expert opinion from various domains, then develop conclusions, thereby reducing the extent of uninformed emotional argumentation.

For instance, an estimate that surfaced about the supposedly low potential for nuclear power was that it was actually the same as for the much-touted hydroelectric potential: 6 per cent by 2032. There are still problems that are glossed over associated with coal and hydroelectric power:

Problems With Coal

Rarely do coal enthusiasts mention the difficulty of exploiting dirty coal, from mining our high-ash reserves, to transporting coal by our stretched railway system, to the high level of emissions from plants using this fuel. The ravages of fly ash from coal plants, which in India apparently has higher levels of silicon dioxide, aluminum oxide, ferrous oxide, sulphur trioxide, and unburnt carbon, are completely overlooked in the reckoning, as is the water needed to clean up (e.g. the effects on the Yamuna for Delhi).

Problems With Hydro-electric Power

Likewise for hydroelectric potential. One need only recall the difficulties of getting such projects going, especially when they involve large dams such as the Sardar Sarovar or the Tehri Dam. Granted such issues are aggravated by the lack of equitable resettlement, on which we just have to do much better, perhaps on the lines shown by JSW Steel.

Such complex issues need strong government-sponsored initiatives with private participation for the requisite depth and breadth of expertise, and neutrality (multi-partisanship), with the all-important feature of Project Management oriented to well-defined goals, to achieve good results. As always, we need to prioritise for these essential infrastructure and governance issues that are at the heart of our inadequacies. Like communications, energy decisions for transport, heating and lighting are critical areas needing attention. This is primarily from our own need to correct our trajectory for better living, rather than for reasons relating to the Kyoto Protocol.

Action at the local level, whether it is water management for conserving rainwater and applications for gardens, or energy applications such as solar water heaters, cookers or lighting, requires a much more organised effort to be practised widely and have a significant beneficial impact. So do national initiatives on fuels for transport, including petrol, diesel, and biofuels. Areas like these need focused, intense efforts at information aggregation and expert analysis, followed by solution formulation and execution. Most important, there has to be the follow-up for effective dissemination, with implementation support on the ground.

Take the example of biodiesel. The knowledge available with TERI (, the Planning Commission’s National Mission on Bio Diesel — whose role is overall coordination? — the Petroleum Conservation Research Association’s National Biofuel Centre (, the Agriculture Ministry’s National Oilseeds and Vegetable Oils Development Board (, the Central Salt and Marine Chemicals Research Institute at Bhavnagar, and so on, as well as information on commercial initiatives such as D1 Oils of the UK with their wide-ranging efforts in India at extensive plantation and procurement of jatropha through ventures with Mohan Breweries (D1 Mohan Oils) for the south, Williamson Magor for the northeast, and PManek for Gujarat, could be pulled together and made accessible in one place. Further, the findings and conclusions could be used for systematic, country-wide implementation with institutional processes for support.

In the case of petrol, issues relating to ethanol need equally intense efforts at aggregation, expert analysis, and solution development. I was horrified to learn that a company was considering ethanol production from corn here in association with an American company. The inadvisability of corn-to-ethanol is well known even for the US, despite its extensive corn-growing practices.

An example of a glaring anomaly awaiting attention in the subset of transportation fuels is the policy for diesel and petrol. While lower prices for diesel for mass transport and freight make sense, with our atmospheric pollution levels, the current incentives for small diesel car production and use in India appear to defy logic. The Centre for Science and Environment has been campaigning against diesel cars for so long that some of us do not see or hear their plaint. Also, many of us have been lulled by the “clean diesel” story from Europe and whatever tradeoffs they have made. But this is not Europe, and given the state of our atmosphere, the black carbon emissions as well as the oxides of nitrogen from diesel with their effects on smog creation, and the perceivable improvement in atmospheric pollution in Delhi with CNG buses followed by reversals, there is a critical need for immediate, focused, unbiased government initiative, with comprehensive policies and follow-up action.

P-Notes & Regulatory Shocks

Stunning the market: How not to regulate
Better ways to change the rules, perhaps?

Shyam Ponappa / New Delhi October 31, 2007

Cutting through the consternation and confusion after the regulatory shock on P-notes, let’s pick our way through the pieces.


The government’s/Sebi’s objectives are, presumably, to reduce capital inflows into the stock market and change their mix to curb liquidity pressures raising (a) asset prices, (b) the rupee value, and (c) prices in general (inflation), and to increase transparency to discourage speculative circular trading, whether for profits or for sinister purposes such as inducing instability. Let us examine if these objectives are desirable, and why or why not.

Votaries of open markets want free capital flows even into developing markets such as India. Leaving orthodoxy aside, consider the benefits and costs. International capital seeking high returns in India’s stock markets have the effect of raising the perceived value of shares overall. In other words, from a staid forward PE of around 15-18, the tide can rise so that buyers will pay PE multiples of 22-24 or more, because of an upbeat interpretation of fundamental factors that augur high growth. This can be beneficial or detrimental depending on who gets to capture the value.

The Invisible Hand In Emerging Markets

If offshore hedge funds capture all the business and take out all the profits, the primary gainers are the funds and their investors. Such funds are best placed to capitalise on a quick runup, with their ready capital for precisely such purposes, as well as their agility in evaluation and execution. The companies they buy into also gain directly for purposes such as acquisitions through stock swaps, and broader, cheaper access to capital.

Apart from this, there is the wealth effect for these enterprises, a sort of increased “gravitational pull” of a well-regarded enterprise seeking opportunities and attracting resources (people as well as capital).

The losers are Indian investors, both institutional and retail, who could have otherwise captured the gains, as well as local service providers who would be involved in the execution. With local involvement, there are additional benefits from taxes collected from end to end, and the multiplier effect from the local increase in income and wealth.

However, it is likely that without offshore capital, the higher-order multiples would not be realised, because the same set of cash flows can elicit differing perceptions of value. In times of secular prosperity, the potential for high growth over a long period justifies the higher valuations, whereas difficult circumstances can circumscribe and constrain valuations and behaviour for the same data.

Positive outcomes are more likely if corporate profits continue to grow, local interest rates moderate, and more domestic funds and pension funds move into equities, as also more retail investment. These issues are left to market forces in OECD countries characterised by well-developed, liquid markets with a variety of instruments and intermediaries. In India, where a minuscule percentage of people’s money is in equity, few companies have liquid shares, and markets are not well formed with limited investment products and services broadly available, we are at a more formative stage of market evolution. In such circumstances, investment access for the public is closer to a public good, part of the financial infrastructure at the next level beyond basic infrastructure. Therefore, government and regulatory activism in facilitating investment is necessary in the public interest. Those who yearn for America’s markets should be aware of the years of strong intervention it took to develop them.*

Consequences Of The Government’s/Sebi’s Actions

(i) Capturing Value Locally

The shock announcement may reduce FII flows in the next few months; the question is by how much. If inflows were to be reduced by half and skewed towards a longer term, it would probably be a sufficient fillip to prices, while allowing room for local investors to enter and capture the value of the ride up the curve. If this were to happen, it would be very desirable for the public interest in India; otherwise, most of the benefit would go to offshore investors. If the reduction and change in the composition of inflows is insignificant, the government/regulator need to design other appropriate intervention; and if investments drop by too much, ameliorative measures with more time for adjustment would be advisable.

Why should the government or the regulator care whether or not the Indian public derives significant benefits? First, the public interest is the responsibility of the government and the regulator. Second, there are the local benefits and multiplier effects referred to earlier. These are akin to the revenue sharing gains in telecommunications, whereas FIIs booking profits spirit the gains away, yielding fewer local benefits.

(ii) Roiling the Markets

Now to the way changes are initiated. It is presumably the government’s and the regulator’s aim to maintain stable markets while effecting desirable changes. To the extent that markets have been unnecessarily roiled, there are clearly better ways of initiating change. The key is the government’s/regulator’s stance. To the extent the attitude is supportive and understanding towards market players, there are likely to be less ructions than if it is adversarial, as it appears now. Even if P-notes are to be phased out completely, there are better ways of doing it than a sudden announcement with the threat of limited time for discussion and implementation.

(iii) A Better Way?

For stability, a constructive attitude of open communication, problem definition, and resolution is most important. This is not to say that positions considered harmful to the public interest must be accommodated, or that India has an obligation to support FIIs running offshore trades (my view is that it is not in India’s interests to have extensive hedge fund participation in its markets). However, the process of arriving at conclusions after eliciting views from the players, and then communicating and implementing decisions in a manner that is least disruptive, is very important. Exploratory consultations in direct discussions and through the Internet are not that difficult to devise and implement. Also, if changes are conceived and executed in an end-to-end, systematic, integrated and phased manner, there are likely to be better outcomes than patchy interventions. Otherwise, the opacity and apparent capriciousness of our regulatory environment will constrain our ability to grow and prosper at a pace and to a level that exploits our potential fully.

* Rendezvous With Destiny; A History of Modern American Reform, Eric F Goldman, Alfred A. Knopf, 1952

Organizing Ourselves: Cautionary Tales & Inspiring Possibilities

Shyam Ponappa / New Delhi October 04, 2007

Instances and inspiring possibilities of institution building.

Some time ago, a perceptive ‘re-reading’ of the Babur Nama by Sunil Sethi in these pages highlighted the similarity of India’s problems and needs in the 16th century and now: essentially, the lack of purposive organisation and infrastructure.* Having failed for five centuries barring exceptions, should we then give up on organising ourselves? Or can we possibly make the effort to learn from those of our institutions and others that work as purposive systems - achievement-oriented organisations — to try to effect a transformation, to define a pragmatic way forward? Collaboration in the common interest instead of following our penchant for argumentation, and indulging in a million mutinies. Especially for self-aggrandisement in the ultra short run (because in the long run, it is in everyone’s interests to co-operate).

Some of our institutions that work, by and large:

- The defence services: the Navy, Air Force, and Army.

- Companies serving external markets: our IT stars were early champions, now under a cloud until they reinvent themselves. Broadly, knowledge-based companies, and some engineering and textile companies.

- The Delhi Metro, Konkan Railways, some aspects of Indian Railways.

- Some areas of government.

- Some groups of professionals.

For most of the rest of us, while there are very many excellent individuals, alas, few are part of any organised system.

The Challenge

It is really up to us whether to go on in this chaotic, neo-feudal way with the specious excuse of being the largest democracy, or to buckle down to organising and functioning in our collective better interests.

The greatest impediment is our unwillingness to act in concert while carrying the baggage of sectarian inclinations, a sort of tribalism focused on the special interests of factions, the lesser loyalties of region, caste, clan, family. Our needs are exactly the opposite: aggregation of information, allowing cross-discipline analysis for problem definition — informed, correct diagnosis — and the synthesis of solutions that are workable, that can be and are executed on the ground, i.e. the organisation and prioritised management of initiatives — prime areas for nonpartisan, multidisciplinary thinking and action. The questions are whether and how issues of common interest can elicit coherent behaviour.

Opportunities For Covergent Action?

Are there compelling purposes that could help us break out of this rut? Persuade us to act more responsibly, be less mindful only of our rights while being oblivious of our coequal obligations.

Could the purpose of deploying India’s currency reserves profitably for everyone’s benefit enthuse us — especially our politicians — to start thinking and acting collaboratively? The incentive could be Rs 90,000 crore a year from $150 billion invested.

Or of organising waste collection and disposal, so we can live in better surroundings some years down? From waste collection through effective, humane systems, including organising and paying rag pickers, to managing sustainable disposal, removing this great blight.

These are the issues that deserve nonpartisan attention, where a sense of our obligations would help. Such issues need breakthroughs of nonpartisan, convergent action in the common interest, with “right knowledge” (expert inputs), not merely negotiation and/or accommodation of public opinion. Everything is not best left to public opinion. We need to distinguish between issues for public debate, and those that need resolution with expertise or competence. This is impossible without abjuring sectarian interests and populism. If we go with public opinion, we will opt for “free” power and water, and stay mired in shortages and with dreadful sanitation … Few major projects — hydroelectric projects, nuclear plants, or dredging projects — will come about.

Given the realities of the evolution of Indian politics, ultimately, these initiatives probably need to be structured to tie into a fair election funding process. Either that, or the tax and PDS systems must become good enough to channel excess receipts into a decent election funding system, which will need to be developed. Without such incentives and processes, it is unlikely that our predatory politics and heedless public behaviour will change, or that we can break out of our established interest groups.

The Risks of Business-As-Usual

Many seem to expect that because India is in the early stages of its political and economic development, things will improve with education and prosperity. For these sanguine business-as-usual-ists, there are two cautionary images. One is the highly evolved democratic processes mired in a hardliners’ deadlock, the predicament of America. The second is the unresolved, divergent paths taken by the French-speaking Walloons and the Flemish in Belgium. These educated, prosperous people have stayed apart, and not been able to get beyond their uncooperative mindsets to function as a nation.

Lessons Abound

There is also much to learn from other countries if we care to, although we tend to dismiss others’ experiences as irrelevant. Small nations especially, like Belgium, Dubai or Singapore, are often viewed simplistically. It is in our interest, however, to look to wherever we need to for our purposes. Take Singapore: a closer look reveals the complexity it has had to overcome and the distance it has travelled to achieve its position. Set adrift in 1965 with a hodge podge of migrants from southern China, southern India, Pakistan, Sri Lanka, and the archipelago, it had no homogeneous population, common language or culture. But it had plenty of examples of troubled and failing states as warnings. As venerable Singaporean leader Lee Kwan Yew puts it, “… we knew what to avoid — racial conflict, linguistic strife, religious conflict. We saw Ceylon …” Singapore’s secret is its practice of an unsentimental pragmatism that is “ideology free”.**

Many in India dismiss Singapore as a model because of its scale. But scale hasn’t stopped China from taking lessons. China’s officials have been interacting regularly and systematically with Singaporean counterparts, as they have with other countries such as Belgium and the Netherlands. Chinese ministers have meetings twice a year with Singaporean ministers to learn from them; every three months, fifty mayors of Chinese cities visit for courses in city management. Likewise, China is learning waste management from Flanders, as are Russia and Britain.

Our institutions must, of course, be tailored to our context. As a UN University report notes, successful institutional changes typically emerge as a mixture of country-specific innovation and chance developments, as well as deliberate learning.*** All we need do is select pivotal issues to galvanize nonpartisan thinking and collective action.

* “On re-reading Babur Nama in 2007”, BS August 11, 2007:

** “Lee Kuan Yew, founder of Singapore, changing with times”, Seth Mydans & Wayne Arnold, International Herald Tribune:

*** “Stranger than Fiction? Understanding Institutional Changes and Economic Development”, Ha-Joon Chang, UN University Policy Brief No. 6, 2007:

Tuesday, April 15, 2008

Bank Credit for Growth in India

India needs continuing increases in bank credit for this phase of growth.

Shyam Ponappa / New Delhi September 11, 2007

One issue that deserves RBI and Finance Ministry review for action is the rate of bank credit growth. A perverse outcome of the capital inflows we seek — and have for once succeeded in getting — is that credit is less accessible and more expensive because of the RBI’s actions to curb bank credit as India enters its most promising phase of growth. While steps must be taken to contain liquidity, the point at issue is the objective of reducing bank credit growth. Perhaps this is because orthodoxy demands that when bank credit grows rapidly, it should be reduced by curtailing availability and increasing interest rates, to avoid excesses.Let us consider the relevant facts in India’s current unprecedented growth phase. While bank credit has been growing over the last few years at around 30 per cent, rising to 35 per cent in July 2006 before dropping to 22 per cent in June 2007, it is instructive to view it in a comprehensive context. The factors to be considered are GDP levels, bond markets as an alternative source of funds for growth, and levels of saving, investment, private consumption, household debt, and housing finance. Considering some of these attributes in emerging economies as well as in mature markets helps to round out the picture.

Bank Credit & GDP

In 1970, bank credit to the private sector in India was at about 19 per cent of GDP. The UK was at 29 per cent, Brazil at approximately 48 per cent, and China at about 52 per cent, while the USA was already over 115 per cent. By the mid-90s, India reached 29 per cent. The UK had crossed 110 per cent while Brazil was at 60 per cent, and China over 90 per cent. By 2005, India reached 37 per cent, or twice its 1970 level. Meanwhile, emerging Asian economies were at 100 per cent or more; only Brazil’s level had dropped back to about the same as India.

Chart 1 shows the average rate of growth of bank credit to the private sector from 2002 to 2005, and bank credit as a percentage of GDP. This indicates there is considerable room for expansion. However, this must be evaluated together with bond markets to make a better assessment, after considering their roles in India compared with their roles in mature economies as well as emerging economies.

Role of Bank Credit

The role of bank credit in India is very different from its character in mature markets. Bond markets in developed economies are deep and liquid, and have broad participation from institutions as well as individuals. Consequently, these markets have significant disintermediation, with banks being much less important as a source of funds for growth. In contrast, in India as in emerging Asia, banks are the primary source of funds. Bond markets have not yet developed sufficient depth and liquidity, and so cannot serve as an effective alternative source of growth funds as in mature markets. In this light, high bank credit growth of good quality is precisely what India needs for maintaining economic momentum.
Bond Markets
Table 1 shows India’s bond markets together with other Asian local currency and US dollar bond markets excluding Japan. Asian economies in general have relatively underdeveloped bond markets. The figures show that India has a relatively less developed local currency market than Korea, China, or Taiwan, and an even less developed US dollar bond market. Considered in combination with the predominant role of bank credit, it becomes evident how essential the latter is for India’s economic growth.

Table 1: Bond Markets in Asia

Savings, Investment & Private Consumption

Next are trends in saving, investment and consumption. For the period 1999-2005, domestic saving was 32 per cent of GDP and rising, household saving steady at over 22 per cent, capital formation rising at over 32 percent, and private consumption trending down below 60 per cent since 2004. This looks good … but for the self-inflicted damage we could incur, by (a) curtailing access to credit, and (b) making credit more expensive.

Household Debt

The level of household debt in India is low compared not only to the US and Europe, but to other Asian countries as well, e.g., Thailand, Taiwan, and Malaysia (Figure 2). Average household debt in Emerging Europe was 12.1 per cent of GDP, 27.5 per cent in Emerging Asia — well over India’s 9 per cent in 2005 (perhaps 12 per cent now?), 9.2 per cent in Latin America, and 58 per cent in Mature Markets. Without advocating extravagant consumerism, household debt levels in India have room for considerable growth.

Figure 2: Household Debt 2005

Housing Loans

The penetration of housing loans as a percentage of GDP is very low in India (7.25 per cent at the end of 2005). This compares with 10 per cent in China, and 61.3 per cent in Singapore. Figures for 2002 for the EU were 42.6 per cent, and for the US 79.6 per cent. The huge demand for housing combined with the relative safety of housing loans suggests that this area requires action to increase the availability of finance at reduced rates.

Consumer Debt & Productivity

Finally, an insight attributed to Jagmohan Raju of Wharton is that many Indian consumers take on debt for productivity-boosting utility products, rather than for consumption or entertainment.* This deserves serious scrutiny; if true, it is a powerful reason in itself against constraining consumer credit and/or making it more expensive.

Lending Booms & Financial Deepening

The IMF cites examples of lending booms in developing economies without subsequent crises in Egypt, Lebanon, and Indonesia.# Driven essentially by the financing needs of a large investment and consumption expansion because of structural reforms, these countries experienced a permanent financial deepening. Other examples cited are euro-convergence countries like Ireland and Spain, and the developed economies of Australia and the UK. The IMF report also draws attention to where and what sort of corrective action is necessary: in systems and training for institutions with substandard credit evaluation procedures, and/or with unrealistic projections of repayment capacity. Therefore, unless the data and analysis are wrong, the RBI and the government should consider:

1. Accepting that during rapid development, credit will grow faster than output, and provide for it by inducting systems and corrective measures for lax enterprises, with the emphasis on minimising misuse and asset bubbles.

2. Taking all reasonable steps to assure availability of loans at low interest rates as a sound enabler for growth, especially of infrastructure.

# ‘Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies’, July 2005:

Tulips & Bulbs from Keukenhof

Planning For Markets & Development: The Dutch Experience
Published as a supplement in the Business Standard, November 2007

Living below sea-level with an overcast sky that drizzles much of the time, it helps that the Dutch have a dry sense of humor. So they enjoy little inside jokes with their direct language and unaffected style. One such joke is Keukenhof [pronounced ‘Ke(r)-ken-hof’], which means “kitchen yard” in Dutch. Hidden behind this unprepossessing name is a fantastic spectacle of color in something like 80 acres of a beautiful, landscaped garden near the pretty town of Lisse near The Hague. With banks of tulips, daffodils, lilies, and hosts of other flowers set amongst trees and water, Keukenhof hosts thousands of visitors every day from all over the world for two months each spring. The rest of the year the gardens are closed to the public, while the employees hunker down to serious gardening and commerce: bulbs from Keukenhof are exported all over the world, primarily to the USA, Germany, and Japan.

Cottage Kiosk, Keukenhof: Shyam Ponappa 2006

Keukenhof evolved as a collective effort of independent growers from small and large farms in the region who collaborate not only to display their wares, but also to draw in the tourists during the short ‘season’, then market their products worldwide through the year. Seven million bulbs are planted every year, and the flow of the large number of seasonal visitors is organized masterfully, despite 700,000 visitors in two months. At the height of the season, over 50,000 people visit every day. Facilities like widely separated gates and roadways together with good public transport available from Amsterdam and other nearby cities facilitate visits and help in dispersing the crowds.

Keukenhof is a self-contained system with end-to-end processes, starting with the growers’ cooperative, extending to their public facilities for marketing, sales, and tourism. The facilities are supported by accommodation and transport service providers spread around the vicinity. Growers collaborate in planting the bulbs and seeds in the surrounding farms, set up the ‘yard’ for sight-seers and buyers, then work at producing and shipping their products worldwide through the year. These efforts enjoy the support of excellent infrastructure facilities and services built up and maintained over very many years by an enlightened and supportive government.

Crocuses at Keukenhof: Shyam Ponappa 2006

While the Netherlands is a beehive of enterprise and free trade, there is no dearth of governmental resolve and action in the public interest. What is most impressive is how this applies across the board to commercial ventures as well as to convivial living, although some may look askance at the Dutch approach to live-and-let-live. While it is not all necessarily perfect nor unfailingly positive, it is absolutely admirable. At one end of the range are major government investments in infrastructure, such as Schiphol airport, Rotterdam port, and KLM, the international airline in which a controlling interest was sold, reluctantly, to Air France some time ago. Schiphol is built on land reclaimed from low-lying water some 4 metres (15 ft) below sea level (Schip hol = ships hollow or hole), with its state ownership a much-debated but never quite resolved issue. For years, long before it was fashionable to do so, Schiphol featured among the best airports, with highly rated conveniences. This combined with Dutch enterprise in running an airline hub through the city for KLM explains the over 46 million passengers who went through Schiphol in 2006.

India & The Netherlands

Applying concepts from the Netherlands in India
Published as a supplement in the Business Standard, November 2007

Tucked away in Western Europe with the North Sea to the north and west, Belgium to the south, and Germany to the east, the Netherlands is about the size of Haryana with a population of about 16 million. The Dutch are renowned for their skills in water management, and have a formidable reputation for purposive organization. This penchant, built on successes in water management from the 12th century and then trade and commerce, extends to many fields. These include logistics and markets, e.g., the flower markets of Alsmeer and Rotterdam which handle more than half the world’s cut flowers, the transportation and storage of coal, fuel, metals and finished goods through Rotterdam port that make up half of Europe’s imports and exports, and the 45 million passengers and air freight flowing through Schiphol Airport.

The Example of Flower Markets

The Netherlands is the world’s leading producer and distributor of cut flowers and potted plants, and Dutch flower auctions are the world's leading centers for trading cut flowers and potted plants. The Dutch had 59% of the market for cut flowers and 48% for potted plants in 1996. Other major producers are France and Germany in Europe, Ecuador and Colombia in South America, Ethiopia, Kenya, India, Israel, Thailand, Malaysia, Japan, and the largest producer and consumer in recent years, China.

The auctions, established and owned by grower cooperatives, trade over 30 million flowers daily through about 60,000 transactions, worth almost E2b annually. The two largest are VBA at Aalsmeer near Schiphol Airport, and BVH near Rotterdam.

All this is managed in an excellent balance of town-and-country, with pretty towns and buzzing cities interspersed among beautiful tracts of countryside and water, blending urban and rural attractions. An attractive aspect of their approach to area planning, or spatial planning as they call it, is the integration of bicycle tracks into their transport and living space. It is a parallel road system in effect, with every effort made to encourage people to use and enjoy their bicycles. These tracks have their very own signage and traffic lights, often meandering by canals and shady, tree-lined avenues, making it an absolute pleasure for people of all ages to indulge in the simple joy of riding a bicycle through the beautiful countryside. And in few cities – although the list is growing: Copenhagen? Lyon? …and others may follow: Montpellier, Marseille, Geneva, Barcelona? -- are you likely to see people in business suits on bicycles, peddling with a typical, ‘pushing’ slouch, leaning their body weight into their pedals like veteran trekkers who seem to heave themselves up a slope from their hips, as they scoot along with practiced ease and little effort.

There are other contributory factors and conveniences: a climate where temperatures do not exceed 30°C except for a few months annually, facilities for bicycles to be taken on trains, barges and boat tours, and the ubiquitous rentals and organized parking available at all major towns near train stations.

These factors together with an extensive system of inland waterways and an outdoors-oriented tradition of boating and sailing provide the ‘hardware’ for a good work-and-leisure balance. Of course there is much more to it: sound basic education and training, a tradition of higher education and intellectual excellence in the arts, humanities – especially free thinkers -- and sciences, agronomy, dairying, floriculture, applied to integrated systems in habitation, commerce, logistics, and culture, make for a rare combination of aesthetics in living – the visual and performing arts, the excellent and ubiquitous museums and facilities for music, sport, etc., combined with economic vibrancy, e.g., of finance and insurance giants such as ABN-AMRO, ING, Rabobank and Robecco, and a blend of urban and rural sensibilities, with both feet squarely on the ground.

Some of their other traditional practices have evolved to support these strengths, e.g., the traditional use of windmills has evolved into distributed power generation, just as their traditional use of canals for water management supports cooperative organization for a variety of other purposes, e.g., markets and area planning.

Relevance to India

Two areas in India which could draw on Dutch experience to good effect -- with appropriate adaptation, and considerable education and training, of course -- are:
a) in organizing water management, and
b) in area planning with integrated transport.
These could include aspects such as:
- drinking water and sanitation with a strong public impetus;
- integrated urban transport systems with bicycles and other non-motorized vehicles and walkways;
- reviving water systems through local management and developing interconnected waterways;
- developing local power generation and integration using solar and wind power systems (the latter being a particular Dutch strength).
An example is of the efforts relating to planned bicycle use in India described below.

Bicycles & Lifestyle

The Dutch have a special affinity for bicycles that is fostered from childhood. Most children ride to school on bicycles in a country where it rains often and there are sub-zero temperatures in winter -- surprising for a nation that is generally very indulgent with its children. Perhaps this explains the Dutch ability to walk in the rain totally oblivious to it, heads high and ‘tails up’. A significant consequence of this is that people of all ages often use their bicycles leaving their cars behind, enjoying and contributing to the clean and bracing air.

Bicycle Parking in Amsterdam

Shyam Ponappa: 2006

The accompanying diagram shows how annual bike sales vary with per capita GDP and the level of bicycle use for combined utilitarian and recreational purposes. Countries above the line tend to use bicycles for both utilitarian and recreational use, while those below tend to use them mainly for recreation.

Source: Sustainable Transport, Winter 2005

Many cities worldwide are seeking to plan and develop integrated urban transportation systems incorporating bicycles for their beneficial effects on safety and the quality of life. In Delhi, the proportion of cycle traffic during peak hours has been observed to be over 30 percent on arterial roads, extending to over 40 percent on one major highway (Rohtak Road).

Applications in India

Cities like Delhi were planned with bicycle lanes, e.g., in Lutyens Delhi, but these were never properly developed, or were otherwise allowed to atrophy through disuse and misuse. Efforts at encouraging and improving facilities for bicycle use were revived in Delhi from 1992, with the visit of Dutch experts sponsored by the World Bank. Thereafter, the Indian Institute of Technology, Delhi, developed affiliations with a number of institutions promoting integrated urban transport systems and traffic safety, including what has evolved into the Interface for Cycling Expertise (I-CE) at Uttrecht in the Netherlands (web site:

In 1998, a team from IIT, Delhi presented a ‘Bicycle Master Plan for Delhi’ to the Delhi government. This team was coordinated by Geetam Tiwari, currently Associate Professor, Transportation Research and Injury Prevention Programme (TRIPP) at IIT, Delhi, with inputs from several experts including especially I-CE of the Netherlands. While the plan has been considered several times, aspects of this proposal are now apparently being incorporated in the first Bus Rapid Transit corridor project, under construction from Ambedkar Nagar to the Inter-State Bus Terminus at Kashmiri Gate; the design for the latter was also coordinated by Dr. Tiwari.

There is an area planning project currently being executed by Pradeep Sachdeva Associates at Nanded in MP. This project is expected to be completed sometime next year. It includes about 50 km of bicycle tracks designed with the expertise of I-CE of the Netherlands.

Dutch Organization For Results

Essential elements of Dutch organizing principles are:

a) Cooperation. Traditionally and thereafter by conscious choice, this is built around water management. In general, cooperative organization and collaboration are manifest in every aspect of Dutch living.

b) Unitary organizational design, i.e., one integrated organization or department is responsible for many interconnected areas; an example is the Ministry of Transport, Public Works and Water Management. This handles civil aviation, rail, shipping, roads and all aspects of water usage: drinking water, irrigation, inland waterways, and ports.

c) Conscious project management at every level in all activities, whether for commerce, engineering, or social life (including a balance of work and leisure).

d) Public-private partnerships based on realistic expectations: of human frailties as much as the capacity to be educated to learn disciplined behavior, using systems with tough penalties to sustain public goods.

e) A unique form of participatory management in enterprises by all stakeholders is their system of Works Councils, organizations that are open to all employees, with strong legislated rights and collaborative practices. Anglophone countries emphasize ‘shareholder value’ and the position of the owners. In countries like Germany and the Netherlands, the accent is on a broader ‘stakeholder value’, distinguishing between the following most important stakeholders: the owners (shareholders), the management in the board of directors, the commissioners in the supervisory board, and the employees represented by trade unions and works councils. Institutions in the Dutch labor market developed on the basis of the corporation/enterprise being the community in which all participants benefit from cooperation. The Works Council Act defines the role of employment participation in governance.

The ways in which these are relevant for India are:

a) Goal-oriented organization for results, based on principles of unitary organization.

b) Project management as an operating philosophy in all areas, with open communication and collaborative action.

c) Development with an urban-rural balance, providing what we consider urban conveniences (energy, communications, water and sanitation, primary health and education, roads/waterways/rail/air) in rural areas.