Start with root causes, listen to professionals, set the policy.
Shyam Ponappa | January 3, 2019
“The numbers don’t add up. It is cyclical here... one government… does things wrong, then a new one comes and wants to improve things. Sometimes it does not work out...”
These comments are not about India but about Argentina, a rich country once, now less so because of recurring economic crises. An article in the Financial Times, “Argentina: a life of boom and bust”, is a cautionary tale we would do well to heed.* This is what happens when the numbers repeatedly don’t add up, resulting in cycles of bust, bailout and partial recovery. For India, there are also the increasing pressures and constraints of a large, underserved population. Inadequacies of water supply, sewerage, waste management, electricity, communications, transport, basic education and health care are compounded by a legacy colonial framework. In addition, many political leaders appear to coast opportunistically while being swept in or out of office, driven by short-term election cycles, seemingly uncomprehending of or indifferent to the systemic changes required. Our attitude as citizens aggravates problems because of our overweening sense of rights without responsibilities and obligations, and insufficient discipline.
As a consequence, all the promise of seemingly inexhaustible demand in India that could result in thriving markets, with prosperity and well-being for more and more citizens, is only partially realisable. In Argentina, it is the repeated cycle of overspending, hyperinflation, devaluation, bust, and IMF bailout. In India, imports of oil and electronics stoke the threat of overspending. Even worse are the irresponsible politics to keep opponents off balance. These vary from allegations to discredit opponents, to attempts to gridlock the economy, or to buy favour through giveaways that bankrupt the treasury, without sufficient attention to organising production processes and markets to ensure cash flows. It is indeed difficult to effect the requisite structural changes and social upliftment for improving productive capacity. This is because whether it is for high-tech, or for agricultural production and marketing, or education, solutions need to be based on understanding and addressing root causes. Setting politics aside, appropriate long-term and short-term plans are needed, with systematic, competent execution. All these require an integrated systems understanding and application, extending far beyond the pressures of near-term elections.
What is common to failures in different areas, whether it is infrastructure, high-tech products, or farming, is the absence of end-to-end system design and application in policy formulation, including market organisation and access, and financial support. This is true even within verticals, not only between them. Consider information technology, communications, and the past success of mobile telephony. Despite the enormous market, and the risk of over-reliance on imports, there has been insufficient support for design, development and manufacturing. Even in the case of mobile handsets, Indian companies took an easy-pickings assembly approach, emphasising labour and logistics arbitrage based on proximity, instead of technology, product development and design that could have led to higher value addition. This has led to Chinese companies dominating India’s handset market.
So is high-tech manufacturing a lost cause? Here is one surprising counterfactual: Last week in New Delhi, the communications minister launched a state-of-the-art chip that complies with global TV standards for next generation convergence of broadcast and broadband. Incredibly, this chip was designed and developed by a Bangalore-based company, Saankhya Labs, with Indian IPR (it has 27 patents) in partnership with Sinclair Broadcast Group and its subsidiary One Media, for the US market.
This chip for TV sets, set-top boxes/ home gateways, and tablets will receive broadcasts using next generation standards like ATSC3.0 and 11 others. A future variant is planned for mobile devices that will enable offloading of video and data traffic from 4G networks through the broadcast network, facilitating the efficient use of 4G spectrum.
Funded initially by Intel and General Motors, and latterly by Sinclair, Saankhya’s domestic backing was from angel investors, and ISRO for the last couple of years, for joint development of vehicle tracking devices. However, its products for wireless broadband that have been tested in India and in other countries will give rural users access to broadcast and broadband, initially through WiFi, and in the next phase, directly on handsets, if/when policies here permit as they do elsewhere. For this, policiies need to change, giving access to broadcast spectrum and pricing it on the lines the TRAI has recommended for satellite spectrum for BSNL (instead of auction fees for assignment, one percent of revenues). [See item below]
TRAI recommends spectrum charges of one per cent for BSNL’s satellite phone services
December 28, 2018
The Telecom Regulatory Authority of India (TRAI) has recommended spectrum charges of one per cent for Bharat Sanchar Nigam Limited’s (BSNL’s) satellite phone services, thereby replacing the current model of formula-based levy. At present, the annual spectrum charges for the gateway amounts to Rs 3.78 million per annum, besides Rs 14,250 per annum payable by BSNL on a per-terminal basis.
According to BSNL, if the recommendations of the TRAI are accepted by the Department of Telecommunications (DoT) it could drive down the cost of using satellite phone services by nearly 50 per cent.
Moreover, TRAI is also in favour of the fact that upfront formula-based spectrum charges should be replaced with adjusted gross revenue (AGR)-based fees when it comes to BSNL's satellite services. The replacement of the current mechanism of spectrum charges with a model based on a percentage of AGR is expected to galvanise the expansion of these services.
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India needs much more: policies that support long-horizon funds for manufacturing, and purchase orders for domestic products in line with WTO norms, to support local development and production of high-tech products for domestic markets and exports.
In the very different area of food production and supply, while the green revolution and white revolution overcame insufficient production, inadequate policy support and market design prevented a transition to a self-generating, sustainable model. Instead, inappropriate system design and policies put farmers under severe duress for reasons that change, such as monsoon failures, production failures, for example, in lentils (dal) or cotton, or production gluts such as lentils in 2017, and tomatoes in 2018.
Such situations can end in tragedy for farmers and their families because of irremediable debt. However, the way to address defaults not arising from fraud/bad faith is to reschedule payments so that cash flows service outstandings, and not to waive the loans. Solutions need to include ways of alleviating loan repayments through increasing repayment capacity (by cash generation as well as subsidies), while not destroying financial discipline and market dynamics. Elements of the solution may be:
- A moratorium on the principal and interest, and rescheduling of debt;
- Avoidance of waivers;
- Developing institutional support for constructive shifts in farming practices, for example, to intensive agriculture in smaller areas, warehousing and renting equipment such as tractors and rotovators, and so on. This requires giving up legacy practices such as broadcasting seeds, and adopting cooperative methods for smaller holdings.
We need policies to aid productivity, financial support, and market organisation and access. The government has to lend its support, and so does the Opposition. Experts in systems thinking should be included in interdisciplinary problem solving, to facilitate multipartisan policies. Such steps will help us become more productive.
Shyam (no space) Ponappa at gmail dot com
