Organizing India

Overview of Topics & Articles

2012-02-02T22:22:00.000+05:30

Latest Article:

FDI Needs a Strategy

India needs to maximise public interest from FDI in sectoral investments

Shyam Ponappa / Feb 02, 2012

Topical List

Outline below - Hypertext links: next page

Comprehensive, Integrated Strategy & Execution

India has been 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. The result is grotesque populism and corruption in lieu of the deferred gratification of pleasing cities and countryside with the appurtenances of proper governance: sidewalks and drains, toilets, transport, administration and order, hospitals and schools.

We have to organize and manage ourselves, “engineer” our way ahead, taking active steps to build and develop our solutions, building systems and processes, and not just wait for things to happen. We need a comprehensive and integrated, systemic, silo-busting, problem-solving approach.

This applies across the board in the broadest “spatial planning” sense that integrates housing and land use at all levels with commercial, industrial, cultural, scientific and educational activity, transportation, and all governance and infrastructure: water, sewerage, energy, communications, basic health and education. Infrastructure being the first level of enablement is the essential starting point.

India’s leaders acknowledge repeatedly that infrastructure is India’s great need. Yet, they take no steps [Addendum: see below for the exception: NTP-2011 in October, 2011] to marshal forces to draw up a credible strategy and execution plan. This is what needs doing. Only good intentions and/or money won’t do, because delivery systems and processes have to be developed, i.e., planned, then built from scratch.
Addendum: The draft National Telecom Policy 2011 (NTP-2011) and its preamble reflect a comprehensive integrated systems approach, as required. Announced on October 10, 2011, its development and execution remain to be seen.

List of Articles

2012-02-02T22:07:00.000+05:30

1 FX Reserves & Infrastructure
[Finance/Economics]

2 The Rewards of Excess: Benefits of Growth Exceed Costs
[Finance/Economics]

3 Learning from Our Champions
[Goals, Tasks & Project Management]

4 Organizing Aviation (Competition, Open Skies ...and Bust?)
[System (Re)building: Organization & Systems

5 Organizing: Biofuels (More Energy for Ethanol and Biodiesel!)
[System (Re)building: Organization & Systems]

6 Thinking Big - Scale, Ownership & Results
[System (Re)building: Organization & Systems]

7 Organize - by the Judiciary? (Dispute Resolution & India's Body Politic)
[System (Re)building:Organization & Systems]

8 A Tale of Two States (Gurgaon vs Bangalore)

[System (Re)building: Organization & Systems]

9 Organizing PSU's: Performance is the Key
[System (Re)building: Organization & Systems]

10 Organizing Ourselves - 1: Systematic Reforms (It Can Be Done Here)
[Goals, Tasks & Project Management]

11 Safeguarding India's Capital
[Finance/Economics]

12 India’s Growth Engines: Services + Manufacturing (Breaking the Mould)
[Goals, Tasks & Project Management]

13 Prioritization & Planning: A ‘Ballooning’ Approach (A Wish List for India's Dream Team)
[Goals, Tasks & Project Management]

14 Governance Successes (Bull's Eye for Governance)
[Goals, Tasks & Project Management]

15 Organizing Renewables (Next Steps for Biofuels)
[System (Re)building: Organization & Systems]

16 An Investment Fund for India
[Finance/Economics]

17 Integrated Area Planning (Spatial Planning) [Infrastructure: Rural & Urban]
[Goals, Tasks & Project Management]

18 Tata's Corus Buy-A Game Theory Analysis
[Game Theory: Collaborative Gains]

19 Productivity Reforms: Government from Ruler to Facilitator (Beyond India's Tipping Point)
[System (Re)building: Framework & Principles]

20 Productivity & Regulatory Constraints (Opportunities for the Left)
[System (Re)building: Framework & Principles]

21 Productivity & Market Philosophy: Eclecticism (Give Up State vs Market Dogma)
[System (Re)building: Framework & Principles]

22 Productivity & Attitudes (Competitiveness & Attitudes)
[System (Re)building: Framework & Principles]

23 Hedging FX Risks
[Finance/Economics]

24 Interest Rates, Living Standards, & Inflation
[Finance/Economics]

25 'Ideal' inflation & exchange rates
[Finance/Economics]

26 Growth Without Sacrifice
[Finance/Economics]

27 Yojana article on Growth vs Inflation: India’s Primary Need Is Growth
[Finance/Economics]

28 Netherlands Supplement: India & The Netherlands (Dutch Systems – 1)
[Goals, Tasks & Project Management]

29 Netherlands Supplement: Planning for Markets: Keukenhof (Dutch Systems – 2)
[Goals, Tasks & Project Management]

30 Bank Credit for Growth
[Finance/Economics]

31 Organizing Ourselves – Cautionary Tales
& Inspiring Possibilities (Institution Building)
[System (Re)building: Organization & Systems]

32 P-Notes & Regulatory Shocks
[Finance/Economics]

33 Org: Power (Dirty Coal, Clean Water?)
[System (Re)building: Organization & Systems]

34 Org: Telecommunications [Price Discovery & Spectrum Auctions]
[System (Re)building: Organization & Systems]

35 Initiatives for Renewable Energy
[System (Re)building: Organization & Systems]

36 The Burden of High Interest Rates
[Finance/Economics]

37 India’s Access To Nuclear Fuel & Technology
[Game Theory]

38 Org: Wheat & Rice Production, Distribution (Grain Shortages & Fallow Land)
[System (Re)building: Organization & Systems]

39 Org: Food & Energy Subsidies (Sensible Subsidies?)
[System(Re)building:Organization & Systems]

40 Inflation, Fuel Prices & Taxes
[Finance/Economics]

41 'Containing Inflation' - A Myth
[Finance/Economics]

42 Changing Mindsets About Food Prices
[Finance/Economics]

43 Changing Mindsets: The Economy & Financial Turmoil
Seize the moment...
[Finance/Economics]

44 Urgent: Bank Credit At Lower Rates
[Finance/Economics]

45 Ambivalence Adds To Uncertainty
[Finance/Economics]

46 Seeing the Whole Elephant
[Finance/Economics]

47 The Coming 3G Auction Blunder
[System (Re)building: Organization & Systems]

48 Cut Interest Rates To Revive Growth
[Finance/Economics]

49 'Haircuts' for All
[Finance/Economics]

50 Techniques For Better Decision-Making
[Finance/Economics]

51 A 'Minimum Programme' For All Parties?
[System (Re)building: Organization & Systems]

52 RBI: A Call To Action
[Finance/Economics]

53 B roadband Stimulus

[System (Re)building: Organization & Systems]

54 A Rational Spectrum Allocation Policy
[System (Re)building: Organization & Systems]

55 Air India, Infrastructure Policies & Newton's Apple
[Goals, Tasks & Project Management]

56 Making Broadband Happen

[System (Re)building: Organization & Systems]

57 Beyond RTI: The Use of Information
[System (Re)building: Framework & Principles]

58 Managing Spectrum

[System (Re)building: Organization & Systems]

59 Developments in Spectrum Sharing

[System (Re)building: Organization & Systems]

60 Plan & Execute for Results

[Goals, Tasks & Project Management]

61 Broadband: Alternative Scenarios

[System (Re)building: Framework & Principles]

62 Understanding Spectrum

[System (Re)building: Organization & Systems]

63 Reviving BSNL & MTNL: The Right Ringtone

[System (Re)building: Organization & Systems]

64 China Club instead of Bombay Club?

[System (Re)building: Framework & Principles]

65 India's Sorry Spectrum Story

[System (Re)building: Framework & Principles]

66 Catching Up On Broadband

[System (Re)building: Framework & Principles]

67 China Club (contd): Beneficial Engagement

[System (Re)building: Framework & Principles]

68 What a Highway Can Do

[System (Re)building: Organization & Systems]

69 Broadband for Education & Training

[System (Re)building: Organization & Systems]

70 Ideology & ICT Policies

[System (Re)building: Framework & Principles]

71 'Model T' - for Telecom

[System (Re)building: Organization & Systems]

72 The Langur Initiative: Other Bipartisan Possibilities

[System (Re)building: Organization & Systems]

73 Spectrum Auctions: 'Jhatka' or 'Halal'?

[System (Re)building: Organization & Systems]

74 Big-Bang Budgets?

[System (Re)building: Framework & Principles]

75 Learning from Fukushima

[System (Re)building: Framework & Principles]

76 Spectrum Reforms: Good & Bad News

[System (Re)building: Organization & Systems]

77 NTP 2011 Objective: Broadband

[System (Re)building: Organization & Systems]

78 The Challenges of Direct Democracy

[System (Re)building: Organization & Systems]

79 Management as Capital

[System (Re)building: Organization & Systems]

80 Reviving Growth

[Finance/Economics; System (Re)building: Organization & Systems]

81 Facing up to Moral Hazard

[System (Re)building: Framework & Principles]

82 Telecom Path-Breaker?

[System (Re)building: Organization & Systems]

83 Healing Self-Inflicted Wounds

[System (Re)building: Framework & Principles]

84 Reversing India's Downward Trajectory

[System (Re)building: Framework & Principles]

85 FDI Needs a Strategy

[Goals, Tasks & Project Management]

FDI Needs a Strategy

2012-02-02T20:48:00.000+05:30

India needs to maximise public interest from FDI in sectoral investments

Shyam Ponappa / Feb 02, 2012

The logic of strategic investment, stumbled upon for airlines after years of confusion, should drive policy on foreign direct investment (FDI). What a relief that FDI in airlines was cleared, somehow, at 49 per cent. This is undoubtedly positive for India’s aviation sector and consumers, i.e., in the public interest. Musing on the latter, there are aspects of FDI that point to the need for a nuanced strategy because of the economic and technological effects on domestic stakeholders.

FDI can be beneficial overall in many sectors as a source of capital, technology, systems and processes, and experienced human resources and organisation. A strategic approach could, however, lead to better outcomes for Indian stakeholders, through building local capacity and profiting from it.

Imagine if the airlines decision had happened 11 years ago. Arguably, Air India could have, once again, become a leading global airline in alliance with Singapore Airlines and the Tata group. Of course, it would have needed much more than just the investment decision to succeed.

Hundred per cent FDI: benefits and detriments

It is not a simple matter of the percentage of foreign holding. At one extreme are 100 per cent foreign-owned companies. There are several such entities in India, in sectors as diverse as pharmaceuticals, automobiles, chemicals and construction materials — or financial, IT and industrial services. Among these, Texas Instruments (TI) was a pioneer among technology companies. TI set up a subsidiary over 25 years ago in Bangalore, employing local recruits in research and design, with considerable success. This model has been replicated by Motorola, GE, Intel, Samsung, Microsoft and so on.

In terms of local benefits, these companies bring technology and access to markets, systems and execution capability and, most important, access to capital. The pioneers were initially stand-alone entities, with little effect on the local environment, other than excellent employment opportunities for qualified local talent. Over time, accretion led to critical mass as well as the emergence of local ecosystems around these enterprises, spawning new companies built on similar principles and culture. These were developed by talented people from the original enterprises, and others who were attracted to this environment of knowledge-based innovation. This makes Bangalore what it is, despite its inadequate infrastructure.

Similar effects are visible among automobile manufacturing clusters, e.g., around Chennai and in the National Capital Region. Suzuki’s joint venture with Maruti created an ecosystem of component suppliers near Delhi. Hyundai and Ford brought along their ecosystem of suppliers and set up in the vicinity of Chennai. Similar developments occurred elsewhere, as in the automotive cluster in Western India, with Tata Motors, Mahindra, Mercedes, and more recently, Volkswagen.

Consumers benefited immensely, as these enterprises extended the range of available products and services, and raised quality. They also provided challenging and remunerative employment to qualified local recruits.
Similar benefits show in areas like technology and R&D. Companies like GE address a broad range of technologies and products in India, such as wind turbines or materials research. The scope of activities is vast compared with the kind of product and material innovation prior to their entry. Subsidiaries of IBM, Microsoft and Ericsson are doing equally remarkable work in IT.

Some local benefits clearly accrue from the quality and range of innovation arising from the employment of high-calibre talent, a mix of external human resources together with opportunities for local recruits, backed by the corporate strengths of technology, capital, systems and market access. The quality of work content, therefore, is another local benefit from the entry of these companies.

However, a startling innovation is Huawei’s setting up of telecommunications Network Operating Centres (NOCs) in India. Huawei first set up an NOC in Gurgaon near Delhi in 2009 to cater to the Indian market. Another centre set up in Bangalore in 2011 now offers managed services to global networks. This is an example of leveraging local resources in a way Indian companies cannot, despite pioneering managed services from offshore — because they do not have Huawei’s combination of technology, manufacturing and financial capacity (with state backing).

The negatives are that local companies are often at a disadvantage when competing with well-known, well-funded multinationals for market share and for talent. Dominant multinationals can smother nascent local manufacturers and service providers who do not have their capital, technology, design, or human resource strengths. However, multinationals have greatly improved quality as evidenced by automobiles and consumer goods. In all these cases, did India have a strategy, or was it happenstance?

Listed foreign investments

Another type of foreign-owned company is listed on domestic stock exchanges and actively traded, with a broad retail ownership, such as Hindustan Unilever, Nestle, or the Procter & Gamble subsidiaries. The benefit to Indian stakeholders is that they get to share in the profits of these enterprises while sharing the risks, in contrast to the fully-owned subsidiaries in the automobile, pharmaceutical, or banking sectors. It is clearly in the local interest to require companies with strong prospects to allow participation in their profits (though WTO considerations might determine the idea’s feasibility). In other words, WTO permitting, fully-owned subsidiaries in booming sectors that profit from local markets or resources should be required to have listed public shares. Likewise, local participation in profits is lost if multinationals delist or increase their holdings.

Extended to profitable Indian companies, the implication is that profit participation is desirable for local stakeholders. From this perspective, there’s little reason for permitting dilution of local shareholdings, or an increase in foreign ownership to 74-100 per cent.

By the same token, the “deadweight loss” to social welfare (i.e., the public interest) through high taxes/fees on inputs and services needs to be reduced, as in the case of petroleum products, or radio frequency spectrum charges.

To conclude, a strategic approach to foreign investments should be applied to areas with high potential, such as aviation and telecommunications. Specifically, efforts should be made to emulate focused, convergent initiatives – as in Huawei’s development – through consistent long-term support for a manufacturing ecosystem integrated with R&D and managed services. Otherwise, India’s imports in these sectors will dwarf its current energy and defence imports. Opportunities for local participation through listing are desirable for a share of profits to be retained.

shyamponappa at gmail dot com

Reversing India's Downward Trajectory

2012-01-07T21:07:00.009+05:30

The country can regain growth momentum with rate cuts and telecom reforms

Shyam Ponappa / January 5, 2012

The welter of confusing pulls and pushes on India’s political economy makes finding the way forward really difficult. The government apparently cannot sustain economic reform initiatives, and does not have the finances for a stimulus package. The private sector is sitting on cash, but cannot invest because it is facing slowing growth and reducing margins. Known problem areas in infrastructure cannot absorb investment despite critical shortages in output — power generation and distribution is an example. Is there really nothing that can be done but to wait and watch while everything slowly grinds down?

The circumstances are formidable: a cantankerous Opposition using scorched-earth tactics, an anarchic citizenry usurping law-making functions after the abdication by the government and the Opposition, and an administration stupefied by the CAG phantom and other witch-hunts, with media Rottweilers searching through the carnage for the scandal-of-the-day.

This article identifies critical factors at the heart of the matter, and suggests remedial action. Slowing growth is the primary problem, and can be reversed without political manoeuvring.

The Crux: Reverse Slowing Growth

Some underlying factors that drive everything else need to be recognised and dealt with. For India at this stage, growth is all-important. This is the issue to be recognised and addressed.

The slowdown is largely self-inflicted, by escalating interest rates in a misguided effort to counter inflation. Yes, there are many other problems, but unless we have high growth for years together, other problems will swamp not only the analysis, but all efforts at execution. The consequences could be devastating — not only because of the large numbers of people who are not adequately housed and fed, but because a flood of young people entering what could be a productive workforce may end up on the streets instead.

There are two aspects to India’s growth. The largest component (growth of six to seven per cent) is driven by domestic demand. On top of that, foreign investment can add one to three per cent, to take annual GDP growth to eight to nine per cent, or perhaps even more. One can quibble, but the relative proportions are from two-to-one to four-to-one. It needs to be understood, however, that the incremental growth is driven by foreign investment, which is attracted by existing growth, and builds on it. Absent domestic growth, foreign investment dries up; worse, it flows out when growth is seen to be decelerating. This in turn increases downward pressure on the rupee.

This is the situation we have been heading towards, and are now squarely in. If domestic growth continues to stall, an outflow of foreign portfolio investments could put more pressure on the rupee. Domestic growth, therefore, has to be revived. Immediate steps are possible in two areas.

Lower Interest Rates

The Reserve Bank of India (RBI) does not need the approval of our contentious politics, nor of the public. All it needs is the understanding and willingness to reduce interest rates. If this happens, large businesses can concentrate on domestic investment instead of being driven offshore to protect their future, while small and medium businesses are not emasculated by high interest. It’s hard enough dealing with poor productivity because of a lack of physical infrastructure. High interest rates – factors within the nation’s control, with no political headwinds – are the last straw.

Academics and theoreticians may argue that with inflation being high, real interest rates are only around three to four per cent, but anyone who has run a profit centre or dealt with practical finance knows that these arguments don’t hold. When margins are dropping and interest costs are high, businesses run down, reinforcing the downward momentum.

In this context, a recent article on these pages by Jaimini Bhagwati highlights an enduring problem: central banks’ lack of accountability (“How unaccountable are central banks?”, Business Standard, December 16: http://www.business-standard.com/india /news/jaimini-bhagwati-how-unaccountablecentral-banks/458599/). It’s as though central bankers play to their own coterie of other central bankers, holding tight while the ships go down. If you need convincing, consider Alan Greenspan’s assessment: “…the origination of subprime mortgages – as opposed to the rise in global demand for securitised subprime-mortgage interests – was not a significant cause of the financial crisis.” Collateralised debt obligations indeed triggered the crisis, but there can be little doubt that loans premised on mansions for everyone lead to disaster, like any pyramid scheme.

As for the RBI’s accountability, the “presumptive loss” from the reduced GDP because of interest rate increases could be two to three per cent a year. One per cent is around Rs 92,000 crore, making three per cent Rs 2,76,000 crore.

Telecom Reforms

Positive sentiments can and must be triggered by constructive reform in telecom, through extending the revenue-sharing approach to pay-for-use spectrum and network sharing. This, too, needs more applied logic and problem solving expertise rather than political finesse.

After an encouraging Draft National Telecom Policy-2011 (NTP-2011) last year, there are unsettling signs. One is recurring delays, with a new policy expected in June 2012.

Second, there’s the confusing juxtaposition of spectrum sharing in the draft policy with recent statements about more auctions. The draft policy mentions spectrum trading for “efficient and optimal utilisation”, but if spectrum sharing results in both, presumably the need for trading will arise only for holders to get the assets off their books. The realpolitik is that dominant operators want auctions to corner scarce spectrum for their exclusive use, while the others want auctions for a lucrative sell-out. But this ignores the public interest, comprising users who want good, affordable broadband services, and defence, security, and other government needs that are in our collective interests.

The government has a unique opportunity to clear up India’s telecom policies, although precipitated ignominiously by the scams. Now, the government must grasp the nettle by extending the revenue-sharing principle of NTP-99 through open access to spectrum and networks. Other necessary elements include:

- compensation for dominant players for giving up their advantage, with

- stakes in appropriately structured consortiums for Next Generation Networks, and

- incentives for affordable broadband delivery.

Interest rates can be cut tomorrow. A sound telecom policy on the above lines could be formulated by June.

shyamponappa at gmail dot com

Healing Self-Inflicted Wounds

2011-12-02T16:47:00.005+05:30

Let's use the smarts for making rational policies

Shyam Ponappa / December 1, 2011

A spate of dysfunctional actions and retrograde developments has led to an unimaginable mess for India. Can the damage to growth prospects be undone? Does it need to be? If so, how? Three areas are discussed below.
Some months ago, the spectre was of consoling ourselves with a reduction of two per cent in growth, from 9.5 to 7.5 per cent. That’s history. What looms ahead is a larger, more serious threat. This ominous tidal-wave-in-the-making comprises many separate currents converging to undermine India’s take-off yet again. The prospect is long-term growth hamstrung by policy stand-offs, foreign direct investment in retail being a case in point, and social tensions fuelled by high unemployment.
Those who think India has arrived should be aware that it will take another decade of eight to nine per cent growth to be able to fund reasonable basic infrastructure and necessities for everyone. Why should it matter if you live in a rich cocoon? At the very least, you’ll be able to go out without stepping into filth or smelling it, or seeing masses of people struggling to survive.
Instead of a high-growth trajectory, we may get six to seven per cent, with luck. These prospects are clouded by wasteful expenditure, such as the perpetuation of an ill-functioning public distribution system and its concomitant, ration-shop-mentality, instead of efficient direct retail subsidies through electronic transfers. The negativity is amplified by fractious social and political tensions, and shoddy infrastructure crippling productivity: power outages, low-speed communications and poor logistics. One can argue (ah, argument) that the tensions are justifiable as an antithesis to increasing levels of corruption from political, bureaucratic and corporate kleptocracy feeding off the land and people, or hardening sectarian interests competing for predatory control. But if there’s one thing we can learn from others’ experience, it is to work together for better outcomes, or suffer; in game theory parlance, collaborate to optimise, or settle for worse.

Undoing Sectarian Alignments
Undoing the fractious underpinnings of sectarian alignments of language, caste and religion is beyond the scope of this article. The unpleasant reality is that unless such structural social impediments are addressed, malfunctions will continue. So we have this reality where, at one level, India is wonderful in the way people stream and swirl together, and at another, it is horrible because our potential is not manifested in living standards, with people fed, clothed and housed properly, and clean streets.
To return to misapplied intelligence in the political economy, consider three areas: interest rates, airlines, and telecommunications.

Interest Rates

It seems only the Reserve Bank of India (RBI) was unaware that the consequences of interest rate hikes since February 2010 would (a) not control inflation (short of an economic collapse), and (b) lead to a severe curtailing of growth. To be fair, some economists aided and abetted with remarks that interest rates must be raised because of high inflation.

By contrast, the accompanying charts for China and Germany (euro zone) show their negative real interest rates.

What we have to do is reduce interest rates, with selective credit controls to ensure that credit for speculation is constrained and costs are high, e.g., in certain real estate, commodities, stocks and derivatives. Implementation, likewise, has to be “intelligent”, with online tracking by exception, and not cumbersome or voluminous weekly or fortnightly reports that are manually compiled and/or analysed, filtered and then presented to committees for decisions.

Airlines

The structural anomalies in India’s taxes on aviation turbine fuel (ATF) and airport charges defy logic. For a decade, there has been talk of cuts in central and state taxes on ATF, but the problems continue. Consider the missed opportunity: India has a large domestic market and is well positioned for airlines to use this for establishing global leadership, as well as ubiquitous domestic services. Instead, the sector is bled for short-term government revenues, giving foreign airlines the advantage. ATF charges in India for international flights cost 16 per cent more than they do abroad, and local airlines pay over 50 per cent more because of taxes and additional charges. Consider the ludicrous stipulation that foreign airlines cannot invest in India, and the irrationality defies imagination. Add the illogic of a government-funded, loss-making airline undercutting private airlines, and we have the mess we are in.

Globally, airlines suffer from gratuitous free-market philosophies, the exceptions being airlines from strategically focused countries, e.g., in West Asia, Southeast Asia (Singapore, Malaysia, Thailand) and, of course, China. Wake up! Surely no one doubts that aviation is an integral aspect of logistics and transportation? The government needs to recognise this and build capacity, with policies like uniform, low state taxes. Also, as in telecommunications, aviation requires an oligopolistic structure with limited competition, which if ignored brings chaos and grief, because nothing else is sustainable.

Telecom & Broadband

The draft National Telecom Policy 2011 promises good things. Yet, like India’s potential, the promise will be realised only with convergent action. This iconic sector, which changed the way the country functions and is perceived, is on the verge of being ruined by dysfunctional intervention. For instance, the regulator and the government seem bent on applying retrospective charges for “excess spectrum”, taking the bottom out of the market. Worse, 3G services are hamstrung by government attempts to restrict services, while operators threaten litigation. Meanwhile, the bastions of “free markets”, the US and the UK, are initiating shared spectrum policies. What good are our brilliant objective statements about excellent, affordable services if the government acts to achieve the opposite? And is it beneficial for India to hound solid companies like Telenor and Qualcomm (unless they commit transgressions), instead of taking a problem-solving approach?

If the confused doublespeak – of punitive charges, restrictive practices, PSUs building state-of-the-art networks, auctions and spectrum sharing, all in the same breath – continues, we may lose a decade or more because of instability and irrational policies. It is time for decisions on pay-for-use, open-access spectrum and networks. Incumbent network companies can be compensated along a downward-sloping power curve to give up their competitive advantage. We must start being reasonable and do things that make sense.

shyamponappa at gmail dot com

Telecom Path-Breaker?

2011-11-03T15:43:00.013+05:30

Does the draft National Telecom Policy-2011 reflect true brilliance or smoke-and-mirrors? It will be a game-changer if a shared network is implemented effectively.

Shyam Ponappa / November 3, 2011

There’s much to criticise the government about for not initiating systematic reforms. Yet, the draft National Telecom Policy 2011 (NTP-2011), announced three weeks ago, is a stunner.¹ It begins with a solid, integrated-systems preamble to IT, Communications and Electronics, followed by an excellent vision statement: “[to provide] secure, reliable, affordable and high quality... telecommunication services anytime, anywhere.” A sound beginning, although open-ended in terms of how the details could evolve.

There are potential problems with such high-level pronouncements, of course. A number of commentators castigate the motherhoods in the draft. With a lofty perspective and few details, much depends on how the open-ended possibilities develop, including the difficulties of execution in dealing with ground realities and obstacles.

An Assessment

NTP-2011 addresses six major areas: spectrum, licensing, broadband, convergence, roaming, and manufacturing. Focusing on the first two, there are sweeping proposals:
a) licences will not be linked to spectrum; and
b) spectrum sharing will be permitted.

Some view the separation of licences and spectrum as retrograde, because spectrum is essential for service delivery. Others suggest that transgressions that led to the scams are now being inducted as new policies, e.g., operators accessing networks they do not own, which is characterised as being against the public interest. Some heap opprobrium, alleging that like the previous policy, NTP-99, which they call retrograde (although it led to the phenomenal growth in mobile telephony), its main purpose is to allow companies to avoid paying licence/auction fees to the government.

The last expostulation is the most ludicrous, because revenue collections after NTP-99 far exceeded estimated fees foregone: Rs 20,000 crore estimated “loss” by March 2007, but Rs 40,000 crore actually collected, and Rs 80,000 crore collected by March 2010.² Add tax collections on exponential growth with increased profits, and the result is even higher total government revenues.
Opposing operator access to networks arises from confused objectives; blocking access is like cutting off one’s nose to spite one’s face. The purpose of the sector is to provide services and access to users for legitimate activities. The public interest lies in facilitating access on appropriate terms.
To evaluate licensing and spectrum, begin with the premise of shared spectrum. Spectrum is essential for effective service provision, particularly in the rural and semi-urban areas with about 70 per cent of the population. An aspect not commonly known is that larger bands of spectrum enable more efficient throughput. For example, 1 MHz of a 12 MHz band carries 50 per cent more traffic than 1 MHz of a 6 MHz band. An estimate of the benefit to Indian operators of more bandwidth at international norms is a reduction of 20 per cent in operating costs.

Spectrum Occupancy

In practice, assigned spectrum is idle much of the time, except during the busy hours in India’s heavy-traffic metros, for extraneous reasons: too many operators, with too little spectrum, in too- narrow bands. This aspect becomes clear from spectrum utilisation or occupancy studies. For instance, the chart shows spectrum occupancy in Bangalore, Edinburgh and Stony Brook (New York) sometime in 2011.

Spectrum Occupancy in Bangalore, Edinburgh, and Stony Brook, NY.

dBm: decibel; MHz: Megahertz; GSM: Global System for Mobile Communications; CDMA: Code Division Multiple Access

Source: http://research.microsoft.com/pubs/142837/SpecNet-NSDI11.pdf, Anand Iyer et al;

The low readings (250 to 850 MHz in Bangalore, 600 to 950 MHz in Edinburgh, and 500 to 850 MHz in Stony Brook, NY) indicate available “white spaces” that can be better utilised.

High-traffic cities like Delhi and Mumbai have much higher utilisation than cities elsewhere in the world. It comes at increased costs to operators, because of advanced equipment and the closer spacing of towers, as well as having negative environmental effects. If a system with on-demand access to centralised, more efficient spectrum bandwidth were available, the capacity would be much higher, while operators would gain tremendous savings.
Another aspect has to do with the structuring and pricing of shared spectrum. One scenario for sharing is to enable operators to share assigned bands on mutually acceptable terms, leaving the onus of structuring and deployment on the respective operators, as for mobile telephony towers. As with the towers, there are likely to be coalitions of operators/independent entities who are able to work out arrangements among themselves, while not attaining the ultimate efficiency of unified coordination. For instance, participants who share towers in India share passive but not active infrastructure, and a critical element of active infrastructure is spectrum.
An alternative scenario would be mandated spectrum sharing. Spectrum on demand could be made available to any operator/counterparties for the duration of every communication “transaction”. This would need a database-driven Dynamic Spectrum Assignment facility, as deployed by Spectrum Bridge in the US. The more efficient throughput would mean higher traffic capacity for a given investment through better utilisation.
The distributed processing alternative through cognitive radio in every user device is (a) much less efficient, and (b) far more expensive. The market consolidation-through-acquisition approach, with more auctions, is the least efficient and most expensive.

Common-Access Networks

There would be further efficiencies if the entire network (and not just the spectrum) were accessed on-demand for payment per use. Another benefit from a public perspective would be much lower collective investment in resources, because of better utilisation. A third benefit would be the reduced environmental impact because of a lower carbon footprint and radiation from two or three common-access national networks (assuming competition is essential for effectiveness and efficiency).

In other words, database-driven, shared spectrum and networks have to be organised and managed as a coordinated unit if the potential benefits are to be realised. America is doing this with TV white spaces/the digital dividend, through the appointment of 10 database administrators (including Spectrum Bridge, Google and Microsoft). This should elicit our interest.

Once the government and stakeholders accept these concepts, the next major task is structuring the networks as consortiums to align the interests of operators and network providers, with state-of-the-art lead partners. In this process, incorporating and reorienting BSNL and MTNL as guardians of national interests with oversight by an adequately empowered regulator will be the remaining major tasks.

shyam (no space) ponappa at gmail dot com

1 http://www.dot.gov.in/NTP-2011/NTP2011.htm

2 TRAI, 2005: http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf

CAG: http://cag.gov.in/html/reports/civil/2010-11_19PA/Telecommunication%20Report.pdf

Facing up to Moral Hazard

2011-10-09T15:52:00.005+05:30

Systems upholding the law and standards help navigate the grey areas of moral hazard and adverse selection

Shyam Ponappa / October 6, 2011

Amid the general sense of an ailing socio-economic environment in the country, consider these situations:

Coal supplies for power generation are eight per cent short of generation capacity. Worse, nearly 42,000 Mw of additional generation capacity over the next five years is jeopardised because anticipated supplies are short by two-thirds of the requirement (100 million tonnes against demand for 313 million tonnes).
The rural employment guarantee scheme, well intentioned and with some reported successes (as in Melghat in Vidarbha), shows few tangible results while distorting farm labour practices and pricing. The reasons are many: inadequate design and supervision (mud roads that are washed away every year), no integration with agricultural programmes, palliatives that deny real infrastructure and support, like extension schemes that build on successes leveraging ICT, no skill development for alternative (self) employment, and so on.
The telecommunications sector is buffeted by scandal, the downward spiral of public sector operators BSNL and MTNL, and pressures of intense competition with constrained resources and regulations.

Leaving aside venality, a common thread is of laws and rules not upheld, slack standards, contracts not honoured, an absence of hard decisions and the requisite effort, and a degradation of mindsets. These are the grey areas of “moral hazard” on the one hand – where protection from the consequences of irresponsible actions induces irresponsibility – and of adverse or negative selection on the other, avoiding the best feasible choices for easier, inferior alternatives. They are widespread, and need assiduous effort to identify and set right with systems, even as criminality is dealt with by the legal system. Good people do not game situations for self-gain, but everyone faces the hazard in making choices. The importance of devising and upholding credible systems, standard operating procedures and laws that are seen to work through incentives and penalties is that these perceptions uphold the social contract and protect one from moral hazard.

Whatever the policies, they must have integrity and coherence; the hazard arises from not ensuring these conditions. The specific hazard is the change in behaviour for the worse. Absent this skein of expectations and constraints, there is no coherence to every individual’s uncoordinated wish list or gripes. This is the problem with well-intentioned social vigilantism, because it destroys the very fabric of order.

DOWN THE SLIPPERY SLOPE

The hazards in grey areas are manifested in several ways.

(i) Abdication of responsibility by the government: The most prominent moral hazard may be the central government’s abdication of responsibility epitomised by the 2G scandal. A redeeming feature is that some alleged perpetrators are being prosecuted eventually — although how matters end will establish whether it is truly a redemption or a perpetuation of banditry with the state’s complicity (by abstaining from intervention). Similar scandals in mining and civil aviation are unravelling or are on the brink. It is these egregious developments added to the hassles in routine dealings with the government that have led to such public alienation.

There are also many errors of government omission or inaction, such as initiatives not taken in infrastructure, like stalled efforts at power supply reforms, including the state governments’ reluctance to address sustainable electricity tariffs, or not reducing the extent of administered pricing and taxes in petroleum products (or state governments imposing non-uniform sales tax), the deterioration in the railways, and so on.

(ii) Taking to the streets: Citizens who feel alienated can take to the streets when they are desperate or outraged. This seems to be the sentiment not only in the Arab spring, but also in varying degrees in established democracies in Europe, Israel and India. There are incipient signs even in America, with the amorphous “Occupy Wall Street” movement spreading from New York to other cities, protesting against various inequities.

When both government and citizens are irresponsible, chaos follows. In India, absence of governance is an extenuating circumstance for activism. But equally, there are indefensible lapses by citizens: the unwillingness to be disciplined, to outgrow the anti-colonial paradigm of railing against the government-as-imperial-ruler, of fasting and civil disobedience as acceptable forms of protest, of not subscribing to order, whether in traffic, respecting queues, or managing garbage and sanitation. Yet, reports of queuing by Delhi Metro users suggest that we can perform if we must — as do all the IT professionals delivering services to international markets. But for the most part, we rail against other people’s transgressions, while being unwilling to observe discipline ourselves.

(iii) Corporate chicanery: Apart from criminality such as in the mining and 2G scams, there is the grey area of bending the rules. Examples include the financial and operational performance of many real estate developers, or the poor automotive service quality that is an adjunct to the undeniably more refined automobiles themselves.

(iv) Media overreach: The advent of 24x7 news channels is a boon for choice and sourcing. Tragically, many have morphed into whipping up a frenzy rather than delivering solid news and balanced views, given the battle for viewership with a lowest-common-denominator bias for sensationalism.

(v) Stalled government decisions: Government decisions in a number of areas were already stalled owing to problems in the approach to land acquisition, environmental effects, and in sectors such as nuclear energy. A combination of circumstances comprising all these and hyper-aggressive audits, a popular outcry stoked by frenzied media treatment relating to scams in land acquisition, 2G spectrum, and mines, has in effect created a gridlock, in which no forward-looking decisions seem possible, because of the risk of retribution for perceived missteps or errors of judgment, with hindsight.

The grey areas occupy the space between what we want – superior standards – and what we have, which is a slackness of systems because of widespread shoddiness in the practice of leadership and citizenship, with neither inspiring confidence in the other. The way out is conceptually simple, though difficult to execute: take responsibility, devise coherent systems and practices in all areas, with incentives and penalties applied impartially, and live by them.

shyamponappa at gmail dot com

Comments

Posted by: Harish Kumar	October 06 , 2011, 17:50 IST



I fully agree that the way out is conceptually simple, though difficult to execute: take responsibility, devise coherent systems and practices in all areas, with incentives and penalties applied impartially, and live by them.But here in India is there a political will to do so, also is every Indian ready take on the responsibility and share Government's policies in real spirit. Both seem to be invisible in nature.

Reviving Growth

2011-09-07T14:48:00.004+05:30

Reduce interest rates and undertake specific reforms to revive growth

Shyam Ponappa / September 1, 2011

India’s heady economic prospects of a year ago have deteriorated unthinkably. True, the rest of the world is wobbly, too, from America’s unreconstructed and unsustainable headlong decline, to much of Europe’s companion piece. But the possibility of some buffering for India seems to have evaporated. Expectations of better prospects were not so much from decoupling as from our limited dependence on exports, and headroom from activity levels with enormous scope for improvement and expansion — in basic infrastructure, housing, second-order infrastructure like education, sanitation and health care, as well as manufacturing, tourism and retail.

Rising input costs and interest rates started the decline in margins, and self-destructive actions made matters worse, epitomised by the implosion of the scams (2G, the Commonwealth Games, the Karnataka mining scandal, the land scams…). The Reserve Bank of India’s (RBI’s) actions of increasing interest rates when faced with inflation caused by factors beyond its ambit, such as food prices rising because of supply constraints, or energy prices on account of expensive imports, have amplified the negative sentiments.

The Bogey: Growth versus Inflation

The economy is slowing, and earlier estimates of well over nine per cent growth for 2011-2012 have gone overboard. In May, the Federation of Indian Chambers of Commerce and Industry’s estimate was nine per cent; in August, an RBI survey consensus was under eight per cent; Morgan Stanley’s was barely over seven per cent. Yet, policy makers maintain that despite the deleterious effects on growth, raising interest rates to control inflation through monetary policy is paramount.* In absolute terms, the need for controlling inflation is incontestable, but societal needs provide an exigent imperative for making the trade-off in favour of growth. The consideration now needs to be of steps that could alleviate the slowdown, and the likely effects of such actions not only on inflation, but also in collateral damage to economic activity.

Consider India’s shortcomings, namely, insufficient food production and associated storage and distribution, inadequate agricultural extension support services, expensive oil and coal imports, and lack of educational and vocational training facilities for a burgeoning, youth-dominated population. Add another level of inadequacy arising from our continuing lack of infrastructure, from basic sanitation, water and health care, extending through energy, transportation and communications (broadband). These structural bottlenecks exacerbate the negative aspects of our predicament.

The government’s recalcitrance in acting against blatant corruption, until the scams erupted, had already unsettled markets. Even salutary developments like Anna Hazare’s anti-corruption movement have added to the destabilisation, through attacks on parliamentary processes and the prospect of a breakdown in law and order.

Against this backdrop, we have a slowing economy, now threatened by a global slowdown. In the quarter ending March 2011, a third of the Sensex companies had missed their earnings estimates, while in the last quarter ending June 2011, nearly half of them were below estimates. With offshore revenues estimated to contribute nearly a third of FY12 profits, the threat of a global slowdown is ominous.

Inappropriate Rate Hikes

From this perspective, raising interest rates to combat inflation appears decidedly ill-advised. As expected, interest rate increases have not reduced inflation. The reduction can happen only when economic activity slows so much that demand for essentials falls, a horrific prospect. As for attracting foreign investment, rate hikes do little to induce confidence in foreign investors in skittish times, because they look to India and emerging markets for growth, not for stability. To be a safe haven, India has to be perceived not as a developing economy, but as an equivalent of the Organisation for Economic Co-operation and Development — a long way and many years ahead.

The economy, therefore, needs shoring up. Can RBI and the government take steps to reverse the decline? Consider the following corrective actions:

(i) Reduce rates to revive growth

In these circumstances, the priority has to be growth. Otherwise, apart from minimal foreign investment, domestic investment also is likely to be curtailed further, and social instability triggered by economic pressures could grab centre stage to devastating effect. International commodity prices are outside India’s control, but RBI can reduce interest rates. Cutting rates can raise margins and revive consumer demand.

The central bank needs to reverse its repressive stance on rates, no matter what the textbooks say, so that enterprise profits recover to a high-growth trajectory.

An immediate cut in borrowing rates, together with a concerted move to reset positive expectations and sentiments, is an urgent requirement.

(ii) Selective credit controls for asset bubbles

Further, the RBI has avoided instituting selective credit controls to avoid asset bubbles, perhaps because of legacy reasons concerning commodity pricing and the potential for interference in markets. With smart e-governance at hand, this nettle must be grasped in place of the blunt instrument of overall rate increases, to use real-time, targeted additional margins, cash reserves and rate increases to defuse incipient asset

(iii) Reforms to build momentum

In tandem, we need reforms to rebuild economic momentum. All sectors need reform, e.g., energy, communications, transport, sanitation/water/health and education. For instance, the energy/power sector sorely needs drastic reforms, but it is so complex, with so many layers that need disentangling, that while initiatives are necessary, they are unlikely to revive growth in a reasonable period. The need, therefore, is to focus on what is practicable with the likelihood of achieving results.

In practical terms, we have to prioritise, and focusing now on communications, specifically broadband, could yield results. Mobile communications grew phenomenally over the last decade. The meteoric rise stalled for a variety of reasons: excessive competition, ultra-low tariffs, saturation in urban markets, limited access to spectrum, no incentives for broadband, restrictive actions against BSNL and MTNL, scandals and policy uncertainties. Yet, if the government initiates appropriate reforms in spectrum policies with incentives for broadband delivery, prospects could revive. If the government can (a) formulate major reforms with a New Telecom Policy 2011 that achieves growth, while(b) resolving problems relating to past irregularities through sound legal processes and judgement, communications could go through another meteoric rise, becoming the growth engine for the economy.

shyamponappa@gmail.com

* “The policy dilemma”, C. Rangarajan, Business Standard, August 22, 2011: http://www.business-standard.com/india/news/c-rangarajanpolicy-dilemma/446531/

Management as Capital

2011-08-10T20:51:00.018+05:30

Learning and applying good management practices can help improve productivity

Shyam Ponappa / August 4, 2011

At a time of concern about sustained momentum in India’s economic growth, some recent findings including a case study in India offer fresh pointers on the implications for management and organisation in emerging economies.

Competition ≠ Efficiency

A widely held assumption is that competition results in efficiency. The reasoning is that market forces and competition compel enterprises to evolve into efficient producers. So, does management affect productivity?

An article in The American Economic Review posits that developing economies appear to suffer a shortage of what the authors term ‘managerial capital’1, that is, management and organisation. The authors also note that this aspect has been ignored in studies of development and growth. This is not surprising, given the completely different domain expertise compared with economics, such as, the skills required to understand financial statements and linkages to operations, or organisational structure and effectiveness, and the difficulties in defining and measuring managerial inputs. However, this does not diminish the importance of managerial inputs for growth and development, just as factors not well understood by weather forecasters nevertheless do influence the weather.

The authors cite evidence that managerial know-how can improve the productivity of other inputs including human resources and equipment, and help to better deal with resource constraints, by planning, acquiring and configuring assets to optimise outcomes.

Management and organisation are accepted as critical inputs for effective performance in developed economies. This is true for enterprises at the firm level, for sectoral policy and regulations, and for the economy as a whole. Anecdotal evidence suggests this is less so in developing economies, both in terms of prevalence and acceptance. Also, the wide variability in productivity in developing countries’ plants has been attributed to differing management practices, but so far with little validation based on data.

Differences in management practices can vary by nearly 30 per cent between the “best” and “worst” countries. The accompanying chart shows overall management scores for a number of countries. The studies consider differences in managerial practices between emerging and developed economies, as well as interventions to improve practices in the former, comprising training and advisory inputs. The results imply that good practices can be learnt and applied in developing economies.

(Number of firms surveyed shown on or next to each bar)

Source: http://www.nber.org/papers/w17231²

An experiment in textile companies in India over a two-year period supports these findings.3 The report covers 20 plants in 17 companies. Of these, 14 plants in the treatment set were given active interventions, while six were treated as control units. The active set went through a diagnostic phase over a month, followed by an implementation phase of intensive support over four months, and a measurement phase thereafter for several months. The control units were only exposed to the diagnostic phase. The management inputs covered a range, such as lean manufacturing practices including sales and inventory management, quality control and human resource management.

The interventions by transnational consultants were estimated at $250,000 (Rs 1.125 crore) in each firm if provided at commercial rates. The report estimated the productivity in the treated plants to improve by 18 per cent, with net gain in profits in the first year itself estimated at 40 per cent above costs, at $350,000 (Rs 1.575 crore).

Implications

(i) A need to improve enterprise management and organisation: the reports show evidence of the inadequacy of management and organisation prior to interventions, and of the benefits of upgrading management practices with measures that are considered standard operating procedures in advanced economies. There is explicit evidence from textile companies in India that the induction of such practices results in significant productivity gains.

(ii) Delivery methods: the report found that common practices, such as preventive maintenance, were known but not adopted, because managements thought they would not be profitable. Such items account for 45 per cent of practices in the interventions. For uncommon practices, the problem was lack of awareness.

The question is whether the approach – of a transnational consulting firm providing advisory services for several months – is the preferred way of upgrading practices at enterprises, or if there may be other practicable ways that are equally effective and efficient. For instance, whether distance education is a plausible method for learning or participating in substantive diagnostics and best-practice dissemination for enterprises. The issues are whether management institutes or local consultants can develop effective programmes for delivery as modules; whether such methods can be effectively developed and delivered through the Internet; whether the National Skill Development Corporation, the National Productivity Council and the like can co-ordinate such initiatives; and whether systems integrators can grow to deliver such services.

(iii) Sectoral management and organisation: beyond the enterprise level, developing economies sorely need management and organisation at the sectoral level. Here, it is not so much about best practices as it is about designing the right framework of goal-oriented policies and procedures appropriate for the given socio-economic context. Sectoral frameworks are essential to create productive sectors and to prevent the flight of capital — major Indian groups invest abroad rather than in India, even when there is much room for growth here. While the crisis precipitated by the 2G scam has forced the government to undertake drastic reforms in communications and spectrum management, the power sector is an equally critical area, which desperately needs radical reform.

(iv) Local play: Stanford, Massachusetts Institute of Technology, Harvard, World Bank and the European Bank for Reconstruction and Development have conducted path-breaking studies on management inputs and upgradation. Considerable work needs to be done by Indian institutions — there seem to be no such studies at present. As for local funding, the significant Indian donations are either to self-run institutions or to iconic foreign institutions, a notable recent exception being the Nilekanis.

shyamponappa at gmail dot com

1 “What Capital is Missing in Developing Countries?”, Miriam Bruhn, Dean Karlan and Antoinette SchoarThe American Economic Review, May 2010:

http://karlan.yale.edu/p/BruhnKarlanSchoar_AER_P&P.pdf

2 “The Land that Lean Manufacturing Forgot? Management Practices in Transition Countries”, Nicholas Bloom, Helena Schweiger and John van Reenen, July 2011:

http://www.nber.org/papers/w17231.pdf

3 “Does Management Matter? Evidence from India”, Nicholas Bloom, Benn Eifert, Aprajit Mahajan, David McKenzie and John Roberts, Jan 2011:

http://www.nber.org/papers/w16658.pdf

The Challenges of Direct Democracy

2011-07-12T12:02:00.004+05:30

India must weigh the pros and cons of various approaches to direct democracy and develop one of its own

Shyam Ponappa / July 7, 2011

Direct democracy is alluring. The dangers to our society and economy from reckless governance as well as confrontational activists, however, are the undermining of institutions, and the unintended consequences.

Our governments have a carry-over of feudal and colonial attitudes and do not communicate unless they must. Change is accepted only under duress, and is not initiated through leadership. Mismanagement is tolerated, resulting in various scams such as the 2G spectrum scam and associated problems.

The current anti-corruption drive by Anna Hazare et al and their well-intentioned cohorts uses tactics that echo a righteous, anti-authoritarian and non-collaborative pattern of “us” versus “them”, combined with an insistence on their way alone. Yet, collaboration is essential for solutions that lead to an equilibrium, recognising the legitimacy of all stakeholders – the government and civil society – as well as the criticality of credible institutions and processes.

We in India are not alone in being drawn to direct democracy. Switzerland’s success in citizen participation combined with its federal structure is the epitome of a workable system. But this model cannot simply be transplanted without regard to cultural contexts. Consider the sobering example of California.

California's Predicament

California has been in a state of financial crisis for several years. In 30 years, the Golden State’s credit rating fell from among the best of the 50 states to the worst. Despite everything from Silicon Valley to agriculture, defence, aerospace, biotechnology and Hollywood, why can this state not manage itself? Why does The Economist quote labels like “dysfunctional”, “ungovernable”, even “failed” for this El Dorado (April 20)? To understand what happened in California, we must start with its direct democracy model imported from Switzerland.

The Swiss Model

Since the 14th century, Switzerland has had a tradition of citizens participating in assemblies. Coordination among different sets of delegates, e.g. for building roads and bridges across different valleys, had to be approved by respective assemblies. On this canvas, Switzerland grafted America’s Constitution in 1848. It worked and still works because of its design, and Switzerland’s collaborative approach. Constitutional amendments require a referendum as well as a majority of votes by the cantons (states) in the legislature.

Thus, over half the cantons can overrule the popular majority in a referendum, because of the rule taken from America of two votes per state, even if they represent a minority of voters. After being approved in a referendum, the amendments go back to the legislature for redrafting. This enforces George Washington’s principle of “cool” debate outlined at the time of drafting the US Constitution, and embodied in Senate deliberations for dispassionate lawmaking. Initiatives for new laws by direct democracy go through the same process, but the legislature has the option to draft a counter-proposal. This process of engagement and negotiation is designed to avoid extreme outcomes and promote dispassionate solutions. As with America’s Constitution, this prevents two kinds of abuse: James Madison’s1 concerns regarding minority factions and their “swing vote” capturing outcomes (as in India, where minority factions become king makers), or a tyranny by the majority.

The California Variant

About 100 years ago, the Progressives in California brought in direct democracy from Switzerland. As in India today, the purpose then was to attack corruption, specifically, “The Octopus” of the Southern Pacific Railroad with its tentacles everywhere. California’s direct democracy was designed to achieve the opposite of the Swiss model. Switzerland emphasises compromise and consensus; California encourages confrontation, and the winners impose their will. Starting new initiatives (“propositions”) is easy; calling referendums on existing laws is difficult. In effect, California’s propositions are irreversible, because a retraction or reversal needs a two-thirds majority, which is virtually impossible because of minority factions and special interests.

For over half a century, there were no major problems. Then, in 1978, the anti-tax proponents initiated a property tax cap, Proposition 13. It limited state revenues (placing a ceiling on all property taxes at one per cent of the 1975 value, which could grow at no more than two per cent annually unless sold, thereby establishing a new value). There are contradictory views on the benefits of Proposition 13, with the defenders blaming opportunistic individuals, not the system, for problems. It is the old divide between tax-and-spend liberals versus cut taxes-and-services conservatives. The outcome, however, is that California went from being a liberal showcase with excellent infrastructure and services to a bankrupt state, cutting back on both.

What India Can Learn

India’s polity (at central, state, and local levels), at least now, must start creating systems that harness participation through all means available, so that the voice of popular assemblies is heard within the framework of our representative democracy, and acted upon.

The government needs to move away from the paradigm of “The Administration” against “The People”. Instead, the government must lead a process of collaborative stakeholder engagement for equitable resolution, like the one based on a lifeboat concept of shared interests and survival. As individuals, we need to move away from blaming routines (the government/everyone else is at fault, and I am a victim) to accepting the responsibility and discipline of institution building and processes.

What India Requires

Discarding feudal/colonial notions of the durbar in political parties, among politicians and in government.
Channeling righteous public anger into the constitutional process with competence and discipline. Currently, there seems to be no effective way of demonstrating dissatisfaction except by taking to the streets.

We need institutionalised incentives and penalties to steer towards these effective means, and to abandon arbitrary and angry ways.

Technology allows this on an unprecedented scale, with perhaps 100 million Internet users in India already. To harness and channel this capacity, systems need to be developed on the lines of the Obama campaign², vastly extended with the expertise and support staff to inform citizens and channel their participation constructively within an institutional framework. These systems will need to cover everything, from issue-based analysis and presentation to spelling out responsible choices with the foreseeable consequences, and collating individual inputs and preferences. If executed with vision, imagination and commitment, this could reduce the instances of people taking to the streets.

1 Member, US constitutional assembly; later, US President.

2 http://www.bluestatedigital.com/work/case-studies/barack-obama/

shyamponappa@gmail.com

NTP 2011 Objective: Broadband

2011-06-02T12:35:00.022+05:30

The Indian government has to choose between accessible, affordable services and short-term revenue

Shyam Ponappa / June 2, 2011

[Additional material: logic tree outlining the rationale for common spectrum + network added later]

Apart from the scams, confused ideas are roiling India’s telecom sector. One instance is the finance ministry urging spectrum auctions to collect Rs 30,000 crore to help bridge the fiscal deficit. Another is the Ashok Chawla committee recommending spectrum auctions for transparency, making transparency the criterion for managing spectrum. The committee apparently does not mention the disastrous US auction, and attributes the UK fiasco to extraneous reasons; presumably, they knew the facts.¹ Such issues need logical and systematic remedies. Otherwise, the success of the telecom sector will degenerate into yet another failure.

Apart from transparency, public asset sales, including spectrum, need three other criteria:

∙ Objectives: the transaction should be structured in the public interest;

∙ A life-cycle analysis of costs and benefits, and not just windfall revenues (since short-term cash drives the finance ministry’s concerns, it is important for the ministry and the government to step back and consider alternatives, such as the sale of BSNL’s vast real estate. If the goal is ubiquitous and affordable broadband, this would be much less damaging to the public interest than spectrum auctions); and

∙ End-to-end solutions are required from an integrated systems perspective.

The New Telecom Policy ’11

For the New Telecom Policy 2011 (NTP ’11), the first requirement is to define convergent goals. We could take a leaf from countries with excellent broadband that built high-quality next generation networks. While the US and UK have strong initiatives, Japan, Sweden, South Korea and Finland have highly rated broadband. Australia and Singapore are now building next-generation networks. Both are common-access, open-to-all service providers.

Spectrum Management

In India we must begin with unravelling the mess of spectrum management. There are two separate skeins. Legacy issues of irregularities and scams form one stream, to be dealt with by the process of law. On the other hand, policies for next-generation networks need a process of stakeholder workouts to deliver services. Broadly, there are two ways of approaching spectrum management. One is to allocate specified bands for exclusive use, as was customary until now. An alternative is to create a common spectrum pool for use by all service providers. In other words, any provider can dynamically access spectrum for carrying voice, image and/or data. This method of dynamic spectrum access is now feasible, and the US is starting off with TV white space. The Federal Communications Commission has appointed nine companies including Spectrum Bridge and Google as database administrators; a tenth, Microsoft, is under consideration. India could start out on this if the government chooses the objective of accessible and affordable services.

Network vs Revenue

The choice is between building/configuring a high-quality, least-cost network and high short-term government collections. Over a longer period, a restrained approach emphasising networks and services is likely to be superior to aggressive government fees, as we found with NTP ’99 — revenue sharing resulted in explosive growth together with higher collections than the amount foregone from licence fees (see data from the Telecom Regulatory Authority of India and the Comptroller and Auditor General²).

How can the government evaluate this trade-off? The diagram below outlines alternative approaches to spectrum allocation and the likely outcomes. The outcomes should be evaluated as public interest costs and benefits.

The first step is to choose between exclusive spectrum use and common access. Exclusive use entails allocation through auctions; methods like first come, first served (FCFS); or “beauty contests”, for example, the evaluation of stipulated criteria such as technology, financial capacity and so on. Auctions are transparent. Common access, too, is completely transparent, provided the usage and payment systems have integrity.

If there are few operators (three or four), each can be allocated 20 MHz or more for exclusive use. In such circumstances, the relative merits are not obvious. However, in an emerging economy like India – without a ubiquitous network and with too little spectrum distributed among many operators – the logical choice for efficient spectrum management is common access.

Auctions often lead to service deprivation because of high costs (the “winner’s curse”). However, there are exceptions, where bidding is kept reasonable, as in Finland, or France because of its timing, after the fiasco of the European auctions. The other alternatives, FCFS or beauty contests, can result in low or high costs depending on government policies. High fees ratchet up costs with windfall gains to government in the short term, but users are deprived of these funds for networks and services. For example, in India, while the government collected nearly Rs 1,03,000 crore for 3G and broadband wireless access auctions, new facilities and services have been slow. Instead, this spectrum is largely used to support 2G users.

Low fees would have improved the odds of high-quality and low-cost facilities, affordable pricing, and better coverage. The government, however, would have lost its short-term windfall gains.

Once the government sets the objective of affordable, high-quality services, the next steps will be:

(I) Spectrum allocation and management

The decision criteria are:

∙ Technology: The rationale for optimal channel width is that with lower capital cost there is greater throughput with a 20 MHz band than with several smaller bands.

∙ Economics: The capital cost of shared facilities through common access is far lower than if each operator invested in separate access networks.

∙ Practical results: High-quality broadband in countries like Japan, Sweden and South Korea was built without spectrum auctions.

∙ Carbon footprint and resources: Both are minimised with shared facilities, such as towers and equipment.

These reasons make common spectrum the logical choice, as against auctions for exclusive allocations.

(II) Common network

The same logic of economics and carbon footprint/shared resources extends to the whole network. The rationale of common access for oil pipelines, railways, airways, roadways and electricity networks applies equally to communications networks. [See diagram below on common network.]

Common Network

A common network is, therefore, a logical and environmentally sound choice. The question is how best to own and operate it.

shyamponappa@gmail.com

1 E.g. see: “Winner’s Curse”, Chris Anderson, Wired, May ’02:
http://www.wired.com/wired/archive/10.05/change.html

2 Trai’s estimate of foregone revenues by March ’07: under Rs 20,000 crore: “Indicators for Telecom Growth”, Trai, ’05:

http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf

Revenue share collections by March ’07: Rs 40,000 crore; by March ’10: Rs 80,000 crore: “Performance Audit Report on the Department of Telecommunications, Ministry of Communications and Information Technology”,
http://cag.gov.in/html/reports/civil/2010-11_19PA/Telecommunication%20Report.pdf

Spectrum Reforms: Good & Bad News

2011-05-05T21:35:00.014+05:30

[with additional diagrams + last two bullet points]

A good initiative is under way, but needs changes to work out complex issues

Shyam Ponappa / May 5, 2011

There’s some good news, and yes, some bad news… The good news is that momentous developments are under way in spectrum and telecom policy:

The Ministry of Communications & Information Technology held consultations with service providers, then posted the transcript on the Department of Telecommunications (DOT) website.
The Wireless Planning & Coordination Wing (WPC) disclosed data on all commercial spectrum allocations – frequencies allotted by geography and service provider or operator – on its website.

Terrific first steps in a constructive approach. There’s more: the ministry’s report of 100 days states: “We will hold consultations with key stakeholders to evolve a clear and transparent regime covering licensing, spectrum allocation, tariffs or pricing, linkage with roll out performance, flexibility within licenses, spectrum sharing, spectrum trading, MVNOs, unlicensed bands, M&A, etc, in a technology agnostic environment after due consideration of Trai recommendations in this regard. Interest of the ‘aam aadmi’ would be the prime consideration.” That’s comprehensive alright, which is good, though the ‘aam aadmi’ bit is either confused or manipulative. Elected governments should act in the public interest, no more, no less. While the private sector is exhorted not to play games, the government at all levels – politicians, administrators and agencies – must also focus on results, and avoid populism.

Display & Presentation

The presentation of information could be more effective for the patterns and structure to be easily accessible. The WPC display is of voluminous raw data. There is no overview, with the ability to drill down to details, nor to aggregate details by operator or frequency. The full set runs into 32 pages of tables (Figure 1).

Compare this with a display in colour from the US’ National Telecommunications and Information Administration (Figure 2). Similar information from the WPC runs into many pages.

Figure 2: Fragment of Allocation Chart (USA)

Source: http://www.ntia.doc.gov/osmhome/allochrt.pdf

However, the US display contains not as much detail, and has no interactive capabilities (these are possible extensions). For an interactive graphical interface, consider the “market map” by Moneycontrol.com for stocks (Figure 3, left).

One can drill down in any sector by clicking on the rectangle. For example, “Telecommunication”, which opens a map with the listed companies, each colour-coded to reflect more detail (green for gains, red for losses).

Clicking on a company shows its daily price and volume chart (Figure 3, right). In a variant (at Smartmoney.com), it opens a menu with access to details like news, financials and so on. Similar spectrum displays could show, for example, information by operator for network rollout and subscribers by frequency.

Figure 3: Market Map of Stocks (Sectors) Companies

Source: http://www.moneycontrol.com/mcplus/marketmap/nse/marketmap.php

An alternate display format is the “Topics most commented on” on The Economist's website.

When the cursor hovers on a topic, related comments are displayed. Clicking on a topic realigns the clusters based on content around that topic, as for India in Figure 4.

Figure 4:

Source: http://www.economist.com/conversation-cloud?days=30

This would work well for aggregating comments on related issues in the consultation transcripts.

Imagine what such a graphical interface to a relational database could do for effectiveness and transparency in spectrum policy. It could be extended to telecom and broadband next, and, eventually, to all of government.

The Bad News: Process Limitations

Judging from news reports, process inadequacies might render the ministry’s grand intentions unachievable. The following examples show why.

- Spectrum sharing is an obvious solution for high demand with limited supply. The DoT has reportedly considered it for years, but discussions so far have been superficial and on “excess spectrum”. Also, the statements of intent on sharing or trading are confusing. “Spectrum trading” implies exclusive rights to spectrum, unless otherwise specified. “Spectrum sharing” means aggregating spectrum for redeployment, with Dynamic Spectrum Allocation. This is analogous to “common carrier access” and “big pipes” for railways, roads, oil pipelines, or airways. Therefore, from a policy perspective, spectrum sharing and spectrum trading are mutually exclusive.

Spectrum and airways or flight paths coexist in the atmosphere. Imagine if airways were auctioned to each airline for its exclusive use, instead of being available to all airlines for similar aircraft through Air Traffic Control. That’s what we have with spectrum auctions in communications. The logic for spectrum auctions is based on old technology with no allowances for improvements in managing interference in the last 60-70 years. Also, allocating spectrum in this way means that aggregate capacity is constrained for two reasons. One is that each operator uses only part of allotted capacity. A study in Singapore in 2008 found that only two bands had a utilisation rate of 50 per cent; the overall utilisation rate for 80-5,850 MHz was about five per cent (Figure 5).

Figure 5: Average Occupancy of Frequency Bands in Singapore

Source: http://www.pwtc.eee.ntu.edu.sg/News/Documents/Spectrum%20survey%20in%20Singapore_%20Occupancy%20measurements%20and%20analyses.pdf

Second, a large band provides much greater capacity than the sum of smaller bands.

Our spectrum predicament arises primarily from inappropriate allocation policies. Therefore, forward-looking policies need the incorporation of a technical understanding of spectrum occupancy, of the effects of spectrum aggregation versus fragmentation, and of technologies like multiple antenna effects (multiple-input and multiple-output, or MIMO), which enable more effective spectrum use and improve functional attributes of higher frequencies. A backward-looking audit of historical data will not serve these purposes.

- Another damaging effect is the move to extract spectrum from Defence to auction to the private sector. The rationale apparently is the high revenues the government can collect. This cannot be in the public interest, especially since the alternate optical fibre network to have been built by BSNL is still not ready.

- Decisions on issues like the desirable number of operators per circle need an objective rationale. No data have been offered contrary to the UK Ofcom’s findings of maximum welfare at three to four operators.

An inherent limitation of the consultation-and-pronouncement approach (as opposed to a collaborative-stakeholder-workout) is that external expertise in technology and process consultation, sorely needed in India, has to be brought in only by the government. This must be done before formulating new policies, because the issues are too complex to resolve without objective expertise.

shyamponappa at g mail dot com

Learning from Fukushima

2011-04-07T16:30:00.013+05:30

Take remedial steps and demystify the unreasoning dread of nuclear power

Shyam Ponappa / April 7, 2011

Official statistics report over 22,000 deaths related to fires, 27,000 by drowning and 144,000 in traffic accidents annually in India.¹ By contrast, the number of deaths resulting from the Chernobyl nuclear accident is about 10,000 in total, estimates Frank von Hippel, a nuclear physicist at Princeton, who is co-chairman of the International Panel on Fissile Materials (other estimates: World Health Organisation 4,000; International Agency for Research on Cancer 16,000; Belarus 93,000 plus 270,000 cancer patients; and Ukraine 500,000). Against this, he estimates the number of deaths owing to pollution from coal plants in the US alone at 10,000 each year.²

In this context, what are we to make of a top Indian scientist’s demand for stopping nuclear power production in India pending a transparent safety audit of all nuclear plants? Why not stop all traffic because of traffic accidents, to paraphrase another leading scientist? Should we shut down all our cities and towns until the sewerage systems work? A conscious effort should be made to demystify nuclear power.

To consider this rationally, let’s begin with some reported facts. The Fukushima accident happened after the earthquake, after the plant shut down. The plant was designed to withstand waves of six metres, but was struck by an eight-metre high tsunami, according to the US’ National Oceanographic and Atmospheric Administration (other estimates range between 6.71 and 14 metres).

A subsequent statement from the operator, Tokyo Electric Power Company (TEPCO) puts the waves that hit Fukushima Dai Ichi at 15 metres:

15-meter waves hit Fukushima

The operator of the troubled Fukushima Daiichi nuclear power plant says the facility was hit by a tsunami as high as 15 meters on March 11th.

Tokyo Electric Power Company was reporting on Saturday on its survey of high-water marks left on the plant's buildings.

It says it found that the tsunami reached up to 15 meters on the ocean side of the reactor and turbine buildings. The figure is far beyond the company's originally estimated height of 5.7 meters.

TEPCO confirmed that the 6 reactors at Fukushima Daiichi power plant had been under as much as 5 meters of water.

Source: http://www3.nhk.or.jp/daily/english/09_30.html

The reactor core takes several days to cool after being shut down and requires external cooling. The cooling system lost power from the grid because of the earthquake. The backup diesel generators worked for an hour, then stopped (there are conflicting reports on the reasons). The backup batteries then powered the pumps until they ran out. There are also conflicting reports of alternate diesel generators that were either of insufficient capacity or could not be connected for reasons that are unclear (flooded connectors, incompatible plugs and so on). The tsunami devastated the surroundings even as it hampered assistance from elsewhere. The failure appears to have been in the supply of power and water, ie, ancillary services.

Japan has 55 nuclear power reactors and it experiences frequent earthquakes. Though there have been instances of plants being shut down after earthquakes (2007: electrical transformer fire at Kashiwazaki-Kariwa, and some leaks of slightly radioactive water reported; 2004: one unit at the same plant was shut down), there has been no failure of nuclear plants because of earthquakes. So, no new facts relating to earthquakes or tsunamis seem to have surfaced to cause India to shut down its nuclear plants arbitrarily.

An increase in energy use in India is inescapable, given the correlation between growth and energy consumption. On balance, we need all the energy we can get staying within reasonable risks and costs. Objectively, what can we expect from our government and related agencies such as the Department of Atomic Energy and the Atomic Energy Agency?

Remedial Action

One could be to expect action to reduce risks based on experience.

After the Indian Ocean tsunami of 2004, a 3.2-km wall was constructed at Kalpakkam, which was in the path of the tsunami, fortified with sandbags, rocks and embankments. (The plant is situated at over 9 metres above the sea, with the reactor floors at a height of nearly 10.7 metres.)
The backup generators are located some distance away from the plant, out of the reach of tsunamis.
Mangroves and casuarinas along the coast helped diffuse the impact of the waves in 2004. News reports indicate the Department of Atomic Energy plans to augment these after its recent review of coastal nuclear plants.
News reports also mention that portable generators will be acquired for backup and tsunami alarms will be installed at coastal sites.

Other remedial measures based on experience may have been incorporated at Indian plants, or if not, could be incorporated now. For instance, referring to Fukushima, Dr von Hippel describes a filtered vent system designed to reduce radioactivity before releasing pressure from the containment building in the event of a meltdown (see diagram below).

Source: http://books.google.com/books?id=KAsAAAAAMBAJ&pg=PA1&source=gbs_toc&cad=2#v=onepage&q&f=false

Though it was ignored in the US, Sweden adopted it and so did France and Germany. Presumably, a benefit of Areva’s partnership with the Nuclear Power Corporation of India for constructing India’s new reactors will be the inclusion of filtered vents, if appropriate and not already in our design.

Costs, Benefits & Risks

Another issue is educating people on the risks, costs and benefits of different fuels. Life-cycle emissions capture one aspect of these costs (see diagram below for Europe).

A similar study is available for the US: “Life-Cycle Assessment of Electricity Generation Systems and Applications for Climate Change Policy Analysis” by Paul J Meier, University of Wisconsin-Madison, August 2002 (see diagram below).

Source: http://fti.neep.wisc.edu/pdf/fdm1181.pdf

Besides, there are other costs such as population displacement and environmental effects associated with hydroelectric plants, land requirements and the environmental impact of manufacturing for solar generation, noise levels for wind farms, or pollution and the higher risk of accidents associated with coal.³

Open Information & Communication

A third issue is easy access to accurate and relevant information. After the tsunami in 2004, the information sharing with the public was exemplary, with open and transparent briefings at Kalpakkam. This approach needs to be instituted as a standard operating procedure for governance by all departments and agencies, displaying integrity in systems, thereby instilling confidence in the public.

Prompt and accurate information about safety features including design and remedial measures could be compiled for ready access on websites, with pointers during press briefings. Regular and effective communication of systems and procedures, and measures to mitigate risks, could reduce our unreasoning dread of nuclear energy. Such steps would help assess risks reasonably and provide a good framework for governance and crisis management.

shyamponappa@gmail.com

1 “Table 38.1 Incidence of Accidental Deaths”, http://mospi.nic.in/...38%20ACCIDENT%20STATISTICS/Table-38.1.xls

[2008: latest available data]

2 “It Could Happen Here”, Frank N von Hippel, New York Times, March 23, 2011:http://www.nytimes.com/2011/03/24/opinion/24Von-Hippel.html

3 “Nuclear power is safest way to make electricity, according to study”, David Brown, Washington Post, April 2, 2011:http://www.washingtonpost.com/national/nuclear-power-is-safest-way-to-make-electricity-according-to-2007-tudy/2011/03/22/AFQUbyQC_story.html

Big-Bang Budgets?

2011-03-03T18:54:00.007+05:30

Clarity of planning and conceptualisation needs to be the hallmark of policy planning for the Budget

A good holding action in the face of turbulence is a real achievement. It’s a tremendous relief, with a positive spin. That’s what the finance minister seems to have given us with this year’s Budget. So, the glass could well turn out to be half-full, if heaven plays its part, and the demons — for example, rising oil prices because of turmoil in the Arab world — are in abeyance. For now, India’s spirits are up, and we have a shot at getting on with it. And if we don’t, heaven forefend, the government could resort to something as irresponsible as another spectrum auction (2.5 GHz for 4G/LTE) to pull itself out of the morass.

Given this reprieve, how best can we capitalise on it? Some of us have this notion that it is a tradition that major projects or schemes are announced at the time of the Budget. Is this a good way for the government to proceed? Are there better ways, and if so, what might they be? Also, after the Budget, several opinions reflected disappointment with the lack of big moves. What sort of actions would deserve the “Big Move” label?

Ignoring for the time being the FM’s statements about bills for banking, insurance and pension funds that could add up to a big bang, there was in fact a Big Move, with the ground prepared well beforehand, as it should be: the proposed cash transfer of Rs 37,000 crore allocated for kerosene, LPG and fertilisers to BPL users. This move to cash transfers will be a major change that should be for the better, despite apparent misgivings from the Left. In fact, its effect should be much more than an equivalent allocation in the previous system, with its infamous leakages. The logical extension of this process would be smart-card purchases of specified products with designated limits from any retailer, with direct rebates from the government in a single transaction. No forms, no fuss, thanks to the Unique Identification Number (UID). Next could be food subsidies of over Rs 74,000 crore through smart cards.

In this time of drift over several years, there has been an apparent lack of visible leadership until the appointment of a new telecom minister after the destabilisation of the past few months. This was followed by the prime minister’s assertive statements in both houses of Parliament. Similarly, the UID thrust and the first step with cash transfers show that the government can indeed take well planned initiatives. Here we have a set of steps taken with clear objectives (although somewhat muddled in the telling), with plans being developed and executed with what we hope will manifest as high quality, on time and within Budget. So it’s possible, although not our usual practice. If only we could get more of this assertive leadership to good ends.

Imagine if we brought the same clarity of objectives and conceptualisation to, say, addressing the supply of energy to end users. True, this is a very difficult area because of the multiple challenges across several ministries/agencies (fuel production and distribution, transportation, power generation, transmission, distribution, pricing, state electricity boards), and our habitual malpractices as users. The approach, however, would presumably be the same as for the UID. We would start with clear objectives that are coherent, ie, not disjointed or contradictory, and undertake a systematic, multidisciplinary effort — no ivory tower geniuses — to plan and execute through a process of sound project management to achieve the desired results. This would be an end-to-end effort that would have little to do with the budget except for the annual announcement of financial allocations, once the activities and resource requirements are specified. Its fundamental characteristic would be that it would have to be an integrated systems approach to get results.

Most important are well planned, convergent, goal-directed activities. Whether for food storage, anganwadis, power, roads, railways, integrated energy and transport programs, or communications and broadband, the process flow needs to be defined thoroughly, and every aspect specified for our environment in the implementation plan. This process would improve the odds of achieving the objectives. For instance, if cold stores are not meshed with production and markets, or transport linkages are deficient, chances are that they will fail.

The process could begin at any time of the year, and not necessarily announced at budget time in the annual cycle. Once the initial approach is conceptualised and the initiative launched, the programme plans would be scoped and spelt out, and the budget estimation completed. At budget time, as with the cash transfers linked to the UID, there would be an allocation of funds for the activities in the next 12-month phase.

Now to the Railway budget: the much touted Railways desperately need rehabilitation. In view of the significant multiplier effect that the Railways have on many other sectors, the government really must reassert its leadership in the next couple of months (after the West Bengal elections?), and reclaim this crucial area of transportation. The urgent need is to reverse the atrophy over recent years, as well as to begin to build for the future, as for instance China has done, with trains that take passengers over 1,000 km in three hours.*

Shepherd Zhou/European Pressphoto Agency

A bullet train in China travels 664 miles, from a southern coastal town deep into the interior.*

New York Times

To conclude, it is time the government took one infrastructure sector or programme at a time, including education/vocational education/continuing education, and developed clear, goal-driven plans to provide the framework for the next budget session.

* 'China Sees Growth Engine in a Web of Fast Trains', Keith Bradsher, New York Times, February 12, 2010:

http://www.nytimes.com/2010/02/13/business/global/13rail.html

shyamponappa@gmail.com

Spectrum Auctions: 'Jhatka' or 'Halal'?

2011-02-03T15:40:00.013+05:30

The choice is between sudden death and a slow one

Shyam Ponappa / February 3, 2011

Why do people advocate spectrum and licence auctions? Is it because they think auctions work? Is it the appeal of an ideology, like capitalism or socialism? Or is it because governments often collect large sums, and auctions seem fair (in a market-driven sense) and transparent? Theorists apparently cannot find better ways to allocate spectrum or licences, despite the alternative of technical and financial short-listing followed by a lottery. Yet, while desiring high government collections, people really want reasonably-priced good infrastructure, and continue to rail against government waste. Let’s review some so-called “successful” auctions and what followed.

1994: The US spectrum auction

Prior to 1994, the US used to allocate spectrum on demonstrated capacity and merit (“beauty contests”). The spectrum auction in 1994 netted record bids. The Federal Communications Commission chairman reportedly said: “Auctions have proven once again to be a success not only by awarding licences to those that value them most, but also by decreasing the national debt.” Then disaster struck, with a number of “successful” bidders declaring bankruptcy. As BusinessWeek put it in 2010 with the benefit of hindsight, “... over time, beauty contests have delivered fewer problems and higher value to society than have airwave auctions.”¹

1994: India telecom licences

In 1994, India auctioned telecom licences. Chaos followed owing to overbidding and default. Thereafter, the sector struggled from one contention to the next, with the government and operators deadlocked by 1998. The New Telecom Policy of 1999 provided a breakthrough, tossing aside the auction bids in favour of shared revenues. After the percentage share was reduced to reasonable levels, and “Calling Party Pays” halved tariffs in 2003, mobile services grew exponentially to over 725 million subscribers by 2010. Interestingly, the Telecom Regulatory Authority of India estimated that auction fee foregone till March 2007 was over Rs 19,000 crore, whereas actual revenue collections were double, at Rs 40,000 crore; by March 2010, the collections were 80,000 crore.

2000: The UK 3G auctions

The 3G auction in the UK was hailed as a spectacular success, reaping bids of about $35 billion.

2000: The France and Germany 3G auctions

Germany followed, netting $67 billion, and the finance minister quipped that the auction was for unexpected revenue to pay the national debt. France demanded a flat fee of $4.5 billion per licence.

The dotcom bubble burst in March 2000, followed by communications and technology companies a year later, and the bidders went into a tailspin. The collapse nearly bankrupted not only British Telecom owing to the enormous debt it incurred for the bids, but the entire industry worldwide. The economic slump that followed made it impossible for firms to pay off high debts, as their interest payments increased while their ratings fell.

A contrarian move in France is noteworthy for its prescience and insight. CEO Martin Bouygues (pronounced “Bweeg”) of the third mobile operator, Bouygues Telecom, refused the government’s demand of $4.5 billion as the fee for a 3G licence, making it the only mobile communications company in Europe with no investment in 3G. Mr Bouygues’ letter in May 2000 appeared on the front page of Le Monde, asking: “What should I tell my employees? … That we have a choice between a sudden death and a slow one?” While his opposition was ignored, by 2002, the French government dropped its asking price by more than 85 per cent to induce Bouygues to accept a 3G licence.

In terms of results, the auction “failures” – the Netherlands, Switzerland, Sweden, and “non-auction” countries like South Korea, Japan and Finland (until 2009) – have the best broadband services.²

Kapil Sibal’s appointment as India’s telecom minister has brought hope, with prospects of radical improvements in infrastructure, especially broadband, with a clean hand. Mr Sibal’s recent pronouncements on a new telecom policy, however, raise the spectre of another deadlock. Here are two examples: (a) “Adequate spectrum will be provided to all service providers.”

This is feasible not through slivers of spectrum for many operators, but only if there is a common carrier access, that is, all operators can access spectrum for a reasonable fee. There is no indication of what “adequate” means, nor of pooling or sharing spectrum.

Let’s hope the domain experts have been heard and not shouted down on “adequacy”. For instance, the Telecom Equipment Manufacturers’ Association had recommended that two blocks of 50 MHz each in the 698-806 MHz band be allocated to facilitate the development of wireless equipment and services. Large blocks of contiguous spectrum offer far more efficient capacity than many narrow bands. For local innovation, to get low costs, we have to think of adequacy in these terms, and not slivers of 4.4 MHz or 6.2 MHz.

(b) “Spectrum henceforth will be awarded only on a market-based mechanism.”

If the criterion for success is high bids and not delivered services, in effect, this means auctions, and the result is likely to be dismal. Those enamoured with auctions focus on the success of bids, ignoring the purpose of spectrum/licence allocation, which is service delivery resulting in consumer surplus (societal benefits).

If the operators choose to roll over and accept authoritarian decrees, a deadlock may develop again as it did in 1998 between the government and the public interest.

The government’s choices include:

a genuine effort at developing comprehensive and integrated policies for reasonably priced services, while carrying along stakeholders;
a cosmetic effort, letting stakeholders vent, and then issuing arbitrary decrees that leave a mess. For example, too many operators with fragmented spectrum; or
attempting a political or populist fix, seeking to make the United Progressive Alliance look good, the Opposition look bad, bleeding all operators to avoid accusations of a sell-out, and still leave a mess.

The first alternative is in the public interest; the second and third are not. The issues that need comprehensive transformation are spectrum and network sharing for service delivery at least cost. The government and Mr Sibal have the opportunity to choose an approach resulting in excellent delivery including broadband at reasonable prices.

1 'Spectrum Auctions Hurt Mobile Consumers', Bengt Nordstrom, Businessweek, August 17, 2010: http://www.businessweek.com/globalbiz/content/aug2010/gb20100817_915227.htm

2 'Broadband quality ranking - by economic development', Pierre Verdi, October 27, 2010:

http://www.sbs.ox.ac.uk/newsandevents/releases/PublishingImages/3%20-%20Broadband%20quality%20ranking%20-%20by%20economic%20development.jpg

The Langur Initiative: Other Bipartisan Possibilities

2011-01-16T13:06:00.010+05:30

Or: extending the bipartisan approach to governance and infrastructure.

Shyam Ponappa / New Delhi January 6, 2011

At this difficult point in our hapless trajectory as we thread our way through the divine comedy, there is a sudden burst of light, cutting through the gloom of the new year: an uncharacteristic but effective bipartisan effort by a group of parliamentarians in dealing with a practical problem. This is the saga of the hapless and troublesome monkeys of Raisina Hill and its environs, booted out by the Brits to build the Rashtrapati Bhavan and the Central Secretariat, and the parliamentarians who live on Mahadev Road nearby. Press reports say that BJP Spokesman Prakash Javadekar adopted a problem-solving approach by suggesting to six of his neighbours (five Congress MPs and one Independent) that they collectively hire a langur patrol to shoo away the monkeys that have been marauding in their gardens. Five of the six responded positively, and so they have a langur patrol, as do a number of government buildings there. And the monkeys stay away.

Why is this important? Because of how powerfully it illustrates the obvious: that collective, goal-oriented action can be very effective in achieving results. Now, if this could be extended to bipartisan initiatives (in the sense of government and the Opposition in the context of our fragmented politics), e.g. in building national assets like infrastructure, then constructive, forward-looking policies can be framed, and we can start building on what has gone before. This will take us past the blight of being in a perpetual stall. One example is resource-sharing for countrywide broadband and communications services. Another is our approach to energy production and supply. And so on.

The Bipartisan Imperative

I have written earlier on the rationale for spectrum- and network-sharing for broadband and telecommunications.

The framework for this kind of resource-sharing and organisation cannot be done without bipartisan efforts at the policy formulation stage for conceptualisation and during implementation, because various state and local governments will be involved, as will many central government ministries and departments. A bipartisan approach is also essential for devising supportive tax policies, including the development and execution of uniform, inexpensive rights-of-way charges at the state level. Not least will be the question of spectrum pricing, a matter muddied by so much contention and confused thinking regarding the economics and the technology, aggravated by opportunists seeking to make a killing, together with the well-intentioned but ill-informed flailing of strident advocates urging counterproductive measures like cancelling licences without due process and/or holding more auctions, all supposedly in the national interest, oblivious of the consequences.

To appreciate the compelling logic, consider the network of an organisation like RailTel, with over 35,000 route km of optical fibre cable (OFC) network (see figure)

RailTel's OFC Network

Source: http://www.railtelindia.com/pdf/MAPS/OFCNetwork.pdf),

or Gailtel with about 14,000 route km of OFC and planning close to 19,000 OFC in the next few years (interactive maps at: http://www.gailonline.com/gailnewsite/businesses/telecomnetwork.html).

BSNL has over 67,000 route km in the southern region alone, and other PSUs and private operators like Bharti Airtel and Reliance have their own extensive networks. Combining or integrating these will shift the focus to the tasks of last-mile access and spectrum deployment to achieve potential connectivity for most households and users.

Imagine the potential with some (three or four?) consortiums of wholesale service providers for the country having access to the combined networks of all or several such owners, including the collective capacity in terms of spectrum, access, aggregation and backhaul. These, in turn, could enable access to many retailers for local services to end users.

A second substantive aspect of such a bipartisan initiative is in structuring the national backbone facilities organisation, e.g. on the lines of Singapore’s OpenNet*. This may be an opportunity to capitalise on the BSNL and MTNL networks and revive them, perhaps as the anchor investors (possibly with other PSUs, such as RailTel, GAIL, and Powergrid). This anchor investor consortium could hold, for instance, 30 per cent of the equity in the venture. Other participants could include international companies like Axia, which design, build and operate next generation networks. Axia started out in Canada over 10 years ago and now has projects in France, Spain and Singapore, and has bid for a project in America. Other participants could be like Spectrum Bridge, a US company which runs centrally managed spectrum networks in America in the TV “white spaces”, the digital dividend from TV spectrum reallocated for telecom purposes. Their database-driven approach could be applied to the entire pooled spectrum of a large network with the participation of systems integrators like Infosys, TCS, Wipro, or IBM.

A third potential initiative is to encourage R&D and applications, perhaps seeking the development of local standards for wireless communications in the long term, even the Holy Grail of inexpensive “cognitive radio” (self-managing end-user equipment) with open spectrum. The size of our market offers the potential for such ambitious and potentially beneficial development. This will need policy support, especially for collaboration between defence and the private sector, with the creation of sustained support over a long period.

We know the apocryphal tales like that of the four bulls and the lion: the bulls are safe as long as they stay united, but when they squabble among themselves, the lion picks them off one by one. There is Aesop’s fable of the old man who shows his sons that while they can easily break one stick at a time, the same sticks bound together cannot be broken. Or the Mongolian story of the five siblings, the ancestors of the Mongolian clans, whose mother shows them that while each can easily break a single arrow, the five arrows tied together are unbreakable.

Despite this knowledge and evidence that the comforts of civilised living for all Indians require dedicated collective effort, we refuse to work to this truism of the need for collaborative effort. Suddenly, Mr Javadekar’s can-do Langur Initiative changes the game.

Even as the due process of law continues with regard to past wrongdoing, our parliamentarians should be grappling with substantive issues of nation-building such as those described above, instead of wasting time on tearing each other down.

shyamponappa@gmail.com

* http://www.opennet.com.sg/

'Model T' - for Telecom

2010-12-02T17:23:00.006+05:30

We need an initiative coordinated by the PMO that optimises both services and government revenues

Shyam Ponappa / New Delhi December 2, 2010

The 2G spectrum troubles give India an opportunity for clear thinking and purposive action for a significant impact on people’s lives. We (all stakeholders: operators, central and state governments and agencies, the media, opposition parties, PSUs and private corporations, and citizens) need to recognise that there are two distinct aspects to the wrangle: legacy problems and the way forward. The 2G controversy has to do with the truth and consequences of legacy actions. The way forward concerns our fundamental purpose, i.e. the delivery of effective and efficient communications services. What then must we do?

1. Past problems: Follow due process

Many commentators and sections of the public take a shotgun approach, demanding the cancellation of licences and auctioning confiscated spectrum. This is outside the purview of the law and will destabilise the sector and the economy, as will any arbitrary government action.

In a democratic society, there is a proper way to address these problems: through the due process of law, not summary judgements ending in figurative lynchings. There are contracts with operators, and we have to learn to respect and enforce the law. Use harsh penalties by all means, but only after (a) going through due process in establishing the facts, (b) provided there is evidence of culpable wrongdoing, and (c) the law calls for harsh penalties. If the law calls for a slap on the wrist, we need to change our laws for serious crimes, not resort to mob violence in the guise of righteous outrage.

2. Present and future needs: Approach needs with a sense of purpose

A different aspect of the predicament relates to how we can achieve improved communications infrastructure and services in India. This includes broadband Internet, voice telephony, TV and radio. We need a constructive approach encompassing services, hardware and software, instead of being mired in outmoded practices based on exclusive spectrum allocation, for example. Our focus has to be on our purposes/needs: ubiquitous access at a reasonable price. We need broadband for every household. How do we get it?

Capitalising on the low-margin model

The growth of mobile telephony provides a workable model. The graph below shows the rise in subscriptions with declining prices after the shift to revenue sharing in NTP ’99, together with reductions in revenue share percentages for licence and spectrum fees, and in the access deficit charge.

Source: http://www.ibef.org/download/Telecommunications_171109.pdf

This is a good instance of Henry Ford’s low-margin, high-volume strategy for the Model T. To sustain low tariffs extending to broadband, we need to reduce extraneous levies. A Trai study of 2005 showed government levies on telecommunications in India were far in excess of China, Sri Lanka and Pakistan.*

The study also showed that licence fees from the original auctions would have amounted to Rs 19,314 crore through 2006-07. According to the CAG report, licence and spectrum fees with reduced levies actually amounted to Rs 40,169 crore by 2006-07, i.e. double the auctions; by March 2010, the figure was nearly Rs 80,000 crore.** Over a long period, reduced revenue share for licence and spectrum fees has resulted in explosive growth as well as higher government collections than auctions and high fees

Initiative by ministry or PMO?

Why can’t the communications ministry, the DoT and Trai effect this transformation? Recall the scope of NTP ’99 and the role of the Prime Minister’s Office (PMO) for these reasons:

- First, reduced short-term government revenues. In the long term, the revenue sharing in a vibrant sector far exceeds the auction take, as shown above. Recall that the primary motivation for the licence auctions of the 1990s and the spectrum auctions was collecting government revenues. Hence, the first criterion is the stance of the finance ministry and the government on revenue collection.

- A second criterion at the state level is also financial, for rights of way charges.

- Third is India’s approach to spectrum management. Spectrum use can be structured like road or rail networks, or oil pipelines, instead of being treated as exclusive property or usage rights. The difference in costs and benefits to society is staggering. It’s like the right to use daylight or the air we breathe. Visible light is a part of the same electromagnetic radiation, so if there is a charge for radio frequency spectrum, why not for visible light and/or the atmosphere? Rentiers might see this as an opportunity for revenues, but democracies surely must consider it against the public interest.

- Existing networks of various government undertakings, including PSU operators BSNL and MTNL, PowerGrid, Gail as well as private operators, could be managed as national assets, as described above for spectrum on payment for usage. This need not mean government control and administration, as there could be a consortium with government participation. There are compelling economic reasons for public access to spectrum and networks because of the drastic reductions in investment, with higher asset utilisation, environmental benefits from less redundancy, and reduced radiation from towers, as in one highway network instead of many.

The Opportunity

Even as the law takes its course on wrongdoings, we need a new “New Telecom Policy” on the lines of NTP ’99. This is essential for transformational changes in communications services, clearing up confused policies that are at cross-purposes, and extending to boundary domains in ICT. We should aim for “Model T” pricing with access for everyone. We need an across-the-board initiative to replicate the successful aspects of mobile telephony for broadband and other forms of communication (TV, radio). The PMO could orchestrate a workout with all stakeholders that builds in the benefits of shared network resources, including spectrum, with efficient, low-frequency spectrum for rural communications with much less capital investment.

shyamponappa@gmail.com

* Study Paper on “Indicators for Telecom Growth”, Trai, 2005: http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf

** “Performance Audit Report on the Department of Telecommunications, Ministry of Communications and Information Technology”, CAG: http://cag.gov.in/html/reports/civil/2010-11_19PA/Telecommunication%20Report.pdf

Ideology & ICT Policies

2010-11-06T20:07:00.007+05:30

For better policies, decision makers need to know their own and others' biases, and adapt best practices from other countries.

Shyam Ponappa / New Delhi November 4, 2010

Why do the same facts regarding people’s needs for ICT infrastructure give rise to different policies? Apart from problematic motivation such as malicious intent and opportunism, even well-intentioned policy-makers may prescribe entirely divergent solutions for a given situation. This is evident if one compares India’s broadband policies with those of most countries. There are at least two reasons for this: differing perceptions of the facts, and differences in underlying beliefs and assumptions, i.e. ideology, as distinct from objective data.

Consider the facts of India’s ICT space. In one sense, there has been spectacular success in the communications sector. One statistic cited as evidence is the phenomenal increase in mobile phone subscriptions (over 12 million in September 2010). Equally, to those who focus on aspects like the shortfall in services outside the big cities and towns, or the meagre broadband coverage and its inaccessibility in rural areas (i.e. in much of the country), the communications sector falls tragically short of its potential, and requires policy change.

In this time of India Rising interrupted by the Great Recession, there is a stark contrast between the orientation of our ICT policies and that of most other countries. One area is the extent of government intervention and spending on broadband development. Governments of most advanced economies have stepped in to dramatically improve their broadband networks and policies for user access. This is not only in the EU where, historically, the approach is that government acts to extend consumer welfare, but also in America, the UK and Australia, which are considered much more free-market-oriented in their approach, and in many countries in Asia, including China. Unlike in America since Reagan, regulatory intervention in Europe is part of more supportive policies at the national and local levels. But this time around, even America has embarked on a comprehensive Broadband Technology Opportunities Program, with the goals of providing access to users in unserved areas, improving access in underserved areas, supporting public interest schemes for broadband access, improving broadband use by public safety agencies, and stimulating demand for broadband, economic growth and jobs; there is also a separate Rural Utilities Service.*

With regard to underlying assumptions and beliefs, an analysis on how economic doctrines affect policies by Robert D Atkinson of the Information Technology and Innovation Foundation offers a way to think through alternatives for better decisions.** His analysis is on ICT, although it can be applied to all sectors. To quote from his conclusion, for advocates and policy-makers, “differences over doctrine cause partisans to view facts differently and to focus on small segments of complex debates, leading to a breakdown of constructive dialog and much ‘talking past each other’.”

He summarises four ideologies or economic doctrines:

Conservative Neoclassical (CNC)

Liberal Neoclassical (LNC)

Neo-Keynesian (NK)

Innovation Economics, also called structuralist-evolutionary, neo-Schumpeterian, or evolutionary economics (IE)

While he describes differences in nuanced detail, the simplified abstractions rendered as a logic tree in the accompanying diagram (below) show how economic beliefs affect network policies.

CNCs are characterised as being less concerned with fairness, and less likely to expect market failures. Therefore, network and broadband markets in which governments do not intervene are considered to be competitive, and require no unbundling or price prescriptions. Their bias is for pure competition.

LNCs are more concerned with fairness, as are NKs and IEs. They accept that telecommunication markets are not competitive, and that there may be market failures. LNCs and NKs would use policy to increase competition in different ways. LNCs expect more competition to lead to increased consumer surpluses. LNCs favour regulated competition, viewing more competition as better. NKs want more competition through directed government subsidies, e.g. for municipal broadband or to small companies (which they consider less rapacious than large corporations).

IEs believe broadband markets have economies of scale, and that increased competition could result in excessive and redundant investments. They consider duplication of existing, expensive infrastructure as inefficient investment. IEs view communications infrastructure as a “general purpose technology” that drives economic activity, innovation and productivity. Therefore, they advocate policies that invest in higher-speed broadband, and in extending network services to more people, favouring a national broadband policy. The US National Broadband Plan defines broadband as a “Transformative General Purpose Technology”, and most countries practise IE. Irrespective of their economic philosophies, most countries have embarked on an aggressive broadband plan.

In comparison, India’s approach does not fit any of these categories. There are no policy incentives for broadband, and actions like the spectrum auctions this year indicate a focus on collecting government revenues rather than on facilitating communication services. Whereas the OECD countries and other Asian economies are working on network resource-sharing schemes, India seems to have previous-generation preoccupations: revenue-collection-for-the-government, increasing competition per se, or abstruse technology considerations, such as loading the most traffic on every unit of commercially available spectrum, instead of maximising the economic benefits from it. Costs and benefits in the public interest are apparently ignored.

BSNL, MTNL and DD have networks that, if they could be channelled with the right mix of policies and private enterprise, could be part of the overall backbone infrastructure for open network operations, as is being done by a consortium in Singapore. If our policy-makers understand their biases as well as those of others, they could adapt beneficial policies from other countries, as demonstrated by many countries with different philosophies converging on improving broadband.

shyamponappa@gmail.com

* “Broadband Stimulus Policy in Europe and the US: A Comparative Review”, Dariusz Adamski, Berkman Center for Internet and Society, Harvard Law School:
http://www.nyls.edu/user_files/1/3/4/30/84/187/245/Adamski,%20SPRING%202009,%2018%20MEDIA%20L.%20&%20POL%E2%80%99Y.pdf
** “Network Policy & Economic Doctrines”, Robert D Atkinson, The Information Technology & Innovation Foundation, October 2010:http://www.itif.org/files/2010-network-policy.pdf

Broadband for Education & Training

2010-10-07T20:05:00.007+05:30

Education and training through the Internet need Commonwealth Games-like crisis management

Shyam Ponappa / October 07, 2010

The central government and the Delhi administration have shown they can engage in sheer execution to save face for the Commonwealth Games. Couldn’t our governments choose to make similar efforts to improve an aspect of infrastructure that is perhaps the most powerful means for enhancing our productive capacity and quality of life: broadband? One might ask: why broadband, and not energy, water/sanitation, or roads…? While all infrastructure is essential, broadband gives the quickest, biggest bang for the buck, because of its nature vis-à-vis energy, water or transportation and our regulatory environment and functional organisation (for instance, the complexity of addressing power supply). If we could increase mobile phone coverage to present levels by reducing costs and increasing availability, it should be possible to do so for personal computers (PCs) also, to draw on the wealth of free educational and training material for our vast numbers.

Unfortunately, for such infrastructure, there is no triggering crisis like the threat of failure of the Commonwealth Games, and consequently, no face-saving or glam factors, like the arrival of foreign teams and visitors. This article makes a case for a Commonwealth Games-type crisis management for broadband through a collage of factors.

Consider these aspects of our demographics:*

Nearly 460 million people are aged between 13 and 35 today.
Of these, 333 million are literate.
In 10 years from now, the countrywide average age will be 29, compared to 37 in the US and China, 45 in Europe, and 48 in Japan.
As many as 100 million Indians — the combined labour forces of Britain, France, Italy, and Spain — are projected to be added to our workforce by 2020, which is 25 per cent of the global workforce.

This indicates our productive potential. Its realisation would require education and training, efficient functioning, i.e. the matrix of enabling infrastructure, and organisation. If these needs remain unmet, the demographic opportunity can become the liability of an unproductive population, with attendant difficulties and social hazards.

We have many formal and informal institutions providing training and education. We add nearly 300,000 engineering graduates every year to our pool of 2 million engineers. India’s vocational training capacity is estimated at 3.1 million a year, whereas about 12.8 million people enter the workforce. However, the National Sample Survey (2004) found that only 2 per cent of the 15-29 age group had formal vocational training and another 8 per cent had non-formal vocational training. In the developed economies, the proportion of skilled workers is 60-80 per cent; Korea has 96 per cent skilled workers.**

Five years ago, McKinsey reported that only a quarter of India’s engineers were employable in the IT industry. Recently, a survey showed this has reduced to 18 per cent.***

Apart from training and education in specific disciplines, the processes that make for good work practices are: systems thinking, a scientific temper, and goal-oriented work practices to meet standards of quality and time. Then there are the attributes of playing team, while engaging in a hard-charging individual effort. All these skills and practices are necessary and can be learned and renewed over time.

How will our workforce of over 500 million, adding 12.8 million every year, have access to continuing education and training, information for civic amenities and facilities and easy, efficient access to commercial and public services? What about the prerequisites of schooling, vocational training and university education? To answer these questions, consider parallel developments in domains such as distance education, e-learning and smart applications. Here are glimpses of the transformation underway in university and secondary education, especially outside India:

iTunes U has become one of the world’s largest educational catalogues for free educational material. After three years, there are over 300 million downloads. Over 800 universities have their websites at iTunes U, including many of the top universities from the US, UK, France, Germany, the Netherlands, Singapore and so on.
Khan Academy (http://khanacademy.org), a brilliant, free educational site by an ex-hedge fund analyst and manager, Salman Khan (Salman Khan of Silicon Valley, not Bollywood), covers mathematics, physics, chemistry and biology, with over 18 million page views in August (http://khanacademy.org). Started in late 2006, Khan is reportedly developing an open-ended set of material covering many subjects, and is a favourite among people like Bill Gates, and John and Ann Doerr (Fortune: http://money.cnn.com/2010/08/23/tecnology/sal_khan_academy.fortune/index.htm). Of the 200,000 students who access this site every month, only 20,000 are from India.
There are many other educational sites from school level upwards, for instance, the Open Courseware Consortium (http://www.ocwconsortium.org) by MIT, with US members like the University of California (Berkeley), Michigan and so on. Many universities and schools have their own websites. There is the Wikiversity, with portals from pre-school through primary to tertiary education, non-formal education and research (see http://en.wikiversity.org/wiki/Wikiversity:Browse).

In India, BCG estimates that Internet usage will increase from 7 per cent of the population in 2009 to 19 per cent in 2015 (237 million). PC penetration, which was just 4 per cent in 2009, is estimated at 17 per cent by 2015 (216 million). To quote BCG: “India has among the highest PC costs and lowest PC availability of all the BRICI countries (including Indonesia).” Mobile phone penetration, however, is 10 times higher, at 41 per cent. This appalling situation needs to be redressed.

Inferences

Hundreds of millions of Indians should use these websites and the Internet for radical transformation. This will require policies and practices aimed at providing:

inexpensive access to broadband;
greater access to PCs and PC-equivalents as they evolve (e.g. Pranav Mistry’s SixthSense); and
systems and processes that encourage distance education, and discipline in all fields, with professionalism and excellence across all activities.

Regulations and tax regimes determine which activities are profitable, and to what extent. This is where the government and its policies come in. Could Internet users in India converge public opinion to rouse governments to address these needs, emulating the example of Delhi Chief Minister Sheila Dikshit?

shyamponappa@gmail.com

* http://indiatoday.intoday.in/site/Story/114002/India/aroon-puries-welcome-address-at-youth-summit.html

** Employment Report, Ministry of Labour, July 1, 2010: http://labour.nic.in/Report_to_People.pdf

*** http://www.business-standard.com/india/news/engg-college-students-not-industry-ready-survey/388620/

What a Highway Can Do

2010-09-07T06:38:00.003+05:30

Despite signs of transformational change, we need more - SOPs and quality

Shyam Ponappa / September 02, 2010

Even as the country reels from the extended rains and the imminent Commonwealth Games, there are unmistakable signs in Delhi’s environs of an unprecedented transformation. To see and feel this, try driving to the Delhi-Noida toll bridge (the “DND”), and go past Noida on the expressway to Greater Noida.

It isn’t perfect, and there are many details that could be handled better, from the assets built to how we use them. These include unfinished verges with construction debris near the Ashram crossing, cambers without proper drainage that get flooded in some stretches of the expressway, motorcyclists sheltering from the rain under the flyovers/overpasses spilling on to the expressway, pedestrians with no place to cross, trucks at night without even reflectors, trucks that are parked without hazard lights, tractors, and occasional cattle. Most dangerous are the undisciplined drivers who act as if they are puttering along at 30 km per hour while going at the 100 km speed limit or more, or who drive on the wrong side against oncoming traffic. And the resurfacing of the road in parts leaves much to be desired…

The transformation under way

Ignore this cavilling and carping, however, and it is bliss. One can cover 30 km from the DND toll plaza to Greater Noida in 20 minutes legally, although within New Delhi, it may take as long or even longer to travel just a few kilometres. I was amazed recently driving from Shantiniketan to Greater Noida in 40 minutes. It was like driving in California — quite different from the contentious driving that is customary on our roads.

The sheer ease and convenience apart, another, arguably greater, benefit is the gain in productivity. It is this potential for productivity that, if we can wring from ourselves, is one part of the equation in our pursuit of an improved quality of life. It is especially important because of our vast numbers, including the much-bruited potential demographic dividend, which is not new. As Babur put it in the 16th century*: “…if they fix their eyes on a place in which to settle …as the population of Hindustan is unlimited, it swarms in.” Little has changed, and much needs to be built from the ground up, starting with sanitation and water, not to mention energy, communications, and transportation systems.
But just consider: the limited instance of the drive on the expressway reveals a productivity gain of three to four times at 20 minutes for covering 30 km, compared with covering only 7-10 km in the same time (or taking three to four times longer for 30 km). That’s a gain of 300-400 per cent!
There’s another noticeable change: a willingness of everyone to work very much harder at whatever they do. All levels of people, from entrepreneur-managers to electricians, plumbers, gardeners, and day labourers, work so hard that a major change seems to be afoot. I am familiar with the hardworking farmer and rural wage earner, having grown up on a farm myself. I have also experienced the recalcitrance of some public sector employees and private sector unions, as well as the productive, hard-charging PSU, government, and private sector employees. Yet, in the work attitudes of boomtown Greater Noida, I see impressive energy and application.
The failings

Let me not gloss over the weaknesses. There are big failures in delivery capability, and these arise from two critical lacunae:

a) SOPs, systems and procedures
A major failing appears to be the lack of Standard Operating Procedures (SOPs) even for simple construction jobs, like painting metal: the ramrod, sequential steps of first scrape, then clean, apply primer, apply the first coat of paint and dry off; then apply the second coat… People simply don’t follow sound work practices — systems and procedures that, when applied, yield consistent good results. This is partly an endogenous failing, arising from lack of appropriate education/training and discipline. It is also partly attributable to the lack of organised systems and procedures.

b) Infrastructure
An equally critical exogenous failing of the environment is reliable infrastructure, whether in the form of energy (power/electricity), communications, transportation excepting a one-off good stretch of highway, or water and sanitation. Take any single area, say energy. The extent of wasted manpower because of lack of adequate electricity supply is beyond imagination.

Add the bases for learning and functioning competently, and there’s education (including training) and health care as a support function. Proper education and training — and discipline — are absolutely essential for learning and developing sound work processes, and for applying them. There was an impression many years ago that incompetence or recalcitrance in delivery resulted from the inadequate capacity of individuals. In the last several years, it is evident that we have good people, but they have very poor training, systems and organisation, and equally poor infrastructure. You could call it a lack of leadership and discipline at all levels.

What we need

We need two sets of fixes. The first is for our inherent failings: the lack of SOPs and the need to learn to work to inexorable checklists and timelines. It is imperative to learn the discipline of project management at all levels — starting from the top, not the bottom! This is a sweeping change that entails shifting from feudal criteria to respect for professional competence and processes.

The second fix required is a supportive environment: good infrastructure and the appurtenances of good policies. Going by the figures, we will build more roads, power plants and factories in the next few years than in the last 60. But the net gain to society will depend on their quality. If they are shoddy, the gains will be much less. Assets that are not integrated into coherent systems will be less beneficial than if they are integrated to deliver results, e.g. isolated housing without a web of transportation and communication links near where people work; isolated good stretches of highway. It is imperative that we design and execute the infrastructure to support our productivity. This is an area of weakness we must address and execute more comprehensively.

shyamponappa@gmail.com

*Babur-Nama, translated by Annette Susannah Beveridge http://www.farlang.com/diamonds/beveridge-baburnama/page_546

China Club (contd): Beneficial Engagement

2010-08-11T15:40:00.007+05:30

India and China have the opportunity to develop strategic commercial interests that are mutually beneficial

Shyam Ponappa / New Delhi August 05, 2010

The opportunities and threats relating to China are an unending source of discussion and debate. How do we move beyond, to grasp the nettle of practical considerations and undertakings? What emerges is India’s need to strategise its commercial interests and execute projects in terms of clear objectives. One aspect is related to internal coordination: getting our act together, e.g., in domestic manufacturing. A second aspect has to do with external orientation, and engaging with China.

In a previous article*, I had suggested the need to orchestrate supportive policies for domestic manufacturing, to capitalise on India’s growth. The central idea: emulate China’s approach in areas where it has successfully established policies that yield scale economies with appropriate financial and commercial linkages, to result in high-quality products delivered at low cost. An instance discussed was the power sector, where China has coordinated its state and central taxes, picked favoured locations which have good infrastructure (energy, transport, communications…), subsidised land, managed favourable exchange and interest rates (i.e., cheap finance), given preferred access to its domestic markets, and deployed barriers to unfair competition, like import tariffs not below the WTO floor.

Another dimension that also needs to be explored is positive, constructive engagement with Chinese enterprises. The potential for engaging in a number of areas with the scope for mutually beneficial participation may exist. This kind of collaboration could mitigate risk by enhancing access to raw materials as well as to expanded markets for finished goods, while reducing capital investment through equity participation.

Take sectors like energy and metals. Both provide tremendous opportunities for mutual benefit. One dimension is joint bidding for projects for exploration and development in sectors such as oil and gas, instead of competing bids. (The Sudan venture doesn’t count, because India and China became partners by default, and not by conscious choice.) Another is joint participation in projects in both countries, e.g., for aluminium. China itself is guarded about FDI in strategic sectors, so such ventures will require significant efforts and accommodation from both countries.

Although more opportune several years ago, it is still possible that there is scope for an aluminium smelting joint venture in India because of the availability of bauxite, coupled with back-to-back joint ventures in India and China for finished products. The potential benefits to Indian companies such as Nalco are access to substantial capital for expansion, as well as increased access to markets. A Chinese partner like Chinalco would also gain significantly by access to its share of low-cost raw materials as well as to a more diversified market, in return providing access to Chinese and international markets to its Indian partner.

China has for years acted decisively on setting up joint ventures in its overall interests. In the early 1990s, I saw a phosphoric acid plant in Florida, where China had a 50-50 joint venture with a US company, Seminole Fertiliser Corporation. This enabled Chinese phosphoric acid imports at favourable prices, circumventing cartelised export restrictions by US producers. (China and India have been and are major importers of phosphoric acid for phosphatic fertilisers.)

More recently, Huawei’s efforts in breaking into the US telecommunications market show the same decisiveness, e.g., in hiring the former chief technologist of BT for its operations in the US. Huawei has been a leading supplier to BT. This is an instance of how China strategises its approach to be an acceptable partner.

While breakthroughs in information and communications technology (ICT) with India may be more difficult in the near term, because of mutual wariness as well as the need for complex structuring, mainstream ventures in sectors like steel, aluminium, copper and energy (oil and gas, coal) may be more easily structured and executed, provided there is mutual (a) reciprocity and (b) transparency. In this, our decision-making and delivery processes must keep up with the required pace. This major change in approach between the two countries, open reciprocity with no game-playing, and in India’s own methods, are necessary conditions for major commercial developments that lead to optimal economic engagement.

One difficult aspect is the inevitability of dealing with China’s state agencies for core projects, often affiliated with the PLA. However, it is a reality that has to be included in the final solution, just as major energy ventures that India participates in are likely to be driven by state-owned enterprises like ONGC, Indian Oil Corporation, or GAIL.

A possible way to achieve a first step may be to structure a venture that is in a third country, with substantive contributions from both India and China, with benefits to all three. An example could have been (could be?) a very large copper and gold mining project in Mongolia, close to the Chinese border. The Oyu Tolgoi (“Turquoise Mountain”) project is currently being developed by Ivanhoe Mines, a Canadian company, and Rio Tinto, the mining giant in which Chinalco is the largest shareholder, with the Mongolian government as the third partner (for details, see http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=107827&sn=Detail, and http://www.ft.com/cms/s/0/ b2065990-8ddf-11df-9153-00144feab49a.html ). The two external shareholders reportedly have differences about Rio Tinto’s enhanced acquisition of Ivanhoe and thereby of Oyu Tolgoi. A possible solution, provided India perceives this as beneficial (as must Mongolia, Ivanhoe and Rio Tinto) and Delhi acts decisively, may be the induction of Indian equity into this project.

This can only happen if there is a national initiative to evaluate and act on the opportunity, with a concerted bid in a manner that all parties — the Mongolian government, Ivanhoe Mines, Rio Tinto, and the Indian government — can have a meeting of minds on valuation and direction, with an open, collaborative approach.

Other potential areas for participative ventures could include logistics and transportation, including airlines and freight/shipping. While the possibilities are open-ended, the actual unfolding of promising pathways may require success with simpler “asset-plays” like metals or energy projects, to establish what is pragmatic and feasible. These could provide substance to what is currently just talk of a strategic partnership with China.

shyamponappa@gmail.com

*http://organizing-india.blogspot.com/2010/05/china-club-instead-of-bombay-club.html

Catching Up On Broadband

2010-07-02T06:10:00.006+05:30

The govt can invest some of the Rs 1,00,000 crore from the spectrum auctions to help India catch up on broadband

Shyam Ponappa / July 1, 2010

When it comes to broadband, India is “notably lagging its peers”, to quote Booz & Co, an international consulting firm.* Its report recounts our pathetic coverage — less than half the anticipated 20 million — and recommends that both industry and government must act in concert. Spelling out the roles for both, it concludes that we need a national policy to improve fixed-line infrastructure more rapidly than the current market-based approach does, as well as satellite-based communications.

The report recommends this because advanced economies have broadband on widespread fixed-line networks, and many are pursuing strategies to further empower their citizens through state action, as before. The effects are many, but let’s start with examining costs. Figure 1 shows the relative cost of broadband in a sample of countries.

Figure 1: Broadband Cost PPP US $

India seems favourably placed with its low purchasing power parity (PPP) cost. However, relative to costs in India, this is about 6 per cent of average monthly gross national income (GNI) per capita, ranked 78th, as shown in Figure 2. In comparison, the first 23 countries — Macao, Israel, Hong Kong, the US, Singapore, etc., Greece and Spain included — have costs below or close to 1 per cent; the next 16 have costs below 2 per cent. As the 39 countries have PPP costs of only 0.25 per cent to twice India’s cost, India’s cost as a percentage of its GNI is six times theirs, i.e. Indian users have to pay relatively more. Increasing GNI, while desirable, is harder, more complex, and will take much longer. By contrast, costs can be reduced quickly by sharing network resources and limiting government collections to a reasonable percentage of revenues, instead of auctions and arbitrary levies.

Figure 2: Fixed Broadband Cost As % GNI Per Capita

Source: http://www.itu.int/ITU-D/ict/publications/idi/2010/Material/MIS_2010_without%20annex%204-e.pdf

Broadband leaders

Wired Asian countries like Japan, Hong Kong and South Korea already offer broadband on the next generation of high-speed networks. Singapore’s approach especially should be of interest to India, with policies supporting a blend of public subsidies and private investment, while separating three activities: infrastructure, network operations (wholesale), and user services (retail)**

Two years ago, Singapore set out to create an environment with more open access to downstream operators by separating the building of infrastructure from the running of the network. It drew on the experience of local community networks in countries like Britain, France, the Netherlands and Sweden. Three Singapore companies partnered with Axia Netmedia, a Canadian broadband company, to form a consortium called OpenNet, the infrastructure operator. OpenNet uses one partner’s existing network (SingTel’s) as a base. With a government grant of 750 million Singapore dollars, OpenNet is building an extensive fibre-to-the-home (FTTH) grid to be completed by 2012. The second partner is a subsidiary of Singapore Power, SP Telecommunications, which leverages Singapore Power’s experience in developing infrastructure. The third, Singapore Press Holdings, is a leading media services company.

The network operator, a subsidiary of StarHub (a cable and phone operator), is Nucleus Connect. Residential services at 100 mbps have been announced, to be provided by over 10 retail service operators. While some analysts opine that increased competition may not lead to appreciable cost reduction, Singapore is already ranked fifth-lowest in cost as a percentage of average monthly GNI per capita.

Can India do some catching up?

a) Can India do something similar? Don’t we need to? How?

The answer to the first question is: only if the government decides on a concerted drive.

To the second: yes, to be competitive.

To the third: with a comprehensive, integrated systems approach. It is insufficient if only one or a few ministries and agencies are involved, because the development and execution of solutions require cutting across turf boundaries. The conventional approach of the ongoing Trai consultation followed by recommendations addressed by the DoT is simply inadequate, because their charter is too limited. Many issues concerning commercial and user decisions, particularly of government agencies and the Department of Defence, and radical changes in approach need active participation from these players as well as the private sector for resolution. Examples are Booz & Co’s recommendations of a better fixed-wire network, and satellite communications in the Ka band, or the possibility of exploiting the cable and satellite TV network of around 110 million households. The entire communications network, or at least the backbone, needs to be shared for efficiency, unlike the existing limited tower-sharing. Also, state governments need to be closely involved in issues like Rights of Way and user needs.

b) Governments at the Centre and all states need to facilitate the productivity of their citizens, instead of hamstringing them with taxes, levies, auctions and dysfunctional policies. This is more easily said than done, with our predatory history, fractious coalitions at the Centre and states, and freewheeling, combative state governments. Governments at all levels have to coordinate this problem-solving initiative for all stakeholders, adapting the experience of leading broadband countries, instead of predatory behaviour seeking personal gains. The consultative process needs to agree on goals, and then figure out practical ways to achieve them.

c) With inspired leadership and a constructive approach, half of the over Rs 1,00,000 crore from the 3G and BWA auctions could support a broadband gambit drawing on concepts like Singapore’s public-private partnership, instead of being just a damaging revenue-collection exercise. Again, easier said than done, but with result-oriented, strong leadership to elicit enlightened employee engagement, even MTNL and BSNL could be partners in a core network in a role like SingTel’s. A public-private network-builder can draw on the combined strengths of its participants to provide a platform for a number of private operators. Separating the infrastructure building and operations from wholesale network services and end-user services could make this feasible and practicable.

shyamponappa@gmail.com

* “Bringing mass broadband to India: Roles for government and industry”, Booz & Co, June 7, 2010: http://www.booz.com/media/uploads/Bringing_Mass_Boadband_To_India.pdf

** “Singapore gets wired for speed”, Sonia Kolesnikov-Jessop, NYT: http://www.nytimes.com/2010/06/15/technology/15iht-rtechbroad.html?ref=internet

India's Sorry Spectrum Story

2010-06-04T05:52:00.009+05:30

How not to do ICT for development

Shyam Ponappa / June 3, 2010

The network of roads is mostly public property. What if the government decided to make more money from our use of this property? Made users pay for these public assets, whether the roads are there, or yet to be built? Demanded up-front fees for a fixed-term right, followed by annual fees marked-to-market to reflect “fair market value”...

All roads would be expensive, and few people would be able to afford their use. Imagine what it would do to plans to build new roads. Imagine how much you would have to pay for road use, how usage would drop, the sheer inconvenience, and the impediments to productivity.

This is not happening to the majority of our roads, but it is to communications, especially broadband. With some differences, this is what spectrum fees are about. The major difference is that spectrum fees are levied on operators, not end users (the equivalent for roads would be fees from government agencies/road operators).

For instance, Bharti and Vodafone paid Rs 12,300 crore and Rs 11,600 crore respectively up front for 3G spectrum. This is one reason why India won’t get widespread broadband networks in a hurry, nor reasonably priced services. The investment in spectrum fees and networks is so high that operators will probably offer limited, high-margin products. They will focus on high-traffic routes and ignore the rest, serving 50-100 million, instead of a billion: exactly the opposite of what we need.

The spectrum story

This approach to spectrum management is an object lesson in how not to use information and communications technology (ICT) for development. Each operator is assigned a sliver of spectrum exclusively . The resulting “scarce spectrum” predicament demonstrates why this approach is entirely unsuitable for optimising net benefits. Optimisation requires making trade-offs between technology, economics and commercial interests for development and the common good.

The situation is aggravated by three additional factors:

Too many operators in a franchise area (12-16 in India, as against an international average of three to five), resulting in limited capacity and high capital costs.
Limited availability of spectrum for commercial use, because of the extent assigned to the government, defence and the public sector.
The government’s periodic efforts to extract as much revenue as possible from spectrum: an exploitative approach, instead of nurturing capacity to generate fair tax returns over the long term. Even in advanced economies, high auction bids have been disastrous.

Consequences

• The average spectrum available per user is of the order of 5.5 MHz in India, compared to an international average of about 22 MHz.

Delhi and Mumbai have cell sites that are less than 100 metres apart, compared with around 200 metres in Istanbul, 300 metres in Munich, and 350 metres in Berlin. Decreased inter-cell distances increase interference, thus restricting capacity. If each operator has more spectrum, traffic-handling capacity increases at a lower cost. Improving technical efficiency at the cost of economic efficiency loses out on capacity at low cost. Cellular operators in India are forced to extract greater spectrum efficiency (see Figure 1), which sounds good until you factor in the increased costs and opportunity losses.

Figure 1: Spectrum Efficiency in Delhi & Mumbai compared with London, Singapore & Hong Kong

Source: 'An assessment of spectrum management policy in India', Plum Consulting, December 2008: David Lewin, Val Jervis, Chris Davis, Ken Pearson.

http://www.plumconsulting.co.uk/pdfs/GSMA%20spectrum%20management%20policy%20in%20India.pdf

The report from which Figure 1 is taken estimates that spectrum assignments increased to international norms would have lowered industry costs by 21 per cent (Rs 11,700 crore or $2.6 billion in 2008). This would have resulted in more extensive coverage at less cost, with greater consumer welfare.

• The result is high-cost infrastructure for operators as well as for users. Too many operators make for increased capital costs for each operator, and cumulatively for all operators — unless they use common networks. Higher efficiency requires more base stations and more advanced technology, both adding to costs. Despite this, operators are exhorted to improve their spectrum efficiency. After a detailed assessment, the report concludes:

" • The claims regarding the scale of the capacity increases possible with the use of various techniques are significantly overstated.

• In the case of adaptive multi-rate (AMR) codecs, this technique is already being deployed on a widespread basis.

• The claims wrongly assume that the capacity gains from the different techniques are additive. This is simply not true in a number of cases. For example, the gain achievable with DFCA is less if AMR has already been implemented.

• There are substantial costs associated with deploying advanced techniques — both for operators in terms of network upgrades and for end users in terms of new handsets.

• It is important to be aware that deployment of some of the techniques, such as AMR HR, leads to lower quality of service.

• The focus on spectrum optimisation techniques for 2G networks fails to take into account the fact that the efforts of the suppliers have now shifted from 2G optimisation to 3G deployment.

Those making these claims seek more intensive deployment of advanced techniques to maximise technical spectrum efficiency. But a better policy objective, as we argue (in a later section), is overall economic efficiency. From this perspective, it only makes sense to deploy advanced technologies when this is a lower cost way of increasing capacity than adding further base stations. Indeed it is against the interest of the Indian economy to deploy them if this is not the case."

The approach is counterproductive and against our interests. Advanced economies are doing the opposite, encouraging investment in broadband to improve productivity, while India’s policies actually constrain productivity.

• A third consequence is the non-availability of spectrum in the more efficient bands, eg, 700-900 MHz. This has a negative effect on last-mile roll-out and services in rural areas. Lack of coverage in the hinterland is a severe deficiency in areas that are poorly served by fixed-line networks. It only perpetuates the vicious circle of low potential in rural areas with deficient broadband and Internet access.

The curse of spectrum auctions

Two recent developments have created additional burdens. One is the 3G auction, with bids of over Rs 67,000 crore (almost $15 billion). Another is the TRAI (Telecom Regulatory Authority of India) recommendation that 2G operators with over 6.2 MHz must pay for additional spectrum at prices determined by the 3G auction, resulting in a precipitous fall in the shares of major operators (ee Figure 2).

Figure 2: Telecom Stocks After TRAI's Fees Recommended For 2G

Why should governments be concerned when stock prices fall? For the same reasons they should want stable markets: investment and prosperity, leading to public welfare. It makes little sense to entice investment into high-potential, sunrise sectors, only to batter successful enterprises with arbitrary “taxes”. Bharti described the changes as “shocking, arbitrary and retrograde”; Vodafone called them “opaque, illogical and discriminatory”.

Like an absurd play, events have taken a surreal turn, with the Department of Telecommunications reportedly demanding spectrum fees from the Defence Department. However, no additional demands were made on companies cashing in on assigned spectrum rights that sold for windfall gains without any networks or users. This seems equally absurd.

The government needs to give up making short-term revenue killings, and instead, maximise net welfare through building productive capacity. Ubiquitous broadband is good for productivity and for the environment. As for auctions, remember that collections from revenue sharing after the New Telecom Policy 1999 (NTP ’99) far exceed the bids. Let us have the wisdom to collect those golden eggs over time, instead of eating the goose now.

shyamponappa@gmail.com

China Club instead of Bombay Club?

2010-05-06T20:21:00.006+05:30

Emulate China's coordinated policies for strategic sectors, and we'll rely less on commodity exports

Shyam Ponappa / New Delhi May 6, 2010

With the momentum of the past few years, India’s potential for growth is enormous, despite the chaotic loose linkages. In sectors like power and telecommunications, this translates to demand far outstripping capacity. Some contend that domestic inability to build capacity — i.e., being able to actually pull it off, as against the perpetual potential — will conscribe not only these sectors, but also limit overall growth. So the argument goes, e.g., let China build India’s power plants, because we need the power and don’t have capacity/they do it cheaper.

Comparative advantage notwithstanding, this reasoning is fallacious given the realities of national interests and self-interest. To understand why, consider the naïveté of the underlying assumptions — about “rational man”, that capitalism is fair, capital is immobile, surplus value accrues to countries and not to companies, or that the pursuit of self-interest maximises societal benefits.*

Our quandary is aggravated by our inability so far to orchestrate supportive policies for even a level playing field. Ironically, one need only consider India’s approach to IT and IT-enabled services (ITeS) in the initial growth years to realise this. India’s policies in IT and ITeS, while far from perfect — in fact, sneaked through by stealth, as in the preferential 64 kbps communications lifeline, and the tax breaks for software service exporters — provided the foundations for transforming IT and then ITeS/BPO/KPO (Business Process and Knowledge Process Outsourcing).

These sectors also benefited from a controlled exchange rate, as the Reserve Bank of India (RBI) managed a steady depreciation during those years. But they did not have another vital ingredient of coordinated policies as did the Asian tigers: low borrowing rates (see diagram below for real interest rates in China, USA and India, 2002-2004).

http://thinkglobal.com.au/docs/ChinaMembers/China_and_Indias_Financial_Systems_-_a_barrier_to_growth.pdf

This is one reason why, for instance, India’s machine tool manufacturers or shipbuilders have not matched the growth of knowledge-based services. The former need inexpensive, long-term capital for production and marketing, as well as for continuous innovation, upgrade and scale.**

Why labour arbitrage and not products

This is also one reason why we lack product orientation, because product design, development and marketing require the support of easy access to cheap capital for a long period. Labour arbitrage needs little capital. Therefore, we have been better mercenaries than producers of products, compared with the chaebols (Samsung, Hyundai) or keiretsu (Mitsubishi, Dai-Ichi/Mizuho). There are, of course, many additional reasons: their education, training, work practices, our policies against large corporations, etc.

With growth in domestic markets across a broad range — telecom equipment, engineering goods, power — there are domestic manufacturing initiatives, such as L&T and Bharat Forge in power generation joining Bhel, or Tejas Networks in optical switching. But for the transformational changes we have witnessed in IT, we need coordinated industrial policies that support domestic manufacturing, because that’s the competition. Unthinking acceptance of “open markets” without heed to how others — including developed economies — cosseted and built their manufacturing capacity will ensure that India stays a raw materials and commodities exporter, while importing trains, aircraft, machine tools, and equipment for power generation, telecommunications and defence.

Integrated policies work

Ideally, supportive policies comprise a coordinated range, such as state and central taxes, favoured locations with good infrastructure — energy, transport and communications, subsidised land, favourable exchange and interest rates, preferred access to domestic markets, and barriers to unfair competition, like import tariffs not below the WTO floor, and safeguard duties. Without this orchestration, the victors are companies and countries that have understood these principles, and have these systems in place. (This applies equally to farm products.)

Many are apprehensive that what works elsewhere will not work in India because of malpractices, as seen in recurring scams. There is every need for systems with integrity, and for enforcement with penalties. But just as corruption in government or civil society does not do away with the need for either, misuse does not negate the need for incentives. It would be self-damaging to lose the opportunity to try and get our act together simply because of apprehensions of corruption and/or incompetence. That would be like not subsidising food for the poor; it’s a different matter that we need better methods to prevent gross misappropriation.

The consequence of heedless, ad hoc muddling through instead of orchestrated strategies is that manufactured imports will dominate our markets, while domestic manufacturing is fragmented, hamstrung or absent. Having said that, consider India’s needs in electricity or communications — telecom, Internet and broadcasting — and it is apparent that crafting policies is not simple. So many conflicting images, some based on facts, others, mere impressions, which are often more important than facts. What should policy-makers do for our needs on such a massive scale with growing shortfalls?

Emulate China

The short answer: learn from China. In the power sector, Chinese suppliers have the following advantages:

Low-cost access to capital.
An exchange rate advantage (10-30 per cent).
No sales tax and octroi, aggregating to about 11 per cent.
Zero customs duty on equipment for large plants (China imposes a 30 per cent import duty).

Corrective action discussed for years has not resulted in concrete steps. The power ministry, citing supposed user benefits, opposes the planning commission’s recommendation of a safeguard duty. This is as shortsighted as “free electricity” that undercuts investments in power.

In telecommunications, consider Huawei, with revenues of over $20 billion, nurtured for 20 years with the People’s Liberation Army (PLA) as an R&D partner and guaranteed customer, vis-à-vis, say, Tejas Networks from Bangalore, with no government support.

Our policies need to focus on our long-term interests with strategic intent and execution, as in other countries, balancing costs with the benefits of domestic capabilities. These sectors need government procurement support, not criteria that disqualify Indian companies in strategic sectors like power and communications. They also need interim methods for Chinese companies to contribute while upgrading our skills and processes. Our aim needs to be a level playing field.

shyamponappa@gmail.com

* For why “individual ambition serves the common good” doesn’t quite work, see “Prisoner’s Dilemma” at: http://www.lsd.ic.unicamp.br/~oliva/papers/free-software/BMind.pdf

** “An Analysis on the Determinants of Indian Machine Tool Exports”, Rijesh Raju, 2007: http://www.wu.ac.at/europainstitut/noeg/raju_s2.3-2