Aiming For The High Road

Government's policies can either enable or limit our prosperity.

Shyam Ponappa  May 4, 2023

There are very divergent views about India’s economic prospects.  Some perceive great promise, while others see big government and unclear strategy.
 

The upbeat take is that investors who put substantial capital into China in its early growth phase are finding patterns mirrored in India that encourage their investment (An updated perspective on India, Business Standard, April 17, 2023). These investors are looking to limit or reduce new investments in China, and, among emerging markets, India is promising with the capacity to absorb large investments. Factors such as Apple’s exports of $5 billion in its first year support this, as does recent enthusiasm about India’s building logistics and effecting a digital transformation. The expectation is that annual growth will be over 6 per cent, and that gross domestic product/capita may grow from $2,500 to $5,000 in six to seven years.
 

A more downbeat view is that India has lost opportunities and made misplaced choices with growth coming from government spending and seat-of-the-pants strategies (Rolling the dice on growth, Business Standard, May 3, 2023). This has led to a constrained, uncompetitive private sector hobbled by disabling regulations, inadequate and unreliable infrastructure (notwithstanding high investment, on which more later), limited capital access, tariff barriers, an inappropriate and ineffective educational approach for employability and improving skills, and impoverishment through electoral handouts to much of the population. Instead of structural changes to provide lower cost infrastructure and efficient governance, the government chose corporate tax cuts to spur growth.
 

The fact is that while India is still in a sweet spot because of its economic resilience, momentum, favourable demographics (although largely unutilised), and improving productivity (1), growth in this decade is likely to average under 6 per cent annually. (See chart).

 

India will continue to outpace global average growth rates of real GDP and real per capita GDP from 2023 to 2030
                                                                                                                     (% change y/y)

 

Some data support this view, such as skewed consumer demand and delayed projects. Consumer demand is stronger at the high end, but weak at the lower end. Infrastructure project delays in March 2023 were reportedly the highest since 2004. These include nearly 57 per cent of projects over Rs 150 crore, resulting in cost escalation of over 20 per cent, amounting to half this year’s capital expenditure budget. 

Presumably this problem is reflected in the Gati Shakti National Master Plan. When public access is permitted, it will be interesting to know about the project management and coordination processes for timely execution, given its roots in a Project Management Institute report.

Higher growth of 8 per cent or above requires more structural change. These begin with policies that (a) provide reliable infrastructure that is affordable, (b) improve capital access, and (c) eliminate “tax terrorism”. Facilitating productivity through infrastructure everywhere would enable more people, including more women and young people, to participate and contribute. 

The next level of productivity improvement requires much deeper change. These extend to assuring a sense of security with law and order, access to meaningful education and skill building, deep changes away from “extensive” agriculture to an intensive, informed approach that is productive and sustainable. A critical prerequisite is cohesive, unifying leadership that inspires cooperation and inclusion.  Regarding better infrastructure, the following observations indicate possible ways to improve: 
 

Road Construction: New roads are being built at a furious pace.  However, two problems hamper our logistics despite the enormous sums spent. One is project delays. The other, more serious issue is the rapid deterioration of roads. While heavy rains do aggravate the problem, the underlying reasons are the quality of construction and lack of timely maintenance, made worse by undue emphasis on the value of contracts and quick implementation. Countries with equally severe weather variations build and maintain better roads. An expert with experience in America and India asserts that the reason is not enforcing requisite standards, quoting John F Kennedy that it is the roads that built America’s wealth. (2) This need for adherence to standards extends to many areas, and would transform our quality and competitiveness. It does not, however, lend itself to big targets and bragging rights for electoral purposes.
 

Communications – 4G, 5G and Beyond: If there were fast, reliable 4G-level connectivity countrywide, and if most people got access to these services, there would likely be a productivity revolution.  It would take much more than just connectivity: Development of content, technology choices and organisation are required to increase beneficial use exponentially. For example, content is needed for agricultural transformation to intensive cultivation, workplace skills and manuals, or K-12 education.
 

For the middle-mile and second-last mile, until the current blitz for BSNL 4G wireless, our policies emphasised fibre.  Widespread fibre-to-the-home is unrealistic in India because of the cost. The way out is high-speed wireless for middle-mile and second-last mile (backhaul), and for last-mile (Wi-Fi and cellular). We need enabling policies for these.
 

Another technology issue is 4G and 5G.  South Korea, leading in 5G, is the exemplar of the “5G fallacy” of getting five-fold speeds after $20 billion in network upgrades, instead of the desired 20 times speeds.  South Korea has nine cities of more than a million people, 42 between 100,000 to 1 million, and 77 between 10,000 to 100,000. They have 215,000 base stations of which only 2 per cent are 28 GHz, covering 45 per cent of their population. India has 48 cities of over 1 million, 405 with 100,000 to 1 million people, and 2,500 with 10,000 to 100,000 people.  We have 102,000 base stations compared to South Korea’s 215,000, and would need many more at unaffordable cost for blanket coverage. What we need instead is high-speed 4G or Wi-Fi, using wireless 60 GHz and 70-80 GHz for the middle-mile, with 6 GHz Wi-Fi for the last mile (in addition to existing Wi-Fi at 2.4 and 5 GHz).
 

One more requirement is technology organisation: Shared networks versus single-operator networks.  Shared neutral host networks (NHNs) are the most efficient, while active sharing by operators costs 70 per cent less per user in an Indian case study. (3) 

It is the government’s choice of policies that can help us on the high road.

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Shyam (no space) Ponappa at gmail dot com

1: For details, see: “Productivity Growth in India: An Empirical Assessment”, RBI Bulletin January 2023.

https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/02ART19012023C2BCA396B632479BBDD5485D89FDEEF4.PDF

and

Page 10: https://www.imf.org/-/media/Files/Publications/WP/2023/English/WPIEA2023082.ashx

 

2: https://www.nbmcw.com/article-report/infrastructure-construction/roads-and-pavements/why-do-many-roads-constructed-in-india-fail-prematurely.html  

Prof. Prithvi Singh Kandhal has drafted standards for the Indian Roads Congress, and was formerly at the National Centre for Asphalt Technology at Auburn University in Alabama.

 

3. https://www.researchgate.net/publication/368772499_Techno-Economic_Assessment_of_5G_Infrastructure_Sharing_Business_Models_in_Rural_Areas

Shruthi K.A. Kumar and Edward J. Oughton

Hard Changes for Better Times

It's time to work together for what we need.

Shyam Ponappa   |   

September 4, 2014

As the government settles in amid signs that the economy's edging up, fundamental changes in approach would help us fare very much better. Our needs haven't changed: the assumption of law and order as a prerequisite, with a great deal more of basic infrastructure in the form of energy,water and sanitation, transport, communications, and basic health and education services. Beyond these, there are the second-order infrastructure needs of healthcare, education, and financial systems and services. Together, these can facilitate productive and more comfortable living, making every day less of a battle.

However, merely wanting all these is not sufficient, as we know from experience. Good intentions aren't enough to solve problems, nor are public consultations. There are many mountains to be climbed, from individual aspects of discipline, education/skill development, and diligent application, to the collective aspects of organisation, collaboration, applied expertise across many domains, and access to reasonably priced capital. These are where institutional changes addressed seriously can help achieve our priority objectives.

What Must Change?

Attitudes: Contention vs. Solutions  A major weakness in our approach is the high level of dissonance in our society. Is it because of our unwillingness to accept that there's more to know than any one of us does, as individuals? We also seem to operate contentiously, rather than working out solutions that are acceptable to others as much as to ourselves. It's difficult to explain this unwillingness to consider with an open mind, or to accept our limitations. It's almost as though our electoral rights without obligations extend to a tendency to hold opinions without the basis of supporting evidence, domain knowledge, or understanding. This is perhaps why all the good people and good works don't seem to add up - and, despite the many isolated, encapsulated efforts, our disjointed, uncoordinated society seems to border on chaos.

One part of the remedy requires changing our attitudes to the process of engagement itself, from contending against to actively seeking solutions among stakeholders, i.e., seeking resolution. We need to seek solutions and to resolve conflicts and trade-offs, which often have to be eclectic, and usually beyond any individual's capacity, and not to merely demolish other people's ideas. Above all, the effort has to be collaborative and not factional. A tall order, but perhaps worth pursuing.

Standard Operating Procedures (SOPs)  Another essential aspect of the remedy is adopting a systems approach with SOPs of due process followed as a protocol, like an algorithm, a problem-solving routine with a set sequence.

Discipline  A necessary adjunct is discipline as part of the process. This includes educating ourselves to the point of pursuing professionalism and developing respect for it, and for others' professionalism. For instance, suggestions of ideas to be implemented often evoke dismissive comments on why they won't work, or that other countries' experiences are irrelevant. We certainly have to script our own story, but we can definitely learn from others, just as we do in the arts, humanities or sciences. It doesn't matter whether it's from China or Germany, or Malaysia, Singapore, Japan, America, or the Scandinavian countries, or in formulating policies to encourage automobile manufacturing or mass transport, or in using coal or nuclear energy. These principles need to become habits of a collaborative problem-solving approach, of goal-oriented, disciplined SOPs that make for good project management. They are cradle-to-grave practices, to be worked into curricula and nurtured through school and beyond, in adult education.

Sequencing  There is sometimes confusion about the sequence in pursuing changes in policies and regulations. It's logical that objectives in the public interest should shape policies, and these in turn should drive the processes of legislation, rules, regulations, and procedures in that order, with no ambiguity.

Weak Implementation  Our greatest weakness, of course, is in not implementing even reasonable laws and regulations. Going forward, however, this needs to change, and regulations need to be enforced despite the difficulties.

Public-Interest Objectives  The supremacy of objectives in the public interest seems unexceptionable, but if we consider issues like spectrum management, broadband policy, fuel pricing, or urban development, it's not obvious what the objectives are, or how public interest is served in the shaping of policies in these areas. Attempts to provide genuinely beneficial outcomes will be revolutionary in scope and scale.

The Government's Role


There are opposing ideas based on free-market or statist philosophies of whether markets should drive evolution in policies, or if governments should do so. In reality, free-market bastions have resorted to more intervention, as in the Strategy for American Innovation1 premised on building leading physical infrastructure and an advanced IT ecosystem, or the UK's broadband policies. Meanwhile, statists have moved to introduce more market-driven considerations. In India's case, we need to follow methods that serve the public interest without ambiguity, although establishing what that is may be a non-trivial exercise.

Government is certainly an important stakeholder and the ultimate arbiter of policies. More importantly, it can and must provide the leadership and sustained impetus in organising and coordinating stakeholder consultations to define objectives and facilitate convergence based on public-interest considerations. The private sector cannot ordinarily do this on a sustained basis even where markets are well developed. Even in such environments, it is arguably not the best course in the public interest. Because of our colonial legacy, a change in government attitudes to act as a co-participant will be difficult to effect, although it will be of tremendous consequence.

Experienced facilitators can help in converging interdisciplinary consultations to arrive at pragmatic decisions. Such expertise could greatly improve government consultations with other stakeholders. Equally, technical, financial, organisational, and administrative expertise and inputs are required to formulate practicable, viable solutions.

Initiatives such as the Planning Commission's India Backbone Implementation Network2 appear to have begun well, although some links on the web site are not maintained. Case studies on ecotourism3 and a garment manufacturing cluster4, among others, appear promising. Such initiatives need strong, sustained government support to not fall away as yet another "scheme" that has ended in isolation.

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Shyam nospace Ponappa at gmail dot com
1: http://www.whitehouse.gov/administration/eop/nec/ StrategyforAmericanInnovation; 
2: http://www.ibinmovement.in/; 
3: http://ibinmovement.in/wp-content/uploads/Cooperative_Tourism_Development_Project_Yes_Bank.pdf; 
4: http://www.ibinmovement.in/media-centre/case-studies/ogtc/

Beyond India's Tipping Point

Shyam Ponappa / New Delhi December 07, 2006

How India can improve its productivity

...our governments' focus has by and large simply not been on those issues we would expect as a priority from our current understanding of improving per capita GDP: systems that provide enabling infrastructure--energy, communications, transportation, basic health (including water and sanitation), education services and shelter, with good regulation to foster an appropriate level of competition.

It is increasingly evident that India is at a tipping point. A qualitative change is beginning to show in a broad swathe of services, products, and mindsets, although it is equally clear that for most activities, this inflection is at an early stage. There are a host of reasons for this, and by definition, it is this convergence of many factors that makes for a tipping point.* Consider the features that make for a good neighbourhood or city, and it is obvious that regional and national transitions happen for complex reasons.

They encompass the interrelated factors comprising people in their various dimensions, such as their nature, skills, productivity, organisation, systems, demographics, their physical and material environment including their natural environs, proximity and linkages, enabling infrastructure, movements of capital and people elsewhere in the world in every connected sector and location, technological and economic developments, the condition of their emigrants to other societies, and much else. Understanding the variables in the tipping point is important for shaping the future, however, even if it is difficult to deconstruct the elements. And one factor clearly at work in India's present transition is its improving economic competitiveness.

According to the McKinsey Global Institute's former director and founder, William W. Lewis, competitiveness is the single, most important factor in increasing per capita GDP, the most critical need in India, at least up to a point. Lewis's book, The Power of Productivity,** is based on MGI's study of industry sectors in 13 countries over 12 years to identify each sector's pattern of productivity, i.e., the ratio of the value of goods and services consumed to the amount of time worked and capital used to produce these goods and services. Sectoral competition is most influential in determining productivity (which is certainly borne out by the rise of India's IT and BPO sectors), and that national productivity closely tracks per capita GDP adjusted for purchasing power parity. Lewis concludes that large sectors like retail, wholesale, and construction have the greatest effect on GDP, and to improve per capita GDP, countries must increase their productivity in all sectors primarily through intense, fair competition in consumers' interests.

A surprise, however, is his dismissal of the role of infrastructure in productivity. This is difficult to accept given what one sees in India, China and elsewhere, as well as our experiences of working in enabled environments.

MGI maintains that poor regulation is the main factor limiting productivity by distorting competition. To quote from "Regulation that's good for competition," by Scott C Beardsley and Diana Farrell, on which there will be more in my next article, "India could raise its labor productivity by 61 percentage points if it removed harmful rules."

Changes Required

Among the choices that will significantly affect India's competitiveness for a long time through factors it can control, the endogenous factors, are four areas where enlightened choices will help India become much more competitive:

- The first is the domineering, adversarial stance inherited from colonial and prior feudal legacies of our government towards our people.

- Second, the involvement of the Left in mainstream government and its effects on the social, political, economic, and cultural aspects of our lives.

- Third, partisan politics that exploits bigotry, caste, the effects of reservations through misrepresentation, whether of statistics, situations/examples from India or other countries, or any other mala fide distortions.

- Fourth, the Great Divide between the champions of free markets and of state participation.

In our collective interests, changes in all four require collaborative solutions with one aim: an appropriate level of competition in the overall public interest. With these changes, India can then plan properly for, and achieve, good regulation. Now to the specifics.

The four fundamental change areas therefore concern:

- Government's attitudes: from ruler to facilitator partner.

- The Left: from hard-line ideology pushing adversarial class conflict to participative action for the greatest good.

- Social/Personal attitudes: from predatory exploitation for short-term gains to enlightened, long-term societal enrichment. This applies equally to all individuals as consumers or producers, whether in politics, administration, in public or private corporations, or as individuals per se.

- Market Philosophy: from the Great Divide (privateers, capitalists, freebooters, and libertarians, versus state participation) to collaborative aims and actions.

A conscious effort with this mindset could then result in good regulation with high productivity.

The changes in the role of the government are outlined below. Subsequent articles will address the other areas: changing mindsets from confrontational unionism to collaborative 'works councils'; from short-term selfish gains to longer-term societal benefits through a pragmatic coalition of interests crossing political and ideological lines; from dogmatic capitalism, libertarianism or socialism to pragmatic eclecticism and collaborative action for the greatest gains.

Government: From Ruler to Facilitator & Partner

If our government understands and acts to orchestrate a beneficial level of fair competition, we will get the most benefit from available capital and labour. Together with the instruments of colonial exploitation inimical to our interests, our government also inherited the domineering mindset, although in a more patronising role, instead of being a lead facilitator and partner in the public interest.

As a consequence, barring law and order, our governments' focus has by and large simply not been on those issues we would expect as a priority from our current understanding of improving per capita GDP: systems that provide enabling infrastructure--energy, communications, transportation, basic health (including water and sanitation), education services and shelter, with good regulation to foster an appropriate level of competition.

The daily newspaper ads for power backup systems and water purifiers indicate the failure of government in providing these essential services. The bitter zoning conflicts in our cities reflect a similar failure.

For instance, the Delhi Development Authority has only built a fraction of the planned commercial space over the last 45 years (16 per cent according to the DDA itself). This situation must change for us to have the government we need. India does not need feudatories preying on their own people, but a government that engages with its people to plan and create a framework for productive activity. Without this, it will be difficult if not impossible to rapidly increase overall prosperity (per capita GDP).

* http://wikisummaries.org/The_Tipping_Point
http://en.wikipedia.org/wiki/Tipping_Point;
http://en.wikipedia.org/wiki/Mark_Granovetter

** The University of Chicago Press, 2004