Category Archives: Digital Economy

Sibal’s Supercomputer Dream: Putting It in Perspective

So, Kapil Sibal has decided on his new obsession for the next few months. And this time, it is not a still cheaper tablet or, for that matter, a new mobile operating system to challenge Apple or Android. The lawyer-turned-minister has set his sight on nothing less than building the fastest supercomputer on earth. Sibal has reportedly written to the Prime Minister detailing a plan prepared by the state-owned research & development outfit, Centre for Advanced Computing (C-DAC) to achieve this feat by 2017, at a cost of some Rs 4,700 crores.

Critics may link it to the speculation of his possible removal from HRD ministry in the imminent cabinet reshuffle. But to be fair to Sibal, reshuffle or no reshuffle, he is never short of big ideas.

Kapil Sibal is a dreamer. That is a good thing. Few of the politicians at his age are. And we surely need a few of those dreamers.

But that also is his problem. He still has the hangover of his extremely successful past as a lawyer, and often has excessive confidence in his own ideas and abilities. So, even when his basic intention is laudable, it is seen as maverick-ism. While he has the ideas, the dreams, the passion, and a rare sincerity of approach, he lacks the vision to realize those dream. All his dreams, from Right to Education to low cost laptop, are low on vision. They lack a practical approach (that is they do not take into consideration the ground realities), but more importantly, they are not aligned with the shared vision of the government. So, depending  on who is talking, these ideas get dubbed as wishful thinking to megalomania, and a lot many things in between.

Take the Aakash tablet.  Using affordable technology to enhance education quality is a great dream. The government stepping in to help in whatever way possible to the private sector to make that happen is also a good approach. But why should the government align itself to a single brand? A single project? No one could explain this to Mr Sibal.

Now comes the supercomputer dream. While we don’t know the exact details of the “blueprint”, based on whatever media has reported, it already sounds flawed. Here is why

1. The focus is purely on speed. It is a petaflops speed supercomputer that the minister and C-DAC want to build. The application is secondary. While performance is not a bad objective to have, spending Rs 4700 crore to just be on top of the table sounds a little too much. I am still refraining from dubbing it megalomania. But will not quarrel with those who do.

2. Why do the vision and nuts-and-bolts have to come together? Why should it be assumed that C-DAC will build it? The same question was asked in case of Aakash. No bias against C-DAC. They have great capability. But for those interested in facts, though, C-DAC Param has not featured among the top 500 supercomputers in the last two years.  But should not a thrust on high performance computing through policy initiatives be a better approach to encourage the building of such supercomputers than adopting a project?

3. The focus is entirely on the speed of one supercomputer. What India needs is many such supercomputers in all aspects of our economy: oceanography to identity verification; drug research to weather forecasting. Just for the record, in the last six-monthly list (June 2012) of world’s 500 fastest supercomputers,  India had just 5 of them, up from 2 in November 2011 list. In contrast, China had 68. And we thought China just scores in physical infrastructure, India is the IT superpower!

In 2007, China was just slightly ahead of us. In November 2007, China had 10 of the world’s fastest supercomputers, while India had 9.  In June that year, China had 13, while India had 8.

See how we compare now.

At one time, China was just a little ahead of India. Now, it has overtaken Japan to be at No 2 position

China comparisons apart, India’s supercomputing journey has not been anything laudable as such.  Based on the Top 500 data, India’s share of fastest supercomputers in the list has not really increased. The average number of India’s supercomputers in the Top 500, between 2003 to 2007 was 6.8, with as many as 11 featuring in June 2006. Between 2008-2012, that average has come down to 4.4 per list, with highest being 8 in November 2008.

INDIA’S PERFORMANCE

MONTH NO OF SYTEMS IN THE LIST RMAX (TFLOPS) TOP RANK ORGANIZATION
Jun 2012 5 303.9 58 CSIR
Nov 2011 2 132.8 85 Tata Sons
Jun 2011 2 132.8 58 Tata Sons
Nov 2010 4 132.8 47 Tata Sons
Jun 2010 5 132.8 33 Tata Sons
Nov 2009 3 132.8 26 Tata Sons
Jun 2009 6 132.8 18 Tata Sons
Nov 2008 8 132.8 14 Tata Sons
Jun 2008 6 132.8 9 Tata Sons
Nov 2007 9 117.9 4 Tata Sons

Even the top performance has not seen any great improvement. In November 2007, the world’s fastest supercomputer was about four times faster than India’s fastest supercomputer. In June 2012, that ratio had increased to 54. Yes, the fastest supercomputer on earth was 54 times faster than the fastest in India.

Indian computing has not been able to keep pace with the world.

All this is not to suggest that Indians do not have capability to build a fast supercomputer or the dream to build a fast supercomputer is misplaced.
Far from that, India needs a lot of effort in high performance computing so that Indian companies and organizations can build many such supercomputers for application in all areas. The country badly needs that. And if the fastest one happens to be Indian, that would be an icing on the cake. The icing, however, should not be confused with the cake!
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FDI in Multi-brand Retail: E-Commerce Will not be the Same

Whether it is a desperate attempt to secure a place in history or a genuine attempt to break policy paralysis, the Cabinet has taken the bold decision to allow 51% FDI in multi-brand retail, albeit with a provision that state governments would decide if they would like to allow it in their states.

Though many see this as a compromise for somehow moving ahead, one feels it is a masterstroke.

Firstly, it suddenly takes away the legitimacy from the opposition to FDI in retail by CMs like Mamata Banerjee and Narendra Modi. An average citizen of Delhi or Mumbai, who wants global brands in his city, is bound to ask, who is she to come in the way of our access to the global retail outlets?

Secondly, if the implementation happens well, soon the citizens of states that have not allowed FDI will see the difference it makes, as they visit cities in other states with such outlets.  It will be difficult to resist the “middle class” pressure for the governments then. Imagine, for example, in the National Capital region, Gurgaon having all the big global retail brands, with Noida not having a single one of them!

Finally, if the government and the supporters of FDI in retail, play it well, it should be sold to citizens as a farmers-friendly rather than large business-friendly policy which it actually is. With the farmers and the middle class supporting it, it will only be the small traders who will be opposing it. While they are a powerful community in states like Gujarat, UP, and Tamil Nadu, states like Karnataka, Odisha, and Bihar will not find any strong reason to oppose FDI. Most of India’s potential locations, such as Delhi, Mumbai, Gurgaon, Pune, Hyderabad, and Jaipur will have the new brands. The large cities that will be left out will be Chennai, Bangalore, Ahmedabad, and Kolkata.  Out of which, it will be interesting to see how things unfold in Bangalore, as the state has no logical reason to oppose it.

But the most interesting thing to watch will be e-commerce. Initially, the policy was vague about e-commerce. But in April this year, the government clarified that all the rules that are applicable to offline retail would be applicable to e-commerce as well. This clearly meant that all the plans of companies like Amazon had to be shelved. With the new policy change, they can enter in India. So, expect a new era altogether in e-commerce. Good luck, Flipkart!

But interesting will be to see how offline retail brands such as Wal-Mart or Tesco unfold their India strategy in this policy regime? Access to the top two cities and some of the other biggest markets will surely make India entry attractive. But once they enter and build their supply chain, especially the procurement network, there is nothing that is stopping them from selling online to the entire Indian population, irrespective of where the buyers are located. They will not violate any law as they will not have to open any “outlet” in those states.

Question is: will that happen? Will the politicians still not try to hound them? Or as many optimists hope, all this is meaningless discussion, as soon, most states will open up FDI in multi-brand retail.

In either case, a vibrant, more competitive retail market has implications for the e-commerce market.

The fun has just begun.

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Do We Need a Wikipal?

Politically speaking, the decision by Anna Hazare to disband Team Anna and take up the fight through electoral politics is both good news and bad. Good because it upholds the supremacy of electoral democracy—which was being pooh poohed by the likes of Arvind Kejriwal just a few months back. But what I feel bad about—and I am not a supporter of M/s Bedi and Kejriwal—is that an experiment to take an alternate route has failed. Yes, despite the power of Facebook and Twitter to support it this time around, as many of us never forgot to add. But as I have pointed out many times, including in this blog (Digital divide is now political…), reach of social media—or for that matter Internet—is too limited to fight a successful battle against the government and the system.

So, do I mean to say that we have little hope—as long as we have a democracy and as long as we, as a people, are not completely honest, we will have to tolerate this large scale, systematized corruption?

Not necessarily. But if we have to really find a solution to the problem of corruption, it has to be taking a different approach that fundamentally changes certain key parameters, not taking the same path again and again.

The big proposed entity called Lokpal—that is thought to be the panacea for all ills by Anna and his supporters—is nothing but yet another costly addition to the already overburdened system. If the Legislature, Judiciary, the Executive and the Press could not do it, by what logic do we expect yet another new body with its base in Delhi to eradicate corruption? The demand has been for more power to it. There is no logic given by anyone how more power itself will translate into more effectiveness in checking corruption. After all, the members would be people from amongst us. Why should one believe that they would be more honest than you and me—and our politicians and bureaucrats?

The problem is we are seeking a solution in the old, centralized model with a set of people having absolute power over everyone. Just that instead of being called MPs or ministers or secretaries or editors, they would be called Lokpals.

What if we take a fundamentally new approach? Instead of trying to check corruption by instilling fear of punishment after the act of corruption is done, what if we can ensure that corruption is minimized by making it more difficult to do it, i.e instilling fear of getting caught while doing it. That should be done by bringing in transparency.

Such transparency is possible only when there is easier access to information by a wider section, ideally members of the general public.

Two fundamental principles are cornerstones of this approach: one, instead of centralized systems, we go for decentralization; and two, instead of giving real power to people, we give it to a computer system.

Decentralization does not necessarily mean chaos. Wikipedia—despite whatever limitations it may have—has shown us how the collective power of people can be credible and dynamic at the same time. But to ensure that we prevent mobocracy and chaos, there has to be defined rules and processes (as in Wikipedia) and massive information infrastructure to store, forward, and process information. That requires a powerful (ideally distributed) computer system.

As everything becomes available to a wide set of people, the system will ensure that few dare to indulge in violating the rules. A person may not fear another person; but everyone fears the public.

We have seen that happening in cricket. The third umpire—though there is a person whose name is associated with it—is actually a computer. The replay is on a huge screen for the world to see. And technology ensures that there is no intended wrong decision. The same principle will work here.

In a technology-enabled system, the information itself will have the power to make everyone exercise restraint. A huge computing plaform—lets say a supercomputer—can, on a continuous basis, monitor for exceptions. There can also be ways and means to lodge anonymous complaints by the whistle blowers. Initially, people may misuse it to trouble opponents, but soon, the system will take care of itself. If the processes and technology are good, a false complaint will result in calling out the bluff. By moving from an investigation mode to a prevention mode, the system itself will become more “less corrupt”. There will be experts, advisors, information analysts—from any walk of life. But the power will not lie with them; it will lie with the computer in particular and the whole system in general. The system would be fault tolerant and designed to learn from experience.

Of course, any such system can be effective only when there is a lot of information generated electronically. That means a lot of government processes need to be automated. Thankfully, that is increasingly happening. That will supplement the reactive mechanism of the Wiki model by a proactive check on processes and exceptions. In such a scenario, RTI would be seamless and would be like a Google search.

Instead of instilling fear of punishment after the corrupt act is done, it would instill fear of exposure while doing corruption. So, not only would one get caught but would get caught before he/she gets any benefit out of that.

Such a system will ensure the following

  • Any exception is caught and reported, almost in real time
  • All information is stored in multiple locations so if something that cannot be brought to public notice in real time because of sensitiveness of the issue, they can be exposed in future by the system. Remember WikiLeaks?
  • Ensure speed and efficiency in addition to transparency

By making all the citizens participate, we would give collective responsibility to everyone while rigorous processes with technology underneath ensuring that there is no chaos because of that. This will still not be able to eliminate corruption but will make it far more difficult to do corruption, thereby significantly reducing it.

What do we call such a system? Did you say Wikipal?

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Will Aadhaar be the Same with PC as FM?

Well, if media reports have to be believed, P Chidambaram, the Union home minister is all set to return as the finance minister. It does not sound too surprising, considering PC has been one of the best finance ministers that India has had in the recent past. What is more, his track record in the home ministry has been anything but spectacular.  Not only has he failed to achieve much, his tenure has seen continuous friction of his ministry with the states.  In short, his transfer from the finance ministry to home ministry has neither been good for the economy of the country nor for its politics. So his return should be good news for most.

Except those strongly backing UID/Aadhaar.

His dislike of the project—or rather the way it is being rolled out—is well-known. Not only has he disagreed with UIDAI’s way of collecting data, he has written to the prime minister multiple times complaining about it. It is in his insistence that the cabinet discussed in January the possible security loopholes in the way UID was collecting data and decided that while  NPR and UIDAI would use the biometric data collected by each other, in case of discrepancies between UIDAI and NPR data, NPR would prevail.

Again, as recently as last month, he had written to the PM that UIDAI was not cooperating with Registrar General of India (RGI), which was working on the NPR. This is what Mint had reported, quoting from the letter.

“The decision of the cabinet is crystal clear and I am unable to comprehend the reluctance of UIDAI to allow the NPR camps and to accept the NPR data. I had taken these issues with Nandan Nilekani, chairman, UIDAI, dated 14.05.12. The home secretary (R.K. Singh) has also discussed the issue at length with the UIDAI director general and mission director. However, despite our best efforts, issues remain unresolved,” he said.

It is difficult to believe that once he takes charge of finance ministry, his opinion about the Aadhar project would change drastically.

The question is: will it impact the effectiveness of UIDAI?

While it is true that UIDAI is part of the Planning Commission, the reason it became the government’s flagship program so soon is because of strong support from the former finance minister Pranab Mukherjee. Not only did Mukherjee generously provided for the funding of the project in three of his budgets, he made it the basis (aadhaar) of most of the government programs. There were nine reference to Aadhaar in Mukherjee’s budget speech this year. Whether it is for subsidy being credited directly to beneficiary’s bank account, creating a more efficient public distribution regime by creating a PDS network, or for disbursement of government payouts—such as MG-NREGA payments, pensions and scholarships—the finance minister seemed confident that Aadhaar could be leveraged as a platform to deliver. National Payment Corporation of India (NPCI) even created the Aadhaar Payment Bridge Systems.

In short, while the UIDAI chairman Nandan Nilkeani created a new generation platform in form of Aadhaar, it is Mukherjee who was instrumental in making it the flagship platform of all developmental activities in India. So much was Mukherjee’s liking for Nilekani that he made him head some half a dozen task forces, groups, and committees entrusting him with most changes. I wrote about it in a post in this blog earlier called The Importance of Being Shri Nandan Nilekani. Mukherjee had even gone to the extent of openly backing Nilekani on PDS reforms when the food ministry was ignoring the recommendations of a committee headed by him.

From there, it would be quite a change for Aadhaar/Nilekani if Mukherjee is succeeded by someone who very recently complained so strongly about the project to the prime minister, taking the name of its chairman.

Things would probably have been a little different had the UIDAI been a independent statutory body. A proposal to make it one was rejected by a Parliamentary Standing Committee headed by Yashwant Sinha a few months back. Interestingly, in its report, the Committee had extensively quoted news reports about the home ministry’s objection to/criticism of Aadhaar to justify its decision.

Both Chidambaram and Nilekani have proven track records. The country will benefit if they work in tandem. Another conflict in the government is the last thing that we want in the time of this apparent policy paralysis. Not only will it make another fresh and fairly successful experimentation in the government go astray, any drastic change in the path will make very wrong signals to international community. After 2G decision and GAAR, the last thing the country would like to see is going back on UID plans.

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RBI Slashes Debit Card MDR

In a circular issued by RBI on 28 June 2012,  the central bank directed the commercial banks to cap the debit card merchant discount rates (MDR) at 0.75% for all transactions upto Rs 2000 and at 1% for all transactions above Rs 2000.  On 28th May 2012 — that is exactly one month before this directive came — in a post titled Containing Black Money: Promoting Debit Card Usage Holds the Key, in this blog, I had argued that increased usage of debit card could go a long way in reducing the black economy.

This is what I wrote

RBI can well go proactive on promoting use of debit cards, as they provide a risk free way for banks to increase electronic payment. Just asking banks to promote/build awareness on debit cards can go a long way in growing the use of debit cards. Removing artificial blocks like high transaction fees can further accelerate the trend.

RBI noted in its circular that debit card is a secured product with the card usage being linked to the availability of funds in the accounts of the customers whereas credit cards are a part of the unsecured credit product portfolio of the issuers and there was no rationale for having similar MDR for both.

“Given this scenario, it is necessary to encourage the use of debit cards, especially at smaller merchants/service providers and location by way of lower MDR. This move would encourage all categories and types of merchants to deploy the card acceptance infrastructure and also facilitate acceptance of small value transactions. Further, in the case of the acquiring banks, a certain element of guarantee on the Return on Investment (ROI) is required for deepening the card acceptance infrastructure. A lower MDR with the expected increase in transaction volume on account of network effects would result in a reasonable ROI for acquiring banks,” said the circular.

Could not agree more!

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National Citizen Database/Unique ID: Is Chidambaram Speaking the BJP Language?

It is ironic. The Bharatiya Janata Party (BJP) may be baying for his blood after Madras High Court rejected Union Home Minister P Chidambaram’s Plea in his Lok Sabha election case, but the minister is actually fighting a bitter battle within his own government to implement a plan that was, by all means, envisioned by the BJP.

A large section of media has reported that the home minister has complained to thePrime Minister about the Unique Identification Authority of India (UIDAI) (part of Planning Commission) not cooperating with the Registrar General of India (RGI) (under Home Ministry) in a letter. Both are collecting biometrics based data of people–UIDAI for issuing Aadhar numbers and RGI for its National Population Register (NPR)

In a report today, this is what Mint said

In his letter to Prime Minister Manmohan Singh last week, Chidambaram accused the Nandan Nilekani-led UIDAI of not following the 27 January cabinet decision where it was agreed that the purposes of UIDAI and the home ministry-led National Population Register (NPR) project were different. Under this truce, both projects were to continue simultaneously and each would use the biometric data collected by the other. Also, in case of discrepancies between UIDAI and NPR data, NPR would prevail.

“Despite these directions from the government of India, UIDAI is objecting to the conduct of the NPR camps in certain states and is also refusing to accept the biometric data of NPR for de-duplication and generation of (the) Aadhaar numbers,” he said in the letter, which was reviewed by Mint.

“The decision of the cabinet is crystal clear and I am unable to comprehend the reluctance of UIDAI to allow the NPR camps and to accept the NPR data. I had taken these issues with Nandan Nilekani, chairman, UIDAI, dated 14.05.12. The home secretary (R.K. Singh) has also discussed the issue at length with the UIDAI director general and mission director. However, despite our best efforts, issues remain unresolved,” he said.

On the face of it, the fight seems to be about the data collection. But there is a bigger issue. And no, it is not about ego clash between Chidambaram and Montek Singh Ahluwalia. Or if it is, we do not know that. The big issue is that while both UIDAI/Aadhar and NPR are collecting data for creating citizen databases, their objectives are entirely different. And hence the details vary. While it certainly is a laudable idea that there should be no duplication of efforts and national resources for doing similar kind of work, it requires more than a cabinet meeting to pan out how that could be done. Else, the cabinet decision is like a patchwork; pushing the dirt under the carpet.

Without getting into too much details, there are certain important differences that must be pointed out.

One, the sacrosanct thing in the Aadhar number  is the number. There is a card but that is like a PAN card. The card is just a piece of plastic. It is the number that matters. On the other hand, the citizen card would be like a passport (or so it is believed). It is not just the number but the physical document that is important.

Two, the Aadhar number is not mandatory; the citizen card would be mandatory. That is a major difference.

Three, the Aadhar number—since its main aim is to facilitate the smooth access to services like banking—could be issued to anyone residing in India, even a foreigner. The citizen card of NPR is a proof of citizenship.

The above two characteristics of UID together ensure that the Aadhar number is neither a necessary nor a sufficient condition to citizenship of India. That is the whole purpose of the resident identity card of NPR.

These differences are fundamental. The Aadhaar project was launched by UPA to ensure financial inclusion, which was a big requirement for achieving social inclusion, UPA’s top election promise. The way in which NPR is being projected suggests that central to it is security. “The resident identity card programme was launched in India’s nine coastal states after the 2008 Mumbai terrorist attacks. The home ministry is seeking to extend the scheme to the rest of the country and has sought Rs. 6,700 crore to fund the program,” reported Mint.

Interestingly, this is what was originally BJP’s idea. In a story that I did in Dataquest, way back in January 2010, I had pointed this out. Calling it “Inclusion Vs Security”, I argued that while the central idea behind BJP’s national citizen database was security, it was inclusion that drove UPA’s agenda when it created UIDAI.   “While it is true that it was the NDA government that had taken the first step on creating a national identity system, its objective was entirely different,” I wrote. I cited an August 2003 press release issued by PIB on this.

“Illegal migration has assumed serious proportions. There should be compulsory registration of citizens and non-citizens living in India. This will facilitate preparation of a national register of citizens. All citizens should be given a Multi-purpose National Identity Card (MNIC) and non-citizens should be issued identity cards of a different color and design. This should be introduced initially in the border districts or may be in a 20 Kms border belt and extended to the hinterland progressively. The Central Government should meet the full cost of the identity card scheme”.

This is exactly what Chidambaram’s home ministry is now talking about. In fact, even in 2009, BJP’s Elections Manifesto had an IT vision in which a lot of emphasis was laid on this (MNIC).  It claimed that the centrepiece of the implementation of the BJP’s IT Vision is the Multipurpose National Identity Card (MNIC). This is what the vision document said.

We would amend the Citizenship Act, 1955, to combine the offices of the Registrar General of the Census of India and that of the UIAI to set up a Citizenship Regulatory Authority of India (CRAI). The CRAI would be responsible for maintaining a National Register of Citizenship (NRC), and keeping it current up to the minute.

This is what the BJP IT vision said further.

The amended Citizenship Act would make it mandatory under law for all citizens to acquire an MNIC, and parents of newly born infants would have to apply for one for their child, immediately after the baby’s birth.

So, whether it is the “mandatory” requirement, NPR (BJP’s NRC) or starting with coastal areas (BJP’s border belt), the home ministry idea is an exact reflection of what BJP wanted. In fact, these differences were also the basis of the Parliamentary Standing Committee on Finance headed by BJP MP and ex FM Yershwant Sinha for sending back the National Identification Authority of India Bill, 2010. “The Committee have received a number of suggestions for restricting the scope of the UID scheme only to the citizens and for considering better options available with the Government by issuing Multi-Purpose National Identity Cards (MNICs) as a more acceptable alternative,” it noted. MNIC was BJP’s phrase.

What Chidambaram’s home ministry is doing is to reintroduce BJP’s plan under a different name. Not surprising considering Chidambaram has been a hardliner when it comes to security.

So, which one is a better objective? There is no straight answer to that question. But as I had pointed out in another story, The Politics of Identity, in Dataquest after the Sinha-headed committee sent back the bill, “the primary objectives of the two projects, though their means are the same, are completely different. To measure one with the yardstick of the other, is not just unfair but would never yield any result.”

Even if one can debate this versus that, it is too late to do that as the government has decided to go for both. The good idea is that someone is thinking about minimizing on the national resources. But that is easier said than done.

While I did point out the fundamental differences between the two projects above, there are some more differences that have come the way that the two are being implemented. And while they are less sacrosanct to be changed, they need to be examined before one tries to work out a synergy.

One, UIDAI, in its wisdom, has decided that it would respect citizen’s privacy, something that is traditionally not a big issue in India but increasingly, citizens are getting more concerned about their privacy. UIDAI has taken a proactive stance on that. So, it is looking at collecting only the essential information for identifying and no more. NPR wants to have all the information and still operates with philosophy that government has all the rights  over citizen. While that is essential for somebody trying to ensure security, it should happen only when the government ensures that there is no information leakage.

Two, UIDAI has taken a mission/marketing approach rather than a typical government mandated top-down approach. It has marketed the program, got buy-ins from partners and has shown the benefits accrued to each stakeholder such as banks, telcos and state governments because of Aadhaar. By doing so, not only has it created a feeling of ownership, it has managed to share the cost of collection of data. NPR wants to do a massive centralized exercise.

While it is true that both are trying to collect similar data and hence should cooperate with each other to avoid wasting of national resources, it cannot just be wishful thinking. It has to be planned out properly. One thing about Aadhaar project is that, all its small flaws notwithstanding, it is fairly thought through program. It is halfway. The Finance Minister Pranab Mukherjee has emphasized its significance many times. Most of the development programs of the government now use Aadhaar as a platform. In fact, this year’s Budget speech had as many as nine reference to Aadhaar. So, you cannot do something that creates problems for UID project. That will affect all these development programs.

But NPR, even though it is an original BJP idea, is an important requirement too for security. And the fact that the government has decided to pursue it with all seriousness means going back in not an option. Certainly, duplication of efforts is certainly not a great idea.

The two projects have no option but to find synergies. But it cannot just be wishful thinking. It has to be thought through further. It requires more than a cabinet meeting or a letter by the Prime Minister for that.

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Containing Black Money: Promoting Debit Card Usage Holds the Key

Recently, RBI released its annual data on electronic payment transactions in India. The retail electronic payment systems data showed that the downward trend that credit card numbers had started showing from 2008-09 onwards has continued through 2011-12. Total number of outstanding credit cards dropped to 17.65 million by the end of March 2012 from 18.04 million a year ago. This was a 36% drop from the peak of March 08 when credit card numbers rose to 27.55 million. This was a conscious exercise on part of banks to minimize NPA. Most of the banks drastically cut issuing credit cards to those without good credit history. As a result, defaults went down drastically.

“In the last one year, the percentage of cardholders who have not met their payment obligations for more than 90 days has dropped from 2.82% in the fourth quarter of 2010 to 1.62% in Q4 2011,” says this recent report by Moneycontrol. By and large, analysts have interpreted it as a positive trend. As credit cards were denied to those with bad/suspect credit history, the limited number of cards remained with affluent people and professionals. That naturally took up the average spend on the cards. While the overall aggregate spend on credit cards jumped from Rs 57985 crore in March 2008 to Rs 96613 crore (that is a 68% jump), doing a little arithmetic on RBI data shows that during the same time, the average monthly spend increased more than two and half times—from Rs 1754 to Rs 4562.

There are, of course, reasons to cheer up the trends. But here is the stark reality. The total number of credit cards are just 17.65 million in a country of more than one billion people. Accounting for multiple card ownership by individuals—most of the people that I know have at least two active credit cards; I have three—the penetration of credit cards hovers around just a little above 1% of the population.

On the other hand, look at the rise of debit cards. In the same period—March 08 to March 12—when number of credit cards fell by 36%, debit cards grew 172%. At the end of March 2012, there were 278 million debit cards. Not surprising considering most banks today give ATM cards to their account holders which double up as debit cards. But look at the spend data. The 278 million cards accounted for a mere Rs 53423 crores. Simple calculations show that the average monthly spend on them is a mere Rs 136—that is 3% of the average monthly spend on credit cards.

That is not an encouraging figure. Especially when the finance ministry acknowledges that the card payments should be incentivized to arrest black money growth. The white paper on black money tabled in the Parliament by the finance minister Mr Pranab Mukherji was quite unequivocal about that. “Use of banking channels and credit/debit cards should be encouraged, while trade practices such as cheque discounting should be discouraged,” notes the paper. “Payments by debit/credit cards through e-service intermediaries will simplify and encourage payments in these modes and reduce the cash economy,” it further says. Reducing the cash economy is vital for arresting black money.

But so far, banks have not cared to do much for promotion of usage of debit cards. Most users do not even know that they can directly make payments through debit cards. They still rush to the ATM to withdraw cash to pay in a shop. In small towns, many shopkeepers actually encourage that even though they are aware about debit card payment. That is because they save on paying the transaction fees. Yes, banks still charge similar kind of transaction fees that they charge on credit cards.

Of late, RBI has voiced its concern about that. G Padmanabhan, Executive Director, RBI, in charge of payment and settlement systems recently called the practice illogical. “We are saying that the debit card interchange fee should be lower because credit cards get paid after sometime, whereas in debit cards, there is an instantaneous debit into my account. Hence, logically debit cards charges should be lower,” Business Standard reported him as saying, at the launch of RuPay debit cards, promoted by National Payments Corporation of India (NPCI).

There is no participation fee in RuPay for banks and there is aggressive plans by NPCI to take up its market share. If successful, it may actually cut down the transaction cost drastically—something similar to what the National Financial Switch (NFS) has done for ATM transactions. NFS, started by Institute for Development and Research in Banking Technology (IDRBT) is now managed by NPCI.

But that is some time away. Till such time, RBI can well go proactive on promoting use of debit cards, as they provide a risk free way for banks to increase electronic payment. Just asking banks to promote/build awareness on debit cards can go a long way in growing the use of debit cards. Removing artificial blocks like high transaction fees can further accelerate the trend. Any other incentive can only help.

We may well see some concrete action on this front this year, if the government is really serious about minimizing the hold of black money on our economy.

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