Category Archives: Indian Economy

How Realistic is Chidambaram’s ATM Promise?

The Union Budget for 2013-14, presented by the finance minister of India, P Chidambaram, has been thoroughly analyzed by analysts, media and economists. Many have pointed out the fine prints, and there are loads and loads of analysis on what it would do to Indian economy, different sectors, and different sections of our demographics.

But in all these discussions that I have eagerly followed, I am yet to come across any comments on one of his promises: that every public sector bank branch would have an ATM by March 2014. This is what the FM said in his budget speech (see section 86)

Financial inclusion has made rapid strides. All scheduled commercial banks and all RRBs are on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS). We are working with RBI and NABARD to bring all other banks, including some cooperative banks, on CBS and e-payment systems by 31.12.2013. Public sector banks have assured me that all their branches will have an ATM in place by 31.3.2014

I know it is neither as serious a matter for economists as current account deficit nor as interesting for everyone as an all women’s bank branch. It does not impact as many people directly as the tax slabs; neither does it have enough controversy in it to deserve comments from politicians.

Yet, this part of the speech got my natural attention, when I was listening to the speech live on TV. Having been a little familiar with the current numbers—thanks to my twin interests, payment systems and data journalism (lots of my tweets are around these numbers)—I was finding the target a little too ambitious. 

So, I got into some extraction of numbers and a quick analysis of those numbers. And here is what the FM’s promise translates into. 

By the end of March 2012 (that is end of FY 12), India had 67,466 PSU bank branches. That may not be such a huge number when seen in context with Indian population. But the number of ATMs that were attached to some of these branches (called onsite ATMs in Indian banking parlance), were much less. All PSU banks together had only 34,012 onsite ATMs. That number, of course, increased to 36,767 by December 2012.

The public sector banks have, on an average, added a little more than 3500 branches per year in the last five years leading to FY 12. So, even by a conservative estimates, the PSU banks are likely to have not less than 72,000 branches by the end of March 2014—the reference date for the FM for all of those branches having an ATM.

So, going by the current numbers, 35, 233 onsite ATMs need to be added between 31 December 2012 and 31 March 2014 (15 months) for all the PSU branches to have an ATM. That is almost doubling (96% growth, to be precise) the onsite ATM base in PSU banks.

Do you think it is realistic? Especially, when you consider that between March 2007 to March 2012, they have added 23,723 onsite ATMs. And there is no major acceleration considering in the nine months after that—that is between March 2012 to December 2012—they have added only 2755 onsite ATMs.

So, there are only three possibilities. One, I am terribly wrong somewhere. Two, there is something happening inside which we don’t know. And three, the FM has just been carried away without caring too much to be realistic. After all, it is an election budget.

The first possibility is inconsequential. The second possibility calls for a celebration.

The third possibility is  a dangerous proposition. I thought whether the Budget is good or bad in a year, at least the basic arithmetics gets done to put the ends together. 

There is one more probability. Maybe, the FM was wrong but only technically. Maybe, he meant that for every branch of PSU bank, there would be an ATM. What it means is that the number of PSU branches and no of PSU ATMs would be same, irrespective of where those ATMs are located. If we go by that number, the total ATMs (both onsite and offsite put together), they have 63, 739 ATMs. That means in the next 15 months, going by the same estimated number of branches (72,000), they need to add 8261 ATMs, slightly aggressive going by the last five years’ numbers but not exactly unrealistic.

So, the FM’s speech should have read

Public sector banks have assured me that for each of the branches that they have, they will have one ATM in place by 31.3.2014

And that is no less laudable goal to have. Since the FM talked about the ATMs in the context of financial inclusion, how does it matter if the ATM is “in the branch” or anywhere else?

1 Comment

Filed under Banking, Digital Economy, Inclusive India, Indian Economy, Technology & Society

Why A Hasty Approach May Derail the Direct Cash Transfer Scheme Completely

The UPA government has announced the Direct Cash Transfer (DCT) scheme, with an eye on the elections. As expected, the opposition has cried foul,  terming it “bribe” to the voters.

That is politics. And not really the topic of discussion here. In fact, this piece is not even about the economics of it. Economists agree that it is more efficient to pass on the benefits to the deserving directly through cash transfer than indirectly through subsidies. In any case, the government has been talking about it for quite some time. The Budget Speech in the last two years have referred to it explicitly. Many studies internationally have shown that they have, by and large, had a positive effect.

The points that I raise here are not about the politics or economics of DCT but the implementation hurdles that remain. Because even with this limited rollout, it could be the world’s biggest such project. Rushing in to implement may create problems that could shake off people’s confidence on the scheme. This could lead the opponents to project it as a faulty idea per se.

So, here are some of the issues.

1. What about those without the bank accounts? India has less than 25% of people in rural areas, who have access to bank accounts. How will they get the benefit? Does it mean that some of them—those who have bank accounts—will get it and others will not get it? That will be as anarchical as it could be. And the backlash could be severe.

2. How will subsidies and DCT co-exist, even if for a limited period? The government says that the scheme will be fiscal-neutral as it will replace subsidies. Practically, how will that happen, especially in fuel (kerosene), food, and fertilizers? Till all the people are in a position to get the benefit of DCT (today, those who do not have Aadhaar or bank account will not be able to get it), the government cannot touch the public distribution system. Which means it cannot effectively cut  subsidies. So, the mechanism has to be in the point of contact (ration stores and the like) to ensure that some beneficiaries do not avail both the benefits, which is next to impossible, as of now. So, the government will continue to run both for the foreseeable future. And surely, it will not be fiscal neutral.

3. What are the alternate channels of supplies? While it is good to say, on paper, that by getting the money directly, the beneficiaries, can opt to buy the products from anywhere, no one is clear what is that anywhere. In many areas, no alternative supply and distribution channel exists. So, how will cash help them?

4. How do you ensure that the money is spent on those products and services for which is intended? How does the government ensure that the money is spent on the products and services that intends to subsidize? In some countries, these subsidies are conditional and are given to women. There is no such plan in India. So, in many families, where men spend a lot of earnings on alcohol and such things,  more cash means more money to get drunk. The possibility is very real in India.

The issues raised here are not meant to argue against the implementation of DCT.

But the fact remains that changing the entire subsidy regime requires a lot of thought and preparation. The government started on the right note by appointing a task force to suggest the ways and means of implementing this.

The task force, headed by Nandan Nilekani, Chairman, UIDAI, submitted a detailed report, recommending creation of what it called a Core Subsidy Management System (CSMS) to implement the new subsidy regime.  The task force foresaw the gap that exists in the payment system reach and recommended this

Since it may take a while for the payment systems in the country to gear up for direct transfer of subsidies, an intermediate step may be considered where the subsidy difference is transferred to wholesalers/retailers in the first phase, and only later on to customers.

But the government has disregarded it and has announced DCT right away. Also, there is no news on where the rollout of CSMS has reached.

With all its good intentions, the government will have only itself to blame, if the whole idea backfires.

Leave a comment

Filed under Digital Economy, Inclusive India, Indian Economy, New Governance, Policy & Regulation, Uncategorized

RBI’s Payment Systems Vision 2012-15: Moving Beyond Regulation

The Reserve Bank of India (RBI) has released its Payment Systems Vision 2012-15. This is the central bank’s fourth such document. It published the first one in December 2001, detailing the payment system vision till 2003. Subsequently, it has continued publishing it every three years—in 2004 for 2005-08, in 2009 for 2009-12, with the latest one coming a couple of days back.

RBI had actually released a draft in June 2012 for comments. Based on the feedback, it has made some changes and released the final document.

A vision document by a regulator/policymaker achieves two great purposes.

One, it gives some clarity to the stakeholders on the direction of policy making, without the fear of flip-flops that we have seen in a few sectors such as telecom.  The actual rollout speed may be a little faster or slower, but it is not a guesswork.

Two, by making the vision clear to all, a good regulator can carry all stakeholders with itself to pursue a shared dream. That is progressive policy making.

This progressive yet cautious stance, that has won RBI appreciation worldwide, has helped India achieving significant success in converting a significant part of transactions to electronic transactions, though cheques still remain the biggest mode of payment, as far as volumes go.

It is interesting to examine how the vision has progressed. In its 2005-08, the vision was “the establishment of safe, secure, sound and efficient payment and settlement systems for the country”. So, it wan an intent, more than anything else.

The next vision document (2009-12) became bolder when RBI asserted that it wanted to “to ensure that all the payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible and authorized” . It was now no more an intent; it was a mandate it gave to itself as a regulator. It promised the nation to make it happen.

Also, with the UPA government focused on aam aadmi and social inclusion,  financial inclusion as an idea was taking strong roots among policy makers. That thrust saw RBI adding “accessible” to its Payment Vision. It was sort of a passive intent towards inclusion.

That passive intent has become a proactive stance in the current vision statement as it adds the word “inclusive” to the vision. Financial inclusion initiatives have progressed a lot between then and now.

But that addition was along expected lines. What is more noteworthy are the addition of interoperability and compliance.

When RBI released the draft vision in June, the mission statement read something like this: To ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.

There was a separate vision statement (a long-term goal perhaps): To proactively encourage electronic payment systems for ushering in a less-cash society in India.

But the final vision document released recently integrates the above goal to the vision statement itself and the final statement reads:

To proactively encourage electronic payment systems for ushering in a less-cash society in India and to ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.

That is not surprising. In May this year, the then Finance Minister Pranab Mukherjee released a white paper on black money, that stressed on the need to move to electronic payments to curb the circulation of black money. Since then, RBI has taken a few measures such as slashing of debit card transaction charges that would help more and more people turning to electronic transactions.

However, RBI realizes that a less-cash society is still more of a dream than a vision and it is worded accordingly: to proactively encourage. But by making it part of the main vision, it is ensuring that it is a dream that it will pursue. It is not  daydreaming.

Some of the major visions that the document lists are

  • efficiency and effectiveness enhancement in the payment systems (a continuous process)
  • standardization, portability and inter-operability (a new objective)
  • development of infrastructure and integrated payment system (RBI has been pursuing this for some time)
  • managing risk in payment systems (has been an overall objective)
  • compliance with international systems (though RBI has taken a number of steps, this is for the first time that it has been inserted to the vision)
  • promote access and inclusion (A major driver of RBI’s economic policies, but has been inserted to Payment Vision for the first time)
  • payment systems literacy and visibility (goes with RBI’s thrust on increasing financial literacy)
  • new products and innovation (something that  has been dealt with RBI in various forms of late)
  • moving towards a less cash society (a dream worth pursuing)

With this Vision Document, RBI has played more as a visionary economic policy maker than just a smart and progressive regulator.

Leave a comment

Filed under Digital Economy, Indian Economy

Retail FDI is not just about Farmers, Consumers and Traders

The much-awaited policy decision to allow foreign direct investment (FDI) in multi-brand retail has become the most high profile reforms measure announced by the UPA government. It has not just been a booster shot for the UPA government—which seemed to be doing nothing right just a few weeks back—it has shifted the debate from corruption and policy paralysis to reforms, with businesses and middle class now finding themselves on the side of the government.

But what is the issue about? In short, those who support it argue that it will not only give consumers more choice (and hence more power), it will fetch better prices for farmers. Those who oppose it primarily argue that it will kill the small traders—the kirana store owners. So, the debate has essentially become one with small traders’  interest on one side and farmers’ (and to a smaller extent consumers’) interest on the other.

But here, we are missing out a really, really big point.

Wall-Mart is the largest civilian employer in the world, with more than 2 million employees. Tesco is the largest private sector employer in the UK. Woolworths and Wesfarmers are the two largest employers in Australia. Carrefour is one of the largest employers in the world, though because of its distributed business, it is not the largest employer in its home country, France. Sears, Target, Home Depot all feature among the largest employers in the US.

Wall-Mart employs more than two million people globally. In the US alone, it has 1.4 million employees—that is a little less than half a percent of the total US population. Tesco employs more than 500,000 people and Carrefour some 475,000 people. Both Woolworths and Wesfarmers in Australia employ more than 200,000 people each. Together, that is a little less than two percent of Australian population.

And how many employees does Futures Group—the largest retailer in India, a country of 1.3 billion people—employ? Just about 35,000 including its insurance and other businesses.

If you consider this aspect, there is not much to debate. The employment generation potential of organized retail sector is immense. And potentially widespread.

When IT came as a big bang service industry to India, it created a big employment opportunities. But that was restricted to a certain section of the society—the engineering graduates. And it created jobs in a few locations. The BPO industrt democratized it by providing opportunities to graduates, took the action to tier two cities, and reduced the time to impart right skill to these people to make them productive. Retail is the next logical wave. It will further democratize the organized services sector by  creating the jobs for those who have had some high school education, who can speak local language and maybe have some working knowledge of English. And the time to provide skill training to make these people productive reduces further.

The case of big box retail, hence, is justified, looking at it purely from an employment generation perspective.  It is sad our politicians and public commentators are missing the point.

Leave a comment

Filed under Indian Economy, Policy & Regulation

Can e-Literacy and Illiteracy Co-exist?

In the midst of a slew of big-bang reforms announced by a recharged government in the last few days, a small but crucial cabinet decision has escaped everyone’s attention. The cabinet has approved the National Policy on Information Technology 2012.

And those who have covered it have highlighted either the big numbers—targets of three fold increase in IT industry size from $100 billion to $300 billion by 2020, creation of a 10-million additional ICT manpower pool—or the more ideological stances such as commitment to accessibility and open standards and open technologies.

One point that has gone largely unnoticed is the the goal of making at least one e-literate individual in every household. On the face  of it, it is very well-intentioned. Unlike IT industry size and open standards, this is something, when achieved, would benefit the common people directly.  As more and more government services become available electronically, a better comfort level in accessing those services directly without the help of any middleman will not just be more convenient for common people, it will give them a greater sense of power.

But there are many questions that need to be answered. Unlike a lot of other points, the policy document does not go into any more details on this.

So, what is e-literacy? How do you define it? How do you measure it? It is a laudable idea but is it practical to have it at a goal? And especially in a country with such a high illiteracy rate? What are the broad possible paths to proceed towards such a goal, even if we do not have exact answers to all the questions, right in the beginning?

(To set the expectations right, I am not really trying to answer these questions, but am raising them to set a broad agenda for discussion)

For one thing, it is good that the policy has used the phrase e-literacy and not the dated term computer literacy. We have gone past the era of computer. “e” is no more synonymous with computers.

But that very fact also means that we have to start with basic definition. The definition of e-literacy is still vague. In fact, the more used term in the international forums is the phrase “digital literacy”, which I believe, by and large, represents the same idea, as opposed to something like “computer literacy” or “media literacy” or “internet literacy” which are somewhat restricting.

The simplest definition of digital literacy is, I believe, the Wikipedia definition—the ability to locate, organize, understand, evaluate, and analyze information using digital technology. It involves a working knowledge of current high-technology, and an understanding of how it can be used.

The question is how to create measurables, action plans, and monitor the progress. Going by the international practices, the approach has mostly been through embedding it with traditional education or through integrated small programs. Both could be effective but the first approach is restrictive, as it excludes a large part of the population. But not impractical considering the goal is to have one individual e-literate per family. Integrated small programs are not scalable in a country like India and the progress is difficult to measure.

The challenge before India is that every one out of four people are illiterate. Going by the latest Census (2011) figures, the average household size in India is between 4 to 5. This, in pure arithmetic terms, means we have to make one-fourth of the population e-literate. However, since the current level of comfort with digital technologies and Internet is fairly high in a section of people in urban areas, the task of making at least one person e-literate is far more challenging than just achieving a number.

I believe  RBI’s National Strategy for Financial Education can be a good reference to start with as it addresses the question holistically; some of the challenges are similar; and the plan takes into account the Indian realities. In fact, it is not a bad idea to find the synergy between the two plans. Because, at the core of it lies a desire to achieve inclusion.

While today, no social inclusion is possible without financial inclusion, tomorrow, the same can be said about digital inclusion. Without digital literacy, there cannot be digital inclusion.

If we are starting now, we must take a holistic approach that takes into account the socio-economic factors while formulating any plan of action for e-literacy.

I am happy that the government has considered this to be important enough to include it as an objective in the National Policy on IT.

Leave a comment

Filed under Digital Economy, Inclusive India, Indian Economy, Technology & Society

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.

1 Comment

Filed under Digital Business, Digital Economy, Indian Economy, Policy & Regulation

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.

1 Comment

Filed under Digital Economy, Inclusive India, Indian Economy, New Governance, Policy & Regulation, Technology & Society