Category: Economy

Why parking needs more than proof of space

The big idea in urban transport is to get users to pay for parking and suchlike. Not another piece of paper.

The Union government is considering a proposal to make car ownership contingent on the prospective buyer producing an “adequate parking space available certificate.” M Venkaiah Naidu, Union urban development minister stated that he was keen on this and promised to persuade the Union surface transport minister and the state governments on the need to do this. A recent magazine article claims that this is an “absolutely sensible move” as it has been implemented in Sikkim and Mizoram, and has is compulsory in Japan and in one place in South Korea.

Mr Naidu means well, but by itself, the requirement of a parking space certificate will open another source of corruption without doing much to reduce traffic congestion. Anyone who’s visited a local road transport office (RTO) or obtained a pollution under control certificate will know how this works.

But let’s spell it out nevertheless: it is easy to ‘show’ you have adequate parking space because spaces do not have unique identities that are in a common database. It may be necessary to pay someone — a petty official or a person with space — to ‘show’ that you have parking space. Actually, few will take the trouble to do this. It’s more likely that the licencepreneur who owns the photocopying shop next to the RTO will arrange for the parking space available certificate for a small fee. Neither the RTO, nor the traffic police, nor the Union development ministry have the resources to check whether the certified parking space exists in reality or merely in-between folds of red tape.

Needless to say this won’t make a dent in the number of vehicles being purchased. Sikkim and Mizoram are small states with populations and geographies that might even make such a policy workable. In most other places in India, especially in places where traffic congestion is a massive problem, we will just have one more layer of regulation, one more piece of paper to be procured, some more money for petty officials an licencepreneurs.

That said, Mr Naidu is nearly on the mark. The way to reduces incentives for people to purchase and use cars is to charge for parking. Every car parked on public roads not only creates road cholesterol, but also is an implicit, undeserved subsidy to a car owner. The more cars you park on public roads, the greater the subsidy you get from the government. This creates positive incentives for vehicle ownership and use. If we stop rewarding vehicle users for parking on public roads and charge them the market price of the real estate they temporarily occupy, then we will see vehicle use coming down. That, by the way, is what they do not only in Japan, but in almost in every country and city that has sensible urban traffic. It’s not unusual for parking fees to be exhorbitant in central business districts of the world’s cities. In fact, when governments charge market prices for parking in public spaces, more parking space is created as private owners realise there’s good money to be made by creating private parking lots. [Parking availability certificates have reduced car ownership in Japan because parking spaces are available at market prices. See Paul Barter’s blog post.]

The Union and state governments must come to an arrangement on pricing vehicle parking. As Donald Shoup’s research shows, the best way to make the policy work, and get public acceptance, is to ensure that the parking fees collected go to the localities from where it is collected. People are less likely to oppose paid parking if they are convinced that the proceeds from their locality will largely be used to improve that very locality. Funds can be used to finance public transport: from bus services to bus stops, to metro and commuter rail. My colleagues at Takshashila estimate, conservatively, that implementing paid parking on fewer than 10% of Bangalore’s roads can add more than 20% additional revenue to the municipal corporation’s annual budget.

A national policy to make road users pay for parking (or dumping construction material, or hawking) would be a GST-scale reform that Mr Naidu has the opportunity to be the author of. He shouldn’t settle for that red herring called the parking space proof certificate.

Related Post: Eight ways to improve traffic flows in our cities quickly and without spending a lot of money.

Tailpiece: Donald Shoup’s insight:

Drivers want to park free, and that will never change. What can change, however, is that people can want to charge for curb parking. The simplest way to convince people to charge for curb parking in their neighborhood is to dedicate the resulting revenue to paying for added public services in the neighborhood, such as repairing sidewalks, planting street trees, and putting utility wires underground. That is, the city can offer each neighborhood a package that includes both performance-priced curb parking and the added public services financed by the meters. Performance pricing will improve the parking and the revenue will improve the neighborhood. The people who live and work and own property in the neighborhood will see the meter money at work, and the package will be much more popular than meters alone. [Cato Unbound]

Time for a stiff drink

Satyagraha, Neoliberalism, CIA…we’re running out of ideas

It is perhaps a good time for newspaper editors to stop publishing any more polemical opinion pieces on the great currency transfusion (‘demonetisation’). When someone argues that people standing in lines to deposit and withdraw their own money after being compelled to do so by the government, are actually engaged in “the first economic satyagraha [using] their wisdom to articulate opposition to neoliberalism”, it is time to get off the computer and go get a really stiff drink.

It is abominable and grossly insensitive to suggest that people trying to cope with the currency shock are somehow engaged in a satyagraha. A satyagraha is above all a voluntary exercise. There is absolutely nothing voluntary about people standing outside banks and ATMs.

The subtitle of the article proclaims that “the demonetisation drive aims to cleanse the ills of neoliberalism”. That needs a sharp intake of breath and another stiff drink. Or two. The reason why there is a shadow economy is because of the absence of liberalism, neo- or paleo-. Corruption exists because of regulation, because economic freedom and liberty are stifled. If the demonetisation drive can claim to cleanse anything, it is the ills of statism, bureaucratism and the still-extant licence-permit raj. Demonetisation is a bad way to cleanse that, but that’s a different argument.

Last week The Quint had a report blaming a US aid agency and the CIA for demonetisation. Now that neoliberalism has been ritually savaged, the debate is truly over. Head to the bar, folks! They take cards.

How long will the Great Currency Swap be popular?

As long as schadenfreude exceeds inconvenience

Many of us at Takshashila have been struck by the seemingly paradoxical situation of the Prime Minister enjoying popular support for the Great Currency Swap (‘demonetisation’) even when everyone has been inconvenienced to various extents. In a recent post, I argued that this confirmed my cynical hypothesis of what kind of public policies enjoy public support, because “most citizens feel the cost they are incurring is a lot less than the cost others—those with unaccounted money—will incur. For the moment at least, intangible schadenfreude is outweighing tangible personal losses.”

In a discussion today, we attempted to project the two feelings — of schadenfreude and inconvenience — to see how public support might change over time. This is described in the following chart:

Update: This is an updated version of the chart.

 

The excess of schadenfreude over inconvenience constitutes the level of support for the the policy. The excess of inconvenience over schadenfreude constitutes resentment against the policy. As of 15th December 2016, people still feel that the inconvenience is a price worth paying to ensure that those with unaccounted incomes suffer relatively more.

Note that this is a schematic, and the shape of the curves in this chart is not a forecast: events can move them in time or change their shapes.

For instance, if inconvenience continues to grow as people and businesses run out of adequate cash, and if they come to believe that the holders of unaccounted money are getting away relatively unscathed, then we might head towards point B, where resentment builds up. Then, as the situation eases — with adequate cash being pumped back into circulation, and with people adapting to a less-cash lifestyle — the resentment will begin to taper down towards point C.

The chart assumes that schadenfreude will diminish over time, in which case at point C, support and resentment will cancel each other out. However, if schadenfreude does not diminish, the policy will continue to enjoy popular support.

The Modi government can prevent or mitigate the rise of resentment by reducing inconvenience and by feeding schadenfreude. The former, by supplying enough currency quickly, before point A is reached. The latter way is to persuade the public that wrongdoers are getting their just deserts. However, as people hear news of seizures of hoards of new currency, or of others circumventing the moves using clever methods, the schadenfreude is likely to fall sharply.

The greatest danger to the Modi government, and to Prime Minister Modi himself, is if inconvenience does not fall, or fall quickly enough, and it continues to rise beyond point B.

A conservative criticism of the Great Currency Transfusion

On making big bold moves in uncharted territory

Over the past few weeks, many people have asked me (just as they’ve asked each other) what I think of the Modi government’s currency reform (popularly known as ‘demonetisation’).

To this day, my response has been that PM Modi has taken a very risky bet, and it’s too early to tell how things will turn out. It is unclear what the fundamental purpose of the exercise was—there are at least half-dozen of them—and hence it’s hard to say whether it met the policymakers’ objectives. I am not persuaded by the initial defence that it is a good policy, terribly implemented, because a policy is only as good as its implementation. I am not persuaded by the current short-term pain, long-term gain rationalisation, because it’s important to know what exactly the intended long-term gain is, before we can answer how much short-term pain is worth suffering for it.

What we do know is that the most damaging unintended consequences can be minimised by a combination of rapid take-up of electronic transactions by those who can, and a rapid re-injection of currency notes into the economy for the rest. To the extent that electronic transactions are substitutes for cash transactions, the re-injected cash can reach more of the people who lack bank accounts, smartphones and identity documents. If you use less cash, then at the margin, you ease the difficulties of cash-dependent persons. Even so, we do not know how long it’ll take to reflate the tyres of our complex economy. In the meantime, the economy will suffer losses, and these can be quite painful to ordinary citizens.

We should now hope that the long-term benefits will be worth all this pain. But hope, as George Shultz famously said, is not a policy.

Therein lies my principal criticism of Mr Modi’s big currency reform initiative: as an advocate of conservative policymaking, I believe that it is unwise to introduce sudden, big, pervasive, irreversible changes to large, diverse, complex, perhaps semi-chaotic systems like national economies. (If I’ve used too many adjectives in the previous sentence, it is because they are necessary.) I use the word “conservative” in the sense that it means cautiousness, tentativeness, lack of certitude; like how medical practitioners use it to denote their approach to treatment. I do not use it in the big-“C” Conservative ideological sense.

Prudence suggests that the greater the number of people affected, the costs involved, the irreversibility or the complexity of the system, the better it is to be cautious, tentative and have the ability to tune up or tune down the policy dials. Because we cannot predict the consequences to any degree of accuracy before-hand, it’s better to follow a trial-and-error method. The Modi government’s currency reform, unfortunately, leaves its policymakers with few policy dials that they can tune up or down. It is a big bang reform.

This was also my criticism when the UPA government decided to extend the rural employment guarantee scheme nationwide without waiting to see how the pilot projects turned out. What benefited some people in some districts, hurt other people in other districts. A conservative approach would have extended the rural employment guarantee to districts where it was necessary, and not to areas where it worsened labour shortages, hurt agricultural productivity and raised prices. The currency reform project is similar in this respect, but touches almost every citizen and in a much smaller amount of time.

Whatever we might think about the effectiveness of such ‘bold’ policies, we should prefer a conservative approach to policymaking. No, this is not a recipe for status quoism. There are lot of areas where there is plenty of empirical evidence to implement big changes. For instance, we know that sectoral deregulation and liberalisation has yielded positive results since 1992, so we can do more, even a whole lot more, of the same.

The paradox of a cashless society

To be successful, the push for cashless society must accommodate the anonymity of cash

There is no doubt that moving towards a cashless society has immense benefits: from making transactions convenient and highly efficient to bringing most of the economy under accountability. From where India stands at 2016, a concerted push towards reducing the use of cash makes a lot of sense.

In an editorial last week, Mint enumerated some important steps to ease the path towards a cashless society: availability of telecom connectivity, investment in technology that improves security and simplicity, and government incentives that favour cashless transactions. In an earlier interview with the same newspaper, Nandan Nilekani argues that since much of the necessary infrastructure — Aadhaar, IndiaStack and Unified Payments Interface — is already in place, the Modi governments currency reform (‘demonetisation’) will act as a shot in the arm for India’s move towards a cashless economy. [Disclosure: Mr Nilekani is a donor to the Takshashila Institution.]

The Mint editorial, however, misses one crucial aspect. Apart from cash being a wireless technology with near-infinite battery life, and one that needs no telecom connectivity, it is its inherent anonymity that makes it a very valuable instrument. Yet, most advocates of a cashless society advocate it precisely because it gets rid of anonymity. Ergo, the extent of cashlessness might well be defined by the extent that people value anonymity and privacy. What this means in practice is that unless the demand for anonymous transactions is satisfied, India might not cross what the editorial correctly describes as “the threshold level after which the network effect will take over.” The question is whether the desire for anonymity prevent a forming a critical mass of Indians that rely on electronic payments. This, more than technical considerations, might dictate the pace at which cash is displaced from its throne.

It is understandable, not least at times of moral panic, that ordinary people will fall in line with the arguments of moral puritans and self-righteous advocates and assert that law-abiding citizens need not fear lack of anonymity. Such views ignore the the reality that families and societies are often held together by harmless lies. For instance, one family member will to put away some money from the rest, without any illegal purpose in mind. Some people like to give anonymously to charity, without any malice or illegality involved. These kinds of innocuous, quotidian acts are a glue that binds society.

Then there are perfectly legal acts that people wish to hide from their families, society or government in order not to attract criticism or punishment. Many people have food habits they’d rather not admit to their family, others might want their alcohol and cigarette purchases to remain hidden. People might give money to NGOs and political parties that are heterodox, dissenting or championing unpopular causes. Such acts characterise and sustain liberal societies. Indeed, even some illegal activities — say prostitution or consumption of certain narcotics — that take place regardless of the letter of the law might have a stabilising influence on our societies. The fact that puritans are disgusted and outraged by this is beside the point. Indeed the story of post-Enlightenment social change around the world is one of legitimising a number of acts previously considered immoral, after weighing them in the court of Reason.

For this reason, some jurisprudence has equated anonymity of cash with free speech. I usually avoid turning policy arguments into a question of rights, as it forestalls further discussion. In this case, though, I think it is justified. It would be hard to sustain free speech if there is an audit trail exposed to the market, society or government. The chilling effect this would have would impinge on the foundations of a liberal society.

Therefore, there are good reasons, both practical and of principle, to retain anonymity in financial transactions. To succeed, initiatives to promote a cashless society must, er, account and accommodate them. Good policy ought to be able to balance many valid considerations and arrive at an optimum approach. Allowing cashless transactions to be anonymous below a certain limit might offer a reasonable compromise. For instance, a stored-value “cash” card, available without requiring proof of identity, limited to payments of Rs 10,000 per month, with an six-month expiry date is one type of solution. This will achieve the transactional benefits of electronic payments, the anonymity of cash and limit the risk of use in large-scale criminality. Of course, even these cards can be abused, but I’d argue that the social benefits outweigh the costs.

If the government takes such a route, it will create enough room for innovation that can, paradoxically hasten the march towards the cashless society. Otherwise, we might take a very long time to cross the threshold that will unleash those network effects.

Tailpiece: It’s not as if a cashless society will lead to greater honesty. Dan Ariely’s experiments suggest otherwise.

“From all the research I have done over the years, the idea that worries me the most is that the more cashless our society becomes, the more our moral compass slips. If being just one step removed from money can increase cheating to such a degree, just imagine what can happen as we become an increasingly cashless society. Could it be that stealing a credit card number is much less difficult from a moral perspective than stealing cash from someone’s wallet? Of course, digital money (such as a debit or credit card) has many advantages, but it might also separate us from the reality of our actions to some degree. If being one step removed from money liberates people from their moral shackles, what will happen as more and more banking is done online? What will happen to our personal and social morality as financial products become more obscure and less recognizably related to money (think, for example, about stock options, derivatives, and credit default swaps)?” [Dan Ariely, The (Honest) Truth About Dishonesty: How We Lie to Everyone – Especially Ourselves.]

Currency transfusion and political cyni-, er, realism

Have Indians proved the cynics among them wrong?

A few years ago, a cynic postulated two laws of policy realism in India.

The first law of policy realism
A policy that relies on the Indian citizen to act in selfless public interest will not work. In fact, a policy that expects an Indian citizen to act in anything but self-interest and relative gain will not work.

The second law of policy realism
A policy that expects Indian citizens to adhere to a process—any process—will not work as intended, because people will ignore, work around or actively undermine the process. [Two laws of policy realism]

While these statements hold up almost in all cases, the Modi government’s currency transfusion (‘demonetisation’) appears to be different. Even considering that most people are conflating their personal opinion of Prime Minister Modi and of his currency policy, and despite almost every person undergoing inconvenience and hardship (to various extents), the policy is largely popular. So isn’t this a violation of the first law? Aren’t people acting in selfless public interest?

Not quite. First, the actions of the citizens are not voluntary, but enforced. They have no choice but to act in a manner prescribed by the government. Second, as I wrote in the explanation of the first law, “the citizen must feel s/he will get more out of it compared to others”. In this case, most citizens feel the cost they are incurring is a lot less than the cost others—those with unaccounted money—will incur. For the moment at least, intangible schadenfreude is outweighing tangible personal losses. The emotional support for the policy derives from the relatively higher value people are currently attaching to schadenfreude. This is consistent with the first law. If the inconvenience persists for longer than people’s endurance (which is different for different people), then it might begin to outweigh schadenfreude.

What of the second law? From the numerous announcements the Finance Ministry and the Reserve Bank of India are making with respect to the acceptance of old currency, conditions for exchange and withdrawal limits, it is clear that there is a cat-and-mouse game going one between those making rules and those finding loopholes. The second law holds too.

On OBOR’s commercially suspect projects

Win-win, for China.

Analysts have observed that many projects that China is financing and building under Xi Jinping’s One Belt One Road (OBOR) initiative are commercially dubious. People whose job it is to worry about such things have have surmised that the real motivation might be military-strategic in nature.

There is another — less sinister, but non-mutually-exclusive — explanation. Fitch’s Kalai Pillay says that the real motivation is “exporting China’s excess construction capacity that is accompanied by financing from Chinese state-led enterprises.”

“A lot of the big construction companies in China have bulked themselves up significantly over the last 10 years to carry out the big infrastructure projects in China. As many of these come to the tail end they have this excess capacity, the know-how, the real technical knowledge, a lot of patented technology that can be sold abroad, that needs to be exported abroad,” Pillay says.

He adds that there may be little room for non-Chinese banks and institutions to play a role in financing OBOR infrastructure projects.

“The final leg to this is the capital. There is excess capital which finds itself into all kinds of things, international bond markets, the spread market wherever. But one way to export it also is through financing projects that’s going to take place outside of China. So that’s part of that OBOR strategy,” Pillay says. [The Asset]

In other words, China is providing cheap loans to regional countries to build infrastructure — that might not be commercially viable — using Chinese construction companies. If the projects take off, China benefits. If they don’t, then regional governments will be stuck with debts to the Chinese government.

Not bad. For Beijing, that is.

On regulating geospatial information

A license-permit raj for maps

My responses to Times of India’s Kim Arora on the draft Geospatial Information Regulation Bill, 2016.

The wording in the draft bill is way too general and could cover anything from school children’s maps, to digital maps used by consumers to navigate, to more specialised commercial/scientific usage. Such a general wording will defeat any policy intention and create a morass of bureaucracy and corruption. With that kind of wording, anything is possible. Lawyers will have a field day.

There is a case for the government to insist that all companies and individuals in India must represent India’s boundaries accurately according to our government’s official position. However, this purpose does not require a license-permit-enforcement raj that the bill will end up creating. A simple law that imposes penalties for deliberate misrepresentation of boundaries will suffice.

As it stands, the bill will harm innovation in the IT and tech sector, raise costs for farmers and industry and create a lot of petty corruption. This is not a bill that is consistent with PM Modi’s stated vision of Digital India and Startup India.

Read her report that also quotes the indefatigable Nikhil Pahwa.

On Hollande’s mind

Indeed, a closer relationship with New Delhi is vital to France’s continued standing as an important global power in the twenty-first century. It was far sighted on behalf of the French to initiate a strategic partnership with India in 1998. From the Cold War era to recent times, New Delhi has had in France an independent-minded partner unhesitant to buck the Western consensus on defence, space and atomic energy issues. It is for the Modi government to build on that relationship and enlist France as a partner to extend India’s own geopolitical profile.

What the French president might encounter in India

This is the English version of a piece that appeared in BBC Hindi today

When President Francoise Hollande arrives in New Delhi next week as the chief guest on India’s Republic Day celebrations, he will be taking a short, partial break from his two main preoccupations: how to reduce unemployment in France ahead of the 2017 presidential elections and how to ensure that the threat from home-grown Islamist terrorists is contained.

In addition, he will no doubt be concerned about the economic trajectory of the euro zone, the prospects of long-term instability in Syria and the Middle East and, ultimately, of the risks to France’s geopolitical standing in the twenty-first century.

The honour, symbolism and pageantry apart, where does India register in President Hollande’s agenda? The immediate, tangible prize is to bring the long-drawn negotiations over fighter aircraft and nuclear reactors to fruition, which might together be worth $30 billion or more. The devil, as usual, is in the detail, and an agreement might prove elusive until the last minute. These deals matter for Mr Hollande not only because it will help him stay on the right side of politically powerful business interests, but also because they could create thousands of skilled jobs.

Mr Hollande had pledged not to stand for re-election if he “failed on growth, failed on unemployment, failed on the recovery of the country”. So a boost in jobs, investment and growth is important to his own political prospects. Given that unemployment rose to from 9.7% to 10.1% during his term, disproportionately affecting younger people, it is small wonder that he declared an economic emergency earlier this month.

If these important defence and energy deals are what Mr Hollande hopes he can take back with him, he would do well to explore how India is tackling its own employment creation challenges.

In fact, France and India have common problems on this front, in terms of restrictive labour laws, choke-hold by trade unions and a skills gap. Indian businesses like TeamLease Services, Ma Foi Randstad and others have developed experience in creating employment in an environment where there are powerful regulatory and political-economic disincentives for direct hiring. (Disclosure: Manish Sabharwal, co-founder of TeamLease is a donor to my institution). If Mr Hollande were to spend some of his time meeting Mr Modi’s officials dealing with skills and employment generation, he might carry home some good ideas in addition to the good deals.

While France and India share some similarities in the internal security context, the nature of the threat is different: for France it comes from its own citizens disgruntled with its foreign policy; for India it emanates from across its borders. Therefore even if the Paris attacks and 26/11 appeared similar, how they materialised is different. Therefore, while India and France could discuss counter-terrorism cooperation and better share intelligence, there are limitations to the extent they could go.

Similarly, India’s role in assuaging French worries over the Eurozone crisis is limited.

In recent years, France has increased its commitment to the security of the Indian Ocean. By virtue of its possession of islands of La Reunion and Mayotte, and their accompanying vast Exclusive Economic Zones, France considers itself a stakeholder and power in the Indian Ocean. It also has bases in Djibouti and Abu Dhabi that support its military interventions in Africa, the Middle East and Afghanistan. In contrast, its capacity is limited east of the Malacca Straits.

Given that India’s own maritime footprint is significant in the Western Indian Ocean (including a diaspora in La Reunion) there is a degree of strategic contestation between the two powers in this part of the maritime space. On the other hand, shared interests in freedom of navigation indicate a scope for greater collaboration on the Eastern part of the ocean. Both Paris and New Delhi realise that this calls for closer dialogue between the strategic establishments of the two countries and regular exercises between their armed forces.

Indeed, a closer relationship with New Delhi is vital to France’s continued standing as an important global power in the twenty-first century. It was far sighted on behalf of the French to initiate a strategic partnership with India in 1998. From the Cold War era to recent times, New Delhi has had in France an independent-minded partner unhesitant to buck the Western consensus on defence, space and atomic energy issues. It is for the Modi government to build on that relationship and enlist France as a partner to extend India’s own geopolitical profile.

When should the government subsidise training filmmakers?

There is no case for government to subsidise FTII (and, for that matter, IITs and IIMs too)

One of the numerous controversies surrounding the Modi government’s appointments in the education sector revolves around a minor television actor being appointed the chairman of a government-run institute on the basis of his party, and perhaps ideological, affiliation. Students, alumni and many public commentators have opposed the appointment of Gajendra Chauhan on account of his weak acting credentials and lack of stature in the industry.

Mr Chauhan’s critics might be right. His defence — that he is being judged ahead of his performance — can also be taken at face value, not least in a country where “officially certified” graduates are unemployable, and great actors and film-makers need not necessarily be good administrators.It is not as if having great personalities running the film institute has prevented the Indian film industry from distinguishing itself through sheer mediocrity. Mr Chauhan does deserve a chance.

The Film and Television Institute of India is a government run institution. The elected government has the prerogative to appoint whoever it likes. If students and faculty do not like it, they can voice their protests, which the government ought to listen to. But if the government does not, or does not accept the criticism, then that should be the end of the matter. Students and faculty who cannot accept Mr Chauhan’s leadership can decide to quit. Whatever your politics, this is the right conduct in a republic. With apologies to John Roberts, the Chief Justice of the US Supreme Court, it is not the purpose of democracy to protect the people from the consequences of their electoral decisions.

However, the bigger issue is why is the Union government running a film institute and training actors and filmmakers with public funds? The economic argument is that the government can subsidise education that has large externalities, if there is an undersupply of such education. In other words, the reason to subsidise medical education (whether or not through government medical colleges) is that a doctor benefits society even when making money for herself. If there are too few doctors, there is a case for subsidising medical education. If there are too many of them, it doesn’t.

So do actors and filmmakers have large positive externalities? To the extent that entertainment is necessary for the well being of individuals and society, then it is possible to make a case that filmmaking ought to be supported with public funds. But are there too few actors? Are there insufficient incentives for the private sector to invest in filmmaking institutes? You could argue that a few decades ago, there was a need for government to subsidise Indian actors and filmmaking. It is difficult to argue that is the case today: the film industry was worth over $2 billion last year and almost produces more films than the United States, China and Japan (the next three biggest producers) combined. There are too many films. There are too many television channels. There is an oversupply of films, television programmes, actors and filmmakers. It makes no sense to subsidise film-making in this situation. Privatising the Film and Television Institute of India is a good idea, especially if it can use the autonomy to improve industry standards.

In a twitter conversation, a fimmaker retorted saying if government can run IITs and IIMs, then why not FTII? The answer really is that just like FTII, the government should get out of running IITs and IIMs too. Where there is need for government is in the running of 665 universities where around 30 million students are enrolled. All the IITs and IIMs together account for a mere 15000 students. The poorest student who secures admission to IITs or IIMs is likely to secure grants, scholarships or loans to pay her fees. On the other hand, the pure sciences, social sciences and arts need greater public funding because of the dismal state these disciplines are in. Universities represent education in its broadest sense, and has the broadest externalities — an educated population is in the public interest.

The debate on a few elite institutions is misplaced. The government ought to get out of running film, engineering, management and law institutes. There is no case for pouring scarce public funds in areas where there is a glut and where there are enough incentives for private provision.