Cheap tablet, unaffordable mistake

The macabre antics of the India’s human resources development ministry over Aakash are the equivalent of Marie Antoinette’s “let them have cake” attitude

The matter is so serious that mincing words is the irresponsible thing to do. There is a demographic bulge on the horizon and two crucial areas will determine whether that bulge will result in a demographic dividend or severe demographic discount. The first is whether the 30 million children born every year will be educated and skilled enough to be productive members of modern society. The second is whether the Indian economy will generate enough jobs to provide them with adequate livelihoods. The median age in India is around 26 today, which means half the population is under that age. The general shortage of skilled manpower in everything from the armed forces to IT companies to cafe chains indicates that a substantial fraction of this population is not employable—because of the failure of India’s education system.

Unless something is done ten years ago, the demographic dividend will be diluted. Unless something is done now, the demographic dividend will be wiped away, leaving India with a demographic discount. As before, people will call it the “problem of overpopulation” instead of calling it by its real name—the problem of under- and misgovernance. Government exists to ensure the well-being of all its people. It is perverse to contend that population must be controlled because the government is incapable of serving it. It is the government that must boost its competence to ensure that it can perform its functions satisfactorily regardless of how big or small the population is.

In India’s case, the traditional and massively failed approach is to treat both education and jobs as if they were contagious diseases: insulated behind high walls, preventing ordinary people from having easy access to them. The government has failed to deliver education and jobs. So after over sixty years of failure, it’s time to try a different approach. Liberalise education (and labour) and let the solution begin to scale at the same pace as the problem. (See Ajay Shah’s article in this month’s Pragati)

The UPA government’s right to education act is not the answer, although some may claim it’s an improvement over the past. Instead of liberalising education so that the private sector can deliver education at prices and qualities that the people want, the UPA government has placed the entire education sector under the thrall of the Delhi Straitjacket. Disguising a bad policy—which is bound to increase corruption in society—in the language of “rights” may be increase the feel-good factor among sections of the public, but we are still moving in the wrong direction.

Why is all this relevant to a discussion on a cheap tablet computer? To show how deeply wrong Kapil Sibal’s priorities are. First, instead of working on a war-footing to work out how to strengthen the delivery of primary and secondary education, Mr Sibal is focused on the higher education sector. The clever excuse might be that primary education is a state subject. That still doesn’t mean that he should be tilting at the windmills of higher education at the expense of the taxpayer. The education cess imposed on transactions is grotesque—what does the government do with its ordinary tax revenues that it has to collect more money, ostensibly to improve education, but then subsidise fast depreciating assets solving a non-existent problem?

Second, as Atanu Dey has extensively written in the context of the One Laptop Per Child project, what Indian education needs is good teachers and good schools—not gadgets. Once you have good teachers and good schools you might want to supplement it with gadgets. But go look at any central or state government university, college or polytechnic—look the quality of the teachers, their pay scales, their morale, their working conditions and their work culture. No gadget, however cheap or indigenous, can help when campuses are decrepit shells of what they ought to be. How can anyone with a conscience accept that providing college students with a cheap, indigenous computer will even begin to provide them with education and skills they need to be productive members of society?

Third, let’s say—for the sake of argument—that some college students do need computers. Let’s further assume that they cannot afford the Rs 10,000 that can purchase a decent netbook. Should this mean that the Government of India must immediately procure these from a vendor (while lying to the public that the product is “indigenous”)? That’s what Mr Sibal announced initially when trying to create international headlines with the news of a $35 ‘indigenous’ tablet.

Clearly something—most likely reality—didn’t work out. So Mr Sibal has another announcement. “There have been some problems with DataWind (the company the government had contracted with) I must confess,” he admitted. “Therefore, I have got into the act. The IT ministry has got C-DAC and (state-run) ITI Ltd into the act, and I am going to ensure that this product is fully indigenous and truly an Indian product.” Mint, quoting unnamed government sources reports that the “..government is now planning to launch an upgraded version of the tablet as a completely indigenous product under the supervision of a high-powered committee comprising members from the Centre for Development of Advanced Computing (C-DAC), department of information technology, the IITs at Kanpur, Mumbai, Chennai and Jodhpur, and some public sector units.” (Aside: The message to investors is beware of contracts you sign with the Indian government.)

So a bureaucracy will design a gadget and a public-sector unit will produce it, before a subsidised product is ‘sold’ at Rs 2,276. What is the justification for the implicit and explicit subsidies that are being thrown at a gadget, especially in the computer market where the brutal forces of Moore’s Law relentlessly lower prices faster than the speed at which two Indian government departments can organise meetings?

Here’s a simpler, cheaper solution: why not get the government give vouchers (of say, Rs 10,000) to every student it intends to reach. Let the student use it to buy the computer of his or her choice from the open market, paying the difference in case the choice is more expensive. This is still an unnecessary expense but may be a far more efficient way to go about putting computers in the hands of college students. There is no need for Datawinds, C-DACs, IITs, ITIs or any public sector units at all.

Finally, it should shame every thinking Indian that a cabinet minister—ironically, one in charge of education—can get away with lies that every educated person knows are lies. Can anyone, anywhere in the computer industry claim a product is indigenous without being laughed at? After claiming that Datawind’s gadget was indigenous, Mr Sibal now says the new government-produced gadget will be really indigenous. These are lies. Should the national motto be so cheaply sacrificed at the altar of an inferiority complex? When it comes to educating our kids, maintaining our health or defending our country, the right approach is to procure the best that the money can buy, whether foreign or indigenous. Indigenousness is not a virtue, even when it is practical.

In the economic history of India, the UPA government will be held singularly responsible for squandering an excellent decade—of high growth, healthy revenues and a strong fiscal position that it had inherited from its predecessor. It has wasted eight years pushing dogmatic approaches to education and resisting labour reforms. Mr Sibal’s antics—there’s no more civilised way to describe his championing of the cheap tablet—show just how frivolous the UPA government is on a matter intimately concerning our future. “No schools, eh? Let them have a cheap tablet then.”

How the rural employment guarantee might cause inflation

If rural markets are not competitive, then prices will rise with incomes

After a spate of recent reports confirmed that what manyincluding The Acorn—understood was inevitable, Jean Drèze has risen again to defend the national rural employment guarantee scheme. This time, by dubbing criticisms as propaganda. His strategy is classic: to take a seemingly neutral position by pointing out there is propaganda from both pro- and anti-NREGS sides, and drawing an equivalence between the two. It’s from Schopenhauer. The word propaganda, like socialism, “does not have a definite meaning, and can mean different things at different times”. So let it be.

But you would expect a professor of economics to be more exact in his economics. He writes

By way of illustration, prominent media attention was given a few months ago to a so-called “study by the India Development Foundation,” allegedly showing that the NREGA caused inflation. This is an outlandish claim, and I leave it to the reader to guess why this particular item of government expenditure was singled out as being responsible for inflation, as opposed to, say, the defence budget, which is almost 10 times as expensive. Further enquiry revealed that this “study” did not exist; it was just a speculative remark made at a panel discussion by a member of this Foundation. Nevertheless, this hot air was promptly pumped into the propaganda balloon. [The Hindu]

Now let us grant that the media indeed turned a remark into a report. But is Prof Drèze right about NREGS being less responsible for inflation than say, the defence budget?

Let’s look at the microeconomics of the NREGS. The money that the government puts into the pockets of the NREGS recipient translates into a higher demand for food, household goods and other such items. This is called an “income effect”. The solid blue line in the adjoining chart shows the original demand curve for these goods in, say, a rural district. Since NREGS recipients convert a part of their income into consumption, their individual demand for these goods increases, causing the demand curve to move upwards. This is shown by the dotted blue line.

NREGS and Inflation

What Prof Drèze fails to take into account is the shape of the supply curve (shown in red). How much the price rises depends on how steep it is. In the adjoining chart, you will notice that the price level goes up significantly after incomes increase. In fact the steeper the supply curve is, the higher will the price rise, and the incremental consumption will be smaller. In other words, if the curve is steep, then people will be consuming the same quantity of goods as before, only paying more money for it. In such circumstances the money that the NREGS spends is not ending up with the intended recipients, but in the pockets of suppliers.

And why might supply curves be steep? Well, because the markets are not competitive. Perhaps because there are only a handful of shops selling these goods and the shopkeepers are colluding to keep prices high. They are likely to do this when they know that there is NREGS in the air.

So contrary to what Prof Drèze writes, it is not at all “outlandish” to claim that NREGS causes price levels in rural areas to rise. There is a good chance that a good fraction of the money that does not get siphoned off by officials ends up fattening the profit margins of rural shopkeepers and traders. [It follows that a better way to help the rural poor is to make the supply curve flatter. It’s done with better infrastructure, irrigation and information]

Defence expenditure too causes inflation. But not in the same direct, localised way as NREGS (besides, the fraction that is used to import military goods doesn’t contribute to domestic inflation). But the comparison is bogus. Increases in defence expenditure are not justified on account of improving the lot of the “rural poor”, but rather, recognised as a necessary evil. The NREGS, on the other hand, is solely justified on that basis. To the extent that it raises prices without increasing consumption, the scheme is an “unnecessary evil”.

Update: Ravikiran Rao comments on Drèze’s article over at The Examined Life