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.”

Cameron comes with a different mindset

The new British prime minister is right to start with trade and right to start with Bangalore

Most commentators are putting it mildly, but the numbers show that India-UK trade atrophied in the last decade. From being India’s third largest trading partner at the beginning of this decade, the UK is now the thirteenth, and falling perhaps. Even as India’s overall trade volumes grew at around 26% on an average over the last four years, Britain’s share of the total trade has dropped—from 3.72% in 2004-05 to 2.56% in 2008-09. The growth in absolute numbers, from $7.2 billion to $12.5 billion during the same period masks the marginalisation of Britain as an economic partner.

Mr Cameron hopes to change that trend. The good news is that he has not only arrived in India with a large delegation but also with changed mindset. His government’s decision to remove dogmatic hurdles to trade in civilian nuclear technology and set up a framework for joint research & development in the field exemplifies this. As the British prime minister reminds us in his op-ed in The Hindu:

Beyond the cultural bonds, Britain has practical attractions for India. We speak the world’s language. We are still the world’s sixth largest manufacturer and the best base for companies wanting to do business in Europe. We have some of the best universities in the world and we are a great hub for science and innovation. Britain still has the strengths of its history, not least our democracy, rule of law and strong institutions, but there is also the modern dynamism of the nation that helped pioneer the internet, unravel the DNA code and whose music, films and television are admired the world over. All of these things can mean opportunity for Indian investors and entrepreneurs. [The Hindu]

If Mr Cameron follows through it is likely that he’ll succeed in turning the trade game around. But there’s a deeper, more fundamental reason why there is promise in economic relations between the two countries. Britain is grappling with rising costs of public services and tightening public finances. It will find that India provides the way out of the jam if the “outsourcing” partnerships can be managed well. That is the reason why Mr Cameron did well to start in Bangalore (okay, the beer and Amrut Fusion Single Malt are equally good reasons).

Geopolitics, though, can be a spoiler. The abominable David Miliband has not been forgotten. The Cameron government would do well to steer clear of that kind of gratuitous sanctimony.

Update: In Bangalore, Mr Cameron’s speech in Bangalore will do much to undo the damage Miliband did.

Sunday Levity: Babes, do your patriotic duty

What attracts women?

INI’s resident military affairs expert (no, no pun intended) sends in an article with the following bit highlighted:

Young women who don’t join the army have another important role to play. They may opt to marry army officers and encourage their female friends to follow suit. If pretty young women in large numbers come forward to marry army officers, the stock of army officers in social circles goes up. This in turn provides indirect motivation to other young men to join the corps of officers and serve the nation. [Chitranjan Sawant/Merinews]

Now, Mr Sawant—like the Ukrainian army recruitment department—is not entirely wrong: if army officers get all the babes, then more young men will want to be army officers. But it is wrong to presume that getting women to marry army officers—out of a sense of patriotic duty—will lengthen the list of applicants to military academies.

That’s because of the OMIPP, the Oldest Mistake In Public Policy, which mistakes correlation for causation. In this case, attractive young women of marriageable age might be attracted to young men from a certain industry for the same reason as other young men want to get into that industry. Maybe because that industry pays well, offers a relatively better quality of life, a higher social status or all of the above.

So whether you are recruiting for the army or for the public sanitation department, you are better off making the job profile more attractive. The babes will follow.

Related post: If you don’t think such a grave issue as shortage of army officers ought to be treated with such levity, you can read what we think is the real solution to the problem.

Me too madrassa

The rational school operators of Uttar Pradesh

Just like over nine out of ten families in Karnataka, many school operators in Uttar Pradesh demonstrated that they are rational actors. If the Indian government has announced that it will give Rs 325 crores over the five years to madrassas (which, among others, means "an honorarium of Rs 6,000 per month to graduate teachers and Rs 12,000 per month to post-graduate teachers") then it is perfectly rational for private non-religious schools into madrassas. Perhaps private schools operated by Muslims are taking a lead in this—but it should not surprise anyone if people from all faiths jumped in to get a share of the pie.

Of course, the Ministry of Human Resources Development officially doesn’t get it. It has called upon the Uttar Pradesh state government to conduct an enquiry into why people are behaving rationally, and responding to incentives.

The UPA government has been schizophrenic in its understanding and application of incentives (see this post on Acquired Incentivo Deficiency Syndrome, by The Rational Fool). It seems to understand them at a political level where it has extinguished equality of opportunity for an entitlement economy. But it has repeatedly failed to understand them at a policy level, where it has pretended that nice sounding intentions can replace sound incentive structures.

Al Faida – how Pakistan milks the US and NATO

NATO’s supply route through Pakistan is a gravy train for the military establishment…and the Taliban

Western troops fighting in Afghanistan depend on the Karachi-Khyber-Kabul supply route for  70 to 80 percent of their needs. While its importance to US and NATO forces has received considerable coverage in recent months, there has been less attention given to its importance for Pakistan’s military establishment.

The National Logistics Corporation (or the National Logistics Cell, NLC) is an ostensibly civilian entity staffed by serving and retired military personnel, and owned by the Pakistani army. According to the February 2009 issue of the Herald, a Pakistani monthly, it charges NATO between 200,000 to 250,000 Pakistani rupees per container arriving at Karachi, and pays private truckers between 100,000 to 150,000 for moving them to Afghanistan. In other words it makes a neat 100,000 Pakistani rupees in middleman’s fees. Going by an average exchange rate of 65 Pakistani rupees to a US dollar, the NLC made around $1500 per container.  The number of  containers landing in Karachi daily has varied between 1000 in early 2002, to around 300 earlier this year. Taking the lower figure, the NLC made around $450,000 every day, or over $164 million each year. Between 2002-2008, the NLC made at least $1.15 billion. And the meter is still running.

The Frontier Constabulary, a paramilitary force, collects a minimum of $150 per container in security charges from truckers, which adds up to $115 million over 2002-2008. This money goes directly to the Pakistani military establishment and is in addition to the $10 billion that the Bush administration gave Pakistan over that period. [This analysis is based on the figures in Massoud Ansari’s “My Way, Not the Highway”, in Herald February 2009, and Jawwad Rizvi’s “Rs 90 million go in air daily” in The News January 28-29, 2009 (via PEW). Mr Rizvi adds that the NLC charges between 15,000 to 25,000 Pakistani rupees for “no objection certificates”]

That’s not all. Karachi port authorities made at least $260 per container in assorted port charges, or around $200 million over seven years. The Pakistani government collects a fuel tax of Rs 25 per litre of diesel. According to one estimate the average fuel consumption per container per trip is 1200 litres, which amounts to $460 in taxes per trip. Over seven years fuel tax revenues alone are to the tune of $350 million. So the ‘civilian’ government received at least $550 million in additional revenues from the exercise.

The truckers themselves make around $1900 per container, and made around $1.5 billion over the past seven years. Clearly, they didn’t keep all of this, having to pay off various government officials and militants. Some of the trucking companies could well have owners connected to the military establishment.

That’s not all, either: the ‘militants’ collected an average of $400 per container to let them pass through their territory. Over $300 million went into the their pockets.

That too is not all. For only around 60 percent of the goods were actually delivered to their recipients, the rest being lost, stolen or destroyed en route. A flourishing trade in US and NATO military equipment exists in the markets of Pakistani towns like Peshawar and Quetta. Everything from crates of alcohol to helicopter spares is on the block.

That’s a lot of al-Faida for the Pakistani economy and for the Pakistani military establishment—a rough estimate is around $500 million per year. The political economy around the supply route is likely to have created strong vested interests in ensuring that the gravy train does not stop. Yet the Pakistani military establishment is ready to put these benefits at risk—squeezing the route to exert pressure on the US and NATO in Afghanistan. So where are the clever Indian analysts who argued that transit revenues from the Iran-Pakistan-India pipeline will prevent the Pakistani military from disrupting the natural gas flows to India?

Tightening the screws on Pakistan

Four immediate steps

The Pakistani military-jihadi complex has, as expected, gone on a war footing. General Ashfaq Pervez Kayani has pledged a “matching response” to Indian surgical strikes, “in no time”. The Pakistan Air Force was scrambled to fly sorties over major cities, scaring ordinary people. And the Jamaat-ud-Dawa organised a major pow-wow of religious parties—which included Imran Khan’s Tehreek-e-Insaf—and issued a ten-point charter, which among other things called for India to be declared an enemy, and US & NATO’s supply route to be closed. As the Economist put it, it’s a heartwarming show of unity.

While all this might have whipped up passions among the Pakistani people (and distracted them from the economic crisis) , it must be frustrating for General Kayani to observe that no one outside Pakistan is quite taking the threat of an India-Pakistan war seriously. That’s because Indian strategists have realised that denying the Pakistani military-jihadi complex the war they desire is triumph by default. The Pakistani armed forces should be most welcome to burn what little fuel reserves they have (linkthanks RKG), or can afford, flying pointless sorties over their cities, moving tanks and heavy artillery around the country and suchlike. There are two risks: first, where General Kayani’s ability to control the proceedings falls short of the passion of his uniformed and non-uniformed troops. Second, where the frustrated Pakistani military leadership starts the war itself. These risks itself indicate that General Kayani’s moves are devoid of strategic wisdom. In either case, it is India that will have control over the escalation.

Yet, there are people and organisations in Pakistan—suddenly oblivious to the wretch their country has become—who believe that getting away with a terrorist attack without punishment demonstrates an “upper hand”. Since the support for jihadi terrorism comes from these sorts, it is necessary to disabuse them of this notion. For that reason, India must act, visibly and forcefully.

First, India must ensure that the Pakistan remains in the international doghouse until it does what is immediately necessary—the arrest and expatriation of jihadi leaders and the complete shutdown of the jihadi organisations. How? Well, it must use its “restraint” to get the United States and Pakistan’s international donors to hold back aid tranches until Pakistan produces the necessary results.

Second, India should use the opportunity to abandon some silly projects that were pursued in the name of the ‘peace process’—for instance, the Iran-Pakistan-India natural gas pipeline. One this simian is off its back, India should pursue a deal to purchase the gas in the form of LNG. It should be easier to seal this agreement now that energy prices have fallen from their historic highs.

Third, international arms suppliers and their governments must be warned that selling arms to Pakistan will make it more difficult for them to penetrate the Indian market.

And finally, as we have been long arguing, India must engage the jihadi enemy not along its own frontiers, but in Afghanistan. India must support the military “surge” in Afghanistan that the US has planned. It could, for instance, arrange and secure the alternative supply route through the Iranian ports of Chahbahar and Bandar Abbas, and overland into Afghanistan. That’ll give the Americans the flexibility they need to secure co-operation from General Kayani.

Hey, sovereign default is not such a bad thing

And your daily dose of unconventional wisdom

Pakistan’s negotiations with the IMF for a bailout package might have been held up due to bitterness of the pill even as the spectre of sovereign default looms. So when Pakistan’s policymakers are trying to stave off the default, Mosharraf Zaidi stands in front of the oncoming traffic with a stop sign in his hand. “Sovereign default” he writes, “is simply a country not making its loan repayments on time. It has happened to plenty of countries. They are all still around.”

In short, governments choose not to default because it is the politically expedient thing to do. The actual economic costs of defaulting, Borenzstein and Panizza conclude, are simply not that high. Moreover, another paper earlier this year (by yet another IMF economist, Ali Alichi), suggests that the only real reason that countries repay the sovereign debt that they owe is to continue to be able to borrow money.

In short, Pakistan is trying to avoid defaulting so that the PPP government can stay in power, and so that while it stays in power, it can continue to borrow money. The real question here is: where is all the money going and why does Pakistan need to keep borrowing it? [Mosharraf Zaidi/The News]

For today’s dose of good writing read his piece on why Pakistan must default.

IMF to Pakistan’s rescue?

It looks like Pakistan will have to go in for an IMF rescue package to stave off a sovereign default. The countries who used to historically come to its aid—the United States, Saudi Arabia, China and the UAE—might even prefer it this way. In fact, according to one (rather inspired) news report, the United States made its support for even an IMF package conditional on Pakistan staying on the course in the war against the Taliban and al-Qaeda. The United States and Saudi Arabia are co-chairing the Friends of Pakistan club—but judging by the Richard Boucher’s comments, this forum will kick in to support the Pakistani economy after it is rescued by the IMF.

The Pakistani government is left with little choice but to negotiate an arrangement with the IMF (and such is the state of affairs that the IMF team has refused to travel to Islamabad due to fears over its security, choosing to meet in Dubai instead). After the post-rescue condition of the economies it rescued in the 1990s, the IMF’s rescues are something that economies, and most certainly their leaders, shudder to even think about.

Now it is possible that the IMF might have learnt from its previous mistakes and is today more sensitive to the political side-effects of its economy policy prescriptions. But beyond the hyperventilations of the Pakistani media about the ignominy of it, the Pakistani government is unlikely to want the IMF’s straitjacket—or any straitjacket—to constrain their hand, so that they could go about business as they have always done. But the straitjacket might hurt Pakistan in other ways:

A commitment to economic reform is the precondition for more money; Pakistan has been asked to reduce its fiscal and trade deficits, reduce its current and development expenditure, reduce its subsidies, and increase its tax-to-GDP ratio. These are all good, sensible measures that Pakistan needs to achieve stable medium-term growth. However, they are not enough. Pakistan must think long and hard about economic reforms that will incur the displeasure of western governments and the IFIs. Consider the case for capital controls. Dismantling barriers to the entry and exit of capital made Pakistan an attractive investment destination in the 21st century. While the world was awash in liquidity and investors were looking far and wide for opportunities to earn money on their capital, Pakistan basked in the glow of foreign money. However, the same mechanism that made it easy to quickly attract money has become a millstone around our necks now that the economic tide has reversed. So while reform is certainly needed, the government must avoid the temptation to simply follow foreign dictates once again. [Dawn]

Related Link: Simon Cameron-Moore explains the situation; Mosharraf Zaidi has an interesting op-ed on the role of bankers and bureaucrats in this context. And Ikram Sehgal calls for capital controls…on the hawala channel.

Safe under the carpet

Whose wealth was kept out of the financial system?

Al-Qaeda’s. (Sunday Levity. Yes, this joke is on the rest of us)

The Associated Press reports that

Al-Qaida, which gets its money from the drug trade in Afghanistan and sympathizers in the oil-rich Gulf states, is likely to escape the effects of the global financial crisis.

One reason is that al-Qaida and other Islamic terrorists have been forced to avoid using banks, relying instead on less-efficient ways to move their cash around the world, analysts said. [AP]

Because it was forced to keep its money under mattresses (okay, carpets) it might have escaped the dramatic losses due to the global financial crisis. Not entirely though. Unless they managed to cash out in time, terrorist financiers must have lost some money in the stock market, which they were alleged to be milking.