Of Free Power and Red Tape

There were two interesting articles in the Sunday Times of India.

Swaminathan Anklesaria Aiyar wrote:

Free power for farmers is not free at all: it is paid for through greater illiteracy, ill-health, unemployment and lack of road connectivity for the poorest, remotest areas. Free power is a cancer that spreads and has many other ill-effects. Consider these in turn.

First, because power is free but intermittent, many farmers do not bother to switch off their pump-sets. So they end up consuming power that they do not need, at the cost of those that do.

Second, many farmers have obsolete, power-guzzling pump-sets, but do not replace them with energy-efficient ones because power is free. If power is priced correctly, farmers will have an incentive to replace energy-guzzlers with energy-conserving equipment.

Third, free power encourages water-guzzling crops, and so can be environmentally disastrous. Low-rainfall areas like Punjab and Haryana simply should not be growing water-intensive crops like rice. Pumping water for such crops causes the water table to fall inexorably. These states urgently need to revert in the kharif season to crops like maize, which need much less water.

But as long as water is free, farmers will opt for rice. The high price of rice reflects the huge amount of water it requires, yet the cost of water is not felt at all by the farmer, only by the environment. In effect, the farmer is being subsidised to ruin the environment. Not just Punjab and Haryana, even other low-rainfall states like Maharashtra grow water-guzzling crops like sugar-cane that should only be grown in heavy-rainfall regions.

Fourth, free power deprives the poor of drinking water and small farmers of irrigation. When the water table falls because of over-pumping, no water is left in shallow dug wells supplying drinking water and small-scale irrigation for small farms. Millions of those that can least afford it have been deprived of water this way.

Fifth, as the water table falls further, shallow tubewells run dry. So medium-sized farmers are also hit. Ultimately the deepest tubewells, affordable only by the rich, are the only ones that can still tap the water table. A recent World Bank analysis of power subsidies in Andhra Pradesh showed that large farmers got an implicit subsidy of over Rs 50,000 per year, small farmers got around Rs 8,000 a year, and landless labourers got nothing at all.

Sixth, shallow tubewells are fitted with inexpensive centrifugal pumps, affordable by small farmers. But such pumps can lift water only from a depth of 30 feet or so. When the water table falls further, lakhs of centrifugal pumps are render unusable. They have to be replaced by expensive submersi-ble pumps. This constitutes a huge waste of existing equipment and an enormous, avoidable cost in new submersible pumps.

Gurcharan Das wrote about his experiences giving a presentation on India to 15 members of the Billionaires Club in Chicago:

I got up and unabashedly sold India for 45 minutes. Before concluding, I asked these worthies why they preferred to invest in China . One of them gently corrected me, ‘‘Forget China , we have much greater investments than India in smaller countries like Thailand , Malaysia , Vietnam .’’ I asked, ‘‘Why? Don’t you like us?’’

‘‘We love India , but we hate your red tape.’’ Over the next thirty sobering minutes I bit the dust, as I heard one horror story after another about India ’s officialdom. The owner of one of the world’s largest hotel chains described how it took 5 years to get land access to his hotel in Mumbai. Another spoke about his humiliation by the Reserve Bank. ‘‘In other countries we deal with banks, but why are we forced to deal with the central bank in India ?’’

Someone described how his factory was delayed by two months because he refused to bribe the engineer from the SEB. Another complained about our central excise and customs officials. The owner of an FII said, ‘‘Portfolio investors don’t take the Mauritius route to evade Indian taxes — we do it to avoid dealing with your tax officials.’’ To drive the point home, the group contrasted the welcoming behaviour of Chinese officials, who they said were also corrupt, but had created a business friendly environment.

A second reason for India ’s weak FDI performance, they pointed out, was our infrastructure, a point that Jeff Immelt, G.E.’s boss, also made in Bombay recently. ‘‘In the nineties, China ’s energy sector grew 20 times that of India , and transport market 8 times,’’ he said. On the other hand, the billionaires were hugely impressed with India’s human capital, and one of them recounted how Indians had upgraded Russian planes brilliantly with Indian avionics, ‘‘and this has impressed the hell out the American defence establishment.’’

‘‘Face it, Mr Das, Indians are a great people, but your red tape is the killer,’’ was the conclusion. I had tried to put up a brave front in the meeting, but as I trudged back to my hotel I had a sickening feeling in my stomach. I consoled myself thinking, why does it matter to India ’s poor what 15 rich Americans think? But I knew in my heart that it did matter — if these men invested, others would follow. And this would create jobs, bring technology, make India competitive, bring revenues to the government, and this in turn would make it possible to invest in village primary schools and health centres. This is how China has been lifting its poor, and this is why P. Chidambaram so desperately wants foreign investment.

In their own way, the two columns illustrate what's wrong with India and what we need to do to really get to Shining.

Strategic Thinking

[via Innovation Weblog] Paul Schumann points to an article in The Innovation Road Map Magazine (Vol. 1, No. 2) by Gregg Edwards, which " describes the four abilities that develop the capability of strategic thinking":

1. Visionary time frame, or the ability to see the true potential of ever-larger new enterprises and then tenaciously actualize that truth.

2. Perspective, or the ability to cull from ordinary impressions the most consequential patterns of events and to evaluate their significance from many perspectives.

3. Comprehension, or the ability to quickly assemble all salient factors into strategies and to understand their implications at many levels.

4. Flexibility, or the ability to strategically organize both action and learning – to take advantage of and be responsive to unknowns as they become known.

Paul writes: "However, as Edwards points out, it is not just these four abilities, but the four taken together as a whole that creates strategic thought. The synergy of the four, taken together, when actualized create results that appear to many as 'magic'. The four abilities are not sequential but simultaneous and strategic thinkers constantly interplay the results of the four types of thinking with each other, almost in real time."

Munger on Academic Economics

[via Abhay Bhagat] Charlie Munger gave a talk last year on "“Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs”. Everything Munger says is worth a close read.

Google Simplifies Selling Ads

James Fallows writes in the New York Times:

Google is the clear leader, among competitors like Overture and Kanoodle, in a modest-seeming innovation with potentially broad implications. For Google, it is another way to sell ads - and a fast-growing source of revenue. For people who rely on the Internet for information and expression, it may open an opportunity.

The innovation in question is Google's AdSense program, unveiled last summer. Google's original way of making money, and still its largest source of revenue, was search-driven ads. You enter, say, "vacation homes in France," and with its usual list of sites Google shows a list of "sponsored links" from advertisers, who have paid to be associated with those terms.

"AdSense was really a very natural outgrowth" of this search-dependent system, said Gary Stein, a senior analyst at Jupiter Media in San Francisco. (No one from Google would comment about its products because the company is in the "quiet period'' before its initial public offering.) "Google had this great database of advertisers, and the keywords they were interested in," he said. "But they had to wait for the searches to happen."

AdSense allows Google and the advertisers to avoid the waiting. Google's great technical strength - the "sun in its solar system," as Mr. Stein put it - is the way it automatically grasps the themes and emphases of each Web page. With AdSense, anyone who operates a Web site - a blogger, a community activist, a retailer - installs a bit of code that transfers control of part of each page to Google. Then users who visit the page will see a short list of ads that, according to Google's analysis, represent the most likely match between the subjects discussed there and the advertisers' products - ads for veterinary supplies on a cat fanciers' site, for example. Each time someone clicks on an advertiser's link, the advertiser pays a fee to Google, and Google passes some of that on to the Web site operator.

This sounds like nothing more sophisticated than a car magazine that runs car ads - but then, eBay at first looked like nothing more than a big garage sale. In each case, scale and automation give a familiar idea new effects. Just as eBay connects each seller to a universe of potential buyers, AdSense connects each blogger and local Webmaster to 150,000 potential advertisers. The crucial point is that the blogger reaches those potential advertisers without having to hire a sales staff, prepare media kits or invest scarce time and money.

Why does that matter? It completes the publishing revolution brought on by the Internet. The first stage was the liberation of the reader, who, thanks to browsers, could look at publications in any part of the world. Next was the liberation of would-be publishers. Thanks to blogging tools, anyone can present his or her views online. And now, thanks to automated ad sales, small publishers have a more viable hope of creating a business, and keeping independent voices, than they did even a year ago. A. J. Liebling's wisecrack that "freedom of the press is guaranteed only to those who own one" takes on new meaning when technical and financial barriers to creating a Web-based press drop so low.

Google could do for niche publishers what eBay did for small sellers.

John Hagel on Offshoring

John Hagel writes:

There’s a storm brewing over offshoring, but the irony is that neither side in the emerging debate fully understands the challenges – and the opportunities – ahead. One side – the opponents – focuses on the workers being displaced from their jobs as companies shift work to offshore locations and see nothing but challenge. The other side – the companies that are actually shifting key areas of activity offshore – focus on the near-term cost savings and see only benefit, if only they can keep a low enough profile to avoid adverse publicity. Both sides miss the key significance of the offshoring trend.

Offshoring is not just about cost reduction through wage rate arbitrage. Instead, it is a powerful way to improve performance by accessing distinctive resources and accelerating capability building. Bottom line: offshoring will force all of us to become more specialized and to make some difficult choices to exit certain activities along the way. In fact, by viewing offshoring too narrowly as simply a way to access cheap labor, companies risk unleashing a vicious cycle that will lead to value destruction.

He has written a draft paper on the topic.

BW Top 100

Business Week has a super collection of stories and interviews as part of its package of the top 100 infotech companies.

TECH TALK: A Train Journey: Travel Time

Most of the time that I do travel in India it is by air. Go the airport, catch a flight, attend the meetings, and return back. Most of the times, all of this is manageable within the day. Travel is limited to the big Indian cities – each of which is almost like the other. So, when I took a couple of longish train journeys, there was a sense of expectation that this would be somewhat different. The length is relative – I was taking the train (Shatabdi) from Delhi to Dehradun and back, a journey of 320 kilometres which is covered in just under 6 hours.

A train journey is different from travelling by road or air, especially if you happen to be alone and sitting next to a window during a day trip. In short Indian flights, there are too many interruptions. Long international effects are somewhat like the train journeys but with one big disadvantage – a constant outside view. The train has the effect of setting the mind completely at rest. Thoughts wander in and out. Sights outside the window spur some past memory and activate a new set of hyperlinks. Time loses some of its constraints as thoughts freely explore depths not normally possible during other modes of travel. In a car, one has to be constantly alert about the road.

I have always liked the train – being fascinated by them since I was a child. There is something magical about seeing an engine pulling the bogies against the background of the countryside. Long train journeys in my life have been rare, especially in the past decade. In a trade-off between time and personal pleasure, time and flights usually win.

My most memorable train journey has been the three-day odyssey that I took from New York on the east coast to California on the West Coast of the US while I was working there. The New York to Chicago journey was not that exciting – I was closeted in a small compartment. After a train change at Chicago, it was different. After all, I was now on the California Zephyr. From Amtrak’s introduction: “Amtrak’s California Zephyr allows you to follow the trail of pioneers, gold prospectors and the Pony Express along America’s earliest transcontinental rail route. Get acquainted with farmland, prairies, deserts, rivers, and mountains. Amtrak’s Sightseer Lounge gets you up close to the natural splendor of the West without disturbing nature’s awesome beauty. Let your mind wander back in time as the train takes you across the country.”

In the chair car on the upper deck of the California Zephyr, one had a sense of openness. I could stretch and move around. People’s conversations flitted in and out. A viewing compartment allowed us to see the night sky above us through a glass dome. Dinner time conversations with strangers gave a better sense of the world around. One could talk and listen for hours at a stretch with people without the constraints of any kind of artificial limits set by fixed schedules. The spectacular views outside were a joy to behold. The three-day coast-to-coast trip is one few would undertake when the pressures of life and business mean that every hour is so important. But, at least once in a life, everyone should undertake a journey like the California Zephyr. It will help us discover and talk to our own self better.

Tomorrow: Delhi Station