A Thud in the Hills, and Monsoon Wedding

Dilip D’ Souza has a post up at the newly launched How The Other Half Lives called Thud in the Hills which asks a question that isn’t asked often enough: when will reforms benefit the poor? And can they do nothing but wait for the benefits to trickle down?

My answer: it depends.

The little reforms we have had so far have made it much easier for corporations to do business- by making it easier for them to raise money, start new businesses without having to run around for as many licenses, and choose for themselves how much to produce and what price to set. And they have made it easier- no, possible- for them to import raw materials and equipment.

But reforms have been non-existent in some other, vital, aspects. There has been no judicial reform. Litigation and criminal justice still move so slowly that a legal case becomes a weapon with which to bludgeon your rivals. It also results in pathetic conviction rates, so that imprisonment or even the dealth penalty are not deterrents to criminals.

Until this year, reforms also made it difficult for buyers to compete with each other for buying farm produce, which led to middlemen cornering the market, and contributed to farmers falling into dire straits. And of course, there have been no reforms which allow farmers to sell their land legally and at market prices.

There have also been no reforms to place checks on our various taxation departments, so they can continue to harass us unabated.

This means that as individuals, we have to wait for the slightly freer private and corporate sector to pass the benefits of reform on to us.

This has a problem: although the private sector does pass on the benefits to us- as cheaper prices, new products, better service and variety- these benefits reach the rich before they reach the poor. The rich have the money to pay for these benefits, after all. Only after the rich have been tapped and exhausted as a market, will we see the private sector move to the poor.

We are seeing this happen with cellphones. Delhi and Mumbai now have teledensity levels equal to London and New York. What are Airtel and Reliance and Tata Teleservices doing now? Pushing their network beyond the cities and into the small towns and villages, so that they can capture the market there (and also allow Dilip to call his friends and tell them that he wishes they were there). They also dropped their cost of staying connected- earlier to 200 rupees a month, and now to a thousand rupees for life.

It’s unfair, isn’t it? The rich got their cellphones way back in 1994, and the poor had to wait until 2005.

But the unfairness is compensated, because of this: reform reaches the poor the last, but it benefits them the most.

For the rich guy who bought the cellphone in 1994, it was at best a convenience. He already had a telephone- probably more than one- at his home and office. He could now be connected to his contacts sixteen hours a day instead of twelve.

But for the auto driver or vegetable cart owner who bought it last year, the cellphone is their first phone. It doesn’t represent four additional hours of connectivity- it represents being connected, for the first time ever. It isn’t a way to stay in touch with existing contacts. It’s a way to have contacts- and most probably, these contacts are new customers who will provide new business, or fellow small businesspeople who will help each other to find the best deals.

The first person to notice this was not an economist or a journalist or a telecom company CEO, it was a film director. In Monsoon Wedding, Mira Nair created PK Dubey- an entrepreneuer with no fixed assets- but who created wealth for himself using nothing but his intelligence and his cellphone.

Three years after Monsoon Wedding was released, Vodafone commissioned a study on their African consumer base. Only then did they discover that taxi drivers in Kenya were using mobile phones to tell each other where fares were to be found, unemployed villagers used SMS to check for jobs in Nairobi instead of paying the bus fare each week, and plumbers were able to see three instead of two customers a day.

Five years from now, when mobile phones have reached many more corners of the country, can you imagine what a similar study would find? Farmers using mobile phones to check prices, small retailers managing their inventory far more effectively, and maybe even as vehicles to spread the information that the Right to Information Act promises.

I’ll close this post with two thoughts.

First, the next revolution of this sort we’ll see will probably be in credit. ICICI Bank, GE Money and CitiFinancial are in two hundred cities so far, and they know that they can’t leave the next two hundred cities open to each other.

This means that they’ll hire thugs to threaten defaulters in Indore and Palakkad and Patiala, not just Delhi and Mumbai. They’ll call up people and offer unsolicited loans in Moradabad and Sangli and Bokaro, not just Hyderabad and Chennai. And just as cellphone companies cut their tariffs and offered ever more options to us, the customers, credit companies will eventually improve their behaviour and offer loans which are structured the way semiurban and rural consumers actually need them. Not because the Finance Ministry told them to do it, but because if they don’t, their competition will.

Second, this is what has happened and can happen if you set corporations free. If you set people free, can you imagine how much faster the poor would benefit? And how much more?

0 Responses to A Thud in the Hills, and Monsoon Wedding

  1. Raag says:

    Well said Aadisht. I too believe that reforms that have happened so far haven’t been deep or wide-spread enough to accelerate the trickle-down process. I strongly believe that one thing that can hugely accelerate the trickle-down process is better infrastructure – better roads and reliable electricity supply in particular. I think that people (and media in particular) noticed only the golden quadrilateral project during NDA regime. They forgot to highlight the Pradhan Mantri Gram Sadak Yojana – which though less glamorous has the potential to positively impact a much much larger section of the population. During Deve Gowda vs Narayana Murthy spat a few months back, it was sought to be potrayed as if better roads in B’lore was supposed to benefit only the rich or the supposedly rich IT folks. To tell the truth, bad infrastructure (as in lack of reforms) hits the poorer folks the hardest. A clear example would be auto-rickshaw drivers – their turnover times increased and the number of trips (and hence the earnings) they could make in a day decrased.

    My two paisa’s worth.

  2. I should have mentioned infrastructure explicitly, considering my two examples were information infrastructure and financial infrastructure.

  3. Niket says:

    How would one expect private corporation to build a public good such as roads?

  4. Niket,

    private corporations already build roads in Delhi- flyover construction is done on the basis of tendering, where private corporations compete with PSUs (UP State Bridge Corporation) and the PWD.

    Road maintenance and operation is also done on a BOT (Build-Own-Transfer) basis for tolled stretches on National Highways.

    Also, I believe that in Haryana factory owners in industrial areas finance the construction and maintenance of the roads leading to these areas.

    There’s also the Bangalore-Mysore Infrastructure Corridor, which is mired in controversy and legal delays, but has an interesting business model- the road financing will come not so much from tolls as from the sale of property along the highway, which will go up in value once the highway is completed. The implementation has been horrible, though- the promoters used eminent domain powers to take over the land instead of buying it directly, which has tied it up in political controversy.

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