I am shocked, shocked, to learn that criminals and anti-social elements have been buying SIM cards with forged documents in Haryana.
Those naughty criminals! How dare they! Don’t they know that they are supposed to provide their correct identity details so that the authorities can track them down? If they pretend to be honest people like us, the whole scheme is useless. All the effort we put into getting passport photos and photocopies of identity documents will go waste.
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Posted by Aadisht
Time to answer the questions raised by my post on using real estate options to pay for acquisition of land. I’ll answer the questions raised in the comments first, and then address some other issues.
Will the options be provided to displaced people free of cost, or sold? Will they be given loans to buy them? And who sells them the options?
I envisage free of cost, but that isn’t necessarily the right answer. I think that the right price will be something arrived at through trial and error, after seeing the results from many such compensation schemes. But you can have any nonzero inital price of the option, with a corresponding change in the price you exercise it at.
The options will be paid for by whoever is acquiring the land and displacing the original landholders. They will be sold by competing real estate agencies and property developers.
Does this mean that displaced people will move to the about-to-benefit regions?
No, it doesn’t. It just means that they become the landlords of the about-to-benefit regions (if they exercise the option). They collect the rent or the mortgage on the land. They don’t necessarily move in. But I’ll come back to this later.
If the government won’t even move them to any region, why will it move them to an about-to-benefit region?
Excellent question. For the government-backed Sardar Sarovar Authority, or indeed any developer, resettlement is a cost which they’d like to minimize. But if selling land to displaced people was a profitable activity, and multiple real estate vendors were competing to sell them land, this wouldn’t be a problem.
How do we reach this happy state? Well, real estate options are financial assets. You can borrow against them just as you can borrow against actual property or against shares. They become security for a property loan- and now the displaced family chooses where to buy property instead of just settling for what the government gives it.
Now, the objections I thought of myself.
This won’t work for the Narmada Dam victims, will it?
Sadly not. It’ll not work for anything at this point of time. It needs a lot of infrastructure in place before it can work.
Like what?
Ah, now we come to the meat of the matter. To make it truly effective, you need an existing large and liquid market in real estate options. The problem with this is that trading in real estate options did not actually begin until this year at the Chicago Board of Trade. Still, there’s no reason it won’t eventually catch on in India.
What if the option holder exercises the option, becomes the owner of the property, and chucks out the tenants?
Well, he would be in his rights to do so (assuming the local laws were actually biased in favour of landowners instead of tenants), but there are some ways to avoid this:
What’s a real estate index?
Just as the Sensex measures the value of 30 specific stocks, and converts it into one single number, a real estate index would check property values at certain locations and convert that into a single number. You could have an all-India commercial property index based on office rents in Bangalore, Mumbai, Gurgaon, and Chennai. A Bombay residential property index based on flat rents in Andheri, Powai, Dadar, Colaba, and so on. This addresses one of the difficulties in deciding the market price of an actual piece of real estate.
What if unscrupulous property dealers offer low prices to the displaced people for their options? Those displaced people would take any amount of cash and spend it on booze instead of holding on to a piece of paper.
This is an argument against financial illiteracy, and not against options. After all, you could as easily ask ‘What if unscrupulous property dealers offer low prices to displaced people for the land they get as compensation?’.
So you do need to educate people on what the option actually does and how it can be used, but it isn’t a horribly difficult concept to explain.
And I’m not being facetious here, but cellphones can be a very powerful weapon where this is concerned. If fishermen can use them to find the market price of fish, displaced landowners can use them to find the market price of an option.
What was that you said about turning resettlement into a profitable activity?
Look, people who build a dam are good at civil engineering and project management. Not at buying land and helping people they’ve displaced to move there. So for starters, the people building a dam shouldn’t be in charge of resettlement- just pay for it.
But then should there be a single agency in charge of resettlement? No, dammit. Throw resettlement open to competition. Treat displaced people as consumers and entrepreneuers who want to buy income-generating property, not as refugees. Give them liquid assets like cash and real estate options (or even ownership-equity in the developing body) which they can use to buy land. Who sells them land? Competing property developers. Who provides them the options? Competing real estate agencies, anxious to close a deal. Once competition enters the sale of options as well as the purchase of land, displacement victims will get a much better deal. Also, the kinks in this new and untested scheme will be ironed out much faster.
I’m still doubtful about the whole thing.
I’m not surprised, because it is a whole new idea. But that’s why I’m plumping for a market in resettlement, because it’ll work out the problems much faster than I ever can.
That wraps it up. I don’t think I’ll have any more individual posts on this, though I’ll of course address all further questions in the comments.
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Posted by Aadisht
I must have seen more television in the past two months than I have in the two years before. I haven’t missed much. The ads are the best bit.
The Garnier fairness cream made me recall something I saw in China but didn’t remember to write about in the travelogue. The Chinese buy fairness creams too. As usual, the language gap prevented me from finding out details, but it was interesting to see that the Chinese beauty ideal also places a premium on fair skin.
It’s especially interesting because China was never colonised by the British to the extent that India was, so the usual explanation of the preference for fair skin being a colonial hangover doesn’t hold that much water.
Perhaps human beings actually do have an innate, genetic preference for fair skin, for whatever reason. Of course it is not logical, but sexual selection does not have to be.
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Moving on, curly haired woomaans in the Slice and Sony Ericsson ads strongly are, so much so that they make me drop back into IIMB lingo. Is it the same girl in both the ads?
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The Tata Mutual Fund which you should pick because it has “a hedging function for maximising returns and minimising risks” is a remarkable piece of financial gobbledegook. Because, after all, only Tata’s mutual fund will try to maximise returns or minimise risks.
Secondly, how the hell does it do both? Risk and return are proportional. You can maximise returns while fixing risk, or minimise returns while fixing risk, but you have to accept a tradeoff somewhere.
And finally, how, oh how, does a hedging function maximise returns? A hedge is done specifically to fix risk at an acceptable level. Returns don’t enter the picture.
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Finally, the Frankfinn ad is one of the worst made ones I have had the privelege of seeing. Despite that, it is remarkable for another reason. It is the first ad I have ever seen which pitches a product as an alternative to marriage instead of as an aid to it. In remarkable opposition to stuff like Fair and Lovely and LIC.
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Posted by Aadisht
I refer not to the concept, but the bestselling game series.
The premise of Civilization is simple. You’re the leader of a civilization (a tribe or a nationality). You start out in 4000 BC with only a settler. The settler founds a city. The city then produces more settlers, which found new cities. All these cities produce military units, improve themselves with things such as aqueducts and city walls and factories, and even Wonders of the World. And so it goes until 2020 AD, by which time you will hopefully have researched a lot of technology, have a huge military, and spread your civilization over as much of the world as possible.
Of course, there are other civilizations, being played by the computer (or by other people), which are also intent on world domination. You just have to conquer them, or make sure you establish your empire over virgin territory before they get the chance.
The series is now up to Civilization IV, and this particular sequel has hit a particularly sweet spot. There are enough features to make it fun and interesting, but the micromanagement isn’t so high that it becomes too challenging or tedious. The features include religion, great artists, great merchants, trade, diplomacy and a whole lot besides.
Being able to control all these things- religion, commerce, art and culture- is a lot of fun. But it is also the problem- it’s horribly inaccurate- which the game developers freely admit.
They originally built the game so that religions spread slowly along trade routes, invisible to the game player. This was no fun at all, so they eventually created something that gave the player more control- a missionary that could travel from city to city and spread religion faster than by normal means.
So here is the problem- Civilization is played in such a way that it is fun only when you have control over something. So if you add a feature that mirrors a concept in real life, it is only fun when you can control it yourself. But unfortunately in real life you don’t have that control. National goverments and individual cities and religions and merchants and scientists and artists are very rarely under the control of a single leader. They might be anatagonistic or cooperative or at outright war, but they’re never marching in lockstep to somebody else’s drumbeat. Fun comes at the expense of accuracy.
You could get both fun and accuracy, but the game would no longer be Civilization. But you could have a game where you do have competing civilizations- but at the same time you have competing elements within a civilization- if you could play a Chinese merchant or a Muslim cleric instead of just the Chinese leader. As the Chinese merchant you would interact with the Chinese government, merchants from other civilizations. You could lobby the Chinese government for mercantile policies or for free trade. If you were a very successful merchant, you could commission Wonders of the World in cities where you had influence. You could provide musicians and thespians with patronage. You could have run-ins with Buddhist or Taoist clergy over who got to control the levers of power. You could finance scientists to help discover the next technological breakthrough. You could gain sufficient power to have a say in whether your country went to war or not. You could eventually transcend your civilization, and control power in the American and Arabic and Aztec and Indian civilizations too.
Does something like this already exist, but with the Civilization-like features of immense complexity and turn-based-play? Or will I have to wait for Civ6?
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Posted by Aadisht
I have a longstanding hypothesis that Mallus are not actually South Indians, but Bongs who have migrated to South India.
Consider the similarities. Both communities make delicious fish. Both have a tendency to elect communists with mind numbing regularity. Both are soccer fanatics.
Still not convinced? Both of them speak languages which are completely unintelligible to other people. They both make and appreciate art films that nobody else understands. And both refuse to work while in their home states, but turn into exemplars of hard work and productivity when they migrate.
I’m not saying it has to be true, but some testing for genetic markers could help settle the question.
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Posted by Aadisht
A few months ago, a Tehelka reporter was interviewing some of us at IIM Bangalore for a special feature on the perception of leftism on Indian campuses. The interview drifted from perception of the left parties, to the question of who would speak for the poor, and then to the Narmada Bachao Andolan. Someone- I can’t remember if it was the reporter who asked if we believed in it or one of us who stated that he did- brought up the concept of ‘sacrifice’ – that the displaced people should be willing to sacrifice something for the good of the entire nation.
It’s sad. As managers, we’re supposed to look for win-win solutions. But we’re conditioned so badly by the national discourse on the Narmada dam that everything turns into a sacrifice: either the displaced people should sacrifice their land for the benefit of farmers and agriculturists, or urban residents should sacrifice their comfort to maintain traditional tribal lifestyles.
But why must either side sacrifice anything?
The transaction looks like a sacrifice because it’s terribly onesided. The victims of displacement get only land- if the incompetent administration gives it to them in the first place- while the beneficiaries of the dam get water and benefit from increasing real estate prices.
Is there any way to ensure that the people who lose their land benefit to the same extent that the people who get the water do? Yes, there is- and it relies upon the concept I introduced in the previous post– financial options.
If the development- whether it’s building a dam, or building a township on agricultural land- does what it’s supposed to, land prices will rise significantly in the area that is being developed. If the development is a dam, the acquired land will not see a price rise, but the land that does get access to irrigation thanks to the dam will see a rise in value. For a real estate development, things are even more straightforward- the acquired land is developed, and sees a rise in value.
What if you compensate the people whose land you are acquiring with call options on the land which benefits? The option can have an exercise price equal to the current price- or perhaps with a modest premium- and it can be exercised on a date after the development is expected to be complete.
(Of course, I am not suggesting that compensation should be purely in options- just that options should form part of a compensation basket that also includes land and cash.)
As you’ll recall, a call option means the option holder can buy the asset at a fixed price (which we’re assuming is the current price). Let’s say that prior to the construction of the Narmada dam, Ahmedabad residential property is trading at Rs. 300 a square foot. Displaced people are given call options to buy say, five hundred square feet of Ahmedabad residential property at exactly this price: Rs. 300. After the construction of the dam, and diversion of water to Ahmedabad, residential property rises in value thanks to improved availability of water. It’s now worth 500 rupees a square foot. Multiply the difference- two hundred rupees a square foot with the number of options: five hundred square feet- and that’s one lakh rupees. (Of course, these figures were just to illustrate the concept.) And with some neat usage of financial derivatives, we’ve solved the problem of unequal gains.
There are some problems associated with this idea that I can think of off the top of my head. I’ll discuss how to solve these in another upcoming post.
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Posted by Aadisht
I have been thinking about a particular topic, and I have an idea about it. This idea involves financial options. As not everyone will be familiar with these, I’ll first have a post up on the basics of options, and then write the main posts.
Let’s start.
An option is a contract to buy or sell something at a fixed price. Stock options are the best known sort of options, thanks to things like Employee Stock Option Programs. An option is not the thing itself- just the right to trade in that thing.
Let’s illustrate this. Suppose I run a company called Maajorly Shadymax Arbit Fundaes Public Limited, which employs lots of people to post arbit fundaes on blogs all over the internet (we can debate the profitability of this business model elsewhere). MSAF Ltd. currently has a share price of Rs. 100.
I now issue options on MSAF Ltd. to all my employees. This option allows them to buy a share of MSAF Ltd. at Rs. 120 on June 1, 2007.
What happens on June 1, 2007? Two possible things:
What we’ve just discussed is called a call option, since we’re talking about the right to buy an asset. What if the option had not been to buy a share at Rs. 120, but to sell it? The same thing, but in reverse. If the market price had been above Rs. 120, then the option would have been worthless- why sell at Rs. 120 when you can sell at a higher price in the market? If the market price had been Rs. 110, the option would have been worth Rs. 10- you could have bought a share at Rs. 110 and sold it at Rs. 120 thanks to the option. An option like this which gives you the right to sell an asset is called a put option.
I’ve talked about the special case of what the option is worth when you have to use it, but it’ll be worth something even before June 1, 2007- what it will be worth will depend on people’s estimate of what the stock price is actually going to be on June 1, but it will have a value- and you can sell the option itself for that value.
One final thing before this little primer is complete. My example used shares, but it could have been anything else. I could have an option to buy a barrel of oil for seventy five dollars on August 1, 2006. Or I could have an option to sell a million dollars at 45.5 rupees a dollar on July 1, 2006. It’s easiest to explain with shares, but you can have an option on virtually any kind of asset.
That’s all you need to know about options in the context of the post I’m going to make. For a more detailed discussion, do read the Wikipedia entry, which also has some very user-friendly diagrams.
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Posted by Aadisht
What do you call a group of nations that squabble with each other, have a terrible rate of economic growth, and nothing much in common except a desire to band together to provide a counterweight to existing global superpowers? And that despite this utter lack of common ground between existing members, they actually want to add new members.
Depends. In the 1960s you’d have called it the Non-Aligned Movement. These days, you’d call it the European Union.
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Posted by Aadisht
It runs like this:
You don’t even need to marvel at the jump from Statement 4 to Statement 5. The process breaks down at Statement 3 itself. Just because all A is C, and all B is C, does not mean that all B is A.
Incidentally, even Statement 1 is a metaphor and does not imply that an electron has the sort of emergent consciousness that a human being has. If an electron is conscious, than so is a rubber band.
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Posted by Aadisht
Writing quality stuff won’t cut it. There’s already so much good stuff around, there’s no guarantee your stuff will be the one linked too. No, to get an Uncutlanche you must appeal to Amit Varma’s baser instincts. As I do below.
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Posted by Aadisht