More on Finance and Inclusive Growth

June 17, 2008

Suddenly, the idea that financial sophistication leads to inclusive growth seems to have caught on (well, except with the Ministry of Finance, which is actually in a position to do something about it). First there was my Pragati piece. Yesterday, Nivirkar Singh’s column in Mint also touched on this:

Petia Topalova of the International Monetary Fund has recently examined the links between policy and inclusiveness of growth. In particular, she uses variation across states as well as three time periods, spanning 1983 to 2005, to examine these links. Inclusiveness is defined as the difference between the consumption growth rate of the poorest and richest 30% Indians.

First, higher financial development, measured either by real credit per capita or by a larger initial share of agricultural labourers with loans from formal financial institutions, is significantly associated with more inclusive growth.


OK, this is interesting. One of the points the Raghuram Rajan report raises is that access to credit is actually only one leg of financial inclusion, and is the most overused one. The other two legs – access to savings instruments and access to risk management instruments like insurance – have traditionally been missing. So there are two ways to read this:

  1. The correlation between credit and inclusive growth doesn’t mean anything. It’s just a coincidence that this turned up, and might be caused by something else – more urbanisation, say, or might even run in the opposite direction – financial inclusion leads to more demand for credit (though I personally think it’s a positive feedback loop – they cause each other)
  2. The research is right. Credit might be only one leg, but it still has an impact. And we haven’t even seen what would happen once savings and insurance also get taken up. In that case, the gap could close in a stunning way.

Moving on. After Nivirkar Singh’s column, there’s also the cover story in today’s Business Standard the Strategist. It’s about FabIndia, and how they’re encouraging artisan communities to set up private limited companies where the shareholding is split between the artisans themselves, their employees, FabIndia, and outside private investors.

The concept, now a Harvard Business School case study, is simple. A fully-owned subsidiary of FabIndia, Artisans Micro Finance, a venture fund, facilitates the setting up of these companies, which are owned 49 per cent by the fund, 26 per cent by the artisans, 15 per cent by private investors and 10 per cent by the employees of the community-owned company.

The artisans gain in many ways. The value of their shares goes up. They earn dividends when the company is in a position to declare them.

The shares offer the artisans a divisible asset class (land can be divided but its divisions are often disputed and jewellery is largely indivisible) and community-owned companies help convert FabIndia’s artisan base into an asset.

“If he wants to get his daughter married and needs money, he can sell his shares and realise the appreciation. He can also take a loan by offering his shares as collateral,” says Bissell.

(the Strategist)

The article is worth reading even if you aren’t interested in finance, and you’re more interested in social entrepreneurship or marketing or traditional handicrafts. Axshully it is worth reading even if you are a metrosexual and only buy organic muesli as you will get to know about new and exciting opportunities to buy it as FabIndia expands.

By the way, William Bissel mentions in the article that the co-operative system imposes too many restrictions on the artisan and the private limited company makes more sense. This is a massive understatement. The legal and accounting procedures for co-operatives in India are so totally broken that co-ops inevitably end up in the hands of regional politicians. That, however, is the subject of another post, and by someone else.

From His Mother’s Womb Untimely Ripp’d

June 9, 2008

While I’m in favour of Indian newspapers doing more feature stories that go more in-depth than five hundred words and two soundbites, this Mint article on Caesarean sections is not the way to go. It’s poorly researched, inconclusive, meanders all over the place, and does too much New York Times level balancing of opposing opinions, even when the opposing opinions don’t necessarily have equal relevance or weight.

I am an MBA and not an MBBS. Also, I am unlikely to ever receive a C-section (though the possibility can never be ruled out). As both a producer and consumer of C-sections, I lack experience and expertise. However:

  1. I am a smartarse who likes to call out wonky reasoning even when I know nothing about the underlying facts the reasoning is built on.
  2. I also have a personal interest in infants as sacrifices to Elder Gods and a food source.
  3. I was in Section C in IIMB and I feel this obliges me to defend all C-sections. In fact, Kodhi and me wanted to use ‘I was reborn by C Section’ as the class tshirt slogan but Bubbly shot down the idea because she thought it was too gross.
  4. Defending C-sections has the added advantage that it may piss off the Mad Momma.

Right. So here we go. First, the article. As I alluded above, it’s mostly a collection of sound-bites without any solid analysis, and so doesn’t really qualify as good feature journalism. It takes quotes from every possible party concerned, and doesn’t develop any of them. But such is life.

Then there’s confusing correlation and causation:

The burst in numbers is also inextricably linked with the advent of “corporatized” private health care in India.
Birth is big business; delivery rates vary from city to city, but a large private hospital in Delhi can earn up to Rs70,000-80,000 for a Caesarean package (including room and OT charges), whereas a normal delivery package brings in around Rs44,000, according to numbers collected by a team of doctors at Sitaram Bhartia hospital.

Yes, fine, but a Caesarean delivery would cost more than a normal delivery even at a non-corporatised hospital or clinic. The rise of corporatized health care is due to rising affluence and a preference for reliability. The preference for C-sections is also due to rising influence, as the article itself points out:

Urban Indian women are now marrying later, conceiving later in life, and having fewer children. Every child is so precious that parents are averse to taking any risk and are increasingly viewing the Caesarean as a reliable option.

Rather, the growth in C-section numbers, he says, is better explained by changing urban lifestyles, busy obstetrician schedules and the convenience of planned procedures. “Many women try to schedule Caesarean procedures on special days such as birthdays or festivals,” says Barua. On some of these days, women line up for Caesareans,” he adds.

Just because affluence leads to corporate health service, and affluence also leads to a preference for C-sections, doesn’t mean corporate health service leads to C-sections. Or vice versa.

OK, but what about the actual medical risks? Those are important too, right? Well, here the article goes into this, that, but on the other hand again:

There is no denying the fact that Caesarean sections routinely save lives. In the event of certain serious pregnancy-related complications, the surgery can be a mother or baby’s only hope. At least two studies have also shown that scheduled or “elective” C-sections—as opposed to an “emergency” Caesarean section in which a mother or child is already in distress—may even be safer than vaginal deliveries. Some scientists also argue that the procedure can help reduce the risk of problems such as incontinence in later life.

Research, however, challenges these claims, and throws light on the problems that can complicate a surgical birth. Bleeding can be severe and the surgical wound can get infected. Recovery time is weeks longer and more painful. And, after one C-section, a mother faces serious risks during her next delivery, including the chances of uterine rupture or her new baby’s placenta attaching itself to her scar.

So what we have here is a choice of risks, yes? When the mother is in distress, it’s not really a difficult decision – the risk of infection, and of not being able to control bleeding is much more easily dealt with than the risk of something far more complicated like upside-down breech babies (mentioned earlier in the article). But yep, what about next delivery risks? This study conducted in South Australia mentions them. It measures what the odds of particular illnesses or complications in a mother’s second birth are, when the first birth is a C-section. 95% of the time, the increased risk compared to a normal birth are:

  • Head not coming out first: 65% to 106% more likely
  • Placenta previa: 30% to 111% more likely
  • Hemorrhaging: 8% to 41% more likely
  • Placenta accreta: 2.28 to 864 times more likely
  • Prolonged labour: 3.91 to 8.89 times more likely
  • Low birth weight: 14% to 48% more likely
  • Emergency C-section: 8.98 to 9.67 times more likely

Which sounds scary, except for two things. First, the study itself makes a disclaimer: Cesarean delivery is associated with increased risks for adverse obstetric and perinatal outcomes in the subsequent birth. However, some risks may be due to confounding factors related to the indication for the first cesarean. In other words, the first C-section may have been caused by medical factors which also led to increased risks in the second birth. Secondly, the risks are already small: placenta accreta occurs once in every 2500 births. Even if the chance of placenta accreta goes up a 100 times, it’ll only happen 4% of the time. Not vanishingly small odds, but small enough that you can trade-off the increased risks with the comfort and security of a C-section the first time.

What about the study the article mentions? The one about increased risk of respiratory problems?

In a study reported last December in the British Medical Journal, researchers studied 34,458 live births in Denmark—of these, 2,687 were elective Caesareans—and found that C-section babies were up to four times more likely to have respiratory problems.

Here’s a link to the study in question. Elective C-section babies are four times more likely to have respiratory problems. However, when you break down the odds by when the C-section happens – it turns out that while the odds are even higher than four times if the C-section is early – when the C-section happens in the same week the natural birth would have; there is no significant difference in the risks. The study is not an argument against C-sections, but against scheduling early C-sections – which is very sensible.

What really makes me angry in the article is this quote:

“We’ve come to believe that C-sections are safe but it’s an urban myth,” says Ruth Malik, 38, who co-founded Birth India, a natural childbirth advocacy group in Mumbai, last year, after having gone through two Caesarean procedures she now believes weren’t necessary. Ruth, who recently filed a suit against her doctor in Mumbai, says: “Birth is not an illness. We don’t need a surgeon to help us have babies. It’s a natural function, it’s something our bodies simply know how to do.”

OK, safe C-sections being an urban myth is something that makes me want to scream out ‘citation needed’. Safe in what context? How safe or unsafe? Natural birth isn’t 100% safe and neither are C-sections. The question is, are they safe enough? For negligibly less safety, is a lot more convenience worth it? Why not let the mother decide?

The scary thing about the ‘nature never intended this!’ argument against C-sections is that it can go down a slippery slope. If you argue against C-sections because they were never intended by nature, you can also argue against abortions. Or pacemakers or kidney dialysis. In fact, to contact lenses and spectacles.

Readers (especially Ritwik, probably) will now rush in to point out that the slippery slope argument is absurd. There is a ‘yuck’ factor about abdominal incisions that is not there in spectacles. And pacemakers are lifesaving devices while elective C-sections are largely about convenience.

So what? Cosmetic surgery is about convenience and not lifesaving, but there are no advocacy groups against it. So is LASIK surgery for that matter. And what about ear piercing and tattooing? Those are invasive body modifications which are not necessary at all, and also come with risks of infection, but nobody sensible argues against them on the grounds that they’re unnatural. (For more comprehensive and better written articles about biological enhancement, naturalism, and dignity, read this and this)

Yes, it is sensible to make informed choices about whatever you do – take out a home loan, go driving instead of taking a bus, or getting a C-section instead of a natural delivery. But this should be based on the risks to you personally, not vague platitudes about whether it was intended by nature or not. We can trust mothers to make the right decision about whether C-sections suit them or not, without bringing in conspiracy theories about corporate healthcare, or whether caesarean sections are ‘natural’ or not.

Does Not Compute

February 5, 2008

(Cannot… resist… virgin… joke)

Mint comes up with a perplexing paragraph:

While this will be the first time Tata Teleservices will be partnering with a brand such as Virgin, Branson has already formed two similar alliances globally.

(emphasis mine)

So, it’s not Virgin’s first time, but it is Tata Teleservices’? I’m confused.

Even More on Land Sale Reform

February 5, 2008

Barun Mitra has a Mint oped today on why not allowing the free sale of agricultural land is a bad idea. Excerpts:

Which leads us to the question: Why is it legitimate to acquire land for industrial use, but prohibit farmers from consolidating and expanding their landholding to improve agriculture? Why shouldn’t a farmer be able to legitimately acquire a thousand acres?

Indian industry can raise capital from the global market on the basis of a prospectus, which promises performance in the future. But Indian farmers can’t raise adequate capital on the basis of the land asset which they already possess.

However, it is critical that the value of the land of farmers, often their only asset, is maximized, and it is made simple to capitalize. The problem facing the poor is not their poverty, but inability to capitalize their assets. Typically, agricultural land hardly fetches Rs2-3 lakh per acre. Agriculture income, even if the land is cropped twice a year, can hardly be more than Rs30,000 per acre, at current productivity levels.

The industry could also offer shares or bonds in lieu of land. Or even provide alternative land if the farmer decides to continue with his vocation. In an open land market, with protected property rights and security of contract, there would be a wide range of choices to meet almost every requirement.

Very much worth reading. So do read.

Coasian Economics

November 16, 2007

Namy Roy wrote in and asked me if I’d read Niranjan Rajadhyakhsa’s column on Bangalore and the Coase Theorem, and suggested I blog about it.

I had read the column on Wednesday itself, and thought of mentioning it in a post on kids in aeroplanes. Since I’m busy making the quiz, I won’t be writing that post for a while, but do read the column. It’s good.