Organizing Ourselves: Renewable Energy

Initiatives for renewable energy

Shyam Ponappa / New Delhi February 07, 2008

The urgent need to organize for solar power & biofuels


Recent developments in renewable energy, e.g. cellulosic ethanol and concentrating solar power, underscore the urgency of pulling ourselves together on these fronts.

Cellulosic Ethanol

At the Detroit Auto Show in January, General Motors made a startling announcement: it had invested in a biofuel startup. This startup, Coskata, is one of uber-investor Vinod Khosla’s bets in renewable energy. Coskata claims it can produce ethanol from cellulosic sources at reasonable cost. The feedstock can be woodchips, grass, straw and agricultural waste from crops such as corn and wheat, even plastic and other carbon waste such as old tires. Coskata’s process needs much less water: less than the volume of ethanol, not three to four times as for other methods. Argonne National Laboratory reports that the process generates 7.7 times the energy used, and reduces CO2 emissions by over 80 per cent compared with petrol. However, this is in the laboratory, and Coskata has to prove it can scale up. This is planned by 2011, starting with a pilot plant this year.*

Coskata converts feedstock using heat into synthesis gas or syngas, comprising primarily carbon monoxide, hydrogen, and carbon dioxide. This gas is processed by proprietary microorganisms to create ethanol and water. In contrast, other bio-fermentation processes usually create a number of complex alcohols in addition to ethanol. Coskata’s microorganisms reportedly have greater tolerance to impurities in syngas than processes that use chemical conversion. The ethanol and water are separated using a membrane technology that is estimated to cost only half as much as processes such as distillation. Overall, Coskata achieves the highest conversion efficiencies for ethanol.

Solar Power — No Rain In Spain

Southern Spain is known for its sunshine and scarce rain. Capitalising on this “deficiency”, Spain is becoming the leader in the revival of Concentrating Solar Power (CSP), i.e. focusing heat from solar radiation to generate electricity, pioneered in California. In the 1970s, nine solar thermal plants were built at Kramer Junction in the Mojave Desert to produce 354 Mw, then forgotten in the rush for fossil fuels.

Outside Seville in Spain, 600 reflectors focus solar radiation to the top of a concrete tower 40 storeys high. This is Abengoa’s Solúcar project, which converts radiant energy into heat, driving steam turbines that generate about 10 Mw of electricity at an estimated cost equivalent to $50-70 a barrel. The capital costs are high but the fuel is free, and there are no noxious emissions. Photovoltaic generation costs nearly double CSP, but has the advantage of modularity: small units can be used for individual homes, while CSP needs large amounts of capital and land.**

A different CSP design using parabolic troughs is used by Spanish company Acciona in a 64 Mw plant commissioned last summer near Las Vegas in Nevada.**

Relevance for India

These are instances of developments that deserve focused attention in India — another area where we have an urgent need to set about organising ourselves out of our chaotic ways. My aim — fond hope — is to initiate or precipitate action. Ideally, through an agglomeration of our imagination and ability, we will develop a sound process of analysis, goal setting, and then proceed with the follow through to achieve these goals. But we have to apply ourselves for this to happen; these are complex issues, and need informed analysis and decisions.

We need a comprehensive and integrated, silo-busting, problem-solving approach. This is in contrast with coasting along on a post-feudal-colonial mélange of currents and tides, with the brigandage of opportunistic politics fed by our (the voters’) greed for short-term benefits, resulting in our grotesque populism, in lieu of the much greater deferred gratification of pleasing cities and countryside with the appurtenances of proper governance: sidewalks and drains, transport, administration and order, hospitals and schools. We have to “engineer” our way ahead, i.e. take active steps to build and develop our solutions, not passively wait for something good to happen.

This applies across the board in the broadest “spatial planning” sense that integrates housing and land use at all levels with commercial, industrial, cultural and scientific activity, transportation, and all governance and infrastructure: water, sewerage, energy, communications. Infrastructure being the first level of enablement, it is an essential starting point.

Plan Outlays — Necessary But Not Sufficient

Our leaders acknowledge repeatedly that infrastructure is India’s great need. Yet, they take no steps to marshal forces to draw up a credible strategy and execution plan. This is what needs doing. Only money won’t do, because delivery systems and processes have to be developed, i.e. planned, then built from scratch.

Finance is certainly a requirement, but it is not the only one. Equally critical is coordinated implementation. This needs human resources and organisation, with the technology, systems and processes to make it work. All these must mesh in a goal-oriented organisational form in an enabling environment for good outcomes. This requires a combination of the regulatory aspects of government together with the social aspects of human dynamics, including the availability of trained people for production and delivery, and well-developed markets with all the necessary attributes, starting with demand. Therefore, funding is only one critical step.

Creating Institutional Delivery Systems & Processes

Our need is to create the requisite institutional systems and processes. This is probably best done with an open, collaborative approach — if we can pull it off. “Our need” means primarily for the government to act, and secondarily for all of us, given how we are set up. We — in all our spheres: private, corporate and governmental —have to do this ourselves, and stop hoping somebody else will do it for us.

No individual or single-domain point of view can do the job. Just as considerable national effort is directed at expanding India’s access to fossil fuels, there needs to be serious, coordinated effort by people with diverse skills and expertise to aggregate, analyse, present information on developments, and help make decisions in these alternative energy areas. We don’t need more government agencies, but we do need to configure a group to get the job done. The key is to aggregate the domain and process expertise — from existing ministries/departments, agencies and the private sector — focused on the purpose at hand.

shyamponappa@gmail.com

* http://www.coskata.com/

** www.technologyreview.com/microsites/spain/solar/

For EU (& MENA), see www.trecers.net/downloads/summary_en.pdf

Organizing Ourselves: Spectrum Auctions

Price Discovery & Spectrum Auctions

Shyam Ponappa / New Delhi January 3, 2008

Why spectrum auctions make no sense for a developing country.

Some eight years ago, a much delayed telecommunications renaissance began in India. This was ushered in by the policy changes in the New Telecom Policy of 1999 (or NTP 1999). Though botched by its confused goals — despite my involvement — it was redeemed by one path-breaking feature: the renunciation of the onerous licence fees resulting from the auctions of 1994. These auction fees were replaced by a policy of revenue-sharing between the government and private operators. The outcomes have been nothing short of revolutionary.

We need to remind ourselves that the preceding imbroglio was because of the Indian government’s price-discovery-by-auction approach to the development of this most effective (in terms of bang-for-the-buck) form of enabling infrastructure. The primary reason for “success”, defined as growth in the number of lines, was the government’s willingness to give up this venal approach and shift to revenue sharing.

Just as it did then, the government — the Telecom Regulatory Authority of India (Trai), the Department of Telecommunications, the Finance Ministry… — should be questioning the logic of indulging in price discovery through auctions for building enabling capacity in essential services, in this case, of wireless spectrum. If the government is not actively seeking to build enabling capacity in this form of infrastructure in the public interest, it needs to consider why not.

Not asking these fundamental questions results either from a lack of application of mind, or from the flawed thinking of misplaced orthodoxies. These can be of many sorts, such as of market fundamentalists, libertarians, and neo-liberals with the belief that “the market knows best”, that economic liberalism is best for promoting development, or that every interaction should be a market transaction in open, competitive markets. Or of the neo-cons, who take the approach that those who can afford whatever it is can have it. Or of those who believe that cabinet decisions once made are sacrosanct and should not be questioned. Or of those who think the Indian government should make as much money as governments in developed countries have made from the sale of spectrum and other assets. This latter argument is put forward not only by representatives of the government, but also by economists, e.g. V Ranganathan of the IIM, Bangalore, and his students Darshit Shah, et al.*

These articles and arguments ignore the essential purpose of the exercise, and divert attention from the central issue, i.e. Peter Drucker’s dictum: what is your objective? The purpose of distributing spectrum in India as for awarding franchises in infrastructure is to build enabling capacity in the public interest; it is not to collect maximum fees for the government.

This is because infrastructure is a fundamental determinant of productivity at India’s stage of development. Essential services such as telecommunications (and energy, transportation, water and sanitation … etc.) are a basic need for people to be productive and have a reasonable quality of life. These aspects of essential infrastructure provide the underpinnings of the cost structure of the economy. If these services are unavailable or available only at a high cost, several consequences follow. One relates to the cost structure of outputs, which determines competitiveness in domestic and external markets (remember the IT services revolution and how Indian companies got their first break in foreign markets). Another is access deprivation because many people find these services unaffordable. These aspects affect productivity and competitiveness as well as the quality of life.

So, if growth in fixed and mobile lines is not an appropriate measure of success for telecommunications services, what might be a better measure? What if the government focused on user needs, instead of collecting more money for allotting the right to provide telecommunications services, or considering other factors such as incumbency, technology assumptions, the bogey of the efficient use of scarce resources — the rationing and scarcity mentality of our past and present? We could perhaps develop an alternative scenario starting with desirable outcomes, and work backwards to specify the conditions and processes required to achieve these outcomes through a process flow chart or logic diagram. Let us assume this goal is ubiquitous, true broadband (at least 500 kbps) for as many as possible in India, accepting for the moment that this would provide a basis (provided the rest of the systems follow) for hitherto inconceivable opportunities for education/training, health care, public services delivery, commerce and enterprise, information and entertainment. The question is, what mix of policy norms and incentives could deliver this result?

With the caveats that this perfunctory exercise is merely indicative, limited to a conceptual level, and necessarily simplistic, consider how broadband might develop with attractive incentives for achieving this goal. The incentives could be of many kinds, and could include, for instance, additional spectrum for wireless networks, reduced duties and taxes, area franchises, public property usage rights at favourable rates, and reducing fees as a share of revenues. These incentives could be structured to increase with incremental achievement, e.g. higher tax breaks, larger spectrum allocation levels, and reduced revenue share.

In order to be practicable, there are several levels of detailed requirements. The first prerequisite is of basic political will, a concerted multi-partisan convergence to undertake such a complex task over a reasonable time frame of months and years — and not, as a stalwart in the government in the past once told me, something that needs no more than 10 days. Such an effort requires not only the setting aside of greed and opportunism, but also of incompetence. Perhaps this is an unachievable prior condition in India, and no such effort is possible; perhaps it is.

In reality, such an effort would need to be worked out by a diverse group comprising government and private sector participants, with knowledgeable facilitation capable of understanding the technology underlay, content domains for different product-market spaces with adequate segmentation, e.g. within education and training: primary and secondary schooling, undergraduate, postgraduate, specialised modules including technical training and all-round skills such as in presentation and succinct writing, project management, group dynamics, quality, etc. as well as domain expertise, whether in telecommunications and engineering or in finance, economics, biology, sociology, history, the arts...

shyamponappa@gmail.com

*“Auctioning spectrum best for the country,” BS December 7, 2007: http://business-standard.com/search/storypage_new.php?leftnm=4&leftindx=4&subLeft=1&autono=306694
“How to run a good auction”, BS October 12, 2007: http://business-standard.com/search/storypage_new.php?leftnm=4&leftindx=4&subLeft=1&autono=300958

Dirty coal, clean water?

Choosing Between Coal-Fired Power & Hydroelectric Power


Shyam Ponappa / New Delhi December 06, 2007


It's not so simple, and good decisions need informed analysis

The fracas over the 123 Agreement led to a very useful result: finally, information is being made available about what it would mean to be able to import nuclear supplies, the pros and cons of recent developments in nuclear power generation technology versus other fuels, and the benefits and costs associated with choices. What if this process of impasse-and-reluctant-communication — a grudging divulgence of information — were reversed? Imagine how it might be if expert information from various perspectives were aggregated and disseminated early on in a process, if the public and parliament were educated about the possibilities, choices, benefits and costs. We might actually achieve some rational decision-making.

Of course, this is not our way. Our way is either by political accommodation or by committee. Political accommodation is inappropriate for engineering and management decisions, e.g., for telecommunications, and can lead to outcomes like the regulatory confusion and low level of true broadband (at least 500 kbps), or the problems of electricity supply. Solutions that depend on science, engineering, economics, and/or management simply do not work if they are based on accommodation instead of rational analysis. Committees should be able to do the aggregation of information, analysis, and problem solving to arrive at informed conclusions. However, in our environment, they can take to obfuscation or delay, or worse, resort to decisions by accommodation.

It is time we adopted better reasoning as our way. Dealing with issues that affect our lives with more rationality and expertise, so that the facts surface, is subjected to expert inputs given the state of knowledge, and we can watch and contribute to having informed opinion give shape to decisions. Begin with information and facts made public, elicit expert opinion from various domains, then develop conclusions, thereby reducing the extent of uninformed emotional argumentation.

For instance, an estimate that surfaced about the supposedly low potential for nuclear power was that it was actually the same as for the much-touted hydroelectric potential: 6 per cent by 2032. There are still problems that are glossed over associated with coal and hydroelectric power:

Problems with coal: Rarely do coal enthusiasts mention the difficulty of exploiting dirty coal, from mining our high-ash reserves, to transporting coal by our stretched railway system, to the high level of emissions from plants using this fuel. The ravages of fly ash from coal plants, which in India apparently has higher levels of silicon dioxide, aluminum oxide, ferrous oxide, sulphur trioxide, and unburnt carbon, are completely overlooked in the reckoning, as is the water needed to clean up (e.g. the effects on the Yamuna for Delhi).
Problems With hydroelectric power: Likewise for hydroelectric potential. One need only recall the difficulties of getting such projects going, especially when they involve large dams such as the Sardar Sarovar or the Tehri Dam. Granted such issues are aggravated by the lack of equitable resettlement, on which we just have to do much better, perhaps on the lines shown by JSW Steel.

Such complex issues need strong government-sponsored initiatives with private participation for the requisite depth and breadth of expertise, and neutrality (multi-partisanship), with the all-important feature of Project Management oriented to well-defined goals, to achieve good results. As always, we need to prioritise for these essential infrastructure and governance issues that are at the heart of our inadequacies. Like communications, energy decisions for transport, heating and lighting are critical areas needing attention. This is primarily from our own need to correct our trajectory for better living, rather than for reasons relating to the Kyoto Protocol.

Action at the local level, whether it is water management for conserving rainwater and applications for gardens, or energy applications such as solar water heaters, cookers or lighting, requires a much more organised effort to be practised widely and have a significant beneficial impact. So do national initiatives on fuels for transport, including petrol, diesel, and biofuels. Areas like these need focused, intense efforts at information aggregation and expert analysis, followed by solution formulation and execution. Most important, there has to be the follow-up for effective dissemination, with implementation support on the ground.

Take the example of biodiesel. The knowledge available with TERI (teriin.org), the Planning Commission’s National Mission on Bio Diesel — whose role is overall coordination? — the Petroleum Conservation Research Association’s National Biofuel Centre (www.pcra-biofuels.org), the Agriculture Ministry’s National Oilseeds and Vegetable Oils Development Board (http://novod.nic.in), the Central Salt and Marine Chemicals Research Institute at Bhavnagar, and so on, as well as information on commercial initiatives such as D1 Oils of the UK with their wide-ranging efforts in India at extensive plantation and procurement of jatropha through ventures with Mohan Breweries (D1 Mohan Oils) for the south, Williamson Magor for the northeast, and PManek for Gujarat, could be pulled together and made accessible in one place. Further, the findings and conclusions could be used for systematic, country-wide implementation with institutional processes for support.

In the case of petrol, issues relating to ethanol need equally intense efforts at aggregation, expert analysis, and solution development. I was horrified to learn that a company was considering ethanol production from corn here in association with an American company. The inadvisability of corn-to-ethanol is well known even for the US, despite its extensive corn-growing practices.

An example of a glaring anomaly awaiting attention in the subset of transportation fuels is the policy for diesel and petrol. While lower prices for diesel for mass transport and freight make sense, with our atmospheric pollution levels, the current incentives for small diesel car production and use in India appear to defy logic. The Centre for Science and Environment has been campaigning against diesel cars for so long that some of us do not see or hear their plaint. Also, many of us have been lulled by the “clean diesel” story from Europe and whatever tradeoffs they have made. But this is not Europe, and given the state of our atmosphere, the black carbon emissions as well as the oxides of nitrogen from diesel with their effects on smog creation, and the perceivable improvement in atmospheric pollution in Delhi with CNG buses followed by reversals, there is a critical need for immediate, focused, unbiased government initiative, with comprehensive policies and follow-up action.

P-notes and regulatory shocks

Stunning the market: How not to regulate

Shyam Ponappa / New Delhi October 31, 2007

Better ways to change the rules, perhaps?

Cutting through the consternation and confusion after the regulatory shock on P-notes, let’s pick our way through the pieces.

Aims: The government’s/Sebi’s objectives are, presumably, to reduce capital inflows into the stock market and change their mix to curb liquidity pressures raising (a) asset prices, (b) the rupee value, and (c) prices in general (inflation), and to increase transparency to discourage speculative circular trading, whether for profits or for sinister purposes such as inducing instability. Let us examine if these objectives are desirable, and why or why not.

Votaries of open markets want free capital flows even into developing markets such as India. Leaving orthodoxy aside, consider the benefits and costs. International capital seeking high returns in India’s stock markets have the effect of raising the perceived value of shares overall. In other words, from a staid forward PE of around 15-18, the tide can rise so that buyers will pay PE multiples of 22-24 or more, because of an upbeat interpretation of fundamental factors that augur high growth. This can be beneficial or detrimental depending on who gets to capture the value.

The Invisible Hand In Emerging Markets: If offshore hedge funds capture all the business and take out all the profits, the primary gainers are the funds and their investors. Such funds are best placed to capitalise on a quick runup, with their ready capital for precisely such purposes, as well as their agility in evaluation and execution. The companies they buy into also gain directly for purposes such as acquisitions through stock swaps, and broader, cheaper access to capital.

Apart from this, there is the wealth effect for these enterprises, a sort of increased “gravitational pull” of a well-regarded enterprise seeking opportunities and attracting resources (people as well as capital).

The losers are Indian investors, both institutional and retail, who could have otherwise captured the gains, as well as local service providers who would be involved in the execution. With local involvement, there are additional benefits from taxes collected from end to end, and the multiplier effect from the local increase in income and wealth.

However, it is likely that without offshore capital, the higher-order multiples would not be realised, because the same set of cash flows can elicit differing perceptions of value. In times of secular prosperity, the potential for high growth over a long period justifies the higher valuations, whereas difficult circumstances can circumscribe and constrain valuations and behaviour for the same data.

Positive outcomes are more likely if corporate profits continue to grow, local interest rates moderate, and more domestic funds and pension funds move into equities, as also more retail investment. These issues are left to market forces in OECD countries characterised by well-developed, liquid markets with a variety of instruments and intermediaries. In India, where a minuscule percentage of people’s money is in equity, few companies have liquid shares, and markets are not well formed with limited investment products and services broadly available, we are at a more formative stage of market evolution. In such circumstances, investment access for the public is closer to a public good, part of the financial infrastructure at the next level beyond basic infrastructure. Therefore, government and regulatory activism in facilitating investment is necessary in the public interest. Those who yearn for America’s markets should be aware of the years of strong intervention it took to develop them.*

Consequences of the government’s/Sebi’s actions(i) Capturing Value Locally: The shock announcement may reduce FII flows in the next few months; the question is by how much. If inflows were to be reduced by half and skewed towards a longer term, it would probably be a sufficient fillip to prices, while allowing room for local investors to enter and capture the value of the ride up the curve. If this were to happen, it would be very desirable for the public interest in India; otherwise, most of the benefit would go to offshore investors. If the reduction and change in the composition of inflows is insignificant, the government/regulator need to design other appropriate intervention; and if investments drop by too much, ameliorative measures with more time for adjustment would be advisable.

Why should the government or the regulator care whether or not the Indian public derives significant benefits? First, the public interest is the responsibility of the government and the regulator. Second, there are the local benefits and multiplier effects referred to earlier. These are akin to the revenue sharing gains in telecommunications, whereas FIIs booking profits spirit the gains away, yielding fewer local benefits.

(ii) Roiling the Markets: Now to the way changes are initiated. It is presumably the government’s and the regulator’s aim to maintain stable markets while effecting desirable changes. To the extent that markets have been unnecessarily roiled, there are clearly better ways of initiating change. The key is the government’s/regulator’s stance. To the extent the attitude is supportive and understanding towards market players, there are likely to be less ructions than if it is adversarial, as it appears now. Even if P-notes are to be phased out completely, there are better ways of doing it than a sudden announcement with the threat of limited time for discussion and implementation.

(iii) A Better Way?: For stability, a constructive attitude of open communication, problem definition, and resolution is most important. This is not to say that positions considered harmful to the public interest must be accommodated, or that India has an obligation to support FIIs running offshore trades (my view is that it is not in India’s interests to have extensive hedge fund participation in its markets). However, the process of arriving at conclusions after eliciting views from the players, and then communicating and implementing decisions in a manner that is least disruptive, is very important. Exploratory consultations in direct discussions and through the Internet are not that difficult to devise and implement. Also, if changes are conceived and executed in an end-to-end, systematic, integrated and phased manner, there are likely to be better outcomes than patchy interventions. Otherwise, the opacity and apparent capriciousness of our regulatory environment will constrain our ability to grow and prosper at a pace and to a level that exploits our potential fully.

* Rendezvous With Destiny; A History of Modern American Reform, Eric F Goldman, Alfred A. Knopf, 1952

Organizing Ourselves

Shyam Ponappa / New Delhi October 04, 2007


Shyam Ponappa gives instances and inspiring possibilities of institution building.

Some time ago, a perceptive ‘re-reading’ of the Babur Nama by Sunil Sethi in these pages highlighted the similarity of India’s problems and needs in the 16th century and now: essentially, the lack of purposive organisation and infrastructure.* Having failed for five centuries barring exceptions, should we then give up on organising ourselves? Or can we possibly make the effort to learn from those of our institutions and others that work as purposive systems - achievement-oriented organisations — to try to effect a transformation, to define a pragmatic way forward? Collaboration in the common interest instead of following our penchant for argumentation, and indulging in a million mutinies. Especially for self-aggrandisement in the ultra short run (because in the long run, it is in everyone’s interests to co-operate).

Some of our institutions that work, by and large:

The defence services: the Navy, Air Force, and Army.
Companies serving external markets: our IT stars were early champions, now under a cloud until they reinvent themselves. Broadly, knowledge-based companies, and some engineering and textile companies.
The Delhi Metro, Konkan Railways, some aspects of Indian Railways.
Some areas of government.
Some groups of professionals.

While there are very many excellent individuals, alas, few are part of any organised system.

The challenge: It is really up to us whether to go on in this chaotic, neo-feudal way with the specious excuse of being the largest democracy, or to buckle down to organising and functioning in our collective better interests.

The greatest impediment is our unwillingness to act in concert while carrying the baggage of sectarian inclinations, a sort of tribalism focused on the special interests of factions, the lesser loyalties of region, caste, clan, family. Our needs are exactly the opposite: aggregation of information, allowing cross-discipline analysis for problem definition — informed, correct diagnosis — and the synthesis of solutions that are workable, that can be and are executed on the ground, i.e. the organisation and prioritised management of initiatives — prime areas for nonpartisan, multidisciplinary thinking and action. The questions are whether and how issues of common interest can elicit coherent behaviour.

Opportunities for convergent action?: Are there compelling purposes that could help us break out of this rut? Persuade us to act more responsibly, be less mindful only of our rights while being oblivious of our coequal obligations.

Could the purpose of deploying India’s currency reserves profitably for everyone’s benefit enthuse us — especially our politicians — to start thinking and acting collaboratively? The incentive could be Rs 90,000 crore a year from $150 billion invested.

Or of organising waste collection and disposal, so we can live in better surroundings some years down? From waste collection through effective, humane systems, including organising and paying rag pickers, to managing sustainable disposal, removing this great blight.

These are the issues that deserve nonpartisan attention, where a sense of our obligations would help. Such issues need breakthroughs of nonpartisan, convergent action in the common interest, with “right knowledge” (expert inputs), not merely negotiation and/or accommodation of public opinion. Everything is not best left to public opinion. We need to distinguish between issues for public debate, and those that need resolution with expertise or competence. This is impossible without abjuring sectarian interests and populism. If we go with public opinion, we will opt for “free” power and water, and stay mired in shortages and with dreadful sanitation … Few major projects — hydroelectric projects, nuclear plants, or dredging projects — will come about.

Given the realities of the evolution of Indian politics, ultimately, these initiatives probably need to be structured to tie into a fair election funding process. Either that, or the tax and PDS systems must become good enough to channel excess receipts into a decent election funding system, which will need to be developed. Without such incentives and processes, it is unlikely that our predatory politics and heedless public behaviour will change, or that we can break out of our established interest groups.

The risks of business-as-usual: Many seem to expect that because India is in the early stages of its political and economic development, things will improve with education and prosperity. For these sanguine business-as-usual-ists, there are two cautionary images. One is the highly evolved democratic processes mired in a hardliners’ deadlock, the predicament of America. The second is the unresolved, divergent paths taken by the French-speaking Walloons and the Flemish in Belgium. These educated, prosperous people have stayed apart, and not been able to get beyond their uncooperative mindsets to function as a nation.

Lessons abound: There is also much to learn from other countries if we care to, although we tend to dismiss others’ experiences as irrelevant. Small nations especially, like Belgium, Dubai or Singapore, are often viewed simplistically. It is in our interest, however, to look to wherever we need to for our purposes. Take Singapore: a closer look reveals the complexity it has had to overcome and the distance it has travelled to achieve its position. Set adrift in 1965 with a hodge podge of migrants from southern China, southern India, Pakistan, Sri Lanka, and the archipelago, it had no homogeneous population, common language or culture. But it had plenty of examples of troubled and failing states as warnings. As venerable Singaporean leader Lee Kwan Yew puts it, “… we knew what to avoid — racial conflict, linguistic strife, religious conflict. We saw Ceylon …” Singapore’s secret is its practice of an unsentimental pragmatism that is “ideology free”.**

Many in India dismiss Singapore as a model because of its scale. But scale hasn’t stopped China from taking lessons. China’s officials have been interacting regularly and systematically with Singaporean counterparts, as they have with other countries such as Belgium and the Netherlands. Chinese ministers have meetings twice a year with Singaporean ministers to learn from them; every three months, fifty mayors of Chinese cities visit for courses in city management. Likewise, China is learning waste management from Flanders, as are Russia and Britain.

Our institutions must, of course, be tailored to our context. As a UN University report notes, successful institutional changes typically emerge as a mixture of country-specific innovation and chance developments, as well as deliberate learning.*** All we need do is select pivotal issues to galvanize nonpartisan thinking and collective action.

* “On re-reading Babur Nama in 2007”, BS August 11, 2007: http://www.business-standard.com/search/storypage_new.php?leftnm=4&leftindx=4&subLeft=1&autono=294099 ** “Lee Kuan Yew, founder of Singapore, changing with times”, Seth Mydans & Wayne Arnold, International Herald Tribune: www.iht.com/articles/2007/08/29/asia/lee.php *** “Stranger than Fiction? Understanding Institutional Changes and Economic Development”, Ha-Joon Chang, UN University Policy Brief No. 6, 2007: http://www.wider.unu.edu/publications/policy-brief/pb06-07.pdf
shyamponappa@gmail.com

Competitiveness & Citizenship: Attitudes to Organisation, Systems & Processes

Thursday,May 03,2007 Section Home News Features Daily Stockwatch Market Technicals Market Trends Stock Performance Company Financials Research & Analysis Mutual Funds Personal Finance Commodities Money & Forex Shyam Ponappa: We need to rework our attitudes

Shyam Ponappa / New Delhi April 05, 2007

Citizenship in democratic societies entails significant effort beyond exercising voting rights.

This is the fourth article on ways to build India’s competitiveness to achieve a broad spread of prosperity, through rapidly increasing per capita GDP. So far, I have described three areas of radical change:*

First, the government’s reorientation from Ruler to Facilitator/Partner. This means evolving beyond our feudal and colonial antecedents, to democratic governance.

Second, the Left’s renunciation of hardline ideology and adversarial class conflict for participative action, by evolving a social democratic platform that is in the public interest.

Third, shedding absolutist market philosophies—capitalist, libertarian, or championing of the state—to focus on pragmatic, collaborative aims in the common interest, and strategies to achieve them.

Personal attitudes to organisation, systems & processes

A prerequisite for all of the above is a change in our personal attitudes. In effect, our attitudes have to evolve from the feudal to the democratic, without our having gone through and incurred the costs—or the benefits—of a revolution. This is because, despite our cultural and civilisational heritage, our capacity for personal excellence, our compassion, we are so inured to rubbish and misery. Perhaps the explanation is our unthinking tolerance and perpetuation of our feudal and colonial legacy systems. What else can explain these strengths and indisputable competences, our neat and clean turnout, contrasted with our utter indifference to garbage and filth in our streets, our cavalier handling of waste, our tolerance of squalor beyond our doors, our perpetuation of poverty, our chaotic traffic, our stray animals?

This tolerance perhaps explains our behaviour between ourselves, contrasted with how Indians function in well-organised societies abroad. Or how we behave with clients in or from those societies, whether for services or for products.

Organisation & training

Our history has compelling examples of the power of organisation. In 1746, 930 men charged across the Adyar River and routed an army of 10,000 at the Battle of Santhome (or St. Thomé) near Madras.** From then on, foreigners realised that the armies of Indian rulers were disorganised and ineffective. However, 700 of those 930 men were Indian while the rest and their leader were French. Much earlier, in 326 BC, Alexander’s superbly trained army defeated the vast armies of Porus (Puru, Purushottama, Parvata, Parvataka, Parvatesha …?), and in 1526, Babar’s 12,000 prevailed against Ibrahim Lodi’s legions.

Some Indian rulers did have well-organised armies, e.g. Chandragupta Maurya against Seleucas, who as satrap of Babylon after Alexander, attempted to invade Chandragupta’s territory in 305 BC; Shivaji’s Marathas, and a century later, Mahadji Shinde’s defeat of the British at Wadgaon in 1779. And only a few years after Santhome, the Indian troops of the East India Company—dismissed as a “rabble of peons”—were transformed by the likes of Robert Clive into a winning army. Philip Mason, Secretary of the Chiefs of Staff Committee during WW II, attributes this transformation in his account of the Indian Army to “hard work and organization, on which gallant leadership had set the seal”.*** He also notes that “many Eighteenth century writers thought the Indian soldier in horsemanship and skill at arms was the superior, and in personal courage, the equal, of the British”. What was lacking? Organisation and orchestration, discipline and systematic processes.

Thankfully, our armed forces have retained their organisation, systems and processes; so have craftsmen with a tradition of apprenticeship. Some sectors with external markets have learned it, such as IT and IT-enabled (BPO) services, some pharmaceutical and healthcare companies, and manufacturers like Sundaram Fasteners, Bharat Forge, or TVS, TI, and the like. But these are exceptions; most of us seem never to have learned or experienced systematic organisation, purpose, and quality processes.

Citizenship in democratic societies entails significant effort beyond exercising voting rights. You get the neat and smooth operation of developed countries because (a) they have been carefully designed and built that way, with systems that include training, incentives and penalties, and (b) everyone works to keep it that way, mindful of the rights of others. If we want those benefits, we must make the effort to build—and maintain—systems and processes with quality standards, incentives and penalties. Quality is not something for an elite few; it can be inclusive, based on norms that everyone adheres to.

To effect such a transformation, we must rework our attitudes in these areas:

Democratic rights and responsibilities: the starting point. Societies, towns and communities reflect the aggregate contribution of their constituents in design and operation. The more we contribute, the more attractive our communities and cities are likely to be. The difficulty is that good outcomes need the participation of most constituents, i.e. no free-riders, whereas we are largely free-riders. We do have successes, such as the Gujarat Milk Producers Cooperative (Amul), or citizens’ initiatives to save trees when roads are widened. The negatives include the lack of training in citizens’ responsibilities in schools and by way of continuing education, lack of institutional support, of collaborative training in our curricula, the poor record of our co-operatives, and especially, the predatory behaviour of our polity that allows our exploitation through divisive strategies, whether by bigotry or appeasement.

Organisation and management, including processes and quality standards, both personal and professional: Whatever the quality of people, aggregates in quality and magnitude are a function of organisation, process, standards, and rigorous management. None of those beautiful cities in Europe would exist without these. So if we want them, we have to work for them!

Greed: All of us, whether in politics, administration, in public or private corporations, or as individuals, have to resist greed and instant gratification to pursue what is more beneficial in our common interest. We have to avoid partisan politics that exploits bigotry, caste, and reservations in the tradeoff between short-term predatory behaviour versus longer-term, multi-partisan, more sustainable and socially rewarding outcomes. This may appear simplistic, but some simple things have to be done right.

As outlined in these four articles, a combination of critical institutional support from the government, a constructive social democratic platform by the Left, pragmatic approaches to markets, and strong personal commitment by individuals, could work together to develop the sustained competitiveness that India needs to achieve prosperity.

* Archived at http://shyamponappa.blogspot.com/ ** The Indian Mutiny of 1857, Col. G B Malleson: http://www.ibiblio.org/hyperwar/WH/XIX/India-1857/Sepoy-1.html *** A Matter of Honour, Philip Mason

Bridging the Market-State Divide

Sunday,Mar 04,2007



Shyam Ponappa: Give up state vs mkt dogma
New Delhi March 4, 2007

We are now reeling from the inevitable corrections in a developing market driven by runaway sentiment, hampered by infrastructure and supply constraints, fuelled and spooked by global sentiment — including China’s and the world’s alarming slump just before Budget 2007. A good time to take stock of the fundamental underpinnings for our encouraging prospects, such as they are.

This is the third of four articles on what India needs beyond its tipping point, assuming that is where we are (see Beyond India’s Tipping Point, BS December 7, 2006). To recap, these articles are premised on the critical importance of economic competitiveness to increasing per capita GDP, bringing a modicum of prosperity to all, through improved productivity with radical changes in the four following areas to achieve an appropriate level of competition in the public interest:

First, the government to change from ruler to partner and facilitator, as a stakeholder in the public interest, away from the exploitative, adversarial stance inherited from colonial and feudal legacies (in the article cited above).

Second, the role of the Left to evolve towards a more inclusive Social Democracy, away from conflict and confrontation based on outmoded ideologies.^*

Third, the subject of this article: bridging the divide in market philosophy between the privateers and the champions of state control. Difficult, yet necessary to get away from the Hobbesian 'nasty and brutish' of non-regulation, even though all other roads have so far led to the inadequacies we continue to face.

The fourth will address the need to change our personal and social attitudes, the slippery slope of individual commitment and action, a variant on WYSIWYG: What You Give Is What You Get, in a recursive, endless loop.

These four areas of volition are endogenous factors; the catch: the proviso that government sees itself as a stakeholder and stops being an exploiter. All four are driven by an underlying principle of game theory: acting competitively in one’s self-interest in non-zero-sum games, assuming that counterparts will act competitively in their self-interest, results in suboptimal results. Such ‘maximin’ outcomes can always be improved upon by collaboration. The exceptions are where the situational constraints, that is, logic and structure, not psychological limitations, preclude better collaborative outcomes, because the structure of the situations are zero-sum, leading to win-lose results. For instance, if you and I negotiate, what you gain is necessarily what I lose, and vice versa. For more on this, see The Game Plan at http://hamada-diagram.blogspot.com.

Another premise is that only organised, collaborative, systematic, well-planned efforts can make for a sustained, broad improvement in living conditions all around. Finance Minister Chidambaram’s response after the Budget speech to his NDTV interlocutors, that he must cater to a broader constituency than only the media’s concern with big business, is unexceptionable. However, allocating funds to populist causes is like throwing good money after bad if the delivery quality is not ensured.

Escaping From Ideologies
The changes essentially call for eschewing ideologies and dogma in favour of collaborative professionalism, that is, informed, open decisions based on expertise. Some of the significant barriers are outlined below.

# An enduring and powerful myth of international economics, business, and policy is that of free markets and free trade. Many in India seem to subscribe to these notions, ignoring the enormous gulf between the developed markets that tout these myths and ours, which render such comparisons meaningless. Much of the reason for this may be that free trade is America’s ideology if not its reality, with all that this implies in terms of dominance in press, media, and power. It was Milton Friedman, however, who said that a free market “exists nowhere in the world... almost everywhere what you have, at best, is a partly free, largely hampered, private market.”
# Then, there are the repeated invocations of Adam Smith’s Invisible Hand. Little attention is paid to his castigation of what rampant capitalism in the form of the East India Company was doing to India. A clear and incisive book by Nick Robins, The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational, seems to have received scant attention in the Indian press, although it has done much better abroad. One reason may have been the timing of its release in India, which coincided with the launch of William Dalrymple’s The Last Mughal. Robins’ critique of the East India Company was simply obliterated. One wonders, though, whether it might also be that self-selection here, as in America, leads to less attention to those things that do not conform to the prevailing dominant theme, namely, privatisation and free markets.
# Third, there is the oft-made argument by purists for monetary policy to contain inflation, regardless of the known supply constraints: initially oil, then wheat, vegetables and pulses. On the opposite (statist) side, there is the related irony of administered prices: if oil prices rose to $80 a barrel, there would be no fiscal deficit (see Oil price of $80/barrel can erase fiscal deficit, BS, February 20, 2007)! Obviously, we need a systematic, structured, institutional approach to these supply problems as much as to the Administered Price Mechanism for petroleum products.
# Fourth, harping on privatisation instead of autonomy, that is, reducing government control and interference. Clearly, government control and interference are massive costs. For examples of what to avoid, see How to kill a PSU, BS, February 27, 2007, for the cases of ONGC and BSNL. But if changes can be made to introduce autonomy, that is where to focus.

Collaborate To Win
Let us recognise at the outset that every nation uses its policies to pursue its national interest, regardless of speeches at international conferences. Let us also recognise that we can do this far better if we approach it systematically, and collaboratively. There is a price to be paid: statists and privateers have to learn to play team, something we seem to do only when other people make the rules, e.g., functioning in corporate environments abroad, or targeting foreign markets, as with the major IT companies like Infosys, Wipro, or TCS, or Sundaram Fasteners in automotive products.

The price includes giving up our penchant for claiming omniscience on whatever side we are. Team play means accepting that there are limits to one’s knowledge, and respect for the knowledge of others, even when such expertise is in areas we do not comprehend fully.

Most important, all players have to recognise that organisation and systems are necessary for long term planning and execution, and put these in place. Otherwise, we cannot have cities that are clean and beautiful, or a clean, beautiful and prosperous countryside. No amount of individual excellence and accomplishment can substitute for the achievement of organised collective action.

* Opportunities for the Left, BS, Feb 1, 2007:
http://praxis-regs.blogspot.com

shyamponappa@gmail.com

Regulatory Constraints: A Reform Agenda

Regulatory constraints on productivity and per capita GDP growth - India

Ways Out


Opportunities for the Left

Shyam Ponappa / New Delhi February 01, 2007



Could Social Democracy work in India?


Regulatory constraints
In my previous column, I mentioned a McKinsey report about how fixing India's regulations could improve productivity by 61 per cent. The figure shows their estimate of how much poor regulation constrains productivity.




Source: http://www.mckinseyquarterly.com/article_abstract.aspx?ar=1612

Despite its record, the Left in India today has unprecedented scope for influencing constructive change, while substantially enlarging its constituency. The Left's reorientation away from adversarial class war was the second of four change areas identified in my previous article, the government's need to change from ruler to facilitator being the first. In West Bengal, the Left has already initiated some difficult constructive steps to revive economic growth. CPI (M) General Secretary Prakash Karat reportedly says that their challenge is to achieve economic development in a manner that benefits the people.

Their potential for positive influence far exceeds the ambit of the states where the Left has a majority. However, to realise this, the Left will probably have to realign itself to develop a kind of social democracy in India.

This scope for influencing policy has come about because fractious politics ensures that we will have extensive coalitions in power, with the Left having a significant role for better or worse, whether as participants, supporters, or in the opposition. While the Left can obstruct, disrupt, or hold back through confrontation as in the past, its capacity to influence actions in the broad public interest is now unprecedented, provided there is a conscious evolution towards a broad, inclusive social democracy. This is because other parties -- the Congress, the JD, and the BJP -- have failed in developing appropriate systems and institutions that deliver the governance people could expect, i.e. in addition to law and order, the enabling and facilitating infrastructure that people need to be productive and have a reasonable quality of life. While necessary, the Left's realignment is not sufficient, as other stakeholders -- individuals as owners, workers/managers/professionals, politicians, and all members of society -- have to collaborate actively for a good composite outcome. Therefore, developments modelled on the balanced achievements of well-functioning social democracies, e.g., in Scandinavian countries or the Netherlands, are likely to appeal not only to the Left's traditional constituents, but also to a broad set of liberals. Many in India are beginning to show a willingness to make efforts to improve their society and living conditions, rather than tolerate the filth and shoddiness that go with the inequities and disparities we have had so far. We need to develop this path that we don't yet have.

To realise its potential, the Left has to engage with society for inclusive constructive change. As in West Bengal, this means turning away from its historical role of advocating class conflict. Instead, the Left can help to evolve a form of social democracy that makes sense for India.

The areas that need radical change and require multipartisan efforts to engage in developing workable solutions for India's varying local circumstances are:

a) Works councils that are inclusive and collaborative as in the Netherlands, in place of confrontational unionism. Game theory posits that a collaborative outcome will always improve on a competitive approach, which results in the minimal Nash equilibrium (see "Tata's Corus Buy", Business Standard, November 3, 2006). The rationale is the same as for corporate alliances, e.g., Tata and Corus.

b) A more equitable solution to the acquisition of land for development. The Left could champion an approach based on the analogy of equity stakes in urban land development, e.g., tenants getting apartments on conversion to highrises. Similar principles can be applied to rural land acquisition, although the details of what is paid up-front as against continuing equity in the development will need some financial engineering. There is also a distinct need to ensure that compensation policies are effectively implemented.

c) A concerted long-term effort addressing the policy framework for enabling infrastructure. This needs a systematic makeover in every major aspect addressed, e.g. energy, communications, transportation, basic health including water and sanitation, and basic education. For each of these, the entire gamut needs to be made over, comprising an integrated system of policy aims with requisite laws, rules, procedures, practices, and institutions for execution and maintenance.

d) Getting It Right: We have to be honest with ourselves, rather than indulge in overeager self-congratulation (e.g., see Sunil Jain:* "...a host of regulatory decisions that have been one-sided, in areas like telecom especially"). If you wonder that the rhetoric of several rounds of liberalisation resulted in such messy outcomes, it helps to scrutinise each step in the whole chain relating to a sector in each round to identify the flaws. It is good to see a glass as half-full, but not if we shortchange ourselves in setting up poor systems. These systems are like structures: build on political accommodation coupled with incompetence instead of economic logic, and the edifice collapses or is dysfunctional (imagine a massive physical edifice built on political compromise instead of engineering principles).

Quality of life
If you are impressed with the telecommunications revolution in India, consider how much more effective countrywide broadband services would be for delivering everything from education to health care and entertainment, as well as marshalling productive capacities across our vast distances, to know what we are missing with our hodge-podge approach -- bad connections, slow speed, intermittent failure, even in Delhi. The policy and regulatory framework needs to be built with system integrity to be effective. This can greatly improve the ability of vast numbers of our people to access learning and health care, interact with each other, function productively, and contribute in manifold ways to efficiency and convenience, important aspects of the quality of life.



No political party or government has acted systematically to correct these shortcomings, neither in telecommunications, nor in any other sector -- except possibly the new Automotive Mission Plan 2006-16. The ultra mega power projects are one-off's for power; they do not address the absence of a systemic solution.

Could the Left channel its organisation and energies to provide this lead while seeking multipartisan inputs to raise our quality of life?


* 'Why have regulators'�
BS January 22, 2007.


shyamponappa@gmail.com

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Beyond India's Tipping Point

Business Standard

New Delhi December 07, 2006


Shyam Ponappa discusses what it will take to improve productivity.

It is increasingly evident that India is at a tipping point. A qualitative change is beginning to show in a broad swathe of services, products, and mindsets, although it is equally clear that for most activities, this inflection is at an early stage. There are a host of reasons for this, and by definition, it is this convergence of many factors that makes for a tipping point.* Consider the features that make for a good neighborhood or city, and it is obvious that regional and national transitions happen for complex reasons. They encompass the interrelated factors comprising people in their various dimensions, such as their nature, skills, productivity, organization, systems, demographics, their physical and material environment including their natural environs, proximity and linkages, enabling infrastructure, movements of capital and people elsewhere in the world in every connected sector and location, technological and economic developments, the condition of their emigrants to other societies, and much else.

Understanding the variables in the tipping point is important for shaping the future, however, even if it is difficult to deconstruct the elements. And one factor clearly at work in India’s present transition is its improving economic competitiveness. According to the McKinsey Global Institute’s former director and founder, William W. Lewis, competitiveness is the single, most important factor in increasing per capita GDP, the most critical need in India, at least up to a point.

Lewis’s book, ‘The Power of Productivity’,** is based on MGI’s study of industry sectors in 13 countries over 12 years to identify each sector’s pattern of productivity, i.e., the ratio of the value of goods and services consumed to the amount of time worked and capital used to produce these goods and services. Sectoral competition is most influential in determining productivity (which is certainly borne out by the rise of India’s IT and BPO sectors), and national productivity closely tracks per capita GDP adjusted for purchasing power parity (see figure below). Lewis concludes that large sectors like retail, wholesale, and construction have the greatest effect on GDP, and to improve per capita GDP, countries must increase their productivity in all sectors primarily through intense, fair competition in consumers’ interests.

http://www.mckinseyquarterly.com/article_abstract_visitor.aspx?ar=1423

A surprise, however, is his dismissal of the role of infrastructure in productivity. This is difficult to accept given what one sees in India, China and elsewhere, as well as our experiences of working in enabled environments.

The MGI maintains that poor regulation is the main factor limiting productivity by distorting competition. To quote from 'Regulation that's good for competition', by Scott C. Beardsley and Diana Farrell, on which there will be more in my next article, ‘India… could raise its labor productivity by 61 percentage points if it removed harmful rules.’

Changes Required

Among the choices that will significantly affect India’s competitiveness for a long time through factors it can control, the endogenous factors, are four areas where enlightened choices will help India become much more competitive:

- The first is the domineering, adversarial stance inherited from colonial and prior feudal legacies of our government towards our people.

- Second, the involvement of the Left in mainstream government and its effects on the social, political, economic, and cultural aspects of our lives.

- Third, partisan politics that exploit bigotry, caste, the effects of reservations through misrepresentation, whether of statistics, situations/examples from India or other countries, or any other mala fide distortions.

- Fourth, the Great Divide between the champions of free markets and of state participation.

In our collective interests, changes in all four require collaborative solutions with one aim: an appropriate level of competition in the overall public interest. With these changes, India can then plan properly for, and achieve, good regulation. Now to the specifics.

The four fundamental change areas therefore concern:

a) Government’s attitudes: from ruler to facilitator partner.

b) The Left: from hard-line ideology pushing adversarial class conflict to participative action for the greatest good.

c) Social/Personal attitudes: from predatory exploitation for short-term gains to enlightened, long-term societal enrichment. This applies equally to all individuals as consumers or producers, whether in politics, administration, in public or private corporations, or as individuals per se.

d) Market Philosophy: from the Great Divide (privateers, capitalists, freebooters, and libertarians, versus state participation) to collaborative aims and actions.

A conscious effort with this mindset could then result in good regulation with high productivity.

The changes in the role of the government are outlined below. Subsequent articles will address the other areas: changing mindsets from confrontational unionism to collaborative works councils; from short-term selfish gains to longer term societal benefits through a pragmatic coalition of interests crossing political and ideological lines; from dogmatic capitalism, libertarianism or socialism to pragmatic collaborative action for the greatest gains.

Government: From Ruler to Facilitator & Partner

If our government understands and acts to orchestrate a beneficial level of fair competition, we will get the most benefit from available capital and labor.

Together with the instruments of colonial exploitation inimical to our interests, our government also inherited the domineering mindset, although in a more patronizing role, instead of being a lead facilitator and partner in the public interest. As a consequence, barring law and order, our governments’ focus has by and large simply not been on those issues we would expect as a priority from our current understanding of improving per capita GDP: systems that provide enabling infrastructure – energy, communications, transportation, basic health (including water and sanitation), education services and shelter, with good regulation to foster an appropriate level of competition. The daily newspaper ads for power backup systems and water purifiers indicate the failure of government in providing these essential services. The bitter zoning conflicts in our cities reflect a similar failure. For instance, the Delhi Development Authority has only built a fraction of the planned commercial space over the last 45 years (16% according to the DDA itself).

This situation must change for us to have the government we need. India does not need feudatories preying on their own people, but a government that engages with its people to plan and create a framework for productive activity. Without this, it will be difficult if not impossible to rapidly increase overall prosperity (per capita GDP).

shyamponappa@gmail.com

* http://en.wikipedia.org/wiki/Tipping_Point; http://en.wikipedia.org/wiki/Mark_Granovetter

http://en.wikipedia.org/wiki/The_Tipping_Point [Malcolm Gladwell]

** The University of Chicago Press, 2004