Here’s an earlier IEB post on Wadhwa’s research — Don’t Try Kicking Sand In America’s Face.

On another note, Sunita Narain’s at it again — after colas, now it’s edible oils. (HT: Amit Varma, via email)

Here lies the crux of the matter. If use of new seeds, fertiliser use, irrigated land, cropping intensity, and private capital stock growth are not rising fast enough, then where is this credit going? To put it another way, what is the Indian farmer doing with the extra credit if he is not using it in seeds, fertiliser, water, capital or land? [IE]

In the short run: Spin-off Benefits

A space program generally involves the development of cutting edge technologies. Even if something has been done before, and particularly if it has been done before, it can be done in a more efficient manner. Till 2005 ISRO had received 150 patents (not all international) and equally importantly had transferred 268 technologies to industry. In an age where we cannot compete with China on producing new PhDs and fall woefully short of the developed countries, it makes sense to invest good money on a space program if it can generate technologies which Indian industry can commercialize. In a way this would optimize meager resources.
Eventually patent royalties can help finance the space agency, but that is besides the point. Focusing on a space program using nationalist jingoism and defense hawkishness to drum up support can actually help stimulate industry with hi-tech inputs, besides acting as an incubator for world-class research capabilities. This would actually enable us to “splurge” on space research. Of course the aim should be to reach the standards of the best in the world, and aggressively seek to commercialize spin-off effects and rake in the royalties to make the research self-sustaining, eventually.

In the medium run: Strategic Advantage

India’s current space ambitions are something we would not have realistically thought likely even 10 years ago. The Space Recovery Experiment was a fantastic achievement. If the Chandrayaan mission is successful we will have high quality remote sensing maps of the moon, and also will have landed a craft on the moon. Over the next 2 decades, we aim to send a human into space, and eventually to the moon. Maybe even have a manned space station.

If our ambitions are remarkable then they are so by our own standards. In the United States, which is the leading space faring nation right now, these achievements have become so mundane that private industry is aiming to commercialize them. While Virgin will take customers to space, Bigelow Industries already has a prototype (unmanned but with living organisms) space station in orbit. Google is sponsoring a competition for organizations to land a spacecraft on the moon, with little or no government assistance.

That takes a lot of the glory out of the achievements but it does raise another important point: commercial exploitation of space technologies is becoming the newest frontier for business and the sky is literally the limit here. We do not know at this stage how big this business is going to be in the near term, so there is no urgency for India Inc to jump in immediately. But as ISRO builds these technologies for the future, it should ensure our domestic economic are not denied an edge that could be crucial.

In the long run: Necessity

Predicting future trends beyond a few years is always wrought with danger. Based on current trends there are two resources for which human civilization should eventually have to look to space for: solar power and mineral resources.

The sun is a huge nuclear fusion reaction and economically capturing power from the sun is the holy grail of the energy industry. When the technology is feasible, space-based solar power would be a resource that will beat any form of solar power generation on earth.

Big as the current energy crisis on earth is, in the longer run a bigger problem concerns our pursuit of mineral resources. As urbanization grows our cities are getting bigger and bigger – as are our buildings. A logical extension of this growth would be the eventual construction of the giant structures propagated in arcology. Currently designs exist for buildings that can house upto a million residents, and such buildings will become cities by themselves.

An era of such mega structures is imminent, and in view of our dwindling mineral resources and growing environmental concerns we are likely to look to space to meet our requirements. A time when mineral resources from the moon or the asteroids is comparable in cost to those from earth is very far. But when that time arrives the space faring nations will beat a huge advantage – especially if extra-terrestrial matter is going to get “colonized” by us humans.

Conclusion

A space program even while catering largely to defense and political needs, presents a big opportunity to give the economy a competitive edge in the short, medium and long run. Even though this mutual benefit is not a foregone conclusion the upside potential certainly exists and only remains to be adequately exploited.

Neither the commercial viability, nor the putative military strategic benefits, were adequately scrutinised.

The commercial case for the project rests on the time and cost saved due to a shorter route. The time saving will be most significant for India’s domestic littoral trade. If ports on either coast improve their efficiency, bulk cargo and container ships may be able to provide an attractive alternative for domestic freight that currently depends on India’s inefficient railways and abominable highways. As for international trade, Indian ports have a long way to go before the canal route can be compelling enough for global shipping for global shipping companies to consider.

Jacob John points out in a recent issue of the Economic and Political Weekly, project benefits are being overstated. “The promises of the project may be valid for some ships,” he concludes, ”but there has been a serious deficiency in studying its impact for other ships. This deficiency is likely to make the project economically unviable and more expensive for some ships to use. It is a project that is also likely to cost considerably more than what was originally proposed due to a lack of study on the amount of dredging needed. Given the likely escalation of costs and its extremely limited benefit, there is a need for mechanisms that ensure accountability of the project to its original claims”.

The trend in the shipping industry is towards larger ships. The canal, however, will allow only the smaller ships (those less than 20,000 DWT) to pass through. Even these have to slow down to be piloted across the canal.

It is inexcusable for the government to sink public funds into a project of questionable viability without a study of alternative means to achieve the same objectives. For instance, investing in improving highways and domestic gas pipelines can arguably achieve the same economic goals, with much larger external benefits.

It is possible to bring economic development to coastal Tamil Nadu without having to create another public sector behemoth. It is possible to improve domestic trade by building better highways and making the railways more efficient. And it is possible to strengthen maritime security by buying more hovercraft and ships for the coast guard and the navy. But if the government goes ahead with the project, it will not be possible to repair the damage it will cause to the environment. That alone should compel the government to explore alternatives than to stubbornly insist on sinking money down the Palk Strait.

Excerpted from “Dredging the Palk Strait”, Pragati – The Indian National Interest Review, Issue 7 – October 2007. Download | Subscribe

Everyone has speculated about the multiplier effect, including me. This week, however, NASSCOM released the results of the first ever comprehensive study that I know of on the multipliers associated with the IT industry in India. The research itself was conducted by CRISIL and the main highlights are:

* For 1 job created in IT-ITES, 4 jobs are created in rest of the economy
* In 2005-06, maximum additional employment generated through consumption spending (2.49 million) followed by Operating expenses (2.1 million) and Capital expenditure(0.63 million)
* Re 1 spent on OPEX generates additional output of Rs 0.9 (Multiplier 1.9x). Re 1 spent on CAPEX generated additional output Re 1 (Multiplier 2x)
* Re 1 spent by IT-ITES professionals generates additional output of Rs 1.1 (Multiplier 2.1x)
* In terms of potential impact on the economy by 2010, total economic output could be as high as $120 billion, while jobs created (direct+indirect) could cross 115 million

I had a look at the methodology and it looks fairly robust as well. It includes a combination of I-O, surveys and financial statement analyses. The study, however, does not look at forward linkages (use of IT as input by others), but only backward linkages, so that leaves space for more research on multipliers.

In the meanwhile, comments?

The 2007 ICT Opportunity Index, the ITU explains, “has benefited from the expertise of several international and research organizations, (and) is based on a carefully selected list of indicators and methodology. It is an important tool to track the digital divide by measuring the relative difference in ICT Opportunity levels among economies and over time.”

It’s the result of some clever analytical effort:

The 2007 ICT-OI, which is the result of the merger of the ITU’s Digital Access Index (DAI) and Orbicom’s Monitoring the Digital Divide/Infostate conceptual framework has been modified since it was last published in 2005. It is an excellent example for successful international cooperation and partnership work and follows the explicit recommendation of the WSIS Plan of Action, paragraph 28, to “…develop and launch a composite ICT Development (Digital Opportunity) Index” to combine statistical indicators with analytical work on policies and their implementation. [ITU]

It does all this and comes to the conclusion that Zimbabwe, Namibia and Kyrgyzstan, among others, offer higher ICT opportunities than India. (via LIRNE Asia)

Let’s say that this conclusion is methodologically sound. What’s it good for?

To me, the picture highlights the obvious point that wealth, economic growth, and energy use are fundamentally intertwined: where there is wealth or growth, energy is needed the most. If we could somehow see that picture evolve over the past 50 years, I am almost certain that we would see Europe, Japan, and the US brighten as their economies grew, with the rest of Asia emerging towards the tail end. The point of this silly astronomy lesson is simply to say that if India wants to grow at the pace necessary to lift our millions out of poverty within two or three decades, we’re going to have to power that growth – with lots of electricity and fuel; and hopefully some alternative methods too.

Currently, the average Indian consumes 0.9 barrels of oil, 31.5 cubic meters of natural gas, and 610 kilowatt hours of electricity every year – and these numbers are going up by 4.5% – 5% annually. Add to that 1% annual population growth, and our total energy needs will increase by about 5.5% – 6% a year. This year, we will produce about 90% of our natural gas and 30% of our petroleum domestically, and import the rest. Capacity addition over the last few years has been quite rapid, but not nearly fast enough to keep up with the growth of demand. Judging by current rates of capacity addition, and borrowing some projections from the EIA, by 2020 we will have to import 20% of our natural gas, and 80% of our oil; by 2030 those numbers will be around 30% and 90%, respectively.

A parallel problem is our pending electricity shortage. As far as I know, electricity cannot (and probably should not) be imported – it has to come from coal, nuclear, hydroelectric, and wind power plants at home. Even if we add power plants at the fast rate that we have over the last few years, demand will still outstrip our production capacity within another five years (It also doesn’t help that, at last check, our transmission and distribution losses were an astounding 27% of output) – by 2020 the shortage will be about 13% of demand, 25% by 2030. Right now, we have enough installed capacity to produce about 80,000 mw of electricity a year, and it is growing at about 5% a year. Consumption is currently at 75,000 mw, but is growing at about 6.5% a year. This implies that we face a cululative shortfall of about 20,000 mw by 2020, and 70,000 mw by 2030.

This is by far the biggest reason why signing the nuclear deal into law is extremely important for India. Right now, only 3% of our electricity production is from thermonuclear generation. Following the approval of the deal in the Senate, the Nuclear Power Corporation of India (NPCIL) announced that it planned to add 20,000 mw of capacity by 2020 and 50,000 mw by 2030. These sums are not trivial – they represent 10% and 15% of our projected electricity demand, respectively. While these alone still don’t cover the projected shortfall, the smaller margins (3% in 2020, 10% in 2030) can probably be made up for by an increased pace of capacity expansion (or, less favorably, by a mild recession).

The nuclear deal achieves two basic things: it hitches our foreign policy wagon for the time-being to the US, and it allows us a clear path towards energy security. In an important sense, it is foreign policy and economic policy rolled into one. Despite seemingly overwhelming support in the US Congress and in India, there are still loud critics on both sides. Publications like the New York Times and the Economist are urging that the deal be made contingent on a cap in India’s strategic arsenal (obviously a non-starter), and if that doesn’t work, that the other members of the Nuclear Suppliers Group (NSG) not follow the US’ lead. In India, critics from the BJP and CPIM are urging the government to back out of the deal because it infringes on India’s ability to pursue an independent foreign policy (which is essentially a way of saying, ‘Don’t align our interests with America’s’). While the argument that this deal may damage the Non-proliferation Treaty is reasonable; I would argue that the NPT was flawed from the beginning – both in being inherently unfair to India, and being completely ineffective (as demonstrated by Iran and North Korea’s unbridled march towards nuclear weapons).

The contention by those in India that we should back out of the deal because it impinges our sovereignty, however, is a shallow argument. The agreement represent somewhat of a turning point in Indian foreign policy. Through most of the past 60 years, our foreign policy has been predicated on two basic instincts. Firstly, there was a perpetual insecurity about transgressions on our sovereignty. This is understandable given our colonial experience, and our wars with China and Pakistan. Secondly, there was a tendency towards moralizing – using foreign policy to reward the “good guys” and punish or ignore the “bad.”

The deal marks a turning point because it is made purely out of economic self-interest. It understands the compromises required: align with an unpopular America, and join the global nuclear security architecture (via IAEA inspections, etc.) which we have thus far studiously avoided. This is precisely the approach to foreign policy which is required if we are to meet our energy needs. It has the added benefit that it will increase our influence in global affairs (which should help in trade negotiations, etc.), but it will also impose on us certain basic responsibilities and transparency requirements.

The remaining Indian critics of the deal must understand two fundamental realities about India and the world today. Firstly, if the emerging geopolitical realignment between energy exporters like Iran, Venezuela, and Russia; and energy importers like Europe, the US, Japan, etc. continues, India will invariably end up on the latter side. Secondly, we need rapid economic growth in order to fight poverty, create jobs, and develop our resources, and we face relatively severe electricity constraints in trying to achieve that level of growth. We will need big, out-of-the-box ideas to deal with this, and the agreement is a big step in that direction.

It is, in not so many words, the best way forward. If you’re still in doubt, take a look at that picture again, and think about what you would like India to look like from space in another 20 years.

Inaugurating the Second Agriculture Summit 2006 organised jointly by the Ministry of Agriculture and FICCI, the Prime Minister declared that the endeavour of his government would be to bridge each of the four deficit viz. the public investment and credit deficit, the infrastructure deficit, the market economy deficit and the knowledge deficit, which are responsible for the development deficit in the agrarian and rural economy.

Dr Manmohan Singh, threw open a debate in his speech by raising the questions like, what was actually needed by the farmers – a lower rate of interest or reliable access to credit at reasonable rates; whether our existing institutional framework was adequate for meeting the requirements of our farmers who were a diverse lot, whether we need it to create new institutional structures such as SHGs, micro finance institutions etc to proviproved and reliable access to credit and whether we needed to bring in money lenders under some form of regulation and he wanted Summit to find the answers.

The Prime Minister declared and called for fresh thinking on ways to incentivise greater public and private investment in irrigation [FICCI]

In addition to plugging his government’s rural employment guarantee and rural infrastructure fund, he also announced the setting up of the National Rainfed Area Authority that will promote “knowledge-based interventions” in rural areas.

The bad news is that the government is still in the process of asking the conference attendees to debate the topic. The good news is that Dr Singh at least appears to be ready for some fresh thinking. Well, here’s some fresh thinking, but will the heart allow his government to even attempt it?

India is rapidly evolving into Asia’s innovation center, leaving China in the dust. Its secret weapon? Intellectual property-rights protection. In recent years, New Delhi has taken big steps to protect these rights, and the results have been dramatic.
[...]

… copyright-based industries such as the Indian IT sector have enjoyed rapid growth. The annual average rate of growth of Indian software exports from 1994 to 2002 was 48%, marking a drastic surge from the preceding five years, when the average annual growth was about 35%. If New Delhi keeps up its commitment to rights protection, the numbers will continue to grow. Within the next few years, annual revenues from Indian software exports are expected to reach $50 billion.

Furthermore, Indian entrepreneurs, business and government labs are filing for patents at rapidly increasing rates. The number of Indian patent applications filed has increased 400% over the past 15 years. Nearly 800 Indian companies submitted international patent applications to the World Intellectual Property Organization in 2004. This number may be fairly small by international standards, but is still more than double the number of Indian patents applied for in 2000.

Question: Is India’s IPR regime, on paper & on the ground, as tough as Wilder & Anand claim?

He writes about ADC -

The access deficit charge (ADC) and the universal services obligation (USO) are based on the wrong-headed notion that the State will tax urban consumers to subsidise rural telephony. If the State wants to run a social program, it should do so, but this should be paid for by the general exchequer. It is bad tax policy to impose a tax upon one industry to finance a certain social program. If the State believes that rural telephony is important, it should be willing to pay for it out of general tax revenues.

Great point. Expecting just urban phone users to pay for what the government decides is a “social good” is just bizarre. If it is a “social good” and all that, why not fund it out of the general exchequer.

Another thing about ADC is, it is passed on to the state-owned BSNL, purportedly for use in rural telephony. But BSNL is also an active participant in the ultra-competitive urban markets. So how can we be sure how much of the money collected through the ADC is actually being spent on rural telephony?

Why doesn’t the government separate BSNL into two companies – Urban and Rural? If it is serious about rural connectivity, it should. What is happening right now is, the ADC goes into the pockets of the BSNL. And BSNL is seen offering great services in the urban areas, spurred by competition. But what is BSNL doing in the villages? Precious little. The rural telecom sector has hardly been touched by this revolution that our cities have witnessed.

The main reason for it is that as of now, with the urban market still having great potential, it is just not worth it to go after the much smaller rural markets. But as the competition intensifies and the markets move towards maturity, telecom companies will look for alternate avenues. This shift towards untapped markets is being seen already. Telcos who used to concentrate only on the big cities and businessmen a few years back, are concentrating on smaller cities and consumer segments with a much lower income level.

Notice all the advertisements about “lifetime prepaid”, “chhota recharge” and “aadmi phone leta hai baat karne ke liye”. Contrast them with the ads of around two years back, slick, crisp and clearly targetting the urban rich.

Once the cities and towns reach saturation, where will they head to next? To the villages for sure. The journey which moved from Bombay to Baroda to Bhagalpur will move next to Bhugaon.

Some people however are not in the favour of waiting for this natural market-pace to reach the villages. They believe that all regions should have some basic services regardless of whether they are financially viable or not.

Even if we grant this premise, what is the logic behind having the funds raised for this purpose routed to a company which is in charge of both rural and urban telephony? Given a choice between an arm of its business which gives it profitability, and another arm which costs a lot, isn’t it obvious where it will focus? That is what BSNL does. Pays lip service to rural telephony while investing and harvesting from the urban markets.

So as Ajay Shah says, the best way to spur telecom even further is to scrap ADC. And the best way to spur rural telephony is to float a separate company for it.