Easynomics

The Orwellian Economics of Modi Govt

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Almost, every other day I get an email or an sms from banks asking me to link my accounts and my Aadhar number.

The email typically says: “The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (“PML Rules 2005”) have been amended with effect from June 1, 2017 to require Aadhaar for every bank account. All existing Bank accounts have to be verified with Aadhaar by the banks by 31st December,2017, failing which the accounts will become inoperative.”

At the same time, a mobile phone company also sends out reminders at regular intervals asking me to link my phone number with my Aadhar number. The couple of times I visited their office in the recent past, I have been reminded of the same.

The last time I logged on to an airline website to carry out a web-checkin, I was asked for my Aadhar number, though this was optional.

When I applied for an ISBN (International Standard Book Number) for my last book, I was asked for my Aadhar number. An Aadhar number is now required for access to a whole host of government welfare programmes. The idea is to ensure that only those who genuinely qualify for the programme have access to it.

On the whole, the idea seems to be to use Aadhar to identify those people who are not paying their share of income tax, by figuring out their spending patterns.

On August 23, 2017, a notification was introduced which brought jewellers with a turnover of more than Rs 2 crore, under the Prevent of Money Laundering Act.

The limit for reporting transactions under the Act is at Rs 50,000. Basically, anyone using cash to buy gold jewellery over Rs 50,000 had to show his or her PAN card. Before this, since December 2015, anyone buying gold above Rs 2 lakh, had to show a PAN card.
With the August notification, the limit for showing the PAN card was lowered from Rs 2 lakh to Rs 50,000. Recently, the August 23 notification was rescinded. In doing so, the limit till which gold could be bought in cash without providing any identification jumped up again to Rs 2 lakh.

This, brings multiple questions to the fore. First and foremost, when every bank account holder needs to link his bank account to the Aadhar number, why doesn’t the same rule apply to anyone buying gold using cash. When every mobile phone user is being pestered to link his mobile number to his Aadhar number, why doesn’t the same rule apply to anyone buying gold using cash.

If it is important to clearly identify bank accounts and mobile numbers, it is also important to clearly identify who is buying gold. The question that arises here is that who buys gold in cash.

As the report titled A Study in Widening of Tax Base and Tackling Black Money produced by the business lobby FICCI points out: “The black money holders invest in bullion and Jewellery to protect the value of their black money from inflationary depreciation. Cash sales in the gold and Jewellery trade gives the buyer an option to convert black money into gold and Jewellery, while it gives the trader the option of keeping his unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price.”

The point being those who have black money like to buy gold in its various forms, using cash. If cash sales of gold need to be attacked it is important that some sort of identity of the individual buying gold be established.

Nevertheless, the Narendra Modi government doesn’t seem to think like that. Different rules for different people. As George Orwell writes towards the end of his brilliant book Animal Farm: “There was nothing there now except a single Commandment. It ran: All animals are equal but some animals are more equal than others.”

The column was originally published in the Bangalore Mirror on October 11, 2017.

Why Most Cars Look the Same

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A few days back I was at a friend’s party. I was introduced to other men at the party and soon they were all talking about the latest cars to hit the market. This basically played into the stereotype of putting four men in a room and once they are done talking about their jobs, they will be talking about cars.

I find it difficult to be a part of any such conversation because my ability to differentiate between two different car models is fairly limited. Well, I can differentiate between small cars and sedans, and less expensive cars and more expensive cars, but that is where it all ends. Of course, I do recognise the Mercedes Benz logo.

And to be very honest, the only two cars that I can confidently recognise at any point of time are the Ambassador and the Premier Padmini (better known as the Fiat). Both these cars aren’t produced anymore.

This inability to recognise car models gets me into a problem while coordinating with app based cab services. So, unlike others who keep a lookout for the model and colour of the car, I keep lookout for the number of the car.

For a long time, I felt that I was one of the few people who thought that modern cars look very similar. It turns out I was wrong. Cars that are produced these days do look the same. In his book Scale—The Universal Laws of Growth, Innovation and Sustainability in Organisms, Economies, Cities and Companies, Geoffrey West, talks about how different the 1927 Rolls-Royce and the 1957 Studebaker Hawk were from the “relatively boring-looking 2006 Honda Civic or a 2014 Tesla”. The modern cars might be far superior machines than the cars made earlier, but it is difficult to differentiate one from the other, unless you are really into them.

What has happened here? As West writes: “It represents the transition from a primitive trial-and-error, rule-of-thumb approach that served us well for thousands of years towards a more analytic and principled scientific strategy for solving problems and designing modern artifacts ranging from computers and ships to airplanes, buildings, and even companies… Sophisticated computer analysis are now central in the design process… The phrase “computer model” is now an integral part of our vocabulary.” It is also used to design cars.

This has led to an unintended consequence, something which wasn’t really planned for but has happened and become a part of our lives, without us really realising about it.

As West writes: “One of the curious unintended consequences of these advances is that almost all automobiles, for example, now look alike because all manufacturers are solving the same equations to optimize similar performance parameters. Fifty years ago, before we had access to such high-powered computation and therefore less accuracy in predicting outcomes, and before we became so concerned about fuel performance and exhaust pollution, the diversity of car design was much more varied and consequently much more interesting.”

The point being that most companies that produce cars are using more or less the same science to produce it, and given that most cars now look more similar than they did in the past, when trial and error was a part of the solution. Now, it isn’t.

As a result, what we have now are much superior machines, but their sameness makes them all so boring to look at. And cars, after all, aren’t all about acceleration, though some people may not agree on this.

The column originally appeared in the Bangalore Mirror on October 4, 2017.

Bengaluru’s Sriperumbudur Problem

One thing that is common across my friends in Bengaluru, is how much they complain about the city’s traffic. It’s not like the other big cities in India do not have traffic. But it’s just that between 2001 and 2011 (when the last two censuses were carried out).

Bengaluru’s population more or less doubled from around 43 lakh to 84 lakh. The roads and the other physical infrastructure haven’t really been able to keep pace.

But this is not a column about the physical infrastructure in Bengaluru not being able to keep pace with the city’s population. What I want to explore is that if people are so irritated with the city’s traffic eating into their time and lowering their quality of life, why don’t they simply move to a city which has lesser traffic, like Hyderabad or Pune, for that matter.

The answer lies in the fact that Bengaluru does not face what Karthik Shashidhar calls the “Sriperumbudur problem” in his book Between the Buyer and the Seller. For those who don’t know where Sriperumbudur is, it is a small town near Chennai. For many years it was famous as the place where the former prime minister and the Congress leader Rajiv Gandhi was assassinated in May 1991.

In the last few years it has been famous as the place where the telecom giant Nokia first set up a factory and then it shut it down. The Nokia factory used to employ 8,000 employees at its peak. Once the factory shutdown, the skilled workers who used to work there had a tough time finding comparable jobs in Sriperumbudur. Most workers were forced to settle for jobs that paid less and the working conditions were not as good as they were at Nokia.

Almost at the same time that Nokia shutdown it’s factory, Yahoo decided to shutdown its engineering operations in India, which were largely located in Bengaluru. Other companies scrambled to recruit the Yahoo employees. Some even set up dedicated portals to recruit them.

While, the Nokia employees in Sriperumbudur had a tough time finding comparable jobs, the Yahoo employees were lapped up one after the other. As Shashidhar writes: “The market for people building mobiles phones was rather thin in Sriperumbudur, with only one employer (Nokia) and the set of people working there.”

This basically shows the importance of clusters or a group of companies manufacturing a similar product or providing a similar service, being located close to one another. Bengaluru is a cluster of IT companies and the kind of IT jobs that are available in Bengaluru are simply not available anywhere else in the country.

As Shashidhar writes: “[The] cluster tends to attract companies which hope to supply to more than one of these companies. The presence of several companies in the cluster means that the risk of setting up a supplier infrastructure is reduced – the supplier is partly hedged even if one of the manufacturers he supplies to goes bust. The reverse is also true.” This basically makes the labour market liquid.

And this explains why my friends and many other people who keep complaining about the Bengaluru traffic, continue to stay in the city. The quality of work and the job options that they have in the city, they don’t have in other cities.

In fact, industrial clusters have been around for a while. The first industrial clusters happened after the Industrial Revolution started in Great Britain. The textile mills were set up in towns like Manchester and Birmingham and not all over the country. Along similar lines, Detroit emerged as the automobile hub in the United States, where the big three car companies operated out of. Globally, the financial services business is clustered around New York and London.

In India, a bulk of Hindi films are shot in Mumbai. The financial services business is also largely based out of the city. Bengaluru has the IT companies. The hosiery business is based out of cities like Ludhiana and Tirupur.

And this happens because there is a certain logic to the entire thing. Clusters make sense, the huge traffic in Bengaluru notwithstanding.

The column originally appeared in the Bangalore Mirror on Sep 27, 2017.

Why the weak spin on demonetisation is still going strong

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On August 30, 2017, the Reserve Bank of India (RBI), published its much-anticipated Annual Report. Up until last year, only journalists who covered the banking beat, economists and analysts, kept track of the RBI Annual Report.

But this year, many more people were interested. This was primarily because the Annual Report would finally reveal what portion of the demonetised Rs 500 and Rs 1,000 notes, made it back to the banks.

And why was this of interest? After demonetisation had been announced, many people including government ministers and several leading economists, had hoped that a large portion of the demonetised notes won’t come back to the banks. This was because those who had black money in the form of cash wouldn’t want to deposit it into banks, and reveal who they are to the government. In the process, a lot of black money held in the form of cash would be destroyed.

But nothing of that sort happened. The RBI Annual Report revealed that Rs 15.28 lakh crore of the Rs 15.44 lakh crore that was demonetised, made it back into the banks. This meant that nearly 99 per cent of demonetised notes made it back to the banks, and almost no black money was destroyed. Other than not achieving its major goal of destroying black money, demonetisation has also hurt India’s economic growth in general and manufacturing and industrial growth in particular, very badly.

After this, the government as expected has been offering multiple reasons in favour demonetisation. In a press release the ministry of finance offered this reason: “The fact that bulk of specified bank notes (SBNs) have come back to the Banking system shows that the banking system and the RBI were able to effectively respond to the challenge of collecting such a large number of SBNs in a limited time.”

What does this even mean? If paper money is made useless overnight, it is bound to come back to the banks. Where else will it go? Another reason offered to show demonetisation as a success is that Rs 3 lakh crore of the Rs 15.28 lakh crore that has come back is black money. No explanations have been offered on how the Rs 3 lakh crore number was arrived on.
But even if we assume that it is black money, the holders of this black money aren’t exactly waiting to hand it over to the government. They have access to chartered accountants as well as lawyers and are ready for a long-drawn battle, if needed.

The weak government spin on demonetisation has continued. The question is why? The answer lies in the fact that a section of the population is still buying this spin on the social media. As Evan Davis writes in Post Truth: “In social media, our disposition to believe things is something a form of bonding. Not only do we tend to reside in echo chambers online, but we actively enjoy becoming closer to our friends by sharing views and agreeing with them. The act of consenting to someone else’s beliefs, and have them consent to ours, is satisfying; and because it is so, it stops us questioning the nonsense that others post.”

This is one explanation for the rather weak defence of demonetisation that is still being put out by the government. Then there is the problem of the narrative, or the prevailing interpretation of a pattern of events. There is a section of population which really wants to believe that demonetisation worked. It’s their narrative.

As Evans writes: “Like-minded groups of individuals share a narrative about many things… These narratives are sometimes true, sometimes not, but they are often like stereotypes… Once embedded in our minds though, they can easily gain excessive traction and trample over truth as willing believers put too much weight on propositions that conform to their narrative without looking for evidence in support of them.”

And that explains why the weak spin on demonetisation is still going strong.

The column originally appeared in the Bangalore Mirror on September 20, 2017.

The Mathematical Logic Behind Soap Operas

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In response to the last week’s piece (If you are smart, why aren’t you rich?), a couple of readers wrote in wanting to know why do large families in general and large business families in particular, split. Interestingly, this question has been an area of academic research. The British evolutionary psychologist Robin Dunbar has done some interesting work in this area.

The average individual has his or her strongest relationships with five people at any point of time, suggests Dunbar. As Geoffrey West writes in Scale—The Universal Laws of Growth, Innovation and Sustainability, in Organisms, Economies, Cities and Companies: “These are the people we are closest to and care most deeply about.” These typically tend to include our parents, spouses or children. They also include close friends or partners (if not spouses).

At the next level, there are around 15 people. These typically tend to be close friends but not the closest ones. At the next level, there around 50 people. As West writes: “[These are] people you might still call friends though you would only rarely invite them to dinner but would like to invite them to a party or gathering. This might consist of coworkers, neighbours down the street, or relatives you don’t see very often.”

The final level has around 150 people with whom we have social contact with. This number (i.e. 150) is also referred to as the Dunbar number (in the name of Robin Dunbar). The question is why is the Dunbar number limited to 150? As West writes: “We simply do not have the computational capacity to manage social relationships effectively beyond this size”. Hence, “increasing the group size beyond this number will result in significantly less social stability, coherence, and connectivity, ultimately lead to its disintegration.”

Dear Reader, you must be wondering by now, what has all this got to do with large families splitting? Allow me to explain.

If you look at Dunbar’s logic explained earlier, at any point of time, an individual can have close and strong relationships with five people. This basically means that an individual can at best be close to two or three siblings and not all of them.

West gives the example of his grandparents’ family and then compares it with that of his family. His grandparents had eight children. This basically meant that there were 10 people in the family. Ten people in the family meant there were 45 different relationships at play at any point of time. (You can do the maths for this, it is fairly simple. If there are two people in a family, there is one relationship. If there are three people in a family, there are three relationships at play. If there are four people in the family, there are six relationships at play and so on).

When there are 45 different relationships at play, obviously everyone cannot possibly get along with everyone else. As West writes: “If these loosely followed a Dunbar pattern where each child was strongly connected to two or three of their siblings in addition to parents, not everyone could love everyone else equally.” There is also the question of time that one needs to invest in maintaining any relationship.

In comparison to West’s grandparents’ family, his family has four members (he, his wife and their two children). This basically means that there were six different relationships at play at any point of time. And chances of managing six relationships are better than manging 45 relationships.

This is precisely why large families split. Even if they don’t split, everyone doesn’t get along with everyone and there are fights and disagreements happening and conspiracies being hatched. TV  serials all over the world make use of this dynamic, brilliantly. And which is why you rarely see a soap opera around a nuclear family. How many disagreements can happen among four people? And how many conspiracies can they hatch up? The audience also relate to these soap operas in their own weird ways and tend to watch them.

The column originally appeared in the Bangalore Mirror  on September 13, 2017.