On WhatsApp University

Around fifteen days back, a friend of mine from school asked, whether repayment of oil bonds issued during the Congress-UPA regime was responsible for higher petrol and diesel prices. Given that, these bonds had to be repaid, the government had no option, but to charge higher taxes on petrol and diesel.

I said no. He then asked, why are forwards going around on WhatsApp saying so. I wrote a piece explaining why there was no link between repayment of oil bonds and the high prices of petrol and diesel.

This set me thinking and led to the question. Why do people believe things sent on WhatsApp so easily? And here are a few answers that I could come up with.

1) Social media, cyberspace, WhatsApp or whatever else one might want to call it, in a way is an extension of the old village square or simply the park in the housing complex you live in or the little space in front of your building, where you meet your neighbours and friends, and talk and gossip with them. Like was the case earlier, WhatsApp is also a space where people meet, talk, discuss and have views on things they don’t understand, like was and is the case, when they meet physically.

The discussions that happened (or still happen) in a village square kind of space were not recorded anywhere. A version of the discussion existed only in the minds of people who happened to be there. No one remembers their past exactly. We all remember a version of it. And as days went by people forgot about what they had discussed at the village square and moved on.

This is not true about WhatsApp or other forms of social media. If a wrong explanation about a particular issue is offered there is an evidence that it exists. Of course, unlike a village square or a park in the housing complex, WhatsApp is not a physical space. But it is still a space where people meet and interact. So, to that extent things haven’t really changed.

Hence, what was happening earlier is also happening now. Even in the pre-WhatsApp/social media era, people believed in conspiracy theories or offered explanations on topics they had very little idea of and believed in many things without doing some basic research. It’s just that there was no record of such things happening.

But in a digital space, some sort of record of the discussion having happened, remains. Hence, this phenomenon is more obvious now than it was in the past. And to that extent, the fact that most people in general are ignorant about most things, comes out much more clearly now. Of course, their ignorance continues to be directly proportional to their confidence.

2) When I use the word ignorant here, I am not being judgmental, I am only trying to state the obvious. Most of us have extremely limited expertise in extremely limited areas (I suggest that you read another piece titled On Advice that I wrote a while back).

This is primarily because most of us are busy in our own little worlds, trying to make the best of what we have. So, unless something really matters to us, we don’t want to spend time understanding it. This explains why people spend so much time planning holidays but have next to no idea about what the gross domestic product (GDP) of a country really means.

As Thomas Sowell writes in Knowledge and Decisions: 

“To exhort the individual citizen to make investments in knowledge comparable to those of lobbyists and political crusaders (both of whom have much lower costs per unit of personal benefit) is to urge him to behaviour that is irrational, if not physically impossible in a twenty-four hour day.”

Nevertheless, this doesn’t stop us from having views on things that we don’t understand.

This is a weakness, which people with an agenda make use of. Take the case of the high petrol and diesel prices. They are high primarily because corporate tax collections have fallen since September 2019, when the government decided to cut the peak corporate rate from 30% to 22%. In order to make up for this deficit, the central government is charging higher taxes on every litre of petrol and diesel sold, than they did in the past.

This is a politically suicidal explanation when it comes to explaining why petrol prices in many parts of the country have crossed Rs 100 per litre. How can the common man pay more, when the corporates are not paying their fair share of taxes?

Hence, the politicians and many others have come with the story of oil bonds issued by the previous government having to be repaid, as an explanation for high petrol and diesel prices. Of course, a basic Google search can negate this explanation. But once people have read this on WhatsApp their minds are satiated, as an anomaly has been explained away in a way that sounds reasonably true.

Given the fact that people are learning what they are from WhatsApp, it’s even referred to as WhatsApp University in zest. 

3) The question is, why all this possible now, and wasn’t possible earlier. The answer lies in the fact that in the earlier era any large propaganda had to be carried out openly either through newspapers, magazines, TV or radio, for that matter. And given that it came with its own set of limitations.

One, there was a price attached to it. Two, most propaganda came with a face.

So, let’s say petrol prices had crossed Rs 100 per litre in the early 2000s, when smart phones were not around. Anyone writing a piece in a newspaper offering a reason for it, had to do it in his own name. In that situation, it would be very difficult to offer the wrong reasons in the hope of people buying it and the writer getting away with it. Once a piece had been published, others could easily call out the writer’s bluff leaving his or her reputation in tatters.

In today’s era, with a significant proportion of the population owning smartphones and the availability of cheap internet leading to the rise of social media like WhatsApp, such problems no longer exist. Producing fake news is cheap. All it requires is a literate person, who has a mobile phone with an internet connection. This has made things significantly easy for people who want to spread propaganda or run an agenda or just want to have some fun.

Take the case of vaccine deniers. Social media has made their life very easy. They can propagate any nonsense that they want to. This is not to say that this did not happen earlier. It did. It’s just that now it can be done anonymously and probably at a much faster pace. Anyone can author a post and just send it across. And after it has been forwarded a few times, no one has any idea of who has written it. The anonymity that the social media provides is a big reason why fake news is created in the first place.  

4) Also, given that the social media is more or less free, it comes with the capacity of endless repetition. This is what political parties all over the world try to make use of, by feeding content that their supporters like to believe in and creating hatred towards a class or a community or a caste or a religion.

Or simply offering nonsensical reasons for an economic trend like petrol and diesel prices are high because oil bonds need to be repaid. As Abhijit Banerjee and Esther Duflo write in Good Economics for Hard Times: “The problem with echo chambers is not just that we are only exposed to ideas we like; we are also exposed to them again and again and again, endlessly.” So, every time petrol and diesel prices rise, the oil bond angle is whipped out all over again, because there is no cost attached to it. Also, as Sowell writes: “sober analysis seldom has the appeal of ringing rhetoric.”

In fact, the production of fake news is impacting the traditional mainstream media which wants to do good journalism. As Banerjee and Duflo write: 

“Circulation of news on social media is killing the production of reliable news and analysis. Producing fake news is of course very cheap and very rewarding economically since, unconstrained by reality, it is easy to serve to your readership exactly what they want to read. But if you don’t want to make things up, you can also just copy it from elsewhere.”

The larger point here, as Banerjee and Duflo put it, is ‘the economic model that sustained journalism as a location for “public space” (and correct information) is collapsing’. In this scenario, ‘without access to proper facts, it is easier to indulge in nonsense’.

Of course, this is not to say that the mainstream media is all kosher. It is not. But that is another topic for another day.

5) The major issue at play here is, whether you support the current government or not. This has led to a situation where there is a great need among many people to support the government on everything and anything. What George Orwell called groupthink is at work here.

As Christopher Booker writes in Groupthink—A Study in Self Delusion: “A group of people comes to be fixated on some belief or view of the world which seems hugely important to them.” In this case, the view is that the current Narendra Modi government can do no wrong. Hence, if petrol prices are more than Rs 100 per litre in many parts of the country and diesel prices are very high, there must be a genuine reason for it, for which the current government is not responsible.

And this is where the fake story of oil bonds comes in and satiates the minds of such individuals. Social media like WhatsApp just helps achieve this at a fast pace and an almost costless sort of way.

Also, once such people have a reason, they go out of their way to defend it. As Booker writes: “They are convinced that their opinion is so self-evidently right that no sensible person could disagree with it. Most telling of all, this leads them to treat all those who differ from their beliefs with a peculiar kind of contemptuous hostility.”

This explains why many family WhatsApp groups where people used to share good morning and happy birthday messages, have turned into virtual battlefields. But the trouble is, such individuals are not doing their own thinking. They are just believing in whatever they have been told.

As Booker writes: 

“They have not looked seriously at the facts or the evidence. They have simply taken their opinions or beliefs on trust, ready-made, from others. But the very fact that their opinions are not based on any real understanding of why they believe what they do only allows them to believe even more insistently and intolerantly that their views are right.”

They have become victims of groupthink and are likely to continue to be so.

To conclude, as Alan Rusbridger, writes in Breaking News – The Remaking of Journalism and Why It Matters Now: “ Bad information [is] everywhere: good information [is] increasingly for smaller elites. It [is] harder for good information to compete on equal terms with bad.”

Bad news is driving out good news. And WhatsApp, as a medium, is at the heart of it. 

The Orwellian Economics of Modi Govt

George_Orwell_press_photo

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.

Where George Orwell meets Wasim Barelvi 

george orwell
अभी कुछ दिनों की बात के एक मित्र जो के हिंदुस्तानी में थोड़ा बहुत लिखते हैं, उन्होने पुछा के जॉर्ज ओरवेल की Animal Farm में एक पंक्ति है “All animals are equal, but some animals are more equal than others,”  इसका हिंदुस्तानी में क्या अनुवाद होगा.

अब एक तरीका ये था के ओरवेल की इस पंक्ति का सीधे सीधे अनुवाद किया जाए. मुझे ये तरीका बड़ा बोरिंग लगा, क्यूंकि हर भाषा में इतनी गहराई होती है, के कम से कम मिसाल तो उसी भाषा में दी जा सके.
तभी मेरी tubelight हमेशा की तरह देर से जली और प्रोफेसर वसीम बरेलवी का एक शेर याद  आया: “गरीब लहरों पर पहरे बिठाये जाते हैं, समन्दरों की तलाशी कोई नहीं लेता”. इस शेर का भी लगभग वही माने है जो ओरवेल की पंक्ति का है.

ओरवेल ने अपनी बात प्रोफेस्सर बरेलवी से काफी पहले कही थी. क्या ओरवेल की ये पंक्ति प्रोफेसर साब के शेर की प्रेरना है? अब ये तो वही बता सकते हैं.

मतलब इसका ये है, के दुनिया में जो भी कहा जा सकता है, वो कहा जा चूका है. आप बस इतना कर सकते हैं को उसी बात को अपने अंदाज़ में कह सकते हैं. और अपने अंदाज़ में प्रोफेसर बरेलवी ने ये बात खूब कही है.

अब GST को ही ले लीजिये…
Prof._Wasim_Barelvi_(2)

Where George Orwell meets Wasim Barelvi 

george orwell
अभी कुछ दिनों की बात के एक मित्र जो के हिंदुस्तानी में थोड़ा बहुत लिखते हैं, उन्होने पुछा के जॉर्ज ओरवेल की Animal Farm में एक पंक्ति है “All animals are equal, but some animals are more equal than others,”  इसका हिंदुस्तानी में क्या अनुवाद होगा.

अब एक तरीका ये था के ओरवेल की इस पंक्ति का सीधे सीधे अनुवाद किया जाए. मुझे ये तरीका बड़ा बोरिंग लगा, क्यूंकि हर भाषा में इतनी गहराई होती है, के कम से कम मिसाल तो उसी भाषा में दी जा सके.
तभी मेरी tubelight हमेशा की तरह देर से जली और प्रोफेसर वसीम बरेलवी का एक शेर याद  आया: “गरीब लहरों पर पहरे बिठाये जाते हैं, समन्दरों की तलाशी कोई नहीं लेता”. इस शेर का भी लगभग वही माने है जो ओरवेल की पंक्ति का है.

ओरवेल ने अपनी बात प्रोफेस्सर बरेलवी से काफी पहले कही थी. क्या ओरवेल की ये पंक्ति प्रोफेसर साब के शेर की प्रेरना है? अब ये तो वही बता सकते हैं.

मतलब इसका ये है, के दुनिया में जो भी कहा जा सकता है, वो कहा जा चूका है. आप बस इतना कर सकते हैं को उसी बात को अपने अंदाज़ में कह सकते हैं. और अपने अंदाज़ में प्रोफेसर बरेलवी ने ये बात खूब कही है.

अब GST को ही ले लीजिये…
Prof._Wasim_Barelvi_(2)

Dear Mr Urjit Patel, Have You Ever Heard of Wasim Barelvi?

For a man who rarely and barely speaks, the Reserve Bank of India governor Urjit Patel spoke quite a lot in the press conference that happened after the first monetary policy of this financial year was presented on April 6, 2017.

In response to the question, “What do you think are the implications of the farm loan waiver schemes and is it a cause of concern for the RBI?”, Patel had this to say: “There are several conceptual issues, if one were to put one’s hat as an economist on. I think it undermines an honest credit culture, it impacts credit discipline, it blunts incentives for future borrowers to repay, in other words, waivers engender moral hazard. It also entails at the end of the day transfer from tax payers to borrowers. If on account of this, overall Government borrowing goes up, yields on Government bonds also are impacted. Thereafter it can also lead to the crowding out of private borrowers as higher government borrowing can lead to an increase in cost of borrowing for others. I think we need to create a consensus such that loan waiver promises are eschewed, otherwise sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet.

Basically in one paragraph, Patel summarised all that is wrong about waiving off farmer loans or in fact, any loan. I had discussed most of these issues in my Diary dated April 5, 2017, last week.

The first issue that a waive-off of bank loans creates is that of a moral hazard. The economist Alan Blinder in his book After the Music Stopped writes that the “central idea behind moral hazard is that people who are well insured against some risk are less likely to take pains (and incur costs) to avoid it.”

This basically means that once the farmer sees a loan being waived off today, he will wait for elections in the future for the newer loans he takes on to be waived off as well. Essentially, he will see little incentive in repaying loans that he takes on in the future. Or as Patel put it: “it impacts credit discipline, it blunts incentives for future borrowers to repay”.

The second issue that a waive-off of bank loans creates is that it can lead to the crowding out of private borrowers. The state government waiving off the bank loans needs to compensate banks which had given these loans. In case of the Uttar Pradesh government which recently wrote off the loans, this amounts to Rs 36,359 crore. The government will have to borrow this amount in order to pay the banks simply because its earnings are lesser than its expenditure.

When a government borrows more, it leaves a lesser amount of money for others to borrow. This can push up interest rates and as Patel aptly puts it, “higher government borrowing can lead to an increase in cost of borrowing for others”. What also needs to be taken into account here is the fact that the Uttar Pradesh government waive-off might inspire other state governments to waive-off farmer loans as well. This will mean greater government borrowing and a higher crowding out effect.

It will also lead to the overall fiscal deficit of the nation (i.e. fiscal deficits of state governments plus that of the central government) going up. Fiscal deficit is the difference between what a government earns and what it spends during the course of a year. The difference between the earning and the spending is met through borrowing.

If several state governments waive-off bank loans and borrow more, it will lead to the national fiscal deficit going up. As Patel puts it: “sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet.”

So far so good. It is nice to see the RBI governor speak out against what is essentially bad economics and can screw up the economic and financial situation of the nation. Nevertheless, the question is where has all this forthrightness been when it comes to the issue of corporate defaults and loan write-offs?

As is well known, corporates have defaulted on several lakhs of crore of bank loans over the years. These defaulters have been treated with kid gloves. Over the years, a huge amount of corporate loans have been written off. It needs to be mentioned here that loans written off are different from loans being waived off, at least theoretically.

This is something I discuss in detail in my new book India’s Big Government—The Intrusive State and How It is Hurting Us. The loans written off are no longer be a part of the balance sheet of the bank, even though they can be recovered in the future. There is no chance of recovery in case of a loan that is waived off. Hence, theoretically there is a difference between a write-off and a waive-off.

Let’s try and understand this issue in a little more detail. Let’s first take the case of the State Bank of India. As of April 1, 2015, the bank had Rs 56,725 crore of bad loans, or gross NPAs. During the course of the year, Rs 4,389 crore of bad loans was recovered. At the same time, the bank wrote off Rs 15,763 crore of bad loans. The loans written off would no longer be a part of the balance sheet of the bank, even though they could be recovered in the future.

As we can see in case of the State Bank of India, the total amount of the loans written off during the year was more than three times the total amount of the loans recovered. That tells us the sad state of the loan recovery process. There were also fresh bad loans that were added to the balance sheet of the bank during the course of the year, and by March 31, 2016, the total bad loans of the bank had slipped to Rs. 98,173 crore.

Or take a look at Table 1 which shows the overall scenario comparing write-offs and recoveries.

Table 1: Write-offs versus recoveries of public sector banks

Write-offs versus recoveries of public sector banks

YearWrites-Offs
(in Rs. Crore)
Recoveries
(in Rs. Crore)
2015-201659,54739,534
2014-201552,54241,236
2013-201434,40933,698
2012-201327,23119,832

Source: Reserve Bank of India

As is clear from Table 1, write-offs of public sector banks have been greater than their recoveries. And the absolute difference between the two has only gone up over the years. A bulk of these loans are corporate loans. Hence, it is safe to say on the basis of this data that a large portion of corporate loans which are written-off are over the years, are practically waived-off because banks are really not able to recover these loans.

Hence, if the issue of moral hazard comes up with farmer loan waive-offs, it also comes up with corporate loan write-offs. And given that a large portion of what is technically a write-off is actually a waive-off, the case for moral hazard in this case is really very strong. The RBI governor Patel could have talked about this as well, given that he has been in office for more than seven months now.

Over and above this, corporate loan write-offs have led to the situation of diminishing bank capital. This has led to the central government having to recapitalise the public sector banks over the years. Between 2009 and now, the amount of money put in has been greater than Rs 1,30,000 crore. This money is ultimately borrowed by the government and leads to crowding out, higher interest rates and a weaker national balance sheet. All these issues pointed out by Patel in case of farm loan waive-offs apply to corporate write-offs as well.

But a word hasn’t been spoken against them.

In the Diary dated March 22, 2017, I had quoted the British author George Orwell. In his book Animal Farm, Orwell writes: “All animals are equal, but some animals are more equal than others.” The point being, if there is a moral hazard for the farmer, there is also one for corporates. And if the RBI governor has pointed out one, he should have pointed out the other as well.

Over the weekend, I came across a very interesting couplet which makes the same point has George Orwell did in the Animal Farm, but rather more forcefully.

As Wasim Barelvi, probably the greatest Urdu poet alive today, writes:

Garib lehron par pehren bithaye jaate hain
samundaron ki talashi koi nahi leta”.

(I couldn’t come across a good translation of this couplet. Hence, I am leaving it untranslated. But its basic meaning is the same as the line from Orwell’s Animal Farm, quoted earlier).

The column originally appeared on April 10, 2017 on Equitymaster