Jamal Mecklai: Paradigms shifting
Jamal Mecklai February 6, 2014 Last Updated at 21:44 IST
Does anybody remember what it was like before mobile phones? There were millions of harrowing stories - I can recall a few myself - but the remarkable thing is they all seem like stories, not reality. This complete transformation of a set of experiences by technology (or some other proverbial irresistible force) is called a paradigm shift, which usually delivers immeasurable economic benefit and from which there is no looking back.
The good news is that there are several paradigm shifts brewing. The first, of course, is Aadhaar, which has already enrolled more than 500 million people; I believe at its current rate, more than half of all Indians will have an Aadhaar number in a month or two. Granted that it is currently going through a sudden low pressure, but this hiccup is patently political and certain to be short-lived.
In terms of impact, Aadhaar, in the words of John Paul Jones, hasn't even begun to fight. In the six months since it was launched in June 2013, there have been a mere 40 million transfers under the direct benefit transfer for LPG, totalling about Rs 2,000 crore. Given that India's subsidy payments are well over Rs 2 lakh crore, and that, conservatively speaking, a direct benefit scheme in full flow should save around 50 per cent of this, we have, as I said before, not even really started.
It will doubtless take another four or five years before the Aadhaar system becomes as much a fact of life as mobile telephony is today. The direct macro benefit will be a sustained reduction of the budget deficit by well over one per cent of gross domestic product (GDP); this means inflation will be more readily controlled and interest rates can be lower. Not only will this have a sustained knock-on effect on growth, but, like mobile phones, will have an immeasurable impact on individual lives and the economy at large.
The next paradigm shift is barely in the economy at this point. It stems from the frighteningly detailed report of the Nachiket Mor committee on financial inclusion. Like most things Mr Mor does, the analysis is extremely thorough and, starting from first principles, comes to some startlingly obvious conclusions. For example, after decades of failed efforts to improve financial inclusion using the existing banking framework, it hardly makes sense to simply increase the number of banks; rather, we need to license different types of banks, where the arithmetic of profitability would drive inclusion. He has laid out an extremely tall order, and there are many who have argued against it merely on this count. But faint heart never won fair lady (or gentleman), and the irrefutable logic of the plan(s), coupled with a governor who is both market-leaning and market-aware, suggests that we will see much of the committee's report taking shape.
Note again that it will be several years - five to ten - before we begin to accept these new structures. But when it does happen, look out! Not only will individual lives be hugely improved, but, on a macro level, getting the hundreds of millions of unbanked Indians into the financial system will boost the savings rate substantially, reducing the need for foreign savings to support our investment needs. This will structurally improve our current account deficit, and, with that, provide some real support to the dear old rupee.
On that subject, the Reserve Bank of India and the government need to recognise that India is both the largest buyer and largest holder (potential seller) of gold, and, as such, should be a price maker rather than a price taker in the gold market. A genuine, logical effort to create a domestic gold market (rather than letting it be wagged by the London Bullion Market Association, or LBMA) could yield yet another paradigm shift, adding another layer of structural support to both the current account deficit and the rupee.
The final visible paradigm shift is, of course, the Aam Aadmi Party (AAP). Like Aadhaar, it is currently suffering some public relations trauma, but in the battlefield of politics, this is par for the course. The good news is that the AAP is already delivering value in terms of changing the rules of the political game - the Bharatiya Janata Party in Rajasthan has started mimicking the AAP in some ways, and, as we go forward, all parties will be compelled to field candidates of both integrity and ability. Of course, politics is far murkier battleground than even global financial markets, so it will likely take much longer - 15 to 20 years - for corruption to go the way of landline telephones.
And as all this comes together, I will make my favourite forecast for the rupee, with a multiple choice to all of you: 38 to the dollar in less than five years/less than 10 years/less than 15 years/less than 20 years.
Send in your entries now.
The good news is that there are several paradigm shifts brewing. The first, of course, is Aadhaar, which has already enrolled more than 500 million people; I believe at its current rate, more than half of all Indians will have an Aadhaar number in a month or two. Granted that it is currently going through a sudden low pressure, but this hiccup is patently political and certain to be short-lived.
In terms of impact, Aadhaar, in the words of John Paul Jones, hasn't even begun to fight. In the six months since it was launched in June 2013, there have been a mere 40 million transfers under the direct benefit transfer for LPG, totalling about Rs 2,000 crore. Given that India's subsidy payments are well over Rs 2 lakh crore, and that, conservatively speaking, a direct benefit scheme in full flow should save around 50 per cent of this, we have, as I said before, not even really started.
It will doubtless take another four or five years before the Aadhaar system becomes as much a fact of life as mobile telephony is today. The direct macro benefit will be a sustained reduction of the budget deficit by well over one per cent of gross domestic product (GDP); this means inflation will be more readily controlled and interest rates can be lower. Not only will this have a sustained knock-on effect on growth, but, like mobile phones, will have an immeasurable impact on individual lives and the economy at large.
The next paradigm shift is barely in the economy at this point. It stems from the frighteningly detailed report of the Nachiket Mor committee on financial inclusion. Like most things Mr Mor does, the analysis is extremely thorough and, starting from first principles, comes to some startlingly obvious conclusions. For example, after decades of failed efforts to improve financial inclusion using the existing banking framework, it hardly makes sense to simply increase the number of banks; rather, we need to license different types of banks, where the arithmetic of profitability would drive inclusion. He has laid out an extremely tall order, and there are many who have argued against it merely on this count. But faint heart never won fair lady (or gentleman), and the irrefutable logic of the plan(s), coupled with a governor who is both market-leaning and market-aware, suggests that we will see much of the committee's report taking shape.
Note again that it will be several years - five to ten - before we begin to accept these new structures. But when it does happen, look out! Not only will individual lives be hugely improved, but, on a macro level, getting the hundreds of millions of unbanked Indians into the financial system will boost the savings rate substantially, reducing the need for foreign savings to support our investment needs. This will structurally improve our current account deficit, and, with that, provide some real support to the dear old rupee.
On that subject, the Reserve Bank of India and the government need to recognise that India is both the largest buyer and largest holder (potential seller) of gold, and, as such, should be a price maker rather than a price taker in the gold market. A genuine, logical effort to create a domestic gold market (rather than letting it be wagged by the London Bullion Market Association, or LBMA) could yield yet another paradigm shift, adding another layer of structural support to both the current account deficit and the rupee.
The final visible paradigm shift is, of course, the Aam Aadmi Party (AAP). Like Aadhaar, it is currently suffering some public relations trauma, but in the battlefield of politics, this is par for the course. The good news is that the AAP is already delivering value in terms of changing the rules of the political game - the Bharatiya Janata Party in Rajasthan has started mimicking the AAP in some ways, and, as we go forward, all parties will be compelled to field candidates of both integrity and ability. Of course, politics is far murkier battleground than even global financial markets, so it will likely take much longer - 15 to 20 years - for corruption to go the way of landline telephones.
And as all this comes together, I will make my favourite forecast for the rupee, with a multiple choice to all of you: 38 to the dollar in less than five years/less than 10 years/less than 15 years/less than 20 years.
Send in your entries now.
