Monday, June 30, 2014

What should be the State’s stand vis-à-vis the alcohol industry in India?


The growing debate around liquor consumption in Kerala following the delay in issuing the Abkari policy statement in 2014 provides suitable grounds to discuss several important issues surrounding liquor production and consumption in India. A discussion is essential as liquor is going to last for a long time and a complete prohibition should not be expected in the near-term whatever be the stance of the individual state governments. But it is crucial that we understand what we are talking about before taking one or the other side on drafting a tighter liquor policy. The four southern states of India are special because they are not only the states where the state government directly involve themselves in various aspects of production and distribution, but also the states where consumption has remained relatively high compared to the rest of India. This points towards the fact that state control need not necessarily mean control over consumption of liquor, although that is the most prevalent explanation provided. In the northern states of India where license systems exist and private players are allowed entry into retail, consumptions levels are much lower.
The economic rationale behind alcohol industry
The alcohol industry is a major tax payer to the economy and this mostly comes from the steadily increasing customer base. In states like Tamil Nadu and Kerala, the state owned beverages outlets made revenue to the tune of 21,000 crore and 8,000 crore Rupees respectively during the financial year 2012-13. The latest National Sample Survey (NSS) reports estimates that the percentage of households consuming intoxicants (ganja, toddy, country liquor, beer, foreign refined liquor/wine and other intoxicants) have been increasing since 2004-05. Between 2009 and 2012, it has increased for both urban as well as rural areas.[1] In addition, the export and import of liquor has also been steadily rising since 2007.[2] It has been observed that seven of the top twenty internationally sold brands are Indian products.[3] Thus from the point of view of the federal government, the sector cannot be neglected for the sheer economic potential it holds both within and outside the country. Then the next question is, how should the State deal with this sector?
The State’s role
The role of the State should be well defined in this context. Should it be involved in operating the liquor industry (by controlling production to distribution) or should it promote and enforce strict quality regulations alone. Once the State detaches itself from the role of the seller it can assume the status of an unbiased observer and enforce a regulatory authority to monitor the quality and standard of liquor sold in India. We have already delayed ourselves in enforcing standards in production and consumption of liquor. For instance, whiskey is manufactured in India from ethanol made from molasses, which technically is called rum elsewhere. However, very few consumers know these differentiations. It was as late as 2012 that the Food Safety and Standards Authority of India (FSSAI) came up with a draft report on the standards to be maintained in preparing alcoholic beverages in India.
In addition to promoting standards the national government can also promote our products internationally. The popularity of molasses based liquor from India in foreign nations should be exploited to boost sugarcane production which could directly be beneficial to the farmers struck in the vagaries of sugarcane prices. We have approximately 6 million farmers directly involved in sugarcane cultivation who are yet to receive a competitive price for their product. Liquor is a sector that is valuable for the state in terms of revenue earned, but requires a lot of corrections especially with respect to the standards in production and consumption. The role of the State will be most valued in maintaining these standards through a powerful regulatory institution while promoting both the national and international market. India has much to gain by not trivialising these issues to mere moral concerns. Complete prohibition could just backfire in a manner similar to the events that followed the 18th Amendment of the US constitution.


[1] NSS Report No. 555(68 /1.O/1), Level and Pattern of Consumer Expenditure 2011-2012, 68th Round July2011-June 2012, Government of India February 2014
[2] Data for this is available in the World Integrated Trade Solutions (WITS) database.
[3] http://www.rediff.com/business/slide-show/slide-show-1-seven-indian-drinks-among-worlds-best-selling-alcohol-brands/20131121.htm
 
 
 

Wednesday, June 18, 2014

A Model for helping India’s Sports Sector


A Model for helping India’s Sports Sector
 
Introduction

International events come and go but India has never been able to pose significant competition to sportsmen and women from across the globe. We have had a competitive hockey team which consistently won Olympic medals until the late 1970s but thenceforth things changed. In Olympics India’s recent successes has been well appreciated. These came in events including tennis, badminton, boxing, wrestling, shooting and so on. Now many of these sporting activities like boxing or wrestling or shooting are not commonly seen at least in Kerala. We don’t hear much about clubs which encourage boxing, or wrestling we don’t have many shooting ranges and so on. But why? People don’t even feel the necessity of taking these sports up for the sake of recreation due to a certain amount of prejudice, a bit of lagging encouragement, and due to a large amount of no knowledge about these events. There are no local competitions, no advertisers for it, and nothing of it that your local television operators would feel like exhibiting to the public. In others word, much of these events remain invisible; and yet we have found our gold and silvers in them during the Olympics. So what about the rest of 30 plus event in Olympics. The lack of visibility of much of these events have a lot to do with the fact that there is very little money and information to support it. Now, don’t get me wrong, I do not mean money spent on sports as the government spends but I mean the money that a sportsman can assuredly earn if he wants to take up these sports as a career option. The state has done a lot, it has also created some useful infrastructure (provided a lot of incentives including jobs etc.) that can be capitalised on. Let me also give credit to the numerous private initiatives that fund various sporting events in India. But are these funds alone sufficient? Sports does not stop at this point when it receives funds; rather it should start from here. So the second thing (in addition to money and information) that has to be considered is on the operational aspect. Who should take forward the operational part of sports in India?

Multiple Entrances for Sporting Events   

Let me go straight into the suggestion. The best people who could save sports in India are none other than those who are involved in sporting activities. In that the role of the sportsmen and women are important. So how do they blend their concoction: of generating information, attracting money and operating the sector? Finance in sports comes through definite channels; both private as well as government. But this finance comes only after you prove your skills which in turn requires projecting your capabilities in a major event. Very few people reach those stages. For instance India had send only 83 athletes for the summer Olympics in London in 2012. For events like judo and swimming we had just one participant. Why? Entrance to those platforms has a lot to do with gaining the acceptance of the crowd. And for that the crowd needs to see you. Both of these, entrance as well as crowd, are controlled by several state institutions and hence access to major events, for the participants as well as the audience, remain difficult. I don’t blame the state for it but a single road however well-crafted could make it too crowded to reach the destination. Hence any model that looks at sports in India should be one which provides multiple routes for the participants as well as the audience to access it.

A Model

Multiple routes can be opened to the players as well as the audience if we innovate on the existing system of sports activities in India. We have made the point that sportsmen and women would love to have a steady source of finance to sponsor their activities. Just like the search funds in entrepreneurial ventures, sports sector is thus in dire need of funds which in its simplest manner can come from private equity investors, venture capitalists and angel investors. But how do we go about with it. The simplest model would take the same route the search fund managers do. They can convince investors (through proposals) on options of investing and profiting in local stadiums, courts and complexes and informal sporting events which need not be recognized by official sporting bodies. The operational part of these stadiums, events and funds would be taken up by the sportsperson or group. In a period of four to five years the fund should sufficiently help these people to redesign these spaces and organize events for which they can collect fees and sponsors. Depending upon the success of these spaces, they can continue operations, expand activities or sell their stakes with profitable margins. Convincing plans, well devised strategies and support from the local government would prove much to take these concepts forward. This could also develop into events where local schools, sports persons and teams could nurture their talents. 

An Example

In Kerala one of the sports activities in which young people show much interest is badminton. We have a lot of makeshift courts, poorly designed in open fields, on unused roads and so on, but efficiently used by a lot of local players. Such venues can be operated into active and well managed courts by attracting investments in the manner stated above. Some of these have been formally taken up for reconstruction with local support, but is yet to reach a level which can transform the sector. It is to make these efforts on a large scale that the search fund model could play its part. Sportsperson can bid for funds for a project that would take up such spaces and convert them into attractive sporting facilities that could cater to major events. Revenue from the events can be shared amongst the funders and in the course of time such stakes could be sold on a profit.

Reflections

We need to save our ailing sports sector. A hundred and twenty five crores and still our fortunes have been meagre in this sector. The root to this crises is the lack of finance for people to help them with their initiatives for a significantly long time until results are shown. There are numerous and unknown cases of sportsmen and women who abandoned their efforts half way either for relatively better options at that point in their career or because it was infeasible to continue with their activities. These people sometimes entered their respective sporting events very early in their careers; but the conditions existing allowed them to gain nothing from either sports or their studies. There was always an opportunity cost; and in India entry into sports risks the cost of education. But there is a caveat, education too was miserably managed in this state and hence the costs were more. It was very difficult to be both good at sports and education simultaneously. A lot of our erstwhile talents were stuck in the purgatory and never found a safe heaven. We need to develop innovative models in our way forward: That’s the challenge for our sports sector.
 
Rahul V Kumar

Tuesday, June 03, 2014

Big-data and the Market Mechanism


Big-data and the Market Mechanism
 
 
Introduction

Big-data could be the game changer in future. Data and big-data are conceptually similar but the later differs technically due to the enormity in volume and the corresponding difficulty in storage. Big-data would imply information that is collected in microseconds from any or all activities that can be captured through recent and path breaking technologies. And of course its use is wide ranging, spreading across a spectrum from simple identification of technical snags (traffic jams, flight delays or power failures) to possible prediction of life expectancies of an individual from signal collected over a period from his eating, search behaviour online and so on. Until this point it is fine; but the big question is how do we comprehend big-data? What do we expect in future? I am not going to go into the tricky affair of the morality of collecting such data from individuals. A better way to put it is how many of us know and are exposed to the data collection business that goes around us. This point in time of human history is only the beginning of the graph where there is an overabundance of big-data. Agencies and institutions that have the logistics have already started collecting and storing it. Imagine data accumulation at the level of being able to successfully predict what each and every individual, institution or nation would be doing say ten minutes from now. That’s like being God. Is it? Need not be. An analogy with natural resources would help us to predict that market mechanism would erase monopoly ownership of big-data in the long-run.

Is big-data a natural resource?

Why a natural resource? Because just like the natural resources it is natural that each of our act whether intended or unintended produce data as an outcome. It is difficult to classify it as renewable because what has been produced cannot be reproduced under the same conditions. So data that I generated through an act yesterday may be reproducible today but not under the same conditions as yesterday.

The fate of natural resources has been this: For a long period of time these resources were subject to constant exploitation, and mankind benefited much out of this. Demand for these resources steadily increased. The good thing was that supply also increased and at times outpaced demand due to technological progress as well as innovative methods of exploitation. The long-term prices has been continuously declining as a consequence. This is also due to the fact that technology helped to produce alternatives for some of these resources.[1]

Now consider big-data, it is a (non) renewable resource. Just like natural resources at its earliest stage in development, whatever has been produced till now is up there for exploitation. People who had the skill in identifying the benefits of natural resources, who had the logistics to extract it benefitted at this early stage in natural resource exploitation. Trade allowed them to prosper. This is just similar to people who have the logistics is getting into the data accumulation process. Just like those laws and regulations which were revised time and again to determine who should own the natural resources, there are laws (at a nascent stage) being formulated to control the generation and accumulation of big-data. Google’s ‘forget-me’ is the outcome of such attempts to legally negotiate possible outcomes of such accumulation.

Big-data in the long-term

In the long-term the following might result. Demand for big-data would be increasing considering the various potential businesses that could be done with it. For instance, predicting victors in elections would become much easier and much more accurate (questioning the democratic process itself), health would be a major area benefitting, and many avenues for business which can be developed after understanding the choices and preferences of people would increase. All this might just reengineer the world that we live in now with new forms of institutions and mechanism developing in response to these possibilities. Supply of big-data would also increase. And just like the exploitation of natural resource, newer technology and innovation would make it cheaper to extract more data. The costly logistics could be avoided. Thus supply would outpace demand and lead to a long-term decline in prices. The possibility of substitutes is difficult to imagine at this point; but in case big-data finds its substitutes, prices would decline further.

So demand and supply is likely to bring down big-data to affordable levels considering the possibility that it is like a natural resource. However, what is going to be crucial is the period ‘in between’; that is between now and the time when such data becomes affordable to everyone. For natural resources, such a period was mostly misutilized in fighting for ownership rights. The state finally won this fight and ended up assuming the role of protectors of natural resources. But for big-data, the period should be better used to develop a policy framework that could ensure privacy. We can also use this time frame to understand the various possible misuse of information and tighten the legal apparatus to ensure such things are minimal. Another possibility that could be thought about is on the individual’s opportunity to trade his data. The richness of it and the demand would ensure that each individual could sell the data to whoever demands it.  We might just end up on a positive note in future if these considerations are duly discussed.        

Rahul V Kumar

[1] You can refer this behaviour of falling prices of natural resources in any standard Microeconomics text books.