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Growth, Urbanisation, and Poverty Reduction in India

Despite a few issues in inequality, the process of urbanisation has been clearly important in poverty reduction in urban and rural India post 1991 reforms

In light of a new and more comprehensive data-set, spanning 60 years with 20 years of post-liberalisation data, Gaurav Datt, Martin Ravallion, and Rinku Murgai revisit the important linkages between growth, urbanisation, and poverty reduction in India in their NBER working paper.

Broadly, there has been a downward trend in poverty measures since 1970, which has accelerated post-1991, when India undertook liberalising reforms. An interesting finding of the paper is that declines in rural poverty has been greater than the decline in urban poverty, which has led to a convergence in the poverty rates in the two areas. Part of this is explained by a significant decline in rural poverty and increase in real wages and part of it is explained by a sharp urbanisation of poverty in urban areas: from about one in eight of the poor living in urban areas in the early 1950s to about one in three in 2012.

There's a decrease in absolute poverty levels in both urban and rural areas in India.

There’s a decrease in absolute poverty levels in both urban and rural areas in India and a convergence between the two numbers.

The evidence also bears out what is common knowledge today – that much of the growth and consequently, poverty reduction, has come from growth in the tertiary sector and to a much lesser extent, the secondary sector. There has also been significant increase in inequality in the urban areas and a decrease in inequality in the rural areas.

There has been an increase in urban inequality and decrease in rural inequality

There has been an increase in urban inequality and decrease in rural inequality post 1991 reforms. Source: Growth, Urbanisation, and Poverty, NBER working paper. 

While rural growth was the most important contributor to poverty reduction pre-1991, it has been replaced by urban growth after the reforms. A more important finding is that urbanisation has impacted poverty reduction not just in urban areas but also in rural areas. This phenomenon of inter-regional effects of economic growth is applicable to the post-reform period only. Before 1991, urban growth had no effect on rural poverty.

The authors have also shown that the classic Kuznets process has not had significant impact in the poverty reduction in India. As per Kuznets process, the growth in poor countries leads to increase in inequality in the beginning, which eventually declines as rural poverty measures exceed urban measures. However the low impact of Kuznets process in India signifies that the difference between rural and urban poverty rates is small.

It was also found that there are strong inter-sectoral linkages post-1991. Growth in one sector has had a positive impact on the other sectors. It is also quite interesting to note that the secondary sector which had minimal impact pre-1991 has contributed to poverty reduction in the latter period, along with the primary and tertiary sectors. The role of the tertiary sector, however, remains the most important, with its contribution to poverty reduction as high as 60%.

There has also been significant changes in growth elasticity (responsiveness of poverty reduction to economic growth) in the three sector between the two periods. The tertiary sector has the highest (absolute) growth elasticity for both periods, implying that poverty reduction is highest in response to growth in the tertiary sector. The elasticity for the primary sector has been decreasing since 1991, reflecting its lower share of national income. The most important change has been in the secondary sector, which has changed signs from negative to positive since 1991.

Apart from decrease in poverty levels, India’s labour markets are also undergoing structural changes. According to the authors, there has been a tightening of rural casual labor markets, with rising real wage rates, and also a narrowing of the urban-rural wage gap. The three main factors explaining such a change are: reduction in the supply of unskilled labour due to the expansion of schooling, decline in female labor- force participation rates, and the construction boom across India. This mismatch between lower supply of unskilled labor and rising demand for that labor has increased the casual wages and thereby reduced the urban-rural wage gap.

If the urbanisation process in India is seen as both urban economic growth and increase in urban population, its contribution to poverty reduction in post reform India is clearly significant.

Anupam Manur and Devika Kher are Policy Analysts at the Takshashila Institution and they tweet at @anupammanur and @devikakher respectively.


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Unaccounted income: To begin from the beginning

The current approach towards unaccounted income overlooks the sources of the unaccounted income.

By Surya Prakash B. S. (@SuryaPrakashBS) and Devika Kher (@DevikaKher)

The focus of the political debate about corruption in India is primarily confined to the unaccounted wealth stashed abroad. The solutions demanded focus on disclosure of assets located outside India and implementation of anti-money laundering laws. Amidst all this, the root cause for the generation of the unaccounted income is being overlooked.

The current approach towards unaccounted income overlooks the sources of unaccounted income. In addition, the various statutes in this area primarily link generation of unaccounted income to the proceeds from criminal activities.


In May 2015, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was passed with the objective of dealing with the undisclosed foreign income and assets. The Act also has a provision to impose tax on such income and assets.

Before the Black Money Act, 2015, the Prevention of Money Laundering Act, 2002 (PMLA) was in place to curb the problem of money laundering in India. As per the Act, possession of money, and assets generated from crimes like arms, narcotics, immoral trafficking was made punishable with the objective of reducing proceeds from crime. The Act refers to definitions under the Indian Penal Code to define the term ‘crime’. Therefore, reach of the Act is constrained continues to be so even after the new Black Money Act.

Dr. Nigam Nuggehalli, an associate professor at Azim Premji University has looked into the shortcomings of the Black Money Act regulating the unaccounted and undisclosed income. As per Nuggehalli, the Black Money Act provides a lot of discretionary power to the officers in charge and does not serve any purpose above and beyond, what is served in the Income Tax Act, 1961 and the PMLA, 2002. However, there are more generic problems attached to the legislature enacted to reduce the unaccounted income in India.


The legislature in place currently restricts the scope of ‘black money’ to the income generated through illicit activities or the undisclosed foreign wealth or assets. They completely overlook the instances where illegitimate income is generated while carrying on legitimate businesses.

Based on the data collected from I Paid A Bribe, an online platform to report corrupt activities, some education institutions collect Rs. 20,000 to Rs. 1,00,000 as bribes for admissions. For services like ensuring passport verification or getting passport renewed, the market price estimated for the bribe is Rs. 200- Rs. 10,000. The closest that PMLA, 2002 gets to addressing such instances is by declaring ‘public servants taking gratification other than legal remuneration’ as a crime. Even then it does not looks at the root causes behind the rise of the undisclosed income like the transaction cost and the principal agent problem.

The scope for corruption primarily exists due to the cumbersome processes and the ambiguous regulations set by the administrative authorities. An increase in the time and the money spent on completing the process makes the illegitimate methods look economically rational in comparison. In certain situations the corrupt practices are also used due to the principal agent problem. The provisioners exploit the opportunity to extract benefits from the customers, as the service provided is in the interest of the customer and do not affect the provisioner. For instance, a process like ensuring passport renewal is only in the interest of the passport holder. Hence, the passport authorities use this chance to gain extra benefits.

To sum up, a close scrutiny of both the generation and the flow of unaccounted income are needed. Addressing the root cause behind unaccounted income generation requires an in-depth analysis of the sectors prone to malpractices. This analysis will help to better understand the environment that facilitates and necessitates such behaviour.

We hope to explore in further detail these aspects over the next few blogs.

Surya Prakash B. S. is a research scholar at The Takshashila Institution. His twitter handle is @SuryaPrakashBS

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher.


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Narendra Modi’s One Year – A review of reviews

By Anupam Manur and Devika Kher

In one year, the PM has made incremental changes to the economy, government structure, and foreign policy but the lack of the game-changing reforms expected of him renders the year marginally above average.

One year on, Prime Minister Narendra Modi’s performance has been under severe scrutiny and though the assessment has been mostly positive and hopeful of the coming four years, there is an underlying recognition that much more needs to be done in order to justify the overwhelming mandate.

Economic Performance under Modi

As per New York Times’s article by Ellen Barry, “India is now seen as a bright spot, expected to pass China this year to become the world’s fastest-growing large economy.” Prime Minister Modi entered the office at one of the most exciting time that the Indian economy has seen till date.

To begin with, almost all the dailies commonly acknowledged Prime Minister’s ‘luck’ with the oil price fall and discounted his contribution to the financial condition of the country. The Live Mint’s editorial article remarked on lower commodity prices bringing down inflation, fiscal deficit and the current account deficit. However, Raghuram Rajan is quoted by Barry as appreciating the government’s steps to create an environment for investment.

India also saw liberalisation of sectors untouched for a long time; limits on foreign investment in defence and insurance were both raised to 49 percent. The PM also deregulated the prices for diesel, petroleum and cooking gas. Live Mint also appreciated the PM’s move to avoid lavish increases in minimum support prices and the successful auction of coal blocks and telecom spectrums.

The improvement in economic performance has largely been attributed to positive global factors rather than the present government’s interventions. There have been no revolutionary game-changing reforms and the government is struggling to implement its Goods and Services Tax and Land Acquisition Bill, even in a diluted form. Surjit Bhalla, in his Financial Express column, is particularly critical of the confused tax policy. The retrospective Minimum Alternate Tax (MAT) has led to Foreign Institutional Investment outflow and a loss of confidence in the Indian economy. The data on FDI for the popular ‘Make in India’ campaign does not match the brouhaha. The Urbanization agenda also scores rather poorly, with no real activity on the ‘100 smart cities’ project. The government’s track record on education and health is not impressive either, as argued by Tavleen Singh. Another article in the Hindustan Times also severely attacked the government for reducing the budget in areas like food subsidies, health, education, etc.

Social Policies

Subir Gokarn’s one year report card in Business Standard positively assessed the progress on three critical structural challenges: food, infrastructure and employment.

The PM has, however, been applauded for the announcement of various social schemes such as the Pradhan Mantri Jan-Dhan Yojana and the Atal Pension Yojana that will improve the financial inclusion of the people. However, G. Sampath has dubbed these financial inclusion schemes as Modi’s war on welfare as they have come at the cost of poverty alleviating ones. While the MGNREGA and the Food Security Act were rights-based social provisions, the Pradhan Mantri Yojanas “put the onus of social security on those who lack it the most — the poor themselves”.

PM Narendra Modi and President Obama

Foreign Policy 

An Open magazine article by Brahma Chellaney commented that pragmatism, zeal and showmanship were the trademarks of the PM’s foreign policy. He describes the PM as a ‘a realist who loves to play on the grand chessboard of geopolitics’ and postulates that the foreign policy strategy is to revitalise India’s economic and military security. He does appreciate the PM’s “non-doctrinaire foreign-policy approach powered by ideas”. In a Hindu article, Chellaney states that “for a politician who came to office with virtually no foreign-policy experience, Mr. Modi has demonstrated impressive diplomatic acumen”.

The Diplomat’s two part review of the PM’s one year by Rohan Joshi complimented the PM on his efforts ‘to correct the faltering trajectory of India’s relationship’ with the United States and China and described them as “a positive departure from the past”. Joshi also acknowledged the PM’s attempt to strengthen relations with “Asian Sates that share India’s anxieties over China’s aggressiveness in its neighbourhood.” He goes on to commend the PM’s indifference to Pakistan and his work to build relations with Bangladesh.

It is generally agreed that Narendra Modi has been the most active PM in India’s recent history with regard to foreign policy. However, critics have questioned the timing and number of Modi’s foreign visits as it has left Modi with little time for domestic affairs. Chellaney points out that the Sri Lanka visit could have been extended till after their domestic elections and that his visit to China within 8 months of Xi’s visit to India can be considered too soon.

The Autocratic ruler

The PM’s micro-managerial style has come under intense scrutiny. The Economist ran a cover story on “India’s one man band” where the PM was appreciated for his move to devolve powers to the states. According to The Economist, this would help in creating a manufacturing boom in the country. However, the magazine contends that Modi’s biggest mistake is to believe that he alone can transform India.

The PM is however, having an impact on the bureaucratic culture in India. One of his first reforms was to push for the self attestation of documents. The fastidious whip of the PM has made the bureaucratic staff more efficient and punctual. According to the New York Times article, the PM has ensured that all business deals by ministries are routed through his office to remove the “informal meetings that business leaders used to hold with ministry officials.” This opinion was also backed by Mint, which dubbed the PM an effective administrator.

Brahma Chellany also supported this view by pointing out that the PM has realised the negative impact that corruption would have on internal security and foreign- policy options, and is seeking to bring it under control.

However, not everyone is happy with Modi’s style of governance. The biggest criticism against Modi and his government is that it is hard to distinguish between the two. Santosh Tiwari, in his Financial Express column, contends that the fallout from PM Modi projecting himself as the sole panacea to all of India’s woes is that there is a genuine lack of second rung leadership in the party and the government. The result is that the PM is the final authority on all matters, which hampers the ability of other ministers/leaders to act competently and independently.

Mihir S Sharma, in his acutely critical article “Wasting 282” in the Business Standard, argues that Modi has wasted the enormous mandate presented to him in his first year and attributes this to the lack of direction of top officials.  Ministers and bureaucrats are confused and pulled in different directions because there are no clear set of guiding principles from the PM. The PM insists that “hands-on, case-by-case action such as he delivered in Gujarat, is enough”. This explains the piece meal reforms and lack of big sweeping reforms.

The final word:

Given the nature and enormity of expectations, PM Modi’s government was bound to fall short. As Rajiv Kumar puts it “surprisingly, thus, at the end of one year, Modi finds himself facing disquietude and impatience from the middle, neo-middle and business classes who were his star supporters during the campaign”.  In one year, the PM has made incremental changes to the economy, government structure, and foreign policy but the lack of the game-changing reforms expected of him renders the year marginally above average.

Anupam Manur is a policy analyst at Takshashila Institute and tweets @anupammanur

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

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Bringing efficiency to social welfare

The linking of the Atal Pension Yojna to other welfare schemes is a positive step towards greater operational efficacy


In order to be successful, social schemes in India need more efficient design structures and easier and more effective implementation procedures. The first step towards achieving this would be to streamline the existing structure of the implementing agencies as this would reduce the economic cost incurred. Thankfully, the current government has already realised the benefits of optimising implementation and has begun to link various schemes to each other. The latest pension scheme in India, the Atal Pension Yojana (APY), will utilise the organisation architecture of the National Pension Scheme (NPS) launched in 2004 and will also be using the accounts created under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) to broaden its provision.

Linking with the NPS

The biggest advantage of linking the APY to the NPS is the number of benefits availed by utilising the NPS’s established structure. For example, the Union Budget 2014-15 made the NPS more lucrative by granting an extra tax deduction for investments in the NPS. The Finance Minister announced that a separate tax deduction of Rs 50,000 will be allowed over and above the limit of Rs 1.5 lakh set by Section 80C of the Income Tax Act, 1961. This was done to increase the demand for the NPS.

Another bonus to the APY is that it can piggyback on the subscriber base already accumulated by the NPS. In a period of 6 years, the NPS has managed to accumulate 38 lakh subscribers. However, this number could still increase; 38 lakh subscribers still only form a small percentage of the total population. One of the reasons for this is the low commission rate for NPS agents. They consequently do not have sufficient incentive to promote the scheme and the net result is that people are comparatively unaware about the scheme. Keeping this in mind, the Finance Ministry has announced that pension schemes for the unorganised sector would be linked to the PMJDY .

Linking to the PMJDY

The PMJDY is a scheme to improve financial inclusiveness amongst low income groups and was launched in August, 2014 in two phases. The first phase will end on August 14, 2015 and its target is to provide bank accounts to all families that don’t already have one. The aim of the second phase will be to provide micro finance and unorganised sector pension schemes though ‘business correspondents’. The PMJDY utilises the Aadhar framework as a delivery mechanism. The Aadhaar is the ID number issued by the Unique Identification Authority of India. It was introduced with the primary objective of providing identification to Indian citizens who did not have government issued identification documents. As of January, 2015, the PMJDY scheme had managed to open 115 million accounts. However, only 28% of these were active while the rest had zero balance.

The Finance Ministry has been trying to activate these zero balance accounts by linking them to various Direct Benefit Transfers such as the APY. This approach is very similar to the various methods used by the government to incentivise Aadhaar cards. One such method was to use Aadhaar to create the subscriber database of beneficiaries for schemes such as Mahatma Gandhi National Rural Employment Guarantee. Another was to make the Aadhaar sufficient proof for “Date of Birth” to obtain a Permanent Account Number (PAN card), an identification for Indian citizens who pay income tax. Linking PMJDY accounts to such schemes would not only increase financial inclusiveness in the country but also help ingrain a habit of long term saving among individuals.

Such a move would benefit the APY too as it would allow the scheme to access the Aadhar database to help identify beneficiaries.  Despite having a voluntary enrollment process, Aadhar has managed to cover 80.46 crore people. As per an affidavit by the government, “16.25 crore bank accounts have been linked to it enabling the public to get direct benefit transfer (DBT), over 37 crore LPG subsidy transfer transactions amounting to a total of over Rs. 11,500 crore and a total of Rs. 61.04 lakh payment transactions have been done through DBT across the country for 34 schemes amounting to Rs. 681.14 crore.”  The 16.25 crore accounts created include those bank accounts created under the PMJDY.


This step taken to link various authorities will help in efficiently and effectively delivering social welfare schemes to Indian citizens. Reducing the level of compartmentalisation across the various social welfare schemes would streamline the process for both government and citizens. Clustering various social schemes together will help in directing the energies of the various governments authorities involved and will reduce the transaction costs faced by subscribers who have to deal with cumbersome processes in multiple government offices to avail of these schemes. For instance, the potential of Aadhar as a common database for all social benefit schemes would make identification of beneficiaries much easier as well as reduce the amount of paper work and documentation necessary for beneficiaries to avail these benefits.

However, there is still a vast scope for improving the operational efficiency of social welfare schemes such as the APY. A greater use of innovative processes and technologies will probably be the next major step, though awareness and finances may initially be a burden in achieving this. Most government authorities have already using mobile phones as a platform to interact with subscribers to their schemes. The next innovation would be to use electronic payments via mobiles for directing cash transfers. Vodafone has tried to bring mobile cash transfer services to India through M-Pesa but a lack of digital and financial education has restricted its growth in India. There may still be a long way to go, but the linking of schemes is certainly a positive first step.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

Image credits: Ekta Parishad

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The Financial Viability of Net Neutrality

Why open internet service provision also needs to be  financially feasible

The basic challenge for internet service provision is to find a balance between keeping it financially viable while maintaining an open internet. This requires a policy that provides space for Internet Service Providers (ISPs) to grow but ensures that they do not throttle access to any online data. The best way to arrive at this policy would be to consider the incentives of both ISPs and consumers.

In order to make internet service provision financially feasible and open, we would need a business model which is viable, inclusive and provide equal access to all data on the net. Viability would help internet service providers to increase investment in infrastructure. Increased inclusiveness would enable more people to benefit from access to the internet . Finally, equal access to information is essential for maintaining a liberal and open internet.  Keeping all the three objectives in mind, there are two ways to go forward.

One is to allow ISPs to discriminate different data packages but allow the free entry and exit of firms in the telecom sector. The resulting competition in the market would increase access to data would allow consumers to switch between ISPs. Moreover, if ISPs were allowed to sell or sub-lease their spectrum to other interested parties would be able to exploit the market potential further. This would  make the market more competitive and profitable. The Competition Commission of India (CCI) can secure the market from exploitation by ISPs .

The second way is to protect net neutrality by ensuring that no data discrimination takes place on the broadband mediums like, cable and wireless network. However, in this case ISPs and content providers should be allowed to get into mutual agreements that does not result in data discrimination. Since the first option is a far-fetched possibility in the current set-up, let us explore the second one.

In order to keep the internet free and open, it is important that all data is treated equally on the internet regardless of the source. Additionally, it is also a major prerequisite for India to remain globally competitive as net neutrality is the norm in countries like USA. That said, it does not mean that ISPs should be restricted from entering into contracts with content providers. If Flipkart wants to undertake a joint marketing initiative with Bharti Airtel, it should be allowed to so. For example, Flipkart can give benefits to Airtel from sharing their customer base. To be extremely clear, such collaborations should not hinder access to any other internet sites. This will maintain a level playing field for all content providers.

This level playing field is a necessity for new entrants into the market. That being said, it is a rite of passage for start-ups to compete with established players for a market share. Content provision on internet is one of the few examples where cheaper methods of promotion, like word of mouth publicity, can help in capturing a large market base in a short period. Therefore, if net neutrality is maintained the onus is on these start-ups to build the capacity to secure a market share. I would like to conclude by quoting this pertinent observation by Shashi Shekhar :

“Ultimately, for digital innovation to thrive in India, the service providers and the application start-ups should learn to co-exist with mutually beneficial business models.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

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Information Asymmetry in the Information Age

Why the impact of new technologies on markets requires governments to revise their regulatory policies

In their interesting article, Alex Tabarrok and Tyer Cowen discuss the declining relevance of asymmetric information. Information asymmetry occurs when one party has more knowledge about the transaction than the other. Usually this grants that party an undue advantage in the transaction whereas the other faces a higher risk. Taborrok and Cowen explain how various new technologies have provided enough avenues to minimise information asymmetry within the economy. They go on to conclude that this change deserves a re-examination of regulatory policy as most of the theories relating to information asymmetry are now obsolete. This post shows how this conclusion is equally relevant in the Indian context through the following scenarios.

 The Ordeals of a Family Vacation

Till recently, a typical middle income family in India would spend lots of time, effort and money planning their itinerary for their yearly holiday. Better off families would opt for travel agents who could reduce the amount of time and effort required, i.e. the transaction cost. However, the monetary cost would probably increase considerably as travel agents often exploit their customers’ poor knowledge of ticket prices and regulations to increase their profits.

This entire set-up changed dramatically with the advent of online travel booking sites. The entry of sites such as Yatra, TravelGuru, and MakeMyTrip into the market reduced the transaction costs of travel as booking a ticket was now just a click away. Furthermore, these sites supplied travellers with data they could use to make more informed choices. Such data would range from information about weather conditions and popular tourist sites to customer reviews containing user-uploaded photos. The most important contribution of these sites was to reduce the information asymmetry by removing the middle men. By providing limitless options for travel and accommodation, and the option of online payment they enabled middle income families to plan their holidays in hours.

 The Maid Market in India

Information asymmetry can increase the risk of buyers making uneconomic decisions because it often leads to a decline in the quality of products offered in the market. This decline induces buyers to reduce the amount they are willing to pay for the product and can eventually force sellers of costlier and higher quality products out of the market. This creates a market which is dominated by sellers of low quality goods. In economics this is referred to as adverse selection; a good everyday example would be house maids.

With the rise in the incomes and aspirations of middle income India, a larger number of families have started looking for house maids who comply with their living standards. Such families are increasingly looking for maids who understand English, care for hygiene, can cook continental food, handle hi-tech home appliances and are neatly dressed. However, the market for house maids suffers from an asymmetry of information. Households are usually at the losing end of the bargain as each maid has more knowledge of her expertise than the house owner. House owners would try to reduce their risk by initially paying a low wage to the maids. This would price out higher quality maids who value their service at a higher rate and would leave only low quality maids in the market.

This problem has been solved by home maid agencies. These agencies recruit domestic workers or people interested in domestic work and train them according to changing demands within the market. These agencies help domestic workers in finding better opportunities by guaranteeing a higher quality of service provision to house owners.

 The GPS Tracking of Garbage

The principal-agent problem occurs when a person (the principal) hires someone (the agent) to perform certain tasks. However, in most cases the incentives of the agent differ significantly from the principal as the costs incurred are borne only by the principal. The textbook solution is to create incentives for the agent such that it is in his or her self interest to follow the principal’s directions. One such incentive is to share the risk. For example, companies like Infosys pay their CEOs with stock options as a compensation for relatively low salaries. Another method would be to increase the cost of disobedience by monitoring the agents more. An example of the latter method is the use of GPS fitted garbage trucks in Delhi.

Garbage trucks are owned by private garbage disposal services or by municipal corporations. These trucks collect garbage from all across the city and dump it at a particular location. However, the drivers of the trucks have various incentives that interfere with this role. These include profits from reselling the garbage or alternate uses of the truck. In 2013, the Delhi government fitted GPS devices to garbage trucks to track their movements and monitor their work performance. These monitoring systems reduced the information asymmetry between the drivers of garbage trucks and owner of the garbage disposal services.

 Uber: the Escrow Agent

Asymmetry of information can often create distrust between the parties to a transaction. In such cases, escrow agents act as a trusted third party that ensure that parties maintain the standards of performance set by the contract. A simple example of this would be Uber, an international company which operates a mobile app that allows customers to book taxis.

Uber’s legal page describes the company as an intermediary for taxi drivers and people interested in availing their services. This role allows Uber to guarantee that there will be no bargains over fares for customers as well as a regular stream of income for drivers. In doing this, Uber reduces the information asymmetry by providing details about the driver ranging from his current location to his basic profile. This has helped in reducing the transaction costs of cab rides and has empowered customers trying to narrow the information gap.

 In Conclusion

The advent of new technologies has mended multiple market failures by narrowing the information gaps in various economic exchanges. In doing so they have also changed the very fabric of transactions and have thus rendered many theories from the past obsolete. As many regulatory policies were designed on the basis of those theories the onus is on political systems to revise these regulations. When they do so, they must keep in mind the ways in which new technologies have affected information asymmetries. In order to maintain pace with innovations, these policies would have to be time bound and adaptable to the needs of the time.

Tabarrok and Cowen succinctly summarise the challenges of such reforms in their piece:

 These changes cast new light on the costs of a political system that produces many new regulations but repeals very few old ones.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

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The Predominance of the ‘Rule by Law’

How the Indian Government is using laws to undermine the ‘rule of law’

By Devika Kher

In the last few weeks, we have seen the government use its powers to restrict what we watch, hear or eat. These bans and restrictions have been made at the cost of fundamental rights such as the freedom of speech and the protection of personal liberty. They are good examples of how the ‘rule by law’ is taking over the ‘rule of law’ within India.

In his paper “What is Governance,” Francis Fukuyama explains the difference between the rule of law and the rule by law. ‘Rule of law’ refers to the principle that no one is above the law, including the makers and enforcers of the law. ‘Rule by law’ on the other hand, refers to the use of laws by the government as an instrument of power. In India, the rule of law is secured by the Fundamental Rights included in the Constitution of India; Article 13 (a) states that any law made by the legislative has to be in conformity with the Fundamental Rights of the Constitution, failing which it will be declared void. Some of these Rights include Article 14, which creates the right to equality and Article 21, which states that no person’s life and personal liberty can be restricted except according to the procedure established by law. The ‘Rule by Law’ also derives its legitimacy from the Constitution. For example, Article 73 states that the executive power of the Union extends to matters on which Parliament can legislate.

An example of the rule by law stepping over the rule of law would be Section 66A of the Information Act 2008 which punishes those people who send “offensive messages” online. Terms like “offensive” are ambiguous and their meanings vary from case to case; this makes them hard to enforce without personal bias. Such terms give unfettered powers to the government as described by Fukuyama. Section 66A was used to controversially restrict the broadcast of India’s Daughter, a documentary by Leslee Udwin about the infamous Nirbhaya case.

The documentary came into the news after the publication of an interview with one of the convicted rapists, in which he expressed his regressively patriarchal views. The uploading, transmission and publication of the footage of the interview was restricted by the Municipal Magistrate who used Section 66A as one of his grounds. The magistrate did not question the need for such an order before issuing it. The order is now being reviewed by the Delhi High Court.

The other famous recent event which makes the case for the predominance of the rule by law is the ban on beef in Maharashtra. Article 48, which enables the prohibition of cattle slaughter, was used to pass the amendment which essentially enforced the religious beliefs of the majority of the population. The rules set in the Constitution were used as per the whims of the government as an instrument to fulfil their motives.

The Constitution is the basis on which the Government of India functions. The Constituent Assembly designed its Articles to ensure that the ‘rule by law’ is limited by the ‘rule of law’. Unfortunately, going by the government’s decisions in the last few weeks, it appears that the law instead of being the king of the land has been reduced to an instrument of power of the government of the day to push through its own agendas.

Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher

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Job search for a digital India

By Devika Kher

It is IT that has the potential to connect each and every citizen of the country.

The Prime Minister in his Independence Day speech brought wider attention to the idea of having digital India work for the poor. His emphasis on using Information technology to drive development will be a boost for those ideas that seek to use an IT led approach to bridging the developmental divide. One area where this can be implemented effectively and efficiently is by changing how the job search works in rural areas.

The space for job search is dependent on three factors- skill (What one can do), location (Where it can be done) and revenue (How much will it earn?). With the advent of Internet, the answers for the three questions are available on online job portals. Websites like of Naukri.com and Times Job have created single platforms to enable employees meeting  employers. This has led to a multifold reduction in the time, energy and money spent in job hunting, or to use an economic jargon, has reduced the ‘search cost’ multifold.  But in order to enjoy these fruits of Internet technology, every individual requires an exposure to the advances of the IT. This is where the rural India is far behind the urban counterpart.

The foundation for providing digital exposure to the poor has already been laid by the Ministry of Communications and Information Technology (MCIT). The Department of Electronics and Information Technology under MCIT has created Common Service Centres (CSC) with one of the provisions being an IT terminal at village level. However, in order to change the space for job search in the rural ends of the country, we need more than just the infrastructure. We need a drastic change in the mindset. We need to create awareness as well as a will to change the perception of job search.

All of this is to be done with the ultimate goal of making job search as costless as possible.  The scope for the change is not only to reduce information asymmetry  regarding urban jobs but also about the jobs in rural districts. To begin with, the prime beneficiaries of this intervention would be the skilled and semi-skilled labour with adequate knowledge to access Internet. The benefits can then percolate as the skill enhancement initiatives by various NGOs and governmental organisations attains broader base.  The extensive use of online portals would help broaden the choice for both employer and employee and would help in smoothing the process of wage settlement.

This drastic change in “the way things are done” can be understood and implemented using Kurt Lewin’s three step process for change. Kurt Lewin, popularly known as the father of modern social psychology, made important contributions to study of organisational development with the change process being one of his most famous works. Lewin used the analogy of changing the shape of a block of ice to describe the change in the organisation structure. Appropriately enough, he called the three stages as- Unfreeze, Change and Freeze.

In case of changing the pattern for job search, the Unfreeze stage would essentially include breaking down of the status-quo, which in the given case is the cumbersome and corrupt process of application for jobs and the negative effects of a grapevine communication currently substituting for a formal setup. This can be brought about by creating awareness about the advantages of accessing mobile and Internet services in the process of job search within the rural ends of the country. A strong campaign can be made to promote the use of online portal and highlight the advantages of the use of a common platform for job seeking. The main focus in this stage would be to convince the population about the need to change which would pave way for a change in the outlook.

During the stage of Change, the political-socio-economic setup can be altered such that more people start opting to the new way of job hunting. This would require a dedicated effort by the government authorities such as Ministry of Human Resource Development, Ministry of Communication and Information Technology etc. to work towards creating platforms for promoting endeavors which would help reduce the fixed employment cost faced by the employers and search cost confronted by employees.

Along with the government authorities the private players in the market such as Naukri.com can expand their database to accommodate the information regarding the jobs in the rural ends as well. The rise in the number of users of the online portal would create network economies by expanding the scope of information available. Hence, time and communication would play a vital role in bringing about the much required change in the entire process of job search.

Finally, in the Freeze stage, as the modes adopted for job search would alter for good, the government and private players can spend their energy in creating a framework which could incorporate the changes in the most efficient manner. An important consideration in this stage would be to identify the barriers and support system of the altered process so as to sustain the change within the system. For instance, a significant area of concern would be creating a structure to ensure the robustness and the efficiency of various modes of technology used within the framework. A system would have to be made to keep a check and bring appropriate changes to the developed framework as and when required.

These three steps can be seen as the guiding principles for the new government in order to attain the dream of a digital India in at least the very basic hurdle of job search.

Devika Kher is a Research Associate at the Takshashila Institution.

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