Inflation

Everyone seems to be concerned, rightly, about inflation. BL has a table giving prices of consumer goods over the last three years - where price changes look less threatening.



Reason. BL reports:

A combination of several factors has helped keep consumer goods prices under check over the past three years.

As Mr R. Subramaniam, Managing Director of discount retail chain Subhiksha explains, most categories have been inflation resistant due to stiff competition be it in shampoos or tea. "Combined with excise and income tax sops offered for manufacture in certain locations such as Uttaranchal, the North-East and Himachal, there has been significant cost savings for manufacturers also — so it is not as though their bottomlines have suffered. Also in specific categories emergence of new competition, for example in biscuits a reinvigorated Parle and a rampaging ITC have also been an issue."

Food prices are still a major concern, and everyday you see reports of government trying to do something about it by banning exports, lowering important prices, forcing people to sell them at certain prices, trying to ban future trading etc... BL has another piece - an interview with Mr Ramkishen S. Rajan, Associate Professor, School of Public Policy at the George Mason University, US - suggesting that targeted subsidies could be better solution here - but distribution infrastructure and fiscal deficit might come in the way.

On how inflation is supply-driven.

Inflation in India is also supply-driven in the sense of rising food prices. However, conventional monetary policy instruments are best used for demand-side inflation. Developing countries tend to use direct measures such as price controls, prohibiting exports of foodstuffs or reducing import tariffs on such items.

On the effectiveness of these measures.None of these are advisable policy options as they have distorting effects on the macro economy.

What are the options, therefore?

Directed and targeted subsidies to the least well-off would be preferable, though admittedly in the Indian context it is unclear that such a policy option will work effectively both because of the inefficiencies in delivery as well as the large consolidated fiscal deficit (which in turn highlights the need to take action on this front). Over the long term, focus must also be on systemic reforms to agriculture so as to overcome inefficiencies and reduce vulnerability to monsoon conditions.

More

Microsoft, Skype seek removal of licensing curbs on Net telephony

NEW DELHI: Global internet telephony major Skype has demanded that India remove all rigid application-specific licensing requirements for internet service providers and replace them with a light-touch regulatory regime. It has also said that ISPs should offer full-fledged internet telephony services.

In its communication to telecom regulator Trai on the review of internet services in India, Skype has said that any revenue loss to the government on account of allowing full-fledged internet services, including internet telephony would be “more than compensated for by revenues generated by overall economic gains, taxes on new broadband and e-commerce services, efficiency savings and by e-enabling government departments”. here

An earlier post on internet through DTH services here

If these two services are permitted than rural telephone, net connectivity can be ensured overnight. one wonders if the govt will drag its feet as usual given the strong vested interests in the continuation of the present system and sadly disconnect the aspirations of a large part of the country.

Power entrepreneurs step in to keep Baghdad humming

BAGHDAD — Some people never complain about Baghdad's daily power outages.

Wathiq Hassoun, 31, is one of a number of entrepreneurs who operate large generators and sell electricity to entire neighborhoods. "It's a great business," says Hassoun, who started his career shortly after the U.S.-led invasion in 2003. His profits have allowed him to buy two houses, one of which he rents out. here

maybe parts of india need this service too!

Socialised healthcare

When someone asked Gandhi what he thought about western civilisation he famously replied 'it will be a good a idea'. I guess you can use the same answer if someone were to ask what you about public health system in India. (We stand 126th among 159 countries according to the latest Human Development Report.)

Check this out. In villages near Madurai people go to primary health centres in good number only when crops fail, and they cant afford Rs 10 to private doctors, sending signs to HLL salesmen about how his business going to be in that season, and making a bigger statement about the state of free healthcare in the country.

A July 2005, report on Delhi doctors by World Bank says "doctors in the fee-for-service private sector are closer in practice to their knowledge frontier than those in the fixed-salary public sector. Under-qualified private sector doctors, even though they know less, provide better care on average than their better-qualified counterparts in the public sector." I know i am being unfair to thousands of healthcare professionals in government run hospitals, but i dont think i would be wrong in joining those who criticise how these hospitals and healthcare centres are run.

So, does that mean we will be better off if they are all run by private sector? It might be instructive to compare countries which provide socialised healthcare with those that dont. This piece from Economist website's new feature CORRESPONDENT'S DIARY does just that:

America is the only advanced country that does not have universal health care, with a "single payer", the government, organising the system. Instead, America argues that competition between private-sector insurance companies will cut costs and improve services. If only...

As Paul Krugman, an economist and a New York Times columnist, has pointed out, universal health-care systems minimise their risk by covering everyone, ill and healthy alike. Private-sector insurers minimise theirs by avoiding the sick. So woe betide you if you have a pre-existing condition. Bad luck, too, if you have a catastrophic illness and then lose your job.

At some point, surely, a tipping point in public opinion will be reached. It would help if America's bosses lent a hand: after all, $1,500 of the price of a car from loss-making General Motors goes to pay for health care. I remember interviewing Howard Schultz, the boss of Starbucks. Mr Schultz gives his employees, including part-timers, good health cover, but he also lobbies for the burden of care to be taken off employers' backs, and he cannot understand why so few other bosses are willing to join his campaign.

Perhaps the reason is that the obvious alternative would be "socialised medicine", a phrase that sets alarm bells ringing for the average American. But, as I say in arguments with bemused American friends, the country seems happy enough to have "socialised" roads, schools and armed forces. And what do they get with their present health system? They get lower life expectancy than in most of Europe, and higher infant mortality than in Cuba―even though, at around 15% of its GDP, America's spending on health care is the highest in the world.

None of this convinces my friends. They counter with horror stories about Britain's National Health Service, or the growing queues in the Canadian system. I cite France and Belgium in retaliation. The fundamental problem, of course, is that no health-care system can be perfect when demand is infinite and supply is not. But America sees itself as a moral country. Can it be morally right that someone hit by accident or illness should then be hit by an enormous hospital bill?

Your thoughts?

Life insurance for HIV sufferers

Economist writes

DIAGNOSED with HIV 23 years ago, David Patient thought he would never see the day when he could insure his life. Until the launch late last year of AllLife, an innovative insurance newcomer, the few life insurers taking on clients with HIV offered very limited cover and charged prohibitive premiums. But AllLife is specifically targeting customers carrying the virus, offering them more affordable insurance for up to 3m rand ($410,000). They are now able to protect their loved ones and get mortgages. This is changing perceptions of a disease often considered to be a death sentence.

The average probability of AIDS death in South Africa would appear to make life cover prohibitively costly for people with HIV. But extremes rather than averages apply to HIV/AIDS: people who monitor their health and are treated tend to do well; most of the rest die quickly when AIDS sets in. The first group's risk profile is no worse than diabetics', according to AllLife. To maintain their cover, clients have to go for regular blood tests and take antiretroviral medication when needed. AllLife sends reminders for tests and monitors results. This helps clients to stay alive—and AllLife to keep risks down. Although its cover costs two to five times more than standard life insurance, it is much cheaper than what was available before.
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Life insurance remains beyond the means of millions of South Africans—whether they carry the virus or not—and very few apply for cover. Many of those who discover they are HIV positive withdraw because of confidentiality fears. But according to the Life Offices' Association, an insurance body, some established firms will soon come up with affordable products, too. It took decades before diabetics could insure their lives; let's hope people with HIV do not need to wait much longer.

Reading about AIDS, its public health implications, socio-economic profile of its victims and all the calls for donations to help them, i had always assumed that treating aids is a perfect example for a justifiable government intervention - and that private sector had little role to play, except in terms of charity. Bill Emmott, former editor of the economist once said that a key function of journalism is to challenge assumptions. This piece certainly challenged mine.

Even now, I don't, in any way, think that governments should keep away from dealing with AIDS. But, i look at this as an example of problems that businesses can address - even if they have to work a little harder for it.

And CK Prahlad has more examples in Fortune at the Bottom of the Pyramid.

protection from destruction is creation

when we look at markets - we look at what it creates. from food to telecom, the fruits of production are easy to identify.

but what about destruction.
dont markets have a role to protect people from destruction. often, when calamity strike when we think it is solely the duty of the government to come to aid of the people. surely non profits do play a role but that does not take away the a fraction of the responsibility the government of the day faces

but what if there is no proper government ??

here is a sadly interesting example of the flood in somalia.
"Hassan said the problem lies in the fact that the country has been without a government since 1991. No one has been able "to de-silt the riverbed or manage the sluice gates on the rivers or adjoining canals. We had one canal but it is no longer functioning". the entire story is available here.
if any of the few readers do come across interesting examples of how markets work or mostly dont work in times of destruction, pl. do leave a comment or mail us!

Somalia - the perfect lab to test free market theories?!

free market theories are mostly based on logic and inference from select situations. economists generally lack the luxury of other scientists - to create a condition in a country to test a hypothesis like say a physicist does in his laboratory.

but what if a whole economy by some quirk in the governance chain was filled with free market experiments and the results available to all to interpret?

while it may sound perverse, improvised Somalia should logically be a free market economists delight. we can search for answers why the market does a great job in areas like telecom and works rather inefficiently in infrastructure creation like roads.

" Somalia has lacked a recognized government since 1991—an unusually long time. In extremely difficult conditions the private sector has demonstrated its much-vaunted capability to make do. To cope with the absence of the rule of law, private enterprises have been using foreign jurisdictions or institutions to help with some tasks, operating within networks of trust to strengthen property rights, and simplifying transactions until they require neither. Somalia’s private sector experience suggests that it may be easier than is commonly thought for basic systems of finance and some infrastructure services to function where government is extremely weak or absent." says the finding from a World Bank report tiltled "Anarchy and Invention: How Does Somalia’s Private Sector Cope without Government?"

telecom in Somalia seems to be a great success story with the country enjoying one of the lowest rates in Africs as this article illustrates. "Three phone companies are engaged in fierce competition for both mobile and landline customers, while new internet cafes are being set up across the city and the entire country." the rather old BBC story adds ( i coundnt google out anything more recent), "It takes just three days for a landline to be installed - compared with
waiting-lists of many years in neighbouring Kenya, where there is a stable, democratic government. And once installed, local calls are free for a monthly fee of just $10. "

now, i guess , in india, we shouldnt be as liberal as we are in our praise for the govt and the entrepreneurs for the success in the sector but just cheer everyones invisible hands!!

i wonder how economics plays out in countries where governance is almost non existent - where market or others beastly forces reign - the areas the invisible hands works but is paralyzed elsewhere. -- in Markets sans ministers.