In India, the Solar Mission is meeting the target for solar PV but not for solar thermal August 1, 2013Posted by sharad in : Energy, Public Policy, Renewable Energy , comments closed
By Gireesh Shrimali, July 2013
In 2010, India’s Jawaharlal Nehru National Solar Mission (JNNSM) set a target to develop 20,000 MW of solar energy by 2022.
This target was to be achieved in three phases: Phase 1 by early 2013; Phase 2 and 3 by 2017 and 2022 respectively. Phase 1 was further implemented in two batches: Batch 1 with capacity targets for solar PV and solar thermal; and Batch 2 with a capacity target for solar PV only.
However, as of June, 2013, it appears that JNNSM, though moderately successful in deploying solar PV, has failed in deploying solar thermal. This, along with other issues, such as the cost of debt, translates to real concerns over whether India is on track to meet its ambitious targets.
So, what is happening?
For solar PV, the performance of JNNSM with respect to deployment targets has been moderately successful in Phase 1. In Batch 1, seventy three percent of the target capacity of 150 MW was online by the due date of October, 2011. In Batch 2, sixty seven percent of the target capacity of 350 MW was online by the due date of February, 2013. However, these numbers change to eighty seven and eighty six percent, respectively, once the capacity online until June, 2013 is taken into account. Finally, using a metric that penalizes capacity that was delayed, these numbers change to eighty four and eighty three percent respectively.
For solar thermal, based on the data available so far, the performance of JNNSM with respect to deployment targets has been a failure in Phase 1. There was no capacity targeted for Batch 2. Of the targeted approximately 500 MW of capacity in Batch 1, with a target date of March, 2013, approximately none had come online by June, 2013. That is, the completion percentage is zero by all accounts.
Why is this happening?
The deployment success of solar PV can be mainly attributed to the following: low technology risk, low developer risk, and low off-take risk.
The technology risk of solar PV is low. Solar PV plants have a simple mechanical setup, with no moving parts and no cooling mechanism. Further, there is considerable experience with installing solar PV not only worldwide but also in India pre-JNNSM – e.g., via the Gujarat policy that has deployed 850 MW so far.
The developer risk of JNNSM projects is low and is reducing over time. JNNSM reduced participation by non-serious players by incorporating a bid–bond that penalized delays in commissioning. Batch 1 received 343 applications amounting to 5,000 MW, whereas Batch 2 received only 152 applications amounting 1,900 MW. Although fewer projects bid under Batch 2, the average project size was much higher, indicating that only serious, well-qualified developers are staying in.
The off-take risk was low for JNNSM projects. All the projects under Phase 1 have a 25 year power purchase agreement signed with NVVN, the power trading arm of NTPC, which has a market capitalization of USD 35 Billion and net worth over USD 11.4 Billion. Thus, the power purchase agreement enjoys a strong credit rating and bankability, allowing these projects to secure funding in a quick manner.
On the other hand, there have been multiple challenges in getting solar thermal projects off ground, primarily related to technology, including construction, risk. Parabolic trough technology, the most dominant solar thermal technology, with an installed global capacity of barely 100 MW by 2012, has only 5.5 MW installed in India. Further, these large projects require a lot of land, with good direct normal irradiation and access to water as well as human resources, and all of these have contributed to delays.
Are there any policy lessons and/or recommendations?
In terms of what has worked, JNNSM has been successful in designing a price-discovery mechanism that, when combined with rapidly falling solar PV module prices, has brought down the delivered cost of electricity from solar PV by more than half in less than two years. JNNSM has also demonstrated that auctions can be successful, provided they are combined with bid-bonds. Finally, JNNSM has greatly benefited from the low off take risk provided by the NVVN power purchase agreement.
In terms of what has not worked has been embodied in the dismal performance of solar thermal plants. JNNSM can avoid these issues in future by taking the following steps. First, JNNSM should have promoted some pilot projects for solar thermal so as to reduce the technology risk. Second, JNNSM should have ensured that the plants have adequate information on solar resource as well as adequate access to resources. Finally, JNNSM should remove the technology specific domestic content requirements, and allow developers to choose the best available technologies.
Our paper, “How Effective Has India’s Solar Mission Been in Reaching Its Deployment Targets?” goes into more detail in evaluating the effectiveness of JNNSM, using rigorous analysis based on quantitative metrics, and offers suggestions for improving their design.
Energy, Public Policy, Renewable Energy , comments closed
By Gireesh Shrimali, February 2013
In 2008, India’s National Action Policy on Climate Change set a renewable portfolio standard, called the Renewable Purchase Obligation (RPO), to produce 15% of the country’s electricity with renewable energy sources by 2020. Further, under the Jawaharlal Nehru National Solar Mission, the Indian government aims to develop 20,000 MW of solar energy by 2022.
To help reach these ambitious targets in a cost-effective manner, India launched a market-based mechanism called Renewable Energy Certificates (RECs) in 2010.
However, in the one year of trading so far, participation in the REC markets has been low: RECs have failed to attract investment. Though the design of the REC mechanism appears adequate, the performance of the market has been far from satisfactory. This, along with other issues, such as the cost of debt, translates to real concerns over whether India is on track to meet its ambitious targets.
So why is this happening?
In theory, the REC market is simple. Distribution companies and other obligated entities must meet RPO targets. This creates the demand side of the market. REC certificates are issued to renewable energy generators. This provides the supply side of the market. However, in practice, we begin to see a different story.
Based on our analysis, we identified eight points to why the Indian REC market is not likely to achieve government objectives.
- The REC mechanism is unlikely to encourage cost reduction in renewable energy projects by promoting market forces and competition, given that participation in the REC markets has been too low to drive any cost reduction.
- The REC mechanism is unlikely to provide incentives to drive capital investment in renewable energy projects, given that the time frame of RECs is much shorter than the investment horizon; investors discount RECs due to perceived uncertainty and risk over project life.
- It is not clear yet whether the REC mechanism provides a mechanism to limit boom and bust cycles, given that renewable energy market has not yet overheated. However, current participation and incentive levels suggest REC mechanism insufficient to dampen cycles.
- The REC mechanism is unlikely to weave together various state-level incentive and policy regimes within a national structure, given that it does not incentivize states to work toward reaching national goals.
- It is not clear yet whether the REC mechanism provides incentives incremental to other relevant policies, given that, though REC cash flows are expected to be supplementary to other policies and can work in conjunction with state policies, these have not occurred to date.
- It is not clear yet whether the REC mechanism allows for technologically differentiated incentives to support new and diverse sources of energy, given that, though the design allows for differentiation, support for new renewable sources has been weak to date.
- It is not clear yet whether the REC mechanism will reach its goals at a reasonable additional transaction cost, given that, though direct transaction cost is low to date, it is unclear how costs will evolve as market matures.
- The REC mechanism is unlikely to accomplish its goals with a reasonable additional cost due to higher perceived or real risks to developer. High risk perception of using RECs or any project usually deters investments.
It may be too early to make firm recommendations for the REC system, particularly since the largest contributor to the relative ineffectiveness of the REC market is the uneven participation and regulatory policy of the Indian states, a factor which lies partially outside the scope of REC market design. However, certain design flaws are likely to contribute to a continued weak REC market.
First, there is overdependence on state level policy and compliance. The system is dependent on stronger and more credible RPO goals from Indian states than have been observed to date. Stricter compliance laws and enforcement of RPO goals will increase confidence in the nation’s commitment to these goals, and can help develop and support long-term stable REC markets. Incentives for the enforcement agencies and states could encourage state agencies to support RPO goals. For example, one such pathway could be making RPO compliance a necessary condition for the financial structuring package currently being implemented to improve the financial condition of state electricity boards.
Second, the market lacks of reliable long-term price signals. The lack of long-term price signals, contracts, and other commitments greatly increases the risk to potential investors for their energy sales beyond year one. Creating secondary markets can reduce some of the long-term price risks that investors perceive in RECs by providing some future price certainty. States’ commitment to long-term targets along with yearly targets would encourage developers to invest in RECs and, in the long run, would also limit boom and bust cycles.
Third, there isinsufficient market transparency. A lack of certainty about pricing and the market may be decreasing the impact of market signals and increasing investor uncertainty. Single window counters for accreditation, registration, and issuance of RECs could decrease the time taken to procure RECs and encourage participation in REC markets.
The REC mechanism is an ambitious and perhaps laudable effort to make India meet its renewable energy targets. However, this effort faces many barriers and some of them, such as the non-compliance of RPO, are formidable. The success of the REC mechanism will depend on removing these barriers, but with little or no efforts in this direction so far, it’s unlikely that this will happen on a timeline that corresponds with India’s ambitious renewable energy targets.
Our report, ‘Falling Short – An Evaluation of the Indian REC Market‘, goes into more detail in evaluating the effectiveness of Indian REC markets against eight government objectives and offers suggestions for improving their design.
Measuring Malnutrition July 21, 2013Posted by reuben in : Uncategorized , comments closed
Arvind Panagariya of Columbia University has published an excellent paper (Panagariya EPW) that questions the metrics being used to measure malnutrition in India. Highly recommended read.
The Top 5 Affordable Housing Projects? May 3, 2012Posted by nikhilesh in : Uncategorized , comments closed
By Nikhilesh Sinha
I happened to come across this on the Beyond Profit website. It’s a listing of the top 5 affordable housing projects in the country, and was posted in December 2010 so let’s first make allowances for that. However my criticism is less to do with the content as it is with the presentation of the information.
The description of each of the five housing projects is accompanied by a fairly attractive image downloaded from Flickr and suitably credited, but which seems to have absolutely no connection with project being described. This is standard practice when you don’t have access to real images, but in this case the images are actually misleading. The image posted beside Shubh Griha – Tata’s affordable housing venture in the mumbai suburbs- looks like it was taken in Delhi, the image next to Ramesh Ramnathan’s Janaadhar project is equally displacing, and the image next to Matheran Realty’s TM City looks suspiciously like the facade of a building in Jaipur.
What I learnt during my time in television is that the brain gives 70% of the emphasis to visual cues, whereas textual information that needs to be processed has less impact. The last entry refers to a project by Value Realtors in Rewari, close to Gurgaon. That project was eventually shelved because of issues with the land. A similar project by the same company has been successfully completed in Gujarat. The major innovation in this model is the single storey unit structure, which allows the addition of an extra floor as the text proclaims. Placing an image of a low-rise upmarket development with a row of cars parked outside does seem a bit odd. Or am I just being difficult?
Norms for green building should be made mandatory January 25, 2012Posted by nikhilesh in : Uncategorized , comments closed
By Roopali Raghavan
Rapid urbanisation is creating vast opportunities through an unprecedented demand for the construction of buildings, which already account for more than 30 per cent of India’s total electricity consumption. India’s total energy requirement is projected to grow at 6.5 per cent per year between 2010-11 and 2016-17, to support the country’s projected 9 per cent growth rate. The current policy environment is beginning to promote energy efficiency and the execution of national and state-level programmes will be the key determinants of its success. India’s National Action Plan on Climate Change (2008) points to building efficiency measures as essential to carbon emission reduction. Current norms for ‘green’ buildings should be made mandatory, rather than voluntary.
In Conversation with George Soros December 28, 2011Posted by nikhilesh in : Uncategorized , comments closed
Venue: Khemka Auditorium, Indian School of Business
Date: January 5, 2012
In a conversation that touched upon myriad topics from reforms in Burma
to deficiencies in democracy, billionaire philanthropist George Soros spoke
candidly with Professor Reuben Abraham, Executive Director of Centre for
Emerging Markets Solutions (CEMS) at the ISB.
As the founder and chairman of Open Society Foundations, Soros champions open
societies across the world, from Africa to Latin America. He expressed hope in
the reforms in Burma but had concerns regarding its fragility. “It is just a
small group. They are trying a new approach to the ethnic issue but there is a
tremendous gap between the top and the ground.”
Speaking extensively on the Eurozone crisis, Soros remarked about the
inadequacies of the Euro. “It was a currency union not a political union.” There
are several flaws in the European Union that are not fully recognised. There is
a misconception on how financial markets operate. “They assumed imbalances arise
from public sector, they did not realize that markets itself would be flawed.”
Recognising the potential threat to the European Union from this crisis, Soros
noted that “the Euro has the potential of endangering the existence of European
Union.” On a different note, he admitted that while the developed countries are
in the throes of a political and economic crisis, there is an awakening in the
developing countries. Improvement in living standards in China, India and the
Latin America has led to progress and some political awakening. While extolling
China’s emerging power in the world, he wondered whether the country can accept
the responsibilities that will accompany its meteoric rise as an economic power
house. He was also concerned about China’s investment policies in Africa. “China
is repeating the mistakes that were made in colonial times. They want
concessions from rulers. They will be better off if the people get the benefit.”
Despite being a proponent of democracy, Soros conceded that there were flaws in
open societies because political discourse is not designed in democracies.
However, he emphasised that in the developing countries there is still “an
innate belief in right vs. wrong.” Thus, despite corruption and abuse of
democratic process, there is still a desire to “do the right thing.”
While accepting the role of philanthropy in poverty alleviation, he dismissed
the notion that philanthropy can replace government, especially in essential
services such as education and healthcare. “What we are doing is peanuts
compared to what the government is not doing.”
The session ended with Soros fielding questions from the audience on issues
ranging from corporate governance to the role of religion in democracies.
View the entire conversation here:
(Some viewers using older versions of Internet Explorer [8.0 or earlier] may be unable to view the right video. Click here if you face issues in accessing the video.)
Slums go vertical November 8, 2011Posted by nikhilesh in : Uncategorized , comments closed
By Shahen Dastur
Here is an article showing how the high population density, partially caused by high inbound migration has caused a divide in wealth. This has also led to an increase in slum dwellings in Hong Kong. This article highlights the formation of one of the most expensive slum dwelling across the world.
Anywhere else in Hong Kong, luxury apartments can often fetch HK$100 million (US$12.85 million), and a house with these features could easily cost the average transaction price of HK$13.25 million (US$1.7 million), according to data released by agency Midland Realty earlier this year.
The only difference is that as an unprepossessing corrugated iron shack that forms part of Hong Kong’s extensive network of sky slums — technically illegal rooftop structures barnacled onto the roofs of tenements built in the 1950s and 60s — the market is sluggish.
Nevertheless, a gray market in these slum dwellings does exist.
“Of course the agent never explicitly says it’s a rooftop dwelling. The listing will say something like small apartment with a unique view or interesting features,” says Dr. Ernest Chiu of Hong Kong University who has studied informal housing
Social housing in China: Giving the urban poor homes October 24, 2011Posted by nikhilesh in : Affordable Housing, Economic Development, Emerging Markets, Urbanization , comments closed
By Dhaval Monani
The price of real estate in China is the subject of much debate and real concern for a majority of city dwellers who can’t afford homes. In a bid to woo the poor, So Li Kiqiang – potentially China’s next prime minister- is getting local governments to build unprecedented quantities of social housing for the poor. An article in the Economist discusses the issues inherent in trying to cater to the ranks of China’s burgeoning urban poor.
Critics also point out that the social-housing programme will mostly benefit urban residents, whose household-registration certificates, or hukou, identify them as city residents. Migrants from the countryside usually find it difficult to get hold of such certificates, even if they have lived in a city for many years. Most local governments prefer not to hand them out, because to do so would commit them to providing the holder with the full range of welfare benefits.
The central government hopes the new housing will reduce public discontent over property prices, but even among urban hukou holders, many are cynical about the government’s efforts. Officials find it difficult to assess who is qualified for the housing, given that many households disguise their true incomes. Some of the better-quality housing ends up in the hands of people who are clearly not entitled to it. A visit to one social-housing complex in eastern Beijing, Zhuxin Homes, finds several luxury cars parked around its apartment blocks. An estate agent nearby offers one of its apartments for rent: a sign that the owners have more than one property and are illegally turning their social housing into a money-spinner.
Technology: Making education personal October 24, 2011Posted by nikhilesh in : Education, Emerging Markets, Employability, General Interest , comments closed
By Nimesh Mehta
- Adopting a free(mium) business model
- Encourage grassroots adoption
- Promote 21st century teaching and learning methods
- Be a platform for open content
- Be open source
Where good ideas come from by Steven Johnson October 14, 2011Posted by nikhilesh in : General Interest, Urbanization , comments closed
By Nimesh Mehta
Interesting talk about the process developing great ideas. He argues that innovation or great ideas rarely come from individuals- instead it is a result of a network of people interacting with each other… Most innovative solutions have come from coffee houses, universities and now on the internet where people with diverse backgrounds can interact. The video ends with a very interesting quote – “ Chance favours the connected mind!”
Uncategorized , comments closed
By Debarshi Bhattacharya
The first part of this paper detailed the deficiencies in approaching quality improvement in healthcare services purely in singular exclusive approaches – either through performance based financing (pay for performance) mechanisms or self-motivated accreditation strategies. Some possible explanations for these deficiencies were also highlighted.
In this concluding part of the paper, a possible way forward is suggested. A clear, practically usable framework, championed by the purchaser of services and involving the providers has been detailed.
We need to realize that any aggregator of providers into a common pool of resources –
- Governments through social health insurance/social protection schemes where they empanel service providers
- Private Insurance Firms through their preferred network of empanelled hospitals
- Healthcare Investors through their portfolio investments into service providers, e.g. Medical Credit Fund of PharmAccess Foundation for financing healthcare improvement in Africa
- Clinical social franchisors through their franchise networks spanning individual practitioners as well as facilities, e.g. Smiling Sun Franchising Program in Bangladesh, Marie-Stopes International franchise program in Kenya etc.
needs to utilize the lever of financing to help improve the quality of the services provided by the providers in its network. However, it is equally important to reduce information asymmetries between providers and financers of health services by introducing a stakeholder approach to setting realistic quality benchmarks. Providers often need support to achieve those benchmarks. This coordinated stakeholder approach is needed in order to both sustain the systemic buy-in as well as to further refine the benchmarks with increasing quality.
In this context the following model is proposed:
The above proposed model can and preferably should be utilized modularly and repeatedly to cover specific services and high volume providers first through pilots and then expand the learning to other services and the larger pool of providers. As regulators of the network, the financer (Government, Investor or Social franchisor) also needs to develop transparent inclusion criteria for providers who are selected for the pilots. The baselining exercise might provide indications of better quality providers who might be considered for inclusion/exclusion from pilots.
While the potential drawbacks of either an exclusive demand side financing intervention or market-based quality improvements have been discussed earlier, the following risks need to be recognized as well:
- The expected revenue loss to the providers due to adherence to set benchmarks as part of the process above (measures to reduce perverse incentives to abuse/overuse) needs to be smoothened/compensated, at least partially by the health system financer – to achieve total buy-in from the providers
- Apart from incentivizing outcomes/results and/or accreditations to quality standards (as currently witnessed), adequate incentives need to be created for commencing and sustaining process improvement programs through collaborative approaches – to motivate greater data sharing and reducing information asymmetries.
Quality Improvement through Health Financing Reforms September 26, 2011Posted by nikhilesh in : Uncategorized , comments closed
By Debarshi Bhattacharya
Many countries across the world are currently advancing health financing reforms. Historically governments across the world have focused on the supply side of health systems – building the primary and secondary health facilities, human resource training and deployment, provision of essential and basic health services etc. Complemented in this direction by the private sector, with many countries witnessing more than 80 percent of its health spending in the private sector, governments are increasingly looking at shifting their spending to more demand side financing interventions. Demand side interventions like social health insurance schemes, formal sector participation through payroll contributions, vouchers for health services etc. are now increasingly empowering the final consumer of health services to demand more and better services. Hence, not only are the governments moving towards a role of effective stewardship of financial flows, there is a need for such financiers or payors in the health systems to sensitize, incentivize and monitor the performance of the providers who ultimately provide the services that the final consumer is increasingly demanding. This is important to ensure effectiveness of spending. E.g. evaluations of demand side financing interventions in Bangladesh1 and Eritrea2 have both indicated that the institutional readiness of the supply side – both in terms of higher quantity and better quality of services – is critical for the success of demand side financing interventions.
This first part of the two-part paper explores the experiences of exclusive approaches and insights emanating from them. A proposed phased approach towards the above is also suggested in the paper.
PERFORMANCE BASED FINANCING: NECESSARY BUT NOT SUFFICIENT
Many instances and types of performance based financing (PBF) – demand side financing levers – are witnessed across the world. They include3:
|Examples of types of PBFs:
While satisfactory progress and outcomes have been reported in many of the above interventions4, the shortcomings of such exclusive demand side financing interventions are highlighted below:
|Shortcomings of exclusive demand side financing interventions:
The above analysis indicates that while demand side interventions (PBF) are primarily designed towards increasing uptake of services and are measured accordingly for their success, to use such interventions as levers to improve quality of services needs a wider systemic approach. This is essential to check perverse incentive mechanisms as highlighted above from skewing both the health system outcomes as well as the scarce human resources and knowledge towards few selected areas of care.
CONTINUOUS QUALITY IMPROVEMENT: NECESSARY BUT LIMITED INCENTIVES
We have and continue to witness paradigm changes in quality improvement techniques and tools across the health sector. However, when compared to other sectors of industry, the level of sophistication of quality improvement in healthcare is modest, at best. Consider the following:
|Quality Improvement: Scenario check in developed countries:
The above points have been extracted from studies conducted in developed and data-rich countries with high level of government spending on health. For developing countries with far less levels of regulations on the private sector and poorly resourced public health services, worse results can be safely assumed.
The causes for such adverse examples may lie both at the individual provider as well as the systemic level. The following can be possible causes of sub-optimal performance on quality improvement:
|Possible causes for below-par performance of quality improvement initiatives:
The above points indicate that quality improvement initiatives have largely been market-driven and dependent on the providers themselves to run them successfully and effectively. While there are instances of greater public health outcomes through this market-based approach, e.g., the reduction in Acute Myocardial Infarction (AMI) mortality rates in specific high-spatial competition areas in UK, post 2006, when hospitals have competed aggressively under a fixed price regime12 there have been unflattering health outcomes as well, as highlighted above.
- “A Maternal health voucher scheme: What have we learned from the demand side financing scheme in Bangladesh”; Ahmed et al, 2010
- “Health system readiness to meet demand for obstetric care in Eritrea: Implications for results based financing”; Sharan et al, 2009
- “Pay for performance to improve maternal and child health in developing countries: Findings from an online survey”; Bethesda MD, 2009
- “Effects of performance based financing on maternal care in developing countries: Access, utilization, coverage and health impact”; Kinoti S, 2011
- “Performance based incentives for health: Conditional cash transfer programs in Latin America and the Carribean”; Glassman et al, 2007
- “Effects of payment for performance in primary care: qualitative interview study”; Maisey et al
- “Physicians’ view on quality of care: A five country comparison”; Blendon et al, 2001
- “The quality in Australian healthcare study”; Wilson et al, 1995
- “Quality or financing: What drives design of the healthcare system?”; McLoughlin et al, 2003
- “How good is the quality of healthcare in the United States?”; Schuster et al, 1998
- Reuters Health Headline, 2001
- “Does hospital competition save lives? Evidence from the English NHS patient choice reforms”; Cooper et al, 2010
MITs $1000 House September 20, 2011Posted by nikhilesh in : Affordable Housing, Economic Development, Emerging Markets , comments closed
The latest contribution to the affordable housing problem comes from the Derpartment of Architecture at MIT. Ying Chee Chui, a graduate student designed what is being called the “Pinwheel House” which is made of hollow brick reinforced by steel bars and wooden box beams. The house has been built in Mianyang, Sichuan Province in China.
The project focuses on affordable housing for areas hit by bad infrastructure, where resources are scare, or is hit by natural disasters.
The idea of a $1,000 home was first conceived by Tony Ciochetti, the Thomas G. Eastman Chair at MIT s Center for Real Estate.
The 1K House is an MIT joint-research initiative started between the Department of Architecture and the Center for Real Estate in 2008.
Stonewalling Housing Projects – The ‘How To’ Guide September 19, 2011Posted by nikhilesh in : Affordable Housing, Economic Development, Emerging Markets , comments closed
By TM Bhargavi
State efforts to involve private developers in increasing housing stock for the Economically Weaker Section (EWS) and Lower Income Group (LIG) households have been dogged by controversy from their very inception. On the one hand, it seems inarguable that the state will not have adequate resources to address the acute housing shortfall by itself. There is, therefore, the need to provide an innovative framework of incentives that would attract private suppliers to enter this field. On the other hand, the pervasive notion is that developers will invariably corner the advantages provided under such programs without delivering on their commitment towards affordable housing for the poor. The only way to then break the impasse is to increase transparency in the system. By resisting attempts to bring in such transparency, the state is, in a sense, scoring an own goal.
Maharashtra’s Special Township Policy provides a range of incentives to private developers – including permitting 100% Foreign Direct Investment (FDI), providing automatic permission to convert agricultural land to non-agricultural use, a floating Floor Space Index (FSI) requirement within the township, reduced stamp duty, exemption from payment of certain fees and lease of government land to the developer at current market rates. The cross subsidization aspect of this policy makes it mandatory for the developer to reserve at least 10% of the layout for EWS and LIG housing. Unfortunately, monitoring of projects sanctioned under this policy has been almost non-existent. The resulting violation of the norms has led to the denunciation of this policy as a cover-up for providing extensive sops to developers.
Not only has the state failed to monitor the projects, it has also been unresponsive to the citizenry’s attempts to keep tabs on them through the Right To Information (RTI) mechanism. RTI activist, Vijay Kumbhar’s efforts in this direction are illustrative of this point.
“Kumbhar filed a RTI application under Section 6 asking for the number of sanctioned special townships in Pune. He demanded a list of special townships which have been given permission and proof of action taken against violation of stringent norms under special township rules. Also, this information should have been suo moto put up by the collector’s office, under Section 4 which was not done. He filed a complaint under Section 18 of the Right to Information Act to the State Information Commissioner, Pune region, Vijay Kuvalekar, pleading that the Collector and the Public Information Officer (PIO) be penalised for not abiding by norms under Section 4. The Information Commissioner ordered the collector to put the information on the website, failing which the collector, the PIO as well as the tehsildar would face penalties. Surprisingly, and quite suspiciously, it took the Collector six long months to put the information on the website, despite the fact that the matter was of great public interest.”
Saving 1 million lives: Scaling up grassroots solutions to improve neonatal survival September 16, 2011Posted by nikhilesh in : Economic Development, Emerging Markets, Healthcare , comments closed
By Prabal Singh
I recently visited Ekjut, an organization reducing neonatal mortality by engaging women groups in tribal areas of East India (office pictured at right). With home-based care and specialized facilities, community group mobilization is one of three key ways that public health programs can deliver neonatal interventions.
Every year, over one million children born in India do not live for more than four weeks. In India, neonatal deaths account for more than 60 percent of deaths within the first year of life. Hence, to make a significant dent in India’s Infant Mortality Rate, the issue of neonatal survival needs immediate attention.
The organization Ekjut carried out cluster randomized control trials in Jharkhand and one district of Orissa, finding a positive correlation between sustained engagement with women groups and reduction in neonatal mortality. Findings from the study were published in The Lancet.
The nonprofit organization SEARCH raised the problem of high neonatal mortality in the late eighties. The organization works in the backward [undeveloped] tribal area of Gadchiroli in Maharashtra state. Their approach was not to enforce their ideas on the community but to assess what were the main health problems of the community. Their home-based neonatal care has proven extremely successful. The results of trials have been published in many peer-reviewed articles.
Like SEARCH, many developmental organizations have been scientifically demonstrating the effectiveness of different approaches to deal with the issue. SEARCH, Ekjut and other NGOS studying neonatal interventions use rigorous scientific approaches, including robust study design, dedicated workforce, and adequate sample size of population included in the intervention (scattered population usually less than 300,000), simple monitoring and feedback mechanism.
I believe that only a combination of all the three neonatal survival intervention delivery mechanisms will for sure lead to a substantial reduction in neonatal deaths. A paper in the Lancet on neonatal survival series published in 2005 mentions that with 90 percent coverage of the community based, home based care and facility based interventions, Neonatal Mortality Rate (NNR) can be reduced by almost 50 percent, in populations with NMR > 45.
The question is, can such approach be scaled up? Can it be integrated with the public health programs or can it be implemented by government departments/agencies? Do we have dedicated work force to implement such interventions? There is some evidence of getting similar results on scaling up of such approaches, but again all of them have been carried out by NGO’s
CEMS event in NYC: Charter Cities with Paul Romer September 16, 2011Posted by reuben in : Events, Urbanization , comments closed
We are hosting an ISB@10 event in New York with the renowned economist, Paul Romer, to discuss his radical new idea of charter cities.
Charter Cities: Rapid Economic Growth via the Start-up Dynamic
Paul Romer likes ideas. “Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding: possibilities do not merely add up; they multiply.” Lack of ideas, more than the lack of objects, retards economic growth. He should know, having revolutionized economics with his new growth theory, which transformed a world plagued by scarcity into one of abundance.
Prof Romer’s concept of charter cities is one such idea. According to him, developing countries like India can specify a charter containing major social and economic reforms that will apply on a greenfield site. Then a new “charter city” can emerge with new rules, and people who support the reforms opt in to the new location. “What would happen if we had more start-up cities,” he asks.
When: Friday Sept 16 at 6 pm
Where: The Penn Club, 30 W 44th St, NY 10036
Education loan as an investment- the changing outlook of Indian banks September 13, 2011Posted by nikhilesh in : Economic Development, Education, Emerging Markets, Employability, Finance, Skill Development , comments closed
By Nimesh Mehta
At CEMS at the Indian School of Business, we have been conducting extensive research to develop models to initiate micro-education loan products for vocational training courses. The value of such loans typically ranges from INR 5,000 to INR 50,000.
Banks have been reluctant to lend to low-income students primarily for the following reasons:
- Assessment of low-income loan-seekers (students) based on their family income
- High cost of lending, monitoring and recovering such small loan amounts
However, the India Banks Association recently announced ‘model education loan scheme’ for higher education. The salient features of the scheme are:
- Assessing loan-seeker (students) based on their earning/ repayment potential
“Meritorious students intending to pursue higher studies will be sanctioned loans by banks based solely on their assessment of employability and earning potential to repay the loan, and not parental income/family wealth, as per the revised bank-wide ‘model education loan scheme’.” Read full article here.
- Consider education loan as an investment and not as an expenditure
“As loans for education are an investment for development of human capital, resulting in economic development and prosperity, the focus of the model scheme is on repayment of the loan from future earnings of the student after completion of education.” Read full article here.
This development is encouraging as banks will now have to set up systems to assess employability of students, to evaluate educational institutes and to identify market value of various jobs. Overall this development will create a positive atmosphere to initiate efficient lending within the education sector.
Who will champion India’s cities? September 11, 2011Posted by reuben in : Urbanization , comments closed
Ajit Mohan of the Urbanization team has an excellent op-ed piece in the Wall Street Journal today.
The second round of data released by the Census Commission of India recently revealed that the country is on a path of accelerating urbanization that will help shape every aspect of Indian life in the future, from our democracy to our industry to our society. That, unless something changes dramatically, is a truly scary prospect.
More than 31% of India’s population now lives in urban centers. Between 2001 and 2011, India has added more than 90 million to its urban population, half of India’s total population growth over the decade. Not since the period between 1971 and 1981 has India seen such a steep rise in the pace of its urbanization.
The latest census results should not come as a surprise to anyone. Historically, urbanization and growth have been inseparable companions in a country’s evolution. As a country develops, more of its economic activities shift from agriculture in rural areas to manufacturing and services in urban areas. The vast improvement in productivity that this shift entails is one of the fundamental drivers of economic growth.
To read the rest, go here.
World Economic Forum Young Global Leaders Meet at ISB August 2, 2011Posted by nikhilesh in : Uncategorized , comments closed
CEMS is hosting the second annual World Economic Forum (WEF) Young Global Leaders South Asia meet on the 6th and 7th of August 2011 on the ISB campus. We have a very interesting line up this year, though one or two speakers are still to confirm participation. Here’s the Playbill-
Saturday, the 6th of August
Urbanization — A cause and consequence of economic growth – 14h30 to 16h00 –Khemka Auditorium
Urbanization is the single biggest macro trend across India, China and Africa. Unfortunately, it is still seen more as a challenge than as opportunity. What are the challenges and what are the opportunities? How do we move from a mindset of ‘managing’ urbanization to ‘encouraging’ it?
Reuben Abraham, Executive Director, Centre for Emerging Markets Solutions, Indian School of Business
- Isher J. Ahluwalia, Chairman, ICRIER
- Siddhartha Lal, Managing Director and Chief Executive Officer, Eicher Motors Limited
- Srini Raju, Chairman of the Board, Sri city
- Ajit Mohan, Ex-Team Lead and Co-Author, McKinsey Urbanization Report
- Discussant: Ramesh Ramanathan, Founder, Janaagraha
Open Forum: YGLs & ISB community – 16h30 to 18h00- Khemka Auditorium
During this afternoon session, the YGLs will join the ISB community at the Khemka Auditorium for a series of TED-style talks covering a variety of issues that will push the thinking of the YGLs and students alike. The talks will be for 15 mins each, followed by a brief Q&A with students at the very end.
- Anu Acharya, Founder and Chief Executive Officer, Ocimum Biosolutions Ltd
- Ahmed Nader Nadery, Commissioner, Afghan Independent Human Rights Commission
- Jitesh Gadhia, Senior Managing Director, The Blackstone Group
- Madhu Kannan, Chief Executive Officer, Bombay Stock Exchange
- Sriram Raghavan, CEO, InKlude Labs, India
Sunday, 7 August
Managing the Public Sector in South Asia – 11h30 to 12h45 – Vidya Hora Lecture theatre (AC 6 LT)
Public officials, and private sector companies dealing with public officials, are beginning to be held to higher standards by the public, legal system, and the media on the sub-continent. What are the current realities for managing in the public sector?
CV Madhukar, Director, PRS Legislative Research
- Tanya Dubash, Executive Director and President, Marketing, Godrej Industries Ltd
- Shaffi Mather, Co-Founder, Ambulance Access for All
- Alok Kshirsagar, Director and Senior Partner, McKinsey
- Sai Prasad, IAS, Vice Chairman, Andhra Pradesh Housing Board
- Ramesh Ramanathan, Founder, Janaagraha
- Agatha Sangma, Minister of State for Rural Development, Ministry of Rural Development of India
Economics of the Poor – Numbers and Why they should matter to us– 14h30 to 16h00Vidya Hora Lecture theatre (AC 6 LT)
Sriram Raghavan, CEO, InKlude Labs, India
- Gulzar Natarajan, IAS – Collector, Hyderabad
- Narayan Ramachandran, Former Country Head, Morgan Stanley, India
- Karthik Muralidharan, Univ of California, San Diego
- Vijay Mahajan, Chairman, Basix
Challenges in Indian Healthcare July 28, 2011Posted by nikhilesh in : Economic Development, Emerging Markets, Healthcare, Uncategorized , comments closed
Adam Wagstaff, Research Manager of the Development Research Group at the World Bank and Sofi Bergkvist of CEMS talk about the challenges facing India’s health system in a thought-provoking blogpost.
India’s health system faces some major challenges. In some
respects, the hill India’s health system has to climb is steeper than that facing other developing countries. The good news is that the innovation that India is famous for in other sectors, as well as in health technology, is now starting to make itself felt in the health system. Not only may these ideas benefit India’s poor; they may also provide food for thought for other countries.
Poverty Alleviation, Growth and Economic Reforms: A Lecture by Professor Arvind Panagariya – Part – 1 July 15, 2011Posted by Team Web in : Uncategorized , comments closed
Poverty Alleviation, Growth and Economic Reforms: A Lecture by Professor Arvind Panagariya – Part – 2 July 15, 2011Posted by Team Web in : Uncategorized , comments closed
Affordable Housing, Economic Development, Emerging Markets, Urbanization , comments closed
By Shahen Dastur
It is a challenge to offer products at this price point unless low-income housing gets recognition from all stakeholders namely banks, builders and suppliers,” Kumar added. According to PropEquity, a property research firm, between 2009 and 2011, costs of construction material have grown nearly 25%. Steel, cement, bricks and labour constitute nearly 73% of the overall cost of an apartment. Daily wages of labour have gone up from Rs 250 a day in 2009 to Rs 325 a day in 2011.
Sobia Khan and Anuradha Himatsingka of the Economic Times reported on how some of the big players are finding the challenge of providing housing in Rs. 6 lakh or below too much to handle. There are various factors such as rising construction, material costs, labour costs as well as land costs that have faltered even the big players in the construction/developments market. With the shortage of homes for Low-income groups to rise, the market has a lot of potential, yet the sheer challenge to provide houses at Rs. 6 lakhs or below seems a monumental task in the Indian market.
Economic Development, Emerging Markets, Employability, Skill Development , comments closed
By Radhika Khandelwal
The Government of India has recognized the importance of skill development to reduce unemployment and improve productivity of the industry. Prime Minister has set an ambitious target to skill 500 million worker by 2022 . Also, there are several efforts to integrate vocational training with the mainstream education by introducing vocational training courses in schools, colleges and universities.
Recent news highlight the interest amongst State Governments to participate in the National Skills Development Mission:
- Gujarat Government has estimated requirement of 500,000 skill manpower in the next 5 years to maintain a 15% growth rate. It is mobilizing private training providers through the Centre for Entrepreneurship Development (CED) to meet its targets.
- Andhra Pradesh Government has an ambition to create 500, 000 jobs per annum. Their ambition is based on the success of an excellent employment generation mission for the rural youth. The Ministry of Rural Development is looking for ways to extend apprenticeship programs and incorporate skill development programs to NREGA.
- States like Orissa and Assam are looking to develop an effective skill development mission with the help of the National Council on Skill Development. The focus is to create a workforce with relevant and marketable skills for sectors like Construction, Health, Travel and Tourism amongst others.
Economic Development, Education, Emerging Markets, Employability, Skill Development , comments closed
By Nimesh Mehta
The society which scorns excellence in plumbing as a humble activity and tolerates shoddiness in philosophy because it is an exalted activity will have neither good plumbing nor good philosophy… neither its pipes nor its theories will hold water. – John D. Gardner
Traditionally, purists in India have shown contempt towards ‘learning for earning’, popularly known as vocational education. Indian society places a lot of emphasis on college education and degrees. Somewhere, we tend to believe that a college degree is the only way to upward social mobility.
Consequently, India faces a unique employment paradox. Industry faces a shortage of skilled man-power to sustain high growth rates, yet we have an unemployment rate of about 9.4%; approximately 40 million people . Our unemployed pool is equivalent to the entire population of developed countries such as Spain, South Africa and South Korea. Also, about 93% of the work-force is employed in the unorganized sector ; most of which are self-employed, underemployed and operate at low productivity and generate low incomes.
The average labor productivity per person/ per hour in India is USD 5.45  compared to that of USD 20.51 in Mexico. Our GDP per capita is much lower at USD 1,382.4 , even when compared to that of emerging countries such as Brazil, China and Russia. India will have to focus on skilling its large work-force to increase its overall productivity and to achieve equitable growth.
India is uniquely positioned today to reap a ‘demographic dividend’ and emerge as an economic power. India has the youngest population in the world; its median age in 2000 was less than 24 years compared to 38 years for Europe and 41 years for Japan. Half of India’s population of 1.1 billion people is under 25 and two-thirds under 35. In 2025, our national work-force will comprise about 25% of the global work-force .
We face a daunting task to build a 700 million globally employable workforce, with 200 million university graduates and 500 million vocationally skilled people. Formal education certainly yields social and economic benefits but constitutes the primary bottleneck in the Indian education system today. Access, equity, management and quality are the major areas of concern in the case of school and college education. While more than 95 percent of children attend primary school, just 40 percent of Indian adolescents attend secondary school (Grades 9-12). Again, every year, India churns out millions and millions of graduates who lack the necessary skills required in the specific market they intend to enter into.
Currently, India is ill-equipped both in terms of quality and quantity of institutions to skill the massive labor force. We have 5,500 industrial training institutes and 1,745 polytechnics ; as compared to 5 lakhs institutions in China.
Vocational training delivery has been supply-driven, largely carried out through an un-coordinated effort across 19 union ministries. There has been a market failure in the vocational training segment largely due to a strong cultural bias and lack of incentives for private players to participate.
However, in the recent past, the government of India has shown remarkable ingenuity by putting the private sector in the driver’s seat for this mission. The government has launched the National Skills Development Corporation (NSDC) as part of a national skill development mission to fulfill the growing need in India for skilled manpower. NSDC is a public private partnership mandated to skill 150 million people by 2022.
NSDC will act as a private equity fund and infuse catalytic capital to increase the supply of quality training providers across 21 key sectors. In one year of its existence, NSDC has so far funded 26 training organizations and 3 sector skills council. They will, over a 10 year period, train about 45 million people and the total financial commitment is 668 crores.
Salient features of this initiative are:
Separating financing from delivery- focus on financing innovations/ businesses to address market failures in vocational training
Increase in choice and competition- Choice and competition in markets will make the system more effective and spur innovations in business models, instruction methodologies and use of technology
Vocational training market in India is highly complex with such wide variations in customer needs across sectors, geographies and income segments. Such a large mission cannot be accomplished without the involvement of a large number of private players. Such a market will lead to a fragmented industry with several specialist mid-size players finding their own niche.
Competition amongst training providers will force private players to innovate affordable and scalable business models to assess individuals in remote areas including the North-east and the hill states. Further technology can be effectively used to increase access for people and reduce entry barriers such as educational qualification, language, transportation, loss of wages, etc.
A market based approach to equip 500 million people with marketable skills will be effective because it leads to expansion of delivery capacity. The public sector can play a role in training delivery only in areas where private sector may not find it economically viable to participate. This partnership provides an opportunity for the private sector to demonstrate once again that markets can be used as an effectively tool to address development problems even in the education and training sector.
 Report on Employment and Unemployment Survey (2009-2010) – Govt. of India (Ministry of Labour & Employment).
 Annual Report to the people on Employment – Govt. of India (Ministry of Labour & Employment).
 2011 Productivity Brief: The Conference Board Total Economy Database.
 IMF Database
 HRD Annual Report 2010-2011.
 Directorate General of Employment & Training – Govt. of India (Ministry of Labour & Employment).
Economic Development, Events, General Interest , comments closed
Prof Panagariya is a renowned economist who holds the Jagdish Bhagwati chair for political economy at Columbia University. A former chief economist of the Asian Development Bank, Prof Panagariya has also been a professor and director of the Center for International Economics at the University of Maryland in College Park. He has worked with the World Bank, the IMF, WTO and UNCTAD in various capacities. He holds a Ph.D. from Princeton University.
A widely published author both in the scholarly and mainstream press, Prof Panagariya’s last book, “India: The Emerging Giant“, one of the most exhaustive economic analyses of post-Independence India was described by Fareed Zakaria as “the definitive book on the Indian economy.” The Economist named it one of the best books of 2008.
Prof Panagariya will begin by explaining why in his view sustained rapid growth is central to poverty alleviation and improved educational and health outcomes. He will then argue that while India has made significant progress in reforming product markets, factor markets remain highly distorted and rigid, and that the next set of reforms must focus on these latter while continuing some product market reforms as well. A substantial amount of time will be devoted to Q&A after the formal talk.
When: Thursday, the 14th of July at 7:00 pm
Where: Vidya Hora lecture theatre (AC6 LT)
There are no pre-reads for this session, which will be moderated by Prof Reuben Abraham, the ED of CEMS.
Aerotropolis: A conversation with John Kasarda July 4, 2011Posted by reuben in : Events, Logistics, Transportation, Urbanization , comments closed
John Kasarda may well be one of the most important thinkers on the planet you don’t know enough about. John is Director of the Kenan Institute of Private Enterprise and Kenan Distinguished Professor of Strategy and Entrepreneurship at the Kenan-Flagler Business School at Univ of North Carolina.
More importantly, John came up with the concept of “aerotropolises” to describe the future of cities in the 21st century.The idea being that cities have traditionally been built around sea ports, but the new cities of the 21st century will be built around airports as the value of trade (as opposed to quantity of trade) shifts to the skies. He is an advisor to many new cities and airports, including the airports of Singapore and New Songdo in Korea. He’s also an advisor to the GMR group and their planned aerotropolis in Hyderabad/Shamshabad (and Delhi). In fact, he goes so far as to describe Shamshabad as the “Vatican of Aviation” in his book.
WHEN: July 10, Sunday, at 5 pm
WHERE: Vidya Hora Lecture Theatre (AC6 LT) ISB campus
PRE-READS: ACCESS HERE
A picture speaks a thousand words July 1, 2011Posted by reuben in : Economic Development, Employability, SME Investing , comments closed
The Economist had this graph on enterprises by number of employees. Given CEMS’ focus on small and medium business, I figured I post the link.
As the article points out, small businesses are important not because they are small, but because they have the potential to grow much bigger, creating a lot of employment along the way.
State of the World: Global Macro-economic Challenges June 29, 2011Posted by reuben in : Emerging Markets, Events, General Interest , comments closed
Greece is on the brink; the Euro zone in crisis. The U.S. is struggling to adjust to the realities of a new world. China, India and Brazil are growing dramatically, but trying to do so while keeping a lid on inflationary pressures. Parts of sub-Saharan Africa are beginning to break out and grow very quickly, thanks to trade with BRIC countries. Rapid urbanization is an opportunity and a challenge in India, China, and Africa. The Middle East is in flux politically, even as oil prices boom. The power balance of the world is shifting from the Atlantic to the Indian and Pacific Oceans.
These are the many fault lines in the world today. Come discuss these and many more such issues as part of a conversation with Prof Krishna Kumar of the RAND Corporation (short bio below), moderated by Prof Reuben Abraham of the ISB.
When: Friday, the 1st of July at 5:15 pm. Tea/Coffee, followed by session at 5:30
Where: AC4 LT (Chatterjee Lecture theatre)
Krishna Kumar (Ph.D. in Economics, University of Chicago) is a senior economist at the RAND Corporation. He directs Research and Policy in International Development (RAPID) within RAND Labor and Population unit and leads the Rosenfeld Program on Asian Development at the Pardee RAND Graduate School. His research areas are economic growth and development, human capital accumulation, and technological change. He teaches development economics at the Pardee RAND Graduate School, and global economics at the Indian School of Business and Duke Fuqua School of Business.
Bringing the green agenda to housing June 23, 2011Posted by nikhilesh in : Affordable Housing, Technology , comments closed
By Roopali Raghavan
CEMS has identified the low cost housing market as a critical demand that needs to be met and has been working to address this issue. By virtue of just its sheer volume, the impact of the low cost housing market on the environment cannot be neglected. CEMS has conducted a study evaluating the relevance of Green building techniques in the low cost housing market. This article provides a background of the green building movement in India and raises the point about green rating for Indian homes.
It is almost globally acknowledged that large buildings and real estate construction projects are key contributors to greenhouse gas emissions and has a large environmental and energy footprint. A typical office building may consume between 180kWh to 200kWh per sq. m per annum in India, compared with a green building that may consume about 30-40% less energy. As much as 168,000 tonnes of CO2 emission could be avoided a year per million sq. m of properly rated projects.
It is in lieu of this that environmental clearance for large construction projects is mandatory and a related set of compliance measures such as the energy conservation building code, which specifies energy performance requirements for all commercial buildings, is expected to become law soon…It is also now time to move into rating buildings in the residential space, which can eventually function as a design-cum-rating tool. This would help architects to not only get their building rated but also would also guide them on green design. There are rating systems designed specifically for projects with built-up area of less than 2,500 sq. m. The rating comprises of 14 criteria and the interface comprises of simplified calculators. These calculators can be filled using information from construction drawings and estimates. The calculators reveal the overall points and the rating that a particular project can achieve.
Impact metrics from SONG investments June 19, 2011Posted by reuben in : Finance, SME Investing , comments closed
The SONG fund made its first two investments into K-12, a school management company, and Eye-Q, a low-cost hospital chain. A year on, we have some basic impact metrics for these investments.
Eye Q Hospitals
Total patients treated between April 1 2010 and March 31 2011 - 104,814 across 10 centres in the states of Haryana, Uttar Pradesh and Uttaranchal.
K-12 Techno Services
Total enrolled students in the academic year 2010-11 - 41,881 across 64 schools, across 14 districts in the state of Andhra Pradesh. In addition, the schools also employ 2000+ teachers.
These are just preliminary numbers, and we will be digging into the numbers a bit more to extract demographic profiles, income profiles etc. Watch this space.
A new charter city in Honduras June 14, 2011Posted by reuben in : Urbanization , comments closed
We had earlier this year linked to a TED talk from 2009 by Paul Romer, in which he laid out his vision for a charter city. This year, at TED in Monterrey, he told the audience that his 2009 TED talk has laid the groundwork for the creation of a charter city in Honduras. Here’s the update video from TED.
English Skills and the Indian Job Market June 10, 2011Posted by nikhilesh in : Education, Emerging Markets, Employability , comments closed
Nimesh Mehta and Radhika Khandelwal
We came across an interesting study that highlights the fact that there are statistically significant returns to English-language skills in India. Below is a snapshopt of the main findings”
1. Hourly wages rates for men are on average 34% higher for workers who speak fluent English and 13% higher for workers who speak a little English relative to workers who speak no English. This means that the returns to being fluent are as large as the returns to completing secondary school, and half as large as the returns to completing an undergraduate degree
2. Returns are considerably lower for younger workers. English skills help increase wages only when coupled with more education – those who have not completed their secondary schooling will not see their wages increase due to acquisition of English-language skills
3. Older workers earn high returns to English regardless of their educational attainment while younger workers earn high returns only when they are highly educated. For example, older men without an undergraduate degree receive a 53% wage premium for being fluent in English, compared to 28% for older men with an undergraduate degree. In contrast, younger men without a degree receive a 13% wage premium for being fluent in English, compared to 40% for younger men with a degree.
4. The researchers conclude by saying that policymakers should be aware of the complementary nature of education and English language skills when designing policies. For example, English programmes for children in schools – which would be in time to influence their educational attainment – would be more effective than adult relying English classes.
A Satellite City Gone Wrong June 7, 2011Posted by isbcems in : Affordable Housing, Urbanization , comments closed
By Shahen Dastur
I came across this article about a Satellite City, Kayabaşı developed by the Housing Development Administration of Turkey, also known as TOKI. This article reveals how many housing projects are not successful even if they provide the option of improved living standards for many low-income families. Kayabaşı, the satellite city developed by TOKI remains unpopulated as the people it aimed to sell its apartments to are unwilling or have moved back to Tarlabaşı, the neighboring city.
After a journey by bus and minibus (dolmuş) that takes almost exactly two hours despite the light traffic, the driver of the dolmuş stops at a crossroads. “From here, you have to walk about 15 minutes,” he informs us. “This is as close as I can get you.” There are only a few low-rise houses around, some of them surrounded by gardens. Chickens scurry away to avoid an oncoming tractor and the occasional cow nibbles on patches of brownish grass. A variety of big and small road signs point in the directions of factories and businesses in the area. A shed is plastered with cardboard signs labelled “Kayabaşı Apartment Sales Office.” It is closed.
Technology is a Magnifier of Human Intent June 7, 2011Posted by isbcems in : Education, Employability, Technology , comments closed
By Nimesh Mehta
Technology is perceived as ‘the solution’ to problems like affordability and scalability in education and skill development. Kentaro Toyama highlights that technology is only a magnifier of human intent and capacity; it can’t substitute them.
The Costs and Benefits of Migration June 2, 2011Posted by isbcems in : Economic Development, Employability, General Interest , comments closed
By Nimesh Mehta
Interesting book review on migration and its impact on reducing income inequality. As Europe and America age, they will need more young and skilled professionals. The demand for highly skilled workers from developing countries like India will grow too. Migration will be an effective tool for reducing global poverty. Also, cheaper communication and increased mobility has reduced the emotional costs (though still hefty) of leaving home.
WHEN a Bangladeshi man goes to work on a construction site in the Middle East, his wife typically moves in with her husband’s family. Not all wives enjoy this. They sweat in a strange kitchen, take care of a bossy mother-in-law and see their husbands only for a few weeks each year. And although their husbands send home plenty of money, they often send it to their parents, not their wives. Migration creates losers as well as winners…
…After filling in the historical background, the authors give a rigorous but readable guide to the costs and benefits of modern migration. Poor countries may suffer when they lose their best brains to the West: 43% of Liberian doctors, for example, now work in North America. But the prospect of migrating spurs people in poor countries to acquire marketable skills. Some then decide not to migrate after all. Others spend several years abroad but then return home with new skills, new contacts and a pot of savings to invest. Overall, the brain drain actually helps poor countries. And of course, it benefits the migrants themselves. If it did not, they would not leave home.
Are Indian millionaires the stingiest in the world? June 1, 2011Posted by isbcems in : Economic Development, Philanthropy , comments closed
Giving in India is greater when compared to other developing nations but seriously lags behind developed nations. For example, in the US, individuals and corporations are responsible for 75% of charitable gifts. In India, individual and corporate donations make up only 10% of charitable giving. 65% comes from India’s central and state government and the remaining gifts are provided by foreign organizations. This recent article in Knowledge@Wharton explores the possible reasons behind the Indian Lakhpati‘s lack of largesse.
Katherina M. Rosqueta, executive director at the Center for High Impact Philanthropy at the University of Pennsylvania, points out that given the differences in history and culture, philanthropy in India is very different from that in the U.S. Philanthropists in India, she notes, typically have some personal relationships with the beneficiaries of their generosity. “If I had to sum it up in one word, I would say that right now, Indian philanthropy is more ‘intimate’ than American philanthropy,” says Rosqueta…
…While there is no hard data to support this, going by the information available, the education sector gets the most of the philanthropic donations in India. This is not surprising. For one, it is well accepted that education plays a vital role in the upliftment of a society. Two, India’s scorecard in this sector is dismal. According to various estimates, the literacy rate in the country is only 65%, only 39% children reach 10th grade and of these, only 40% move to the next level, one out of three children in grade five cannot read and write, 75% of the schools are multi-grade and teachers are not trained adequately.
Affordable Housing, Economic Development, Urbanization , comments closed
Can the $300 house be a pipe dream and a white elephant at the same time? A house that costs less to than $3000(ten times) to build, probably won’t find many takers, not in Mumbai, not in small-town Gujarat, and not in Hyderabad. Echanove and Srivasta argue that if it were possible to build a $300 house, a mumbai slum-dweller wouldn’t touch it with a barge pole.
Those who own houses have far more equity in them than $300 — a typical home is worth at least $3,000. Many families have owned their houses for two or three generations, upgrading them as their incomes increase. With additions, these homes become what we call “tool houses,” acting as workshops, manufacturing units, warehouses and shops. They facilitate trade and production, and allow homeowners to improve their living standards over time.
None of this would be possible with a $300 house, which would have to be as standardized as possible to keep costs low. No number of add-ons would be able to match the flexibility of need-based construction.
Time for a Realty Check? May 30, 2011Posted by isbcems in : Urbanization , comments closed
By Dhaval Monani
Real estate developers trying to sell costly property cannot find buyers, who in turn find themselves squeezed out of the market by rising mortgage costs and inflated property prices.
Inventory, jargon for built-up homes that haven’t been sold, is piling up. Fittingly, a full 25 per cent of total units remain unsold in Mumbai, where real estate rates are the least realistic; Chennai and Pune follow with 19 per cent units unsold, 16 per cent of units can’t be sold in Delhi and its surroundings, followed by Bangalore and Kolkata, reports Economic Times.
Developers who find themselves unable to sell built units cannot pay back loans and find it hard to raise capital for new projects. Sensible economics suggests that if they can’t sell at high prices, they should cut rates and find buyers. But most builders would rather hold on, hoping for gullible buyers to buy dream homes at prices dreamt up by the sellers.
Anecdotal evidence suggests that many builders are selling land holdings to finance loans, rather than cut prices. This too is good, because it will bring more land back into the market, creating further pressure for property prices to fall. For many years, India has not seen a property crash, so many people still believe in the phrase ‘safe as houses.’ But globally, property has been prone to long cycles of price appreciation and decline.
To some extent, the Indian real estate market has been immune from price cycles because of the prevalence of cash transactions in this sector. But with almost all regulators, including the RBI, tightening screws on the property market and trying to trace money trails for high value transactions, it’s just become harder to do cash trades.
For salaried professionals, cash was never an option, so the easy money, low interest rate regime earlier was a good time to get cheap mortgages and buy homes. But with interest rates hardening, these people have become cautious about what prices they’re willing to pay for real estate. This too is welcome: it’ll force builders to build homes that buyers can afford, rather than try and peddle overpriced merchandise. All markets have gone through corrections; it’s time real estate also got its reality check.
More ‘Affordable’ housing for Mumbai May 26, 2011Posted by nikhilesh in : Affordable Housing, Economic Development, Emerging Markets, Urbanization , comments closed
The Urban Development Department and the the Maharashtra Housing and Area Development Authority (MHADA) have taken another ungainly stab at affordable housing provision in Mumbai. I missed this article when it came out a couple of months ago, but the fact that it was published in the Mumbai Mirror may have had something to do with it.
The article draws attention to a recent notification that amends the Development Control rules established under the Maharashtra Regional and town Planning Act of 1966. The new rules make way for private developers to partner with MHADA in the construction of so-called affordable housing in Thane, Kalyan-Dombivali, Bhiwandi, Mira-Bhayandar, Vasai-Virar municipal corporation areas and Ambernath, Badlapur, Panvel, Karjat, Khopoli, Uran municipal council areas. The idea is that developers will use 50% of the alloted Floor Space Index (FSI), otherwise known as Floor Area Ratio (FAR) to construct affordable housing. This will then be handed over to MHADA at cost. The good news for developers is that FSI which is usually 1, has been raised to 2.5 for these projects.
I had a chance to see some MHADA affordable housing blocks while driving out of Mumbai recently. These were 7 storey structures with no lifts, meaning that people living on the top floor must get a fair amount of exercise. Despite being fairly new, the buildings looked run-down and ill-maintained. While this move by the Urban Development Department indicates that affordable housing is finally getting some attention, I’m not sure that this represents the ideal public-private provision model. Also the fact that the notification recognizes flats that are 525 square feet in area as ‘affordable housing’ in Mumbai, seems a hard one to force down one’s alimentry canal.
The Issue of Drug Access May 26, 2011Posted by nikhilesh in : Economic Development, Emerging Markets, Healthcare , comments closed
According to the WHO, 449-649 million people in India lack regular access to essential medicines. I have been thinking about this recently since I am involved with a colleague in a study on Drug Accessibility and Affordability—the two components of achieving access being physical access and affordability.
As for physical access, drugs are dispensed through retail pharmacies (80%), hospital-based pharmacies (12%), government pharmacies (5%), medical professionals (3%) and the rest through non government organization run programs, according to research carried out a few years ago by Kotak Institutional Equity Research. Critically, most of these points of sale for drugs are located in urban and semi urban settings – while most people in India, some 70%, live in rural areas.
As for affordability, the supply chain starts, of course with R&D, and winds its way down to the tiny shops where most people buy their medication, which each chink in the supply chain adding costs. The choice of which medication to take is actually not made even by the consumer but by the prescriber or in some cases by the pharmacist. The consumer is the most ignored stakeholder in the entire supply chain.
Are there lessons to be learned about expanding access from the banking industry? One of the strategies being implemented in the financial inclusion initiative is introduction of banking business correspondents. Correspondents are agents of the bank who try to extend banking services to under-served populations. According to the Reserve Bank of India, the central bank, correspondents are often groups:
“Banks may use intermediaries, such as, NGOs/ Farmers’ Clubs, cooperatives, community based organisations, IT enabled rural outlets of corporate entities, Post Offices, insurance agents… for providing facilitation services. Such services may include (i) identification of borrowers and fitment of activities; (ii) collection and preliminary processing of loan applications including verification of primary information/data; (iii) creating awareness about savings and other products and education and advice on managing money and debt counseling… [etc.]”
I think we should experiment with having medication or Drug Correspondents (DC). Identification of DCs should be preceded by mapping of areas under-served by pharmaceutical services. In Tanzania (http://www.msh.org/news-bureau/tanzania-public-private-partnership-increases-access-to-medicines.cfm), where this model is being tried out, DCs through authorized outlets are allowed to dispense drugs in a designated area. Big pharma companies are working on a rural business initiative, which apart from increasing awareness includes development of low cost rural brands. This is because in India you are not allowed to vary the price of a single brand in different parts of the country. The Tanzania Food and Drug Authority authorized duka la dawa baridi (convenience store) to sell non-prescription drugs. These stores dot the country where licensed pharmacies are scarce. To regulate them strictly Tanzanian government converted them into government authorized drug dispensing outlets (ADDO).
India’s pharma industry is among the worlds largest, and there is potential to reach every single Indian consumer effectively. The overall health market size is estimated to be more than $50 billion. The India’s share in the $82 billion global pharma market for generics is about $11 billion. Sales through the private and not for profit sector accounts for around 94%. Government sales account for just 6% in India.
The government’s National Pharmaceutical Policy for 2002 has noble intentions: It focuses on ensuring availability, affordability, quality in production and distribution, building internal capacities, promoting research and development and creating an enabling environment to attract investments.
Yet the reality is worth focusing on. For acute conditions medication is hard to come by, and for chronic conditions patients must come several times or continually to purchase medicines, which is exceedingly difficult for people living in rural India.
FT special report May 25, 2011Posted by reuben in : Emerging Markets, General Interest , comments closed
The Financial Times has a special report titled New Trade Routes: India. Will be useful to anyone interested in India and the emerging markets space.
Density vs Urban Sprawl May 1, 2011Posted by nikhilesh in : Urbanization , comments closed
Witold Rybczynski, Professor of Urbanism at U Penn discusses the question of density versus urban sprawl in the Wilson Quarterly. He argues that downtown living, and the perceived rejuvenation of urban centers in America were a product of the housing bubble rather than a signal that consumer preferences have changed.
…But after a century of spreading out, will Americans change their minds and draw together? Some observers maintain (hope) that the current economic recession will encourage (force) home buyers to demand smaller homes and more densely planned communities. This result would be unusual, since previous recessions have not had similar effects. Consumers generally have short memories. Following the energy crisis of 1973, for example, Americans switched to smaller cars, but by 1984, when prices at the pump had dropped, gas-guzzling minivans appeared, soon to be followed by SUVs. In any case, choosing where one lives has never been a strictly economic proposition. It is always a trade-off among the affordability of housing, the length of commutes, the quality of neighborhood amenities—especially schools—and preferred lifestyles.
During the last decade, proponents of downtown living pointed to an increase in downtown residential construction as a harbinger of an urban renaissance, but empty condominiums in cities such as Miami and Chicago suggest that this boom was a product of the housing bubble rather than a signal of a significant change in home buyers’ preferences. Similarly, the fact that the average size of new suburban houses—and lots—has recently shrunk for the first time in decades may be less meaningful than it is made out to be. In a recession, the only customers are first-time buyers who can afford only modest homes (which qualify for Federal Housing Administration mortgages, the chief form of housing finance during economic downturns). Meanwhile, larger houses are not being built because move-up home buyers are unable to sell their homes in today’s weak housing market.
Choking Mumbai through regulations April 28, 2011Posted by reuben in : Affordable Housing, General Interest, Urbanization , comments closed
Former CEMS researcher, Shilpa Rao, has an interesting piece in the Global Urbanist on how land regulations have choked Mumbai. This is the first in a 3-part series.
Due to this dwindling physical land bank, Mumbai is now forced to depend on the creation of a virtual land bank through additional floor space allowances. For years vertical growth has been severely restricted due to fears that this will attract more people and the city’s infrastructure is not ready to support them. However, now the Floor Space Index (FSI) is being used as a currency rather than a zoning tool. Additional FSI of up to 4 is being ‘sold’ at exorbitant rates to developers in return for public amenities like ‘parking lots’ (among many other silly things). Because of this rule, in downtown Mumbai you now find more parking lots than cars in locations that have absolutely no need for them.
Consequently Mumbai has a haphazardly rising skyline (with dozens of buildings as high as 40 floors) with absolutely no supplementary increase in water, sanitation and transport infrastructure. To an external observer, it almost seems that civic authorities are not really interested in restricting vertical growth, but merely want to retain these regulatory instruments as a means of political funding.
Tim Harford on Charter Cities April 22, 2011Posted by reuben in : Urbanization , comments closed
I missed this, but Tim Harford wrote an op-ed earlier this month in the Financial Times titled Is it time to outsource cities.
No one is more radical than Paul Romer. Romer’s first career was as the most influential growth theorist of his generation; he was then a successful entrepreneur. Now he beats the drum for “charter cities” as a radical solution to the problem of poverty. Like all cities, charter cities are built on land, populated by people and run according to certain rules. What is unique is that the land, the people and the rules might come from entirely different sources.
When I met Romer in London last year, he was concerned about the credibility of the city’s institutions. Because a city is costly to build, much of its infrastructure will last for decades. Romer argues that investors will not bite without a steady (Canadian? Norwegian?) hand on the tiller. Perhaps he is right, but there is another angle to charter cities, which offer the opportunity to experiment with new rules that do not apply elsewhere. Cities such as Singapore and Hong Kong have prospered because the rules there have been conducive to doing business. Perhaps countries do not really need to outsource new cities; perhaps a special economic zone will be credible enough.
Take New Songdo, a conurbation close to Seoul. For Greg Lindsay, New Songdo is an aerotropolis, notable for its proximity to Incheon airport. I think its quasi-charter status is more important: South Korean politicians privately admit that New Songdo is attractive because businesses can be offered light-touch regulations without seeding a political storm.
Economic Development, Emerging Markets, Healthcare , comments closed
By Priya Anant
I spent the last two weeks in Bihar commissioning a project on government contracting for improved child survival. The objective of this project is to work with both the government and the private sector providers on improving the survival rates of infants. This is the third phase of our engagement with our partner, the Norway India Partnership Initiative (NIPI). Earlier phases included a workshop that was focused on understanding experiences in the country as well as global experiences in government contracting or Public Private Partnerships (PPP) as they are widely known. State and district level research on existing private sector highlighted the need and opportunity to engage the private sector.
It was exciting to see for ourselves the huge “redeeming” agenda of the public sector. “Primary education and health have to be provided for by the Government”, observed a senior administrator. There is frantic infrastructure building activity across the state. The State Health Society, Bihar (SHSB) is one of the swankiest state offices that I have ever been to; the sense of urgency (including a biometric attendance system for staff) is evident. During the course of our numerous interviews with senior heads of departments in SHSB (connected to child health), the most common shared concern was the lack of staff, quality and productivity. The numbers are revealing- of the 80,000 odd ASHA (Accredited Social Health Activist) workers across the State, 40% are yet to be trained on the first four of seven training modules (Government is stepping up the pace by expanding the trainer institutions). The fact that INR 696 out of the INR 1,274 Crores (USD 1.39-2.55 billion) annual outlay was returned unspent, along with an interest of Rs.17 Crores (USD 3.4 million), underlines the problems with “absorption”. This makes me wonder whether more money would necessarily translate into improved health care availability and a subsequent improvement in the indicators.
The restoration of law and order has been the biggest change that Bihar has seen over the last few years. This has provided the confidence for many development agencies and donors to come into the State. We met many important development partners working on healthcare in the State: DFID, which has the agenda of providing technical assistance to the State for Public Private Partnership structuring and execution and undertaking health sector reform, UNFPA which is focused on improving access to good quality family planning services, NIPI with the child survival “catalysing action” agenda and of course, the latest entrant BMGF with two large implementation-focused grants, were some of the key partners we met. One of the BMGF grantees is a consortium led by CARE and the other is World Health Partners. The outlays of the development partners vary between Rs.45 to 2,000 Crores (USD 9 million to 4 billion) for the next five year period. But what is common among most partners is the agenda of “working with the Government to strengthen public systems”.
A mechanism is on the anvil for all development partners to sit down together to align missions and operations. It has been proposed that the Government should play the role of a steward, which would help these agencies work together and with each other in a meaningful manner. The informal channels of communication currently used would then be formalised.
It became evident during our journey to the districts of Jehanbad and Nalanda, why Gulshan Bawra wrote the beautiful lyrics “Mere desh ki dharti sonaa ugale, ugale hire moti….mere desh ki dharti” (roughly translated as: the earth of my country produces gold, silver and diamonds…). Endless fields of golden grains, swaying gently to the summer breeze present a huge contrast to the many problems. Widespread landlessness (while the government estimates stand at 10 percent overall, sample surveys indicate that over 50 percent of households may be landless in certain areas), abject poverty (50 percent of the families here live below poverty line) and huge burdens of maternal and infant deaths. It is a land that is abundantly endowed with natural resources but also with some of the poorest health standards in the country (Human Development Index for India is 0.612 whereas that for Bihar is 0.476). A large percentage of the poor seek care from the private sector because 70% of the doctors operate in the private sector. The 30% who don’t, have a right to a private practice beyond office hours. The private sector is unregulated and driven purely by market forces.
Bihar currently has an Infant Mortality Rate of 52/ 1,000 live births as against the national average of 50 and the goal in Bihar is to take this figure to below 30 by 2012. A heart-stopping 53,000 infants were lost last year according to state data. We are now out on a fact finding mission in Bihar to collect data (facts, figures and human stories) and to corroborate the need to make infant care services available to the poorest, no matter where it comes from…public or private. The goal is to provide a substantive basis for decision-making and to ensure that more infants are not lost due to factors as meaningless as notional boundaries and fixed ideologies.
Direct tax mop up crosses $101 billion April 21, 2011Posted by reuben in : Economic Development, Finance, General Interest , comments closed
At CEMS, we believe in redistribution, but in redistribution of wealth, not poverty. As the pie grows thanks to economic growth, there is obviously more to redistribute (including for social programs) and everyone benefits in the process. TOI reports that the direct tax mop-up crossed $101 billion in 2010-2011.
Open source collaboration in drug discovery April 21, 2011Posted by isbcems in : Healthcare , comments closed
By Anand Tatambhotla
All of us have known and witnessed Wikipedia as an excellent example of collaborative effort to accumulate the world’s knowledge in a re-usable format.
Consider a similar use-case in the Pharma industry, where drug development costs are exorbitantly high to the tune of about a US$ 1 billion and above, often taking more than 10 years for a molecule to come from the lab to the patient. With phases of inconsistent investor interest/ confidence and also a pressing need for innovative therapies, it is important to bring out new novel molecules cheaply and quickly.
Additionally, against an extremely challenging backdrop of declining R&D productivity, a looming “patent cliff” in which more than US$ 150 billion worth branded drugs lose patent protection, industry consolidation – focusing even more on R&D has become an imperative. As Andrew Witty, CEO – Glaxo SmithKline says “The pharmaceutical industry needs to do more with less and still be innovative”. Such challenges could not be more apt for open collaborations between pharma companies, academia and niche specialist firms for rapid innovation.
Here are a couple of such examples which are successfully functioning and sustainable:
In their own words “OSDD is a CSIR Team India Consortium with Global Partnership with a vision to provide affordable healthcare to the developing world by providing a global platform where the best minds can collaborate & collectively endeavor to solve the complex problems associated with discovering novel therapies for neglected tropical diseases like Malaria, Tuberculosis, Leshmaniasis, etc. It is a concept to collaboratively aggregate the biological and genetic information available to scientists in order to use it to hasten the discovery of drugs. This will provide a unique opportunity for scientists, doctors, technocrats, students and others with diverse expertise to work for a common cause”
Since its inception there are over 800 scientists across the world working on discovering novel therapies for Tuberculosis. Based on its business model, all these scientists are engaged in target identification, validation and screening to provide qualified leads. Post this phase, the OSDD involves the industry through Custom Research Organizations (CROs) to optimize candidate drug and proceed for clinical trials.
The organization has been able to identify a few qualified leads (hits) in a little over 2 years – something that would have taken a pharma company at least 5 years and a lot of money to accomplish.
More details about the organization here
This is another good example of industry academia collaboration in order to bring drugs quickly and cheaply to the market. The organization initially started off with a seed funding from Bill & Melinda Gates Foundation is now able to sustain itself through drug sales.
The organization functions through two related but independent divisions MEND Biotech Development (MBD) maintains wet-lab expertise in Boston and Pretoria and performs activities like drug delivery system design, assaying, stability testing, formulation development etc. and MEND Innovation & Translational Alliance Management Division (MITAM) that manages partnerships between pharmaceutical scientists, academia both from developed and developing worlds in order to discover novel therapies and delivery systems.
(Cooperative is an interesting choice of word – more on this here)
This one is even more unique in the sense that it provides “personalized medicine” for breast cancer patients. It is an open-source biotechnology venture which operates in a not-for-profit basis.
As cost for gene sequencing has been drastically falling and immense computing power is now available at free or affordable cost (Google Exacycle), it would be theoretically possible to create personalize medicine and not declare bankrupcy!
An overview of this initiative is here
Emerging Markets, Events, General Interest , comments closed
Tomorrow, the 28th of March, we at CEMS are hosting Raenette Taljaard, who used to be the shadow finance minister of South Africa in the first half of the last decade. Raenette was the youngest ever member of parliament in South Africa, having won elections for the opposition Democratic Alliance against the ruling ANC. She is now CEO of the Helen Suzman Foundation and is a senior lecturer at Univ of Witwatersrand and Univ of Cape Town. The interaction will be very informal and will run from 5:30 PM to 6:30 PM, with high tea to follow.
Have we budgeted for affordable housing? March 27, 2011Posted by isbcems in : Affordable Housing, Urbanization , comments closed
By Dhaval Monani and Nikhilesh Sinha
This time around the Union Budget is remarkable mostly for what it does not do. The tax breaks aren’t breaking news, but with the economy seemingly back on a pre-crisis growth path there are likely to be few complaints. One key area that the budget has attempted to address is the 24 million unit short-fall in affordable housing for households earning below INR 7500 per month, as identified in the 11th Planning Commission Report. While the government has proposed both supply side and demand side measures, these are unlikely to have any significant impact on those who most need access to affordable housing.
On the demand side, the 1% interest rate subsidy will apply to home loans of up to INR 1.5 million for homes that can cost up to INR 2 million. Now the question is, does a house worth INR 2 million qualify as ‘affordable’ housing? The Equated Monthly Installments (EMI) for a loan of INR 1.5 million works out to about INR 12,000 a month after applying the interest rate subsidy. This is unaffordable even for the Middle Income Group (MIG) who earn on average, between INR 7,500 -14,000 per month. In fact even households earning INR 20,000 a month would struggle to pay INR 12,000 a month given the high average cost of living across the country. If increasing the ceiling on the home loan subsidy is not going to help households living on less than INR 20,000 a month, why is this being touted as an affordable housing sop?
The Finance Minister also announced the launch of a Mortgage Risk Guarantee Fund to insure lenders against the risk of default, encouraging banks to give home loans to households in lower income groups. While this kind of intervention has worked in countries like Canada and the Netherlands, creating a self-supporting fund, maintaining reserves, instituting a clear governance structure, and strict adherence to due diligence are the necessary and extremely challenging conditions for success. Leaving aside the challenges of instituting such a fund, the government has assumed an adequate supply of cheap housing. Aside from a handful of projects that have produced truly low-cost housing, the majority of ‘affordable’ housing offerings start at INR 1 million (10 Lakhs). The monthly installment for a loan on a house costing INR 1 million works out to over INR 8,000 a month (considering an 80% mortgage with a 20 year tenure), which would only be affordable to some of those in the Middle Income Group. Again, this is a measure that will have no impact on the 24 million urban households who can’t afford homes.
On the supply side the inclusion of a new clause under Section 35AD of the Income Tax Act, which allows for a full tax rebate on capital expenditure on affordable housing projects seems a more promising intervention. However this is only valid for schemes that are government notified. Unless the criteria for eligibility are made clear and the procedure for getting projects notified is made transparent, this could lead to subversion of the aims of the policy and to the diversion of funds. Section 80 IB(10) of the Income Tax Act used size of dwelling to ascertain eligibility, which is an easily verifiable criterion. Re-instatement of Section 80 IB(10) with exemptions for projects where dwellings do not exceed 500 square feet would have been a much more effective policy change. Apart from being simpler to implement and monitor, it would have provided the right cues for the private sector to increase supply of affordable housing.
Aside from the specific policies mentioned above, revised duties and tariffs will have an impact on the cost of construction inputs, which will in turn affect the affordability of housing. A 20% tax on iron ore exports is likely to bring down domestic steel prices, but cement prices may go up by as much as ten rupees a bag due to a 10% ad valorem tax and additional excise duty. In addition the rise in the price of B-grade coal, which is used in cement production, has created further upward pressure on cement prices.
It remains to be seen how this new regime will affect the housing market, but it is clear that affordable housing agenda has not been properly addressed by this years’ budget despite what the finance ministry claims.