The real benefit of direct benefit transfer

A week ago, I gave up. My LPG subsidy that is.

Having been out of the country for a few months, with our normal LPG usage being much lower than the average family’s, and having forgotten to book my spare cylinder, my LPG account had been “suspended”, for not booking a refill for over six months.

Back in the day when all domestic LPG connections were subsidised, you were required to book a cylinder every six months, else your account would get suspended. This was a measure to get rid of fake accounts and duplicate connections owned by a family (a family could have only one connection, legally).

So when I went to my dealer last week asking for my account to be unsuspended, I was told to submit my Aadhaar number to get it released. When I said I don’t have an Aadhaar number (I have one, but don’t want to use it unless mandatory), the clerk asked if I could give up my subsidy. With the LPG subsidy being a minuscule part of my overall annual expense, I quickly agreed, and after filling up a form and submitting a copy of my driving license, I had “given up”.

Later that day, my account was unsuspended, and I could presently book a refill, which arrived today. And having “given up”, there is no compulsion now to book a cylinder every six months!

The real benefit of the direct benefit transfer scheme adopted by the union government for LPG subsidy transfer is that it is now possible to have two classes of LPG connections, with several benefits.

Firstly, rules such as minimum and maximum frequency of booking don’t apply any more. Secondly, and more importantly, it is far easier nowadays to get an LPG connection – someone I know went to a nearby dealer to get a connection, and after submitting basic identification documents and paying a deposit, it took only a couple of days for the cylinders to arrive.

You might recall a campaign in the late 2000s by the then Karnataka Energy Minister Shobha Karandlaje to weed out duplicate LPG accounts in order to prevent wasteful subsidy. That brought in a regime of submitting a copy of an electricity bill to get LPG connections, in order to prevent one household from having more than one connection. Consequently, getting a new LPG connection became an absolute nightmare.

With the benefits now being targeted, and Aadhaar based, getting a new LPG connection is mostly straightforward, as long as you don’t claim a subsidy. And a lot of the times, the value of the subsidy is far lower than the additional cost of getting the cylinder itself!

In the earlier “indirect transfer regime”, this class of unsubsidided LPG connection did not exist (unless you went with one of the private sector players, most of whom have remained undependable), causing much harassment to consumers, and the need for various workarounds.

The direct benefit regime has thus not only saved the government the cost of wasteful subsidies, but also made life easier for consumers by making the market more rational!

Water, IPL and the ease of doing business

The latest controversy surrounding the just-about-to-start ninth edition of the IPL (a court case challenging its staging in Maharashtra while farmers are dying in Vidarbha) is a clear illustration of why the ease of doing business in India doesn’t look like it will improve.

At the bottom of it, the IPL is a business, with the IPL and teams having invested heavily in team building and marketing and infrastructure. They have made these investments so far hoping to recover them through the tournament, by way of television rights, gate receipts, etc.

Now if the courts were to suddenly decide that the IPL should not take place in Maharashtra, it will mean that alternate arrangements will have to be found in terms of venues and logistics, teams which have prepared grounds in Nagpur, Pune and Mumbai will have to recalibrate strategies, and most importantly, the people of these cities who have bought tickets (they clearly believe that the value of these tickets is higher than the price) will also end up losing.

Farmers dying for lack of water is a real, and emotive, issue. Yet, to go after a high-profile event such as the IPL while not taking other simpler measures to curb fresh water wastage is a knee-jerk reaction which will at best have optical effects, while curbing the ability of businesspersons to conduct legitimate business.

There has been much talk about how policy measures such as the retrospective taxation on Vodafone or Cairn have been detrimental to investor sentiment and curbed fresh investments in India. This court case against the IPL days before it began is no different, and a strong signal that India’s policy uncertainty is not going away quickly.

Unless the political class manages to fix this, and provide businesses more stable environments to operate in, it is unlikely we’ll see significant increase in investments into India.

The land above the tracks

Almost exactly a year ago, we were on our way from Vienna to Budapest and ended up reading the Vienna Hauptbahnhof Railway Station some three hours early. It had been snowing that morning in Vienna (it was April 1st, and supposed to be spring), and not wanting to go anywhere in that shit weather, we simply got to the railway station. It didn’t help matters that our train (which was coming from Munich) had been delayed by a further hour.

We were not short of options for entertainment in at the railway station, though. In fact, it hardly looked like a railway station, and looked more like a mall – for there were no tracks to be seen anywhere. We spent the four hour wait shopping at the mall (it was just before Easter, so there were some good deals) and having breakfast and lunch at what could be considered to be the mall food court. And when it was time for our train to arrive, we simply took one of the escalators that went down from the mall, which deposited us at our platform.

Each platform had its own escalator going down from the mall, which had been built on top of the railway tracks. It can be considered that the entire Vienna Hbf station was built on the “first floor”, making use of the land above the railway tracks. Land that would otherwise be wasted was being put to good use by building commercial space, which apart from generating revenues for the Austrian Railways, also made life significantly better for passengers such as us who happened to reach the station insanely early.

This is a possible source of revenues that Indian Railways would do well to consider, especially in large cities. The Railways sit on large swathes of land above and around the rail tracks, especially at stations (where such tracks diverge). Currently, the quality of experience in Indian railway stations is rather poor. If a swanky mall (and maybe other commercial space) were to come up above the tracks, it could completely transform the railway experience.

There will be considerable investment required, of course, but given the quality of real estate on which most Indian railway stations sit, it is quite likely that private developers can be found who will be willing to invest in constructing these “railway station malls” in return for a share of subsequent rent realisation. There is serious possibility for a win-win here.

As the Vienna Hbf website puts it,

The BahnhofCity Wien Hauptbahnhof features 90 shops and restaurants occupying 20,000 m² of floor space. A fresh food market, textile shops, bakeries and cafés are designed to make BahnhofCity a meeting place. During the week, it will be opened until 21:00 and many shops will also open on Sundays. Excellent public transport links and 600 parking spaces complement the offer.

An idea well worth considering for the Indian Railway Ministry.

Making bus lanes work

Bus Rapid Transport, which is mass transport based on lanes dedicated to buses, is something that has been proposed in India for a very long time but has never really worked.

Delhi abandoned its efforts a few months back under the current state government, after experimenting with it on one road for a few years. Pune has BRT and  bus lanes, but that is also ridden with problems (no pun intended). Ahmedabad supposedly has a well-functioning BRT but the share of commuters using buses in that city is far below other cities.

Source: http://www.livemint.com/Politics/tPT6767pB5DSEEdZnBYcgP/Why-Delhis-bus-service-is-more-expensive-than-that-of-Chenn.html 

There have been proposals to introduce BRT in Bangalore, and some flyovers on Outer Ring Road were designed with the express purpose of maintaining bus lanes. Nothing has come to fruition so far.

In most cases, the problem has been with selling the scheme to the people – a lane exclusively reserved for buses adversely affects people who use private transport. Even though the latter are not numerous (data from the census shows that a very small proportion of urban Indians use private cars for their daily commute), their voice and clout means that it is a hard sell.

In my opinion, the reason BRT has been a hard sell is because of the way it has been implemented and sold. One problem has been that it has been implemented on only a small number of roads, rather than enabling a dense network on which one can travel by bus quickly. The bigger problem  has been implementing it on roads with low bus density, where the demarcated bus lane mostly appears empty while other lanes are clogged, giving incentives for motorists to cheat.

Instead, bus lanes should be demarcated only after bus density on the road has reached a certain density. There are several roads in Bangalore, for example, where buses already contribute to the lion’s share of traffic congestion (Nrupatunga Road, inner ring road in BTM layout and Hosur Road between Wilson Garden and Madivala come to mind – but there needs to be a more scientific study to identify such).

If such roads, with already existing high bus density, are chosen to mark off bus lanes, the bus lanes can be sold as a method to restrict all buses to one lane so that cars can move about freely on the rest of the road. While there might still be protests (thanks to such “reservation”), the fact that the reservation will not have much of an impact will mean that it is an easier sell.

Think about it! Meanwhile, here is a picture from Barcelona, which shows that even in supposedly rule-breaking Spain, bus lanes can work.

Respect for bus lane. In gracia, Barcelona

A photo posted by Karthik Shashidhar (@skthewimp) on

Parks and public safety

I spent the last hour and a half working from a park near my house in Barcelona. It helped that I wasn’t using my laptop – I was mostly working with a notebook and pen. The incredible thing was that never once did I feel unsafe working in that park, and it has to do with the park’s design.

I got accosted by a human only once – by this guy asking me if I had a cigarette lighter and who walked away when I said no, and by dogs (of all shapes and sizes) multiple times. Despite the fact that I was in a park, and people don’t go to parks at 10 am on a weekday morning, there was a constant flow of people in front of me. There were, to put it in other words, sufficient “eyes on the street” which contributed to the place’s safety.

I’ve ranted sufficiently on this blog about the design (or lack of it) of Bangalore’s public parks (one with a name sufficiently similar to that of this post). The problem with the parks, in my opinion, is that they are exclusive closed spaces which are hard to access.

The sprawling Krishna Rao Park in the middle of Basavanagudi, for example, has only two or three entrances, and the number of trees in the park means that large parts of it are hardly visible, providing a refuge to unsavoury elements. This phenomenon of few entrances to parks is prevalent in other city parks as well, with the consequence that the BBMP (city administration) closes off the parks during the day when few people want to go in.

The park I was sitting in this morning, on the other hand, had no such safety issues. It helped that there weren’t too many trees (not always a positive thing about parks), which improved visibility, but most importantly, it was open on all sides, providing a nice thoroughfare for people walking across the area. This meant that a large number of people in the vicinity, even if they didn’t want to “go to a park” ended up passing through the park, because of which there was a constant flow of human traffic and “eyes on the park street”, making it a significantly safer space.

There might be (maintenance-related ) reasons for having limited entrances to parks in Bangalore, but the administration should seriously consider opening up parks on all sides and encouraging people to walk through them (after all, walking paths are an important part of Bangalore parks). Maintenance costs might go up, but safety of parks will be enhanced significantly, and it will be possible to keep parks open at all times, which will enhance their utility to the public.

Maybe Krishna Rao park, with roads on all sides and in the middle of Basavanagudi, might serve as a good pilot case for this.

The myth of affordable housing

Cities are unaffordable by definition because of the value that can be extracted by living in them. 

A few months back, my Takshashila colleague Varun KR (Shenoy) asked me if there is any city where housing is not prohibitively expensive. It wasn’t a rhetorical question. While answering “no”, I went off on a long rant as to why affordable housing is a myth, and why housing in urban areas is by definition expensive. I had been planning to blog it for a while but I get down to it only now.

Cities are expensive to live in due to a simple reason – lots of people want to live there. And why do lots of people want to live in cities? Because the density in cities means that there is a lot more economic activity happening per capita that results in greater productivity and happiness.

If you are in a rural area, for example, there are few services that you could afford to outsource, for the small scale means that it doesn’t make sense for people to provide that service. Even when such services exist, lack of competition might mean a large “bid-ask spread” and hence inefficiency. This means you are forced to do a lot more tasks which you suck at, leaving less time for you to do things you are good at and make money from.

Needs of a rural area also means that there is a natural limit on the kind of economic activities that can be remunerative there, so if your skills don’t lie in one of those, you are but forced to lead a suboptimal existence.

Larger agglomerations (such as cities), by putting people closer to each other, provide sufficient scale for more goods and services to become tradable. Transaction costs are reduced, and you can afford to outsource a lot more tasks than you could afford to in a rural area, thus boosting your productivity.

Economist and noted urban theorist Jane Jacobs, in her book “Cities and the Wealth of Nations”, argues that economic development occurs exclusively in cities and “city regions” and proceeds to demolish different theories by which people have tried to create economic value in remote areas (my review of the book here).

The larger a city is, the greater the benefits for someone who lives there, controlling for ability and skill. Thus, ceteris paribus, the demand for living in cities exceeds that of living in smaller agglomerations, which gets reflected in the price of housing.

It might be argued that what I have presented so far is only an analysis of demand, and supply is missing from my analysis. (I don’t understand who is on the left and who is on the right on this one but) One side argues that the reason housing is not affordable in cities is that strict regulations and zoning laws limit the amount of housing available leading to higher prices. The other side talks about the greed of builders who want to “maximise profits by building for the rich”, which leads to undersupply at the lower end of the market.

While zoning and building restrictions might artificially restrict supply and push up prices (San Francisco is a well-known example of a city with expensive housing for this reason), easing such restrictions can have only a limited impact. While it is true that increasing density might lead to an increase in supply and thus lower prices, a denser city will end up providing scale to far more goods and services than a less dense city can, thus increasing the value addition for people living there, which means more people want to live in these denser cities.

As for regulations that dictate that “affordable housing” be built, one needs to look no further than the “Slum Rehabilitation Apartments” that have been built in Mumbai on land recovered from slums (the usual deal is for a builder to commit to building a certain number of “affordable” houses for the erstwhile dwellers of the slums thus demolished apart from “conventional” housing). Erstwhile slumdwellers rarely occupy such apartments, for they are willing to accept a lower quality of life (in another slum, perhaps) in exchange for the money that can be generated by renting out these apartments.

This piece is far from over, but given how long it’s been, I’ll probably continue in a second part. Till then, I leave you with this thought – a city becoming an “affordable” place to live is a cause of worry for policymakers (and dwellers of the city itself) because it is an indicator that the city is not adding as much economic value as it used to.

 

Why Delhi’s odd-even plan might work

While it is too early to look at data and come to an objective decision, there is enough reason to believe that Delhi’s “odd-even” plan (that restricts access to streets on certain days to cars of a certain parity) might work.

 

The program was announced sometime in December and the pilot started in January, and you have the usual (and some unusual) set of outragers outraging about it, and about how it can cause chaos, makes the city unsafe and so forth. An old picture of a Delhi metro was recirculated on Monday and received thousands of retweets, by people who hadn’t bothered to check facts and were biased against the odd-even formula. There has been some anecdotal evidence, however, that the plan might be working.

It can be argued that the large number of exceptions (some of which are bizarre) might blunt the effect of the new policy, and that people might come up with innovative car-swap schemes (not all cars get out of their lots every morning, so a simple car-swap scheme can help people circumvent this ban), because of which only a small proportion of cars in Delhi might go off the roads thanks to the scheme.

While it might be true that the number of cars on Delhi roads might fall by far less than half (thanks to exemptions and swap schemes) due to this measure, that alone can have a significant impact on the city’s traffic, and pollution. This is primarily due to non-linearities in traffic around the capacity.

Consider a hypothetical example of a road with a capacity for carrying 100 cars per hour. As long as the number of cars that want to travel on it in an hour is less than 100, there is absolutely no problem and the cars go on. The 101st car, however, creates the problem, since the resource now needs to be allocated. The simplest way to allocate a resource such as a road is first come-first served, and so the 101st car waits for its turn at the beginning of the road, causing a block in the road it is coming from.

While this might be a hypothetical and hard-to-visualise example, it illustrates the discontinuity in the problem – up to 100, no problem, but 101st causes problem and every additional car adds to the problem. More importantly, these problems also cascade, since a car waiting to get on to a road clogs the road it is coming from.

Data is not available about the utilisation of Delhi roads before this new measure was implemented, but as long as the demand-supply ratio was not too much higher than 1, the new measure will be a success. In fact, if a fraction f of earlier traffic remains on the road, the scheme will be a success as long as the earlier utilisation of the road was no more than \frac{1}{f} (of course we are simplifying heavily here. Traffic varies by region, time of day, etc.).

In other words, the reduction in number of cars due to the new measure should mean significantly lower bottlenecks and traffic jams, and ensure that the remaining cars move much faster than they did earlier. And with lesser bottlenecks and jams, cars will end up burning less fuel than they used to, and that adds a multiplier to the drop in pollution.

Given that roads are hard to price (in theory it’s simple but not so in practice), what we need is a mechanism so that the number of cars using it is less than or equal to capacity. The discontinuity around this capacity means that we need some kind of a coordination mechanism to keep demand below the capacity. The tool that has currently been used (limiting road use based on number plate parity) is crude, but it will tell us whether such measures are indeed successful in cutting traffic.

More importantly, I hope that the Delhi government, traffic police, etc. have been collecting sufficient data through this trial period to determine whether the move has the intended effects. Once the trial period is over, we will know the true effect this has had (measuring pollution as some commentators have tried is crude, given lag effects, etc.).

If this measure is successful, other cities can plan to either replicate this measure (not ideal, since this is rather crude) or introduce congestion pricing in order to regulate traffic on roads.