Tuesday, December 20, 2011

National Food Security Bill & Socialism

An email that I received the other day reminded me of the labour crisis that my parents spoke of some months back.

The maid wouldn’t want to work at anything less than twice the amount we paid till last month. Labour supply for construction work is low and hence, an indirect rise in the demand of higher wages. Similar is the situation in Agriculture although, the effect might not have been that severe or even more in other places.

"Why not?" was the answer that I received when I asked, "Why is that so?" ....When you get to do less work for same amount of money under some scheme “MGNREGA” implemented by central government with guarantee of work for some x number of days then, why not?

These Schemes under “MGNREGA” were implemented by the government to resolve lower section unemployment in the society however, the implementation of the so called schemes have disrupted the labour market in a huge way.

Similarly another highly appreciated and lauded “National Food Security Bill” which is about to be launched by the central government under much fanfare may create a major and heavy disruption in the labour market. And the email(shown below) tries to explain how this can happen in a beautiful way.

"You must have all read this or would know of this but I still felt strongly and hence wanted to share……

Lesson in Socialism

An economics professor at a local University made a statement that he had never failed a single student before, but had recently failed an entire class. The class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on the socialism principles". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A(substituting grades for Rupees - something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were HAPPY. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Couldn’t be any simpler than that.

These are possibly the 3 best sentences you'll ever read and all applicable to this experiment:

1. What one person receives without working for, another person must work for without receiving.

2. The government cannot give to anybody anything that the government does not first take from somebody else.

3. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation."

So, the segment of population whom the government would supply the food at almost free/too low a cost tomorrow need not work the same amount of time they do today.

Let’s assume the market has 100 people working for 10hours today at a wage of 100 rupees a day. Hence, the amount of work in the market is 1000manhours a day or 30000manhours a month.

Once the “National Food Security bill” is implemented, some of them would be completely satisfied by working for 1hour a day instead of 10hours a day or by working for 1day instead of 10days. Since, this will give them 100rupees to take care of the basic requirements that they were earlier getting in 1000rupees. But, some would be ready/ambitious to work for 10hours a day everyday so that they can save the rest of money for some rainy day/betterment of lifestyle. However, the amount of work required in the market is still 30000manhours a month resulting in an indirect increase in demand of higher wages which have already gone higher due to the earlier schemes under “MGNREGA”.

No offense against reservations/Ambedkar. Dr.B.R.Ambedkar has brought in the reservations 60years back saying they will be removed in some 10years since, this period of 10years might have lead to upbringing of those backward sections in the society. But, everyone tried to play around and it has just become a political gimmick which may lead to a dangerous situation in the years to come. A day might be seen when who so ever is in the open category may ask for a reservation under a special status called “The Open category.”

Who guarantees that these MGNREGA and National Food security Bill will not be played with by future dynasties of politicians?

Open for Comments…

Tuesday, September 13, 2011

Vodafone Blue : Trying to replicate Airtel's HFZ??

I have read about the launch of new Vodafone Blue also known as Facebook Phone a couple of days back in India. Yet for the first time I viewed it on TV, I kept on asking myself "Why does Facebook want to advertise itself on TV?"

Yes, I had good amount of time to think by the end of which a Vodafone banner appeared for 3seconds reminding me of the new phone launch. It was approx. 2minutes 10seconds effort which more of takes you through some of the features/apps on Facebook to only realize at the end that these are gonna be available on the new Vodafone Blue.

Vodafone always had those cute 15seconds ads to inform of a new service/launch/offers. Even a service such as 3G, one of those highest on priority if you need to prioritize was also launched using zoozoo's and similar 15-30sec spots. However, this time it has deviated from an approach it always used since long time. Trying to move away from those that break the clutter might prove to be too dangerous for Vodafone.

What might be the reason for such a sudden and an altogether different move? Does Vodafone beleive that the launch of this phone is bigger than the launch of 3G or other offers/services it launched in the recent months? Definitely not. Or Is it trying to break the clutter? I really feel it's definitely not capable of with this ad and there isn’t any requirement since, this is the only one in this segment.

And what about the cost it is incurring on a 210seconds spot. Ok, many of those recent ads were played in the intial 2-3days for the entire length and later cut down to bits and pieces like Airtel's "Har Ek Friend Zaroori hain" or a Hero's "Hum mein hain Hero". But, I think the lyrics of this ad too are not something with which you can cut into bits.
Ohh wait, did I say Airtel?

Are they by any chance trying to replicate Airtel's HFZ song to get a similar anthem for Vodafone? I doubt this can be of any match to HFZ but, still are they trying to replicate and failed miserably?
Open for Comments

Friday, August 26, 2011

Money back Health Insurance: A huge Misperception & a blunder



Never go by the name: It doesn't mean that a girl named "Santhi/Shanti"(meaning Peace) would be a peaceful person. She could be as dangerous as the notorious killer in your mom's never ending TV serial or She can be as cute as your girlfriend during Kindergarten days who always knew S for Sugar but, never knew S for Shopping.

Many (including the so called regulators) always say that Financial Literacy levels in India need to move north at a better pace than what it is currently moving at. However, irrespective of the level it reaches people need to understand some basic facts. One of them is to “Never go by the name”.

There has been a recent advertisement from IndiaFirst Life Insurance company that shows a person eager to injure himself in order to avail Health Insurance benefits at least on the last day of the policy. And the VO says "Are akalmand IndiaFirst ka moneyback health insurance nahi suna. Ye deta hai protection ke saath returns claim kiye bina." (Haven't you heard about moneyback health insurance from IndiaFirst. It gives returns without claims along with protection)

The perception about this product from the ad that many customers carry is that, "this product will give all the money back as well as a health cover". But, hardly is there a customer who's trying to ask a basic question "At what cost will I get the money back?"

The kind of uneducated sales that happened in the Life Insurance Industry in the past is majorly responsible for the misunderstanding or the misperception the customers have today with words which turned into nouns over a period of time. You say Moneyback and the customer heard it as "a guaranteed product which gives all the money back irrespective of any happenings in the environment / market and the risk that the company takes on his/her Life/Health."

The primary fact is everything in this world has a visible or an invisible price tag hanging around it’s neck. And the risk that any company in the world takes on a person's health via a health policy has a price to it as well. Let's say the industry average price is "X" for a cover of "Y" for your age. So, Would IndiaFirst Life give all the money back by charging you only "X" and at the same time take risk on your health for an amount "Y"?? Not Unless RBI has given a franchisee of minting press to it allowing it to print as many notes it needs.

Hence, the extra cost (quantitative) that you would pay to get the money back is a primary factor to be considered. How much is this extra cost? And are there any extra benefits by paying this extra cost that you can get out of this product that, other products don't have (Qualitative) would be a secondary factor. And "Is this the only product in the market and If not, Is this the best product in that category?" would decide if it is a marketing blunder from IndiaFirst Life.

As far as my understanding goes, the extra amount that you would pay in this product is definitely not worth it from the view of both Quantitative and Qualitative factors. And, this is not the only product in this already born but recently rediscovered category. If you are trying to market a product into an already born but recently rediscovered category, you need to ensure that your product is the best. Else, your balance sheet shows the marketing costs for profits shown in someone else's balance sheets. This is something similar to what happened with Aegon Religare in 2008. It has marketed heavily on K.I.L.B (Kam Insurance Lene ki Bimari) to make customers understand Human Life Value concept and the actual Life cover a person needs which made customers rediscover the term plans category. But, the bad part was Aegon Religare was a new player in the market with hardly any credibility and it's quotes for term plans were not among the lowest in the Industry.

Similarly, ICICI Prudential Life has at least a 10times better product called "Heath Saver"(launched in 2008) that can be compared to Moneyback Health Insurance from IndiaFirst Life in the so called already born but recently rediscovered category. A small ad/viral campaign with a fraction of cost by ICICI Prudential at this stage can make huge holes in the marketing balance sheet of IndiaFirst Life.

The product to keep it simple is a Health ULIP. The money that you pay is divided into two parts: Charges and Net Investmenet. It has 3-4 charges under various heads. Premium Allocation charge which is 13% in the 1st year and 2% from 2nd year. Admin charge of 1.8% which increases at 5% per Annum. Fund Management Charges of 1.35% across all funds irrespective of Equity or Debt (1.35% is too high for debt). And it's Morbidity charges are around the average Industry health insurance costs but, it charges you for morbidity charges of everyone under the floater plan although it gives you a floater cover only. This means if you opt for a 3Lakhs floater cover, you pay the sum of morbidity charges for all the members covered calculated on 3Lakhs each as per their age although all the members can in total only claim 3Lakhs. Hence, the primary factor which is quantitative suggests that you can get a better Health Insurance product in the market easily for a lower cost.

I use the word "better" since this product of IndiaFirst Life comes with a number of limitations and conditions which you don't see in a normal Health Insurance plan. To list a few: Limitation on maximum cover during the plan term, Co-pay of 20%, limitation on Surgery fee, etc., Limitation of maximum cover during the term as 5times the Annual Sum Insured is the worst part which means, if you take an annual cover of 2Lakhs the sum of amounts you can claim in this policy is maximum of 10Lakhs over the years post which it automatically gets terminated. Hence, you can decide if there is a need to pay higher morbidity for lesser benefits and other extra charges to manage your Net Invested funds that gives you back the market value of money which is not guaranteed as the actual perception is??

But, India is still a country with a very minor population under the category of financially literate and many of those who are slightly financially literate also do not understand the basic facts: “Never go by the name”.

We need to really wait and see if ICICI Prudential Life will get(if it doesn't take) advantage of the marketing blunder from IndiaFirst Life or will IndiaFirst Life use the misperception to it's advantage and sell a product in the same way as the uneducated sales of past decades.


Open for Comments


Sunday, January 30, 2011

Will Nicorette really help Indian smokers??


Johnson & Johnson has recently launched Nicorette in India and has been targeting smokers to use the same to quit smoking. But, will using Nicorette solve the real purpose of Indians who want to quit smoking? I don't think so in an Indian scenario.

One of my earlier roomies is a regular smoker and I am a person who ensures even not to shake hands if a person hasn't washed his/her hands after smoking. So, a condition imposed on him when he moved into our room was to go downstairs every time he wants to smoke. Apparently we lived in the first floor which was not much of a problem but, definitely a problem during the midnight or early morning. Let's consider this set of people who need to go out of home/office to a near by place to smoke as set-A.

My new office is good distance away from a place where people need to go for a smoke (outside the main gates). Definitely good enough pain for all those smokers. Let's consider this set of people who need to go out of home/office to a distant place to smoke or those who need to smoke secretly so that family members don't observe as set-B.

And there are a group of people who don't care about where, what and why of smoking and there aren't many who question them too. Let's consider them as set-C.

There are a couple of reasons why people want to quit smoking? First (set-1) is for the commitment given to family/friends(post a big gyan session/debate). And second (set-2) is self realization. And an extra reason where a person(set-3) wants to avoid smoking for time being is to ensure you don't create a bad image of yourself in the eyes of certain people at a certain place/point of time(cultural sentiments or sentimental cultures). In Indian scenario, though you may classify a person into set A/B/C/1/2 there, is a minor portion of a reason (set-3) which automatically creates a major issue. People in both the sets A & B will eventually fall into the sets 1 or 2 or 3.

And set C if at any point of time will move into Set-A or Set-B which will eventually lead into set-1/2/3. Looking at the products in debate a normal cigarette on an average makes a person consume 1mg of Nicotine where as Nicorette comes in 2mg and 4mg packs depending upon the type of smoker you are.

In the case of self realization as well as the gyan session/debate for Set-A and set-1/2/3 combination, the end purpose is to avoid the ill effects of smoking of which a major chunk comes from the substance Nicotine present in the Cigarette/other products but, it some how adds up the set-3 reason as well. To avoid the ill effects or under self realization in reality, the self restraint comes into picture rather than a requirement for a gum to replace smoking. Might be there is a 20% chance that this group will use Nicorette but, there isn't really a requirement for the smoker to move in for the gum which might make him/her addicted to the gum and this might make those in set-1 to just use it as a diversion (especially for those involved in gyan/debate) but, the intake of nicotine hardly reduces for this group.

In the case of Set-B and set-1/2/3 combination, it's a mere comfort level for the person in question. Hence, you can expect a good number of smokers (40%) to use Nicorette for the cravings rather than for the reason to quit smoking and this might eventually lead to addiction towards gum which becomes more comfortable and might be the person who had actually come down from 8 to 5 cigarettes per day due to the comfort levels might move towards nicotine levels which might have come from 15 cigarettes a day.

But, the way Nicorette is being advertised or promoted there's a huge sale of product in the offing for J&J and a similar rise in the levels of nicotine in people. As they say, it doubles up your chances of smoking but, I believe it will also double up the levels of…… And shouldn’t this pack too have a deadly picture of a skull as on a pack of cigarette?? Bring back Anbumani Ramadoss and Gulam Nabi Azad on screens J

Have I missed any other Sets D/E/F.... or 4/5/6.... Open for Comments

Sunday, January 16, 2011

Dilemma of Multiple regulators

Assume you walk into a bank to open an account or a mobile store to take a connection only with a photograph and you were able to open the account / take the connection without any further verification? How much time will it save….

I met a friend of mine recently at a reunion and we started a discussion on workplace. The discussion took some turns to a point when I asked him, "Why don't you people try and make it simple for customers/organizations? Why can't you and RBI be on the same line or make a common forum/requirements/documents etc?"

And the reply made me almost drop my glass. He said, "I am not aware of any RBI. By the way, who is RBI?" I am not surprised because he isn't aware that RBI is Reserve Bank of India but, I am really surprised to see in reality of what I always only heard of. A clash of “ego” between the regulators. I think anyone who's in my place would have had the same feeling knowing that the friend I am speaking about works with another very famous regulator in the world of Indian financial sector.

Have you ever thought of how many copies of PAN, address and other proofs do you submit in a year? Almost every time you want to get into a financial instrument or open a new bank account or take a new telephone/mobile connection / Insurance policy / Loan. Why can't we replace these with a single instrument / single time documentation that is maintained on a particular depository? Yes, it is very important that the details (the so called KYC) are verified and the norms are adhered to. But, there is a better way to do the same and make it convenient for customers which is very much possible. The sad part is the very much possibility is made impossible by the egoistic regulators who always try to prove a point that they are the superior ones / they are not any inferior to others.

This has been to a certain extent done well when, SEBI has made it mandatory for every customer to be KYC compliant and updating the KYC through any intermediary means "you can transact with any intermediary for investments by just quoting your pan number." This is really a wonderful solution within the investments circle but, still I believe this is just done as another paper work rather than following it as per actual requirement. For example, as of now updating KYC at CDSL doesn't have the ways to track the expiry date of address proofs in case of rent agreements given or a latest bank statement given. Might be these additional checks are required to take it to the next level. Might be it can track the expiry date and automatically your KYC turns into "Not Verified" on the expiry date of an agreement. Might be the rule can be changed as KYC to be updated every 3years. These sort of additional checks would make it very much fool-proof and will be useful to any other organizations like banks/data companies rather than to re-verify themselves.

But, updating KYC on CDSL(depository) today doesn't mean you need not do fresh KYC while opening a bank account or for a existing account or for a mobile connection etc., which is very much like doing the same work again and again. Why can't we have the same suffice for a bank account or a mobile connection? Some intermediary has definitely checked the proofs and has done the verification of KYC and it should be a fool-proof one.

Assume you walk into a bank to open an account or a mobile store to take a connection only with a photograph and you were able to open the account / take the connection without any further verification? How much time will it save for customers as well as how much time will it save for the companies in verifying address / identification? The company pulls your data from a common depository and if it says verified, you are given the connection / your account is opened without any further hassles or documentation? So, why can't all these people use the same resource? Aren't they re-doing the same work which already some other organization has done might be very recently or a month back or a year back for the same customer?

But, in today's Indian environment that looks very difficult due to almost single reason: Loss of importance for a regulator. Every one feels superior to each other or else atleast on par and definitely want to be in the light. Obviously SEBI will not allow RBI/TRAI to get into what it believes is it's turf of investments. RBI will not allow TRAI/SEBI to get into what it believes is it's turf of banking. TRAI will not allow RBI/SEBI get into what it believes is it's turf of telecom. A clash of Ego and a clash on loss of identity or a gain of identity for the regulators.

If this kind of co-ordination/ego issues are resolved, many hours are saved for the customers / organizations and might be you will see the lower costs to organizations make your savings bank account get 3.75% rather than 3.5% or 100sms extra on the same pack. I hope some day these equations change to make life simpler.

Open for Comments