1st December

Development as a peoples movement

Modern technology-based industries and services cannot generate employment on a massive
scale. It is therefore imperative that this modern sector must rein in its adverse impacts on
labour-intensive, natural resource-based livelihoods
Development was a key issue in the 2014 Lok Sabha election. In his very first speech after
taking over as Prime Minister, Narendra Modi asserted that his government is committed to
carrying on development as a peoples movement. This, he has asserted, will draw upon
Indias democratic, demographic and demand dividends. But are we genuinely moving
towards organising development as a peoples movement while building on these strengths?
At the heart of democracy is access to information. We do have the vital Right to Information
Act, but need to do much more since the public is being continually misled. To reap the
demographic dividend, our youth should be well nourished. But what is the reality? The
governments statistics show that 28 per cent of school children were malnourished in 1993;
this came down to 17 per cent by 1999 and declined further to 8 per cent by 2006. However,
this is based on information provided by schools, and many of them are guilty of maintaining
bogus records of enrollment and expenses towards the provision of mid-day meals. As a
cross-check, we have the data provided by the carefully and professionally conducted
National Family Health Survey. According to its very different and shocking results, 53 per
cent of school children were malnourished in 1993. This came down slightly to 47 per cent by
1999 and changed a little by 2006, to 46 per cent.
To cater to Indias massive population of consumers, people should have adequate
purchasing power, such as that enjoyed by people employed in the industries or services
sector. Unfortunately, as the malnourishment statistics indicate, a vast majority of Indians are
poor, with barely 10 per cent employed in the organised sector. We are being convinced that
vigorous economic growth is generating substantial employment. But this is not so. When our
economy was growing at 3 per cent per year, employment in the organised sector was
growing at 2 per cent per year. As the economy began to grow at 7-8 per cent per year, the
rate of growth of employment in the organised sector actually declined to 1 per cent per year
since most of the economic growth was based on technological progress, including
automation. At the same time, the increasing pressure of the organised sector on land, water,
forest and mineral resources has adversely impacted employment in farming, animal
husbandry and fisheries sectors. People who are being pushed out of these occupations are
now crowding in urban centres. This is in turn leading to a decline in the productivity of the
organised industries and services sector. Evidently, the ship of our development is sadly
adrift.
What is development?
Undoubtedly, people aspire for development. But what is development? Joseph Stiglitz, a
recipient of the Nobel Prize in Economics and one-time chairman of Bill Clintons Economic
Advisory Council, offers an insightful analysis, asserting that development should result in an
enhancement of the totality of a nations four-fold capital stocks: the capital of material goods,
natural capital such as soil, water, forests and fish, human capital including health, education
and employment, and social capital comprising mutual trust and social harmony. Our current
pattern of economic development is by no means a balanced process resulting in the overall
enhancement of the totality of these stocks. Thus, for instance, mining in Goa has severely

damaged the States water resources and caused high levels of air and water pollution. The
ever-increasing content of metals in drinking water reservoirs has adversely impacted health.
When thousands of trucks were plying ore on the roads of Goa, the resulting chaos in traffic
and accidents seriously disrupted social harmony. Evidently, the single-minded focus on
industrial growth is not leading to sustainable, harmonious development, but merely nurturing
a money-centred violent economy.
We must, of course, continue to develop modern
technology-based industries and services, but these
industrial growth is not leading to
cannot generate employment on the massive scale
sustainable, harmonious
required. It is therefore imperative that this modern
development, but merely nurturing a sector must rein in its adverse impacts on labourintensive, natural resource-based occupations and
money-centred violent economy.
livelihoods. The modern capital-intensive, technologybased economic sector must nurture a symbiotic
relationship with the nature-based, labour-intensive sector. Our democracy provides for
fashioning such a mutual relationship through the 73rd and 74th constitutional amendments
and the Biological Diversity Act, the Panchayats (Extension to Schedule Areas) Act and the
Forest Rights Act. We must take advantage of this constitutional framework that promotes
decentralised governance and work with nature and people to move forward on a path
towards genuine development a path that would be entirely compatible with making
development a peoples movement.
The single-minded focus on

Examples of peoples movements

In Chandrapur and Gadchiroli districts of Maharashtra, both of which are Naxal-torn, there are
hopeful examples emerging of how development may be nurtured as a peoples movement. A
number of tribal and other traditional forest-dwelling communities of these districts now have
management rights over Community Forest Resources under the Forest Rights Act. The state
retains ownership over such resources, and these cannot be diverted to other purposes. But
now these resources are being managed holistically with a fuller involvement of the people.
The citizens of Pachgaon, for instance, have, through two full-day meetings of their entire
Gram Sabha, decided upon 40-odd regulations. Tendu leaves are a major forest produce, but
their harvest entails extensive lopping and setting of forest fires. So, Pachgaon has decided to
forego this income and instead focus on marketing the edible tendu fruit. By stopping the
collection of tendu leaves, the trees are healthier and both fruit yield and income from its
marketing have gone up. Incomes from bamboo harvest have also gone up manifold, and for
the first time the people are moving out of the earlier precarious existence. Notably, they have
on their own initiated protecting part of these forests as newly constituted sacred groves.
Such community management of forest resources is the only sane way to combat extremism,
and I have every hope that the new government, with its commitment to making development
a peoples movement, will wholeheartedly support these initiatives.
Verle village, perched atop Sahyadri mountains in Goas Sanguem taluk, provides another
instance of how we can make development a peoples movement. In this charming village,
the locals have initiated a cooperative tourism project. Visitors stay in the homes of the locals,
which are now equipped with modern amenities, and enjoy home-cooked food. They can
wander around to their hearts content with three well-trained local youth who serve as nature
guides. This is a neat example of how development benefits people at the grassroots level
while safeguarding the natural heritage.
Recently, I had requested Goa University students to write an essay on any issue of their

interest. Many chose tourism; they were very concerned with the negative fallout of the
flourishing hotel industry. These included depletion and pollution of ground water, evergrowing piles of solid waste, encroachments on public beaches and alarming growing drug
abuse, associated crimes and womens insecurity. They also felt that few economic benefits
actually reach the people of Goa. Why then can we not focus on enterprises that are naturefriendly and give full scope to local initiatives like Verle to develop tourism? Why do we not
organise activities such as these that genuinely promote development as a peoples
movement?
Furthermore, Goa could revive its currently stagnating mining business through novel peopleoriented initiatives such as the proposal from the tribals in Caurem village in Goas Quepem
taluka. There, extensive community lands that harbour a large sacred grove lands that
ought to have been assigned as Community Forest Resources have been encroached
upon by palpable illegal mining, which has damaged water resources, affected farming, and
created social dissonance. The mines are currently closed because of the illegalities, and the
Gram Sabha has unanimously resolved that if they are to be restarted, this should be done
through the agency of their multi-purpose cooperative society.
The Goa government ought to seize this golden opportunity and do all that it can to ensure
that it succeeds. When the first cooperative sugar factory in the country was established at
Pravaranagar in Maharashtra 60 years ago, many doubted if the farmers could manage such
an enterprise. But it succeeded beyond peoples wildest dreams because of capable farmerleaders like Vitthalrao Vikhe Patil and a sympathetic Finance Minister like Vaikunthbhai
Mehta. Let us therefore hope that the Goa government with its commitment to making
development a peoples movement will vigorously support the Caurem initiative and create for
the country a new model of how mining can be developed as a peoples activity.
(Madhav Gadgil is D.D.Kosambi Visiting Research Professor, Goa University.)
Accountability and autonomy
Sports have been dominated by business interests in recent decades, and big money and
glamour often attract businessmen, politicians and assorted characters into sports
administration. The entry of controversy into cricket administration in India and questions
being raised about its accountability to the public and its large fan base are, therefore, hardly
surprising. As the Indian cricket board is the richest national body in the game, it is only to be
expected that there will be considerable public interest around the running of its main moneyspinner, the lucrative Indian Premier League. On the one hand, the IPL is a sub-committee of
the Board of Control for Cricket in India, but on the other, the BCCIs president also owns a
league team in the IPL. The BCCI is a registered society with State cricket associations
affiliated to it. And the one who commands the maximum support among these State
associations invariably gets to run the BCCI. In other words, it is a cosy club of mutual
interests, and the IPL cannot be expected to be any different. Even though the BCCI is a
private and autonomous body, it is what it is today only because of the great public support
that cricket commands.
The big question that confronts one in the wake of the IPL betting and spot-fixing scandal is
this: how does one ensure accountability of national sporting bodies without jeopardising their
autonomy? A specific regulatory framework may appear to be the most obvious answer as
general laws governing societies and other associations have proved unequal to the task. The
previous United Progressive Alliance regime had prepared a draft National Sports

Development Bill. Among its aims was the promotion of ethical practices in sports. It talked
about national sports federations to run every sport with official recognition. A legislative
framework that is not sensitive enough to the need for autonomy in sports bodies would be
seen as needless interference going against the spirit of sports. The experience of cash-rich
sporting bodies elsewhere is not enough of a guide. The National Football League in the U.S.,
for instance, is a not-for-profit body, but the National Basketball Association is run on purely
commercial lines. In England, there has been headway in clubs giving some say in their
management to supporters and shareholders. The opportunity presented by the current IPL
controversy to cleanse cricket in India is extraordinary. The best way to make use of it is to
put in place a mechanism that would enhance public trust and accountability while retaining
the autonomy necessary to ensure the highest competitive standards in the game. Clearly, a
great deal will depend on the calibre of men entrusted with the tasks of governance.
An imaginative deal
The 160-member World Trade Organization (WTO) wrote history last week when its General
Council approved its first major global trade deal since its inception nearly two decades ago.
The WTO got into a logjam when New Delhi put its foot down, and refused to sign the trade
facilitation agreement unless a solution was found to the food stockpiling issue. The resultant
impasse had even put a question mark over the very future of the WTO. Sensing the
disastrous consequences of a WTO failure, Washington swiftly went into a bilateral huddle
with India. Once the two sides agreed on a solution to the contentious issue, the decks were
cleared for the WTO to ink its maiden trade agreement. Quarantining the public food
stockpiling issue has ensured that the members commitment for a multilateral trading system
remains intact. India and others felt that the Bali agreement put at risk their food security
policies. The WTO General Council has now agreed to keep the negotiations for a permanent
solution on public stockholding for security consideration independent of the outcomes on
talks on other issues. It has also decided to let the peace clause, agreed in Bali, to remain in
force until a permanent solution is found. The agreement clearly addresses Indias concerns.
The WTO has set for itself an accelerated time frame of December 2015 to arrive at a lasting
solution to the issue. A stricter deadline reflects a sense of seriousness in not letting the issue
linger indefinitely. In a way, it also assures the developed world that its concerns over the
trade-distorting food subsidies remain a priority focus. With the General Council adopting the
Protocol of Amendment, the process of implementation of the Trade Facilitation Agreement
has finally begun. Essentially, it is aimed at modernising the trade infrastructure and easing
regulations to smoothen global trade.
Since the Doha Round, the WTO has been struggling to be relevant in the midst of diverse
interest blocs. It is hoping to shore up its image with the less-ambitious but procedurally
significant trade facilitation agreement. The public stockholding issue almost spoiled the party
for the WTO but now there is no need to redo Bali. Significantly, the WTO General Council
has also given itself a deadline of July 2015 to agree on a work programme to implement the
Bali Ministerial Decisions. If it reveals a prudential compromise, the historic deal also
underscores the acute anxiety among members to work towards strengthening the multilateral
trading system. Surely, the deal must spur member-nations to discover ways and means to
deliver fast on the Bali decisions. The moot question, however, is: will the deal embolden the
WTO attempt liberalising the more sensitive areas of trade as was intended by the Doha
Round?

A new template for media regulation 1

The news media sector, as an industry, has an unenviable record of squandering
opportunities to put in place a regulatory framework that simultaneously guards the freedom
of expression and ensures the ethical behaviour of media organisations. Lord Justice
Leveson gave an excellent template for the U.K. media. Instead of grabbing it with both
hands, the captains of major U.K. publications have opted for a much-lesser mechanism in
the form of the Independent Press Standards Organisation (IPSO). The recent
recommendations from the Telecom Regulatory Authority of India on cross-media ownership
and the consultation initiated by the Law Commission of India under the chairmanship of
Justice A.P. Shah is an opportunity before the Indian media to get its act together.
Why should we look at the legal and regulatory framework now? What are the factors that
contribute to amending the existing framework? First, the news media industry has undergone
profound changes in the last 20 years, and some of the governing rules for the industry are of
colonial vintage. Second, the technological disruption and the emergence of convergence
platforms are used by some to push for a meta-regulator for all media print, radio,
television and the Internet, without realising the nuances that differentiate the narrative logic
of each of these platforms. Third, if each of them is to have its own self-regulation
mechanism, what has to be done with news organisations that are not willing to join the selfregulating body? Will a forceful statutory regime be implemented for those who reject the
power of a self-regulating body? Over the next few weeks, we will be exploring these
questions in detail.
Market and regulation
For a change, I am not going to start with the known rights of the media that flow from Article
19 of the Indian Constitution. It may be prudent to look into the economic factors while
framing the regulatory norms, laws and binding codes. This years Nobel Prize for economics
has gone to Jean Tirole, a French economist who worked on market and regulation.
The Royal Swedish Academy of Sciences has put out a scientific background on Tiroles
work, Jean Tirole: Market Power and Regulation, and this column draws substantially from
that publication to not only explain certain terms and conceptual framework but also
differentiate the news media industry from other industries. The term agent in his analysis
has a wider meaning to include the individual companies or the sector itself. It is drawn from
the formal game-theoretic analysis.
The first element in Tiroles exploration is about the design of the regulatory institution. He
uses two terms to explain the various trajectories any institutional design may take: regulatory
capture and motivated agents. Regulatory capture is a model where sector-specific regulation
becomes captive to the regulated industry. In simple terms, regulation may end up benefitting
producers rather than consumers. Tirole used various cases of collusion in hierarchical
organisations to come up with a formula to arrive at an optimal response to the threat of
regulatory capture. The other term, motivated agents goes against the models that assume
that all agents are purely selfish. In Tiroles work, some agents may want to promote social
welfare or more generally do the right thing and had demonstrated that personal values as
well as a desire for social esteem may sometimes change optimal incentives quite strongly.
The Academy note puts this more precisely: it is assumed that the agent is an impure altruist
who does not primarily get satisfaction from socially desirable outcomes, but from his own
contribution to those outcomes.

Forms of competitions
For Tirole, the question here is: how to regulate agents if the principal is uncertain about the
agents motives. This problem is perhaps greatest when the agent takes decisions not about
how hard to work but about some other action, the consequences of which appear only in the
longer run. In this case, a selfish agent should ideally be tightly controlled or strongly
incentivized, as before, but a pro-socially motivated agent should ideally have a free reign. In
a 2004 work, in collaboration with Eric Maskin, Tirole arrives at an interesting conclusion: the
contract is an institution that specifies: (i) who gets to make what decisions, and (ii)
procedures for inducing public decision makers (informed agents) to act in the interest of the
broader population (less informed principals). Their central assumption is that the informed
agents are concerned not only with material benefits or other private returns to power, but
also with making socially beneficial decisions and thereby leaving a valuable legacy. Since
agents differ in the strength of their pro-social motives, power will sometimes be abused. The
news media can either be a regulatory captor or a motivated agent, but most often, it seems
to be a combination of both.
In his study of new forms of competitions, which Tirole classifies as network competition and
platform competition (sometimes described as two-sided markets), he puts newspapers
clearly on the platform competition paradigm. Readers and advertisers are the two sides to
which a newspaper tries to reach out and their respective expectations are very different. This
twin customer base poses a range of regulatory problems too.
A new template for media regulation 2
Between 2002 and 2006, Jean Tirole and Jean-Charles Rochet explored the platform
markets in depth. Their work covered a range of industries that have platform markets
portals and media, credit card and debit card payment systems, and the Internet. This column
will restrict itself to their contributions to the media market alone.
Mr. Tirole and Mr. Rochet were quick to point out that the demands from advertisers on the
one hand and viewers or readers on the other can be very different. For instance, they point
out, advertisers might desire that there be more viewers or readers while viewers and readers
prefer less advertisements. This, they argue, could transform certain pricing policies that are
clearly anti-competitive in a one-sided market into a highly competitive one in a two-sided
market. For instance, they established that offering newspapers for very low prices might be a
sign of predatory pricing if the newspapers source of revenue came from the readers alone.
But it may be consistent with competitive pricing if advertising revenues play a major role.
The theory spelt out by Mr. Tirole and his colleagues makes immense sense in the media
markets of the developed countries. In the U.S., cross-media ownership restrictions are
imposed on the basis of the number of independently owned media voices in the market. The
Federal Communications Commission (FCC) acts as a regulator. The U.K. model works on a
different principle restrictions there are based on influence, which prevent one person from
owning different types of media over specified market share levels. Countries like Australia
and Canada have a blanket restriction on entry into more than one or two media segments.
No restrictions in India
But price wars in India can turn predatory quickly, as there are no restrictions in terms of
cross-media ownership. In 2008, the Ministry of Information and Broadcasting asked the
Administrative Staff College of India (ASCI) to study cross-media ownership. ASCI submitted

the draft report in March 2009 and the final report in July 2009. The report found a pattern in
the accumulation of interests and growing instances of cross-media ownership that included
print, television, radio and even carriers like multi-system operators (MSOs) and DTH
platforms. It used the Herfindahl-Hirschman Index to measure market concentration and the
effect of competition in a market. It called for the formulation of cross-media restriction norms
across print, television, radio, cable and new media after a detailed study of the relevant
markets of each of the mediums. Not much happened in the form of follow-up action to the
ASCI report while the Indian media scene underwent a profound change. Apart from crossmedia ownership, India also witnessed both horizontal and vertical integration.
This in reality means that some of the dominant players can no longer invoke the logic of the
platform market.
Paid news scandal
The issue of media ownership became a topic among policymakers when the ethical
foundation of the news industry was rocked by the paid news scandal. This newspaper played
a key role in exposing the paid news phenomenon. The Parliamentary Standing Committee
on Information Technologys 47th report tabled in the Lok Sabha on May 6, 2013 was an
indictment of sorts for the media industry. It identified corporatisation of media, disaggregation
of ownership and editorial roles, decline in autonomy of editors/journalists due to the
emergence of contract system, and poor wage levels of journalists as key reasons for the rise
in the incidence of paid news. It expressed concern that the lack of restriction on ownership
across media segments (print, radio, TV or Internet), or between content and distribution,
could give rise to monopolistic practices. It asked the Telecom Regulatory Authority of India
(TRAI) to look into the matter and come up with a set of recommendations. The committee
also urged the Ministry of Information and Broadcasting to take conclusive actions based on
TRAIs recommendations on a priority basis.
However, the Ministry had asked TRAI in May 2012, a year before the Parliament Standing
Committees report, to evolve a comprehensive approach to balance the technological and
business logic of vertical integration and cross media holdings with the need for pluralism and
diversity and the need to protect the citizens right to credible choice and competitive pricing
of the media he/she consumes. In August 2014, TRAI released its recommendations after
many rounds of consultations with various stakeholders. It sought a regulatory framework that
has two distinct segments: to preserve external plurality (diversity of ownership) and to ensure
internal plurality (diversity of content) in the media ecology of India.
The defining element in TRAIs recommendation is that it managed to look not only into the
ownership issues, but also the control over media outlets. It reads: There may be
thousands of newspapers and hundreds of news channels in the news media market, but if
they are all controlled by only a handful of entities, then there is insufficient plurality of news
and views presented to the people. Thus, it is essential to know the actual number of
independent voices in the market to determine the extent of plurality. Also, there are
numerous ways by which control can be exercised over a media outlet. Therefore, it is
imperative to clearly define what constitutes or can amount to ownership and/or control of a
media owning entity.
TRAIs recommendation is rich in its analysis of what is wrong in the media. It documents the
failures of the existing legal and regulatory arrangements. It looks at vertical integration in the
media but fails to take note of horizontal integration. At the policy level, the recommendations
have certain limitations and shortcomings.

A new template for media regulation 3

The legal provisions for the freedom of the press are clear. Freedom of the press is not
recognised as a fundamental right but is folded into the freedom of speech and expression.
When it comes to the medias responsibilities, governing rules are murky, the regulatory
framework is weak and the onus of holding the media accountable is left to a byzantine maze
of enforcement mechanisms that fails the credibility test. This series on media regulation
seeks to widen the debate and get the voices of the readers and the viewers: the final
consumers of news and information and hence major stakeholders in media ecology.
My task is cut out by the prescription provided by the eminent historian Romila Thapar.
Knowledge, according to Professor Thapar, requires the teasing out of complexities which
cannot be done by insisting that the answer to a question is either this or that. She calls that
approach the one bite answer. She points out that nuances push ideas forward and
encourage explanations. In the first two parts, we looked at the field as it were, and shared
some of the recommendations that have come up so far to create a framework that can place
the rights and the responsibilities of the media on an even keel.
Limitations
TRAI recommendations on cross-media ownership have some good suggestions but some
real limitations too. Two young media law scholars, Smarika Kumar and Siddharth Narrain,
point out the shortcomings of TRAIs overdependence on competition laws definition of
relevant market. Their main argument is that Competition law exists to protect competition
and not pluralityit applies generically to all markets and is not specialised to specifically
address the peculiar implications of media. That is why there is a need to find, outside of
competition law, a framework for horizontal ownership regulation, which addresses the unique
plurality needs of a media environment.
Kumar and Narrain further argue that while under the Competition Act, 2002, relevant
market is defined as a market determined with reference to the relevant product market or
relevant geographic market or both, TRAI has identified only the news and current affairs
genre as that which needs to be regulated under cross-media ownership rules, and has
recognised these as part of the relevant product market.
They make a valid point when they say that there is a limitation in the demarcation of the
relevant geographic market that it is only on the basis of language and States. They cite
the case of the Reliance-Network18-Eenadu deal, which consolidated news channels in
English and several other regional language news channels under a single ownership by
reasoning that concentration of media ownership is not measured across language markets,
but only within language markets.
One would have expected TRAI to advocate public interest broadcasting codes, an
autonomous governance structure and an independent editorial functioning, which is binding
and not subjected to political and bureaucratic pressure. But it has recommended barring
newspapers and television channels from being owned by political bodies, religious bodies,
Panchayati Raj, urban, local and other publicly funded bodies, Central and State government
Ministries, departments, companies, undertakings, joint ventures, government-funded entities
and affiliates. This negates the space for resourcing for a meaningful public broadcasting
structure. It failed to look at the modalities of the British Broadcasting Corporation, the
National Public Radio, the Canadian Broadcasting Corporation, the Australian Broadcasting
Corporation and the Deutche Welle. What is TRAIs perception of, say Rajya Sabha TV, which

has some of the finest programming in the subcontinent?

More issues to address
The domain expertise of the regulator, which is meant to address the questions of carriers like
telecom services, DTH and ISP providers is not enough to devise a regulatory framework for
the media, which is essentially a content provider. The conflation of rules for content and rules
for the carrier not only complicates the discussion but also fails to disaggregate the specific
requirements of media on content, on issues of privacy, defamation, trial by media and the
right to information. Further, the consolidation of ownership in an integral manner, where the
same firm becomes both the content provider and the carrier, is not addressed adequately.
It is vital to understand the difference between a media carrier and other forms of carriers. For
instance, a power grid is a carrier that transmits electricity from the generating point to the
end user. Though there are many forms of power generation hydro, thermal, nuclear and
renewable the content from one source seamlessly merges with the content from the other.
A media carrier on the other hand can play the role of either promoting or inhibiting a
particular content source depending on a range of issues ideology, politics, preference,
urban bias, among other things. In the era of convergence, the new regulatory framework
must ensure that the carrier is a neutral pipe that will not prohibit smaller players. The digital
revolution should not be the preserve of those who can afford a hefty carriage fee.

Kisan Vikas Patra: a re-launch with very few justifications

Despite some criticism and misgivings in certain quarters, the government has decided to reintroduce the Kisan Vikas Patra (KVP), a savings instrument that was discontinued three
years ago. Positioned as a savings instrument in line with other continuing small savings
schemes such as the Public Provident Fund (PPF) and the National Savings Certificates
(NSCs), the new KVP, like its predecessor, has certain advantages as well as disadvantages
over these. Most ordinary investors will compare the new KVP with bank deposits and other
debt instruments.
Broad features of the new KVP
* Interest: 8.7 per cent.
* Tenure: eight years and four months (100 months).
* Investment doubles in 100 months.
* Minimum lock-in period two years and six months.
Liquidity
* Can be encashed in eight equal monthly instalments after the lock-in period
* Can be transferred to another person by endorsement and delivery
* Can also be given as collateral for loans by banks
* Minimum investment Rs.1,000. Thereafter, in denominations of Rs.5,000, Rs.10,000 and Rs.50,000.
There is no maximum limit.
* Taxability: fully taxable
* Mode of investment: cash or cheque
* Know your customer (KYC) norms: PAN not required but identity/address proof required
* Will be sold initially through post offices across the country, but later through some governmentowned banks also
How does the new KVP fare?
Any investment proposition needs to be evaluated in terms of certain well-defined parameters. These
include safety, security, yield or return, liquidity, accessibility, convenience and tax advantage. These
parameters are relevant for any investment proposition whether debt or equity.
For the convenience sake, the re-launched KVP can be compared on the one hand with the existing
savings instruments, and with bank deposits on the other. In comparison to its previous version, the
new KVP offers a 0.5 percentage point higher yield (8.7 versus 8.2). Investment under the old KVP
doubled in eight years and seven months. In the new KVP, the doubling takes place in eight years and
four months.
A comparison with a discontinued scheme is not particularly useful. In relation to the existing savings
schemes, the yield on the new KVP is on a par with the PPF and the NSCs. It is equally safe. The
government would make it more easily available and also educate customers. Accessibility to the KVP
should not be a problem.
Comparing with bank deposits
Taking three other relevant traits liquidity, convenience and tax advantage the new KVP is

reasonably liquid. Investors can come out after the minimum lock-in period in eight equal instalments.
The KVP can also be given as collateral. Unlike PPF and NSCs, the KVP does not have a tax
advantage. Interest on it is fully taxable.
Bank deposits are superior to KVP in terms of returns three year fixed deposits offer 9 per cent and
some banks even more. The argument that deposit rates are set to fall over the medium-term is no doubt
valid, but one expects the banks to safeguard their depositors concerns by floating innovative schemes.
It is also certain that the corporate bond market will revive and be a conduit for infrastructure finance.
This will matter to senior citizens and others who want a fixed, steady return in the form of investment
in infrastructure bonds. Bank deposits are liquid, absolutely secure and highly accessible to most
middle-class investors. They have a minimum tax advantage practically restricted to interest on
savings accounts.
For those who have no access to banks, investment in KVP may be a worthwhile proposition. Having
no tax concessions, the KVP as in investment is for those who do not pay taxes at all or are in the lower
tax bracket.
The biggest advantage claimed for the KVP indeed its USP is that it is a bearer bond, transferable
by endorsement and delivery. This confers unmatched anonymity to the holder of the instrument.
Policy perspective
But that precisely is its main drawback from a policy perspective. The earlier version was discontinued
because it was suspected of being a conduit for laundering black money.
In the new KVP too, there is very little compliance of KYC norms that are routinely applied by banks,
mutual funds and the like. In fact, it is the conviction that the onerous KYC norms are driving away
bank customers at a time when household financial savings have dipped seriously, that seems to have
prompted the government to re-launch a new instrument with very few entry barriers, The Finance
Minister has clarified that certain precautions will be taken for large investments in KVPs.
How that reflects on the new KVPs success in terms of collections remains to be seen. Whatever way
one looks the KVP has very few justifications beyond the obvious mobilising funds by the
government at all costs.
Increasingly, the elephant in the retail shop
Large domestic corporates and major foreign e-retailers are making a beeline for Indias ecommerce market, enthused by the rapid growth of e-commerce, particularly online shopping,
in the country.
Among the notable ones who have already announced their plans for the sector are the doyen of the
Tata Group Ratan Tata, who has made investments in Snapdeal.com, and global e-retail giant Alibaba.
Initially, growth in e-commerce in the country was largely on account of online ticketing, which was
driven by the rapid penetration of the Internet and changing lifestyles. In fact, online ticketing
continues to fetch the bulk (57 per cent) of revenues in the sector even today, followed by online
marketplace (23 per cent), online retail (19 per cent), and online deals (one per cent).
But in the past two years or so, there has been a sea change in the market as online marketplaces and
online retail have also caught the fancy of customers due to the terrific discounts that they offer, in
addition to soft advantages such as ease of shopping, timely delivery and product quality that is the
same as those offered at brick and mortar stores.

As a result, the domestic e-commerce market has more than doubled since 2010-11 (Rs.190 billion) to
almost Rs.563 billion in 2013-14 and this growth momentum is expected to be maintained in future.
CRISIL Research forecasts the e-commerce market in India to grow at a 3-year CAGR of 40-44 per
cent to reach Rs. 1.6 trillion by 2016-17.
Although online ticketing will still garner most of the revenues, its share will reduce; concomitantly
online marketplace and online retail will grab a larger slice of the pie by 2016-17 the share of online
ticketing will be 40 per cent, online marketplace (41 per cent), online retail (17 per cent) and online
deals (2 per cent).
To differentiate themselves and propel growth, companies in the e-retail space (e-retail includes both
online retail and online marketplaces) are increasingly entering into exclusive sale arrangements for
electronics, smartphones and the like where the competition is very intense. For example, Flipkart is
the exclusive seller for Xiaomis latest range of smartphones. Snapdeal has started selling postal
stamps, cars (Mahindra & Mahindra recently tied up with Snapdeal for online pre-bookings of SUV
Scorpio) and residential real estate (in a tie-up with Tata Value Homes). Such innovations will continue
as e-commerce firms jostle to boost their share in the fast-growing market. In the early years, growth
was largely driven by large cities. That is today no longer the case.
Semi-urban and rural India is increasingly turning out to be the future battleground for e-retail.
Customers in smaller towns and villages, who were inclined to buy branded products but were unable
to do so as they were not available at brick and mortar retail outlets close to their homes, are expected
to drive demand for e-retail in the years ahead.
E-retailers are making the shopping and buying experience much more convenient for rural and small
town customers through facilities such as cash on delivery (COD).
By contrast, customers in urban areas increasingly prefer to buy online if product differentiation is
minimal (segments such as grocery, books, electronics, appliances) even if prices are more or less the
same.
Physical retailers have been clearly hurt by this phenomenal surge in e-retail. In terms of size, e-retail
today accounts for as much as 10 per cent of organised retail revenues, up from 4 per cent in 201011.The impact is most evident in segments where product differentiation is low, such as books, music
and electronics. It is only in categories such as clothing that a majority of the buyers still prefer the
traditional retailing format to online retailing, but this too is now gradually changing.
By 2016-17, we expect e-retail to account for nearly a quarter of all organised retail revenues.