Sunday, 11 October 2015

Implications of Pay As You Go model

What is common between taxi hailing app - Uber and cloud computing provider- Amazon Web Services (AWS)? The answer is simple, both of them are the proponents of Pay As You Go (PAYG) model. While Uber thrives to become "Everyone's Private Driver" thus removing the necessity of owning a car, AWS on the other hand removes the necessity of owning computing hardware infrastructure. In sum, PAYG model helps in reducing initial investments and the recurring cost of maintaining it and ultimately helping the end users. 

The other implication of it is that the resources - cars in the case of Uber and computing hardware in the case of AWS - will be getting concentrated with handful of players. This can make lives challenging for the upstream suppliers who makes supplies in the respective industries of these companies.

Let us take the example of the AWS. The most important computer hardware is the processor and Intel is a major vendor in that segment. What could the growth of the AWS and similar cloud computing providers mean to Intel? Instead of supplying processors to numerous small customers, Intel have to supply to handful of big customers like AWS. This can make a dent on bargaining power of the Intel. It is based on a simple business logic that bargaining power is inversely proportional to the number of customers you have. With fewer customers, losing a single customer might have more impact on a company's top and bottom lines.

The car manufacturers are a worried lot with advent of Uber and other ride hailing apps. Recently Anand Mahindra, Chairman of Mahindra & Mahindra(M&M), a car manufacturer based out of India warned that ride hailing apps can eat in to the sales of auto manufacturers. Although Uber or other taxi hailing apps has not reached to that scale and in India most of the people see owning a car more as a status symbol rather than a utility, Mahindra's concerns are not unfounded. If I have a car and I use it to commute to office, then the car will be idle during my work hours - which is not efficient use of a resource. It is this critical gap that companies like Uber trying to fill. More the efficient use of resources, lesser the number of resources you need. That means lesser cars and lesser sales for auto makers. 

Ultimately PAYG model will push companies in the upstream to the wall. One way to take on this challenge for the upstream supplier companies is to become vertically integrated. This could mean Intel themselves starting cloud computing services and M&M starting their own taxi hailing app.

Change before you have to - Jack Welch

Sunday, 18 January 2015

Half baked ordinance

The Modi regime has introduced ordinance amending the Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR) barely one year in to its existence. So the debate is raging on the haste in which government has introduced the amendment and lot other things including the inclusion of private hospitals and private educational institutes under the definition of public purpose. Here in this article, I would like to analyse a less debated point of the LARR ordinance - the exemption of Social Impact Assessment (SIA) for the projects under national security, defense, rural infrastructure including rural electrification, industrial corridors and social infrastructure. 

To understand the effect of doing away with SIA for the aforementioned type of projects, one must take a closer look at LARR .

LARR, 2013 was revolutionary

LARR did away with archaic Land Acquistion Act, 1894 which was framed at the time of British Raj. The LARR 2013 was not a bill that was introduced over night. Lot of consultations and deliberation has gone to making it a law. And the ordinance that this government has come up with have lacunae, is not much thought through and undoes the progressive elements that the original law introduced.

One of the most progressive element LARR, 2013 had was the provision for compensating for the loss of livelihood of people due to acquisition. This meant that under this law, the people who lost their livelihood - not just the land owners who lost land - owing to the acquisition, was also eligible for the compensation. This was really significant because livelihood loss while land acquisition is a reality that adversely affect the people from lower strata of society like fishermen, farmers and daily wage earners. 

One of the aims of SIA was to analyse this livelihood loss and provide for the compensation of this loss. By doing away with the SIA, government must explain its intention. Is the government trying to do away with the compensation for livelihood loss so that corporate profits can be maximized? Or how is it going to assess the livelihood loss?

LARR sans SIA takes away the spirit

Apart from the assessment of loss of livelihood, the SIA covers the following :
  1. Assessment as to whether the proposed acquisition serves public purpose.
  2. Estimation of affected families and number of families among them likely to be displaced.
  3. Extent of lands, public and private, houses settlements and other common properties likely to be affected by proposed acquisition.
  4. Whether the extent of the land proposed for acquisition is the absolute bare minimum extent needed for the project.
  5. Whether land acquisition at an alternate place has been considered and found not feasible.
No sane person reading this would think the aforementioned points are not required while acquiring land. But this government does.

One of the arguments that government has come up with to defend this ordinance is that SIA leads to inordinate delay in project execution. If that is the case they would have added clauses in LARR to expedite the process of SIA instead of removing it. In the current LARR the SIA must be completed before six month after commencement. If the government was so concerned about the delay caused by the SIA, they would have cut short the time period with which the SIA is completed and would have put in place the necessary checks and balances to ensure the quality of SIA study. 

Instead of doing all this, what the government has done is to throw the baby out with water. The government must clarify its intentions. People of this nation needs answer.

Jai Hind.