What the internet holds for India in 2018

Or, what the Indian policy process will allow it to be

Our (India’s) single-minded embrace of the Digital reminds me of our single-minded embrace of Socialism in the 1960s. So, we all clapped enthusiastically when banks were nationalised, minimum wages and price controls were enacted, and the state ventured into manufacturing watches (too many were seen to be smuggled) and even bread (Modern Bread). But today we look back at that period as one of wasted opportunities. Every “moderniser” among us today holds forth on how the Indian state has to step back, why nationalised banks need to be privatised, why foreign investment, either direct or through the stock market, is going to be our saviour, why wages are best left to market forces, why small banks, small manufacturers, and others need to bundled up and made big.

Will we, in another 10 years or so, similarly look back at the present era of unbounded enthusiasm about the Digital and want to reverse it all?

The answer to this depends as much on the political economy of why these cycles of enthusiasm and despair happen so regularly. The first set of players in India’s policy establishment consists of career civil servants, the IAS officers, who are invariably bright and committed but normally don’t stay (or are not allowed to stay) long enough as additional secretary or secretary in complex ministries to acquire enough domain expertise to think up and implement policies that work. 

Then come economic advisers in various perches in policymaking who are almost always NRIs on leave from American universities or western financial institutions like the World Bank. These are again bright and well-educated people but seem to favour current western economic fads. The current religious anti-cash fervour that is sweeping our policy establishment can be directly traced to the book The Curse of Cash by Kenneth Rogoff, a former chief economist of the IMF and professor of public policy at Harvard University, who believes that cash transactions “facilitate crimes such as money laundering, drug dealing, and tax evasion”, and, when first proposed, was seen as a way to tackle illegal immigrants from Latin America in the US who are paid in cash for their services.

Next in line are ministers at state and central levels. They, again, are well-meaning people but need frequent announcements to reassure their constituents and the world that they are hard at work creating economic growth and jobs.

The interplay between secretary-level civil servants on short tenures, NRI economists, who must signal their adherence to current Western economic fads because they are seen as a sign of their up-to-datedness, and ministers with an eye on the next elections usually results in a series of conferences (these are easy to organise) and press conferences, which have become ends in themselves. The laborious examination of policy options, the painstaking updating of school, polytechnic, and college curricula to train the labour force for the new technological paradigm, the fine-tuning of societal incentives that work in India are all seen as non-sexy from the point of view of news headline capturing.

What these phases of technical change have left us with, on the one hand, is a firm belief in the value of technical progress to make goods more affordable for all, but, on the other hand, probably also some misconceptions. The first is that the core driver of efficiency and productivity in manufacturing and industry is economy of scale: The belief that enterprises derive a benefit from the scale of operation (measured by their production output) because with this increasing scale they will see a decrease in the cost per unit of output, which they can either keep as additional profit or pass on to consumers in the form of lower prices. From this single idea, which is at the core of economic theory, is born the general worship of “bigness” and “size” as the driver of societal and consumer welfare. I suspect the entire current generation of economists, political leaders and civil servants, and even private equity financiers, both in India and elsewhere, derive their intellectual framework from this 19th century idea.

Illustration by Binay Sinha

The Information Age and the internet technologies that drive it do not march to this rhythm even though some of the early innovations make it sound as if it does. Thus, email and its sibling, the Instant Messenger, probably the first innovations to reach mass scale, are one-shot replacement for inland letters, postcards, and telegrams, which required a central postal service. But providing these does not require a central or dominant email provider: If anything, a dominant email provider with its ability to monitor messages could achieve power that is dangerous for society. Unfortunately, the regulatory processes around studying let alone acting against the monopolistic behaviour of firms have been so vilified during the 1990s that no policymaker dare raise question about digital monopolies. Again, the weight of our past has come to haunt the present.

The vertically integrated service firm was seen in the industrial era as the business design that best captured the economies of scale productivity theory. Thus, we applauded as banks merged and created behemoths that did deposit taking, consumer and business lending, payment processing, and even the provision of insurance services. But expect these behemoths to be sliced up soon: “Fintech” startups using technologies such as blockchain are at work doing to finance what we saw happen in the last 10 years in media as AdTech firms, search-engines, and social networks reconstructed the media industries.

The year 2018 is sure to see more unravelling of these mysteries. Will we get our policy processes together so that the common man (= micro and small-scale businesses, children in municipal schools, recent migrants to cities from fading farms) in India benefits from internet technologies?
 

The writer is the author of The Wave Rider, A Chronicle of the Information Age.
ajitb@rediffmail.com