High onion prices and income disparities

The New Year has been accompanied by record food inflation, especially in India where it crossed 18% this week!

I think a fundamental reason for this may be rising income disparity coupled with the unbranded nature of food. Let me explain my simple (over-simplistic?) thinking.

The proportion of rich and middle class people is growing and increasing the income disparity. This is much higher in certain parts of the country. For example, in Gurgaon, we appear to have a very high proportion of people working good white collar jobs (e.g. in IT and BPO companies or multinationals), or blue collar jobs in well-paying companies like Maruti Suzuki. If I were a groceries vendor in Gurgaon many years ago, I might have some well-heeled clients but a lot of my customers would have not made much money. As a groceries vendor today I may have as many "rich" clients as poor ones and many of them would be super-rich by Indian standards.

Now the rich customers of grocery stores are looking for high produce quality and freshness, more variety (e.g. imported fruit), a better shopping ambiance etc. and do not mind paying much more for it. I think this leads store owners to increase prices - sometimes increasing the money they take home but sometimes just adding more services such as refrigeration, air conditioning, accepting credit cards or free home delivery... or scandalously painting the fruit vegetables with wax or, even worse, injecting the produce with growth hormones like oxytocin!

In the long run, one would expect certain stores to cater exclusively to the poorer people, but this process takes time. Today all grocery stores in Gurgaon appear to be increasingly focused on the rich.

Think about it - it is also quite unlikely in practice for two stores in the same neighborhood to be selling the same product at two different prices, especially when there are no strong retail brands in play that accentuate the difference in their offerings. Even when strong retail brands are in play (e.g. premium Whole Foods vs. basic Wal-Mart in the US), the difference between the most expensive and least expensive groceries you can easily buy may be much lower than, say, the most expensive and least expensive electronics you can easily buy. After all, the product brands are mostly the same regardless of retail store - and owned by Mother Nature. At the risk of comparing, ahem, apples to oranges, it seems to me that it is pertinent that you can buy a Bose radio for several times the price of an unbranded Asian one that both fulfil essentially the same function, while an apple at Whole Foods is not that much more expensive than an apple at Wal-Mart. (I read somewhere that currently Wal-Mart's grocery prices are 12 percent lower than those of traditional grocers, while Whole Foods' prices are about 14 percent higher.)

Now, I have not come across much talk about this mechanism of income disparity increasing food prices. If you know of any articles on the subject, please let me know. Also, I am no economist, so I will be happy to be corrected by someone who knows more of that subject than I do (if that population is not still in hiding).

And of course there is another reason why income disparity might drive food inflation - the rich consume more food and waste a lot, and they consume more meat and poultry that are inefficient users of agricultural output. This I think has been well studied. But while this may be a big driver globally of rising food prices (as would be the corn-based ethanol production), in India around me I can see more basic factors at work.

Quick quantitative estimations

Some months ago I wrote a blog post on "Testing the numbers, on the fly". Well, yesterday I was flying - literally - out of Frankfurt and saw a sign that said, "New A Plus Pier in Terminal 1 under construction". It went on to say that the pier could handle 6 million passengers a year and was 180,000 square meters in floor area.

It's interesting to know this ratio of passengers to floor area, I thought.

Then I thought, hmm... does this ratio make financial sense? So I began to guesstimate.

Let's say that real estate here is about the cost of real estate where I live. At bulk discounted rates, it might be 100 dollars per square foot, plus minus a bit. Or 1000 dollars per square meter approximately.

So the new pier is 180 million dollars in investment. 30 dollars per passenger.

For a payback period of 5 years, you need 6 dollars per passenger per year - probably taken out of retail concessions in the West. But Indian airport retail doesn't do well yet.

Well, 6 dollars is equal to Rs. 300. Then it hit me - the airport tax at Delhi airport used to be Rs. 300. And I smiled.

Of course the calculations won't be exact. But it is always fun to get close.

On Indians and projects

When asked what type of management education India needs, I often say, "Most importantly, we need to teach people how to run projects - how to break the work into significant tasks, how to assign responsibilities and set timelines, and how to report consistently on those timelines, mitigate risks etc. I don't want MBAs with bookish knowledge, I want someone who can really get stuff done. And much of it boils down to planning and executing projects."

And I have blogged about it here and here and elsewhere.

Well, this week I am in Europe, mortified as the news of the CommonWealth Games dominates newspapers and television channels here. It even comes up in business meetings.

All because of very shoddy planning. I really think that corruption is a somewhat separate issue.

Yet I also want to add this (if only to calm myself) - yes, China can put up taller buildings than India can, better buildings than India can, and can put them up in a planned way. But when it comes to software, Indian project planning is as good as you can get anywhere in the world. There are two Indias, and software is part of the new India...

The role of testing in education

Shri Kapil Sibal is moving towards making school education more "holistic" in India - an effort most of us agree with - but he is also moving to reduce drastically the number, type and intensity of tests.

Honestly, that scares me. Mindless testing is, well, mindless, but are we throwing out the baby with the bathwater? The positive global identity of India in recent times has been shaped by the tens of thousands of analytically strong Indians who, despite a crushing lack of exposure in their homeland (to technology, to processes, to reliable electricity and running water in their homes), are able to tackle, say, the IT problems of the world because they have the analytical skills to wrap their minds around them.

Interestingly, new research appears to underscore the importance of testing. In an article in the New York Times titled "Forget What You Know About Good Study Habits" (incidentally the most emailed article on that site for several days running), Benedict Carey describes some of these experiments. A portion of the article is reproduced below.


(C)ognitive scientists see testing itself — or practice tests and quizzes — as a powerful tool of learning, rather than merely assessment. The process of retrieving an idea is not like pulling a book from a shelf; it seems to fundamentally alter the way the information is subsequently stored, making it far more accessible in the future.


Dr. Roediger uses the analogy of the Heisenberg uncertainty principle in physics, which holds that the act of measuring a property of a particle alters that property: “Testing not only measures knowledge but changes it,” he says — and, happily, in the direction of more certainty, not less.
In one of his own experiments, Dr. Roediger and Jeffrey Karpicke, also of Washington University, had college students study science passages from a reading comprehension test, in short study periods. When students studied the same material twice, in back-to-back sessions, they did very well on a test given immediately afterward, then began to forget the material.
But if they studied the passage just once and did a practice test in the second session, they did very well on one test two days later, and another given a week later.
“Testing has such bad connotation; people think of standardized testing or teaching to the test,” Dr. Roediger said. “Maybe we need to call it something else, but this is one of the most powerful learning tools we have.”

Another article regarding the Chinese emphasis on testing can be found here. Chinese students are, perhaps consequently, extremely good at maths and analysis. The author, Elisabeth Rosenthal, quotes a Professor Cizek who specializes in educational measurement and evaluation:


“What’s best for kids is frequent testing, where even if they do badly, they can get help and improve and have the satisfaction of doing better,” he said. “Kids don’t get self-esteem by people just telling them they are wonderful.”


Testing in the Indian education system definitely needs to become more feedback oriented, rather than marks oriented. That said, I would rather that we in India not give up on the academic rigor that testing alone can bring. In my personal opinion, we should not destroy the existing framework unless we are sure we know what we are doing. Even the US is moving back towards more testing, somewhat regretting its rather relaxed approach in the past towards school education. In terms of academic rigor, I'd rather India continue to refine its own approach than follow the (old) US schooling model blindly.

By the way, one model I really admire is the German model for craftspeople. Having suffered at the hands of incompetent electricians, plumbers, carpenters and masons (among several other trades) and seen the supreme ability of their German counterparts, I can confidently say that India needs something like this desperately. No one will dispute that in this area, we can only improve. Why aren't we spending more time on this instead?

How to end a recession

Of late, there has been considerable debate - especially in the US and Europe - about government deficit spending to hit one's way out of a recession. A little like a side batting second in a one-day cricket match with few wickets left may choose to throw caution to the winds and go after the bowling, somewhat counter-intuitively.

Some left-leaning economists like Paul Krugman strongly advocate such spending, pointing out that Japan's tightening its purse-strings probably deepened that country's problems.

In fierce opposition, right-leaning economists point out that Germany has remained fiscally responsible and is doing well, while countries like Greece have had free-spending governments and have been the worst hit.

While reading yet one more article on this by Krugman in the NY Times, a thought dawned on me and I posted a comment (which I hope Krugman read!)

It seems to me that recovery from a major slump is ideally built around a theme of some sort, that businesses and individuals can rally around. Perhaps the theme may or may not involve major deficit spending.

A world war, a historic decision by businesses and trade unions to be flexible*, an appeal to the national character, an astrological prediction of a bountiful year, even a world championship win in a popular sport - in different contexts and cultures these could all be themes that pull an economy out of recession.

*as in Germany

You can see this in India. A lot of the richer people believe India is shining, so it is not doing badly overall. Currently growth seems to be a seriously lagging indicator of the stockmarket indices, rather than the other way around.

In the US, people and businesses are currently pessimistic, so the situation is worse than it might have been. There are fundamental problems - primarily too little genuine education and too much soundbite TV - but these are not insurmountable.

Perhaps the US should have been allowed to win the soccer World Cup?