According to government reply in Lok Sabha, the pilot phase of PMIS is being used to test concepts, strategies and systems before a full-scale implementation of the scheme.
Order for 87 MALE drones will be split between 2 Indian firms in 64:36 ratio to ensure there are 2 independent manufacturing lines with at least 60% indigenous components.
The India-South Africa series-defining fact is the catastrophic decline of Indian red ball cricket where a visiting team can mock us with the 'grovel' word.
Many people have responded to our article. We have taken salient points into consideration and here is our reply:
1. Staffan Granér finds de Soto’s methods unreliable and his theories over-simplified. De Soto claims that if “dead capital” were legalized, it would elevate the poor out of poverty. In reality, de Soto’s formalization of the economy aims to protect rights of ownership and ease the way for free market transactions, not to create regulations and a social safety net.
This criticism is mere rhetoric and based on misrepresenting De Soto’s argument. The basic argument of De Soto is to bring all property, that of the rich and the poor, formal or informal, into a formal integrated property system that enables conversion of the property into effective capital stock in the economy capable of being put to multiple uses at the choice of the owner. The main incremental value to the economy comes from making the hobbled & idle capital stock, that can only be used in very limited ways by the owner, into full blown capital that can be used anywhere in the economy.
That this helps the poor, or the self-employed entrepreneurs in shanties, to graduate out of slums or to expand their business, educate their children or even dissolve the slum altogether is incidental to the main purpose.
Consider an example to get the difference. A self-employed person saves money by putting away 30% of his income in a mattress for over 10 years to buy a shanty for him. The money he puts into the mattress is real capital but of little use either to himself or the rest of the society. It vanishes from the capital stock of the economy. In contrast if that savings were in a bank, not only would he earn interest, but also others could use the capital in the economy until needed by the person. Property outside the system is money in the mattress that can be used by the owner himself but is not capable of being put to multiple uses by the owner, nor can the others in the economy access it. By bringing the property in the formal system you enable multiple uses and increase its productivity creating more wealth for the owners & others.
De Sato does not advocate doing this to set up safety nets for the poor or to distribute property more fairly & equitably in society. Instead he is mainly interested in making potential capital in the economy more productive by plugging loopholes that drain it into sinkholes in informal systems. That it also helps some poor people should be welcome. But equitable distribution of wealth isn’t the goal here. Augmenting & making existing stock of capital & enhancing its productivity is the goal. It helps alleviate the poverty of those in slums. Surely that shouldn’t hold up the program because it leaves out other poor. That should be addressed independently in other ways.
2. Second, de Soto explicitly distances himself from the old Weberian idea that poor people’s ability to achieve prosperity and advancement is restricted by cultural dispositions and patterns of behaviour. People in developing countries are, de Soto claims, just as capable of innovation, creativity, and entrepreneurism as those in the West. The poor are not the problem; they are the solution.
I am not sure how valid the Weberian assumption was in the first place. To my mind, if the proposition were true it would deny agency to individuals making a self-made entrepreneur impossible. On the contrary, what we have in most slums are people, who unmoored from their niches, set out to make a living for themselves with little or no assets to begin with. Over decades they find odd jobs to do from rag picking, recycling waste to processing leather & then textiles until some 30 to 50 years later they are running enterprises that feed value chains above them. Dharvi is a classic example. What is the validity of the Weberian assumption in face of this reality? On the contrary, these poor people succeed despite the lack of formal capital. They have to be 2 to 3 times as productive & efficient in order to survive competition from firms that have access to formal capital. Of all the disingenuous criticism of De Sato, this perhaps is the most stupid of all. I amounts to telling the poor sorry you can’t be successful & rich because you are poor & therefore lack the ability to succeed. Nothing could be more nihilist.
3. The results of the case studies have served as the basis for assumptions about global averages for the share of informal real estate and its value in 179 developing nations and former Soviet states. The presented sum is tremendous: 9.34 trillion dollars, of which 6.74 trillion is the appraised value of the property in shantytowns.
The criticism here is that De Sato’s estimates of dead capital locked up in informal markets like slums may be an over estimate. De Sato puts the world number at $9 to 11 Trillion based on studies in Peru & Philippines. The estimate by its nature is a ballpark figure to dimension the problem and what benefits may flow out of bring it back into a formal system.
In India we need only look at the area the slum covers in say Mumbai or Delhi and the potential real estate value in the market to get an idea of the benefits that would accrue eventually from bring these assets back into the real formal economy. However, there is another dimension to this as well. Whatever be market value of the real estate, the fact is that the millions living there are putting roughly one-third of their saving into a black hole draining away value from the economy into single use hobbled capital. This income stream by itself is large enough to channel back into the economy for multiple uses as capital stock. Note this is a continuing, ever increasing income stream disappearing into a sinkhole.
4. But a society’s potential to produce material wealth is not determined primarily by a pile of assets, with or without a price tag. The decisive thing is rather the flow of utility that these assets might yield when they are combined with human and natural resources, and how this flow is distributed. So-called dead capital is in this sense far from sterile. There are people living in the shacks and houses of the shantytowns. Even in unregistered companies, goods and services are produced. If these assets were to be accorded formal legal status, it would not automatically mean that the flow of utilities to which they contribute would be changed. We should certainly attain a more realistic notion of national accounting, but formal bread doesn’t weigh any more than the informal kind.
I am not sure this argument even deserves a response. It isn’t anybody’s case that the assets that are locked away outside the formal system are not productive. But they could be a lot more productive if they were within the formal property system. They would yield more revenue to the state, they would have multiple uses and the productivity would be a lot higher.
I would like to illustrate this with an example. Suppose you have a business idea. Say reprocessing old family photographs and converting them into digital albums. What do you do? The rigmarole starts with preparing some sort of a project report, going to a bank, convincing the banker that the idea is valid & waiting interminably for a loan. You will be surprised how many people consider this to be the “normal” way to do business in India. This is precisely the problem that capital solves in developed economies and is at the heart of real capitalism. Let us say the would-be photographer has a house with a clear marketable title in a modern property system. What happens? Now your photographer walks into bank, lays down is his copy of demat title, & says I want X amount of money against it. I will repay after 3 years. If not, you have my property. About an hour later he walks out with the loan because liens are now marked online.
What does capital do here? It does 3 things we should carefully note. [1] It identifies who you are in the system by tying your name to a unique & identifiable asset in the economy with a readily ascertainable value. [2] It makes the owner truly independent answerable only to himself. The banker doesn’t sit on his head trying to second-guess him. He has the collateral. He only gets to set the margin & the repayment terms along with interest rate. In short capital empowers entrepreneurs. [3] It makes the photographer accountable to the market for his performance. If he fails he stands to lose his asset. So he thinks far more carefully where to put his money than in a system where he doesn’t’
have to put up collateral. That is the function of fully representational capital. It identifies, it empowers, it makes you accountable & it makes you an independent economic agent. The enhanced productivity & efficiency is nothing but fallout of these invisible processes that govern an economy based on capital.
5. The argument upon which de Soto places the greatest emphasis is, however, that formalization and registration of property facilitates the mobilization of credit. This too is in some respects reasonable. A requirement for a bank or other lender to accept real estate or other capital as security for a loan is of course that the asset can be sold if the borrower cannot pay. Probably the lender also wants to be able to verify the legitimacy of the borrower’s ownership of the property, for instance that it is not being lent to someone else. The more difficult it is to obtain this information, the more dubious the security, which reasonably enough puts upward pressure on the rate of interest.
I have more or less discussed this point under [4] above. Capital does a lot more than simply enable mobilization of credit. It makes an entrepreneur more accountable reducing systemic risk in the economy in a number of ways. Firstly, the very reason our photographer has a identifiable capital is that he has been doing something right. That process by itself weeds out a large number of the frivolous. Second, having put down his house as his stake, the entrepreneur makes himself accountable that nobody else can. So he will take only such prudent risks as necessary for his venture & no more increasing the likelihood of success. That way the system avoids waste & makes the capital stock in the economy more productive. To list out all the not so visible ways in which capital serves to lubricate economic activity would be silly. But the larger point is that we are aiming at enhanced efficiency & productivity, not merely credit mobilization.
6. A point that has come up in discussions in India is the notion that De Sato’s ideas will help eradicate slums. They might help in dissolving slums over time. They won’t prevent new slums from coming up unless we take other concomitant measures. But De Sato’s ideas are about unleashing the potential of unproductive capital & not about clearing slums. The latter will happen automatically as the slum gets more prosperity & upgrades itself. The idea is about kick-starting the virtuous growth potential locked up in slums that enable entrepreneurs there to more prosperous. The process will need both regulation & policing. But it is far better to let dwellers be more prosperous by them rather than throw taxpayers’ money at them, which helps no one.
Dear Sonali Ranade & Shealja Sharma
I have a perfect methodology for evaluating all national assets. Evaluation of assets shall monetize our huge national assets enabling us to raise capital. My research is the fruit of my 3-4 yrs research. I am a retired CEO. Please see my concept on my blog https://mynotestopmofindia.blogspot.com/2019/05/open-letter-to-media-stalwarts.html. I seek your co-operation in my project. My email id is mkagarwal42@gmail.com. I am based in Mumbai. Please send me your email ID so that I may convey my concept to you.
The title deed is not the only governing factor. Capital entrepreneurship is no problem. Historically, the West could market its products. They first found a captive market and cheap resources from their colonies or by chasing away the indigenous inhabitants to a walled enclosure and occupying their land or through the slave market. Add to this the restriction of resource crunch, pollution and global warming. Now we have newer laws. Copy-paste is no solution.
Excellent piece, bravo! I hope in the second article, which is promised, the authors will also address the mirror image of this problem in the rural property market, which is frozen on account of the most antiquated approach to land titles. Am mailing this link to friends in Niti Aayog, they need to see this.
Bombay’s slums are located on land owned by the central and state governments, the BMC, MHADA, also private owners, who are generally more diligent in saving their lands from encroachment. The best example of a vast privately owned, largely vacant piece of land is the Godrej holding in Vikhroli. Since the land does not lawfully belong to the families – roughly half of the city’s population – that live on it, converting it into a piece of collateral for a bank loan would be difficult. 2. Families that have documentary proof of having lived in the slum since 1.1.1995 – mainly the electoral roll, supplemented with other documents like ration cards – are eligible to participate in the scheme for redevelopment. Once completed, they get a conventional apartment of 300 square feet free of cost, the entire project made financially viable by grant of higher FSI, with roughly one half of the construction being apartments for sale in the market. 3. It was the promise of free houses to four million slum dwellers in Bombay within a period of five years that brought the Shiv Sena – BJP to power in 1995. 25 years later, the scheme remains a work in progress, with perhaps a hundred thousand families accommodated. The slowdown in real estate is also a constraint. In the meantime, slums have continued to grow, and there is a demand that the cutoff date should be extended beyond 1.1.1995. 4. Many models have been experimented with for the redevelopment of Dharavi. The state government itself wants to play a leading role as a developer, with funding supposedly tied up with deep pocketed financiers from the Middle East. At the moment, almost entirely on the drawing board.
Many people have responded to our article. We have taken salient points into consideration and here is our reply:
1. Staffan Granér finds de Soto’s methods unreliable and his theories over-simplified. De Soto claims that if “dead capital” were legalized, it would elevate the poor out of poverty. In reality, de Soto’s formalization of the economy aims to protect rights of ownership and ease the way for free market transactions, not to create regulations and a social safety net.
This criticism is mere rhetoric and based on misrepresenting De Soto’s argument. The basic argument of De Soto is to bring all property, that of the rich and the poor, formal or informal, into a formal integrated property system that enables conversion of the property into effective capital stock in the economy capable of being put to multiple uses at the choice of the owner. The main incremental value to the economy comes from making the hobbled & idle capital stock, that can only be used in very limited ways by the owner, into full blown capital that can be used anywhere in the economy.
That this helps the poor, or the self-employed entrepreneurs in shanties, to graduate out of slums or to expand their business, educate their children or even dissolve the slum altogether is incidental to the main purpose.
Consider an example to get the difference. A self-employed person saves money by putting away 30% of his income in a mattress for over 10 years to buy a shanty for him. The money he puts into the mattress is real capital but of little use either to himself or the rest of the society. It vanishes from the capital stock of the economy. In contrast if that savings were in a bank, not only would he earn interest, but also others could use the capital in the economy until needed by the person. Property outside the system is money in the mattress that can be used by the owner himself but is not capable of being put to multiple uses by the owner, nor can the others in the economy access it. By bringing the property in the formal system you enable multiple uses and increase its productivity creating more wealth for the owners & others.
De Sato does not advocate doing this to set up safety nets for the poor or to distribute property more fairly & equitably in society. Instead he is mainly interested in making potential capital in the economy more productive by plugging loopholes that drain it into sinkholes in informal systems. That it also helps some poor people should be welcome. But equitable distribution of wealth isn’t the goal here. Augmenting & making existing stock of capital & enhancing its productivity is the goal. It helps alleviate the poverty of those in slums. Surely that shouldn’t hold up the program because it leaves out other poor. That should be addressed independently in other ways.
2. Second, de Soto explicitly distances himself from the old Weberian idea that poor people’s ability to achieve prosperity and advancement is restricted by cultural dispositions and patterns of behaviour. People in developing countries are, de Soto claims, just as capable of innovation, creativity, and entrepreneurism as those in the West. The poor are not the problem; they are the solution.
I am not sure how valid the Weberian assumption was in the first place. To my mind, if the proposition were true it would deny agency to individuals making a self-made entrepreneur impossible. On the contrary, what we have in most slums are people, who unmoored from their niches, set out to make a living for themselves with little or no assets to begin with. Over decades they find odd jobs to do from rag picking, recycling waste to processing leather & then textiles until some 30 to 50 years later they are running enterprises that feed value chains above them. Dharvi is a classic example. What is the validity of the Weberian assumption in face of this reality? On the contrary, these poor people succeed despite the lack of formal capital. They have to be 2 to 3 times as productive & efficient in order to survive competition from firms that have access to formal capital. Of all the disingenuous criticism of De Sato, this perhaps is the most stupid of all. I amounts to telling the poor sorry you can’t be successful & rich because you are poor & therefore lack the ability to succeed. Nothing could be more nihilist.
3. The results of the case studies have served as the basis for assumptions about global averages for the share of informal real estate and its value in 179 developing nations and former Soviet states. The presented sum is tremendous: 9.34 trillion dollars, of which 6.74 trillion is the appraised value of the property in shantytowns.
The criticism here is that De Sato’s estimates of dead capital locked up in informal markets like slums may be an over estimate. De Sato puts the world number at $9 to 11 Trillion based on studies in Peru & Philippines. The estimate by its nature is a ballpark figure to dimension the problem and what benefits may flow out of bring it back into a formal system.
In India we need only look at the area the slum covers in say Mumbai or Delhi and the potential real estate value in the market to get an idea of the benefits that would accrue eventually from bring these assets back into the real formal economy. However, there is another dimension to this as well. Whatever be market value of the real estate, the fact is that the millions living there are putting roughly one-third of their saving into a black hole draining away value from the economy into single use hobbled capital. This income stream by itself is large enough to channel back into the economy for multiple uses as capital stock. Note this is a continuing, ever increasing income stream disappearing into a sinkhole.
4. But a society’s potential to produce material wealth is not determined primarily by a pile of assets, with or without a price tag. The decisive thing is rather the flow of utility that these assets might yield when they are combined with human and natural resources, and how this flow is distributed. So-called dead capital is in this sense far from sterile. There are people living in the shacks and houses of the shantytowns. Even in unregistered companies, goods and services are produced. If these assets were to be accorded formal legal status, it would not automatically mean that the flow of utilities to which they contribute would be changed. We should certainly attain a more realistic notion of national accounting, but formal bread doesn’t weigh any more than the informal kind.
I am not sure this argument even deserves a response. It isn’t anybody’s case that the assets that are locked away outside the formal system are not productive. But they could be a lot more productive if they were within the formal property system. They would yield more revenue to the state, they would have multiple uses and the productivity would be a lot higher.
I would like to illustrate this with an example. Suppose you have a business idea. Say reprocessing old family photographs and converting them into digital albums. What do you do? The rigmarole starts with preparing some sort of a project report, going to a bank, convincing the banker that the idea is valid & waiting interminably for a loan. You will be surprised how many people consider this to be the “normal” way to do business in India. This is precisely the problem that capital solves in developed economies and is at the heart of real capitalism. Let us say the would-be photographer has a house with a clear marketable title in a modern property system. What happens? Now your photographer walks into bank, lays down is his copy of demat title, & says I want X amount of money against it. I will repay after 3 years. If not, you have my property. About an hour later he walks out with the loan because liens are now marked online.
What does capital do here? It does 3 things we should carefully note. [1] It identifies who you are in the system by tying your name to a unique & identifiable asset in the economy with a readily ascertainable value. [2] It makes the owner truly independent answerable only to himself. The banker doesn’t sit on his head trying to second-guess him. He has the collateral. He only gets to set the margin & the repayment terms along with interest rate. In short capital empowers entrepreneurs. [3] It makes the photographer accountable to the market for his performance. If he fails he stands to lose his asset. So he thinks far more carefully where to put his money than in a system where he doesn’t’
have to put up collateral. That is the function of fully representational capital. It identifies, it empowers, it makes you accountable & it makes you an independent economic agent. The enhanced productivity & efficiency is nothing but fallout of these invisible processes that govern an economy based on capital.
5. The argument upon which de Soto places the greatest emphasis is, however, that formalization and registration of property facilitates the mobilization of credit. This too is in some respects reasonable. A requirement for a bank or other lender to accept real estate or other capital as security for a loan is of course that the asset can be sold if the borrower cannot pay. Probably the lender also wants to be able to verify the legitimacy of the borrower’s ownership of the property, for instance that it is not being lent to someone else. The more difficult it is to obtain this information, the more dubious the security, which reasonably enough puts upward pressure on the rate of interest.
I have more or less discussed this point under [4] above. Capital does a lot more than simply enable mobilization of credit. It makes an entrepreneur more accountable reducing systemic risk in the economy in a number of ways. Firstly, the very reason our photographer has a identifiable capital is that he has been doing something right. That process by itself weeds out a large number of the frivolous. Second, having put down his house as his stake, the entrepreneur makes himself accountable that nobody else can. So he will take only such prudent risks as necessary for his venture & no more increasing the likelihood of success. That way the system avoids waste & makes the capital stock in the economy more productive. To list out all the not so visible ways in which capital serves to lubricate economic activity would be silly. But the larger point is that we are aiming at enhanced efficiency & productivity, not merely credit mobilization.
6. A point that has come up in discussions in India is the notion that De Sato’s ideas will help eradicate slums. They might help in dissolving slums over time. They won’t prevent new slums from coming up unless we take other concomitant measures. But De Sato’s ideas are about unleashing the potential of unproductive capital & not about clearing slums. The latter will happen automatically as the slum gets more prosperity & upgrades itself. The idea is about kick-starting the virtuous growth potential locked up in slums that enable entrepreneurs there to more prosperous. The process will need both regulation & policing. But it is far better to let dwellers be more prosperous by them rather than throw taxpayers’ money at them, which helps no one.
Sonali Ranade & Shealja Sharma
Dear Sonali Ranade & Shealja Sharma
I have a perfect methodology for evaluating all national assets. Evaluation of assets shall monetize our huge national assets enabling us to raise capital. My research is the fruit of my 3-4 yrs research. I am a retired CEO. Please see my concept on my blog https://mynotestopmofindia.blogspot.com/2019/05/open-letter-to-media-stalwarts.html. I seek your co-operation in my project. My email id is mkagarwal42@gmail.com. I am based in Mumbai. Please send me your email ID so that I may convey my concept to you.
The title deed is not the only governing factor. Capital entrepreneurship is no problem. Historically, the West could market its products. They first found a captive market and cheap resources from their colonies or by chasing away the indigenous inhabitants to a walled enclosure and occupying their land or through the slave market. Add to this the restriction of resource crunch, pollution and global warming. Now we have newer laws. Copy-paste is no solution.
Excellent piece, bravo! I hope in the second article, which is promised, the authors will also address the mirror image of this problem in the rural property market, which is frozen on account of the most antiquated approach to land titles. Am mailing this link to friends in Niti Aayog, they need to see this.
Bombay’s slums are located on land owned by the central and state governments, the BMC, MHADA, also private owners, who are generally more diligent in saving their lands from encroachment. The best example of a vast privately owned, largely vacant piece of land is the Godrej holding in Vikhroli. Since the land does not lawfully belong to the families – roughly half of the city’s population – that live on it, converting it into a piece of collateral for a bank loan would be difficult. 2. Families that have documentary proof of having lived in the slum since 1.1.1995 – mainly the electoral roll, supplemented with other documents like ration cards – are eligible to participate in the scheme for redevelopment. Once completed, they get a conventional apartment of 300 square feet free of cost, the entire project made financially viable by grant of higher FSI, with roughly one half of the construction being apartments for sale in the market. 3. It was the promise of free houses to four million slum dwellers in Bombay within a period of five years that brought the Shiv Sena – BJP to power in 1995. 25 years later, the scheme remains a work in progress, with perhaps a hundred thousand families accommodated. The slowdown in real estate is also a constraint. In the meantime, slums have continued to grow, and there is a demand that the cutoff date should be extended beyond 1.1.1995. 4. Many models have been experimented with for the redevelopment of Dharavi. The state government itself wants to play a leading role as a developer, with funding supposedly tied up with deep pocketed financiers from the Middle East. At the moment, almost entirely on the drawing board.