This is what I spoke or thought I spoke at the Kerala Management Association Conference 2015. These program theme was India 2015. The session theme was BUSINESS MODELS. I had a Malaysian chairman and a German co-speaker
Hi. Good morning to all of you.
I am extremely happy to be here this morning at the KMA’s prestigious conference, India 2.0. I hope to drop in a few ideas into your Inbox; ideas, which I believe, will capture public imagination big time in the next 5-10 years.
If you were to ask me as to which is the single most important invention or discovery of all times, I will name two. No, it’s not the Wheel. Not language. Not Fire. Instead, it is the Internet. The Internet has really, truly, totally and dramatically changed the way we conduct both our personal and our business lives. It has killed both time and distance, and brought knowledge to our drawing rooms.
The second is Money. Money, of which the economist said: “Money is a matter of functions four; a medium, a measure, a standard and a store”. The most important face of money is Cash. Barter was bloody clumsy; cash has been pure revolutionary. Between the Internet, which is at the bleeding edge of technology, and cash, which is at the leading edge of business, we are going to see some dramatic changes in the years ahead.
Let me digress a bit. I have been an avid fan of market economy. I believe that the defining moment of my generation, the generation that grew up in the 1970s, has been 1991. That year, India unshackled herself from socialism and married market economy. It was an idea whose time had come and we have ridden on that wave to be wherever we are today. But if we are to move to the next level, we need to kick in the next generation of reforms. And there are THREE things towards this, in the realm of financial models.
The first is CASH. Every invention, every discovery, every innovation, howsoever dramatic they might have been has a sell-by date. And L&G, B&G, I believe that “CASH” is fast heading towards its expiry date. That’s my first BIG idea: the death of cash.
Imagine a situation where you walk into a dabba, on the national highway. You have your grab and then you pay, not by cash but by your mobile. Or you step into a chai shop, have bun and a cup of hot tea, and you pay, not by cash but by your mobile. Or you walk the pavements of Kochi, pick up a crumpled shirt and then you pay, not by cash but by your mobile. Or you pay your monthly rentals or the blessed EMI not by cheque, but by your mobile. Or you walk out of a retail mall, your trolley full of products and you don’t have to wait in a queue in the counter to pay, because there is no counter. And that as you exit the gate, the goods in your trolley are automatically billed and money drawn out of your bank account. Wonderful?
Let me tell you how exciting all this would be. The cops will be thrilled. They don’t have to bust any more cash crimes. People like you and me would be happy. We don’t have to carry cash or card anymore. Your home accounting would be simplified. Society would find it great. It won’t have to fell trees to make paper and to print currency that would have to be stored and transported. Next, the government would be overjoyed. They would know every penny that we spent. It would be the closest to 1984, the book that George Orwell wrote.
The first step towards all this is to make both the Rs 500 note and the Rs 1000 note illegal tender.
Well I am not shooting in the dark. In distant Africa, a website called safari.com launched the revolutionary m-Pesa that completely transformed the lives of the native Africans as Africa sidestepped development banking to leapfrog directly into mobile banking. From there to being totally cashless is just a small leap of faith.
If the death of cash was my first financial model, the madness of crowds is the next.
Every crowd has a clown. We mock him. Every circus has a joker. We laugh at him. But it’s they who have the last laugh, at the expense of the crowd, as the two laugh their way to the bank. They understand the madness of crowds. Let me explain.
You Tube has been magical. Who does all the work, the uploading? The crowd. And it does it happily, for free. The ATM was a masterly innovation. Who does all the dirty accounting work there? The crowd. It does it happily; and better still pays to do it! The Wiki has been plain sexy. Who does all the data gathering and uploading of knowledge? The crowd. And it does it for free. That’s crowdsourcing at its very best.
It’s time to turn the crowd from working to funding.
There are so many out there in the world who would be ever ready to fund an idea which they believe in and do it for free. Let’s say you have a project, which the bank laughs at, which venture capitalists aren’t willing to touch with a barge pole and which private equity funds consider too loony. Remember Hotmail.com to be given out free was dismissed as a loony idea; but Sabeer Bhatia made a killing out of it? There would be the big daddies with deep pockets who would like to fund your idea. And you don’t have to go hunting for them. The Internet ensures that they come hunting for you. Welcome to community funding.
Community funding isn’t new. Money for temple building has always been through the community. Politically, the fledgling AAP raised money this way. My own sense is that the government should crowd fund its social projects. There are many Indians abroad with their heart in India, even as their body is elsewhere, who would love to contribute. Tap them. To help develop our roads, to help build schools in every village, to construct hospitals for the senior citizens, to improve sanitation facilities etc. Why I would even suggest that our metros be funded by corporates, without asking them for the source of money and naming the stations after them.
If the death of cash was my first idea, and the madness of crowds was the next, the return of tax is my third and last.
India is a country where the incidence of tax is high. Our direct taxes are at 30%; our indirect taxes are 8% to 16%. The number of people on the direct tax net is small. We must bring more of them into the net. I am neither in favor of tax evasion nor tax avoidance, nor for that matter tax planning which bends the rules without breaking it. But at the same time we need to reward the taxpayer.
Many countries have social security benefits (America) or free medical aid (UAE or Australia) for all its citizens. India, despite the fact that its population is burgeoning, that its citizens retire early but live longer, does not seem to have offered a safety net to all. True, government employees enjoy good retirement benefits (where pensions have been streets ahead of last drawn salary). But what about others?
I would suggest that the income tax that a person begins to pay from say age 30 (it could be earlier) to age 70 is treated as an investment made by the taxpayer. Let’s call this the accumulation phase. These amounts would earn a certain interest rate, say 6% which are not paid out, but are accumulated during this phase. From his 71st year he receives a tax-payback of say 5% of the accumulated balance each year. And if he lives another 20 years, he has his entire tax paid returned!
Analysis indicates that if your tax payment increases each year by 10%, if the accumulation interest rate is 6% and the maturity rate is 5%, you receive each year the amount that you paid as tax in your final year.
For sure, the idea needs to be tested and fine tuned, but its an idea which will definitely improve levels of honesty and that way fund the government during the earning period of the Indian citizen and fund the Indian citizen during his last days. Every citizen has the right to lead the twilight of his life with dignity and grace. And it is the duty of the government to enable that.
Let me summarize what I said. I said that despite it being a standout innovation, it is time to give up the ghost of cash and move towards a cashless society. I called it the death of cash. I said that with the Internet having become an integral part of our lives, it is time we tapped it to community fund our social projects. It doesn’t matter even if that money is anonymous. And finally, that it is time to repay our honest citizenry though some form of return-of-tax. These are some of the financial models that corporate India should push the government to adopt. I tell you the troika would be a game changer, beyond belief.
Thank a ton for your attention