UID: Another Scam in the Making

Corruption is something we encounter almost every day. We even abet it on for the sake of convenience. Perhaps corruption has become part of our DNA without our knowing it. Could that be why every private, public or government mass project in India becomes a victim of mismanagement, lag, inaccuracies and corrupt practices? Like the UID project … waiting in queue to join the regular Indian diet of scams.

UID – From whence it comes

UID, Unique Identification or Aadhaar Card as it is more commonly known is vigorously supported by the Congress government. Aadhaar registrations kicked off in September 2010 without “proper debate” in parliament. In fact, the proposed bill was firmly rejected by the parliamentary standing committee on finance chaired by Yashwant Sinha in December 2011. Home minister P. Chidambaram has also expressed his reservations of the project that has no cabinet clearance, making it open to question at any time.

The UID project, guidelines and related technology are coordinated by the Unique Identity Development Authority of India, UI DAI at the center. Implementation at field level is the responsibility of respective state governments. They in turn work with authorized registrars who need UIDs for their own operations. And at the ground there are private or publicly owned agents or NGOs that serve as empanelled enrollment centers. The NPR is an important partner registrar in the enrollment process.

The UID project is headed by Nandan Nilekani, former CEO of Infosys. He was called in for the task by PM, Dr. Manmohan Singh. His team includes enterprisers from private and government circles. Some volunteered for free, some were invited to join. The mammoth project will certainly be a once in a lifetime experience for the UIDAI team but will it have an enduring impact on the lives of the average Indian too?

The UID scheme is expected to cost the country a whopping ₹150,000 crore though some estimate it as higher. At least ₹598 crore rupees have been funneled into services outsourced to partners like MindTree and Accenture among others. While the amount is shocking, what’s worse is the inept execution of the project at ground level.

Misguided, mishandled and misused

Projected as a pro-poor people’s initiative, UID is expected to streamline the delivery of food, water, homes, jobs, security, fuel, and the like to India’s poor as sanctioned under various national schemes. Because analysis tells us that the reason NREGA and other “feed the poor” schemes are falling on their face is because poor people can’t be identified correctly? You’ve got to be kidding. How will fingerprinting and iris scans stop unscrupulous agents from exploiting the poor?

Reports of UID’s shoddy implementation continue to pour in. Almost 30,000 bogus registrations were submitted by an “ex-employee” at a Hyderabad enrollment center. Turns out his credentials were used by other agents across 20 centers. This … when the fingerprint scan of the agent is part of the authentication process. Clearly, the involvement of a technocrat like Nandan Nilekani in the UID project has not prevented technological loopholes from entering the system, allowing miscreants to take advantage.

In other places, free Aadhaar forms are being sold to people standing in queues at MLA’s houses; like black tickets for a show but without the promise of entertainment. Delhi’s MPs and MLAs are blindly handing out necessary documents for UID to woo voters. Diligent people who registered in 2011 are still waiting.

UID – It begs the question WHY?

Inept execution aside, why do we need UID anyway? As an aid for the poor, its usability is suspect. With the way Aadhaar registrations are being manipulated and mishandled, building a clean, accurate and verified UID database of Indian citizens is out of the picture.

From a legal standpoint, the Aadhaar project can be challenged as it hasn’t received parliamentary approval. It allows non-citizens to avail the same benefits as citizens in violation of the Citizenship Act, 1955. And collecting biometric data is an invasion of individuals’ privacy rights in a free country.

Strangely and worryingly, UID is not mandatory. Nilekani says UID is voluntary but service providers might make it mandatory. In the long run I wouldn’t call it compulsory. I’d rather say it will become ubiquitous. This play of words means this: Common people will register on Aadhaar because they naturally want access to subsidies. The uncommon man with plenty to hide can conveniently opt out as he certainly doesn’t need subsidies nor wants his biometrics and private information on record. Bottom line? The UID scheme changes nothing except adding to the taxpayer’s burden.

 

 

[stockquote]INFY[/stockquote] [stockquote]MINDTREE[/stockquote]

The Onion Economy

Some of our regulatory bodies put out fascinating studies – studies that only tax-payer funded entities dare sponsor. I found this gem in our Competition Commission website: a report on the economics of onion markets. Some of its conclusions reiterate what our inner cynics had already judged:

  • Market structure of onion is unilaterally dictated by the traders, not farmers.
  • A few big traders having well connected networks with market intermediaries seem to play a major role in hoarding for expected high prices.
  • A clear case of oligopolistic entry barriers were found.
  • Farmers generally take reference of the local markets’ rates, while traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grade. This brings greater profits to them.
  • Export ban and arbitrary practice of fixing Minimum Export Prices (MEP) for onion often cost exporters in in terms of losing their credibility in export markets as irregular suppliers. Fixation of MEP makes small exporters reluctant to export which sometimes leads to excess supplies in domestic markets, leading to fall in prices.

Grab a cup of coffee and read the whole thing.

Source: Competitive Assessment of Onion Markets in India (pdf)

 

 

The illusion of knowledge

Is more information better information?

Eight experienced bookmakers were shown a list of 88 variables found on a typical past performance chart on a horse, e.g. the weight to be carried, the number of races won, the performance in different conditions, etc. Each bookmaker was then asked to rank the pieces of information by importance.

Having done this, the bookmakers were then given data for 45 past races and asked to rank the top five horses in each race. Each bookmaker was given the past data in increments of the 5,10, 20 and 40 variables he had selected as most important. Hence each bookmaker predicted the outcome of each race four times – once for each of the information sets. For each prediction the bookmakers were asked to give a degree of confidence ranking in their forecast.

The chart below shows how both accuracy and confidence change as the information set grows over time.

confidence and accuracy vs data points

Accuracy is pretty much a flat line regardless of the amount of information the bookmakers had at their disposal. However, confidence soared as the information set increased. With five pieces of information, accuracy and confidence were quite closely related. However, by the time 40 pieces of information were being used, accuracy was still exactly the same, but confidence has soared to over 30%.

So more information isn’t better information, it is what you do with it rather than how much you can get that truly matters.

Source: Behavioral problems adhering to a decision policy (pdf)

 

Weekly Recap: Possible vs Probable

nifty performance

The NIFTY ended -1.23% for the week in spite of Friday’s +1.92% rally. The worst hit was the Metals Index, down 5.33% for the week.

Index Performance

Index performacne

Top Winners and Losers (CNX 100)

RELIANCE +3.96%
GSKCONS +4.20%
IDEA +6.07%
TITAN -17.36%
ADANIENT -14.50%
JINDALSTEL -12.91%
Titan has been taking it on the chin lately – a combination of their recent expansion meeting RBI restrictions on gold imports and their diamond sales not taking off as hoped. Jindal Steel got charge-sheeted by the CBI, so its not surprising that it was one of the biggest fallers in the metals complex.

 

ETFs

JUNIORBEES -4.46%
INFRABEES -3.18%
BANKBEES -3.06%
NIFTYBEES -1.20%
GOLDBEES -0.70%
PSUBNKBEES +1.71%
It looks like some bottom fishing occurred in PSU banks, but the sector’s troubles are well documented. There was pretty much no place to hide this week.

 

Advancers-Decliners (CNX 100)

ad line

The AD line is showing a slight uptick. Bulls will be keeping a close eye on the sustainability front.

Yield Curve

Is the bond market signalling that there’s not going to be a rate cut this week? Rising short-term yields doesn’t bode well for the rate-cut chorus boys.
yield curve

Sector Performance

Here’s a more nuanced break out of what happened over the week across different sectors.
sector performance

Thought for the weekend

It is possible that you could get hit by lightning, or win the lottery, or marry a supermodel. When we describe something as possible, we mean there is a non-zero likelihood of that outcome — it could happen; we just don’t know if it will or will not, but it might. Probable is more nuanced mathematics — there is a n% chance of a given outcome, where n = a number between 0-100.
Anything that is Probable must by definition be Possible; However, not everything that is Possible is going to be Probable.

Source: Possible versus Probable

The Excuses Cheat Sheet

So, you are an analyst who blew a forecast. You thought you had found a gem and it turned out to be turd. You were so confident in your forecast that you went on CNBC and articulated your beliefs. You know you can be persuasive when you want to be. But now investors who followed your advice are baying for your blood. What do do now? Here’s a ready cheat-sheet for those awkward moments:

  1. The ‘if only’ defense: Claim that you would have been correct ‘if only’ your original advice had been followed. For example: if only the RBI had cut rates, or if only FDI in e-commerce was allowed, etc. This makes your forecast an historical counterfactual, which is impossible to prove.
  2. The ‘ceteris paribus‘ defense: Your Rs. 40,000 target for gold is right and the analysis is solid. The government manipulated the market.
  3. The ‘I was almost right’ defense: The stock would have been a 10-bagger if not for the management blowing it by idiotic acquisitions. Of if you had a ‘sell’ rating:  “They would have gone bankrupt but their competitor bought them out.”
  4. The ‘It just hasn’t happened yet’ defense: Just you wait – the Indian government is run by a bunch of fools and soon gold will be at Rs. 40,000.
  5. The ‘single-prediction’ defense: The analysis is valid, but the forecasting was flawed. Don’t shoot the messenger.

 

Source: Tetlock: Are we prisoners of our misconceptions?

Previously:
A dose of realism
The value of publicly available information is zero