Credit cards get heavy for wallets

There were about 27 million credit card users in 2016, according to the Reserve Bank of India (RBI) data. And these users make up nearly 35-40% of the mobile wallet user base. However, this large base of users is also somewhat of a sore point for mobile wallet companies. Because every time someone transfers money to a wallet, they pay a Merchant Discount Rate (MDR) to banks. MDR is pegged at 2% on credit cards and only 0.75% on debit cards. But wallet companies are willing to bear the MDR fees, in anticipation that the users will spend more money willingly.

So when users devise schemes to use mobile wallets other than their intended purpose, Paytm, or any other wallet provider, has no incentive to serve them. And Paytm made that amply clear in a blogpost dated 9 March 2017.

To quote from it

“Paytm pays fee to card networks or banks whenever you use any payment instrument like any other online commerce company. Paytm pays a hefty charges when you use your credit card to card networks & issuing banks. If user simply adds money and takes to bank, we lose money. Our revenue model requires users to spend money within our network and we make money from the margins available to us on various products/services we offer.”

In a move that briefly exposed the company’s vulnerability, it said that it would pass on the MDR fee—which it was previously bearing—to the credit card user. It also added that it would reimburse the 2% charge as a voucher that had to be spent within the Paytm ecosystem.

The fact that Paytm decided to bring this up revealed two things:

  • That it desperately needed to manage the unit economics and couldn’t afford to waive MDR just to retain all types of customers
  • It was concerned about the number of credit card users misusing the payments platform, which predictably increased post-demonetisation
  • In a sense, many of these credit card woes for mobile wallet companies surged after November 2016.

The demons of demonetisation

Until 8 November 2016, it was business as usual for wallet companies. But withdrawing 86% of the cash in circulation overnight increased the use cases for mobile wallets. And companies like Paytm wanted to use this opportunity presented by Prime Minister Narendra Modi to make the most of the expanding digital payments ecosystem.

Wallet companies made a fervent pitch that everyone from paan-wallahs to pet clinics could accept payments through mobile wallets. And since merchants would need to move that money into their accounts, companies completely waived that bank transfer charge.

This, in a way, resulted in a loss of a revenue stream for them as they initially charged 1-4% to transfer money from the wallet to a bank. This bank transfer fee was charged to disincentivise people from transferring money out of the wallets.

“Wallets charged that fee to make up the MDR hit they took. But by waiving it off, they would now make a loss at a unit level,” said a senior payments executive who didn’t want to comment on Paytm on record.

And doing away with that charge became the harbinger of misuse.

For instance, people could now use a wallet to solve quick cash flow issues with a simple hack.

Everyone knows the cardinal rule about using a credit card. It is to never withdraw money from an ATM using one. After all, no one wants to pay a 36% interest rate annually. But with a wallet in the picture, one could now use a credit card to transfer money into the wallet, free of charge. Then transfer it to a bank account, again for free. And finally, use a debit card to withdraw that money from an ATM. Yes, you guessed it right, for free.

It gets better if a user has two credit cards.

The RBI explicitly disallows paying the bill of one credit card with another, but one could now do precisely that with a wallet. By using two cards with different due dates, one could potentially use one card to credit money to a wallet and then the bank account. And use this money in the account to pay the bill of another credit card. And vice versa. So one could keep rotating this money until one hits the credit limit. In the end, it is one card company simply paying the other.


Can AAP’s insurgent government deliver the universal healthcare holy grail?

Robert Yates is impressed. A globally acclaimed expert on Universal Health Coverage (UHC) and project director of the UHC Policy Forum at the London-based Centre on Global Health Security, Yates is visiting Delhi to understand the state’s strategy. He cannot think of any example in the world, where new facilities have been introduced in such a short time in one city.

He is not the only one. Reputed medical journal, The Lancet, and former Secretary-General of United Nations (UN), Kofi Annan have lauded this free clinics model of healthcare delivery. Other state governments are trying to emulate it. Treating high-incidence low-cost illnesses like cold, cough and viral fever for free at the doorstep of Delhiites makes financial sense too.

That’s also the first ladder of universal healthcare, seen as a holy grail because it’s a tricky game of execution and political will. Letting people buy healthcare through myriad insurance schemes is less head-scratching than providing care at doorsteps, sort of, to check costs. And disease escalation. Nearly 30 emerging economies are moving towards it. In Delhi, the Aam Aadmi Party (AAP) government began this experiment in July 2015. There’s no qualitative data to show how it’s working, but there are initial signs that people and care providers like it even though the opposition doesn’t.

Money is not a problem

Delhi’s annual health budget is Rs 5736 crore. It could, like India as a whole, do with more but for now, this money is good. Director of the state health mission, Dr Tarun Seem, explains that primary healthcare is very cheap. So cheap that it could be done under a tree. It is not about reinventing the wheel but sticking to a simple and minimalistic design with some innovation. And innovate it did. The state has nipped redundancies like employing full-time staff, buying equipment and acquiring space by hiring temporary General Physicians (GPs) and other staff, who are paid for each consultation. It has also outsourced the diagnostics. For the 29 lakh outpatient consultations provided via mohalla clinics, the state pays Rs 30 to the doctor and Rs 70 is spent on support staff, basic drugs, diagnostics and maintenance.

For patients who need specialised care, the state has decided to outsource that task to private diagnostic labs and hospitals at heavily discounted rates. A sum of Rs 500 crore assigned for mohalla clinics is more than sufficient to achieve the state’s target of 30 million OPD consultations. The rest is for expanding secondary and tertiary care services.

This partnership between the public and private sector in Delhi is a cliched win-win for everyone. The private hospitals, which profit from in-patient services like surgeries, say they are happy to be rid of the cough-and-cold crowds. The doctors employed by the government on contracts are content with per patient incentives as the patients they consult are large in numbers. They can establish or continue with their private practice in the evenings.

The state seems to have found a way to offer universal healthcare. Why, then, is the mood bitter at this celebratory lunch? Health minister Satyendra Jain, in a Kafkaesque manner, with his hand on his forehead, responds in a helpless tone, “Once you tell a bureaucrat to get something new done in a new way, for months you will hear the rules and regulations that prohibit it from happening.”

Keeping it simple

The central and state governments together spent 1.3% of the country’s GDP on public health in FY2016, against a world average of 6%. The new National Health Policy promises to increase the public spending to 2.5%. Taking it a step ahead, Delhi’s health department has not only increased the expenditure on health but also focused on making it count by improving the efficiency of the health systems. No point in pumping money down the same inefficient systems, they say.

Dr Seem—an Indian Revenue Services officer, who has worked with the Delhi-based Public Health Foundation of India and helped frame the National Rural Health Mission with the union ministry of health—has found that primary healthcare is inexpensive. He points towards an audit report of a state government-run maternity home. Over 1 lakh rupees were being spent on each delivery. This report is one of the many audits that the AAP government conducted in the initial stages of planning UHC. However, he understands that public systems cannot always care about efficiency. A train has to run even with one passenger, he says. However, the costs can be optimised.


When wishes became horses–PM Modi’s Silicon Valley playbook

Effective 1 April, one of those wishes have come true. India has adopted a concessional rate of corporate tax for income earned out of a patent registered and developed in India. The reduced rate, of 10% (plus applicable surcharge and cess) is meant to encourage companies to build intellectual property (IP)-based businesses out of India. Such a tax provision was first started by the United Kingdom as the “Patent Box”, but many countries have since followed suit making them sought after destinations for IP-based business deals.

Other than the tax consultants, few in India know about it. But this must be called out as a template for fixing what is broken in the Indian innovation infrastructure. Seek, consult, act and implement; all in a matter of 18 months.

“It’s a very clean tax law. Since it is based on self-assertion, you are not dependent on anybody to approve or deny you the benefit. You don’t even require an auditor certification,” says Vishal Gada, a partner at the law firm Dhruva Advisors in Ahmedabad.

Beyond the Box

Tax is an integral part of what IP-driven companies do. License or sell their IP, use that one-time payment, royalty or milestone earning to do further Research and Development (R&D) and innovate. But when 30-35% of that earning goes in tax, it hits where it hurts the most. Because you can always write your past losses into it, but not your future losses. In the commercially fallow period when fresh IP is being built, there’s no income. And few investors like to bankroll it.

“This isn’t innovation friendly,” says an entrepreneur who set up an office in the UK after its Patent Box came into effect in April 2013. He declined to be named.

Unarguably, India’s own Patent Box coming into force in the current financial year is a significant development. If seen against what the government is offering under the Startup India incentives, the relief couldn’t be starker. The five-year tax break under the latter comes on the back of much paperwork and approvals, which may fall at the mercy of third-party discretions.

Still, as stakeholders pore over the notification, some of them find scope to amend the Box. Like when a patent already begins earning for an inventor but it’s officially not been granted due to the slow and long process at the patent office. “Registering a patent in India, practically, may take up to 5-10 years,” says Gada. Hence, any recent invention being lined up for registration with the patent authorities may be eligible for 10% income tax rate under these provisions only after a few years (if commercial exploitation started prior to registration). “There is a case to represent before the government to relook at this scenario and consider providing tax incentives in the intervening period till the patent gets registered,” he says.

Then there are some who believe that there’s a restriction on the inventor in terms of getting in and out of the Patent Box benefits. For instance, a company opts to be taxed under this Section for any financial year, say FY17-18, and it opts out of the same in any of the consecutive five financial years, say in FY20-21. Then it shall not be eligible to avail the concession even for the next five consecutive financial years. In this example, up to FY25-26.

But this seems like a clever clause. Particularly relevant in India where, for many decades, companies have looked at R&D to be merely a tax sop, not a means to invent.

“This simply means you cannot pick and choose your years. That you cannot set off this loss [from pursuing IP generation] against anything else. Say, normal profits,” explains Girish Vanvari, national head of tax at KPMG, India.

Well begun, half done

As far as the financial side of patent commercialisation goes, the new provision is as good as it can get. But what if the patent protection itself is weak? So weak that it deters inventors from filing patents in India.

“Your patent is only as good as your ability to enforce your rights,” says Ashok GV, a partner at Factum Law in Bengaluru. The enforcement of patents remains a problem because the benefits of the Commercial Courts Act haven’t trickled down to all parts of the country. Since there’s no certainty of time-bound results, patents often end up representing little more than prestige and academic value, says Ashok.


The super secretive story of India’s Rs 4500 cr supercomputing mission

The high-level process would be simple.

Decide how many of those teraflop machines will be bought and how many will be built (read, assembled) locally. Seek expressions of intent from vendors who are milling around. Consult the users at the planning stage and during the purchase of hardware because different real world problems require different architecture. Call for proposals in a transparent, phased manner, depending on what pressing problems your core team of experts have identified and then get on with releasing money and solving those problems. Sounds like a plan, in any given circumstance.

This is where intent and actions differ, unfortunately. Because two years later, not one supercomputer has been installed.


It can’t possibly be because no one supposedly knows how many of these will be bought and how many have to be assembled. “Earlier the plan was half of the supercomputers would be bought to get the research started and then half of the systems would be integrated,” says a technology vendor, who requested not to be named because he is still involved in the project. “As vendors, we have given technology specifications and roadmaps several times. An expression of intent was sought but nothing has moved beyond that.”

There are various committees set up, for R&D, infrastructure, applications and so on. But they are all at sea. “Committees have been meeting but have no clue how to proceed, or to what deadline. They discuss, go back, meet again, discuss and go back,” says one committee member in Bengaluru. He requested not to be named.

For a mission that was meant to revive India’s place in the global Top 500 supercomputers list, create a cadre of professionals and get the Indian industry hooked to HPC, it has become an old boys’ network. A network that, two years into the project, isn’t even articulating what it intends to do.

Supercomputing at the speed of word of mouth

Late last year, the following email from an academic at the Indian Institute of Science (IISc) was sent to a few people. Three, to be precise.

That was the call for proposals of a priority supercomputing mission—by word of mouth. The email writer does not say in which capacity he is soliciting the proposals. Or why it is not being done through the NSM website? Perhaps because he realised the site was, ironically, frozen in time (or was until the publishing of this article) with no useful information, not even a ‘Contact us’ link.

Unlike a typical office project, calls for academic proposals are governed by data protection acts. It would be considered a deeply unethical act for any of the reviewers of the proposal to leak its contents.

“Why on earth would I respond to a random email, asking for a proposal, which, essentially, is a giveaway on the kind of scientific problems I want to work on,” says a physicist who works in this field and did not receive this email directly but stumbled onto it through three degrees of separation.

Now, contrast this with what India’s space agency, Isro, did last August when it sought proposals for its Mars-2 mission. An open, public call that laid down all the rules:

And remember, Mars-2 is a much smaller project than NSM. (While the Mars-2 budget is not public yet, it can be estimated from the Mars-1 budget, which was Rs 447.39 crore or ~$67 million)

It’s not just the size, the complexity of HPC is rarely fully understood. A person leading any of the multiple committees must know many overlapping areas: They need to know their own science and numerical analysis. Then they need to know programming and hardware reasonably well. Unless people understand these, it’d be hard to gauge what is the real world problem that can be solved in 5 years, 10 years or what cannot be solved even in 20 years. Not very many people in the country are conversant with HPC in this context. So, it isn’t surprising to learn they are groping in the dark. Widespread HPC is not more than 20-25 years old. It proliferated and took off when supercomputers could be made from commodity hardware in the late 1980s.


HPC is a strategic technology with high commercial yield

“A lot of people in these committees have not experienced this ecosystem around HPC. I attended one meeting in Bengaluru, where Intel was trying to sell its new chip. Before that, I attended one meeting in Goa, which was dominated by the industry. It all sounded very good but no one really had an idea what NSM actually wanted to do,” says an academic, who has since distanced himself from these meetings.

And the gerontocracy continues to throw its weight around.

From a soft power to a superpower

In 2011, when the Chinese machine Tianhe-1 became the fastest supercomputer in the world, the political class in Delhi felt that India was being left behind. Between 2012 and 2013, at the behest of the erstwhile Planning Commission, an elaborate plan was put together for an NSM, which incidentally had a projected cost of Rs 4,500 crore. But the UPA-II never got around to formally approving it. In March 2015, when the NDA government approved it, the language smacked more of catch-up nationalism than of a scientific mission. “As far as supercomputing is concerned, India is ranked at number 74 and China is number 1. There are 500 supercomputers in the world, and India has only 9,” said the minister at that time.

If China is number one, and it has been so for seven years in a row, it’s because it has consistently invested in building an HPC community ever since it started in the 1950s. By 1986, when China announced its famous ‘863’ programme to gain parity with the US and the rest of world in supercomputing, it was a coordinated effort to master all the related technologies in semiconductor manufacturing, the design of integrated circuits, mining and refining of rare earth metals, and other things. In 2016, China led the Top 500 list with 169 machines. The US came second, with 165 machines.

Recent policies in those two countries have been aimed at boosting supercomputing through internal investments and export controls. National security and domestic industries are cited as the top reasons. In July 2015, President Barack Obama issued an executive order authorising a National Strategic Computing Initiative.

Apart from the bragging rights and muscular power that come with supercomputers, the commercial uses for HPC are increasing by the day.

“We understood that the new kid on the block is biology. The largest requirements of the future are likely to be in biology, material science, finance and national data repositories,” says Narayanaswamy Balakrishnan, former chairman of the Supercomputer Education and Research Centre at the IISc and one of the architects of NSM. He wouldn’t comment on the current progress because he is given to believe that he is “no longer wanted”.

India’s supercomputing effort began in the last 1980s after it was denied the Cray supercomputer under a technology embargo, which led to the setting up of the Centre for Development of Advanced Computing (C-DAC). In 1990, when PARAM, a multiprocessor machine, was unveiled by the C-DAC, at 5 gigaflops, it was the second fastest supercomputer in the world at that time.

“After one mission in the 1980s, the whole of the 1990s got wasted because nobody consolidated the early gains. It became too tactical and routine,” says S Ramakrishnan, former C-DAC director general, who retired in 2009. “Once a government commits to such programmes, it must go on progressively escalating the budget, delivery and use. It shouldn’t become an accountant,” he said. By the 2000s, the technology controls were lifted, users could buy from wherever they wanted and India’s build programme weakened. “One or two people who had clout in Delhi and in purchase committees, they always favoured machines from multinational companies. In the land of the blind, one-eyed person is the king,” he added*.

The NSM hot potato

What Ramakrishnan does not admit is that the users and builders of HPC have never really communicated with each other in India. “It has grown over the years because people who have built these machines have not built anything that the users can use,” says a physicist from a government institution who has not been even remotely consulted under NSM.

(A list of the top Indian machines is here.)

The muddle continues. The appointment of Rajat Moona, who as director general of the C-DAC was a key professional in the NSM, ends this month, and he is off to a new assignment, as the director of IIT-Bhilai. Several emails and phone calls to his office in Pune remained unanswered. In January 2016, when the DST and MeITY had released Rs 110 crore towards NSM, Moona had said, “What is interesting is that this time the focus isn’t restricted to building the supercomputers but also creating applications that would benefit from it.”


Lost in India—Flu vaccines

It’s a text message from a home healthcare company. A direct-to-consumer sell no doubt, but also indicative of the fact that seasonal flu shots, for long a practice in the developed world against influenza, have arrived in India. Even if that means paying out of pocket, unlike many other countries where payers reimburse seasonal flu shots. The French drugmaker Sanofi Pasteur, which has been selling influenza vaccines in India for a decade, says the acceptance has increased in the last few years, leading to the doubling of vaccination numbers. Sanofi and others sold two million doses last year. People are now open to vaccination because sporadic flu outbreaks throw life out of gear. Like the one Tamil Nadu is currently facing and where flu vaccine stocks are being rushed creating artificial shortages in cities like Bengaluru.

Did the Indian vaccine makers, which supply 60% of the global paediatric vaccines, dump their pandemic flu plans too soon?

For all the three manufacturers, the H1N1 contract was meant to propel them into flu vaccines eventually. It turned out to be a ‘jam’. “We thought pandemic preparedness would run into billions of doses and would give us revenue to get into seasonal flu, chest infection, and similar other vaccines. But we got demotivated when the orders were arbitrarily cancelled,” says Rajesh Jain, joint managing director of Panacea.

Missed opportunity, messier experience

In April 2009, the first case of influenza A H1N1 was detected in Mexico and by year-end, 214 countries were affected by the pandemic. (Flu viruses are of three broad categories—influenza A, B or C. Of this, influenza A is the most common type. H1N1 is a variety of influenza A and has many different strains.) By May 2010, while the WHO declared the pandemic to be over, India took it seriously and made some “unprecedented and innovative interventions”. One of which was to get into an agreement with Indian vaccine makers to procure 6.25 lakh doses from each of the three manufacturers at Rs 250 per dose. It handed out some advance payments, too. Bharat Biotech, Serum and Panacea laid out a delivery plan, between October and December 2011. In spite of that, a delivery date was announced unilaterally, some ready doses were taken and the rest cancelled.

All the three companies had to book losses upwards of Rs 15 crore each. They couldn’t immunise themselves against the ‘innovative’ intervention of the health ministry. But they eventually challenged the government decision. Pandemic preparedness of a country is about guaranteed procurement, outbreak or no outbreak. Five years later, the arbitration between the two parties is yet to conclude.

Apart from the one-time loss, that event dealt a severe blow to the flu vaccine programmes of Indian companies—Bharat Biotech and Panacea left their plants idling. Serum Institute, the largest Indian vaccine manufacturer with FY16 revenue of Rs 4652 crore, moved on to develop an injectable vaccine for seasonal flu. In 2011, when the government backed out, Serum did sell some doses of its H1N1 vaccine, which was an intranasal spray, in the retail market. “But once the [pandemic] panic factor subsided, there was hardly any sale,” says Prasad Kulkarni, medical director of Serum Institute in Pune. In 2014, Serum launched its flu vaccine, Nasovac-S, but the company admits its sale has been “far below its expectation”.

Not just childhood jabs

More than any drug, vaccines, which are grown in eggs or cell culture, are beholden to scale to drive down unit costs. Which is why Indian companies remain unmatched in their price competitiveness to global bulk vaccine buyers like Global Alliance for Vaccines and Immunisation (GAVI), which ensures the affordable access of essential paediatric vaccines to more than 70 countries. So far, Indian companies have accounted for a change.

The global demand for vaccines is estimated to reach $59.2 billion in 2020, up from $32.2 billion in 2014. And a lot of this growth is going to come from the rapidly growing private vaccine market, which calls for a new product strategy by vaccine companies. Indian vaccine producers get nearly 95% of their revenue from supplying to global or national immunisation programmes, which requires little marketing or distribution network. But the private or adult vaccine market does.

Sanofi started its corporate ‘influenza prevention’ programme in India in 2013 when it vaccinated about 17,000 employees from 50 companies. In three years, the programme grew to over 60,000 employees from 220 companies, says Jean-Pierre Baylet, country head of Sanofi Pasteur South Asia.


Reliance Jio versus conventional wisdom

People hate paying more for the same product they’re using. It’s human psychology. So how do you convince people to start paying you for something they’ve been using for free the last seven months? What happens when you’re stuck between their devil of a habit of consuming hundreds of MB of data every day and deep sea-like unwillingness to even remotely consider paying you Rs 999-4999 for such plans?

You create an aura around a new product, which packages your harsh business compulsions as glossy virtue. So instead of having to admit that few among your 100 million free users would pay upwards of Rs 1,000 for high bandwidth plans, or worse, suffering the ignominy of dropping the prices of your plans, you create a new plan: Jio Prime.

Jio Prime is a subscription-based loyalty plan for which users pay Rs 99 a year, which in turn gives them access to virtually unlimited Jio services for Rs 303 a month.

Reliance’s stock went up over 11% on Wednesday, 22 February 2017, the day after this announcement was made.

A detailed questionnaire was sent to Reliance yesterday, but we did not get a reply as of the time this article was published.

Prime Bait

Let’s look at Jio as a well-funded e-commerce company. It has money, it wants market share and it will burn cash. It started with a free option to get customers hooked, now it gradually wants its users to start parting with cash. But it is still really cheap. Everyone likes cheap. It is not as good as free but cheap will do.

And let’s assume this well-funded e-commerce company is Amazon. A June 2016 report said that almost 96% of Amazon Prime’s subscribers who bought a two-year subscription, renewed for a third. And 73% of those with a free 30-day trial converted to a paid subscription. Apart from the deals, the membership makes customers feel that they are part of an elite club. Most shipping becomes free. There is a reason to shop. Once customers get used to Prime, they don’t go away. Amazon has used a similar strategy in India.

“The deal hunters think the annual subscription gives them great value on delivery and content. The typically flaky audience now becomes loyal. Amazon bought their loyalty,” says the former chief marketing officer of a popular e-commerce company in India.

Jio follows that same playbook. And the term Prime seems to have been chosen for a reason. It creates an elite club illusion among people who are not exposed to Amazon. And for those who do know, it is a good reference point.

If Jio can convert 75% of its existing 100, it will clock a revenue of around Rs 28,000 crore off the bat. Even with that, it will still take Jio a long time though to recoup the Rs 1.5 lakh crore it has spent in acquiring and setting up its extensive 4G network. Let’s come back to this later.

It is, however, fanciful to assume that 75% will stick around. India, after all, is not the US, and Jio is not Amazon. There are a few challenges.

Huge Market

“India is a sachet market. The majority of the customers don’t top off more than Rs 25 at a time. Expecting them to pay Rs 300 at one go will be difficult,” says a senior executive of a competing telecom company. He did not want to be identified as he was not authorised to speak to the media.

Even if Jio manages to change behaviour, it boils down to paying for content. What Jio is essentially asking its customers is to pay Rs 99 to access its massive library, which was available for free earlier. Together with other Jio-branded apps (security, messenger, cloud storage, etc.), Reliance thinks its library is worth Rs 1,250 a month or Rs 15,000 a year.

Once again, Jio is trying to charge a price, even though a vastly discounted one (Rs 99 a year instead of Rs 15,000), for something it has been giving away for free. It’s going to be next to impossible for it to ever charge Rs 1,250 a month for this.

Airtel offers Wynk’s audio content for free, Hotstar has free content as well. But there is a paid plan for Netflix and Amazon Prime, right?