Do coaching institutes have scale economies?

I am doubtful of the scale economies of coaching firms. The success of a coaching firm depends on a few key instructors, and these advantages may decline if it is expanded with a large-scale recruitment of instructors or the use technology (or online modules). Yes, there is a possibility of scaling up to some extent but not beyond a limit. This is evident from the BYJU’s case also. By using a financial jargon, one can see that the growth of BYJU’s after getting a lot of capital was not organic. Hence it expanded by acquiring a set of relatively small-scale ventures. The reputation of such a venture may not go up (if not decline) when it becomes part of another company. 

Many technology firms have benefitted from what is called demand externality. We may use a park more frequently if our friends also use the same park. Social media platforms have this feature. A particular platform’s demand may go up when the number of people who use it goes up. There is a technical or objective reason that is behind the demand externality in such cases. Though any firm may have certain reputation benefits when its consumer base enlarges, such a technical or objective reason for demand externality may not exist in the case of a coaching firm. 

What may have happened in the case of BYJU’s? It was a successful coaching centre. There is an increasing demand for coaching in India. Many global investors have thought that this could be an opportunity to make money. Hence companies like BYJUs could attract a lot of capital. When venture investors put in a lot of money, the value of the firm has to increase continuously (even if it makes losses) so that those who want to withdraw can get away with their capital and handsome profits.

Hence there is an urgent need for the firm to grow (even if it is not making profits). Given the absence of substantial scale economies, one path of growth is inorganic – that is through the acquisition of other firms. I am not sure whether the real value of Akash Tutorial or such a company will go up just because it becomes a part of the BYJUs. The specific advantages of the former in the minds of consumers may disappear, if it also provides the same service as that of BYJU’s. There may not be a significant synergy. The real advantage is financial due to the increase in the value of the firm due to the increase in revenue (even if there is no profit). 

The other way to enhance the growth is to expand the consumer base. There were allegations of using unethical means to compel parents to subscribe to courses or to increase their payments. There were stories of excessive compulsions on employees to increase the number of paying consumers.

Economic benefits and costs of `one nation; one election’

Whether the BJP government wants to move ahead in this direction or not, the slogan has excited a set of people (mostly followers). It is better to have a `neutral’ assessment of its benefits.  

There are two benefits which are talked about openly. The cost of political campaigns may come down, and this is good for political parties and the country. There will be frequent periods of `policy/project suspension’ if elections to local, state and central governments are conducted at different points of time. This problem can be minimised if there is only `one election’. In my view, these are the two most reasonable arguments for conducting elections to all tiers of governments in India simultaneously but let me analyse this towards the end of this essay. 

There may be a hidden agenda for the ruling party and hence a fear of opposition parties. This is based on the perception that a simultaneous election would favour the BJP. There are many ifs here. Despite the intense participation of Narendra Modi in the campaign for Karnataka state elections, he could not overcome the anti-incumbency of the BJP led state government. Kerala in general have a history of giving a higher share of seats to the Congress in Parliament even when the Left Democratic Front (LDF) comes to power in the state with a huge majority. It also has a tendency of giving a higher share of seats to the LDF in local government elections even when the Congress-led coalition gets the majority to rule the state government. Delhi elected the majority of BJP candidates for the parliament after giving AAP a thumping victory in state elections. In my view, the local issues and/or higher levels of education may encourage voters to differentiate different tiers of government and exercise their voting accordingly. 

Some would argue that poorer voters may be affected by the high-decibel campaign by one or other party. However there is another issue here. Many candidates (and parties) complain that contesting an election is very costly. A notable part of this cost is to `buy’ votes directly or indirectly. This is carried often at the level of candidates, and this cost is less likely to come down even if elections for different tiers of government are conducted simultaneously. Each candidate for each level may have to pay the money.  

I wish to make two points regarding this hidden agenda or fear. First, it may be less important than what politicians think; and secondly, this is a trend that will (should) disappear as part of socioeconomic transformation. People should be able to judge candidates and parties based on their appropriateness at each tier of government for each election and vote accordingly. 

Will the cost to public exchequer come down if elections to all tiers of government are conducted simultaneously? When election is conducted in one state, say West Bengal, it takes almost a month to complete the voting. Why can’t we do it in one day (which should be possible from the side of the voter)? This is due to the inadequate number of security personnel and the inadequacy of election machinery. Can’t we create a huge machinery and security establishment to conduct election on a single day? No, because it will be very costly and inefficient. Instead it is better to conduct elections (in one state for one tier of government) in 4/5 days probably within a month. 

Conducting elections to all tiers of government simultaneously requires a huge election machinery. This will be like creating a huge machine which is used only once in five years. Instead it is cost-effective if a smaller machine is created which can be used once in an year or two. 

Let us take the supposedly genuine benefits of conducting elections simultaneously, and that is to reduce the cost of political parties and the `policy/project suspension time’. Yes, these are benefits but only in the current context. Distributing money/kind to address poverty, investing in water-supply schemes and many such programs are implemented by all tiers of government and there is no rationale in terms of governance here. Instead, each tier should be carrying out those actions which it can do most effectively and efficiently. That is the principle of subsidiarity. However governance in India has become a lot more muddled with a lack of clarity on what each tier should do. I should say that this problem has aggravated with the arrival of Narendra Modi whose core expertise is that of a Chief Minister, and hence he thinks that his role as the PM should be to be the CM of all states of the country. State governments are unwilling to allocate those responsibilities to local governments which the latter can do well. 

If the governance in India is to become effective and efficient, the elected representative of each tier of government should be focusing on a specific set of issues and there will be very little commonality between different tiers. As an informed voter, I would be selecting that representative in the local government who can ensure that solid waste-collection is done properly, the one for state government who can ensure that government schools and hospitals function properly, and the Member of Parliament who can shape an appropriate monetary policy and international relations for the country. Though there can be same political parties contesting at these different tiers, campaign issues should be different. Narendra Modi’s or Rahul Gandhi’s presence in political campaign will not influence my choice of the MLA or corporation representative. If such a change happens (which should happen), there will not be much reduction in the cost of campaigning or there is no need to stop all projects while conducting election to each tier separately.

Rather than supporting `one nation; one election’, we should demand reforms in governance in India.

The demand for silk stress is high but workers don’t gain much. Why?

People continue to prefer these clothes, and the demand goes up when their incomes increase. This could be due to different factors: such dresses may be part of cultural products for which the demand increases as part of acquiring affluence; these may be part of those `natural’ products for which the demand increases globally; or these may be more comfortable than synthetic clothes; or there may be a higher social status attached to the use of such clothes.

The higher demand for such clothes is also evident from another trend. Some of the companies which retails silk/cotton dresses attract capital from global investment firms. These firms see the sales of such clothes in India as a potentially lucrative business. Even a lower middle-class family is willing to spend 20000 or 30000 Rupees for a silk saree during the marriage function.

Hence weavers or small businesses which hire a few weavers and make these clothes do not see a reduction of demand for their products. Of course, they may sell a silk saree for 7000 Rupees to a major retailer and it may sell the dress to customers at a price of 10000 or 11000 Rupees. The share of the surplus that is taken by the retailer could be substantial.

What about the income of a weaver? He/she may have to spend 15 days to make such a saree, and wages could be around 3000 Rupees. This would mean around 200 Rupees per day, which is not very different from the wage of an unskilled worker. Hence the increasing demand for handwoven clothes does not increase the income of weaver-workers significantly. What could be the reasons behind such a phenomenon?

Read https://vsanthakumar.wordpress.com/2021/12/25/the-demand-for-silk-sarees-is-strong-but-workers-dont-get-much-why/

The demand for higher education in India

There seem to be some peculiarities in the demand for and the use of higher education in India. The country continues to be one emerging economy where the school completion rate is low. Around 50 percent of children of a particular age group do not complete school education successfully. However, among those who complete schooling successfully, the majority goes for university education. This has implications for the distribution of skills and availability of labor for different sectors of the economy. You may read the argument here.