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Two By Two Fri, 25 Oct 24 |
An abridged, narrative version of the latest episode of Two by Two, The Ken’s premium weekly business podcast. |
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Let’s start today’s edition with a quick pop quiz.
Who owns UPI?
Who owns ONDC?
Who owns Unified Lending Interface?
Who owns Bharat Connect?
Who owns Digiyatra?
I think the first answer that comes to most of our minds would be… the government.
I posed these same questions to Anupam Manur, Professor of Economics at The Takshashila Institution, and Praveen Gopal Krishnan, my co-host, when we sat down to record the latest episode of the Two by Two podcast this week.
And well, the answers weren’t as cut and dry.
In fact, all three of us were doubtful, and even spent some time confirming which entity owned and promoted what, and whether it was really attached to the government.
| L-R: Rohin Dharmakumar, Anupam Manur, and Praveen Gopal Krishnan |
On the surface, UPI, ONDC, Unified Lending Interface, and Bharat Connect are all categorised as Digital Public Goods (DPG) or Digital Public Infrastructure (DPI). Clearly, we couldn’t get very far without first defining what either of those meant.
So Anupam set the stage for us.
Anupam: A public good is one that is both non-rivalrous and non-excludable.
Non-rivalrous is where more than one party can use that good simultaneously without there being any form of reduction in utility for all the parties using it. For example, the cup of coffee that I have is extremely rivalrous, because only one of us can drink from it at the same time.
Whereas when it comes to this podcast, for example, 100 million people can actually listen to it at the same time without there being any reduction in utility. So in that sense, the podcast is non-rivalrous, whereas the cup of coffee is extremely rivalrous.
[…]
As for non-excludable, the question is: can you prevent a non-paying customer from using it?
This is an extremely important character trait of public goods.
Most of the goods that you see around you would be goods which are excludable by nature. This laptop that we all have is excludable, as in you can’t own this laptop without having paid for it. The mobile phone is excludable, this microphone is excludable, the AC is excludable, so on and so forth. But there are certain things which are non-excludable.
Think of a street lamp. If the street lamp is on, I’m walking under it, there is no way that somebody can say you have not paid for the street lamp, therefore, you cannot enjoy the benefit of the street lamp.
When you evaluate them under this framework, many of the digital public goods/infrastructure in question do not really seem to fit the bill.
Take the most popular of the lot—the Unified Payments Interface, or UPI.
UPI is excludable because you can’t just walk in and tie up with the platform. You need to have a commercial bank licence, or partner with a commercial bank, in order to access it. And you need to meet the Reserve Bank of India’s (RBI) long list of criteria.
So is UPI really a public good?
And factoring in ‘ownership’ only makes things even hazier, as we found out the deeper we got into the question.
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You can also listen to the 30-minute version of this episode here if you want to get a sense of what we discussed:
A platform? A framework? Or a set of protocols?
UPI is an underlying framework which enables payments. ONDC is a set of protocols which allows the creation of public digital infrastructure. What about Digi Yatra? “It’s pure service,” stressed Anupam.
And these frameworks, or platforms, or whatever else we choose to call them, came to be because the government saw what was happening in all these sectors—i.e., the increasing concentration of powers in fewer entities every passing year. Regulators weren’t able to keep up in most cases, and building a solution became imperative to protect all the parties involved.
So the government intervened to create solutions, and became a vocal promoter of each.
Were some of these solutions necessary? Absolutely.
But not all of them, as Anupam noted: “Nobody’s denying that UPI is useful. But in many of the other cases, it seems like a solution in search of a problem.”
A unique third model for regulation
The model adopted by these government-backed players (or government-backed shape-shifting entities, as I call them) is also at odds with the creation of fair markets. Because their ‘creator’/‘owner’ has the power to change the rules of the game.
Praveen: Traditionally speaking, there’s usually one of two things. Wherever there is some kind of distortion like this in the market, either you have the approach that’s followed in western countries and the United States, and all of those other places where there is regulation that comes in on antitrust and anti-monopoly. Or there is the EU kind of methodology—which is somewhat similar, except they come in with much more power and break it up.
Then, on the other extreme is the whole China thing, where you can’t do anything unless the Chinese government wants you to do it. And they are perfectly okay just taking down, wiping out sector after sector. We’ve spoken about education in the past, how China basically woke up one day and decided they didn’t want private coaching startups and companies to exist, and they just wiped them off the face of the earth.
This particular thing in the middle that’s being sold—and just like you, I have sat in meetings where representatives from India Stack and Ispirit have come in and spoken about this—the pitch is that this is a very unique third way of doing things. That it’s going to be a model for the world to follow, where we’re not doing the carrot, we’re not doing the stick. But it is something where we are coming in as a player (and) becoming a competitor.
Praveen has, in fact, previously written about this facet of the equation in his newsletter, The Nutgraf.
The government as a competitor
And the government turning competitor can be tricky. After all, when the government controls what innovation goes into action, then the entities that utilise these platforms or frameworks have no real incentive to innovate, which is bad for everyone.
It also means that the government needs to compete in the market and do what a regular venture-funded business does to acquire users. Consider the rollout of BHIM UPI by NPCI, launched by the Prime Minister on 30 December, 2016.
Anupam: You have the Prime Minister promoting this on the front page of newspapers. Why? I mean, if it’s a private app, why is the Prime Minister promoting a private app?
And then, you have Arun Jaitley in the 2017 budget speech saying that we will provide cashbacks for people who use BHIM UPI. So you’re subsidising a private player?
All this, of course, also puts at risk the interest of the party funding these initiatives and interventions, which in this case is the Indian taxpayer.
The wins are there for the taking, for everyone involved, and so are the praises. But who takes responsibility for the losses?
Do listen to the full episode here: The relentless rise of the “government” as a competitor
And write to [email protected] if there’s anything you’d like to share with us, or leave a comment on our onsite edition. We’ll see you again next week.
Regards,
Rohin Dharmakumar
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Rohin is Co-founder and CEO at The Ken.
He hosts The Ken's leadership podcast, First Principles, and is the lead writer of the Sunday newsletter on mental models, careers and personal growth, also called First Principles. He is the co-host of the Two by Two and Zero Shot podcasts. He is also a columnist for The Ken's AI series, Zero Shot.
Rohin holds an MBA from the Indian Institute of Management, Calcutta and an engineering degree in Computer Sciences from the R.V.C.E., Bangalore.
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