The impact of telecommunications on the self-employed and more particularly among the poorer groups has not been fully understood or appreciated. Mobile phones have created a sort of tsunami among lower level entrepreneurial groups like plumbers, carpenters, masons, small time construction contractors, painters, cooks, etc. In the long run, telecommunications will be a major competitor to the financial institutions since already more than 60% of the cost of operations of many global banks is software and telecom cost.

It was just a board hanging on the branch of a tree in a rural part of Bangalore. It was a computer printed sheet of paper, pasted on a cardboard and said, “Manju the Plumber — Contact….” followed by a ten-digit mobile number. Professors are supposed to be curious and I decided to reach him. I learnt that his income had trebled in the last few months after the acquisition of the mobile phone [thanks to a loan from a friend at 6% per month]. Manju has been getting calls from many and he was planning to graduate from his cycle to a moped. People who earlier visited his home in the mornings to catch him were now able to reach him at all times. He no longer worried about losing a customer and did not have to rush back home during lunch time to find out if anyone had come to his one room tenement to ask for him.

The impact of telecommunications on the self-employed and more particularly among the poorer groups has not been fully understood or appreciated. Mobile phones have created a sort of tsunami among lower level entrepreneurial groups like plumbers, carpenters, masons, small time construction contractors, painters, cooks, repair mechanics, winders, welders, water suppliers, tea suppliers, vegetable vendors, retail traders, flower vendors, auto drivers, priests, astrologers, etc. Actually, more than three hundred categories of self-employed entrepreneurs.

One of the major forces impacting our financial, labor and product markets is information technology and telecommunications. A lot has been written on information technology and it has been subject to lot of analysis. But something more dramatic is taking place due to the mobile phone. In the long run, telecommunications is likely to be a major competitor to the financial institutions since already more than 60% of the cost of operations of many global banks consists of the software and telecom cost.

As previously stated, around 65% of our economy consists of the Service sector and the fastest growing segments belong to this sector. They are Construction, Road transport [both passenger and goods], Hotels and Restaurants [Dhabas], Wholesale trade and Retail trade, and all types of business and other services. Each of these activities is growing at more than 7% Compounded Annual Average Real Growth Rate [Real-CAGR] in the last decade and these are the engines of our economic growth. These are the segments which have started using the mobile phone on a large scale and that is enhancing their market efficiency as well as improving incomes for the entrepreneurs in these segments.

Efficient markets

Markets whether product or labor or financial are expected to have informational efficiency. Mobile phones provide such a facility and it reduces opportunities for arbitrage by re-establishing the basic law of one price – namely assets and services of similar risk characteristics will command the same price excluding the transaction cost. It enables the truck owner to track goods, which are being transported, from Kollam to Kota and provide immediate information on unforeseen events like accidents, fire etc. and other foreseen obstacles like check-post harassments. It facilitates price discovery by small time traders and distributors and make him decide to send the items to the nearest town where prices are slightly more attractive. It helps the self-employed to plan their activities better. A small time contractor contacts his masons and painters at different work–sites and instructs them instead of commuting to the site on his two-wheeler. The time value of money has suddenly become the buzzword and time consciousness among the self-employed has been quietly enhanced.

When time is measured in money terms by the poorest category of self-employed, we can be rest assured that process of economic growth has become infectious and all factor markets will soon become efficient.

Service Provider as Banker

The mobile phone is also being used for some financial services like information on prices, billing settlements etc. But the important development, for which existing service providers and bankers should work for, is using it for a retail credit revolution. One observes that in the boat markets in Bangkok either one can pay by the Baht, their local currency or one can get charge cards from the service providers and pay through them. The service providers initially give an Over Draft or revolving credit facility to the retail trader, which is adjusted on a daily basis by crediting the retailer for every debit incurred by the buyer. This is one of the interesting possibilities wherein the retail trade network is provided credit facility and which reduces their cost of borrowing. It requires that they have one mobile instrument with them and periodic crediting of their account based on received calls, which are mostly available free in our context.

The share of trade at 18% of the national income (during 2011-12) was Rs. 13.5 lakh crore out of Rs. 75 lakh crore of NDP at current prices. Of this, the share of non-corporate sector [self-employed] was nearly 76%, which implies Rs. 10 lakh crore. On a conservative estimate of 75% of this figure, the trade sector would have needed Rs 7.5 lakh crore as credit requirements (since in trade, a major portion of capital is working capital) in that period.

The combined financing to trade by all banking sources (both food and non-food credit) was of the order of Rs. 2.1 lakh crore. This implies that around 28% of credit requirement is met by banking channels and the remaining by non-banking ones. So, the potential available for mobile phone service providers is a market of the order of Rs. 5.4 Lakh crore for digital based lending. Even assuming only 10% i.e., Rs. 50,000 crore out of this is tapped in the next say five years; at an interest rate of 20% [retail credit to-day in the ‘open’ market varies from five percent per month to one percent per day] the sum to be earned is Rs. 10,000 Crore. We can call this Digi-financing or Mobile financing. The amount of paper work will be minimal and credit will be available right at the doorstep. The collection process is through mobile credits and the cost of financing is therefore reduced.

Instead of permanently singing the Wal Mart Sankirtan, we should think of innovative ways wherein technology could facilitate the vast mass of self-employed groups. The millions of entrepreneurs involved in retail trade, instead of being abused, as ‘unorganized’ can be made more effective by credit enhancement and price discovery process using mobile telephony. It is not required for Wal Mart to come here and squeeze our farmers and small manufacturers and sell it to consumers at ‘lower prices’. We can think of leveraging on telecommunication to make all factor markets more efficient and bring down consumer prices.

Literacy no bar

The most important thing about the mobile phones is — unlike computers – even people who are not literate can use it. The only requirement is ability to speak and /or hear. We need not have to worry about language or massive software developments. Due to this, the small box provides phenomenal power unthinkable by economists or financial experts some ten years earlier.

Let A Million Manjus bloom

The appropriate thing to consider is to make the mobile sets as free goods for the poorer self-employed groups. This can be done through SHG’s wherever they are active since they may be better is identifying the beneficiaries. The Central and State governments as well as various charity organizations can give it free to these segments. It is a process of asset creation and making markets work and should not be condemned by the metropolitan experts as a populist scheme. Receiving calls is in many cases free. They need to receive calls rather than make them.

If we can have a market of 1 billion sets then the unit cost can be made for even less than ten paise. But the Government seems to think that service sector is the milch-cow rather than engine of our growth. It is to be taxed at 12%, from an earlier 10% and the argument given by the Finance Minister is that their share is more than 50% in our GDP and hence they should contribute more. What about Agriculture, which constitute nearly 20% and the Government, which is also around 20%? How much do they contribute? The former is a vote issue and the latter is the destroyer of the spirit of entrepreneurship. The aim of the predatory and rapacious Government seems to be to destroy the entrepreneurial spirit and growth process of the service sector by expropriating as much as possible from them for unproductive activities of the Government. This is exactly what happened due to the socialist policies of the sixties in the other two sectors namely Agriculture and Manufacturing. Let us not repeat it for the Service sector.

Since the growth in the economy is not due to the government but in spite of it, the least it can do is to allow million Manjus to flourish for a vibrant and sustained growth process.


The above is an extract from the soon to be released book “India Uninc” by Professor R. Vaidyanathan. The book will be released on January 17 and is being published by TATA Westland. CRI is honored to present this extract from the book to its readers

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Professor Vaidyanathan

Professor Vaidyanathan

The author is Professor of Finance and Control, Indian Institute of Management-Bangalore, and can be contacted at The views are personal and do not reflect that of his organization.
Professor Vaidyanathan

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