Where is India in Internet Adoption?

Where is India in terms of usage of the Internet? One way to think about this question is to look at specific application areas. I saw two fragments of evidence today:

Online trading
Writing in Hindu Business Line, Rajalakshmi Sivam has interesting information about the share of online trading on NSE:

2006 Today
Number of trades 20% 33%
Rupee turnover 15% 25%
Railway tickets
Writing in Business Standard, Sharmishtha Mukherjee says that 34% of the tickets sold by Indian Railways were sold online.

Ordinarily we might have thought that the rich trade on the stock market, and have better Internet connectivity. So one might have expected a bigger share for Internet commerce with online trading. But it’s quite striking to see the proportion of online trading at NSE (33%) line up almost exactly with the proportion of online ticketing at IR (34%). IR users are likely to not have broadband at home: they’re probably using Internet cafes.

Three other areas are of interest to me in thinking about this:

  • Does someone know about the extent to which banking transactions have shifted to the net?
  • Does someone know about the extent to which airline tickets are purchased over the net. Speaking for me, perhaps 80% of my air travel gets done through cleartrip.
  • Is there traction with craigslist in India? The few times that I have looked, I’ve not been impressed at the liquidity.

Turning to supply side concerns, there are two problems. The first is bandwidth. India does fairly badly on broadband, owing to policy impediments. We’re all waiting for the 3G rollout to get a quantum leap in bandwidth.

The data above, for NSE trading and Indian Railways, is the picture that we’re seeing in pre-broadband India. I think that in the coming five years, a full quarter of the households of India will have a broadband connection (either through a computer or through a smartphone), and that will generate profound change.

The second constraint is development talent. By and large, most websites done in India are just bad. It seems that computer programmers in India do not get the Internet. There’s probably too much of mechanical use of tools and techniques learned on Windows PCs; there’s probably too much Microsoft in the formative years of young people. More study of good quality systems is called for [link]. The best role model that I show all software developers, about a decent e-commerce website, is cleartrip. A bunch of people who get this need to start a hall of shame for badly designed web systems and e-commerce systems in India. My suggestion for the first case study to write up there is: `Bhuvan’ by ISRO.

Flawed Market in College Football Scheduling

As a Badger football fan it’s pretty hard to get excited about Wofford this weekend. But it’s not hard to understand why the school schedules games like this. As this article from Sports Madison.com states, the extra home game is worth millions of dollars to the athletic department. Wofford does not expect the Wisconsin to make the return trip.

A simple change in market structure could net millions for the University and provide fans infinitely more excitement. Currently, the school charges the same price for every game. But as anyone who has every tried to buy a ticket from a scalper, not all games have equal value. Charging more for games against marquee opponents would give the school incentive to schedule tougher non-conference opponents.

Can Private Health Insurance Work?

Efforts to fix our health insurance system have found no found shortage of critical flaws in the “market”. I have yet to hear a coherent argument for the continued existence of private health insurance. Health care differs in three critical ways from traditional markets. Taken together I doubt that it is even conceivable for a private market to exist for health insurance.

In a true free market those who got sick and couldn’t afford care would be left to die or suffer the consequences of their conditions. This is a rational, yet morally abhorrent policy. Even the most die hard free marketers don’t advocate this. The unwillingness to condemn the poor to preventable death is the first significant obstacle to a functioning private health insurance market.

The second critical obstacle is the great variation in expected health care costs. Insurance markets are designed to protect individuals from significant deviations from expected costs. Consider auto insurance, every driver faces some risk or an accident, but few expect to total their car in a given year. By pooling risk, the small percentage of drivers that do suffer serious crashes can avoid financial ruin.

But this logic in no way applies to health insurance. Many people suffer conditions that have high known costs. If you are HIV positive or have Diabetes or are paraplegic medical costs are not an unexpected catastrophe, they are a known expense of life. Only the richest individuals can cover these costs out of pocket. Insurance can’t solve this problem only subsidies can.

Timing is the third critical difference between health insurance and traditional health markets. For insurance to function a claim must be tied to a specific instance. A fire, a car accident, a death are all discrete events that can be placed at a specific moment in time. The bulk of health care spending is spent treating chronic conditions. Who’s to say exactly when a person developed high blood pressure or depression. Furthermore, health conditions incur costs that continue long beyond the length of an insurance contract.

Efforts to twist private insurance around these three restraints are destined to produce warped markets and twisted incentives. The regulations currently oozing through congress will make life better for many people, but they do not address the fundamental incoherence of private health insurance.

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