Politicians love to pick and subsidise industrial winners. Crooked politicians simply seek kickbacks for backing ‘winners’. But clever, honest politicians believe they have the brains and vision to outguess the market.
Kapil Sibal, the minister in charge of education and information technology, is clever and honest. So, despite repeated failure, he cannot resist the temptation to try and dazzle the public by promoting this or that educational gizmo.
He has just announced that Aakash 2, an ultra-cheap tablet, will be launched in July. Why is there no applause? Because Aakash has already proved a fiasco once before.
Last October, Sibal attracted global headlines by launching the first version of Aakash, targeted at secondary- school students. The government decided the specifications and floated tenders.
The contract went to DataWind, which was to supply tablets at $46 each. The government was to provide a subsidy of $11, reducing the price for students to just $35. Sibal proclaimed proudly that this would take cheap computing to the masses.
Poor people are very price-sensitive, yet cheapness doesn’t guarantee success. Remember, the Tata Nano was promoted as the cheapest car in the world at $2,500, but flopped. Consumers wanted value for money, not just a low price, and the Nano did not provide that.
Back in the Garibi Hatao era of Indira Gandhi, the government subsidised the production of ultra-cheap janata cloth and janata soap. But the quality was not good enough, so both schemes flopped.
Politicians want to take computing to the masses. So, in 2004, the government promoted a hand-held computer, the Simputer, for $240, very cheap at the time. The government expected to sell 50,000 Simputers. Alas, there were hardly any buyers.
Then, in 2005, the government championed another low-cost computer, the Mobilis, priced at $200. This was launched by none other than Kapil Sibal, who at the time was minister for science and technology. “This marks India’s leap into the future of PC technology,” he declared. Alas, the Mobilis sank without a trace.
Why? These products were ultra-cheap but did not give value for money. Technology kept changing, and constantly produced ever-better computers at ever-better prices. Any product picked and subsidised by politicians quickly became obsolete.
Many politicians, not just Sibal, dreamed of a cheap $100 laptop for all students. But when Apple unveiled the iPad, laptops suddenly looked expensive and obsolete.
So, the government switched its focus from an ultra-cheap laptop to an ultra-cheap tablet. This was the origin of the Aakash.
Sibal started with an order of 10,000 tablets from DataWind. Meanwhile, DataWind produced a commercial version of the Aakash for $60. The ballyhoo yielded more than a million consumer bookings.
But testing of the tablet soon revealed severe quality problems. An embarrassed Sibal aborted the Aakash and opted for an upgraded version, Aakash 2. Former science adviser to the Prime Minister, Ashok Parthasarathi, says nobody knows how much money has already been wasted in the process, or how a new design is going to be translated into production in just a few weeks.
Despite failing miserably with the original tablet, DataWind continues to be the supplier for Aakash 2. Meanwhile, thousands who made bookings for the original Aakash have got neither the tablet nor a refund.
Even if Aakash 2 is free of glitches, it does not obviously provide value for money. Many Indian companies have produced cheap tablets from $99 upward, but none has been a hit – consumers prefer to pay more for an Apple.
The massive advance bookings for the Aakash must not be mistaken for true demand. The Tata Nano also attracted mass advance bookings, but these vanished as word spread that the product lacked bang for buck.
History shows that technology and costs shift so rapidly that no government should try and pick winners. The PC gave way to the laptop, which was undercut by the netbook, which was outclassed by the tablet. Neither the government nor anybody else can know which technology will succeed tomorrow.
One Indian analyst thinks the e-book will evolve into the next winner. Maybe. But surely, the biggest threat comes from the evolving cellphone, which now performs many functions that only computers could. Cellphones are available from $15 upward, and calling rates are the cheapest in the world.
A tablet requires an expensive wireless plug-in, plus an expensive wireless service. This is not value for money. Cellphones function in deep rural areas, need little electricity, and can be charged from tractor batteries.
Tablets need much more electricity, plus an extensive network of help centres. If the aim is education rather than entertainment, cellphones can already do most things that a tablet can.
If the government must ‘take computing to the masses’, let it leave winners to the market. The government thinks it can reap scale economies through mass orders, but the global market for devices already provides huge scale economies that government orders cannot match.
Instead of providing a fixed subsidy of $11 for the Aakash 2 or any other device, the government can simply give a voucher worth $11 to all students for purchasing any device of their choice. That will be less grandiose than Sibal’s ambitions for Aakash 2. But it will avoid the flops and financial waste we have seen so far.