During MBA, there was a popular
case study in the macro-economics class on how poverty is a vicious circle. The case study
demonstrates on how the poor are forced to stay poor. It takes a lot of Government
intervention (as regulator and financier), opportunities and luck for someone
to break the shackles of poverty and come out of it. The case study
demonstrates the fact through an example of calculating the rate of
interest/debt pay-back someone had to pay depending on the social class. Mukesh
Ambani, because of all his wealth, can get a Rs. 10 lakh loan for a petty
interest rate like 10%. (going by the basic interest rate, but actually he might
end up getting for a rate less than that.). For him paying this debt back, does
not make much of a difference. But a road-side vendor takes a credit (in form
of vegetable stock) worth Rs.300 and ends up paying Rs.700 every day. That’s a
shocking rate of interest (130%) which he ends up paying because he has no
collaterals or wealth. This Is the
reason poor always are forced to stay poor until the government or other
institutions intervene to regulate or finance.
In my long list of train
journeys, I have seen a very shocking portrayal of this fact in real life. To
my surprise I never thought that this big lesson would come from a simple life
example of bottled water. A month back, I was travelling in AC 2-tier. It was
around 10pm in night, I finished dinner, and needed a bottle of water. When a
purveyor was going around I have asked him for two bottles of water. He said he
can give me one bottle. I paid him Rs. 15 (printed rate) but immediately I saw
that his case has more bottles. I raised my voice and exerted my right that he
should sell one more to me. He said that if he will sell more bottles to me, he will
lose business. ('Opportunity cost'). I was now curious and asked him to explain.
He said he is going to the general-coaches (unreserved coaches) where he will sell the bottle for Rs.30.
My first reaction was of shock I wondered how he could sell it at a higher
price in a lower economy class. My next reaction was of skepticism, wondering
who will buy his over-priced inventory. As though he read my face over the reaction, he
began to explain, in General coaches which are cheaper (which most of lower
social class people prefer), there is no allocation of seat and people cling to
their seats/space which they occupy whenever they get. There is a lot of
competition for the seat/space and hence no one would get up from seat to buy a
water bottle from en-route stations (even if they were comfortable, buying from
stations is difficult, as the train stops for a few mins and sometimes these
shops on platforms are not near. Sometime the stations themselves are deserted
or worse there are no stations for hours together). They have no option than to
depend on the purveyors and buy at the price they sell. Though this cleared my
skepticism, but made me furious that this guy is cheating on a poor man. My
only consolation at that time was that even the purveyor is poor and he is
cheating another poor man to make his living. However it still makes my blood boil that someone
buys a general-class ticket to save money but the eco-system does not let him
do that. He is always looted to keep him poor.
In this context, the Rs.10
drinking water scheme started by Jayalalita in Tamil Nadu is a welcome move.
Many commuters now get access to cheap drinking water at all transit points.
Hats Off to you Fat Madam!!
