Policy Consulting Masterclass

Part 1
Goals of this class
● Identify root cause
● Solving problems (thinking cross-functionally)
● Communicating structurally

When is public policy needed in free markets such as India?

The government provides public goods. Then there is the private sector which takes care of
the rest. When does the government need to intervene?

Governments often need to intervene when there is a market failure, i.e. the end
consumers/citizens are not receiving the value that the market intends to provide through its
products and innovations.

There are seven market failures.

1. Adverse Selection: Information asymmetry

a. Bad lemons problem
b. Second-hand cars: Sellers of second-hand cars may have better information
about the true quality of the good than buyers. Therefore, buyers are reluctant
to pay a decent price because they fear getting a bad deal.
c. Insurance industry: Insurers might not have the correct information about a
buyer hence it is hard to determine if someone should pay a certain amount
of premium.
d. Adverse selection describes a situation in which one party in a deal has more
accurate and different information than the other party. The party with less
information is at a disadvantage to the party with more information.
e. Here is a youtube video explaining the adverse selection
f. SEBI also reduces information asymmetry between the investor so could be
an example. When raising capital, some types of securities are more prone to
adverse selection than others. An equity offering for a company that reliably
generates earnings at a good price will be bought up before an unknown
company's offering, leaving the market filled with less desirable offerings that
were unwanted by other investors. Assuming that managers have inside
information about the firm, outsiders are most prone to adverse selection in
equity offers. This is because managers may offer stock when they know the
offer price exceeds their private assessments of the company's value.
Outside investors, therefore, require a high rate of return on equity to
compensate them for the risk of buying a "lemon". Sebi is helping reduce this
information asymmetry by introducing reporting standards and practices.

2. Behavioural Problem
a. Often rationality is expected from customers/citizens but people don't exactly
act that way. A lot of public policy is based on economic theories with the core
assumption that people in the markets will act rationally i.e. follow the rule of
demand and supply and diminishing returns.
b. People are not really rational actors hence we’re developing the field of
behavioural economics now.
 c. An example can be people buying cigarettes while the information exists that
they are bad for them because they can’t give a f about rationality and are
addicted.
d. Financially illiterate people - BOP people - never save and invest - hence
even though products like saving account /Paytm exist, they might not want to
save or invest, nor do they understand the benefit and how to do it.

3. Agency Effect
a. a conflict of interest inherent in any relationship where one party is expected
to act in the best interest of another
b. Agents might not do something that might not be in the owner's best interest.
Example government might not act in the best interest of the citizen
c. Incentives are not aligned.
d. In case of changing a policy, let’s say privatisation on an industry: Any
change might lead to challenging status quo; hence the department might not
accept the change considering they might become redundant and their jobs
might go obsolete.

4. Hold-up Problem by the government

a. Breaking contract by not paying in time / fulfilling the terms
b. Multinational institutions have to come into play to hold governments
accountable. An example can be reducing the crediting rating of the
government or not extending more funds.

5. Formal Economy Exclusion

a. Markets might be not consider the people who are excluded from the formal
economy. Examples of excluded people include labourers paid in cash or
people who do not have relevant documentation to open bank accounts / get
the loan
b.
6. Anti-Competetive Market
a. Monopolisation: Hypothetical example: only one telecom company in the
market could set really high prices.
7. Negative Externality
a. An unintended consequence of a product/industry.
b. For example: While a coal-powered plant is generating electricity and
providing employment and generating demand for coal,

Paytm Case study :

Before the world of Paytm, what were the market failures in the existing consumer
finance service?

Behavioural problem: people are not financially literate; hence they do not want to have a
savings account.
Formal Economic Exclusion: people only get paid in cash or do not have the basic
documents to open a bank account.
Agency Effect: it is not in the banks' interest to get many people to deposit money at the end
of the day it is a liability that they have to pay back and pay interest on.
But giving out a loan to a person is good for the bank. It becomes an asset, and they make
interest on that money.
Negative externality - People had to queue up to deposit or take money out, so they wasted
a lot of time.

Paytm Solved
The agent effect: no middlemen(bank manager etc.) in deciding whether people get an
account or not

Problems with Paytm

Adverse selection: That anyone can join Paytm without giving much information, so illegal
activities can happen
Breach of data policy - how will the data be collected and used - often in unethical eys
Monopoly

Solution :
KYC for Paytm: but Paytm did over-regulation: Double KYC. It was very inconvenient for
people so they lost a lot of customers.

Data: Tell people what you are doing with the data, and also ideally, don’t use data in
unethical ways.

Anti-competitive policy - government started Bhim app - another option build an ecosystem
to promote more such apps provide market the incentives or make it easier for companies to
enter this space.

In the US mergers are regulated so that the monopoly situation doesn’t happen.
Part 2

Key problems in the policy making process.

Without a systemic and standardised process of triggering and formulating policies,

the governments struggle with :
● Poor sense of prioritisation
● Inefficient and slow process (Lack of project management)
● Submission of poor quality of policy proposals with missing trade-offs (hence
policymakers are equipped with the right information for decision making)
● Incoherent decision making
● Lack of monitoring outcomes (hence the policies don’t get evaluated or revisited until
there is public scrutiny or mass public unease)

How might we set up a public policy unit and a policy process (policy cycle) to
address these issues?

Here are the key components of a policy cycle :

Sample policy cycle :

Policy Memo/Paper Benchmarking :

Guides for writing policy papers :

https://www-cdn.law.stanford.edu/wp-content/uploads/2015/04/White-Papers-Guidelines.pdf
https://www.evergreen.edu/sites/default/files/MPA%20Policy%20Paper%20Outline.pdf
Part 3

Policy Experience In National Security and International Relations

(Note: All views expressed here by the speaker are their personal view, these views
do not represent their professional stand point)

A brief about Ilma’s background and journey to Civil Services :

● Started from a Kasba/Rural area called Moradabad
● Lived in a setting with low social mobility for Women
● Joined Stephens despite social constraints
● I got an opportunity to go to Paris for a fully-funded exchange program
● Then got accepted to get into Oxford for South Asian Studies.
● Being at Oxford changed the world view. I got to meet Nobel laureates and the most
intelligent people in the world
● She got accepted to work for the UN in Indonesia - A job that her professor
recommended
● Worked at a non-profit in the USA - in Manhattan in a communications role
● Decided to move to India and gave civil services exam
● A key thing to note about Civil services is that you can move from an on-ground
position as an IPS to a senior policy offer making national policy over the course of
your career.
● 1.2 Million people apply, and 700-800 make it.
● 200-300 make it to IPS and IAS
● Her position is Assistant superintendent of police in Umb District
● Responsible for the well-being of half a million people
● Key areas covered in her district include :
○ A township
○ A tourist area, i.e. a place of worship
○ An industrial area
○ And a state border area
● People from all interest groups within the area come to her to forward their interests
and get help on solving all kinds of issues that one can imagine in a district.

Cases for bringing about a positive change in Civil Services :

How might we give a fair deal to the women who work for the police?
❖ Student suggestions
➢ Advocacy for Women’s problems
➢ Develop a mentoring program for women to promote their career growth
➢ Celebrate and recognise their achievements
➢ Create a mechanism for their issue to be heard in anonymity or in confidence,
so they don’t shy away from bringing out cases of harassment/discrimination
etc
➢ Addressing issues of intersectionality is also important
■ Make whatsapp group for the sub-groups such as trans women,
disabled women, women from ST SC background
■ Provide opportunities for skill development
 ■ Advocate through documentaries for effective communication of
issues and potential solutions

❖ Ilma Afroz’s approach and examples

➢ Acknowledge the fact that things like introducing policies for parental leave
and increasing workforce balance are a matter of policy creation by central
authorities
➢ Discussed the case of a lady constable who lives with a husband in the police
force. This lady had to take two weeks off to take care of her sick father.
➢ The social perception of this lady taking a week off wasn’t great. People
looked at this matter with suspicion i.e. this was not a genuine need-based 2
weeks off. This is often the case when women take a day off it is put under
scrutiny by others.
➢ Ilma made sure to check with the lady constable to see if her father's medical
needs were met. The needs were covered by government health insurance
where the dependant father was covered.
➢ Once the constable was back after two weeks, Ilma publicly gave her a letter
of appreciation. This was because the constable is committed to the job. This
letter also appreciated the fact that the constable was contributing to keeping
the family healthy, which is essential for the workforce's well-being.
➢ This act of recognising this constable helps change the social perception and
norms at the workplace. People should be allowed to take care of their
families and fulfil their roles and responsibilities towards their families. A
healthy and happy workforce performs better at the job as well.
➢ This act of recognition also helped boost confidence in the personnel and
improved commitment to the job.
➢ Another example discussed was the house guard bringing his child to work so
his wife could go to work and so that responsibilities of child care are shared.
➢ Ilma encouraged that he brings the child to work, let the child play in her office
and
➢ This act also helped change the norm that it is okay to take care of children
and fulfil work responsibilities.
➢ Men sharing child care responsibilities with women to allow women to work
should be encouraged and supported.
➢ As a leader in the civil service, it is essential to set examples and make an
exception to change the norms. Advised to put oneself in others' shoes to
truly empathise and understand their difficulties in fulfilling responsibilities and
act accordingly.

How do you leave an impact on people’s lives?

❖ Student suggestions
➢ Add a personal touch to solutions that you provide for people
➢ Be more sympathetic and show empathy in your approach, considering often
dealing with bureaucracy is a nightmarish experience
❖ Ilma Afroz's approach and examples
➢ Be humble and compassionate towards people
➢ Make sure to emphasise the importance of women’s participation.
 ➢ Spend time understanding and trying to address people’s problems on the
ground
➢ Issued statement to support women to make sure she gets her right. It turns
out to be effective and influential.
➢ Give people access to talk to the IAS officer and make sure you are
approachable.
➢ Provide access to people to knowledge, opportunities and support that they
need to realise their potential

Tips for the exams, personal development and keeping the motivation up :
● Spend a lot of time on books
● Spend less time on gadgets/digital world
● Don’t be overspecialised. Keep trying and discovering different things to find the right
opportunity to create an impact.
● Write the exam, take a lot of mock tests, cram coaching material
● Imagine you’d be taking care well-being of half a million people by your 30s
● Utilise lateral opportunities to be able to create an impact for your country
● Read good newspapers such as Hindu to stay informed about India's issues. Keep
an eye on issues that you’re passionate about
● Keep in touch with your professors and tutors. They are often interested in your
professional development and can help you a lot.

Top books/reading that were mentioned

● Read evidence act
○ A video explaining evidence act in detail (about 1.5 hours total) part 1,
part 2
○ Read Indian Penal Code
○ An explainer video
● Follow live law blog
● Digital Minimalism by Cal Newport (Chetan also recommends)
○ A 20mins summary + video
○ Whole book pdf

● Deep Work by Cal Newport (Chetan also recommends)

○ A 20min summary video
○ Whole Book pdf

Tips for Wellness under pressure and immense workload that comes with the job
● Stay connected to your family/loved ones and let them take charge
● Don’t try to be the one in control of the situation all the time
Part 3 : Hacks for cracking the cases -
● Solve 40-50 cases to get really good at it.
● Make sure you don’t apply without being
● A case interview is to check if you are ready in terms of communication skills.
● They want to check if the company can put a person on the client-side on day one
● The biggest hack is to imagine you are in front of the client
● Listen and identify cues to find the root cause of the problems
● Be patient. Stop speaking if the interviewer is interjecting, try to listen - they are trying
to help you
● Think as broadly as you can
● Policy consulting needs you to be well-read. Read finance, current issues, politics,
etc.
● Don’t speak on a point for more than 45secs
● There are expectations of your prior knowledge based on your field.
● Exhibit structured thinking
● If it is an online interview, open a google sheet/share your screen to show structured
thinking to the person. Visuals can be more persuasive.
● Interviewers have a very bad attention span.
● Make friends with the interviewer.

Practice Case :
The client is fed in the US - the problem of circulation of Canadian currency, and they want a
solution to this problem.

What is the Fed?

Fed is the central bank of USA.

Is fed struggling with the circulation of currency in particular states?

It's a pan USA problem.

What exactly is the circulation problem?

Example: brick and mortar stores are accepting the currency

Are there any regulations of circulation of Canadian currency in the US?

Positive Feedback
Ask questions one by one because you get more clarity as you ask questions. Your
questions might change.
Don’t be afraid to ask anything that you’re not sure about.
Asking top-down questions/basics about the problem statement is not bad.
Restating the problem statement was good so

Scope of improvement?
Ask clearer questions
Touch on current issues related to the problem.
Ask the why of the problem?
Build multiple hypotheses and check which one is correct?

Shatakshi’s approach :
Curious about the locations in the US - is this problem
Size of this problem - quantification, %of GDP

Cause of problem? Is it tourist or is it some illegal activities

Curious about the legality of the case - informal transactions are taking place.

Do we have any information about the Canadian stance over it?

The Canadian government is ok because of ease of access.

Timeline to solve this problem?

Is there any point of leverage where I can begin?

Start from customers. As the student/tourists

4 stages to the interview

Clarification
Scoping
Use frameworks such as analysis tree, 3CP, MECE framework
Recommendations
3CP framework
Customer
Capability
Product
Collab

Part 4 : Ethical Decision Making

Key Learnings :
Don’t get persuaded by arguments; stick to your ethics. Be the player, do not get played.

Often people make decisions based on emotions, and biases tap into them to negotiate.
But keep a check on your emotions and biases.

Good resources to think more rationally: https://www.lesswrong.com/rationality/,

https://www.rationality.org/resources/handbook, Thinking Fast and Slow by Daniel
Kahneman, The Scout Mindset: by Julia Galef (can share links for pdf if someone needs )

Interesting tool for guestimates that I often use: https://www.getguesstimate.com/