governance, political economy, institutional development and economic regulation

fossilfree

(photo credit: http://www.occup.now.com)

Climate change took the world by storm in 1995 –two decades ago in Berlin- with the 1997 Kyoto “club of doom” postulating devastation if carbon emissions- primarily from the use of fossil energy- were not reduced.

The previous such “natural resources” doomsday club of scientists was the “Club of Rome”, which famously predicted in 1972 that oil would run out in in their life time. Some of them may still be around to ponder the recent historic reduction in oil prices, courtesy new age shale-oil development in the US.

In between, as the global doomsday industry gained strength in 1994, it predicted the “next war” would be over water shortages. Peter Gliecks, Pacific Institute<www.worldwater.org> faithfully features a list of over 400 water related conflicts since 3000 BC of which 219 happened post 1992. But the list is underwhelming. It includes every conflict with a “water” hash tag in it, none of which are of grave significance.

Take the case of water hungry Egypt, which has not gone to war against the nine other Nile basin countries upstream. Instead it was torn apart by a war against its own despot, propped up by the army. A far more worthwhile endeavor but infinitely more difficult, especially since no one organizes meeting in glitzy South American capitals, over Pina Coladas, for people who are fighting their own tyrants. The brouhaha over water related conflicts seems oversold.

Climate change-science or voodoo

Some scientists, not too many though, hold that the Climate Change science and predictions of doom are similarly dodgy. To believe that a 2 degree Celsius temperature increase is a red line the world must not cross and that the way to do that is by reducing carbon emissions, is very much like an article of faith.

Lay persons, like me, unable to understand the science, are not inclined to pay for avoiding global warming. The average citizen reaches for her wallet only after triangulating dire scientific predictions with her own experience to validate the “scientific” view.

After all we see a volte-face by “science” almost daily, diluting the credibility of science to change human behavior. Take the changing scientific view on (a) the usefulness of eggs as a food (b) Marijuana as an injurious relaxant (c) the amount of fat we should ingest (d) the virtues of jogging (e) data security levels in the cloud and social media apps to name just a few. Science, of the public goods kind, loses credibility every day because it can be secretly manipulated to set self- serving international agendas.

I spend a fair amount of time in the Ranikhet-Almora area of the Kumaon hills (in the State of Uttrakhand, India). Over the last two decades, the prevailing sentiment about the state of the local environment, was of doom and despair – all ascribed to the inevitable consequences of global-warming. Apples, a staple harvest two decades ago, had stopped growing as the volume of snowfall declined and ceased altogether below around 7000 feet.

Call it coincidence, a miracle, or an exception which proves the rule, but over the last three years snow has returned after a gap of 15 years to Dhamas-Khunt village, situated at a height of only 5600 feet and this year it is 4 inches deep already. No one there will attend a global warming seminar today, trudging through the snow underfoot, unless they are paid to do so.

The rich are tech savvy and green

Global problems and prescriptions have merit of course, as does a consistent process of trying to optimize solutions. But it is hard to disentangle global slogans from genuine problems and even harder to assess solutions.

PM Indira Gandhi famously said in the 1972 Stockholm Conference that “poverty” is the biggest polluter. She was not quite right, but made her point tellingly. The Planet has been degraded by the rich as the Climate Change science illustrates. In fact it is the patience and resilience of the poor that has enabled the rich to free ride on their environmental passivity.

If everyone on this Planet consumed at least as much energy as the minimum per capita energy consumption in the rich world, we could already be in the midst of an ecological disaster.

Access to technology, is at the heart of both becoming rich and being able to be environmentally correct. Had the rich world been willing to bear the pain caused by their environment degrading, industrial success they could have junked older, polluting technology; rapidly replaced it with “clean” energy technologies and started using them domestically to provide the scale effect to drive down costs internationally.

Risk averse and rich, Germany junked Nuclear Energy post the Fukushima Nuclear disaster. But not-as-well-off France, next door, continues to rely on Nuclear power.

More importantly it is utopian to expect rich, foreign governments to behave differently from the rich citizens in our own country.

Walk the talk

The way ahead for India is to stop the perpetual, sequential, sabre rattling, whimpering and whining we do in international fora and derive false pride in having thus “led” the developing country agenda. Let us implement, domestically, the environmental governance regime we want to see internationally. We can do this by stopping “environmental free riding”.

Why not have a national “Environmental Sin Cess (ESC)”. Those with a yen for acronyms will not miss that ESC is the button you press on your keyboard when you have got your computer into a mess.

The ESC could be in the nature of a “user charge”, levied on the electricity consumed by high-end domestic consumers only so as to insulate business and the poor from any inflationary impact. A similar tax could be levied on the supply of petroleum products to states and 1 million plus cities, which have higher than the national average per capita consumption of petro products. Building in progressivity could distinguish between states consuming marginally more than the national average and those at the very top end. State level regulators would be expected to pass through the tax to the targeted consumers.

This cost disincentive for committing “environmental sin” could drive behavior change in consumers. Cynics would say higher taxes never stopped smoking or drinking. The difference is that unlike cigarettes or alcohol there are substitutes available for fossil fuel based services, albeit not as cheap nor as convenient; energy efficient transportation, lighting and climate control services or applications or those powered by green energy: riding on a bus instead of driving; cycling or walking rather than riding or driving; LED bulbs for lighting; movement and heat sensitive switches; solar electric cars, scooters and pumps; solar heaters and air conditioners.

The tax collected should be corralled in a special account to avoid it from being drained by government expense. It could be managed by a new, independent “Sustainable Energy Innovation Authority” to develop a slew of fossil energy substituting; saving; efficiency enhancing options: human energy based transportation (walk and cycle paths); motorized public transportation; electrification of railways; solar street lights; operational cost subsidy for innovative renewable energy suppliers; energy efficiency initiatives and life-line energy access for the poor.

FM Jaitley should consider this SMART option for the FY 2015-16 budget. Growth is down and demand needs to kick started. But whilst presenting the usual array of “economic revival instruments” it would be good to also provide for incentives to delink fossil energy consumption from economic growth.

That such incentives would not be a “freebie” but would be financed by a cess on relatively rich users of fossil energy, is not only fitting but aligned with the principle of equity. The honeymoon is over. The immediate elections have been won. Time to talk “tough love” now and walk the talk in the budget.

Gov Rajan

(photo credit: economic times.com)

RBI Governor Raghuram Rajan got it horribly wrong when he amended PM Modi’s “make in India” program by adding a “make for India” byline in his FICCI address yesterday.

What on earth could he have meant? Was he implying that the domestic economy should be further insulated from foreign competition? That is the only way domestic industry can be induced to make only for India, rather than for the World, including India?

How does this “home centric” approach fit with his view, reiterated in the same FICCI event, that the economy needs to be more open. In an open economy business “makes” for markets worldwide because production and value chains are transnational and product standards, designs and prices converge across the globe squeezing out fat.

Indian industry did “make for India” pre the 1991 liberalization. The result was a small, fat big-business set; high prices; shortages and shoddy goods. The biggest achievement of liberalization is a convergence of product standards towards international levels because of import competition and the ample and ready availability of goods- except where government erroneously continues to believe that fixing maximum prices for goods and services can work. It does not, as we can see in electricity supply and now in drugs and pharma where shortages are resurfacing.

Exhorting Indian industry to restrict itself to the domestic market is an ominous sign of the export pessimism rampant in the pre-liberalisation period. Does this also mean that Governor Rajan will keep the INR unreasonably strong to keep imports (petroleum products) cheap at the expense of export competitiveness?
Surely the defence manufacturing we are initiating is not just meant for domestic consumption. Unless Indian armaments are in regular use in conflicts and wars internationally, how can we possibly be sure of their quality or get the “consumer” feedback for quality enhancement?

Maybe Rajan’s “rock star” status as an economic wizard got the better of him. After all, PM Modi’s penchant for acronyms and by-lines has now become national mania, rendering intelligible conversation impossible, littered as it now is, with 3AAA and 5Cs. But trying to best the PM can be fatal, even for an outstanding, independent regulator. Even the US President would look askance at the Fed. Chair speaking, out of turn, outside her circumscribed official ambit.

But on matters more related to his current charge, he got things right, as usual. In a downturn, especially with inefficient and wasteful government machinery, it is a better to leave income in the hands of the earner rather than transfer it to government via higher tax rates. The “income effect”, enhanced by the low inflation target of Gov. Rajan, induces consumers to spend and feeds into demand led private investments which is good for jobs and growth.

The conundrum, if tax rates are to be relaxed or if tax exemptions for savings enhanced, is how to balance the budget?

Here is a list of the “low hanging fruit” available.

First, our traditional expertise in going around with a begging bowl is best. PM Modi is prescient in aggressively seeking external grants and concessional funding from the word go. The challenge now is converting pledges into cash flows.

Second, ruthlessly cut revenue expenditure, particularly on general administration. This is a necessary “evil” to show that the government means business.

Third, our annual public investments are barely 12% of total expenditure. This requires stopping gold-plated construction and using the existing space better. Witness the new, palatial External Affairs Office complex in Delhi, which remains underused because it is far from the South Block-located-PMO. Anyone housed in the new office attracts the unwelcome tag of being farther from the powers-that-be than even the mother ministry.

Using the available space rationally, simply by squeezing government servants together can help. Today, senior officers occupy office rooms often much larger that the living room of their government allotted homes. Notice how even mid-level government officers do not work in “row cubicles”, as in private firms and there are no common-use spaces for work meetings. Every office is designed to accommodate a “durbar” suitable in size for the concerned officer – this is reminiscent of the hierarchy of “Princes”, established by the “Raj”, based on the number of guns fired in salute of a Prince.

Slashing perks like liberal use of office provided phones and cars and a cut on travel budgets are also necessary, albeit symbolic measures, for flagging the need for economy.

Fourth, more substantively, using the existing government investment in State Owned Enterprises (SOEs) more aggressively can help. For starters, increase the dividend payout ratio from 44% to 66%. This adds around Rs 25,000 crores to revenue – only 1.4% of the total budgetary resources – but sufficient to increase the central plan expenditure by a hefty 25%.

Higher payouts and consequential constrains on accessing internal resources will also force SOEs to become leaner and look for alternative PPP models for financing operations and investments. Listing more SOEs on the stock exchanges and launching an aggressive privatization program can leverage the economy; attract foreign and domestic private investment and create more fiscal room for Greenfield public investments.

Governor Rajan in right in predicting strained economic circumstances in the near term. But hiding behind the default option of producing only for our huge domestic market and hapless domestic customers, is not the answer – nor is tight market segmentation between the domestic and overseas markets possible. God save us from anyone advocating a back-to-the-future strategy of turning resurgent India into a fortress.

Give Us Energy Mr. Putin

coalfire

(photo credit: http://www.smithsonianmag.com)

India has negligible resources of oil and gas in the context of our future needs and from the perspective of the currently available extraction technology. Oil markets are liquid and sufficiently deep not to worry about oil availability so long as one has the USD to purchase it with. Oil, gas and petroleum product imports account for around one half of our exports. This could be worrisome in an environment of export pessimism. But expectations of enhanced competitiveness do not align with such pessimism.

If 25% of our energy needs are to be met by gas-one of the cleanest fossil fuels- we will have to ramp up our gas imports. Today 10 GW of power capacity is stranded because of shortage of gas supply. Households still cook on wood, charcoal or kerosene because domestic gas supply is constrained by availability.

Gas, has a very shallow and illiquid international market. Whilst 67% of the oil produced is traded only 30% of the gas produced is traded internationally. The bulk of gas trades are settled by gas being piped to the customer. Liquefied Natural Gas (LNG) – the option to piped supply of gas- accounts for less than one third of total gas trade (exports).

India is poorly situated to avail of piped gas from Qatar, Iran, Turkmenistan,  Russia or Australia-who control more than 50% of world gas reserves. Sub-sea pipelines account for a marginal amount of gas trades across oceans due to the higher costs and associated technological challenges. The real option till 2025 is LNG import.

Enter Russia: President Putin could be the White Knight meeting India’s LNG demand. Of course selling gas to India is propitious. The post Ukraine sanctions are hurting Russia and it needs to have reliable, long term arrangements for selling gas and oil. India is not a party to the sanctions and it is in its self-interest to focus on energy as what it wants from Russia during the Modi-Putin talks in New Delhi this week.

Russia hasn’t exactly been sitting on its hands to counter the US sanctions. It has already mended fences with China with whom it has concluded oil and gas supply deal. More generally it is leaning towards China, as a natural partner, in the global clustering against the US led set of allies. It would like to induct Iran and India as partners in this grouping.

India is a marginal player in this “great game”. It would be a complete mistake to barter our acceptability to all sides by putting our eggs into one basket. If Australia-a close US ally, can depend on China to absorb its energy exports and keep its economy humming, there is little reason for India to choose between the Great Powers.

It is to our advantage that we have extraordinarily good relations with Japan and other East Asian allies of the US. A long term contract for Russian LNG can be used to swap Russian LNG cargos (meant for India) with LNG coming from Qatar to Japan, cutting transportation costs for both. This could become a trilateral arrangement between Russia-Japan and India once the sanctions get diluted.

Nuclear Energy is the second area where we badly need Russian help. India needs an additional 10 GW of Nuclear Power. The State Owned Nuclear Power Corporation of India (NPCIL), which is the monopoly operator of all civil Nuclear assets in India, has lobbied to ensure that the Nuclear Liability Act 2010 approved by the Indian Parliament exempts the “operator” from all risk and liability in the event of a nuclear incident and loads it instead on equipment suppliers and project developers. This has effectively ensured that no private Insurance company would be willing to bear the unlimited risk of a nuclear mishap and private Banks would not finance such a project.

The only players left in the field could be State Owned Corporations both Indian and Russian. A State Owned Indian General Insurance Corporation could provide the Insurance cover and a Russian State Owned Project Developer could build the plant. Implicitly the risk will devolve onto the Governments of India and Russia and Bank finance would view this as a Sovereign risk. Clearly this is not a commercially palatable deal but it can be the classic outcome of G2G cooperation, in the spirit of the Russo-India friendship, where Russia helps India out of a jam of its own making: Bangladesh liberation (1971) being one such.

Will sealing these two energy deals brown-off China and the US? Russia delights in browning-off the US in any case whilst its relationship with China is at best of “mutual transactional benefit”.

In the case of India, we are perpetual wafflers and fence sitters who hop from one transactional advantage to another. This is perfectly aligned with our relatively diminutive economic stature and pressing domestic concerns. No one expects different from us.

PM Modi has been warmly congratulatory about China’s economic and poverty reduction achievements. It would help if we were also more respectful of China’s international status, since China is so status conscious. But this is difficult, because we have a completely different political and social environment and a vastly different institutional architecture. Our unresolved border disputes add fat to the fire.

There is however no reason to blur mutual economic self-interest with ideological compatibility. It makes sense for India to use its growing markets to bind China more firmly to the India growth story much like China has done versus the US. It is false ego to be at pains to keep China out of South Asia, just to protect our “dominance” in the Region.

Regional dominance has to have economic underpinnings. China has the fire power. We don’t. Trying to wean our neighbours away from China can end up “immiserizing” India. More importantly why even try?

Regional trade and output enhancing strategies need to willy-nilly include India because of its size and central location. Assured access for Nepal and China to the Indian Ocean; for East Asia assured access via Bangladesh, India, Pakistan, and Afghanistan to Turkey, all serve to bind the economic interests of our neighbours with our own.

India has to boogie with the US, China and Russia, but openly recognize that in this group, we are the “little fish”. We can be a “large fish” but only in some other a small pond with shrinking water levels. The question is which pond serves our national interest better.

Our relationship with Russia has principally been of dependence for armaments and collaboration in diplomatic fora since we have no clashing international alignments. The defence cooperation is destined to transform into a commercial one since India is opening up to becoming a defence manufacturer rather than just an importer. Business interests will invest in India depending on the competitiveness of the opportunities available.

The energy link between Russia and India is about the only slender but substantive chain, which can bind state owned gas exporters in Russia and gas importers in India. It is time to forge this chain to retain the warm glow, older Russians still feel, when Raj Kapoor’s films are screened.

Can Modi Copy Deng?

China

(photo credit: http://www.deeshaa.org)

The thought of Modi, an original and innovative doer if ever there was one, copying anyone, is so implausible that the first instinct is to perish the thought at birth. But it is interesting to list how Modi could “do a Deng” for India.

Deng Xiaoping inherited a China wracked by the inefficiencies, but blessed by the upside of Communism. Principally, five decades of communism had deadened the innately entrepreneurial spirit of the Chinese and sank the economy under the weight of a burgeoning State. But communism had also proliferated a highly disciplined party cadre across the country-much like India’s bureaucracy-except that the Chinese Communist Party marches to a single drumbeat; that of the President/General Secretary/Chairman. In contrast, the Indian bureaucracy is a discordant orchestra with multiple political conductors.

Mao built his Party cadres to weed out all those who either were, or could become, dissenters to his thoughts. Deng used the very same party to unleash the Chinese “animal spirits”. Municipalities and provinces competed viciously with each other to achieve the highest growth numbers in a no-holds-barred, single minded commitment to the bottom line, which could put the partners of Lehman Brothers in the shade.

The extraordinarily successful U turn was not surprising. Party foot soldiers are rarely ideologically committed. On top of it, if there is something in the change for them, they take to it with gusto. The Party took to “capitalism” with a vengeance. It is only now- two decades later- that President Xi is trying to unravel the resultant bundling of public and private interests.

When Deng Xiaoping became the President of China, per capita Gross National Product (GNP) was double of India’s but only around two thirds of Indonesia and Philippines (1996 WB data). By 2012 China’s per capita Gross National Income (GNI) had become nearly four times that of India; more than 1.7 times of Indonesia and nearly double of Philippines. Poverty declined in China from “Indian levels” to just 3% by 2012. Rapid economic growth based on exports, manufacturing and jobs was Deng’s mantra. But we musn’t forget the sacrifices of the Chinese people, who suffered personal and economic deprivations at the altar of national economic growth.

Can Modi do a Deng for India?

Unlike China, India is a soft state. Our citizens live in an asymmetric economic and political environment. On average, our citizens are as economically deprived as the Chinese were. But they have become accustomed to significant levels of personal and political freedom, more typical of a developed democracy. The State “includes” everyone in its warm embrace through food, fuel and income subsidies, which successive governments have honed to a fine art. Significant interest groups all receive a special package of subsidies tailored just for them. The package may not be individually very substantial. It may be threatened by inflation and increasing public fiscal stress. But the important thing is that it exists as a symbol that the State “cares”.

The only way of getting citizens to vote beyond subsidies is to rapidly enhance their individual incomes to a level where stagnating subsidies no longer mean much. For this private sector jobs based growth is the key.

Unfortunately, the world economic environment is now even less supportive of inefficient economies than it was in the “go-go years” till 2008. India remains a hugely inefficient economy because of the high transaction cost of doing business, even by domestic entrepreneurs. Some of this is due to a very inefficient and decentralized but systemic corruption.

The magnitude of corruption grabs public attention. It is unseemly but it is not the main impediment to job creation, growth or poverty reduction. In an imperfectly regulated economy, with a large State sector, regulating corruption to reduce its incidence and impact is more important than eradicating it. East Asia in general and indeed China itself, illustrates this.

But bitterly contested democracy does not allow the ruling party the luxury of “plain policy speak” based on cost benefit. A well publicised war against corruption better satisfies the masses that tax money is not being wasted.

More substantively, a policy of adopting increasingly higher levels of transparency and the  depoliticisation of economic regulation by transferring powers to autonomous, technical regulators, can significantly reduce the space for “crony capitalism”.

PM Modi, whilst condemning the “hate speech” of his errant Minister Niranjan Jyoti urged the Rajya Sabha: “let’s get back to work”. His words could well be heeded by government itself. Five fundamental institutional changes can create a Team Modi for targeting poverty; enhancing growth and increasing private sector jobs.

First, Captain Modi has to radically change the manner in which appointments are done in the Union government and adopt a transparently merit based system. For starters PMO should have an HR anchor identifying and tracking potential officers for these positions, using a variety of indicators.

Second, for improving the sustained effectiveness of the Union government, the PM has to ruthlessly prune the political executive and the bureaucracy, of elements who are, or have been ineffective or complicit in corruption. This is not about launching a witch hunt for the corrupt. It is more about identifying effective politicians and bureaucrats (of which individually there is an oversupply) and putting them in the right positions.

Third, it is not enough to improve the Union government. PM Modi has to talk Turkey with those CMs, who are similarly inclined to grow their states. Some, but not all, will be BJP governments. But the real issue here is to form alliances, not for political survival, as was the practice in the past, but for national growth. Network economies spill over across state boundaries and business uses such opportunities to locate where land is cheap, labour is abundant and pre-existing infrastructure is nearby.

CM Naidu previously used this model of cross border spill-over from Karnataka and Tamil Nadu to Andhra Pradesh’s benefit. Western UP and Haryana have similarly benefited from the economic dynamism of Delhi, irrespective of what their State Governments were up to. It is not necessary to have every CM on Team Modi’s Bench. Just getting 50% onboard, sprinkled across the country, can generate strong growth impulses nationally.

Fourth, a institutional focal point for getting CMs on board is needed. The National Development Council exists, but needs support. At the heart of the change is the willingness to share with the states, the fiscal and administrative powers available in the erstwhile Planning Commissions. How it’s is structured will be critical. Yet another anemic Think Tank is hardly fit for purpose.

Fifth, the key administrative unit, at the cutting edge level are the 604 Districts in rural areas and around 3255 “towns”. It is at this level that all reform and change is implemented. Unfortunately, this level of administration remains completely divorced from the direct responsibility for achieving the three point agenda of growth, jobs and poverty reduction in their own areas. This has to change if we are to “Do a Deng”. China determines local targets for national objectives. We must do the same.

PM Modi must provide incentives to States to “push back” senior officers from clunky state secretariats to the field. State secretariats (as also the Union Secretariat) must be slimmed down and District and urban Local Bodies strengthened. This can restore technical competence and gravitas to district and local body administration. The minimum service in field postings for IAS/IPS officers, before they can go to the State Secretariat must be increased to 15 years from the 9 years necessary today.

Every District and Town will also need base line studies of jobs, poverty levels and the size of the local economy. Their annual growth and poverty reduction targets and achievements must be available publicly. The share of local resource allocation must increase and be aligned with the path to achieve these objectives at the local level.

Today District Plans are just local segments of state government projects with specified outputs but with less than adequate linkage to the three overarching objectives. Local “Planning” is more about appeasement of local politicians rather than about achieving national objectives. More rigorous project selection guidelines; filters for assessing poverty reduction, growth and job creation potential; better oversight of expenditure and public participation in decision making are the underpinnings of success.

PM Modi does not have a centralized Party based executive to rely upon, as Deng did. But he can forge a Team of politicians, bureaucrats and non-government professionals who have a passion for lifting India out of poverty via economic growth and private sector jobs. Many are waiting for his call.

Budget to Build Institutions

Patna nagar nigam images

(Photo credit: viewpatna.blogspot.com)

We are, for the most part, what institutions make us. Some of us, who are exceptional, disrupt the status quo and change the universe. But generally, such special talents are best in small doses. India has too little of compliance with formal institutional norms and a little too much, of the libertine spirit. Of course, when it comes to informal institutions like caste, religion or class the reverse is as forcefully true.

How can we rework our formal institutions?

What ails most institutions in India is that they lack charismatic leaders and citizens do not see the “value” attached to them. Parliament, for instance, is commonly regarded as a troublesome, distant cousin, who has to be invited to weddings, but from whom most decent folk would run a mile. The Judiciary, even though it has acted repeatedly for the poor and marginalised, is viewed with trepidation, because of the serpentine coils of due process it has wrapped itself in. The Police has traditionally been just plain bad news but now, even the civil bureaucracy, commands scant respect.

One reason for the decline of institutions is that most are closely associated with the legacy of the colonial government. Indeed many are still housed in the same buildings. Most still follow the same rules, which protect the State’s, rather than the citizens’, interests.

But more fundamentally, the conundrum is that India’s Independence struggle was not against the institutions embodying the “Raj”. It was against the foreigners in power at the time. We have retained all the vestiges of the colonial government; a centralized government; symbols of distant, almost princely privilege, for the elected representatives and an under-regulated (albeit also increasingly poorly protected) bureaucracy, trained and organized, to subsume the difference between public and self-interest.

The demise of institutions is a familiar lament. Can it be reversed and what can Budget 2015 do about it? Clearly, the decline is not related to a lack of finances, so change in resource allocation norms provides no solutions. Since 1991, the Budget Speech has become an instrument for announcing big ticket policy changes and this is where it could help. There are three major policy changes for building institutions, which merit inclusion in the Budget Speech of the FM.

First, build the autonomy of Municipal Government. ModiGov is focused on urban areas for economic growth. This is sensible. 700 million (50%) Indians, many of them not yet born, are expected to live in urban areas by 2034. Projectised resource allocations for roads, bullet trains, electricity, water, housing and “smart” cities are being made.

But allocating resources is just the first step. Unless the institution of Municipal Government is restructured, it is unlikely, that the good governance environment required to use these additional resources effectively, can be created.

Local problems need local solutions. But state (provincial) governments are loath to devolve powers downwards. India is a federal democracy. The Union can only persuade and incentivize. It cannot direct state governments to devolve powers.

The FM should use Budget FY 2015 to provide incentives for State Governments to devolve fiscal and administrative powers and functions to municipalities. One option could be a Challenge Fund, with a replenishing, annual corpus of Rs. 10,000 crores (USD 1.5 billion), open to competition amongst the Fifty Four cities, each with a population exceeding one million. Every year, the best five to ten devolution proposals, received from state governments, could be selected. Each selected city would get a direct, long term soft loan, against achievement of milestones, from the Union government via a Special Purpose Vehicle equal to 50% of the average state government grants provided over the previous three years.

This is a “win win” because it enables fund-strapped State Governments to redeploy their funds to other areas, whilst also ensuring more autonomy to dynamic and growth oriented States and cities.

Why is municipal autonomy important? Pan-national schemes are too clunky to be effective. Remote management undermines local participation, ownership and decision making. Meddling in city governance, by state governments, is usually motivated to extract “rent” or some other form of private benefit.

Politically, such devolution makes sense for the BJP, which is a party dear to urban hearts. In fact, rather than go for elections to Delhi State immediately, the Union government should first merge the three municipalities of Delhi into Delhi State, making it the first City State of India. The Union government could retain direct control of the Lutyens Delhi area, where the rich and the powerful live.

Second, is to build the autonomy of regulatory institutions and signal that where a regulator exists the government shall defer to the collective wisdom of that institution. Unless this is done, autonomous regulation cannot be effective. Making regulators effective is key to building investor confidence.

The prime example is the Reserve Bank of India (RBI) which is one of the oldest autonomous regulators.

The positive regulatory experience with the RBI (1934) and then with the Securities Exchange Board of India (SEBI) (1992), encouraged India to expand the area of autonomous regulation for governing Telecommunications (1997); Electricity (1998); Insurance (1999); Anti –Trust/Competition (2002) and Pension Funds (2013).

Our institutional record on managing macro-economic stability is poor. High inflation not only hits the poor the most but also erodes the confidence that the government is in control of the economy. Line managers in government have a hands-off approach to using funds effectively. The government seems complicit in being less than adequately focused on inflation. Public wages are 100% inflation proofed, whilst the poor and employees in the private sector have no such safeguards. Large scale public failures to produce domestic natural resources (oil, gas and coal) in sufficient volume, result in the import of inflation when international commodity prices are high. Poor infrastructure increases the cost of transit. Draconian regulations stifle competition and markets and increase transaction cost.

FM Jaitley needs to clear the air on the institutional arrangements for managing inflation and interest rates. The FM said in his maiden Budget Speech in July 2014 “We look forward to lower levels of inflation…” and asserted the need for “….macro-economic stabilization that includes lower levels of inflation”.

Both objectives have been substantively achieved. The trend is heartening and the FM is entitled to take credit for it. But in the aftermath of this success, there have been discordant voices on interest rates. The RBI Governor has consistently said that windfall benefits from lower international petro and food prices alone should not be the basis for reducing interest rates. The FM has publicly advocated a divergent policy of reducing interest rates to stoke growth.

This public discord is avoidable noise. It perturbs perceptions and muddies expectations. It makes a “dear money” policy less effective. It postpones investments, as entrepreneurs wait for the expected lowering of interest rates. Public unanimity on monetary/interest rate policy issues, with the RBI Governor taking the lead, seems the best way forward.

The Budget Speech provides a good occasion to underline the autonomy of RBI and to give it credit for monetary policy management. The FMs support for an autonomous RBI is bound to be reflected in the relations between other line ministers and their autonomous regulators.

A big gap in the regulatory architecture is the absence of an autonomous regulator for fossil fuels (coal, gas and oil). Coal, gas and oil have consequently suffered from regulatory uncertainty and mismanagement. This is in sharp contrast to the manner in which Central Electricity Regulatory Commission and Telecom Regulatory Authority of India have rationalized the bulk electricity and telecom markets, respectively.

Announcing a time bound plan to legislate an integrated fossil fuel regulator (Federal Energy Regulatory Commission of the US provides a good model), builds on the existing trend to club energy related departments-Coal, Electricity and Renewable Energy have been clubbed under the amiable and eminently qualified Minister, Piyush Goyal. This step would also signal the intention of the government to reverse the politicization of natural resource allocations, whilst also inflation proofing the economy from supply side disruptions.

Third, make the transport sector competitive. Indian Railways (IR) is the life-blood of integrated India. Its declining share in transportation is a result of previous governments bleeding it for political gains. As early as 2001 the Indian Railway Report, chaired by Dr. Rakesh Mohan, laid out a road map for its commercialization. Corporatization is a first step in giving IR the autonomy to compete. Corporatisation will also encourage IR to leverage its considerable assets; use the PPP model aggressively and improve its services. Minister Suresh Prabhu is quick off the block by devolving financial powers to Regional heads to enhance efficiency and transparency in the tendering system, within the existing architecture. But formal restructuring, which requires a bargain to be struck with the unions, would make his job easier.

National Thermal Power Corporation and Bharat Heavy Electricals Limited, both companies listed on the stock exchange, are shining examples of the advantages of corporatization and listing of State Owned Enterprises and their ability to grow, even in a competitive environment. Corporatisation of IR could be followed by restructuring, including possible vertical and horizontal unbundling and a public listing to enlarge its shareholding and expose it to the discipline of the markets.

Bullet trains are a visible symbol that India has arrived. But without the enabling governance structures to sustain such hi-tech assets, today’s advances could easily become tomorrow’s “stranded assets”. It would be a pity if the “smart” cities; the industrial corridors and the bullet trains go the way of toll roads and become pot-holed, one-night wonders. Projects only feed fish. It is institutions which teach a person how to fish.

Why Planning Died in India

thebetterindia

(www.thebetterindia.com)

So what will the post-Plan India look like?

Will we veer away from the soaring flyovers; highways straight as Arjun’s arrow; high rise apartments and carefully “zoned” areas, typical of planned development and turn instead towards the squiggly, irregular lines so dear to the foreign tourist, of “charming”, little, oriental streets; buildings leaning precariously into each other; roads not wide enough to turn around a decent sized car; gloomy, shaded rooms looking inwards onto resplendent, inner courtyards with shops, factories, homes, schools and hospitals all thrown higgledy-piggledy together in the best tradition of “organic growth” fueled by private money?

Unlikely, because even the most ancient, known, Indian city-Mohenjo Daro- built in the 25th century BC was based on a rectilinear street grid (now in Pakistan) and is completely at variance with the more recent, albeit charmingly romantic, memories of traditional Indian living.

If the ancient past was at variance with recent memories, the present is rapidly evolving.  Indian values and needs are changing in response to the open economy framework adopted since 1991 and the associated diffusion of technology, competition and choice. The change is so rapid that formal institutions have yet to catch up.

Neither our laws, nor our judiciary caters to the frustration of young Indians with the plethora of “limiting”, formal traditions.

Take for instance, the case of gays, lesbians and trans-genders. Our law demonises them. But most Indians are easy about adapting to them in the same way “hands-off” manner as they good naturedly, accept foreign customs, like opening doors for women ( a custom rapidly becoming extinct in the West); as a quaint sub text of life.

Cross religion marriages is another example. It is not the norm but is generally accepted if neither family objects. Young India takes to anything modern with a vengeance. Hafiz Contractor’s lurid architecture; skin fit jeans; soppy “friends” style TV serials; head banging, electronic music, offensively fast food and horribly over-priced lounges.

Aspirational India likes multilane highways, fast bikes, week-end car holidays, fourteen hour work days, nuclear families, steel and glass buildings, swanky airports; e-commerce and want rapid change, within their lifetime.

The rapid economic growth associated with these aspirations has usually been scaled up, to encompass the middle class, only by planned investments and heavily regulated economies, as in East Asia. The downside has been rapid grow in pockets of affluence; carefully screened off; insulated from the sordid reality of the poor. Planning to skillfully create a bubble of affluence, access into which is carefully monitored for those make the bubble real but who are excluded from the bubble, except as service providers.

But if Plans and Rules cater only to the rich does it really matter if we stop planning? Even if a random approach is adopted for public investment management there is a 50% chance that investments will benefit the rich and the poor equitably. In contrast, the Impact Assessment of Planned Programs for the poor does not have a better “hit rate” so who cares?

For starters, let us recognize that the death of Planning is not new. It died a quarter of a century ago when the Berlin Wall fell in 1989.

First, the planned share of private sector in investment has been increasing with every plan and was at 50% of total investment in the last Plan. So irrespective of how much money the government invests, so long as the private sector meets its targets we could hit at least 50% of the growth target so long as the government ensures a facilitating investment environment.

Second, public investment spend comprises just 21% of total public expenditure every year. The rest goes towards meeting the existing recurrent liabilities of interest (33%) salaries (8%) and other operating expenditure just to feed the public “beast”. Rather than increasing public investment by increasing taxes, far better to leave the surplus with private actors and encourage them to invest.

Third, of the 21% which is available for public investment there is no easy way of knowing how much needs to go for funding completion of ongoing projects and what then is the residual fiscal space for new projects. It is telling that even the Union Government budget documents are not transparent about this important distinction in resource allocation.

The suspicion is that if Fiscal Deficit targets are to be achieved there is very limited fiscal space for new projects. A careful inventory of approved but unfinanced projects could reveal a project stock as high as investment spending over the next five years. This is not new and explains why the practice has been to spend on new projects by starving existing ones, so as to please the largest number of political constituencies.

Remember that incomplete road outside your window which rakes up columns of dust every time a motorcycle zips by? Well the reason why the engineers, you curse daily, are taking so long to complete it, is that money for a road or any other project is not allocated and frozen at the time the project is approved. Allocations lapse at the end of the year and fresh allocations made against which cash is released piece meal, depending on the relative power of conflicting political constituencies.

Fourth, planning died because Planners did not reciprocate the faith put in them by citizens. They “gold plated” projects (Commonwealth Games); failed to anticipate technological change and innovation (Public Transportation) and thereby created huge stockpiles of inefficient and unsustainable assets, financed by public debt.

PM Modi probably knows this and consequently is no hurry to devise a new planning set up. Of course every government wants to leave its “footprint” encrusted in projects. The Modi government is no different, if one is to judge from the bouquet of projects hurriedly announced and allocated notional amounts in the 2014 post-election budget.

The only hope this time around, is that there may be more emphasis on creating a facilitating environment and encouraging the private sector to invest rather than using public funds to determine the future.

The test case will be Defence Production. If the government can get the domestic and foreign private sector to invest in “make in India”, against buy back assurances, we shall be starting on an even keel. Nothing much there for the poor to cheer, except some trickle down in construction and services, but at least the middle class can look forward to more jobs and better wages.

India’s Urban Adolescence

jama masjid

(photo credit: http://www.virtualtourist.com)

First time visitors to India are usually taken aback by our degraded cities and the seeming public apathy to sewage and garbage competing for space with Bentleys and Porches-much like puberty when it is as important to hide the pimples as it is to dress smart.

Ed Glasser of Harvard University, speaking at the LSE-NIUA Urban Age Conference” in New Delhi today illustrates the dire situation by using the metric of vertical plus horizontal living space available per person.  India’s low rise cities squeeze people much closer together-often to suffocatingly high levels- as compared to high rise cities with a similar spatial (horizontal) density.

The perplexingly happy co-existence of some of the finest hotels and monuments in the World, with the largest slum populations has multiple explanations. Some trace institutionalized urban neglect to the Mahatma’s vision of a happy India as comprising only self-sufficient villages with cities as necessary evils.

Others point to the stratified, Hindu, caste system as the reason, why spotlessly clean households and well-scrubbed people have no qualms about chucking their filth into the streets. The central concept of “ritual pollution” is a purely personal one. Public filth is a public issue and it is enough to be personally clean.

Urban government “groupies” identify the extended atrophy of municipal government in independent India, as the key reason for listless municipal governance today.

Possibly there is a little bit of truth in all these explanations and some more. But none of them are helpful in solving the problem.

The Mahatma and his thoughts have long been relegated to the realm of our “glorious past” with little salience in a rapidly growing, open economy. Spinning one’s own yarn and milking one’s own goat, even if one is a rocket scientist, negates the central concept of “comparative advantage” on which international trade is based.

The caste system has not stopped us from sending a low-cost space mission to Mars; from becoming the Information Technology back office for the West; from producing more films in Bollywood than another country in the World and becoming the most successful, largest and most diversified democracy. Blaming urban decay on caste is just plain lazy thinking.

As outdated, are those who mourn the relatively light touch of municipal government in India and the over whelming influence of higher levels of government at the Provincial and National levels.

T.S. Panwar, Deputy Mayor of Shimla at the same conference illustrated the helplessness of municipal government by calling himself the “garbage man” since that is the only unique function his municipality could legitimately claim. Of course, one may well ask why small, municipal governments need autonomy beyond the functions best performed at the local levels, like garbage management, street lighting and the maintenance of demographic records.

In this vein Harvard University Professor, Neil Brenner posits that municipal autonomy, as an explanatory variable for citizen satisfaction, in an increasingly networked world is pretty meaningless. When even nations face the prospect of losing sovereignty in monetary policy; resource use and trade policy, it is too late to target greater devolution of powers to municipalities, as a driver of high urban growth.

India’s ambition for urban led growth has to be based on the consensual transfer of resources which fuel growth, from their existing owners, to cities. Far from devolving powers downwards this means looking upwards to supra-municipal jurisdictions where meaningful negotiations can be done between rural constituencies, like sugar cane and rice farmers, who use water wastefully today and cities who should be willing to pay for incremental water. Similarly cities need to negotiate with the owners of agricultural land to buy land for growth at market rates. Meanwhile, city dwellers have to boost city revenues by paying higher taxes and “user charges” for the privilege of staying in a high growth area where jobs are plentiful and the quality of life indicators higher.

Gerald Frug of Harvard University has a similar vision in which metropolitan conclaves, comprising representatives of all municipalities, decide how people should live in cities and are empowered by their collective size and reach to negotiate with National and Provincial governments. Richard Sennet of the LSE and NYU advises the just starting 100 Smart City program, to be careful to avoid creating “stranded assets” financed by public funds, as in China. The down side of fast, lumpy investments is that what once looked like a good idea very quickly gets sidelined by technological change; shifts in business cycles and evolving trade regimes.

How can India grow beyond its urban adolescence? Some lessons are relevant.

First, for all large projects ensure that public money only leverages private investment rather than being the sole source of funding. Public resource allocation methodologies are famously inefficient. The willingness of private entrepreneurs to risk their capital by co-funding public projects becomes a plausible proxy for sound investment decisions.

Second, whilst Public Private Partnerships are consequently the chosen instrumentality for lumpy investments, both the benefits and the risks must be equitably shared between the public and the entrepreneur. Arun Nanda of Mahindra Lifespace hits the nail on the head, by stipulating that successful Public Private Partnerships never forget to ensure quantum benefits for the Community they dispossess of resources.

Third, whilst it is true that there can be no governance without an effective government, it is unwise to equate decisive governments with good governance. Good governance implies embedded systems for “direct participation” by all stakeholders to hold government accountable.

Within the good governance eco-system, the role of political parties is the least discussed and is the most deficient. China’s rapid urban development is as much due to single party rule as it is to inner party discipline. Democratic plurality is meaningless without well administered political parties which reflect democratic ideals and public accountability in their internal processes.

The helplessness of even well-meaning politicians, lower down the food chain, in the face of low traction with party bosses to solve their local problems, often reflects the top-down, stratified architecture of political parties, where “lateral entry” at the top level is the norm and meritocratic selection from within party cadres an oddity. We need more efficient, vertically integrated and transparent party structures as part of good urban governance.

madison

(photo credit: http://www.ndtv.com)

The Republican sweep of the mid-term Senate elections in the US closely resembles the Modi wave in India. In both cases, electoral disgust with wooly idealism and unfulfilled promises fueled the wave.

In the US, Janet Yellen, Chair of the Federal Reserve caused a stir on October 17 by labelling as “stagnant” the living standards of the “aam” American – a seeming indictment of the last seven years of Democrat rule. She next made already raised Democrat eyebrows, merge with the hair line, by citing the inheritance of wealth as a significant pool of economic opportunity.

Both statements are anathema for the Democrats for whom income inequality is only a necessary evil and inheritance of wealth, opposed to the American dream of making good on one’s own steam. Is Yellen playing to the Republicans?

If it was India, Yellen’s strategy would be viewed as a technocrat aligning to the tune of new masters. Party lines in India are androgynous, vague and fungible in any case. Political stances on specific issues are not nuanced. When horns are locked between parties, the driver is mostly to play “spoiler” rather than differences on technical or ideological grounds.

But for a dilution of “neo liberal” ideologies in the US, close to the heart of the Democrats since Bill Clinton initiated them,  is a serious event signaling a never before ideological convergence between the Democrats- associated with “big government, social protection and wealth redistribution” -and the more “conservative, small government, pro-business” Republicans.

Such a workable convergence of ideologies is sorely needed in the US, where the Republican dominated House of Representatives and now the Senate can torpedo any chance of President Obama having a meaningful second term.

The American parable has lessons for India. The handsome mandate won by the Modi led BJP in May 2014 and again recently in the Maharashtra and Haryana state assembly elections has spawned acrimony and worse, between India’s two main national parties: the BJP and the Congress. Frankly this is uncalled for. In sharp contrast the ex-PM, Manmohan Singh, who is a Rajya Sabha MP, is setting a good example by regularly and positively contributing to issues across party lines in Parliamentary Committees.  PM Modi and FM Jaitley seem to have established a working relationship with the technocratic, ex-PM. This augurs well for the substance of confabulations in the parliamentary committee on Finance. We hope the Modi Sarkar  (government) will expand the opportunities for such positive collaboration across party lines, especially with technocratic talent.

Media reports suggest that the erstwhile Planning Commission will be reconfigured, in early 2015, into a forum for hands-on collaboration between state government and the Union. This is just what is required.

The Modi electoral wave is shrinking the number of non-BJP state governments rapidly. Maharshtra and Haryana are now with the BJP. Delhi, which is now on way to the polls, is likely to follow. As the electoral clout of the BJP grows, it will inevitably induce a push back from threatened regional and marginalised national parties.

The British successfully used the “safety valve” of participative deliberations for decades, to secure political harmony. Bleeding opposition parties by productively engaging their technocrats can not only meet the capacity challenge the BJP currently faces, but also restrain opposition parties from being “spoilers”.

As in the US, Indian voters have “hunkered down” and adopted a black and white perspective. The choices have shrunk to either a vote for nebulous concepts of pluralism; democracy; liberalism (Congress and its spin offs) or a vote for economic self-interest (BJP and select Regional Parties). Between the two options, clearly acting in one’s economic self-interest is winning.

The Modi Sarkar has a huge opportunity to tap into this narrowing of the voter expectations. Here are two steps which can play to their new expectations:

First, after wowing the young electorate with a media savvy, electronically charged campaign, the likes of which has never been seen in India, the Modi Sarkar cannot now tamely go back to the netherworld of the paper file bound by red tape.

Google, Microsoft and Apple can facilitate real time digital communication between government, business and citizens. But unless connectivity become pervasive; the quality of access improves and the cost of access is resonable, large swathes of our citizens remain excluded.

More importantly, what use is it for a citizen to record and report crime instantly, using a smartphone, if the response time of the police and medical teams runs into hours if not days? Unless government processes are digitized to seamlessly integrate digital inputs and establish electronic audit trails of action taken, vast pools of sloth and inefficiency will continue to confound citizen expectations.

We are not moving up the ladder of digitization of public systems and interface fast enough, thereby keeping transparency, accountability and participation levels very low. Can the PM set May 27, 2015-a year since assuming office- as the deadline after which all submissions to the PMO must be electronic?

Second, young voters are unlikely to be impressed with the hoopla around the skills agenda as it currently exists. Even skilled workers do not have jobs today. Our 3000 engineering institutes churn out 1.5 million graduates every year, many of dubious quality. Around one half waste the skills acquired as no jobs exist. Jobs can only be created over time. During the interim a “holding strategy” is needed.

The skills agenda is a copy of the “holding strategy” in developed countries, where kids without jobs can continue studying at state expense. This is extremely wasteful. Far better, in the Indian context, to incentivize kids early to opt for learning-on-the-job. The traditional system of learning under an “Ustad” (mentor) can be kick started by publicly funding 5 million long term-2 to 3 years- apprenticeships.

Business would welcome the move for two reasons. First, public funding dilutes the cost of training a low-skilled, young employee, who could leave after her apprenticeship. Second, businesses get to train employee in the skill-set per their specific requirement. They are far better placed to impart job related skills than vocational schools, established under traditional, technical training programs, at high cost, but no direct linkage to jobs.

For employee the on-the-job-training is a costless opportunity to network and to add skills with an eye to the future.

Clearly, there are downsides to this proposal. Employment in the formal, private sector is shallow at only 13 million. Apprenticeships in the suggested volumes just cannot be absorbed in the formal sector. In the non-formal sector, unfair capture of benefits by family members of the business owner is a possibility. But competitive grant of apprenticeships can overcome this problem. Also the scheme does not come cheap and could cost 1% of GDP or 5% of the government’s budget.

But just as clearly there are upsides. The political benefits are obvious: 15 million young voters and 50 million satisfied family members, spread across India, all of whom have benefited directly from the scheme by 2019 (next general elections).

More substantively, publicly funded apprenticeships can democratize access to non-formal private sector jobs by encouraging the entry of other than family members. The public subsidy for financing the learning curve can incentivize the hiring of deserving but un-networked and financially insecure, young workers.

The incremental fiscal burden, whilst not insignificant, is easily absorbed by rationalising the wasteful, legacy, central sector schemes spawned by the erstwhile Planning Commission which amount to more than 4% of the GDP. Also funding apprenticeships is one way of increasing our miserably low allocation of public resources for education.

The hardest thing in public resource allocation is to quantify tradeoffs. But helping a young worker get hands-on experience, as a first step towards a real job, is surely pretty high up as a national priority.

When I’m 64

Paul Mccartney

(photo credit: wikipedia)

Paul McCartney -he of the long, brown hair who hung out in the company of the Beatles in the 1960s-wrote this song when he was just 16. Clearly he was not an economist and didn’t need to be hesitant about asking his “love” to project forward by 48 years, her likely feelings for him at the ripe, old age of 64. We don’t know what she told him then, but today it is unlikely to be the right thing to do.

First, not many lose their hair by 64 and the ones that do, get them back with renewed vigour, courtesy a visit to Dubai for a hair boost. Second, it is unwise to ask the modern spouse if she would lock the door if you remain out till 3 AM. The likelihood is that you would be opening the door for her when she comes in at 6! Third, the role distribution between men and women is no longer about the former mending a fuse and the latter knitting a sweater. Nor do women typically look forward to have three grandchildren dangling at their knees. But Mccartney got one thing right when he plaintively asked “will you still feed me when I am 64”.

The way to a man’s heart remains via his stomach and it is not just food that we refer to. In rural areas women have traditionally done most of the drudge of farming, animal husbandry and cottage industry along with fetching firewood, water and often carrying the weekly supplies home from the village market.  But now, even in urban areas, supporting the family by earning an additional income has become a critical role for women. In fact several studies of recent migrants to urban areas find that women adjust far better to the demand for skills in cities than men. The bulk of the labour demand in the urban informal sector is for housework and hospitality related jobs. Nannies in Gurgaon earn Rs. 40,000 a month, the same as recently graduated engineers. Women are better equipped to meet this demand than men, who tend to slide down the labour profile, from being proud farmers to become daily wagers in manual unskilled muscle-power related work or fall into petty crime. A woman with a steady income is consequently not to be sniffed at.

Even amongst the rich, women today play an important role in salving the stomach. Take for example the case of club memberships in the megacities. With a limited number of “legacy” clubs- leftovers from the colonial past- and growing demand, membership of a decent club has become a problem, even if you don’t have Groucho Marx’s hang up of not wanting to be a member of a club which would accept him. Most clubs however do have fast track arrangements for women memberships. A spouse, with a membership in these “legacy” clubs, is consequently a fairly efficient way of ensuring perpetual access to decent food and booze at ridiculously low prices, relative to the extravagantly generous environs.

Our PM Modi is already 64 and so must sympathise with the problems of his age cohorts. We know that this makes little electoral sense for him. After all, less than 5% of our population is above 64. Far better to cater to the 80% who are below 44. But here four things the PM should think about.

First, caring for the elderly is no longer a family effort. Nuclear families and migration make that impossible. Catering to the health needs of the old is a completely different specialization than looking after working adults. India is hopelessly deficient in this skill and public health institutions do not even waste their time on this “marginal” activity. The one thing the PM should remember is that social norms are built around how the elderly are treated. Even elephants will remain with a sick and elderly herd member, providing comfort and company. Should India not have a similar publicly funded HealthLine for the elderly?

Second, better nutrition, awareness and altered social expectations have enhanced longevity. The fond, greying, father marrying off his daughters and setting off for pilgrimage; his worldly duties done, is a Bollywood caricature, observed more in the breach, than in real life. India does not use its elderly purposefully. We tend to look at the “jobs and employment” pie as fixed. An elderly person occupying a job is seen as one job less for the young. This age based discrimination violates the fundamental principle of human rights and the economic principle of merit-based employment. Callow youth can be a disadvantage in many jobs and experience coupled with reasonable health, an economic virtue. A society which seeks to provide productive employment to the “specially enabled” cannot logically discard the elderly from its work force.

Third, the PM and FM Jaitley should regulate our private Medical Insurance Industry better. These companies blatantly cherry pick medical cover for those above 60 and make it available only to those who can either fudge their heath reports or to the few who enjoy “perfect health”, even after 60 and that too at astronomical premia.  There is no insurance cover available for those who have the typical “old age” health concerns of hypertension; diabetes and other assorted pains and aches. The pity is that there is significant demand from those who are more than 64 and can pay handsome premia but who want to insure against all possible “old age health risks and care”. Surely there is a business opportunity there which Insurance Regulatory and Development Authority (IRDA) should nudge the private health insurers to exploit as a desirable private good?

Lastly, FM Jaitley was recently reported as supporting the reduction of interest rates for kick starting the stagnant realty sector. Whilst, setting interest rates should be strictly in the purview of the RBI Governor, could Mr. Jaitley please think about extending tax and interest rate benefits to “retirement homes” of which, yet again, the supply is far less than the demand, across all price segments. Caring for the old and giving them a good send-off when they die, is a nit-picky, long term business investment and does not lend itself to the typical realty practice of theme of doubling your money in two years by hiving off an leveraged assett. Big, established, realty and hospitality companies, with a reputation to protect, can only be attracted into the retirement home segment if the deal is sweetened by government.

Hopefully the FM will include this “public benefit” in the 2015 budget. This writer is waiting to sign up for one such “home” now that I am 62.

police

(photo credit: http://www.thehindu.com)

Liberals and human rights advocates are a queasy bunch with no stomach to face up to the honest truth that effective governance implies a better informed and more intrusive government.

Light handed regulation” is the mantra of neo-liberal economics. But such regulation fails unless the regulator can monitor compliance with the rule of law by acquiring more and better, real time data on individuals and business entities.

Take the simple case of ensuring that shop workers are not exploited by owners and get at least one weekly holiday and enjoy restricted, daily, working hours. The “heavy handed” manner this is done is by shutting entire markets down on a specific day and prescribing shop opening and closing hours. The “light handed regulation” option could give shop keepers the liberty to set their own working hours. But to protect workers’ rights, effectively, it would need to generate a real time centrally networked, database of cash transactions- to validate shop working hours and a bio-metric clock- doing the same for employees working hours.  How does this square with the Liberal preference for “small government”?

Consider the case of self-assessment by tax payers. Regulation cannot get lighter than that. But to be effective, it has to be coupled with predictable and significant sanctions against deviant behavior. This means generating a database, on each tax payer, comprising an effective audit trail of all financial transactions and a tax agent randomly trawling this data, using “red flags”, so that deviance can be detected and brought to trial.

Tracking phone call, social media, emails and physical movement of individuals all becomes part of “Big data” which needs to be captured to provide the information required for credible sanctions systems. This is especially necessary, in democracies like India, where all sanctions are appealable and hence must be backed by “judicial quality evidence”.

“Big data” does have unintended but positive outcomes. The clamour, amongst the elite,  for the status symbol of publicly provided, security guards can be greatly reduced, if “security” comes with a GPS enabled, real time, tracking of location and real time reporting, via a smart phone app, of whom the VIP is meeting as a routine procedure.

No Liberal would object to the installation of CCTV cameras where they live, to protect their lives and property. But this comes with the potential downside of intrusive government. Taking cameras closer to people generates “Big data”. Its value lies in the ability to constantly trawl it to prevent crime (or even natural disasters), by identifying “hot spots” and patterns of criminal behavior and to bring criminals to book. Constraints on individual privacy are inevitable. Also there is bound to be misuse, despite checks to prevent gaming; for example the illegal use of individual information, acquired for security purposes, to black mail individuals. There will always be “insiders”, who could trade off any inherent inefficiency in keeping “big data” secure.

Is Edward Snowden a traitor or an American hero? His country folk were divided on the fine point of the “tipping point” between an “insiders” duty to guard official secrets versus the citizens moral responsibility to fight “Big Government”. There is a stark choice between ensuring security and preserving individual freedom. Too much individual freedom (say the right to religious beliefs which may even bar or restrict social integration, as is available in India and the US) can be as negative as too little individual freedom (China, Russia) in the name of national security.

But the flash points where security collides with individual freedom are more often due to “entrenched privilege” being threatened, than the high ground of morality being squashed.  Indian Liberals, who willingly submit to racial profiling and body searches at US and UK immigration, are outraged if an Indian security personnel, so much as dares to question them about what they are carrying in their bags, whilst boarding domestic flights, trains or buses.

Of course most Liberals in India belong to the elite. For them the State and its officials are only to be suffered, not recognised. There is an implicit sense of “entitlement” amongst the elite, who expect to be “served”, even if they dodge their taxes. Much of this springs from the unfortunate spectacle, of fawning subordinates around a preening public official, in much the same manner, as courtiers may have supplicated before our erstwhile Maharajas.

Liberals mourn that there is too little reliance on “trust” and too much emphasis on “surveillance”. But isn’t it ironic, that in the US: the birth place of Liberal policy practices and “small government”, it is “legally enforceable contracts”, which are the life blood of social and even personal interaction. A society governed by “contracts” by definition, is a society which does trust anyone, including the State, to do the right thing.

It is the same with the theory of incentives. The fundamental basis of neo-liberal policy practice is to embed the correct “incentives” in regulations, which then elicit the desired behavioural outcomes associated with the desired results. The provision of artificially embedded incentives, as neo-Liberal policy practice seeks to provide, inevitably come with intrusive metrics of measurement because what is not measured can neither be sanctioned nor rewarded. Regulatory intrusion, big data and “big” government are the inevitable consequence.

In direct contrast, are systems which rely on “belief”, “religion” or “spirituality”. These seek to bind people to a higher morality and blind them to the needs of individuality. Communism is one such “belief” which relies on the morality of the State and not contracts. Of course, it also comes with high levels of State control and intrusive oversight by a bureaucracy of the faithful, exactly as any other religion.

The Liberal position becomes even more laughable when we consider the available “best practice” on poverty reduction; a key objective for developing economies. “Tightly targeted, cash transfers” to the poor is the latest mantra. But these have to be preceded by identification of the poor; close monitoring of their locations and current incomes. In fact, what this requires is a national database of the entire population of India so that we can segregate the poor from the non- poor; citizens from non-citizens and similarly along any other targeted classification (gender, caste, religion or spatial location). 25% of the Indian population is migratory. This requires “spatial location” enabled assessment of their current economic status since poverty levels vary across states. You can’t get bigger data than all these demographics on 1.25 billion people.

The loss of individual privacy is embedded in the logic of extensive digitization of information. Think of the benefits from being able to identify people uniquely; record their demographics (age, marital status, gender, health and education metrics) securely; store transactions securely and access the stored information instantly. If it is alright for the government to be intrusive versus the poor, why is it so horrible for the “privacy” of the rest to be invaded? The much touted right of the individual “to be forgotten” can exist versus other individuals (though how even that could be enforced is not known) but it must never exist against the State.

“Big data” and a better informed government are here to stay. Liberals should wake up and smell the coffee.

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