governance, political economy, institutional development and economic regulation


Amitav Ghosh’s latest book—The Great Derangement—is an exploration of why contemporary culture, imagination and political systems have failed to prevent global warming, despite its cataclysmic long-term effects and disruptive short-term outcomes.

His choice of the book’s title reflects the conundrum facing poor nations. They are not the ones who benefited from the carbon economy. But to aspire to do this now, when there is no carbon space left, is a one-way ticket to self-annihilation. Hence, the derangement of the modern world, racing towards a future, where consuming itself becomes the only option. Curbing global warming means debunking the fundamental values on which the modern world is built. Central to this artifact is the notion that man is the centre of the universe. Non-human forces, like nature, have no place in this calculus of liberty and modernity.To recognise global warming as a problem, you first have to reject the paradigm that the unconstrained liberty of man is a leitmotif of human progress. Hence the unwillingness and the inability to face or deal with the problem.

Nature’s pawns

This is a cleverly crafted book, as would be expected from a novelist extraordinaire. Divided into three parts, it starts with “Stories”. This segment situates humans as powerless, organic sub-systems of a larger force—restless and dynamic nature. Stories of his family—climate refugees from Bangladesh; of self-doubt after a sudden, destructive tornado in Delhi; of raw beauty and sudden death in the muddy, torpid, densely tangled greenery of the Sundarbans reinforce that we are not masters of the universe.

Inequality and the urge to splurge

The second section on History, draws together three defining strands of the late 17th to the early 20th centuries. First, the availability and use of fossil fuels which were an important precondition for wealth and power. Second—the use of technology to improve productive capacity. Third—the growth of modern empires as the political mechanism for extracting the supply of raw materials; controlling access to technology and keeping overseas markets open for exported manufactured goods. Empires faded in the late 20th century but the extractive process continued. The elite—foreign and domestic—comprise not more than one fourth of the world population, but continue to become wealthy at the expense of the bottom three fourths.


The third section is on Politics. Ghosh argues cynically that so little has been done to mitigate climate change because the rich world will be able to insulate itself from the horrific outcomes. The shock will primarily be borne by the poor. Littoral countries like Bangladesh, Seychelles and Vietnam and poor communities, within countries, will be the worst affected.

A captive media

Ghosh believes the deafening silence in the media around climate change is because it has been bought out by the huge corporates who own fossil fuel assets. The silence in literature is because his peers—writers, poets and intellectuals—are bludgeoned into conformity by the formulaic path to success of shunning the unpredictable and situating a story within the predictable activities of everyday life, with the individual as the central character.

Can religion help where politics has failed?

Not much can be expected from politicians either. They are so immersed in “bio-politics”—catering to the short-term interests of a defined population of voters—that they have little appetite for long-term global risks. For what it is worth, differences in economic ideology across parties have become minimal in India. All the political parties which have ruled India since 1991 have adhered to the broad neo-liberal construct of economic development. So, quite possibly, the devil lies in the incentives created by this economic model to produce and consume in larger volumes. He cites the December 2016 Paris Agreement as subterfuge and doublespeak, promising to do much without, in effect, doing anything.

He compares this shallow and evasive, politically negotiated international agreement with the direct and forceful Encyclical Letter of Pope Francis issued at the same time. The latter fingers the ruling “technocratic paradigm” and the objectification of endless growth as the problem rather than the solution. It calls for tempering individualism with the balm of social and ecological justice. Ghosh notes that similar voices are being heard within the Hindu, Muslim and Buddhist faiths. This leads him to believe that greater community activism led by religious leaders could be the answer to mobilize opinion for definitive steps to abate global warming.


Ghosh’s stand is unusual for a secular rationalist. But this is consistent with an approach which absolves religion of its divisive outcomes. He speculates (page 150) that Mahatma Gandhi was assassinated by a former member of a Hindu party because he was perceived as weakening India by opposing industrialisation and consumerism. No references are quoted to support this “economic” explanation. The more usual view is to attribute the killing to Hindu apprehensions that the Mahatma was too politically accommodating of minority interest.Ghosh also seems to step lightly away from the conundrum that using religion for secular purposes is akin to riding a tiger, particularly in India’s surcharged environment, perpetuated by religious faultlines. Indira Gandhi paid the price for doing just that.

The world is increasingly more not less sustainable



Ghosh’s rhetoric is elegant and elegiac. His reasoning is impeccably logical. But his morbid assessment of where we are today and of our future prospects does not triangulate with reality. The world is becoming less carbon-intensive. Every incremental unit of output requires less energy than the previous one. It is true that explosive economic growth in Asia since 1980 has negated this advantage and the global mean temperature continues to increase. But renewable energy options are being developed for air, road and marine transportation, thereby further diluting the link between the use of fossil energy and economic growth. Similarly, technology developments like LED lighting have vastly improved the efficiency of energy services. Climate risk is increasingly being factored into the cost of insurance and the hurdle rate of return for investors. This will drive smart green investments.

We are winning the war on poverty

International aid agencies, governments—of which China is the exemplar, and communities, all working in tandem, have successfully reduced poverty and are on track to eliminate it by 2030. Yes, inequality is on the rise but at a significantly elevated base income level. The opening up of international trade has diluted the link between political domination and market access. Even small nations like Vietnam or Mauritius have benefited from international markets. International trade has democratised resource endowment by making petroleum, minerals and metals available to resource-poor countries. Three out of the four largest economies today—China, Japan and India—are natural resource-poor. They have grown over the last half century by importing fossil fuel and technology. None of the three tops the charts in military might.


Choice and progress

The spread and deepening of democracy has expanded opportunities for the disadvantaged and smashed earlier glass ceilings, including for women. Adoption of the open economy model has expanded imported competition while deregulation has nurtured domestic competition, for the benefit of consumers. There is more choice today than at any point in history.The world is a more peaceful place than a century ago. That this holds true despite growing sectarian violence in India’s near abroad and an increase in the number of nations armed with nuclear weapons, illustrates the high stakes everyone has in an enduring peace.

Plurality rules

Today, plural models for progress exist. These models are not country or culture specific. They are instead domain specific. Of the top 20 corporates in the world which accumulated the maximum value over the period 2009-2015, not a single company was in oil or gas; as many as eight were in technology or health care. All of them excelled at the capacity to innovate, communicate and compete. It’s a new world out there which defies explanation using traditional paradigms.

None of this means that we are on top of the problem of global warming, yet. But just as surely, there is more light visible, at the end of the tunnel, than has ever been seen before.


Adapted from the authors essay in Swarajya October 7, 2016


India’s “green” moves


Solar powered sun and rain shades in India!

India formally ratified the Paris climate agreement on Sunday, notwithstanding that Donald Trump trashed global warming, last week, as a hoax and efforts to control it as expensive and ineffective.

The United States contributes around 16 per cent of world carbon emissions. Truculence in its approach to manage global warming can scuttle the efforts of the rest of the world. Mr Trump’s cavalier approach to climate change can only be explained by his belief that a slowing US economy should not be the one which pays to set the world’s climate right.This abdication of international leadership appears to resonate with his not inconsiderable supporters.

Clearly, the expectation is that China, which contributes 28 per cent of global emissions, needs to step up to the plate of international burden-sharing. China is now the world’s second largest economy. Despite the slowdown it is growing at three times the rate of the American economy. That is reason enough for higher expectations from it to play the role of a global leader.


Photo credit:

India is also a fast-growing economy. In the long term we may be where China is today. But not for a while yet. We are just one-fifth of the Chinese economy. Our emissions are just six per cent of world emissions. Our global ambitions should be commensurate with our constraints. This is why, unlike China, we have not committed to cap our emissions at a predetermined level.

Paris – the agree to disagree concord

Under the Paris climate agreement countries have agreed to disagree. It is now left to individual nations to exercise “strategic direction” in developing their future energy profile and “tactical restraint” in energy consumption.The decentralised responsibility is welcome but worrisome on two counts. First, countries which are too small to make a difference but which will face the wrath of global warming like island countries now have to depend not on covenant but on the generosity of others to survive. Second poor, technologically deficient countries will now pay more to mitigate global warming since there are no pressing compulsions for the rich to change consumption patterns or develop carbon benign technology for domestic use.

India’s challenge is to remain green


Laurie Baker’s characteristic green building in Kerala

Altogether 37 per cent of India’s energy consumption is non-fossil fuel based. This is fairly similar to the world non-fossil fuel energy consumption of 33 per cent. But the big difference is that bio energy accounts for only two per cent of the world’s green energy consumption, unlike in India, where biomass accounts for 92 per cent of the renewable energy used.Hydro power and new renewables — solar and wind- account for just six per cent and nuclear for two per cent of our green energy profile.


The challenge for India is to ensure that as incomes grow, poor consumers – who use non commercial biomass sources today like dung, firewood and agricultural residue for heating and cooking – should graduate to new renewables like solar and wind, rather than go down the fossil fuel route, as the OECD countries have done. This challenge is principally for the government, not consumers. Consumers typically want energy services — cooling, heating, cooking and transport. They don’t really care about the fuel that provides these services. It is for the government to put in place the incentives which drive energy suppliers to provide renewable energy services.Energy users are underserved in India particularly in dispersed habitations. This presents the opportunity to use renewables to bridge the gap in innovative ways.

To be sure, domestic compulsions like smog do compel us to clean our energy profile. India already has economic incentives in place for this. High energy prices induce energy efficiency in industry. High taxes on petrol and diesel are expected to result in frugal consumption for personal transport. Scarce public funds are allocated to subsidise renewable electricity. Investment in public transport is being stepped up to substitute high energy-intensity personal vehicles. Rail freight has been reduced to stem the shift to the more energy-intensive road transport. Bulk public purchase and supply of low-energy intensive LED bulbs help manage domestic electricity peak load. The path to carbon sustainability is fortunately closely aligned to the the path to make our economy competitive by squeezing out the fat along he supply chain. But gains in the efficiency with which energy services are delivered  can only mitigate, at best, around 20 percent of our additional energy needs.

The compulsions to consume more energy services are stark.India’s per capita energy consumption is just 0.6 tons of oil equivalent (toe) versus global per capita consumption of 1.9 toe. India will likely consume four times the energy it does today to provide welfare enhancing energy services to its citizens. Similar compulsions face most developing countries in South Asia and Africa.Only a technological revolution in clean energy and in energy storage systems can delink the growth led increase in energy consumption from unsustainable levels of carbon emissions.

Target renewable energy services

Setting up clunky publicly owned entities to research and transfer renewable technology to industry is not the way to go. Backing selected private firms willing to invest in renewables in anticipation of an assured domestic market is also tough. We don’t have the democratic space in India, unlike South Korea, to back industrial winners.Transparent subsidies on the “viability gap funding” template will suit the private sector best to innovate, implement and increase the consumption of renewable energy. Shifting the subsidy from energy generation to the provision of energy services can enlarge the pool of potential investors whilst retaining the objectives of efficiency and effectiveness in subsidy provision.


Prime Minister Modi flags off a solar bus service for MPs

Link green subsidies explicitly to revenue – social cost based levies on fossil fuel and a green cess

India’s clean energy strategy is built around the principle of minimising environmental damage whilst maximising economic growth. But the implementation of good principles also needs accurate and timely monitoring mechanisms to ensure that progress is along the desired trajectories. One such mechanism is to monitor the social cost of our fossil energy consumption and to use the data for fiscal allocations. The Arvind Subramanian report on pulses has suggested the inclusion of social cost, with respect to water intensity, while determining the maximum support price of agricultural food products, to ensure that subsidies do not deplete our water reserves. This is a good way of allocating public resources.

Social cost filter for resource allocation

If a social cost filter is adopted for allocating finances, public investment in the railways and in coastal shipping would surely trump investment on road transport. This is also a good mechanism for making users pay differentially for the energy they use. Charging more from those who use electricity at peak time is justifiable beyond the additional financial cost it imposes, to being an affirmation of commitment to going green. Habitats, offices and homes all impose social costs and must be taxed in proportion to the extent of their footprint. This “green tax” should be used to directly subsidise green energy and energy conservation.

A green balance sheet – green tax revenue and expenditure 

The government should consider including a green fiscal resources allocation and tax collection balance sheet along with the annual financial budget. This would provide, at a glance, the revenues collected by taxing fossil fuel and the capital allocated for green energy initiatives. Similar green fiscal resource balance sheets at the state and municipality level could feed into a green national fiscal framework.

India has traditionally punched above its weight in international affairs. Preserving the global commons is a lofty goal; an opportunity to upstage the international economic Goliaths and to improve well-being at home.


Laurence Wilfred “Laurie” Baker 1917-2007 – architect & practioner of the science of living comfortably with nature. Seen here with his wife Elizabeth, in their home in Thiruvananthapuram, Kerala.

Adapted from the authors article in Asian Age October 4, 2016

Plough deep for reform results


Deep ploughing is necessary for reform results. Photo credit:

The government is stacking up its “reform credentials”. The long elusive Goods and Services Tax is now part of the constitutional scheme for taxes. This has been followed up with a double-punch by putting to rest the colonial tradition of a separate railway budget.

Bye bye separate rail budget

Rail budget reform was well received by the opposition, including the Congress and the Biju Janata Dal. In contrast Mr. Nitesh Kumar’s criticism that this will make the railways less autonomous appears to be reflexive dissent with an eye to the potential media coverage. Didi’s Trinamool Congress was similarly truculent. But Mr. Dinesh Trivedi, a previous minister of railways from the TMC, dulled the edge of the attack by not opposing the move.

The net budget support for the railways is just Rs 5,000 crore or one quarter of one percent of the annual budget. But having to get its budget passed, independently by parliament – a colonial tradition when the railways were a major public asset – exposes the railway minister to the inevitable “populist” demands to steer the budget through. This additional burden will now be borne by the finance minister – the redoubtable Mr. Arun Jaitley – whose reform credentials are growing by the day.

There is some concern that the granular information in the railways budget may no longer be available. But the concern is misplaced. The railways are reportedly implementing commercial accounting standards. Mr. Suresh Prabhu – the energetic minister for railways – could consider tabling an advance supplement based on the results for the first three quarters of the fiscal year- April to December, with the Budget documents for next fiscal followed up by yearly outcomes in the annual report tabled in parliament.

But let’s not kid ourselves. Well begun is only half done. Process reform, like the new rail budget mechanism, whilst necessary, is low hanging fruit. To show results process reform has to induce management and operational changes. In the age of “Big Data” access is not the constraint. It is using data to change behavior that matters.

1991 reforms had a narrow, central government focus

Some change in track is also necessary. Since 1991, the economic reforms have primarily focused on the sunrise sectors –  industry, commerce and finance. Tech grew under the governments radar because it remains export oriented. Inevitably urban boats have risen significantly. Two third of jobs are generated in cities, which explains the continuing in-migration from rural areas.

But connectivity and business as key drivers of growth blur the urban rural divide. Business is more concerned about seamless supply chain networks as the critical cartographic feature, not administrative borders. Similarly, markets do not end at the city limits, particularly if mass e-tailing is to grow.

SMART cities and dumb villages; broken supply chains.

We cannot hope that cities will be the sole engine of growth. There were nearly 19,000 villages, with a population of more than 5000 persons each and nearly 4000 villages, each with more than 10,000 persons, in 2001. Merely reclassifying these villages as urban spaces could increase the statistical level of urbanization from 31 to 50 percent of the total population. Estimates of the share of urban population in 2030 would then increase to 70 percent. But even the remaining 30% would constitute 450 million people left behind in villages. A significant market and a sizable vote bank.

The government has been diligent in rolling out new schemes to pull rural dwellers out of poverty. Financial inclusion via the Jan Dhan Yojna; economic and social security via subsidized insurance policies and the focus on public health and publicly financed housing are all positive moves. But most of these initiatives are still at the process reform stage. Tangible results – more disposable money in the hands of the poor – is still some time off. It is unclear, for example how many of the 200 million bank accounts opened under JAM are operational on a substantive manner. Enlarging the direct benefits transfer will make financial inclusion real. But last mile implementation is a slow process.

Unleash a reforms Tsunami to lift “rural boats” as well


Rural India : Seemingly placid but very uncertain.

Glimmers of hope persist. The Arvind Subramanian Report on price support for Pulses is a signal that government is shifting attention from urban centric reform areas, where progress is ongoing, to the neglected but high potential value addition sectors – agriculture, rural development and water. Agriculture needs to be brought out of the shadows where it has been consigned since the Green Revolution in the 1970s.

Visibility in rural and local governance is the first step


Baiga women at a meeting – listening passively to top down wisdom.

If the government is to lead, it first has to increase its presence in rural areas by decentralizing personnel, functions and finance to the sub-district level. Currently, on average, only one third of state government jobs are in local governments. The majority are centralized in the state capital and its deconcentrated offices, like the District Offices of various departments. This inter-se allocation of personnel needs to be reversed and officers reallocated closer to the people. This implies starting a conversation with state governments.

Mr. Piyush Goyal, the effervescent minister for power, coal and renewable energy recently successfully concluded just such a conversation around restructuring DISCOM debt. This model of cooperative federalism can be replicated for personnel reallocation – targeted central funds for measurable actions.

A second conversation also needs to be started for levying Income Tax on agriculture. The tortuous but eventually successful negotiations around GST provide the replicable model for this thorny issue. States may be happy to let the central government impose the tax and share the proceeds- for them a windfall gain with no political downside..


End untargeted agriculture subsidies or tax agricultural income.

Use NITI Aayog strategically

As in everything else, leadership counts. The Prime Minister should consider shifting the attention of his “A” policy team – NITI Ayog – to agriculture, irrigation, rural development and social protection. Currently it seems flooded with all manner of residual work. It could usefully focus on delivering tangible, measurable outcomes from its two key task forces on agriculture and poverty alleviation set up way back in March 2015.

Recommending which PSUs to sell; planning new tourist islands and ensuring 50 gold medals in the next Olympics, can be done elsewhere just as well. Surely creating jobs in rural areas and putting more income in the hands of the poor rank higher in the priority list. There is not enough bandwidth to run all races simultaneously.


Adapted from the authors article in Asian Age, September 28, 2016

Book Review



Connectography: Mapping the Global Network Revolution, Parag Khanna, Weidenfeld and Nicolson, 2016

In the 1980s, Disney World, Florida offered a gripping, virtual journey as viewed by a blood corpuscle as it rushes through the arteries, veins, into and out of organs in the human body. Parag Khanna’s fourth and latest book –Connectography: Mapping the Global Network Revolution – does much the same for the world of physical and digital infrastructure -roads, railway tracks, power lines, communication cables, oceans, rivers, canals and electrons joining suppliers to customers, uniting families physically and virtually, whilst creating ever widening value enhancing networks around mega cities.

In this world, national borders are little more than irritants; national sovereignty a barrier to be overcome; national passports a poor substitute for global identity options and the ownership of land valueless, unless it is part of global supply chains.

Global citizen


Parag is a self-confessed global citizen. He was born in India, grew up in the United Arab Emirates, studied in the US, works in Singapore but feels at home anywhere – chatting with Chinese workers in Tibet, Turkish Gastarbeiters in Germany or breakfasting with the President of Mongolia in Ulan Bator. There are around 300 million others like him. This book describes the way the world could be from the view point of global citizens. A world without borders or intrusive governments; self-regulating businesses kept customer friendly by competition; open markets allowing capital and goods to move freely, perpetually in search of optimizing costs and maximizing value.

Open economy

The virtues of the “open economy, networked” universe are generally accepted today, even if most peoples’ view on markets is similar to their opinion of democracy – not the best option but better than anything else available.

Parag hammers away at re-establishing these generic concepts with relentlessly energy via a high octane delivery, interspersed with a wealth of granular information to buttress his argument. It helps that the book is extensively researched. Its bibliography lists nearly 500 references and almost each page has a quotable quote. An added attraction is the 38 color plates which illustrate what connectography could look like. Maps or traditional cartography which represent geographical or political features, actually tell us very little about the world. These are of little use beyond being partial navigational aids. Consider that Singapore is a mere dot on the world map with just 0.1 percent of the world’s population. But if countries were mapped to scale on the size of their GDP, it would be twice the size of Bangladesh. Does Singapore’s land size or population determine its function in the world today or its economic heft?

Connectivity is key

The book is divided into five parts. Part one dwells on the truism that connectivity and not territory or resource endowments, are the arbiter of how nations grow. In a riposte to the reasons listed by Paul Collier of why nations fail, Parag argues, that countries can overcome the disadvantage of poor geophysical endowments. There is hope even for land locked nations, like Rwanda. Despite being resource poor, it is one of the fastest growing economies, in Africa, because it actively searches out opportunities for becoming part of global supply chains.

The withering Nation State

Part two posits controversially, that the nation state is an artificial construct whose longevity is explained by inertia rather than any irreplaceable value addition ascribable to it. This is especially true in nation states which spend much time and effort to reconcile mutually antagonistic and parochial domestic stakeholder identities. Far better then, to devolve power away to homogenous, smaller sub entities – tribes, communities, companies and cities which, in any case, are the basic framework for solidarity and common interest.

The recent splintered vote in Britain, with London, Scotland and Northern Ireland voting to remain in the European Union whilst the rest of the country voted to exit, seems to illustrate the inherent fragility of nation states in the face of sharp internal divisions based on self-interest. The nation state is similarly powerless against the loss of sovereignty to larger regional aggregations- earlier the United Nations, cold war alignments and now regional trading blocks. Better connectedness and communications fosters this trend towards aggregation, driven by Metcalfe’s law that the value of a network increases proportionately to the square of the number of interconnected users. Scale is everything.

Sub- national entities are stable

Part three asserts that a future world of connected sub-national entities aggregated into large regional entities, is a more stable and competitive arrangement than the present geopolitical architecture. Sovereign nations seem besieged by split mandates and dissidence at home whilst simultaneously assaulted by external threats. Competitive connectivity trumps national sovereignty. There is no incentive for destabilizing any actor because all are connected for mutual gain. In comparison, Orwellian instability is built into the DNA of competing nation states.

Snap shot of a connected future

Part four fleshes out the future as a landscape of connected megacities. Multinational businesses will be replicas of the Dutch 19th century colonial empire – a web of small enclaves – business hubs for a global supply chain. The nodes of growth would be the four thousand Special Export or Economic Zones, which dot the world today and are also the foundation of China’s extraordinary economic growth.

….and everything else

Part five is mixed fare – an overview of current issues in the digital economy; the genetic transformation resulting from human cross breeding inherent in the physical movement of more people across the globe than ever before- provocatively titled “a mongrel civilization”- and how to best deal with the competing needs of conserving nature and welfare enhancing growth.

For resilient readers only

This is not a book for the faint hearted. The style varies from the explanatory; the exhortatory to being chattily conversational. Some parts are too dense for a lazy afternoon’s read. Others, particularly where the author links his own experiences to more generic issues are lucid and revealing. Editing is unfortunately, lackluster. Rwanda is not a country which is natural resource rich as claimed on page 94; the lead paragraph on page 337 under the attractive title “The digital identity buffet” is an incomprehensible, single sentence of seventy-one words! Deng Xiaoping’s reforms kicked in during the 1980’s in China, not the 1970s as page 380 claims.

Read this book if you are interested in knowing more about the intersections between globalization, geopolitics, business, technology, urbanization and culture. If you are looking for deep knowledge in any one of these areas, you are likely to be disappointed. If you are looking for a new theory of development or growth, it isn’t here. What you do have is masses of information brought together anecdotally in a narrative format.

This is a tour de force of contemporary world trends with attractive, self-explanatory titles to each of the seventy-eight sub chapters. Each of these is self-contained so you don’t have to read the book sequentially. And don’t miss the quotable quotes. My favorite is “a smart rabbit keeps three holes to hide in” to explain why large numbers of Chinese citizens invest in the US or Canada as a safe haven option.

If you are looking for advice on very long term business investments, check out the heat map on plate 31. Be warned, India, China, Africa, Southern Europe, the US and South America may all be deserts by 2100 dried out by the ravages of climate change – unlivable but good for generating solar power. Think instead of investing in Canada, Greenland, Northern Europe, Russia and Western Antarctica, where the climate is expected to be salubrious and the resources plentiful for the depleted population which manages to emigrate there.

This book review by the author first appeared in Swarajyamag, August 2016



If Suresh Prabhu has his way this is how Indians would travel routinely on vacation. Today these luxury trains are expensive immersive “period” experiences for foreign tourists. Photo credit:

The 28 million passengers who use the Indian Railways daily fear March as much as ancient Romans feared the Ides of March. This is when the prospect of the impossibly low rail fares being hiked looms, and then usually abates, as political parties compete to “safeguard the people’s interest”. Indian Railways charges passengers, on average, just 29 paise per kilometre of travel, whereas in China passenger fares are four times higher. The Railways lose around `30,000 crores annually from carrying passengers, but makes up some of that by charging freight rates that are almost double the cost incurred. In China, freight rates are around half of ours. Add to this better roads, bigger trucks and fierce competition, and you can see why road transport has weaned rail freight away. The golden goose of freight revenue funding the Railways is dying.

Tariff not related to the cost of the service

Indian Railways increased passenger fares in June 2014 by six per cent soon after the Narendra Modi government took charge. The Opposition outcry was fast and furious. Around 20 million vocal suburban commuters, a critical vote bank, use trains as a lifeline in Mumbai, Kolkata and Delhi. The Delhi Metro (run separately by the Urban Development ministry) hasn’t revised tariffs since 2009. This ranges from Rs 10 to Rs 30 (around a Nickle to 50 pence US) for secure, fast, air conditioned travel with sparkling terminals. And yet commuters who cavil at the cost think nothing of getting into a shared auto rickshaw and paying `20 for a 2-km slow, pollution infused ride home.

Suresh Prabhu, who took over as railway minister in November 2014, is a battle-hardened, savvy veteran at reforming utilities from his days as power minister in the Atal Behari Vajpayee NDA government. Learning from his predecessor, his first Railway Budget in 2015 skirted around the vexed issue of hiking tariffs. His second budget, in 2016, was no different, except that he had developed a track record for delivering on passenger amenities — on cleaner coaches and stations, digital food orders; better on-time arrivals and departures; easier freight booking/handling; and a minister-on-tap app, that has almost become the leitmotif of the Modi government.

Only upward flex in IR’s new tariff 

Even last Saturday, addressing the Indian Merchants Council in Mumbai, Mr. Prabhu gave no hint of the thunderbolt he would unleash on September 7, with the new “flexi-fare scheme” for Rajdhani, Duronto and Shatabadi trains. To call this a “surge pricing” scheme, as most of the media has done, contrasting it with state governments banning flexi fares for radio taxis, is a little misleading. “Surge pricing” transmits both benefits when demand is low and higher costs during peak demand. There is very little “flexi” in the Railways’ scheme. Fares, even if trains are empty, will never fall below existing rates. The railway flexi fares only incentivise travelers to book well in advance, as the base fare increases by 10 per cent after every block of 10 per cent of available seats gets booked. There is a cap of 40 per cent hike for AC-3 possibly because this category, even at existing rates, is the most profitable for the Railways.

But valuable unwritten message: the value of time saved, via fast travel, does not come free

For all other passengers there is a 50 per cent cap on hiked fares, including for those travelling in non-air conditioned sleeper class (2S or SL) on fast premium trains. It is this last category that is interesting. These are truly the aam aadmi (common man) or students, who take a bus or shared auto home on reaching their destination rather than a taxi. By making even them pay what it costs for secure, fast, inter-city travel, Mr Prabhu has set the right tone for the inevitable future increases. After all, if the value of one’s time is low, shouldn’t one be taking a slow train instead at cheaper rates?

So why is Mr Prabhu trying to do a Ronald Reagan rather than playing with a straight bat? Why so much secrecy in tariff hikes, with no explanation of how the new rates relate to the cost of providing the services. Mr Prabhu is a master communicator, but the Railways appear to be still mired in a colonial mode.


The Bibek Debroy Report 2014 is the only the latest in a long line of reports which has urged IR to restructure and modernise. But the Railway Board remains in comfortable colonial mode.

Independent Railway Regulator: Pending since 1989

Independent electricity regulators set up when Mr Prabhu ran the power ministry set tariffs transparently. The costs of offering different services and corresponding tariffs proposed by utilities — mostly publicly owned, like the Railways — can be downloaded from the Internet or a copy obtained from the commission. Then consumers can individually or collectively file comments and/or objections to the proposed tariffs. The process is transparent, access to information is assured and participation is facilitated. This is because Parliament legislated such provisions in specific laws relating to telecom and electricity.

The Railway Act 1989 also provides for a Railway Rates Tribunal to set tariffs in a quasi-judicial manner. This has never been operationalised by previous governments. Mr Prabhu said in his 2015 Budget speech that an “independent mechanism” for comprehensive regulation of the railway sector is needed. This is significant as it acknowledges that a precondition for bringing private capital and enhancing competition is the hiving off of regulatory powers from Indian Railways. The exhaustive Bibek Debroy Committee Report of June 2015 on restructuring the Railways similarly strongly backed such a regulatory system. But the elusive search for the best appears to have come at the expense of the good.

Charged political environment encourages “reform by stealth”

Even in the absence of a regulator, the government could have engaged directly with the public before a tariff increase. But the surcharged political atmosphere, with two major state elections around the corner and the prospect of delay, may have dissuaded it from opening a window for political protests. But someone needed to bell the cat.

In this country’s political shadow play, a proposed rate hike inevitably incorporates a rollback margin. So hope for a rollback in the cap from a 50 per cent increase to a cap of possibly 25 per cent. But be prepared for an era where the railway station is no longer the place to look for a free lunch.


Adapted from the authors article in Asian Age August 9, 2016



Haryana’s folk dances are vigorous and fiesty like its people. Photo

Haryana wears its heart and mind on its sleeve. There is a lot of brawn and bravado but little guile here. Last week, the Haryana Assembly listened in rapt attention to a pravachan (teachings of a holy person) by a Jain monk. Alarm bells rang immediately in the citadels of prickly pseudo-secular vigilantism.

The Indian Constitution clubs Jains, Sikhs and Buddhists under the broader rubric of “Hindus”. So, the choice of a Jain monk, rather than a Hindu priest, to preach to the Assembly was a clever and far-reaching tactic to formalise the mix of religion with politics. Clever, because the minority Jain community is being used as a proxy for Hindu thought. Far reaching because, frankly, it was disturbing, coming from an overwhelmingly Hindu state, ruled by the BJP.

The politico-religious cocktail 

In these fractious times, an overt mix of religion and politics is unusual. The practice has been to keep religion distanced from the formal processes of the State, whilst discreetly extracting political mileage from religious discord. Secular fundamentalists cavil that unless the strictest oversight is exercised, in this God-fearing, Hindu dominant country, religion can creep into politics and governance, to the detriment of marginalised communities. They have a point. In earlier days, prayers on public occasions were explicitly secular. Holy men from all major religions were allotted time for doing their bit. But this tradition has waned during the last two decades. Hindus no longer feel obliged to be subdued, lest they offend minorities. This is a healthy development. Truth needs to be spoken and recognised before reconciliation can happen. Paying lip service to secularism, whilst practising a more partisan strategy, has done little for those away from the mainstream.


1986 – Shah Bano – a Muslim, who had to fight a majority government, pandering to populist Islamic orthodoxy, for getting maintenance from a divorced husband, even after getting relief from a progressive judiciary.  

India: a “benignly Hindu” majority state

The “syncretic” culture of India is predominantly Hindu. We are more comfortable with Barelvi Sufi version of Islam than the more strident Wahhabi Deobandi type. This illustrates that strident, ritualised religion — whether Hinduism, Islam, Christianity or Sikhism, does not align with the benign and neutral constitutional provisions. Citizenship, not religion, is the primary identity of Indians. This is the essence of a modern, secular state.


Haryana: Treading thorny paths

Haryana has initiated a novel experiment of democratising religion by inviting a never-before direct interaction between a religious leader and elected legislators. This has been long overdue. Legislators reflect voter preferences better than intellectuals. But their formal duties thrust them into an artificial bubble, which bars frank recognition of the extent to which religion both deeply divides and elevates India. Nothing wrong in puncturing the bubble. But the Haryana experiment will lack credibility as a “positive new beginning”, unless it promotes similar interaction with religious leaders of all denominations.

Religion can be inherently divisive, particularly in the highly-contested political environment of democracy. This is why Communist regimes stand out from other political parties, in that they steadfastly ignore religion. Harkishan Singh Surjeet, the wily politician and grand old man of the CPI(M), passed on in 2008. He was a Sikh. But at his funeral, there were no religious rituals beyond a spirited Lal Salaam. Contrast this with the traditional rituals which accompany the sendoff for other departed leaders.

The Indian “glue”: beyond religion?

Hum Hindustani poster

The overlay, mostly incipient but often explicit, between religion and politics, has been a fact in the subcontinent since Independence. Pakistan hived itself off into an Islamic state consisting of physically and culturally separated West Pakistan and Bengali-speaking East Pakistan, now Bangladesh. Surely, the fact that Pakistan split subsequently, despite a common religion and that Nepal, despite being a predominantly Hindu state, holds its sovereignty dear, sufficiently illustrates that Hinduism is not the primary glue which binds India. India is predominantly Hindu. But significant political jurisdictions, where 32 per cent of our people live, are not. These states cannot ignore the salience of a plural polity. Nagaland and Mizoram are predominantly Christian; the Kashmir Valley is Muslim; Punjab is 60 per cent Sikh; 20 per cent of West Bengal, 18 per cent of Uttar Pradesh and 17 per cent of Bihar is Muslim; 19 per cent of Kerala is Muslim and 25 per cent is Christian; Goa is 26 per cent Christian.

Sanitize religion for inclusive democracy

Rather than hiding from religion as an identity, dealing with it upfront and sanitising it democratically, could have real value. The pseudo-secularist approach, driven by 1950s beliefs in modernity versus tradition as values, rather than processes, relies on insulating politics from religion as the right way to go. Nothing could be worse, if the ground realities do not reflect this belief.

Far from fading away, across the world, religion as an identity is fighting back. And this is true across all religions. The modern state needs to explicitly factor in the resilience of religion as a treasured personal belief. But just as surely, the State needs to enforce constitutional rights across all religions. In particular, the religious marginalisation of minorities, dalits, women and the lesbian, gay, bisexual and transgender community come to mind. The available constitutional safeguards need to override religious biases against these communities. Upfront, visible confirmation of this intent by the leadership would be transformative.

If Haryana has this resolve then bridging the gulf between politics and religion makes eminent sense. If the moral fiber of politicians can be strengthened by religion, without diluting their constitutional commitment to safeguard the marginalised, the benefits of religious teachings far outweigh the costs. After all pragmatic Haryana filters all actions through the “value for money” lens.

But it is a thin line the legislators walk between legitimising naked majoritarianism — Haryana is 95 per cent Hindu — and spring-cleaning their minds as they run through the full gamut of multi-faith religious discourses in the Assembly. The stout bamboo lath (stick) that the archetypal Haryanvi “tau” (great uncle) is caricatured to carry is as useful to balance on a tight wire as it is to subdue dissent. It all depends on the intent with which it is wielded.


Adapted from the authors article in Asian Asian August 30, 2016

Us versus Them


Prime Minister Modi addresses young IAS officers – the elite civil service of India, February 16, 2015.

“Tribes” exist in India other than the ones provided for in Part X of the constitution. The largest is the “Tribe” of government servants – to be distinguished from the even larger body of public servants.

Sheltering under the benign glow of the Ashoka Pillar lions, this tribe is the worst afflicted by the “Us versus Them” syndrome. The “Them” in this case being private entities, derisively called “box wallahs” during the colonial period. This is odd for an economy where the private sector contributes around two thirds of value added. How can we develop more empathy between the two “tribes”?

Bridge the chasm

First, systematically bridging the chasm between government systems and private sector processes can help. Yes, private business works for profit whilst government works in public interest. But both work in the same economic environment. There is little reason then, for such a wide chasm in systems and processes.


Winds of change: Firebrand Chief Minister, Mamata Banerjee “Didi” of West Bengal has Amit Mitra previously of FICCI (a premier business association) as Finance Minister. Seen here rapping with Kolkata industrialists. Photo credit: The

Better accounting systems

One such chasm is the system of accounts used by the two. Government follows the cash based accounting system. The formal private sector uses accrual based accounting. In a cash system, the focus is on cash-in and cash-out. But the cost of future liabilities and potential receipts foregone tend to be overlooked. Government can afford to do this. It can print money or just raise taxes to bridge the deficit. But like in a Ponzy scheme, fiscal unsustainability catches up and eventually ends the party, although at huge economic cost. Government already disciplines itself with strict constrains on public deficits. We should not relax this constraint.

But it is also important to transparently cost our contingent liabilities and share these with citizens. We do not do this very well. As a result, even government managers lose sight of these because the eventual cost of adopting the business-as-usual approach is hidden. Similarly, the opportunity cost of indifferent asset management is largely ignored within government. Accrual accounting helps generate such future costs.

Factor in the cost of risk

Second, government routinely underestimates the cost of risk incurred from operations. For example, government cars or buildings are never insured against loss or damage. Project estimates never factor in risks like the cost of time overruns or cost creep, despite a long trend line of evidence to the contrary. The cost of failing to meet targets is left open ended.

Consider the case of nuclear power. Our strict liability law requires private suppliers to bear the risk of damage from contamination. But the real risk is borne by a publicly owned General Insurance Company and indirectly by the government. It is the same with public sector banks whose losses from massive bad loans in the past, are now being borne by the government. Government must be more transparent whilst accepting risk. Accrual accounting unearths the data required for factoring in the risk of failure.

Government as a participant

Third, government is unused to be a mere participant in the commercial eco system. This derives from its sovereign mandate to be a rule maker and regulator. It also has sovereign functions. No one would want to replace the Indian army with private military contractors. Citizens prefer better policing to paying for private guards. No one wants unelected non-state entities to make our laws. Similarly preserving natural resources and the provision of public goods are best regulated by the government and not by markets.

But modern governments have added on a host of non-core social and economic functions, including the actual delivery of public services. Some of these can be outsourced  to the private sector – electricity supply or transport services. For others building “Chinese walls” between officials who discharge sovereign functions- like formulating policy, proposing legislation and developing programs – and others who implement programs and projects can internalize private sector concerns into the government.

Government entities like the Indian Railways; defence production units; public research laboratories; drinking water utilities; irrigation departments; public works departments; public institutes of tertiary education and hospitals can be usefully extracted from government, into publicly owned corporations subject to all the regulatory requirements as the private sector.

Stepping out of the “confining glow” of government and becoming a public limited corporation, even if it is 100 percent owned by the government, changes the organizational culture. In colonial days, financial relief to rehabilitate drought hit farmers was handed out by District Collectors. Since the late 1970s we have used public sector banks for this purpose. Today, crop insurance is the financial backstop for failed crops. This will incentivize even private banks to expand rural lending for profit. And farmers will not have the incentives they have today to exchange loan forgiveness for votes.

In the Union government alone, 66% of the 3 million civilian staff can be hived off to corporations. If this mammoth task seems undoable, look back to 2000, when the Department of Telecommunications (DOT) was restructured and 320,000 staff hived off into the Bharat Sanchar Nigam Limited (BSNL) leaving the DOT with just around 3000 staff.

Copy-paste the Telecom story

Telecom grew unshackled once the government stopped worrying only about protecting BSNL.  The empowered regulator -Telecom Regulatory Authority of India- in sync with the government since 1999, developed a fiercely competitive market. Private providers cater to 90% of the market. Subscribers have increased from a paltry 0.3 per 100 in 1999 to 88 per 100 population – pretty close already to China, which has 95 per 100 but at a per capita income five times higher than India. Indian telecom tariffs are a fraction of what they were in 1999 and are the lowest in the world. A telephone connection with a direct dialing facility was the preserve of business and the elite, fifteen years ago. Today a mobile is in the pocket of the common man and has become a can’t-do-without tool for empowering women. Low cost, high quality wireless internet access is expected to double, the 300 million internet users today, by 2019.

This transformation was achieved by deliberate, visionary steps taken to restructure the government and the telecom market for growth and efficiency. Application of these principles, across all sectors, can liberate the economy from the shackles of inherited, institutional constraints; bridge the “us versus them” chasm and squeeze out the fat in government.


Digitally savvy India’s young are its future Photo credit:


Populism, buttressed by dodgy economics, has become the fashion statement in politics. Last year, the Union government approved handsome “real” increases in government salary. There was little justification for doing so since the government salaries were already fully indexed to inflation and the largesse couldn’t have been justified as a reward for higher productivity.

The default justification was that more money in the hands of government employees would kick start a virtuous circle. Higher demand for goods and services would lead to expanded supply, more jobs and just possibly, more income for the rest of us.

AAP disrupts the cozy status quo in Delhi

This week, the Aam Aadmi Party government in Delhi, used similar tactics to grab eyeballs on Independence Day. Evoking the high moral stance of re-distribution of wealth and the economic principle of boosting demand as justification, the government declared massive increase in the minimum wage. In effect, it imposed a “living wage”, for workers in Delhi.

The impossible dream of “mandating” the end of poverty

Child searches for valuables in a garbage dump in New Delhi

The concept of a “living wage” — pegged significantly higher than the minimum wage — with an eye to decrease poverty has been used in over 100 urban jurisdictions in the United States since the late 1990s. It has also been used to set the national poverty level in India. But it is pegged at very low levels.

In Delhi, chief minister Arvind Kejriwal has proposed that the minimum wages of unskilled labour will be increased from Rs 9,500 to Rs 14,000, semi-skilled Rs 10,600 to Rs 15,500 and for skilled Rs 11,600 to Rs 17,000.

The hike seems unreasonable given that the minimum wage in Delhi is already 35 per cent higher than in neighbouring Uttar Pradesh and 72 per cent higher than in adjoining Haryana.

Delhi is rich but…

It is true that Delhi is relatively rich. Its per capita income of around Rs 18,300 per month is the highest among the states of India and the top 10 metros. Consequently, there is a case for setting the “living wage” in Delhi reasonably higher than in the neighbouring states, purely on the grounds of equity.

The real issue is whether a 47 per cent increase is warranted and how comprehensively should the “living wage” be applied? If it is applied just to the establishments governed by the Factories Act, then it is little more than populism. There are only around 8,000 such factories in land-hungry Delhi and employment in them is static.

If the intention is to enlarge the coverage of the “living/minimum wage” to all registered shops and establishments, which employ around 20 per cent (one million) of Delhi’s five million workers, then the economic consequences can be more substantial.

Mandated wages hurt business and make it shift out 

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Photo credit:

The negative impact will be felt in price-sensitive, low value-addition segments like clothing, food and household goods, where higher wages will hurt business profits. More importantly, will a similar “living wage” follow for the one million workers in the informal sector — household help in rich and middle class homes and in unlicensed small establishments? If so Delhi’s privileged elite and wannabes may have to look for a lifestyle change – let the ayah go and manage their own babies; cook for themselves or use an app to order in; make their own beds; wash and iron their own laundry and learn to use a vacuum cleaner. And what of the ubiquitous car drivers and guards who lounge around the front gate of Delhi homes? Will the well-off opt for Ola and Uber instead?

Poor enforcement can make mandated wage a sham

Mandated high minimum wages, far above the market rate, encounter three problems. First, enforcing payment of the mandated wages depends crucially on clean, clever and consistent regulation. In its absence, it encourages the petty but crippling, corruption of “inspector raj”. Enlarging the scope of inspector raj in Delhi, even as it is being diluted in Rajasthan and Telangana sends the wrong message to investment for increasing jobs and private sector growth in Delhi.

High wages result in loss of unskilled jobs

Second, studies from the US show that the benefits are not uniform across the entire spectrum of workers. On average, unskilled workers lose the most from a high minimum wage because employment declines even as a smaller number of workers, who remain employed, benefit from high wages. Mandated wages rarely benefit skilled workers. Governments tend to be conservative in fixing the differential for skills. Delhi provides only a premium of 21 per cent, or `80 per day between unskilled and skilled work. The market premium is already between 75 to 100 per cent. A mason gets twice the amount as his unskilled worker — often a woman, who does the manual work.

In-migration increases fiscal pressure to provide public services

migrants 2

High, mandated wages attract in-migrants to cities. photo credit:

Third, pegging a price for labour far above the market rate increases the fiscal burden. This happens directly when government salaries are needlessly enhanced. But it also hits the government budget indirectly, when applied to the private sector. Higher the mandated wage for unskilled work the more attractive it becomes for migrants. With open borders, no control on migration and the Delhi government committed, rightly so, to provide a basic quality of life for all — free water, free medical care, free education, cheap electricity, improved toilets and paved roads — the resulting fiscal impact can be crippling.

Immigrants reduce the market price of unskilled labour

One way of ensuring that market wage rates remain aligned with mandated wages and are not beggared by competition from in-migration, is to licence city workers, as in China. But it is difficult to do this effectively in a governance environment of pervasive corruption. Licensing is a one way street to inefficiency and corruption. If government land cannot be protected from encroachment by the mafia, there is little hope of implementing an equitable worker licensing regime. Railway stations are a good example. Try getting a licensed coolie to carry your bags at the stipulated rates and you are more likely to miss your train.

Test the viability first in government contracts

The high salary of unskilled government workers already provides a wage floor. But the incremental numbers employed are limited. The trend, since 1990s when the government adopted the practices of “new pubic management”, has been to outsource non-core services i.e. cleaning, canteen, security and office support. Worker productivity clearly increases under private management. But there is insufficient evidence that the wages paid to them reflect this higher productivity. The apprehension is that the workers will suffer from price competition to get government contracts.

This is a perverse and unintended outcome. Tightly regulating the private contracts that are funded by the government can ensure that the mandated wages are passed through to workers. And contractors do not corner the wage increase. This is how the financial viability of the enhanced wage rates should be tested before imposing them.

But there is little point in cultivating a small, handsomely paid labour “aristocracy”, as the CPI(M) did, whilst throttling investment and employment.


Adapted from the author’s article in Asian Age August 19, 2016

border crossing

Border controls across India’s 30 states fragment it economically. The Arvind Subramanian Committee Report, 2015 on Goods and Services Tax-GST, cites economic fragmentation as responsible for 15% in welfare loss. Hopefully, with the GST legislation on its way, the sight of trucks waiting patiently to pay tax will disappear.  Photo credit:

Expectations are unrealistically high from the long delayed move to amend the Constitution and levy a common Goods and Service Tax (GST- a value added tax) across the Union and all state governments. Truly, this tax can bind India far better than Bollywood or the All India Services have done thus far.

Like the proverbial blind men describing an elephant, each segment of stakeholders see only how the GST could benefit them. Consumers eagerly await lowered retail prices once the pancaked tax embedded in the value chain can be set off.

Suppliers hope that lower tax incidence will enhance their competitiveness versus imports. Studies suggest welfare gains of five percent by reduction within state transaction cost and as much as 15% for supply across state borders.

Tax payers are ecstatic at simplification — the clubbing of more than a dozen individual taxes into a single tax.

The government looks forward to additional tax revenue from better tax compliance on a tax base made larger by higher economic growth.

Governance evangelists are pleased at the potential of reducing corruption, inherent in diluting the incentive to evade tax. This will build on the existing mission to make tax regimes transparent and accountable. Indirect tax revenue grew 29% in the first quarter of this fiscal year, despite merchandise imports contracting by 14% — a tribute to efficient tax collection.

Unemployed students and their parents look forward to a revival of industry and more “good” jobs thanks to efficiency led higher economic growth.

Road freight transporters await the benefits of reduced transaction time and cost. Today 25% of a trucker’s time goes in just waiting at border Octroi posts.

But reality will bite

However, several of these expectations are unlikely to be met over the next three years. There is a trade-off between enhancing tax revenue for the government and reducing prices for consumers or costs for suppliers.

There is also a trade-off between making the GST comprehensive, thereby plugging tax evasion opportunities and shielding small tax payers from the cost of compliance to become a part of the digital audit chain. Eighty five percent of the 9.4 million taxable entities are small, with an annual turnover less than one crore Rupees.

Ensuring that no state government is harmed, also called revenue neutrality, poses the risk of pegging the tax rates so high that they constrain demand and pass no benefit to consumers. Alternatively, the government has to breach the fiscal deficit targets to finance the compensation, but risks stoking inflation.

The Arvind Subramanian Committee Report of 2015 discusses all the trade-offs, pitfalls and optimal options. It is a must read for those interested in an informed appreciation of the issues involved.

Federalism — the real winner

The real winner has been the principle of federalism which has been visibly and practically implemented in public interest. The continuous work on the GST spanning a decade and the directional consensus across three separate Union governments and similar changes within the state governments is heart-warming for all those who would like India’s commitment to federalism, to be more than skin deep.

Similarly, political parties evolved a consensus in Parliament (even the AIDMK’s opposition was muted to walking out, but not voting against the motion) to pass the one hundredth constitutional amendment illustrates that plural and inclusive democracy is vibrant in India.

Naysayers opine that political parties may agree to a generic, enabling provision such as this one, but they will be pricklier when it comes to putting flesh on the bare bones. They may be right. But all negotiations have to begin by defining the envelope within which there will be give and take. This is exactly what happened in Parliament on August 4 last week. Now after a simple majority of the State Assemblies give their assent to the Act, it will be ready to be presented to the President of India to become the law.

Thorny issues remain

However, thorny issues still abound — defining the tax base and thereby the exemptions to be allowed; specifying whether the exemptions are indefinite or have a sunset clause; setting the tax rates for the Union and the States; identifying the existing Union and state government taxes which will be rolled into the new GST; writing up the new model law; specifying the principles for tax assessment and to identify the place of supply at which the new tax becomes payable.

All these are to be worked on by a newly constituted GST Council consisting of all the State Finance Ministers and chaired by the Union Finance Minister. This institutional innovation embeds the concept of federalism even deeper.

The process of rolling out the GST will require a great deal of analytical legwork of the type done by the Subramanian Committee; intensive monitoring of the IT backup for extending digital invoicing and tax payment and coordination of activities across the state governments.

Attempting all this from within the Revenue Department of the Union Government would be an unbearable burden. It would distract from the just-as-vital task of actually bringing the bacon home — enhancing tax collections to 13% of the GDP from 11% today. It does not help that the Revenue Department gets swamped over for at least nine months by the annual budget process.

GST Secretariat

A stand-alone GST Secretariat with a defined budget and human resources can hasten the pace. The Council and its Secretariat could be attached to the Department of Revenue of the Union Government for administrative and budgetary purposes. But, it must have a level of autonomy if its deliberations are to be credible.

The experience with exclusively Union Government staffed secretariats, servicing federated institutions, is not encouraging. The Planning Commission failed to be a credible secretariat for the National Development Council. Its successor — the NITI Ayog — is a Union Government think tank. The Home Ministry based Inter States Council suffers similarly from a Union government bias.

The GST Secretariat should be a mirror of the federated GST Council itself — staffed by officers drawn directly from the state governments and the Union Government. In deference to the pre-eminence of the Union Government, it should be helmed by a Secretary General proposed by the Chair. But in the spirit of true federalism, all senior appointments should be ratified by the Council members.

The Secretariat should be lean and skills based, not exceeding 100. The officers nominated by the States should be paid by the state governments. They would represent state government interests even as they work for the Council. Having both, ministers and senior officers from state governments, represented in the Council and its Secretariat respectively, is federalism at its best. The ensuing bottom upwards consensus will facilitate time bound decision making. This may be a baby step for federalism, but it is a huge leap for indivisible India.


Last week’s “revolt” by senior income tax officers, meeting in Mumbai, against alleged micro management by the Union Revenue Secretary is unlikely to bother the average citizen. If anything, citizens would welcome glitches in tax collection behind which they can hide.

Mind the growing gap

But the revolt deserves attention because it illustrates a growing gap between officers and the political leadership. A similar gap resulted, earlier in 2015, in the extended and emotive agitation by army pensioners, for implementing the principle of One Rank One Pension (OROP). They and serving officers believed that it was a just demand being scuttled by the civil bureaucracy which acts as a gate keeper between the army and the political leadership. The revolt of the tax collectors is the second time that short circuited wires, between the political leadership and field level officers, are being exposed.

Bad strategy but genuine angst

The instrument chosen, by the tax officers, to voice their concerns via a resolution is questionable in terms of its efficacy as is the selection of the flash point for making their case. Unlike the army, income tax officers are no ones’ favourite person. The income tax department is, unfortunately, generally perceived as being self-serving and uncaring of citizen rights. Consequently, an upsurge of public sentiment in their support, as was the case for OROP, is unlikely. More likely, citizens would advocate even harsher disciplinary measures to pull up the department. Collecting tax is a thankless job.

The choice of flash point is similarly questionable — the transfer of a tax officer who allegedly adopted unfair means to boost his end-of-year performance. He issued a huge tax demand on a public sector bank just prior to the annual deadline and then allowed a refund of most of the tax amount immediately thereafter — a cynical “win-win” strategy for both the officer and the bank.

No one could possibly defend the officer’s use of “temporary tax terrorism” tactics. But the summary manner in which he was “punished” by being transferred (not officially a punishment), on the intervention of the Revenue Secretary, seems to have rankled. It does not help matters that the Revenue Secretary is traditionally from the Indian Administrative Service (IAS) but exercises oversight over the functioning of the Central Board of Direct Taxes (CBDT) under which around 8000 Indian Revenue Service (IRS) officers work. Incidentally there are seven senior officers of the IRS in the CBDT — the apex body for exercising operational control over direct tax administration. But none of them can ever break through the glass ceiling prescribed for them of the rank of a Special Secretary. This is lower than that of the Revenue Secretary, though they get the same pay.

Only empowered agencies perform

In India, we have not developed a culture of equality between field agencies and the secretariat. It is only in the armed forces that the correct equation between the secretariat and the field agency is maintained. This is visible during the republic day celebrations. In the line up to greet the President, the Vice President and the Prime Minister, the Defence Secretary stands lower down than the three service chiefs of the army, the air force and the navy. This is how it should be for all field level entities of the government. The officer in the secretariat must never be the person perceived to be in charge of the field level operations. Maintaining the principle of unity of command and responsibility is a pre-condition for efficient functioning within an agency.

Towards a more nerdy Secretariat  


The job of the secretariat is to assist the Minister in parliamentary work. It is perverse to adorn secretariat positions with high level administrative powers. The nuts and bolts of administration must be outsourced to the concerned agencies created specifically for the purpose. The role of the secretariat must shrink. The example of Minister for Railways, Suresh Prabhu, is worth emulating. One of the first things he did, on assuming charge, was to delegate away most of the operational powers, centralized in his office, to the Regional General Managers. A secretariat officer enhances value, not by banging people on their heads, but by skillfully using an insider’s appreciation of the operating environment and superior analytic skills to facilitate the functioning of field agencies. Making officers in field agencies perform better is squarely the job of the head of the concerned agency.

In a more evolved work environment, the secretariat is where policy and legislation is formulated. The field agency is where programmes are fleshed out and operations monitored for results. The relationship between the two must not be hierarchical as it inevitably is today. Policy formulation and programme implementation are two entirely different albeit symbiotic specialisations. There must be give and take between the two. One way of ensuring this is to make the heads of both the secretariat and the field agency of equal rank. Indeed, this is one way a Minister — who often might not be well acquainted with her charge — gets a rounded perspective of the issue at hand.

The bottom line is that, whilst the Mumbai IRS officers have chosen their battle badly, their cause, as indeed the cause of all other specialised government agencies and cadres, needs deeper consideration.

We should be moving over to a new governance architecture which values specialisation and extends equal opportunities to all cadres, particularly those which already exist in the Union government. IAS officers, unlike officers from the IRS, are on deputation from the state government cadres to the Union government. The IRS is a home grown, central government cadre. The logic for not letting the IRS manage its own house is questionable. Inserting an IAS officer between the political leadership and the IRS seems an archaic and inefficient way of managing the vital tax function.

The manner in which a majority of the senior positions in the Union government are “reserved” for the IAS is archaic because it does not recognise the heightened role for specialisation in modern administration. Law, Tax, Public Finance, Infrastructure, Human Development, Industry and Trade, Natural Resource Management, Defence, Security and Intelligence are all stand-alone disciplines in which practitioners spend their entire working lives. It is inconceivable that value can be added in policy formulation; program conceptualisation or project implementation, without the relevant experience and skill.

Lift the glass ceiling for specialized central services

Inflection points are always graphically depicted by glass ceilings getting smashed. Institutional wisdom lies in removing glass ceilings as soon as they develop cracks and well before they are smashed by the force of change.



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