governance, political economy, institutional development and economic regulation

Sarkari pay: Too much love

A picture is worth a thousand words. Even the Oxford dictionary has conceded as much by admitting the emoji “tears of joy” as the first ever “pic-ord” which sums up the prevailing worldwide emotion of relief at even small mercies.


This emoji must have resonated with the 10 million employees and pensioners of the Union government as they read the generally beneficent recommendations of the Seventh Pay Commission presented to Union finance minister Arun Jaitley this week.


Coming as it does against the disturbing backdrop of faujis (Army veterans) having to resort to public agitations to get their due, the commission’s key objective seems to have been to soothe jangled sarkari nerves by adopting equity as the leitmotif of its recommendations.


Even recommending erosion of the pay “edge” enjoyed by the Indian Administrative Service (IAS) by making it available to all other Group A services, fits in well with this axiom. It mollifies the other cadres whilst giving ample opportunity to the IAS to retain its predominance by other means. After all they are the ones who write the rules today.

 Equity – yes! but for whom?

But equity is an expansive concept spanning generations. How equitable, for example, are the recommendations versus citizens? Citizens have never been considered “stakeholders” by any of the commissions till now.


Prime Minister Narendra Modi, however, has different ideas. He wants IAS officers to go beyond the files and the political intermediaries who crowd around key government employees and to consult directly with people to know the truth. Incidentally, this was why district collectors in earlier times went on extensive tours and camped in villages. One wishes that the Commission had also followed this practice of consulting the intended beneficiaries of public services, instead of limiting consultations to only government employees.

Fiscal impact to crowd out public investment, as usual 

The Commission assesses the direct fiscal impact of its recommendations at `1 lakh crore ($15.5 billion) per year on pay, allowances and pension for 10 million employees and pensioners. The unassessed indirect impact will be at least thrice this amount, since the ripple effect raises all public sector employees’ wages in state and local governments and those in the state-owned enterprises who number 12 million, excluding pensioners.


The question that 220 million households — comprising the rest of India who do not partake of this public bounty — are likely to ask is why should each of them pay an additional `4,500 every year to finance this splurge?

Income Tax

Government pay is already indexed 100 per cent to inflation and pension is similarly indexed substantially. Any increase in the “real” pay — after accounting for inflation — needs to be justified against additional or better work performed. There is no evidence of any such link compelling the proposed enhancements.


Most importantly, the additional burden is ill-timed. It is mere statistical jugglery to justify the fiscal burden (0.65 per cent of GDP) by pleading that it is less than the burden (0.77 per cent of GDP) imposed by the preceding Sixth Pay Commission a decade ago. Another argument is that the prospects for economic growth are bright, making the additional burden manageable. This is iffy reasoning.


The fiscal challenges faced by the government today are far more daunting than in 2009, when there were expectations of a quick rebound in world economic growth. Consider that the aggregate, cumulative loss of state electricity boards alone is around `3 lakh crores ($45.5 billion) which needs to be dealt with to improve electricity supply. Union minister of state for power, coal, new and renewable energy Piyush Goyal has taken a hard stand against the Union government bearing the burden without basic reform within these entities. This is the right way to go. If subsidies for the poor need to be narrowly targeted, so must “real” public sector salary enhancements, and that too only to reward the few performers in the vast government machinery and not spread equitably like largesse to all.

Link public pay enhancement to higher than targeted GDP growth 

Given this background prudence dictates that even if the recommendations are accepted in-principle, actual accrual and pay out of these amounts should be graduated. An option to link pay enhancements with performance is to link their payout to GDP growth which is a specific, measurable, assignable, realistic, time-related specific, measurable, assignable, realistic, time-related (SMART) metric for aggregate government performance.


One obvious option is to use the existing proportion of emoluments to GDP of 2.77 per cent. This can be thought of as the “share” of Union government employees in GDP. A similar share can be justified for distribution of the recommended pay enhancements out of the actual additional value created above the GDP growth target.


Using this principle, for every 0.5 per cent of growth above the target (say 7.5 per cent instead of 7 per cent), the amount available in that year would be around `30,000 crore. This is less than one third of the assessed fiscal impact of the Commission’s recommendations. Once sufficient “additional” growth has been achieved — say over the next three years — the recommendations can kick in. Alternatively the implementation can be staggered annually. This forces government to perform before increasing the “real” pay of its employees. From the citizens’ point of view this is akin to hiring an auto rickshaw. You only pay after the driver has brought you to your destination — not in advance.

ice cream

No ice cream without results

There is more evidence of excessive generosity. An assured annual increment of 3 per cent seems too generous for an inflation-indexed salary even though it is calculated only on the basic pay. Unearned annual increments should not be more than 1 per cent at best.

Fauji “pension edge” levelled yet again

The concern with equity has driven the commission to extend the principle of One Rank One Pension — granted by the government to the armed forces just prior to the submission of the Commission’s report — to civilians also. This is akin to compounding an earlier mistake. Levelling the armed forces’ and civilian pensions means taking away the “pension edge” which was so tenaciously fought for and won by the armed forces. The downside is that it may spark off a second round of fauji gussa (anger).


The Commission has done stellar work in sharing employee demographics for the first time. It has also laboriously listed an incredible 196 different allowances and worked meticulously to simplify and rationalise them by recommending termination of 52 and clubbing 36 others into other allowances. That still leaves 108 allowances to be dealt with later. The government would do well to heed the advice that fuller and more transparent budgeting of allowances is necessary.


But pay commissions, despite their expansive mandates, are not really expected to create a new architecture for public service. Their job is to shut the maximum number of mouths with the least amount of cash. The Justice Mathur Commission could have done worse. Thank God for small mercies!

7th PC

Adapted from the authors article in the Asian Age November 22, 2015


Bihars death wish

Adapted from the authors article in Asian Age November 9, 2015

nitish lalu


Nitish Kumar has decisively won the Bihar election battle, defying the national trend. Why he succeeded against the might of the Bharatiya Janata Party and Prime Minister Narendra Modi needs deeper technical analysis of the voting trends. But three lessons emerge.

Canny Bihari voters

First, Bihar, like Uttar Pradesh, is a cosmopolitan constituency. This sounds odd since these are poor “cow belt” states. The people of Bihar have traditionally been outward bound via migration. But unlike Punjabis, who are ready to mingle and put down roots in their new karam bhoomi (place of work), they remain rooted in their origins. Those who migrated from Bihar to Fiji and Mauritius in the later part of the 19th century retain close contacts with folks back home. Technology has made this easier.



Intensely aware, the people of Bihar were unlikely to be carried away by bombast from external BJP campaigners with nary a local leader in command. Bihar cannot be ruled from Gujarat, just as Gujarat cannot be ruled from Delhi. Note that Delhi-based BJP leaders, in sharp contrast to the average Bihari, behave like the absentee zamindars of yore. They are unashamed to publicly admit that the “Delhi durbar” is a one-way ticket. Once they get a foot in there, the presumption is they have risen “above” state-level politics. But neither Bihar nor Uttar Pradesh can be won by expatriate leaders.

Development wins votes

Second, unequivocally, inclusive development wins votes. Whilst Lalu Prasad Yadav’s Rashtriya Janata Dal has proved itself to be an equal partner in the combine, the victory clearly belongs to Mr Kumar. Yet again, as in Delhi, a broad acceptability across all identity groups — caste, religion, demographic and economic — has triumphed. This is a huge endorsement of the virtues of an inclusive election agenda rather than a divisive one (like that of the BJP’s).



“Presidential” style local candidates win 

Third, “presidential style” politics is here to stay. The election was fought and won around specific personalities whom voters knew and could identify with. Indeed, this was problematic for Mr Modi since the question was “Who is the BJP’s chief ministerial candidate?”

The BJP made the same mistake it did in Delhi, where it fielded its chief ministerial candidate in the waning hours of the campaign. By that time it was clear they were down and out. In both cases, the BJP has copied a favourite ploy of the Congress high command, which is to keep its cards close to its chest and “nominate” a puppet chief minister after the election rather than allow the candidate to directly demonstrate his/her electoral strength. This cost the BJP heavily in an election where, in sharp comparison, there was a ready, tested, well-known local leader in Mr Kumar.

Finally, has Bihar chosen well? Are they courting disaster by playing with “jungle raj”? Much will depend on how Mr Modi reacts to this defeat. If he is narrow-minded, seeks to punish Bihar for its decision and plays politics to undermine the Nitish government, Bihar is likely to be in for more of the same stilted development and under-achievement. However, Mr Modi can decide to be a statesman and view the Bihar verdict as a message that he is devaluing his reserves and his image by playing locally whilst the nation wants him to play nationally. Even from the narrow perspective of the BJP and its prospects, the last thing they want is to be seen as obstructionist or petty.

Nitish Kumar & BJP- juduva (conjoined) brothers in development

Mr Kumar is already playing with one hand tied behind his back, by the RJD. Till very recently Mr Kumar and the BJP developed Bihar in collaboration. They are, in fact, conjoined brothers in development. Mr Modi must rise above his personal feelings and go all out to support Mr Kumar to run a stable government and check Mr Yadav’s excesses. The enemy is Mr Yadav, not Mr Kumar.

RSS- out of step with the New India

The RSS must shed its growing image of a hardball-playing, narrow Hindu-vote-focused, quasi-political entity. Time was when the RSS was known for its social service and commitment to truth, honesty and self-sacrifice. Copying jihadi outfits that profess the same objectives but do not blink whist violently dividing India does not befit the RSS. Oddly enough, a failed state like Pakistan looms large in the minds of the RSS as a competitor to the glorious, continent sized country they call their own.

The Bihar election is a red flag for the BJP. For the sake of its own and national interest, a rational rather than an emotional approach is necessary. The people of Bihar have shown courage in braving the possibility of instability and “jungle raj” whilst opting for local leadership. This is an illustration of functional federalism. It would be unworthy of a national party like the BJP to seek to subvert this trend.

modi nitish

photo: the

One of the “virtues” of under-development and poverty is that the stakes are low for courting political risks. Bihar has defied death earlier too, in colonial times. It has done so again. Mr Modi must work to increase the shadow price for political risk in Bihar with an eye on 2024. Wealthy voters are notoriously cautious and vote for stability. Ensuring a national presence for the BJP through 2024 means growing Bihar and Uttar Pradesh in the interim. Winning the war is more important than losing a battle. A good symbol of this new, high-minded approach to federalism would be if Mr Modi were to be present at the swearing-in of the new government. Actions speak louder than words. Let’s thwart Bihar’s death wish.

Why no one loves Modi

In sarkari circles, an officer whom no one loves is an outlier — either cruelly termed “sanki” in colloquial Hindi (willful, unreliable) or brutally even-handed since she evenly annoys everyone.

But what does one say about a politician in this predicament? Frankly, whilst it is easy for a politician to be so faceless that s/he is quickly forgotten — think H.D. Deve Gowda, it is really quite difficult for a politician to incur the wrath of everyone. Prime Minister Narendra Modi has managed this miracle.

He has completely browned off 17 per cent of Indians, who are Muslims, by his inability to control the baying packs of Hindu fundamentalists. Ironically, the overwhelming majority of Hindu fundamentalists also suspect him of trying to soften and undermine, by attrition, their over-the-top version of Hindutva. Moderate Hindus are upset because they see the beginnings of unnecessary sectarian conflicts.

Big businesses and their eco sphere — lawyers, consultants, bankers and power-brokers — are unsettled because they are no longer implicitly part of the government machinery. The “Delhi watering holes” are empty. This is unnerving for business which hates changes in the rules of the game. It does not help that we have never had a consistent and predictable environment of governance. This is most visible in the tax regime. If “show me the man and I will show you the rule” principle operates, then those who have their foot in through the government’s door will stand to benefit.

Mr Modi has put off government servants by forcing them to be more effective in their jobs. The armed forces are smarting since they no longer feel cossetted despite the generous settlement of the “One Rank, One Pension” issue. The judiciary suspects him of trying to capture them. Parliamentarians feel neglected by the absence of direct engagement with him. For Mr Modi, inter-party relationships in Parliament are only a distraction, not an opportunity. The poor — 60 per cent of India with an income less than $2 per day— have yet to see and feel the difference that the new government has made.

The faithful


photo: the

Mr Modi and the BJP’s traditional political base of middle class traders, small businessmen and upper-caste Hindus are the faithful who are part of the Rashtriya Swayamsevak Sangh/BJP family. These supporters remain wedded to Mr Modi. But even here, the support is primarily in the “cow belt” and western India. The other community which is deliriously supportive of the Prime Minister is that of expatriate Indians — around 20 million — but they matter only in the politics of their own homes, not in India.

Can the Prime Minister do better and, if so, how?

Play cricket not golf

First, Mr Modi must shed the self-acquired role of the sole, vote gatherer. He needed this image to overcome inner-party contestation and become the Prime Minister. Today, this image is a handicap. Ironically, he could usefully emulate the laidback, apolitical Congress vice-president Rahul Gandhi, who comes across as trying to do something significant — though no one quite knows what — rather than just win political battles. Mr Modi has enough going for him to let his administrative ability and his vision of a “New India” be the metric of his term in office. Others must now step in and become vote gatherers.

Even majority governments need to build consensus

Second, it is conventional wisdom that an India ruled by a brute political parliamentary majority is an outcome of a recent breakdown in true democracy, rather than an illustration of its success. There are two reasons: Coalition governments are inevitable at the Centre due to the firm hold that regional parties have over politics in the states. This trend is likely to strengthen.

In our first-past-the post system of election, members of Parliament get elected simply by getting more votes than the next candidate, never mind that these may not be even a simple majority of the total votes cast. This makes it politically sensible to develop narrow vote banks and to encourage splintering of other votes — a useful tactic, but with highly fractious outcome. The dalit vote bank of Mayawati (Behenji) or the Yadav vote bank of Mulayam Singh and Akhilesh Yadav in Uttar Pradesh are ready examples. Whilst any “ruling party” perforce has a numerical majority, it also needs to gather an “ideological majority” in Parliament — the sense of the House — to rule successfully. Coalition building will be key in the years ahead.

You have time, sir

Third, much like Anne Hathaway in the role of a young CEO of a start-up in the movie “The Intern”, now playing in the capital, Mr Modi has to slow down if he is not to burn out. He cannot be everything, everywhere. Nor should he try and do everything at once.

His energy and enthusiasm is infectious and sorely needed after the “Gulliverian” sloth of the previous United Progressive Alliance government. But it is a pity that Mr Modi is not a family man. Someone needs to prescribe “play time”, get him to chill in the hills he loves, get back in touch with his gut instincts, define narrowly what he wants to achieve by 2024 and work backwards from there.



This cannot be done whilst he remains the de facto chief of the BJP and the de jure chief of the government. Copying the Chinese, or the Congress way of doing things, is not a route to sustainable political heft in “New India”.

Lastly, the Prime Minister needs to agree with big business that competition from foreign and domestic rivals is inevitable and desirable. Trying to pick champions, South Korea style, is incompatible with our fractious democracy. Infrastructure and defence are two areas where foreign investment is conspicuously lacking. And it shows.

Neglected next steps

There are three imperatives Mr Modi must push through:

Sell the public sector. Privatise selectively where there is the least likelihood of noise, as in power, oil and gas. Use efficient instruments like the public-private partnership, as in the privatisation of electricity in Delhi.

old babu


Modernise our archaic bureaucracy. Rid it of the stranglehold of the somnambulant but elite All-India Services. Downsize the Union government to its core sovereign areas. Give leadership roles to professionals selected for specific positions.


photo: amazing

Be like Arjun and aim for the eye of the eagle — identified by Mahatma Gandhi as the service of the poor. But choose an eagle which is in the far horizon, not the one preening itself in your garden.

Being loved by all is of no consequence to an effective ruler. Being loved by the “right” people is more important.

Adapted from an article by the author in Asian Age November 6, 2015

Shared Dreams, Shared Destiny” screams the banner welcoming African delegates to the Third Indo-Africa Forum Summit. Forty heads of state are in attendance, along with dozens of ministers and 2,000 officials. Day one, Monday, got off to a shaky start. The press meet was termed a “damp squib” by one leading financial daily. Most delegations were absent disappointing the media which had to make do with our impeccably spoken minister Nirmala Sitharaman and her team of high officials.


Pre summit conference on trade with Minister Sitharaman

A 7.5 scale earthquake, shook Delhi in the afternoon but caused no damage. Hopefully the visiting “big men” and the solitary “big woman” — President Ellen Johnson Sirleaf of Liberia — will remember the demonstrated resilience of Indian construction, whilst deciding whether or not to go for a cut-price bid from China for their next project.

Day two had great press for Union minister for external affairs Sushma Swaraj, in a bright orange sari, with swathes of delegates draped around her.


Minister Swaraj has these big men eating out of her hands

Why South Sudan, which has more cows than people, sought help from India to improve its meat supply business, remains a mystery. It illustrates how limited is Africa’s association with India.

Fuzzy agenda

Unfortunately, the government remains woolly on what we want to do with Africa beyond importing their raw materials and exporting cheap machinery, cars, chemicals and pharmaceuticals to them. Indian business is way ahead of this strategy. It sees Africa as a popular investment destination given the ease of doing business there at higher margins. Siuth African President Jacob Zuma has already sounded the battle cry of “Make in South Africa”.

Doing Business Report pats Indian on the back

Fifteen countries, or one-third of the 49 African countries, with a 30 per cent share in Africa’s GDP, monitored by the World Bank’s Doing Business Report, rank higher than India. Mauritius leads the pack at rank 32 — ahead of Japan and Italy, followed by economic powerhouse South Africa and tiny Rwanda, which weathered its 1990s ethnic crisis spectacularly.

India ranks a low 130 despite frantic efforts to improve its rank from 142 last year. Of the African economies which rank lower, 50 per cent or 15 countries are classified as “fragile”. African governments are well ahead of us in the art of outreach to attract investment or doing international business.


Amitabh Kant the “go to” man for branding India

India’s democracy- only for marathon runners

Our next big “selling point”, from the Western perspective, is the democratic architecture of our country and its resilience since Independence in 1947. To be sure, there is much to be proud of. But it is doubtful if any of Africa’s “big men” and the solitary “big woman” will be attracted to our fractious democracy. Africans prefer order and discipline like a lot of Indians. They willingly barter personal liberties and freedom for the sake of their communities. Tribal bonds are alive and vigorous in Africa, much as caste is the leitmotif of India. The unhappy outcome of the Arab Spring, which unduly empowered citizen groups against the state, endorsed their strategy to retain an intrusive state to maintain order.

India is too big, too diverse, too individualistic and too “argumentative” for heavy-handed State regulation. Possibly, Africa could need a federative, “soft State” strategy, should they one day decide to form the United States of Africa. But for the present, we have few lessons for Africa on how to run a government. Why then, have so many top decision makers bothered to come? Here are my thoughts:

Is the new India for real?

First, Prime Minister Narendra Modi’s muscular outreach to the world has evoked intense curiosity. Foreigners are lining up to check if we are ready to walk the talk. Does reality match the hype? It helps that India has a global reputation for gorgeous shopping — the jewelry, the silks, the pashmina, the prêt-à-porter fashion wear, all available at competitive prices, not to mention the grandeur of Mughal and colonial India reflected in the many monuments in Delhi which are stunning to gawk at.


Jugaad and the very visible hand of God

Second, is curiosity, about an ancient land that is reputed to be managed directly by God, because doing so is beyond earthly skills. India is full of bad news, rapes, riots, hunger, poverty, illiteracy and poor services. And yet, it is the fastest growing economy in the world with a reasonable ambition of joining the “big three” or “the big five” over the next 10 years. Bung in the fact that government is hopeless at providing primary education, but arranges the kumbh mela (religious festival) annually at the Sangam in Allahabad for 100 million pilgrims over the space of a week, without a major disruption or incident and the role of divine intervention in keeping India going becomes clear.


We produce the full range of products from leather jootis to spacecraft which hover around Mars, with consumer durables, textiles, chemicals, pharmaceuticals, intermediate goods and industrial machinery also thrown in — not to forget the services provided globally by our IT companies. Yet 60 per cent of our people live below the $2 per day poverty line; just 3.2 per cent of Indians (middle class and above) own 64 per cent of the country’s wealth (Credit Suisse 2015). How we manage these contradictions, the “social noise” and the “political disruptions” is a miracle that many feel they need to “touch” to understand. And so they come.

Come, make friends in India

Lastly, and most importantly, heads of state come to India to build lasting relationships with a country which is non-threatening, well-meaning, gentle — at least by the standards of international realpolitik — and is slated to have a share of 10 per cent of the incremental world GDP by 2025 and 15 per cent by 2035.


Prime Minister Modi meets President Uhuru Kenyatta of Kenya

Selling products and arranging capital is what our private sector should be doing, not the government. After all, business is best placed to strike deals on both sides of the table. What our government needs to do is to paint in the details of the “Idea of India”, projected by Prime Minister Modi, as a focused, motivated country determined to claim, along with other developing countries, the second half of the 21st century as “our” own.

The Africans cannot be bowled over by pomp or ceremony. For them a Mercedes is merely a high-end taxi, not an executive limousine. What attracts them, instead, is the simplicity of life in India, the concern for high human values, even amongst our poor, combined with our earthy tradition of seeking “value for money” — well-known to them via our Gujarati expatriates. But if this fails to click, dancing to Congolese Rumba or the fusion Afrobeat also helps. Pity there is no joint Nolly-Bollywood event planned.


Rashtrapati Bhawan, New Delhi illuminated for the Diwali festival

Adapted from an article by the author in Asian Age October 29, 2015

African heads of State will don Modi kurtas and party in New Delhi, October 27 to 29. The occasion is the third meeting of the Indo African Summit. It would be quite a sight to see Robert Mugabe, age 91, President of Zimbabwe for the last two decades, take a turn or two on the dance floor. But we may have to make do with the more agile President Jacob Zuma.


President Jacob Zuma of South Africa at his agile best

Hopefully, the parallel with ASEAN will not extend to Minister Sushma Swaraj having to sing at the concluding party, just to liven up the proceedings, along the lines of Madeline Albright, US Secretary of State in 1997, who crooned her version of “Don’t cry for me Argentina”.


Minister Sushma Swaraj with members of parliment

Beyond the theatrics, it is tough to figure out what we want to achieve with the possibly forty heads of state or governments and many more senior politicians and officials from Africa who are expected to participate. Similar summits were held in 2008 and again in 2011.

Claim the 21st century for Africa and India

Demographics suggests that the second half of this century belongs to Africa and India. But to claim this “historical destiny” India and Africa have to do the right things. One such is to put the right institutions in place.

This “mirror” long term need is what binds India to African countries far more than the standard diplomatic fare; trade and investment, terrorism and security. These are merely the transactional outcomes of sound institutional development and better dealt with at specialized fora which already exist like the World Trade Organization, the United Nations and the Bretton Woods institutions and their offshoots.

Context is key for developing “best fit” institutions. Context varies enormously between India and Africa and even more so within Africa. But one common theme across most African countries is a rich endowment of natural resources (except Rwanda and Burundi) which distinguishes them from resource poor India.

In contrast, adherence to broad democratic norms is increasingly the preferred option across Africa. Swaziland and Lesotho remain the only kingdoms in sub-Saharan Africa. Yesterdays “dictators” are today’s leaders, who test their popularity in elections.


Presidents Yoweri Museveni of Uganda and Paul Kagame of Rwanda

India has been the world’s largest democracy since 1947. In Africa Senegal has similarly been a multi-party democracy since 1960 when it became independent. Senegal had its “Indira Gandhi moment” in the first decade of this century when then President Wade tried to unduly empower the executive through constitutional amendments. The democratic backlash was strong and he lost in elections to his own Prime Minister in 2012- President Small still leads today. Mauritius, Kenya, Tanzania, Zambia, and later South Africa, Botswana and Namibia also have stellar democratic records.

African public service structures have evolved unlike ours which have atrophied

The institutional architecture within which government functions is critical for achieving developmental goals. Within the broad institutional architecture the manner in which the civil service is structured is key. India has much to learn from select countries. South Africa, Ghana, Senegal, Mauritius, Kenya, Tanzania and Ethiopia for instance, have developed and maintained outstanding public service structures and traditions.

These bureaucracies have weathered far more tumultuous times than we in India have ever encountered in the post- World War II period. But they remained committed, motivated and deliver results- three characteristics that are iffy to apply across the board in India.

India presents a fascinating case study of asymmetric development. On the one hand we have scientists sending space expeditions to Mars. At the other end poor villagers still rely on traditional healers and “bangali” doctors- sometimes out of choice and habit but mostly out of compulsion since the public health service is so poor.

It is fashionable today to advocate the case for asymmetric development- getting reform in through the door wherever possible without attempting an across the board improvement in the civil service. India is a good example of how this does not work. Islands of excellence remain just that cordoned and insulated from the ills that afflict service areas not considered critical from the short term (sighted) point of view.

India manufactures or assembles more brands of cars, scooters and motorcycles in India than it is possible to remember. We pride ourselves on our in-house capacity for developing infrastructure. We have embarked on a “make in India” mission. Foreign students come to India to study management, medicine and engineering.

Yet, within the government, it is rare to find an official with the relevant technical qualifications, in a senior position with decision making powers. This is not to say that our top bureaucrats are not highly educated. Invariably they do have these credentials, in a general way. Many may even be a PhD. It doesn’t get better. But rarely is it that the academic qualifications and the experience overlap. This disregard for “technical excellence” as a driver of good public administration is at the root of our inability to apply the vast knowledge reserves we have built up to improving public services on the ground.

We should learn for countries in Africa which have done away with the hierarchical, cadre based, colonial administration systems they inherited and have moved on to a position based meritocracy. South Africa, Mauritius, Ghana, Senegal, Kenya and Tanzania are examples.

Our federal structure is an outstanding example of contextual decentralization

Whilst our Constitution is a Union of States rather than being a federation like the US Constitution, it is a dynamic yet robust instrument. It has been amended one hundred times since 1952 but it remains the driving force for growing the “Idea of India” as a single nation comprising unparalleled diversity in religion, ethnicity and culture.

Much of richness of the Indian public management experience derives from the significant levels of devolution to the thirty state governments. Around 40% of the Union government’s revenues are made available to state governments as their share of tax. An additional 15% of funds are transferred to state governments for executing national development schemes. State governments also have their own sources of revenue.

The size and character of states varies enormously in India. These range from the mammoth Uttar Pradesh (UP) with a population of 200 million (the next biggest state is Bihar with pop. 100 million) to tiny Sikkim population 600,000.

Uttar Pradesh is larger than the largest African nation-Nigeria-pop. 189 million, renowned for its oil rich economy, entrepreneurial people and pluralistic society.

Sikkim, sticking out like a “thumbs up” between Nepal and China in North Eastern India with streets neat as a pin and people, as disciplined as the Rwandans closely resembles the well governed, gorgeous, North Western African island nation of Cape Verde.


Cape Verde

Africa manages regional co-operation exceedingly well

India should look closely at the cross country arrangements within Africa which facilitate development based on the comparative advantage of countries. Power pooling across the Southern Cone countries and West Africa is one such example. Access to sea routes for land locked countries like Zambia, Zimbabwe and Uganda via rail, road and pipelines provides good models for cost sharing across Indian states. Truth and reconciliation type negotiations are another African specialty.


Presidents Bashir of Sudan and Salva Kiir of South Sudan- friendly foes.

The Indian institutional arrangements for regional integration have fallen into disuse and are ineffective. Water sharing arrangements are particularly dissatisfactory and legal disputes linger for years, increasing conflict and retarding development. Similarly implementing the Goods and Services tax- a single, value added tax, to replace state level taxes on the production and sale of products, to which all parties are agreed in principle, has become harder and more painful than extracting a tooth.

It may have been really useful to arrange sessions where state chief ministers could have interacted with heads of state depending on areas of mutual interest with their officials following up on the detailed areas of cooperation.

We are not China


aarti” evening prayers on the banks of the Holy Ganga

Finally how can we  differentiate ourselves from China whilst dealing with Africa? Clearly the worst option would be to emulate the muscular Chinese style of economic diplomacy. For one we just don’t have the firepower. For another the principle of comparative advantage advocates that everyone must play to their strengths.

China’s comparative advantage is cash-lots of it. But the Chinese model of development is not something which is easily replicated because of the size of its economy, the homogeneity of its population and its long history of splendid isolation. Also it is unlikely that exporting workers in droves to implement projects overseas is a sustainable or effective developmental strategy for the beneficiary countries.

Our comparative strength is that we are the “Constantinople of Parliamentary Democracy”. We straddle the democratic heritage of the West and the traditional Asian democratic principles. In doing so we have evolved a home spun democratic model. Like all jugaad (learning by doing) the ends of this model are a bit jagged.


The Indian parliament on high alert post a terrorist attack in 2001

Nevertheless, it is a model which works- both for economic growth and to uphold the human liberties of speech, association and property. Within this generic model of development lie gems of granular achievement at the state government and local level, which provide solutions to the universal development barriers of elite control, low initial capacity, nascent institutions and less than adequate rule of law mechanisms.

India must use the Summit to share these nuggets of experience which are at the heart of building institutional resilience for sustainable development in poor countries.

1542 words

The national hype around the “beef ban” issue and the rise in the price of toor daal has done what the combined political force of other parties could not do — humble Narendra Modi in Bihar. Both are self-goals by the Bharatiya Janata Party.

humble modi

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Whose duty is it anyway to regulate agri. and food?

The regulation of land, agriculture and food is a mandate of the state government in the Constitution. But Central governments, including the BJP, have been happy to meddle in this mandate via the provision of trade and commerce in food in the Concurrent List of the Constitution. They do so to appear muscular and confer favours on farmers, traders and consumers. The setting of procurement prices for food crops at much above the market price, the physical management of publicly-owned food stocks and the subsidisation of consumer prices are low-hanging fruits for both populism and patronage.

Far better if the Central government had stayed clear away from this area and told voters frankly that it was for the Bihar government to manage the price of daal. On the beef ban, the BJP should have stuck to the constitutional position that the cow is to be “preserved” per the Directive Principles, and it was for state governments to decide local policies regarding preservation.

Instead, the BJP ground troops have raised a national ideological furore over a non-issue. Beef is an inferior meat internationally because of its adverse health (high cholesterol) and environmental (high carbon emissions, high water consumption per unit) consequences. In India, it is an inferior and cheap meat, eaten mostly by the poor. Rich Muslims would rather eat goat or chicken biryani, much like Hindus and Christians, rather than beef.

But it was not to be. It seems the BJP ground troops will not easily allow Prime Minister Modi to grow out of the narrow, Hindu, nationalist role they have set for him. This was expected, but what is surprising is his inability to control the foot soldiers.

Bihar matters

Winning in Bihar would have raised the Prime Minister’s image of “invincibility” sky high. The “crabs” within the BJP would not have liked this. They were happy to hang on to his kurta tail and be carried along by the tsunami in 2014. Now that the next day of reckoning is only in 2019 — a full four years away they prefer a Prime Minister, dependent on their individual support. What could be a better opportunity than to play the Hinduism-under-threat-from-beef card in the middle of the Bihar elections?

On the price of lentils, Mr Modi’s penchant for muscularity is primarily to blame. It is not the job of the Central government to keep prices in check. State governments should have mechanisms for doing this. Importing food in short supply from outside the state or from overseas to keep prices regulated is one option. But, more importantly, isn’t it about time our governments got away from the business of setting market prices for all segments of the food value chain?

Re-regulate agriculture and food

Price spikes and troughs provide important signals to growers and traders, and dictate what farmers sow. Expectations of price intervention by the government distort these signals and inhibit farmers from their legitimate right to profits when a crop fails just as they would suffer a loss when there is an oversupply.

To insulate poor farmers, farm workers and poor urban folk from extreme price fluctuations, direct cash transfer is the answer. Who can say what consumers would do with the extra cash the government gives them? They may not buy toor at astronomical prices at all. They may opt for other, cheaper varieties of pulses — moong, masur or channa, or prefer milk, meat, lobia or nutri nuggets, or a mix of all these.

Is there a BJPnomics?

The BJP has yet to grow a coherent economic philosophy. Often it glories in being market and business-friendly. At other times it shies away from this label, just like the Congress Party, because it is perceived as being anti-consumer. Many within the BJP are more socialist than the communists! They want to preserve the public sector and they want visible, often unnecessary, intervention by the government in everything — what to wear, what to read, what to see and what to eat.

This ideological clutter needs to be cleaned out. Otherwise, the BJP risks looking like a more stridently Hindu version of the Congress, rather than a modern, nationalistic party which believes in markets, equity and inclusive growth.

Next two years- a blur of elections

The good news is that the Uttar Pradesh elections are still one year away and there is still time to repair the damage for a “real” contest between the Samajwadi Party and the BJP. The Samajwadi Party is a homegrown party of Uttar Pradesh with an indifferent governance record. It is perceived as a dynasty, caters mostly to Ahirs and enjoys strong support from Muslims via their champion Azam Khan of Rampur — the erstwhile “princely state” in western Uttar Pradesh, adjoining Moradabad.

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An understanding between Bhenji (Mayawati) of the Bahujan Samaj Party and the BJP would strengthen the Prime Minister’s hand to define the electoral line-up. Both the BJP and Bhenji, have a good record in the management of law and order, and both appeal to the rainbow spectrum which Bhenji tried to create earlier, spanning the upper castes and the dalits. This consolidation is what the BJP attempted in Bihar. It remains a viable strategy for Uttar Pradesh despite the outcome in Bihar. It will also be useful for the BJP in adjoining Uttarakhand in 2017.

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But it is a long way to the Uttar Pradesh elections in 2017, past Pondicherry, Assam, Tamil Nadu, West Bengal, Kerala in 2016, and, thereafter, Goa and Punjab. The BJP would do well to be conservative and focus on Assam, Kerala, Goa and Punjab, leaving the other states to regional partners. Selectivity of political effort will free the central leadership to also do some work in pushing the reform agenda in tax, infrastructure and digital governance.

Unlike in Bihar, the BJP must start grooming regional leaders in all these states so that it is not a solo effort by the Prime Minister. Identifying regional leaders broadens the table and gives more elbow room all around commensurate with the size of India. Inclusion is of the essence in a democracy.

Adapted from an article by the author in Asian Age October 23, 2015

Stop being a bully State


Does the proposed national “beef ban” and the rabid intolerance for “beef-eaters” illustrate a new and disturbing trend in Indian politics? Are we squandering away our “secularism”?

India has been a “secular” state in practice all along. All the bells and whistles to ensure equal rights for all citizens, irrespective of religion, have existed in the Indian Constitution. But via the infamous Constitution (Forty-second amendment) Act, 1976, the term “secular” was inserted into the Preamble somewhat superfluously.

This attempt to put a “face” to the “fact”, should have been the first signal that our commitment to treating all Indians as one, was doomed to be only skin deep. Thereafter, it has been open season for most political parties to play strategically with the sentiments of both, the majority Hindus and minorities — Muslims being the largest — for periodic political benefit.

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Religion and community feeling matters

At an individual level, Indians from all faiths accept the basic proposition that culture and religion, which are closely interwoven, are personally important. They also, generally, accept that the individual has to bow down to community norms. This acceptance of religious and community dominance is not without legal precedent.

Our Constitution via Article 48A of the Directive Principles of State Policy requires that the state take steps to “prohibit the slaughter of cows”. Admittedly, the Directive Principles are not justiciable in a court of law. They are more in the nature of guidance for future action. But, consider that cow protection is clubbed with protecting worker rights; the educational rights of the scheduled castes and scheduled tribes; improving nutrition levels, protecting the environment and promotion of international peace and security!

The Constitution has been amended one hundred times till now. But the primacy for cow protection in our constitutional vision, as enshrined in the Directive Principles, still stands.


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Democracy without development remains backward looking

What this illustrates, is that democracy is a blunt instrument for social inclusion. The incentive to pander to majority votes is too intense. Second, things become worse when the political architecture assumes, like ours does, that all religions have similar social and economic demographics and, hence, proportional representation is not needed for minorities to protect their voting power. Ironically, this is exactly what we are urging Nepal not to do under their new Constitution and to instead protect the voting power of the “minority”, coincidentally Indian-origin, Madhesis and Tharus, who live in the Terai adjoining Uttar Pradesh and Bihar.

The romantic hope of the “Macaulay generation” in 1947 was that as India became richer, it would resemble the West, where churches are empty but the bars are full. India is richer today. But religion and tradition remain deeply embedded. We are unlikely to lose our religious identities any time soon.

Decentralisation: the still born option for enhancing inclusion

Another route to manage a heterogeneous society, like ours, could be to decentralise deeply. This was tentatively envisaged under the Constitution (73rd Amendment) Act and Constitution (74th Amendment) Act, 1992. These amendments sought to transfer the management of local affairs to village panchayats and urban municipalities. But the attempt was stillborn. We remain a fairly centralised polity. State governments get seduced to toe the “Imperial line”, dished out from Delhi along with Central funds, rather than go their own way, which is so much more effort intensive.

Our recent experience with the reorganisation of state governments shows that decentralisation can take the steam out of corrosive identity politics. The creation of five new states out of Assam in the 1960s and ’70s is a good example. The proliferation of state governments in India, since Independence (from 16 to 29) lends further credence to this strategy for dampening identity politics.

To cater to our cultural and religious mosaic, India needs either many more homogenous states or more powers delegated to local governments, particularly large cities. Consider that if Mumbai was a city-state, it was unlikely to have opted for a “beef ban”. But as part of the state of Maharashtra, it has no choice.

Isn’t it time to come clean? Our secularism is limited to being a benign, quasi-Hindu state, where minority religious rights are constitutionally protected. This is very similar to enlightened Muslim-majority states like Jordan or Egypt both of which have significant Christian populations.

Secularism is not a State without religion

Our brand of secularism is too passive for anything but harmful politicking. It is time to make it proactive and more effective. Here are three suggestions.

First, minority rights must be explicitly recognised, but subordinated to the common law rights of workers, children and the differently-abled. These, and the principle of gender parity, should be “core values” cutting across all religious rights.

Second, if we are to ban beef, despite the significant adverse economic impact on those who trade in it, how about being even-handed and also banning pork — meat considered impure in Islam? This removes, at one stroke, the perceived discrimination against Muslims and Christians, both of whom eat beef. After all, India has more Muslims that any other Islamic country, except Indonesia; enough Christians to be notionally the 22nd most populous Christian country in the world — just ahead of Australia — and the second largest in Asia after the Philippines.

In any case there are sound environmental and health grounds for banning both beef and pork. We can live, quite happily, on goat meat, fish and seafood. Breeding pigs is a flourishing micro-business today for Hindu dalits, but there is no gain without some pain.

Third, our Constitution is explicit about helping SCs and STs, all of whom are assumed to be the poor and underprivileged, within the broad umbrella of Hinduism. Isn’t it fair then to also extend specific, targeted facilities to poor Muslims, Christians, Sikhs, Buddhists and Jains who are as helpless as the poor Hindus? Selective benefits for “underprivileged” Hindus look awfully like pandering to the majority community.

A benign and forward-looking ruler must be even-handed. That is raj dharma. Religious appeasement must be uniform not selective. This is difficult since at the root of appeasement is arbitrariness.

But there is a fourth option, if the first three are not practical. Stop being a bully state. We have done very well thus far as a “soft” state, wary of displeasing anyone — except perhaps our neighbours.

Becoming a bully state is the worst option, especially because we have the institutions and the skills to become an inclusive, rational, developmental state. Perception is everything in today’s social media-powered world. Let’s not squander our common future for petty temporal gain.

“Insaaf ki ghanti” is ringing. It must be heard.


Adapted from the authors article in the Asian Age October 13, 2015

The San Jose window

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So what did the Silicon dudes, collectively representing around $500 billion in purchasing power, think of the case placed before them by the self-made, roughhewn yet charismatic Indian Prime Minister — the man with a penchant for the dramatic?

From the looks of it, they thought he was kosher. Someone they could talk turkey with. Of course they are pretty constrained in what they can do. They are businessmen — oddly all of them are men. Inflating their egos and appealing to them for “help” can soften them a bit. But, ultimately, business folks live and die by the shareholder wealth.

The good news is that India fits in well even on this metric. We have the numbers. We shall be the most populous country by 2030. More importantly, each of us would also have decent purchasing power by then — Prime Minister Narendra Modi wants each of us to have $13,500 per year in today’s value terms.

This is improbable. But even if we get to just half of that, which is possible, we would be as “well off” as China is today. That is not very rich by the standards of the rich, but definitely upper middle class — no mean achievement for a country whose diplomats still, habitually swear by the begging bowl approach in international negotiations.

An additional $50 trillion in purchasing power over 15 years makes all business drool — not just in the Silicon Valley. The annual revenues of the Fortune 500 companies is $ 12.5 trillion — a tidy sum that’s more than nine times India’s GDP. Okay, so now we know why all those kind business folk turned up dutifully to be with

Mr Modi. But why then did the Indian Prime Minister bother to go through with the dance? After all, if India is such an irresistible market, then shouldn’t the Fortune 500s be rushing in to occupy the 500,000 apartments which lie unoccupied today in India?

Two factors explain the asymmetry between the hubris at home and the fizz abroad.

First, Team India is a big ship. Stoking the fire in its oversized belly and changing course takes time. Until the crumbling “plumbing” is fixed, citizens will react to the bad smells reaching them. Fixing the leaks is still a work in progress as illustrated by the sermons delivered to the Prime Minister at his meet with the Fortune 500 crowd.

In contrast, business overseas view visitors much the same as co-passengers on a flight. This goes for both the older, preachy Fortune 500, who are classic bullies, or the more gentle, other-worldly yogis in Silicon Valley, adept at the “rope trick” of quietly raking in billions without a bottomline to support the extraordinary valuations of their stock. They will engage whilst the flight lasts, knowing they can end the conversation when they please. But anything more substantive is only on mutually acceptable terms — these being the “bottomline” for the “sunset community” in the Fortune 500 group and the “top line” for the Silicon geeks.

India presents more immediate potential for the “top line” obsessed Silicon entrepreneur. Their escalator is founded on growing the business, not solely much on growing profits. This is not to say that there are no profits to be made in India. But Asian companies from Japan, China, and Korea in sunset industries, are better placed to be responsive to the fragmented Indian market than a Fortune 500 corporate, which survive on scale not agility.


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It is no wonder then that whilst Prime Minister warmed up instinctively to the Silicon Valley crowd. The interaction with the “500 dinosaurs” was stiff, formal and somewhat resigned, as in a divorce case, where both sides talk at each other rather than with each other.

Thankfully, Silicon Valley is more vital for India’s urgent “development” needs than the czars of Wall Street, Detroit or Houston. San Jose and New Mexico is about disruptive innovation. This “value” shapes business processes, supply lines and determines who the next “legend” will be. This resonates well with the “individualistic” Indian.

The electron is the best antidote for exclusion — the proverbial mongoose to the snake of elite privilege and patronage. Digital access democratises access to information and knowledge especially if customised in India’s 22 languages. Connecting 600,000 villages and all educational institutions with broadband will provide Internet access to all.

Nandan Nilekani’s UID is a game changer which is being actively expanded for the direct transfer of subsidy and to ease public transactions. Its power lies in its ability to target public interventions narrowly, much like a micro-surgeon.

Digital access enhances communication and remote participation even in local events, a feature crucial for a country of domestic migrants, where 25 per cent of the people live away from where they were born.

The proposed digital archiving of individual data-identity, health and education records in secure “lockers” liberates the marginalised in particular who have no permanent residence, live in insecure places and are frequently required to produce these documents for temporary jobs and to access public services.

For the elite personalised service via human interaction elevates their own sense of entitlement. But a dalit, whose very shadow is abhorrent to some, may prefer an impersonal, indeed robotic, neutral, service provider, like an ATM which is available 24×7 to suit varying work schedules. Street dwellers will be the first to benefit from lower pollution if tele-meetings and remote work cuts the need to commute. The primary beneficiaries of tele-medicine will be remote villages where all they have today is the village “Bengali” doctor.

Information trawled from social media by specialist apps helps to counter terror, manage disasters better and get real time feedback on the quality of public services.

Digital India is the key to critical aspects of inclusive development, enhancing the “efficiency” of public investment and more “decent” jobs.

But this is not the real reason why Prime Minister Modi is happiest talking “new” technology. Behind his stern “Samurai” exterior lies a romantic, who believes that empowered individuals — the quintessential “Marlboro” person can change the world. To do this San Jose is a far better door to walk through than Wall Street. Don’t be surprised if you see him at the “Burning Man” festival — the new technology parallel to the old world Davos — a fun meet of the free spirited and those who imagine a better world, held annually in the Nevada desert, over the Labor day weekend.

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Adapted from the article by the author in Asian Age October 1, 2015

It all began 300 years ago with the ringing command of “Koi hai?” — Is anyone there? This being how the ruling, colonial elite announced their arrival at home, in the office or, indeed, anywhere, if there was no one to receive them. The immediate response was a servant at home, or a peon in the office, scurrying out with folded hands to acknowledge the master’s presence with “hazoor — at your service, Lord”.


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The services required could vary: Pulling the giant, overhead canvas fan to and fro with a rope; fetching a refreshing drink for the master; gently slipping off his riding boots whilst the master is sprawled on a “planter’s chair”; bringing in voluminous, cloth-bound, paper “files” or taking out those “disposed-off” by the master.

Becoming a peon was also, usually, the entry point in government service for most “natives”. You first got a job as a handy man around the master’s house, courtesy a trusted relative, and then graduated to the office, as a peon, if you were passably literate and could inveigle yourself into the master’s trust.

Things have changed somewhat, but not much, over the nearly seven decades of Independence, since 1947. The corridors of power are still lined with peons sitting outside the rooms of their officers, fetching tea or samosas, carrying “files” as they wind their serpentine way up, down and sideways amongst the officials who rule India today.

All this is accomplished without the “master” even uttering a word. Peons know their masters better than they know their own spouse or children. A glass of water or tea miraculously appears, visitors and even office staff are carefully screened for “priority” before they can meet the master. Lunch is unpacked from the “tiffin”, heated and served on time. Peons even take on the task of ensuring that sahib eats his medicines!


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Peons have long work days. Those attached to senior officers reach the officer’s home early to carry the files which have been worked on overnight, to the office. Their day ends only after they have carefully placed a new lot of files for “overnight disposal” on the sahib’s desk at home. In between they might have been instructed by the memsahib or, more likely today, mataji or behnji, to bring along some urgently required domestic ingredient that has run short, pick up the clothes ordered with the tailor or go by the Central Public Works Department office to check when they are likely to repair the fan in the bedroom.

For all the routinised drudgery of the job there are compensations:

The pay and dearness allowance (Rs 12,000 increasing gradually to Rs 20,000 per month) is twice what they’d get in a similar job in the private sector. Unlike the private sector, the job is permanent till you retire at the age of 60. 45 days of leave and 120 days on which the office is officially shut in a year along with medical and half pay leave.

Pay is 100 per cent indexed to inflation. Government contributes equally to your provident fund and pension and provides a handsome gratuity on retirement.

The job is not transferable, so you can grow deep roots where you belong.

Even if you goof-off, you are attached to a less important officer or an office where there is no public contact and, hence, very little prestige.

In 2006-07, nearly 26 per cent of the 3.2 million employees of the Union government and Union Territories were in the lowest grade — D, which applied to peons, safaiwalas, watchmen, mallis, packers or records sorters. An additional 67 per cent were in the higher grade, C.

By 2012-13, grade C (into which the lower grade D was merged in 2006) comprised 90 per cent of the 4.4 million Union government employees. 88 per cent of grade D positions were in departments which are spread all over the country — the railways, police, defence, civilian employment and the post office. These departments are physically spread across the country and therefore natural “sinks” for those seeking employment in grade C jobs which account for 90% of civilian employment.

It is not surprising that the demand for grade C jobs far outstrips the supply — sometimes up to 5,000 applications for every advertised vacancy. In comparison, for a grade A or B job (IAS, IPS and other central services), the number of applicants is a measly 1,000 per vacancy. Why this skew?

First, only 44 per cent of Indian students clear the secondary school stage of class 10, which is the bare minimum to apply for a grade C job of a peon. The completion rate falls dramatically in high school. Only 20 per cent of students enrol for tertiary levels. Consequently, the available pool of applicants is the highest for low skill jobs in grade C, particularly in Tier II and III towns and rural areas.

Second, officials in the lowest, merged grade C are compensated much higher than their private sector comparators, whereas grades A and B, which require higher minimum academic qualification of BA/BSc and are recruited through the extremely demanding Union Public Service Commission examination, are paid much less than their private sector comparators.

This irrationality is a throwback to our socialist past when “vulgar” income disparity between the highest and the lowest was frowned upon.

Third, as recommended by the 6th Pay Commission, 2006, grade D was merged into the higher grade C. Direct recruitment into the cadre of lower division clerk — a grade C entry level position — was discontinued and the vacancies reserved for promotion from the erstwhile grade D employees. This opened up promotion prospects for grade D employees via internal examinations to eventually become an assistant section officer through the “back door”.

Fourth, unlike in the past, the selection process is more inclusive and transparent. The Staff Selection Commission conducts an examination and an interview. This incentivises even those without patronage networks but with merit to hope for a grade C job.

But the new, over-qualified, hunting for fast promotions peons are unlikely to remain humble supplicants, as in the past, catering to their master’s every whim and fancy in a pale recreation of colonial grandeur. Once peons become “uppity” they will cease to have utility as well-paid extras in a period play. Low-skill jobs will be eventually outsourced, once government decides to restructure the public workplace. But till that happens, the rusted public sector “steel frame” will be held together by highly over-specified, grade C peons — the “nuts and bolts” of the government.

Adapted from the authors article in Asian Age September 23, 2015

Paris in December is not quite what it is in springtime. But who cares if someone else is footing the bill! Paris is the venue of the next Conference of Parties (COP), from November 30 to December 11. An annual jamboree that has been trying, since 1992, to limit carbon emissions and save the planet from what scientists predict will be the drastic impact of global warming and associated climate change. They have not succeeded thus far in taming emissions.

The plain truth on climate change

How much carbon space is left before disaster strikes is somewhat iffy and mired in science, negotiating stances and the “precautionary principle” which advocates that if danger lurks it is best to run rather than hang around assessing the extent to which you personally are at risk. Except that there is no place to run to.

Who’s to blame?

The problem is that whilst Americans and others in the rich countries are reducing emissions slowly, China, India and the rest of the developing world are eager to do exactly what the rich did earlier — use energy to grow their economies. This is fair, just and inevitable.

Can climate change be stopped?

The only way this can stop is if money is spent to junk the existing technology for producing and using energy and less carbon intensive and more efficient options are developed.

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But no one has a commercial incentive to do so. Most technology is developed in the rich world, which uses the most energy per capita and is the most heavily invested in traditional inefficient, carbon intensive energy chains.

They — Australia, Russia and the US are good examples — have preferred to milk their past investments in fossil fuel-based technologies rather than switch over rapidly to clean energy technology even though they have been talking about the problem in annual COP meetings since 1992. Thus, 20 of the 100 years available since 1995, to act, have been wasted.

To be fair, the northern European economies, including France, have been more conscientious than the rest of the rich and have reduced carbon emissions significantly by bearing the additional cost of doing so. Singapore is a stellar Asian example. It reduced per capita emissions by 66 per cent of its 1990 level.

But the rest, particularly the poorer, developing countries, have no incentive to divert their meagre fiscal resources to clean energy other than efficiency and local environmental benefits. But with so many competing priorities: stopping mothers and infants from dying due to poor health care; educating the young; creating basic infrastructure for trade and industry, just keeping energy — the life blood of a modern economy — flowing is tough.

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Existing agreements are insipid and ineffective

The Kyoto Protocol 1997, the framework guiding the interminable Conference of Parties meetings, lacks teeth. It fixed emission targets for rich countries till 2012 which were weak and inadequate because nothing more stringent was acceptable to the rich — a 6 per cent reduction over 1990 levels. But countries can opt out of the agreement. US, Russia and Canada did just that, making COP even more toothless and bureaucratic.

It’s now 2015 and the world has changed. Extremely wealthy people are to be found everywhere, not just in the earlier “rich” countries. Ruling political, industrial and commercial elites in developing countries have incomes and consumption levels which rival those in the “developed” countries. Poor countries often have very rich governments, though fiscal resources do not filter down to the poor. Traditional archetypes have transmuted. A billionaire from the Forbes List could be living on your street rather than in far off London or New York.


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So the continual “fingering” of rich countries as evil carbon emitters is unlikely to resonate. We are all responsible collectively for the mess we have created. To cut through two decades of verbiage and accumulated legal baggage two things must change.

Two options for delinking development from carbon

First, Paris must agree a common aspirational emissions target which all countries buy into. The level of the target, whilst important, is less so than all countries agreeing to shoulder the burden according to their capacity.

Second, till now we have depended on charity — aid from the rich world — to fund the technology transformation. This is degrading for the poor who have a right to access the available carbon space and inefficient, because allocation and priorities get warped when dealing with “free” money.

Next steps

Agree a common emission target

The world per capita carbon emissions were 4.2 metric tons (Mt) in 1990. This increased to 5 Mt per capita by 2011. The 1990 level is an excellent aspirational level to target. Most developed countries are above the 8 Mt per capita level whilst most poor countries are below 2 Mt per capita. Halving emissions in the developed world and allowing space for carbon emissions to grow two to three times in the poor countries seems a fair deal and a realistic target till 2030.

Improve the science of climate change

We also need to establish with greater the nature of the relationship between carbon emissions; global warming; extreme climate events and the distributional impact thereof. This is sorely needed to establish a sustainable aggregate emissions level which is neither unnecessarily restrictive nor ineffective in stabilizing climate. The next 15 years on top of the 20 years which have passed should be sufficient to hone the science.

Find the money: tax international capital transactions

A transactions tax to fund climate mitigation and adaptation is best. In depressed economic times, such as the present, a new generalized tax is abhorrent. But if the incidence of tax is tiny per transaction, individuals and entities may not feel its pinch. If it has a massive tax base on which it is levied the tax collection could be huge despite the low incidence. Mumbai lunch places, serving a simple, low priced, thali are as profitable as an expensive niche restaurant. The miniscule profit earned per thali is more than made up by the massive turnover. Of course the tax must be progressive and tax only the rich, who enjoy a disproportionate share in wealth creating growth-the root cause of climate change.

A tax on outbound international capital transfers from all countries meets all these criteria. A 0.01 per cent tax can net close to $300 billion annually. This is three times the volume of the 2015 replenishment of the Green Climate Fund proposed at US$ 100 billion.

The bulk of capital-outflow happens from rich or newly rich countries (like China). The purpose is to mitigate risk and increase returns. To insulate poor countries from the tax it could be levied only on those countries which are non-compliant with the emissions target. Since all developing countries, but very few rich countries, will be compliant, this leaves the poor countries out but snags the non- compliant rich. The tax collected would be transferred to a fund manager and overseen by an inclusive and representative board.

A tax puts a tangible cost to not meeting emission targets and creates a reasonable financial incentive for the rich countries. For example, it would reward Singapore for its stellar performance, whilst penalizing newly rich countries, like China, for exceeding the agreed level of emission.

Shared benefits follow shared responsibilities

China tellingly, has already announced that it would reduce emissions going forward. By 2030 they would be 60 per cent below their 2005 level. This should reassure all developing countries that it is possible to grow in double digits every year and still beat the carbon ceiling in future.

Developing countries should consider adopting the carbon ceiling volunteered by China. By volunteering a carbon ceiling they would be emboldened to press for a tax on outbound capital from non-compliant countries-mostly the rich. Of course ultimately every tax is paid by the final consumer- which will be the capital deficit poor countries. But a differential tax on capital flows does have advantages- it levels the field for domestic capital providers and dampens the fluctuating flow of destabilizing hot money into emerging markets.

Climate “warriors” headed for Paris should consider this proposition as they savour the Crottin De Chavignol served to them. Sometimes, the cobwebs have to be swept aside to see the light. There is much cleaning to be done at Paris.

Adapted from the author’s article in the Asian Age, September 17, 2015

1415 words

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