governance, political economy, institutional development and economic regulation

(photo credit: dnaindia.com)

Clothes truly make a man. FM Jaitley’s budget, presented to Parliament today, turned out to be constructed the manner in which he was dressed- a Modi jacket over a shirt, trousers and chappals (flip flops) for shoes. Nothing objectionable of course and yet unexceptional.

Tarun Das, the veteran Industry budget watcher, known for drawing up lists of good and bad points, complained that he could not find one thing to quibble about.

The Congress foot soldiers predictably fingered the paucity of direct measures to boost agriculture and made vague and unsubstantiated noises of the poor being let down.

“Thinkers” were left wondering what the log frame was for going from the budget allocations to the near term objective of generating jobs. Particularly relevant if Indian grew at over 7% per the new GDP calculations even as pink slips were the order of the day in FY 2015 and investment nose-dived. Clearly just doing more of the same is unlikely to generate jobs and the problem is not the lack of skills it is the lack of demand for skills.

The middle class stood around puzzled about how and why they had not been given tax relief. The poor…well they are just too busy working to bother too much about the national political economy.

Expectedly, this was a timid budget and not calculated to set the Yamuna on fire. The FM has a very “young team” who are still learning how to get a gas connection in Delhi, so they could hardly add little, expect technical tweaks.

One such is changing the way in which the GDP is calculated so that, almost overnight, economic growth estimates for 2014-15 went from a shameful 5% earlier to 7%.

Clever statistics also enabled the FM to “achieve” the challenge he had taken on in July 2014 of running with his predecessor’s very stiff Fiscal Deficit target of 4.1% of GDP.

FM Jaitley is at heart a lawyer and lawyers are by nature aggressive, garrulous and argumentative. Predictably his rhetoric was expansive. He berated incremental change as the hall mark of the previous Congress regime and defined his vision as “a quantum jump” which would “make India fly”.

Wisely however, he did not seriously seek to implement the rhetoric. He maintained broad continuity in inter se allocations across functions. Even the tax proposals had very limited surprises barring a possible promise of a tax bonanza for the corporate sector.

State Owned Enterprises are not being privatized and are slated to grow and provide a significant amount of the Rs 1.25 lakh crores ($20.5 billion) the FM expects to invest in FY 16.

Pushing the right buttons

The FM pushed a number of “buttons” to rally the relevant stakeholders.

Greening city transport

For the “Green” brigade, he proposed a misguided but mercifully paltry, subsidy Rs 75 crores ($ 12 million) for the development of electric vehicles. One hopes this money will be used to develop electric public carriers like buses or trams and not cars. Urban congestion is so extreme that even if commuters don’t choke to death on exhaust fumes, courtesy electric cars, they could starve to death as commuting time increases and urban traffic, grid locks become a regular event.

Relief for NGOs

Yoga teachers and schools can expect to benefit from their new status as charities. The NGO community will certainly appreciate the enhanced tax free limit of 20% of their income from commercial operations.

Broadening digitized cash support

The enhanced compulsory use of digitized transactions through banks, including the Post Office which becomes a payments Bank for state subsidies and the disallowance of large cash payments is very welcome. Digitised audit trails are sorely needed to start the clean-up of the black economy.

Soak the rich

Soaking the rich always gets favourable reviews and the FM did this with finesse. Tellingly however he got no cheers from colleagues in Parliament, who seemed to look more worried than gleeful, particularly when he requested them to voluntarily not accept gas subsidy which will now go directly into the bank accounts of consumers.

He garners an additional, estimated Rs 8000 crores ($1.3 billion) by abolishing the clunky, expensive to administer and iniquitous Wealth Tax and substituting it with a 2% surcharge on individual income above Rs 1 crore ($164,000). There are only around 100,000 such “super-rich” tax payers who are unlikely to complain. Of course the rather small number of the income tax paying “super-rich” illustrates how pervasive is unaccounted income and wealth and how far we have to go to unearth “Black Money”

Social protection for the poor

The spate of pension and insurance support measures are directionally correct but the poor will await implementation before they cheer.

Giving hope to corporate India

Corporate India also gets a break with a promise to reduce the basic Corporate Tax rate from the prevailing 30% to 25% over the next four years. The catch is that exemptions which today reduce the effective collection to just 20% of Corporate India’s income is also scheduled to be reduced. So the net gain is unclear. In the meantime they had better read the FM’s lips- to quote Ronald Reagon.

Election politics

West Bengal and Bihar, both states which go to the polls soon, will receive special central assistance in addition to the increased allocation they have already got per the recommendations of the Finance Commission. This explains the renewed bonhomie between the BJP and Nitish Kumar and Didi (Mamta Banerjee) respectively, Chief Ministers of Bihar and West Bengal.

Fiscal devolution kick starts Cooperative Federalism

The biggest plus from the budget is implementation of the spirit of “cooperative federalism” by transferring 42% of Union tax proceeds to states from around 32% earlier, per the recommendations of the Finance Commission. Transfer of an additional 20% as central grants will further boost total transfers to states to 62% of Union tax revenues. This “big bang reform” in fiscal devolution sets the stage for State governments to take direct responsibility of the functions allocated to them under the constitution. They can no longer plead a lack of resources.

FM Jaitley is right that reform is a year around activity and does not begin and end with budget promises. Let us hope he walks the talk. The biggest public service he could render is to make the budget presentation process devoid of “news value” by following a year around dialogue with stakeholders and continuous results on basic reform steps.

This was a budget without many surprises. Maybe we have evolved to being an economy, in which the budget is a mundane, technical exercise, of interest to economists and accountants, but of little immediate consequence for those who live in the real world.

train-crowd (1)

(photo credit: Indianexpress.com)

As expected Suresh Prabhu, the likable, very professional and intensely committed Railway Minister presented a Rail Budget yesterday, which is not only fiscally responsible; internally consistent; aligned with the medium terms needs of the economy but which also pushes all the right buttons.

For the middle class the buttons pushed are availability of disposable linen in trains, on payment, for the squeamish- a first; entertainment on board to while away boredom; Wi-Fi at stations; a choice of meals; an assured maximum waiting time of five minutes whilst purchasing a ticket – again a first. Most important is there is no increase in the price of “upper class” tickets, which no one was expected, given the gaping hole in the financials of passenger traffic.

For the environmentally conscious citizen, Minister Prabhu flags that investing in rail reduces transport of goods and people by road, thereby saving up to 90% of energy and 85% of the carbon emissions as compared to road transport. A clear plus for the security of energy imports dependent India and a plus for the global climate.

Second, dual fuel engines are planned which will run on diesel plus the significantly less polluting Compressed Natural Gas, which compulsorily fuels all commercial road traffic in Delhi thanks to a Supreme Court order a decade ago and is why Delhi citizens are not choking to death in stand-still traffic.

Third, select railway stations will switch to green solar power, generated on site, using the ample land available with government.

For the poor, he has held the lower class ticket fares constant despite a net loss on passenger traffic of Rs 26000 crores ($ 4.2 billion). He adds that he is likely to be helped somewhat by weak oil prices which may reduce the loss by 20%.

Revenues from passenger traffic contribute only around 33% of total revenues but passenger trains get priority in congested routes. Of the passenger revenue the “lower class” subsidized fare contributes only around 70% even though around 85% of passenger miles are in this class. These rates are crying for upward revision.

Sadly, he has hiked the rates for goods transport by around 10%, in line with the long term trend, in which freight of goods and upper class passenger fares are taxed to cross subsidise passenger fares for the poor.

But there is hope. Unlike all his august predecessors he has resisted the temptation of announcing new trains and thus frittering away the meagre public funds (Rs 40,000 crores – $ 6.6 billion) that Indian Rail (IR) gets from the budget.

Sensibly, he intends to invest in around 50% of pre-identified segments of the congested routes to remove blockages,  which slow down premier passenger trains- technically capable of running at 130 km per hour to a mere 70 and freight trains- which can run at 75 km per hour to a mere 25 km per hour.

Decongesting such sections will increase the speed of transport, improve turnaround time of rolling stock and reduce the delivery time at destination of both goods and passengers. Once realized, this by itself will result in financial rewards for IR from improved efficiency. Sadly these intended benefits are either not assessed or not shared with the public.

But it is sad that India still wastes both executive effort and scarce parliamentary time on issues which are squarely within the corporate ambit. There is really no reason why IR should not be a government corporate just like Oil and Natural Gas Corporation (ONGC) the oil behemoth or the National Thermal Power Corporation (NTPC), India flagship power Generation Company.

India’s stock market is booming and capital values are several times the book value of “capital employed” in the these corporations based on future expectations of their profits.

Meanwhile IR, a monopoly in the rail transport segment, with annual revenues of Rs 183, 828 crores ($ 30 billion) struggles to charge cost reflective rates; needs to mind its Ps and Qs because its budget is debated in Parliament, where the 790 honourable members can each be a stumbling block to reform and rationalization and is strapped for capital to invest.

If Indian Railways were a government corporation with a Suresh Prabhu clone as its CEO, it would be the second largest Indian company by assets size, after State bank of India (SBI); the fifth largest Indian company by profits after ONGC, the Mukesh Ambani led Reliance Industries (RIL), SBI and TATA motors and the seventh largest by revenues after Indian Oil Corporation, RIL, Bharat Petroleum, Hindustan Petroleum, SBI and TATA motors.

Ofcourse if it had been a government corporation it would not have had to suffer the political interference which has crippled it since the last “business like” minister it had in the late Madhavrao Scindia of the Congress more than  two decades ago. It is time all the Scindia descendants alligned with the right side of reform again.

The best part of Suresh Prabhu’s Rail budget is that it is “timid” in its ambition. It does not promise the moon and instead bats for “incremental improvements” which aligns well with the glacial pace of reform in India. It is realistic in its assessment of political economy compulsions and yet firm on not “giving in” to the long prevalent culture of “pork” in railway budget allocations.

Small is still beautiful and the Rail budget does well to recognize it. It is the small changes which have a big bang for the buck. Problem solving and unplugging bottled up efficiency essentially involves looking for cost effective solutions. The railway budget assiduously finds them all. The only exception is the commitment to green solar energy which, despite the hype, remains a hugely expensive option for grid connected electricity generation in a poor country like India.

If PM Modi’s “invisible hand” was behind the Rail Budget, we hope to see more of the same, strengthening FM Jaitley’s resolve on February 28, whilst presenting the nation’s Budget for FY 2016, to be efficient without being excessive; effective without being cruel and carefully allocating public funds where the maximum private sector jobs can be created; the poor most benefited and the common tax-payers wallet swelled.

The Rail Budget was a good beginning. Lets hope for a  happy ending tomorrow to the budget mania.

pachauri

(photo credit: article.wn.com)

The case of Dr R. K. Pachauri, Director General, TERI and IPCC Chair, is curious, precisely because the dog never barked.

Odd, because the alleged, continuous, sometimes physical, invasion of privacy with sexual overtones, apparently happened near continuously since 2013 in the heart of the India Habitat Center, one of the public buildings designed by Joseph Stein, the well-known German Architect and India lover just before he died in 2001. This is a popular, cultural hub and hangout for artists, the literati, social activists, gourmets and retired folk, which attracts over 30,000 visitors every month and where TERI, the NGO Pachauri heads, is housed in a five story high standalone office. TERI and Sunita Narain’s Center for Science and Environment are the two premier Delhi think tanks on energy and the environment.

“Quiet” some-times, partly consensual, sexual alliances of varying degrees are not unknown between powerful chief executives and compliant assistants. Indeed, the worst sexual assaults happen within the home away from public scrutiny.

What is strange is that such alleged behavior was possible in TERI over a period of two years (2013 to 2015) with none the wiser. TERI has a staff of 1200 of which around 35% are women. Women are at the helm in 30% of the high level professional positions.

That so many women, including those in high level, authority, positions, either did not know of the plight of the assistant or chose to ignore it sounds odd. Why didn’t some dog bark?

One strand of thinking credits RKP, as Pachauri is known, with Machiavellian might and control over his entire staff. Pachauri has a larger than life persona which feeds this perception. He is also the author of a salacious novel – an act of bravado he will surely come to regret. He is a charismatic figure, who has as many friends as he has enemies. The reason is obvious.

There are two kinds of highly successful people. Those who are content to enjoy their success privately and retain a “humble”, low key, exterior. Pachauri is not one of those.

He conforms more closely to the braggart, Richard Branson variety, He is over-the-top- in his choice of headgear (he wears a toupee); in his selection of ties and cravats and in the flamboyant style of his clothes although abstemious in his habits; a workaholic who needs little sleep and travels constantly as TERIs main outreach resource. He is also a fanatic for workplace ethics; expects total devotion to work from staffers and leads by example.

TERI’s Delhi Sustainable Development Summit (DSDS), just concluded on February 7 was attended by international luminaries, heads of multilateral development institutions and the leading lights in domestic natural resources management, business and government. A fitting tribute to the convening power of TERI, a child that Pachauri grew over 40 long years since 1974, from a one room outfit in Mumbai to an international network of committed professionals with a common concern for sustainable development.

The aggrieved staffer first approached the TERI internal committee for sexual grievances on February 9, the first working day after DSDS ended, in a sequence of events paralleling the earlier Tejpal case in Goa. What is it about huge, international conferences which either emboldens hitherto compliant assistants into “coming out” or conversely, aggravates the ferocity of the pursuit by the aggressor?

The complainant next filed a complaint with the police of February 13, following which the police acted rapidly and impounded what could be “incriminating” evidence” like computers and other communication equipment from Pachauri’s office.

The fear, voiced most vociferously in social media, is that Pachauri, a part of India’s privileged elite, will get away with his alleged indiscretion. This shows how slowly public perception changes. Escaping the law may have been possible till 2013. Among the many legislative initiatives the previous Congress government launched was amendment of the criminal laws to explicitly criminalise sexual harassment; voyeurism and stalking and impose heavily punitive sanctions including imprisonment.

Like all laws seeking to change behavior – in this case the behavior of men versus women- the law is draconian in the belief that it should scare sexual offender off and should be “stringent” enough to extract “judicially intermediated just-deserts” for such offenders.

The machinery of law is already at work. Pachauri is fearful enough of arrest to have sought anticipatory bail which he now has till February 26. The police are investigating and gathering evidence in the meantime and will file a “charge sheet” in court if a prima-facie case is made out. If this happens Pachauri will have to fight the case in court which is likely to be a long haul. RKP is stuck in this imbroglio for now.

The real issue is can TERI survive without its “Banyan tree”? Over the past four decades, RKP and TERI have spawned a large number of professionals, who today, are either in high level positions in TERI; business; multilateral and bilateral entities; NGOs and government. Will this band of professionals pull the “mother ship” out of stormy waters? Or will it be a case of studied silence and hands off a sinking ship? Watch this blog.

(Disclosure: This writer worked in the energy practice of TERI for five years from 1995 to 2000).

Packaging Budget 2015

jaitley face

(photo credit: india.com)

The annual ritual of the government’s budget with allocations of money in billions is just gobbledygook for the average citizen. It is the “tone” of the budget which people tune into first and foremost. What must Finance Minister Jaitley do to get the tone right?

First, clothes make a man, as they do a woman. One hopes that the FM will avoid the intricately embroidered shawls he has shown a preference for through winter. He would do well to wear a tailored, dark “bandh gala” (Nehru jacket), now that he has the figure to flaunt one, perhaps with a low- key, accessorized collar. More importantly, the jacket would set the tone of the budget to follow- non-frivolous; cut to a reduced shape to fit the cloth available; modern with a link to the India’s rich past and prescient of India’s glorious future.

A budget theme

Second, he should depart from the tradition of the FM rambling on, in the early part of the speech, about the state of the economy. This is already adequately covered in the Economic Survey released a day or so earlier. Instead, he could usefully spend this time defining a “budget theme” which he must then follow through in the rest of the budget speech by linking specific allocation and taxes to the overall theme.

This writer suggests the theme of “open economy, markets and poverty reduction”. All three fit nicely with the “growth” expectations unleashed by PM Modi. Also these are the three legs for equitable growth.

Open Economy stance

An “Open Economy” policy stance has been consistently followed since 1991 in external trade. It is just that, India has not benefited as much as our neighbours in East Asia. The fault is clearly ours.

Our governments have not seized opportunities overseas which could be dovetailed with domestic comparative advantage, to make the economy part of global value chains. This becomes vital now if jobs are to be added in India.

The real issue is what must we do next to “open” the economy to competition- domestic and international? Four steps suggest themselves.

First, linking markets physically by a first rate “infrastructure grid”-ports, roads, rail and electricity is key to create a seamless national market.

Second, a digitized “tax grid” linking national, state and local level tax systems can enhance revenues; prune evasion and reduce the aggregate tax burden by avoiding “the pancaking of multiple autarchic taxes”. The ongoing Goods and Services Tax (GST) initiative barely scratches the surface.

Third, aggressively privatizing state owned enterprises, including in arms and ammunition, can provide the required business momentum for competitiveness; assist in reaching fiscal deficit targets and benefit consumers.

Fourth, why not open, hitherto closed, domestic markets in land, legal and media services to foreign investment except where considerations of national security exist.

The FM could signal the second wave of liberalization and reform to follow up on the 1991 wave- external trade reform and industrial delicensing, by (A) tweaking competition thwarting domestic regulations and (B) supporting Indian business to reap the benefits of an open economy internationally.

Living by market logic

The BJP has always enjoyed the trust of business. But their commitment to expand markets and competition is not deeply etched enough. There is a lingering fondness for using and growing, the already vast powers of the State to bypass markets and “fast-track” development in a top- down “Developmental State” mode.

Examples include the loss of focus on privatization of state owned enterprises- partially attempted by the Vajpayee government (2000-04); a growing tendency to use the already iffy balance sheets of public sector companies and banks as leverage for funding “impossible public dreams”. Examples are a larger than feasible or necessary target for horrendously expensive and as yet commercially unviable, renewable energy systems and the development of a hundred SMART cities with even the concept remaining undefined nine months down the road.

Neither of these “public dreams” can be funded by market based finance. Both require huge subsidies, either direct budgetary allocations or indirect like “directed” loans from public sector banks. Bad loans which are artificially rolled over in government banks are, as a proportion of total assets, more than double the proportion in Indian private banks. Government owned businesses and banks need to be made autonomous if they are to survive. RBI should censure banks, which make irresponsible “dream” commitments and SEBI should do the same for listed government companies to protect minority shareholders.

The FM must set the record straight on both fronts. The fiscal constraints on public finance are unlikely to permit massive direct allocations for renewable energy or urbanization. He must further clarify that whilst both goals are laudable they should be achieved through projects, which are technically sound and financeable through market instruments.

Commercial finance for renewable energy and urban development

The FM must point out that renewable energy development, whilst a flag ship project, is hampered by the disincentive of subsidized conventional energy supply. Allowing market prices to prevail for retail energy supply is the first step to making renewable energy financeable.

The World Bank initiated a new program of Green Bonds which tap “specific institutional and retail investors with a yen for green development” internationally. Of the US$37 billion Green Bonds issued in 2014 nearly one half were corporate Bonds. Such debt instruments could also be developed for the US$ 1 Trillion Indian domestic Bond market, 25% of which is corporate debt.

Similarly, realism on urbanization agendas is urgently needed. For orderly urbanization the funds must be found within urban areas by rationalizing property and land tax and raising revenue by leasing government land banks for development to private developers. China successfully unleashed Municipal entrepreneurial energy to finance local development. Using national tax resources for urbanization is a poor use of scarce resources. Cities, which on average are 50% richer than rural India, must finance themselves through user charges, local taxes and monetization of local government resources. There can be no free lunch for a city.

Ending poverty by creating jobs

For starters, the FM could usefully adopt the international metric for defining the very poor as those who earn less than $1.25 per day and the poor as those who earn up to $2 per day. But what is much more important is to share a time bound vision for ending poverty.

The World Bank has set 2030 as the year by when world poverty (per capita income >$1.25 per day) is expected to be reduced to a residual economic and social challenge. India could simply align with this challenging target.

Today, 25% of the 1.2 billion poor people are Indian. Setting 2030 as the target for graduating them out of extreme poverty is aggressive. Even with an 8% annual growth, India could only be where China is today. China took 30 years to end extreme poverty (1985 to 2014). India would do well to achieve the same in 50 years (1980 to 2030)

The international consensus on poverty reduction is that strategies which allocate more resources for human development, livelihoods and private sector employment work best. India has lagged in enhancing budgetary allocations to education and health (including water and sanitation), as compared to any other growth oriented economy. One hopes the FM shall redress the skewed allocation since it affects the poor the most.

Small is still beautiful

If this logic is followed, the small and medium scale manufacturing sector, rather than mega projects, should be the focus for jobs and poverty reduction. This is where manufacturing is the least capital intensive; can use existing infrastructure with some rejigging; is most easily related to agriculture and could more easily grow incrementally as business expands.

We must avoid the trap of subverting the “growth” agenda into glitzy but lazy action points. To grow jobs for the poor it is the small things that count, like removing municipal and police harassment of street vendors; simplifying tax assessment processes and “problem solving” by getting local and state governments in growth mission mode.

The FM must pledge to blur the dualism in “well-being”, between 10% of the workforce in the “large, formal” sector and the 90% in the informal sector. The lot of employees in the informal sector can only be improved by “facilitating” employers to grow their businesses. This will happen only if labour regulations are light handed; permit flexible and fair employment practices and adopt a sequenced, incremental strategy for improvement in labour welfare supported by adequate public fiscal support for social protection.

Poverty and jobs filter for budget allocations

Applying a “poverty and jobs filter” to the budget allocations could be an innovative way to present the inter-se allocations across sectors and relate them to the budget theme. This would also discipline government departments to relate their work to the objective of private sector jobs and poverty reduction.

There are many ways of packaging a budget speech which very few actually read though more may hear it through. It should therefore be written for this audience and not the specialist, who will anyway delve between the lines. Best to outline the inflection points in Indian public finance history the budget seeks to create and leave the rest to the TV channels.

1558 words

Kejriwal Ramlila

(photo credit: indiatoday.com)

Speaking today in Ramlila Grounds, the “maidan” of the people’s movement which birthed the Aam Admi Party, just over a year ago, Kejriwal, in his acceptance speech as Chief Minister of Delhi state government, confided that it was God who had ordained the Tsunami like landslide win of the AAP (96% of the available seats).

None of the 100,000 supporters gathered there doubted for a minute that this was indeed so. For them Kejriwal is indeed a God sent savior from the ugly corruption of state agencies; the morbid face of the traditional parties in Delhi and the lop sided “development” which leaves 60% of Delhi’s citizens living in muck and filth without water or sewage systems, though electricity supply has improved significantly, post privatization by the previous Congress government of Shiela Dikshit (http://www.cuts-international.org/ review of customer satisfaction 2015).

Kejriwal still concludes his speeches with a rousing “Inquilab zindabad” (long live the revolution) preceded by Bharat Mata Ki Jai (Praise be to Mother India) and followed by Vande Matram (the title of India’s National Song) but it is clear political experience has mellowed him.

Today’s signs of maturity included a firm rejection of the recently voiced ambitions of several AAP members to ignite AAP “fires” all over the country and spread the party – a mistake they committed last year; a commitment that Kejriwal will personally serve the people of Delhi for the full five years – he unsuccessfully contested the Varanasi polls against PM Modi; a reality check on the speed at which citizens should expect change; reaching out to non-supporters with the assurance that he would be everyone’s CM not just the AAPs and emphasizing agendas which are within his constitutional mandate.

But most of all what impresses is the choice of candidate which carefully reflects caste, regional and religious representation with poorly performing Ministers, fashionistas and charlatans from his previous government, excluded.

AAP is clearly a new age substitute for the erstwhile Congress minus its dynasty, corruption, clunkiness and with a dash of the Communist zeal for equity.

Today, for the first time in four decades, the Gandhi cap- a boat shaped headgear of white coarse cotton, was once again the headgear of choice in Ramlila Grounds. A sea of 100,000 white Gandhi caps, emblazoned with the iconic jhadoo (broom) symbol of the AAP bobbed and milled about, as this simple instrument of defiance and political empowerment, dating back to India’s independence struggle, was proudly donned by all present.

How long can the romance and dedication of a few drive a government to deliver? This is what remains in doubt. The cabinet line-up is unremarkable and four of the six Ministers, faceless new-comers to both politics and administration. Kejriwal pledged that he and his team would work 24X7 for the people without rest. But this is meaningless hyperbole. Every worker knows that efficient governments are run not by tireless people but by systems and institutions, both of which remain in short supply.

Kejriwal mentioned that the government would seek the advice of Bhen (Sister) Kiran Bedi (the BJPs nominated candidate for CM who was humiliatingly defeated by the AAP) and Ajay Makken of the Congress. One hopes he will also seek more professional help to flesh out his 70 point manifesto.

Service delivery is of course priority number one. Water, sewage and transport are directly within the Delhi government’s ambit and should be his focus if he wants to show performance. In electricity the private utilities have consistently improved their performance. Embedding consumer friendly practices in regulation and a consumer representative in the Delhi Electricity Regulatory Commission can deal effectively with the lack of trust between the utility; the regulator and the government.

The more generic reforms can follow. Policing, housing and land management is not in the mandate of the Delhi government so these cannot be his government’s priorities. At best he can and should be a spokesperson for the citizens and press the Union government to perform on these issues.

Setting specific targets for water supply, sewage disposal and treatment and travel time in Delhi should be right up the street of the IIT alumni who crowd the AAP. Time to descend from the realm of high rhetoric and morality into the mucky business of unclogging the pipes of Delhi’s governance.

Show us that you can deliver clean water at a reasonable price to all; that every dwelling and mohalla in Delhi gets a sewage collection system; that Delhi’s sewage is treated before it is discharged into the Jumna river and that public transport is available within a ten minute walk of every dwelling in Delhi at a frequency of not more than 15 minutes during peak hours, 30 minutes during off-peak hours and 60 minutes all through the night.

If you can do this, sir, in 2020 you are sure to get 99% of the seats, possibly with the BJP choosing not to contest.

The budget of small things

jaitley 2015

(photo credit: dailymail.uk.co)

February is when the Indian Finance Minister (FM) gets flooded with unsolicited help from well-wishers on how to get his job done of presenting the Union government’s annual budget on the 28th.

This time, the flood is a Tsunami as a consequence of the Delhi state assembly electoral debacle for the BJP on the 10th February. Some fears are imagined. Others are real.

BJP only for the rich?

The BJP has traditionally been a party which works well with the private sector. If viewed through a “zero-sum” filter, this strategy could be perceived as working against the immediate interests of the poor. The classic example is whether electricity supply should be subsidized and if so to what extent and in what manner and whether the private sector’s bottom line concern for profitability can be consistent with an electricity subsidy for customers?

The “Davos mafia”- banks, big business and “growth” fundamentalists are keeping a hawks eye on everything the FM now says to detect signs of his wavering from the hard path of economic reforms announced by him last year. Their expectation is that he will resort to “populism” to placate the poor, with an eye on the nearing state elections in Bihar.

Will Bihar drive the budget?

The BJP cannot afford to lose Bihar. Doing so will surely crack the political invincibility of PM Modi. Some believe it is already dented by an ill-advised, last minute tactic in Delhi of pitting the PM versus Kejriwal, even though it was known as early as January 15th when the elections were announced, that the BJP was unlikely to win.  None of this environment is of the FMs making. But it hampers him greatly in being bold, outspoken and visionary on economic reforms- as he has shown an inclination to be.

Statistical flights of fantasy

It does not help that the Indian Statistics establishment has further queered the pitch by an ill-timed release of a new formula for calculating GDP which shows that the UPA government was doing fairly well on growth (6.9%) even in its last year (2013-14) accompanied by reduction in the trend rate of inflation (consumer price index) to 9.5% from 10.2% the previous year.

This raises the bar for the FM in FY 2015-16 to unrealistic levels in growth (>8.5 %?) and possibly also inflation expectations (<5% ?).

The dilemma of the FM is that if he follows a tough approach to economic efficiency he gets branded as heartless and gutless if he doesn’t.

Privatization can soften the subsidy cuts

Privatization of our clunky 277 publicly owned industrial companies; poorly governed 7 public insurance companies and 27 banks is a no-brainer to calm both the heart and the gut of the FM.

The share of publicly owned companies in the Indian stock market capitalization is 48%. If more of them were publicly listed this proportion would increase further.

The capital gains from privatizing- selling at least a 50% plus 1 share in publicly held equity to private investors is sufficient to meet the existing annual aggregate subsidy outlay of around Rs 4 lakh crores (USD 66 billion) for the next five years till 2020 with linked fiscal benefits from tax revenue on higher growth and profitability of these entities. Associated economic benefits like more jobs and employment would be additional.

The FM has the choice of either being fiscally profligate or remaining cautiously courageous whilst perturbing the entrenched interests which feed-off the public sector; a small proportion of unfit employees who would lose their secure jobs; petty contractors who have developed a nexus with public sector contracting authorities and Trade Union leaders. None of these are part of the 300 million poor people of India. Nor are they part of 90% of the workforce, which operates in the unorganized sector as contract labour.

The FM would be well advised to err firmly on the side of “financeable equity”. This objective points him to generate additional revenues to finance selected tax breaks and subsidies.

Here are three suggestions that could set the tone of the FY 2015-16 budget.

Metric of administrative efficiency

First, the FM should announce that this government intends to demonstrate its credentials of being an efficient administration by collecting more revenues from the existing taxes despite offering selective tax relief. This fits well with the already publicized drive against “black money” and the return of undeclared foreign assets of Indian national, residents.  This also reassures tax payers that the government intends to retain stability and predictability in the tax regime.

There is nothing like burning ones bridges to bring out the best in oneself. The FM did this last year by taking up the challenge of meeting a 4.1% Fiscal Deficit target for this year and 3.6% of GDP for the next. He should carry through this resolve now without opting for the “lazy” alternative of using the new, inflated GDP data to project a rosy revenue estimate.

Surplus income with small tax payers boosts demand

Second, the FM should demonstrate the government stated preference for “small government”; private finance lead investment and the market.

One equitable way of doing this is to leave more income in the hands of the small tax payer by increasing the income tax-free level from Rs 2 Lakhs per year (USD 3300) to Rs 5 Lakhs (USD 8200). This simple measure takes 90% of the existing assesses (around 29 million in numbers) out of the tax net but impacts only 10% of the revenue.

Pancaked, indirect taxes on consumption (customs/excise; sales tax; municipal taxes) drain 50% of the disposable income of such tax payers in any case, so there is an equity view point also along with the argument for the greater efficiency of a more focused and selective tax effort.

Increase tax revenue equitably and efficiently

India’s tax revenues need to be increased by at least 1% point of GDP but not by continually “milking” the narrow tax base available historically. This approach is neither efficient nor does it build political credibility amongst the tax victims –the salaried middle class. Imposing a new, low tax with a huge tax base as on stock or commodity market transactions and siphoning off a part of the windfall due to the crash in oil prices could be two such option.

Extending income tax to the creamy layer with huge agricultural assets on a presumptive basis is a must. Tax free agricultural income is the easiest refuge for rebranding “black money” as “white”. This loop hole needs to be stamped out.

Agricultural income tax is a tax resource reserved for the State governments. But the Union Government could incentivize States by offering a higher share of GST to states willing to introduce agricultural income tax. This would be in the spirit of efficient, equitable, cooperative federalism.

Third, the Jan Dhan Yojna for financial inclusion has opened 125 million new bank accounts during the last few months. The bulk of these accounts remain dormant. But despite such caveats, this is a good scheme. Recent work, including by Thomas Piketty illustrates that personal wealth is the biggest asset in incremental wealth creation. Why not extend then, albeit in a small measure, the key to wealth creation to the poor also?

Endow the poor for wealth creation

Dhan” (wealth) is an asset-something you own. It is a pre-condition for wealth creation. Why not open bank or Post Office accounts for the poor also? Of course the poor have no surplus to put into a bank. But the government can fill this gap by depositing Rs 10,000 (USD 164) into each of the bank accounts of all “poor” account holders as a 10 year fixed deposit from which only the interest income would be available to the account holder till maturity. To narrow the ambit and the financial implication of the scheme initially, only poor women and poor senior citizens (the most marginalized of the poor) could be eligible.

Fiscal fundamentalists will deride this measure as irresponsible in an environment when subsidies have to be contained, if not reduced. There are two reasons why their apprehensions are unfounded.

First, the small value of the deposit and its unavailability for withdrawal for 15 long years reduces the attractiveness of the scheme for would be scammers. The annual interest earned of Rs 800 (@8%) per account is not enough to attract fraud but sufficient to keep a genuinely poor person interested in the account as a source of additional income. For the Bank this provides a pool of valuable long term resources for their Treasury operations.

Second, the fiscal outlay, whilst significant, is not unmanageable. The likely pool of “poor” women and senior citizens would be around 200 million. If full coverage is targeted over a three year period, an annual budgetary allocation of around Rs 70,000 crores (only 18% of the existing aggregate allocation for subsidies) would be required. The spread effect, both political and economic, is hugely significant.

In comparison, the Union government alone spends an estimated Rs 4 lakh crores (USD 66 billion or 4 % of GDP) on subsidies. Much of this outlay is either lost in transit to the beneficiary (as in food subsidy- refer to Ashok Gulati, India’s brilliant agricultural economist) or the targeting of the subsidy is so vague (fertilizer and energy subsidies) as to benefit the poor only marginally. A “wealth and income transfer” scheme aided by the Unique Identification mechanism, where available, is likely to be more efficient and effective.

The recent developments in Southern Europe and now in Delhi should convince Mr. Jaitley that “demonstrated equity and inclusion” as a “brand” is in. Citizens do appreciate a tough “reforms” stance. But it must be balanced by effective instruments for income transfers to the poorest of the poor.

BJP, take five!

BJP

(photo credit: archives.financialexpress.com)

Delhi Assembly election 2015 is beginning to resemble a Greek tragedy for the Bharatiya Janata Party. What a change from the national elections in May 2014 when the BJP shone in comparison to the inept Congress Party. The motley crew of small regional or local parties (like the Aam Aadmi Party) also could not measure up to the exhilaration created by Prime Minister Narendra Modi who seemed capable of moving the nation, if not the Earth itself, so long as he was given a long enough lever to do so. The people responded positively in ample measure.

But charismatic, centralised leadership, like Mr Modi’s today and Mrs Indira Gandhi’s earlier, whilst a huge advantage in national elections, cannot single handedly carry a local election. Delhi is likely to make this point to leaders yet again.

It is highly unlikely that the BJP will get a majority when the votes are counted on February 10, 2015.

Why did the BJP juggernaut fail in Delhi? Here are five reasons, which are also lessons for the future:

First, there is no substitute for an empowered, decentralised leadership in state-level elections. National parties are, by their very nature, highly centralised. This is why their only option is continuous micro-management by a central election committee. In the instant case of the BJP in Delhi, this was left till too late. The media blitz, the frenetic campaigning, the Cabinet ministers unleashed in end January to make up for inept local leadership, all reinforced the general impression of panic at the BJP high table and a crass attempt at wooing the voter purely for electoral gain.

Second, never underestimate your opponent. The BJP, which has a very thin leadership, got completely engrossed in its grand project of governing India and forgot that local votes have to won locally. The fact that the BJP won all the Lok Sabha seats in Delhi by hanging onto Mr Modi’s coat tails should not have induced the lethargy it did.

In comparison, Arvind Kejriwal never let his guard down. He also had the advantage that the AAP got purged of interlopers, self-servers and free-lunchers; all of whom left it when its prospects seemed dim, post May 2014 debacle in the Lok Sabha elections.

Lean and hungry, core AAP supporters kept up the leg work amongst the voters.  They refined their agenda to suit the Muslims, Christians and disenchanted Congress supporters and carried their message door to door. India loves a fakir (ascetic) and Muffler King Kejriwal resembles one, even from the tinted window of his new Toyota Innova.

Third, performance matters. The BJP’s biggest handicap in Delhi is the non-performance of the Union Territory’s three municipal corporations ruled by it. These entities are dens of corruption and completely erode the national image of the BJP as being relatively above corruption. Prime Minister Modi came to power on the performance plank. But the sordid reality in these three local bodies did not change, not even in the last nine months of direct management by the Union government, significantly diluting the BJP promise of good governance.

Fourth, stopping petty corruption yields high dividends. The instant “governance reform”, to the relief of Delhi’s “underbelly” (street hawkers, small shopkeepers, auto drivers, casual workers, petty contractors), during the 49 days of the AAP government meant the complete stoppage of harassment by the police and municipal corporations. Once Mr Kejriwal resigned and governance devolved upwards to the Union government, petty corruption returned in full force. This reinforces the impression that Mr Modi’s extraordinary executive capacity and expansive aspirations for India are not reflected in the rest of the leadership of the BJP.

In comparison, the AAP got “tempered” in defeat. They humbly accept that they erred in resigning. They appear more politically savvy. They kept up their strategy of ground-level contact and are hungry for power. The belief is strong that an AAP government will enforce “freedom from petty corruption”.

Fifth, Delhi is a city of “winners” and winners do not take kindly to subaltern rule. Delhi has the highest per capita income in the country. Its public services are both highly subsidised and of superior quality than elsewhere. It is not surprising, therefore, that it has been a “destination city” for the last two decades. Delhi comprises people who have self-selected themselves as “winners”: by entering government service through an exactingly competitive process; migrating from the surrounding areas with “fire in their belly” to earn a better life and small and medium scale business people in tourism, hospitality, IT and exports. These are highly entrepreneurial people and expect to see the same quality in their leader.

Mumbai is no different. Maharashtra’s chief minister Devendra Fadnavis is so conscious of his relative youth (he is 44) and inexperience that he takes every opportunity to dispel the notion that he is just a shoo-in of Prime Minister Modis. He needs to do that if he is to govern the proud Maharashtrians credibly.

In Kiran Bedi, the BJP had an independent, high profile, outspoken candidate for chief minister. But she was muzzled and has looked progressively more forlorn since her nomination on January 15. Gone is the assertive confidence. The Bedi baan (arrow) has been tamed into a submissive, humble “subaltern”, basking only in the reflected glory of the Prime Minister. Not quite what she has been thus far.

In the change from being a leader to becoming a dutiful subordinate, Ms Bedi lost her edge to inspire. She now closely resembles any of the many “subaltern” leaders of the Congress, none of whom are encouraged to have an identity larger than the party. She is likely to suffer the same fate. She will have to wait for the tide to raise the BJP boat again before she can have a go at political power, most likely at the national level.

Finally, is the BJP’s likely poor show in Delhi a harbinger of what will happen in Bihar? Nitesh Kumar’s Janata Dal (U) would do well to bear in mind the lessons from Delhi’s elections.

The BJP is today India’s only real national party. Fighting the “Gir Lion” needs more than development statistics and caste calculations. Time to put the JD(U) boots on the ground to5work.

Reposted from the Asian Age February 6, 2014 <http://www.asianage.com/columnists/bjp-take-five-497&gt;

jaitley dnaindia.com3  

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

A cold Republic Day had FM Jaitley looking dapper under his stylish cap as he snuggled into his overcoat on a rain lashed Rajpath munched nuts and broodingly watched the parade go past.

PM MODI’s OFF-SWING

Was he fleshing out what he would say in his budget speech to the Indian Parliament just one month away?  Should he bowl a leg-spin veering sharply left towards equity or an off-swing veering right and towards growth? Around him, on its 66 Republic Day, Modi India was visibly exhilarated celebrating its “off-swing” to the right.

China, possibly stung by this sudden change of events, after the cozy, bon homie of the recent jhula swing on the banks of the Sabarmati, retorted by clasping Pakistan even tighter as an eternal friend. Meanwhile the Greek “loony left”, united with the “loony right” to aspire to become a sovereign debt defaulter with the rest of Southern Europe waiting to follow, should their anarchic tactic succeed.

SOVEREIGN DEBT STRATEGY

Avoiding payment by default is not a new strategy. Latin America similarly exploited the short memories of lenders with serial debt defaults.  In contrast Asia, in general and India, in particular, has been very puritanical about its debt obligations, never having defaulted even once in the last forty years, though we came close to it in 1991.

Whilst morally correct, it is unclear if this is a good fiscal strategy. Standard and Poors rates India sovereign debt BBB-, the same as Brazil (which defaulted thrice-1983, 1986 and 1990 in the last 40 years) and lower than Peru-BBB+ (which defaulted twice in 1980 and 1984). From this perspective, debt default is not about “prestige”, “national honour” or about financial rewards. It is merely a game of brinksmanship to be played with the market, if it serves us well.

Was FM Jaitley pondering the merits of doing a Latin America; borrowing recklessly to finance a populist, public investment binge, which “growth-wallahs” are crying themselves hoarse demanding?

Borrowing more is the “soft” option to reforming expenditure since tax collections have dipped. Our borrowing capacity for FY 2015-is limited by a Fiscal Deficit (FD) envelop of 3.8% of GDP, down from the target of 4.1% in the current year. Even the higher FD level severely constrained resources though this constraint remained hidden. The previous UPA-II government put so many non-fiscal barriers on investment-lengthy environmental approvals; land acquisition constraints and contractual inconsistencies which ensured that the project stream froze thereby avoiding additional cash outflows.

The present government is working overtime to unclog the pipes and clear payment arrears. These have built up over time but they do not show up in the budget. Unlike Indian companies, the government follows the “cash” and not the “accrual” accounting system. Both unpaid current liabilities and uncollected current assets are not accounted for in the annual budget. This loop hole enabled the previous government to “sell our future” by collecting arrears whilst falsely showing a robust budget allocation.

GROWTH AND INFLATION

Indian “growth-wallahs” are prepared to risk inflation if it means pushing growth to 7% from the 5.5% it is likely to record in the current year. But the trade off, at the margin, between growth, inflation and jobs is unclear. This is dangerous ground for those living on the edge.

Growth is just a meaningless number for the average citizen. Jobs are welcome of course. But we do not have a “jobs filter” that can assess competing investment.  We do not even measure changes in employment through the year. In comparison inflation is an everyday reality which the poor and the urban lower middle class have to battle with daily.

If there is a choice between growth and more inflation, the FM would be well advised to choose containing inflation to below 5% even at the cost of chugging along at a 6% growth level.

PUBLIC INVESTMENT IS HIGHLY INEFFICIENT

The real question is if the domestic and international private sector is unwilling to invest, as for example in Nuclear energy, how can it be desirable for public investment? Clearly, an unhelpful institutional context makes these investments into “lemons”. Unless the root causes of their unviability are addressed, such projects are neither good for the private nor the public sector.

Public investment stoked growth is strongly dependent on the efficiency of public expenditure and the avoidance of “pork”- gold plated projects which fail to provide social returns and jobs. Excessive investment in new renewable energy (a rapidly evolving technology) has precisely this risk.

NO BUBBLES PLEASE

Of course the stock markets will not be enthused by such fiscal caution. But who really gains from the irrational financial exuberance (or despair) of stock markets except a few savvy speculators with deep pockets- not all of them Indian either.

Real Estate is another sector which should be left to lag not lead growth. It is a safe haven for “black money” fed speculation. Five years of cheap money since 2009, high inflation and massive corruption are the drivers of the Indian realty bubble. We have to guard against such bubbles, which consume the savings of the middle class, as in Japan (1980 to 1990) and more recently in the US (2004 to 2012).

LOOKING BACK TO THE FUTURE

One stratagem to inject conservatism into the budget would be to project the FY 2015-16 budget on the growth and revenue numbers which were achieved in 2014-15.

Looking backwards to define the fiscal envelop will further constrict spending estimates. But this would be a useful, albeit unorthodox mechanism, to drive better collection of tax and non-tax revenues and contain “pork” in the spending estimates.

If there are “happy” surprises – revenue exceeding estimates or growth exceeding forecast levels, the surplus generated could be allocated to pre-defined schemes in a supplementary budget later in the fiscal year. Leaving something on the table is good strategy anyway to keep stakeholders engaged and responsive.

Our biggest worry is that populism will trump reason. Subsidies are the elephant in the room of fiscal responsibility. Rationalizing them has become a political hot potato with potentially high political costs. This is why reform needs to be both well timed and appropriately sequenced.

LIMITED REFORM WINDOW

FY 2015-16 is the only reform window available to India for the next four years. If we can’t do it now we never shall. The 2016-17 budget shall be populist since Bihar (2016), UP (2017) and then Rajasthan, Karnataka, Madhya Pradesh and Chhattisgarh go to the polls (2018) followed by National Elections in 2019.

Can we, for starters at least, legislate a cap on subsidies just as there is a medium term trend and cap on FD? We don’t know enough about the extent, substance, nature and social impact of subsidies. Why not make these aspects more explicit by changing the way in which we present the budget documents?

Two subsidy reform steps are immediately doable.

First, making petroleum prices market determined is a no-brainer in the present scenario of cheap energy. This will plug one gap in the subsidy envelop.

Second, rationalize agricultural subsidies which are provided through multiple mechanisms; assured purchase prices for cereals; cheap fertilizer; cheap power; cheap irrigation water; no tax on income and minimal tax on land. Despite these subsidies, rural wages remain low and migration to urban areas is the only options for landless workers and marginal land owners.

These subsidies have only served to create a class of elite “millionaire” farmers; a tiny fragment at the very tip of the 600 odd million strong farming community. Why not use it to better target the poor, rural folk instead? An additional advantage would be that the rural poor have a significant overlap with Dalits and Muslims, neither of which are part of the BJPs traditional support base.

Will FM Jaitley grasp the moment and push through reform or do we have to wait till 2020 for substantive change?

(Reposted from the Asian Age January 21- http://www.asianage.com/columnists/bjp-dials-100-bedi-rescue-021)

bedi_kejriwal

(photocredit: sahilonline.org)

The DNA of Kiran Bedi and the Bharatiya Janata Party seem twinned at birth. Bolly-wood films thrive on the “masala” (formula) of twins separated at birth but reunited after an epic struggle with a happily tear-jerking end. The BJP and Ms Bedi finding each other after so long is real life imitating art.

For both, “discipline” comes with a capital D. They share a strong belief in the ability of large, efficient organisations to provide direction and in the efficacy of formal rules and regulations to manage society.

“Crane” Bedi could as well have been known as “danda” Bedi. Armed only with a wooden baton, she single-handedly charged at a bunch of unruly, sword-wielding Akali protesters in Delhi. The BJP is similarly admired for strong leadership and decisive action.

Kiran Didi mesmerises kids just as Mr Modi does. In both these leaders kids see a strong, stern but clear-headed “parent” with a consistent idea of what to do next and the ability to prescribe, what seems to be, a winning game plan. They have a common bias for acronyms (Kiran Didi’s 6Ps — police, prisons, prosecution, people, parents and press — compete with Mr Modi’s 3Ds — democracy, demography and demand) and a shared communication style of keeping the message simple: Hard work, discipline, steadfast goals and an alert mind ready to grab any opportunity being the mantra for advancement.

Business people, Punjabi refugees, professionals, the “sarkari” middle class and all those with a stake in preserving the status quo form the core urban constituency of the BJP in Delhi. They all look on Kiran Didi with approval. She is a Punjabi herself; a self-made professional who strove to excel at whatever she did and ensured that she got recognised for her achievements. Professional aggression, ambition and, above everything else, success, is what this core constituency adores. These attributes Ms Bedi has in plenty.

Given more time, Ms Bedi could have consolidated the woman vote behind her. She is today a mélange of what many young girls dream to be a mother, a successful government officer, an outspoken social activist, a TV personality, a politician and, implicitly, very much part of the Delhi elite.

But time is scarce with barely three weeks to go for the polls on February 7, 2015. Indeed, the fact that time was running out is what induced the unorthodox induction of a “rank outsider” into the BJP, ostensibly to lead the campaign and, possibly, eventually become the chief minister. Galling as it must be for Mr Modi that his name was not enough to pull in votes in Delhi, the fact is that the BJP must look at systematic dispersal of power and responsibility if they are to win in Bihar and later in Uttar Pradesh.

This, in fact, is the way it has been thus far. BJP chief ministers in Madhya Pradesh, Rajasthan, Chhattisgarh or Maharashtra do not view themselves as subordinate to the Prime Minister, at least not yet and certainly not in the manner the hapless, erstwhile Congress chief ministers were with regard to Sonia Gandhi.

The induction of Kiran Didi should also be read as a sign that Mr Modi is not averse to modernising the BJP and aggressively broad-basing its membership beyond the rather obscure agenda of the Sangh. Mr Modi seems to be working towards reinventing the BJP as a party of the right, committed to small government functioning on the P4S principle of private sector-led growth, security, sustainability, social protection and passive secularism.

Both the BJP and the Aam Aadmi Party have their core support base intact in Delhi. It is the direction of swing in the erstwhile Congress supporters — Poorvanchali migrants, scheduled caste, scheduled tribes and the Muslims which will determine the vote change this time around.

Ms Bedi’s induction into the BJP is a game changer because, first, she has the star appeal and freshness to attract the middle class supporters of the AAP who were disappointed with Arvind Kejriwal’s reluctance to rule in 2013 and in whose eyes Mr Kejriwal became an opportunistic quitter. Many were coming around to the idea of giving him a second chance rather than support a “traditional party” like the BJP. Now they see in Ms Bedi an alternative, the manifestation of a “new” BJP just as AAP was in 2013.

Second, Ms Bedi shall attract the wavering, non-Muslim Congress supporters who are rudderless today with the demise of the Delhi Congress. For aspirational women and the educated professional, Ms Bedi’s BJP seems to be the true inheritor of the Congress’ erstwhile mantle of stability and development which kept it in power for 15 long years (1998-2013).

Third, the BJP’s core base is unlikely to reject the “outsider” Ms Bedi who exudes success and brims with optimism. Too much is made of the disaffection of the old-time Delhi BJP leaders. These are long-term political players, honed in the Sangh’s discipline to never break ranks. In any case, they can easily be assured that Ms Bedi is only “transiting” through Delhi to enter the national government, where she would get more traction. Police, land and housing in Delhi are all dealt with by the Union government. In fact, the Delhi government is more like an empowered metropolitan authority rather that an Indian state.

With the Congress in decline, Delhi elections are a face-off between the BJP and the AAP. The AAP 2013 phenomenon was a unique convergence of the middle class and Delhi’s “underbelly” votes. But even this coalition was not sufficient to get AAP a clear majority. This time around the AAP will be boosted by significant Muslim support which earlier kept the Congress in power. But even within the AAP’s core support base they will have to contend with Ms Bedi attracting women voters.

Ms Bedi is a powerful role model and a convincing administrator to assure the empowerment of women and their protection, not least because of her linkages with the police.

If Kiran Didi can project herself as the “face” of the “new BJP” — forward-looking, effective, gender sensitive, socially progressive, honest and committed to equitable development — she may well nudge the BJP towards forming the government in Delhi.

The Bedi baan (arrow) unleashed by Mr Modi is sure to give sleepless nights to “King Kejriwal” as he trawls the slums of Delhi to keep his flock intact.

sadhu

(photo credit: freepik.com)

There are three reasons why the AAP shall succeed in holding off a BJP government in Delhi.

BICKERING IN THE DELHI BJP

First, the debilitated state of the Delhi BJP unit for which the malfunctioning mike at PM Modi’s election rally on January 10, 2014 was an apt metaphor. PM Modi or his alter ego Amit Shah have not had the mind space to redress what ails it: intra-fighting, lackluster leadership and just sheer inefficiency. These short-comings do not go unnoticed by the demanding and discerning BJP supporters in Delhi. They showed how lukewarm they were during PM Modi’s recent 10th January election rally in sharp contrast to the upbeat mood, way back in March 2014, when Modi first rode into Delhi as the BJPs PM candidate.

In contrast Kejriwal and his team are a chastened lot- apologetic about their earlier blunders; better honed for politics; eager to please and reach out to Delhi voters with a campaign strategy of individualized and personal interaction and long term relationship building which appeals instantly. With the Congress in retreat and tacitly backing AAP-their ideological ally- an AAP surge is certain.

SAFFRON SELF GOAL

Second, the aggressive Hindutva campaign and the indiscipline of the saffron clad BJP ranks, who frankly sound like they belong in the 18th century, with their calls for increasing the production of Hindu babies; a return to the “traditional” subservient role of women in Hindu families and the obsession with religion. India is a religious country and most Indians believe in God and practice a faith. But we do not want to impose our faith on others. Nor do we want others to impose theirs on us. Mutual respect with complete freedom of choice for believers is the Indian social mantra of long standing. All faiths proselytize. But it does not have to be done in a grandstanding and confrontationist manner designed to make headline news. True and efficient Missionaries do not try and get brownie points by advertising what they do.

Departing from the development script immediately risks losing the minority- read Muslim 12% and Christian 1%- vote entirely and alienating intellectuals, secularists and educated, aspirational women and a large segment of the upwardly mobile youth. This is the “self-goal” that the saffron clad leaders of the BJP have scored.

Some also read into this irrational indiscipline of the saffron clad crowd, the invisible hand of the wise men in Nagpur- the RSS.  PM Modi is very much his own man and not the typical RSS acolyte who will allow fuzzy theology to trump real achievements or threaten medium-term National objectives. His agenda is clearly development and this is what got him votes in the 2014 national agenda. He has gone from strength to strength and in the space of a mere one year, has become the sole voice of the BJP/RSS. Nagpur could not have liked that.

More importantly, those, over whose heads PM Modi elevated himself, have an axe to grind and an incentive to undermine him. Ensuring the BJP loses the Delhi poll aligns with this perverse objective.

MISALIGNED AGENDA

Third, the BJP has not reduced its image handicap of being perceived as the party of the rich. The erstwhile refuge of the poor-the Congress- has slipped into oblivion and that mantle has squarely been grabbed by Kejriwal. But it is not just a matter of perception.

The poor-the foot path vendor, small shop keepers, “auto” drivers, retired folk and Dalits (25% population) remember with nostalgia, the short reign of Kejriwal when he cracked down on the widespread petty corruption at the public interface level. In contrast the over 200 days of indirect governance by the BJP Union Government has seen an upsurge in petty corruption and disregard for the poor and the powerless in the Police, the Public Service Departments and the Municipal Corporation.

WHY SHOULD BJP CARE?

How big a blow will it be for the BJP to lose Delhi? Far from bemoaning this outcome the BJP should want to lose this election. There are three reasons for this contrarian view.

First, AAP is likely, at the very least, to be the main and significant opposition. The BJP will be hard put to keep up with the forensic oversight the AAP would unleash on the functioning of a BJP government in Delhi unless the Delhi unit is completely revamped. There is little chance of this happening since too much political capital needs to be invested for this with meagre political returns. This helplessness is best demonstrated by the inability of the BJP to reform the three Municipal Corporations it controls in Delhi. Hence the BJP has very little upside to lose in Delhi.

Second, an AAP government is likely to have the very same limitations it had when it last came to power; an uncooperative National Government controlling both the Police and Urban Development. Delhi is thirsting for more water but with a BJP government in Haryana (the source of additional supply) and a BJP National Government, an AAP government in Delhi will get no help in getting additional supplies. This indicates an AAP government is likely to underperform versus people’s expectations. So best to give them a long rope with which to hang themselves conclusively.

Third, PM Modi’s “A” team (Arun Jaitley-FM and Rajnath Singh-Home Minister) is getting awfully stretched. Big political battles are around the corner; Bihar end 2015 and UP a year later. There is also the job of getting on with routine governance; the nuts and bolts of managing the pipes that deliver public interest outcomes like investment; growth and jobs. Managing Delhi is a distraction the BJP could do without.

Of course the BJP does not have it in its DNA to take the low profile, strategic, sustainable path. Their forte is the “shock and awe” tactic. The focus is very much on glossy, big ticket items: grand new schemes and projects; a “strong Rupee; soaring stock markets; clever IT apps; outstanding oratory and a one-headline-a-day frenetic outreach schedule.

Time for the BJP to do a huddle and think its Delhi election strategy through. Having recently won the war (National Elections), losing a skirmish (Delhi) is ok if it results in winning the battle (Bihar & UP) to follow.

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