governance, political economy, institutional development and economic regulation

Archive for September, 2013

Indian Blood is Expensive

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Indian diplomacy was at its worst last week. It conducted the PMs visit to the US as if he was attending a seminar on economics, in Neemrana. If India is a superpower (perennially waiting to happen), it came across, on the one hand, as a country sapped of all energy and squabbling about petty matters whilst on the other, punching way above its weight (as usual), by seeking to “inform” international debate on marco-economics, political strategy and social development. When will our politicians learn to control their babus egos? International agendas should be set by politicos to project a short, simple and credible message, not waffle on about everything under the Sun.  

Iran, in sharp contrast, showed real leadership and stole the thunder. The freshness of Iran’s approach to international rapprochement and the staleness of India’s squabbling with Pakistan couldn’t have been starker. The Pakistani perception of India and its leaders, aired on Pakistani television as bumbling compromisers, unable to live up to meaningful actions was true, but humiliating.

India used to be a Banyan tree spreading its roots. Today it has become a Baobab tree. Massive from the outside. Hollow from within. This is despite having the best technical talent and intellect in the world. Indians leave India to grow, get respect abroad (like Raghuran Rajan) and only then have the choice to return home to be recognized. The Indian private sector has similar constraints. Indians invest 1 % of GDP abroad (the real figure is higher but the IMF and the GOI do not share with us their assessment of investments abroad using havala) because of the ease in doing business, even in nearby Bangladesh, Myanmar and Srilanka.

Modi spoke on Sunday, from the ramparts of Rohini in Delhi, of “small” nations leaving India behind. It seems he was referring to East Asia, which overtook India in the late 1970s. He could as well have referred to our neighbours in South Asia and Myanmar, who have more recent successes. After Bangladesh, India is the poorest country in this region (World Bank definition of people with income below $2 per day). Srilanka, Nepal and Pakistan all do better than us. Both Srilanka and Bangladesh kept economic growth above 6% in the period 2009-2012 (World Bank Development Data). Even Nepal, managed to keep it above 5%, astoundingly despite (or perhaps because of) an undefined political architecture or credible government. In Pakistan, growth trended upwards from 1.6% in 2008 to 4.2% in 2012. Indian growth meanwhile declined to 3.2% in 2012. The manner in which Srilanka, Bangladesh and Myanmar have shaken off their erstwhile, crabbish lethargy of looking inwards is thrilling for business. We can learn from them.

External and internal conflict is a major growth retardant. The lengthy literature on the negative impact of conflict and violence on social capital and community well-being highlights the importance we need to give to the Rule of Law and Security. Sheikh Hasina in Bangladesh has met the extremist challenge upfront. Rajapaksa similarly tamed the Tigers in Srilanka. India’s inability to take strategic and bold steps to root out terrorism is attributed to our being a democracy and hence a soft State.  Nothing could be further from the truth.

If you are poor and marginalized, the Indian state would appear extremely hard and uncaring for your rights. Over 700 million people fall in this category. We are a country still enthralled with inherited social and ritual, class status. In this respect we are very similar to the UK and differ from our true team mate, the US. However, the US acts only in national interest. This is their ethos. You make it or break on your own. If we want to be taken seriously by the US (and the world) we have to first deal with what ails us within.

It is wrong to rush to the US to shake a few limp hands, limply. It is tragic to have leaders who represent no one, or to have those who drive from the back seat. It is unwise to degrade babudom into a quivering jelly of indecision even though we all know that both growth and social inclusion are based on selective but firm and effective state intervention. It is a crime to waste our intellectual and entrepreneurial talent overseas and be poorly served at home. It is unconscionable to spill Indian blood so casually but continue shaking hands with a Pakistani, puppet, Prime Minister. Yes, the nations of the world will applaud this conciliatory, rational approach. But what they respect, is America’s single minded determination to “hunt and gun down” the perpetrators of violence which spilt American blood in America.  Even tiny UK attacked Argentina (admittedly better known for its beef than its military prowess) in a display of the essence of sovereignty; the monopoly of the State over violence within its territory. The world fears China’s single minded, uncompromising pursuit of national interest. If we want to play with the big boys we have to emulate their tactics.

Any poor Indian looking to buy blood for an operation faces prohibitive prices and often scarcity. Why is the blood of our babus in uniform, so cheap then? Let’s value it better.  

 

Babunomics for Rahul

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Rahul Gandhi’s very public grabbing of the political lead on Friday, on a day when the Delhi glitterati were busy electing a new management committee for the Gymkhana, perturbed the generally convivial mood. Babus however are used to such periodic outbursts from their political masters, so the Prime Minister, sitting in Washington, must have smiled his secret smile at the wanton ways of the young and gone about his daily business of shaking hands and uttering vacuous pleasantries and platitudes.

Today Rahul’s intentions are suspect. Was it conviction or tactics that led him to rubbish the criminal bachao ordinance? If it was the former it needs to be followed up and a pattern of actions based on convictions established. He must rubbish the second tired and “populist”, vote centric measure, announced last week; hiking Babu pay by setting up the Seventh Pay Commission.

Ask any aam admi or aurat (AAAs) and their instant response will be babus are a mollycoddled, good for nothing lot, who earn more than the value they add…..the only exception being the army. Not surprising, since the value of spilling ones blood for the country or risking one’s life in civil relief operations is difficult to quibble about. Ask any babu (or army jawan) at the end of the food chain and they will painstakingly list why they can’t make two ends meet in what they earn. Ask a babu (or a general) at the very top and they will shrug their shoulders, clad in a stitch-less Arrow shirt and sigh that the government doesn’t appreciate their worth. Quite a perception gap there.

There are at least 1 billion AAAs against only around 200 million family members of the 19 million “babus” (including the army), the government employs and pays in the federal, state, local government level. Paying more to babus therefore should not make good politics.

Rahul should play to his intuition and stick with the AAAs by nixing this proposal as being untimely and wasteful but assure that the government, if re-elected, would link babu compensation to merit and performance so that they deliver more than they receive. Here is a minimalist babu reform program:

  1. Till now babu pay is indexed to inflation. Unlike the poor, babus earn more if they waste more. This can change is babu pay is indexed instead to economic growth. Freeze the aggregate wage bill of government at the existing level creating a fiscal envelop within which babus of different groups (civilians, army, technical etc.) can bargain with each other for their share of the aggregate wage bill. If babus want a higher share of GNI as pay, they will have to first grow the economy and only thereafter take a part of that that growth as their share.
  2. Ensure that the highest paid babu earns at least 15 times the lowest paid babu. This will ensure skill related compensation parity within babudom. Currently this ratio is around 11, which is very low and illustrates the well-known problem of over compensating the more numerous but less productive “bottom feeders” at the expense of the more productive but underpaid and fewer, “top feeder” babus.
  3. All perks (house, furniture, house help, official car, telephone etc.) to be monetized at market rates and taxed. Babus to be offered the option of opting for the perk or the cash. This will make transparent the Cost To Country (CTC) of a babu; avoid the existing senseless waste of perks; encourage the physical diffusion of the power elite into the respective housing, consumer durable and services markets of the cities they live in and also save them from the cold bath of retirement, when all perks are withdrawn and only a meager pension is left.
  4. Wholesale across-the-board public service reform is not politically feasible in India due to competing political interests. An option is to select a few corruption “hotspots” and critical departments for extensive restructuring and reform to meet the hitherto unmet objective of enhancing efficiency and effectiveness.
  5. There are low hanging fruits available in ports, airports, railways, roads, telecom, coal and energy. (a) They should be manned by specialized “officer” oriented cadres operating in an electronic medium, with minimal support staff. (b) All positions to be filled through a fast track Union Public Service Commission led process, by competitive selection, including from outside the cadre, on time specified contracts doing away with life time service appointments. (c) Public sector enterprises, in these critical areas, to become Board managed with a clear arms-length relationship from government ownership at the very minimum and progressively and selectively privatized.

This reform agenda will not please the left (they traditionally protect the bottom feeder babus and state owned enterprises) and the “old guard” of the congress, who have a stake in preserving the status quo. It will however endear Rahul to the young professional community and there are at least 100 million of them. Rahul should take heart from the ground swell of positive opinion he has enjoyed since yesterday by doing the “right thing” wrt his condemnation of the criminal bachao ordinance. If he truly believes that he has a legacy to live up to and a destiny to fulfill, this is another opportunity to astound us with a second outburst against more-of-the-same management of babudom. Time is running out. Modi is watching.

The “Man” who betrayed himself

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We assume that knowledge, learning and professionalism is what makes the difference between an “extractive” policracy and a “developmental” one. This builds on the modern Indian tradition of education being the path to progress and the high ritual status given to learned Brahmins, poets, literatures and artists in ancient India. Dr Radhakrishnan (1962-67), Dr Zakir Hussain (1967-69), Dr Abdul Kalam (2002-07) and Pandit Nehru (1947-1964) did not disappoint in their actions as President/Prime Minister by remaining true to their intellectual integrity.

In 2004 when Dr Manmohan Singh was selected by Mrs Gandhi to became PM, there was relief that after a hiatus of two decades, India would again be led by an “intellectual” far above the hurly burly of election politics, with no personal stake and no motive, except to “wipe the tears from the eyes of the poorest Indian” (the Mahatma). We exulted when Dr. Singh showed his mettle in initiating change in our energy policy, continuing the BJP approach in external relations of abandoning the deadweight of polarizing ideology, unless it served national interest and seemingly putting Indian on the track of fast growth with social inclusion. In 1984 he was an accidental choice as PM, out of the several other “old” faces around, who were considered politically innocuous enough, to keep the seat warm for Rahul.

In 2009 we voted for Dr Singh, based on his record of the past five years but also based on our belief,  that more and better was to come. He and the Congress with him, won and the deluge began. Like the collapse of the mountains above Kedarnath, the lofty edifice built up by reputation and public expectations cracked and collapsed under the weight of timidity, poor political instincts but most importantly self-betrayal.

Dr Singh betrayed himself time and again as he turned a Nelson’s eye to massive corruption, allowed decision making to be subverted by unconscionably partisan politics and sloth. He defined the integrity of the highest executive position in India as a narrowly construed “personal” integrity and in doing so reverted to his essentially “babu” roots of keeping “his desk clean”. Even this is questioned in the 2G scam and Coalgate, though most would put down the seeming links to him, to a secretariat, outside of his control. He betrayed his profession, since economics played, at best a marginal role, in the working of his cabinet. He betrayed his earlier characterization of himself as a Sher (Singh) and appeared to meekly toe the backward looking, ineffective and contradictory party line. In acting thus, he debased the high office he holds. Who holds the Nuclear “button” today is really the question?  and does the World believe that Dr. Singh would be allowed to press it should the situation warrant?

Could he have acted differently? Was he constrained by the limitations imposed on “outsiders” joining the “policracy” laterally, as Russi Mody was in Air India or Sudhir Muljee in the State Trading Corporation? The analogy itself nails the absurdity of the comparison. When the going gets tough, the tough get going….one way or another.  

Here is some gratuitous advice to Dr. Singh. It is not too late to resign. Rahul is ripe to take over and we would all welcome his coming out of the shadows. More importantly, when you became PM you became “our” PM, not the Congress Party’s representative. You are, hopefully, not just any other policrat. Please preserve our faith in the belief that professionals and intellectuals are actually “high minded” enough to work against their own self-interest. Are you scared that once the “immunity” of high office is lifted the opposition will go after you hammer and tongs and even your own party will “sacrifice” you, just as they failed to support you, when you fought your first and only election in South Delhi in 2004? Surely, as the PM, you have a “black book” in the “cloud” which will act as “insurance”? Please do it now, so that all of us, who believe that education and erudition results in intellectual integrity and purposefulness, can continue to dream.

T.N. Seshan (Chief Election Commissioner 1990-1996), another babu, turned upon the political machine which created him, once he was given a high constitutional position. But he served us Indians well by working against election malpractices. Most recently, Raghuram Rajan (RBI Governor) has done exactly the same by ignoring the noise of corporate and government “likes” and remaining true to his intellectual integrity and commitment to the poor, by targeting inflation, rather than pandering to the optics of growth orientation…just as his babu predecessor (Subba Rao) had done. This is a time honored tradition amongst babus. We sup with anyone who parties in the evening, but come the morning, we do the “right” thing, no matter what the consequences. There are thousands of babus who do this for 35 long years of their working lives and are none the worse for it. Please shed your intellectual robes and become the babu you have been. 

Wanted Social Reformers

Is Rahul really so wrong in talking of two Indias. There are two Indias. But not the kind that Rahul envisages. He sees the divide in economic terms; the poor and the rich. The real divide is between those who are ready to abandon tradition and social bonds, especially when they impose medieval constraints on human rights and those who are either happy or are benefited by remaining wedded to the past.

In the former category are those who marry outside their caste, religion or class and do not impose caste, religion or class as an initial yes/no basis for choice of life partner by their children; those who shall not support a political party which uses traditional social groups as vote banks; those who speak out for human rights, child protection, protection from marginalization and against gender discrimination and abuse.

In the latter category are all those who support the infamous Khap Panchayats of Haryana; Hindu and Muslim fundamentalism; caste based social interaction and the use of tradition as a lever of social control. The most recent incident from Haryana of “honor killing” illustrates this mindset.

Consider how quickly social cleavages could disappear if by law Indians were required to marry outside their caste or religion and if they had free choice. Of course we have a problem in that for every Muslim there are six Hindus so whilst Muslims, Sikhs, Jains, Buddhists and Christians would have a significant pool of partners in Hindus the reverse is not true. Here the law could strike a blow for social reform by decreeing that marriage between a scheduled caste or tribal Hindu and a general category Hindu would also qualify. There is a parallel from Africa. Tribalism is the bane of Africa but is unknown or marginal in Tanzania. Christians and Muslims inter marry. The change is attributed to the social activism of Julius Nyerere, their first President who ensured intermixing by forcibly requiring children to study away from their home cities, developed mixed communities and encouraged people to marry across tribes and religions. This does not mean that tribalism and religion do not exist. They do but it is not a basis for social segregation as in India.

India is rife with laws. Why not this law which eradicates the scourge of social parochialism and prejudice? Unfortunately anyone suggesting this remedy would be immediately categorized as entirely mad or at best a dreamer. It is unimaginable that people would accept this level of intrusion into their personal life. What about our religious leaders and their followers? Their social and economic power could vanish overnight. What about political parties? How would they now target their voters? “Secularism” would acquire a hollow sound. “Fundamentalism” would similarly lose its force. Politicians would need to start talking about real issues; things which matter like social and individual well-being. All this goes against the grain of India’s incremental approach to change.

The longer route to social integration is via development and urbanization. Enhanced income makes people less willing to risk social unrest and violence. However, rich people can end up being socially more traditional and backward looking than the poor. Superstition is a common failing of the rich. False religiosity and a fetish for rituals is a peculiar character of the wannabe rich, who like all wannabes are more devout than the traditional elite. Rising incomes then is not the route to social integration. Rather the savior is rapid urbanization. Cities break down social barriers and shake up people’s prejudices. They give an equal chance for women to work. This destabilizes the traditional social order within the family. Cities force people of different backgrounds to cluster together on the basis of income or occupation.

Between the two; legislating social integration or urbanization the latter is the non-controversial option. Urbanization is a global trend. It makes economic sense. It is irreversible. By 2050 one half of India will be urban. This is still thirty seven years away; one full generation. It will take India till 2100 to reach a level of 75% urbanization. Well more than double the time since our independence. This is way too long to cut away the false social constraints we live within.

The only near term option is to rely on social reformers. We need a modern day Kabir; Sir Syed Ahmed Khan, the Mahatama;  Raja Ram Mohan Roy, Swami Vivekananda, Babasaheb Amedkar or Maulana Azad. I am not sure how one can find such persons in modern India. We lost one such self-effacing but determined person in the assassination of Narendra Dhabolkar. This illustrates the viciousness of entrenched, fundamentalist elites. Where there was one Dhabolkar there are bound to be countess others who are driven by their passion for rationality, social harmony and the assurance of basic human rights.

A sure way to discover such social forces is by following the well-defined mechanism of truth and reconciliation. This is a standard conflict resolution technique. It encourages the two conflicted parties to engage with each other in a mediated forum at the local level, where the flesh meets the sword and work through their differences…much the same as a warring couple. Through accusation and counter accusation, the often unpleasant truth emerges and is recognized by all. Blame is apportioned, consensually, by the two parties, it is accepted and differences are resolved. Over time people get into the habit of adopting this mechanism for defusing tension. The differences recede. The common bonds become stronger. Life goes on. Since this is an apolitical process and is led by social reformers “political noise” is avoided. The process itself provides incentives for mediators and “social binders” to emerge. In the emergence of such persons lies the salvation of India.

In India, after the partition; after the Hindu-Muslim riots of the late 1970s and early 1980s; the Sikh massacre of 1984; after Babri Masjid and the Bombay riots in 1992, Godhra 2002 and Muzaffarnagar 2013 we have never meticulously tried Truth and Reconciliation, to heal the wound. The approach has always been to “seal” the wound as fast as possible, as if it were a pressurized well, needing to be plugged. Unfortunately, even plugged oil wells explode when pressure builds up.

It is time to change. It is time for social reformers to step in and follow through with healing and reform.  We are obsessed with economic reform, quite ignoring that conflict (the outcome of unresolved social tensions) negatively impacts the GDP by at least 2 to 3%, every time it flares up. Computing the full cost of conflict is a complex exercise.  Africa, it is estimated, loses 15% of its GDP due to conflict. The power of good Economics can be significantly supplemented by social reform. Let us start now. Action is long overdue. ImageImageImageImageImageImage

India’s third inflection point

Modimania marks an inflection point in India’s history, just as Nehruvinism did in the 1950s and Indira Gandhism did in the 1970s.

Nehru’s inflection point (apart from Independence) lay in the curious blend of political and social “liberalism” (anti-caste, secular, inner party democracy, consensus rather than confrontation) and progressivism with economic quasi-socialism and the “big State”. This set India on the path of public sector led growth via industrialization, high taxes and the undermining of communities and local governments. The result was a politically integrated but backward India, shackled by red tape, inefficiency and shortages.

Indira carried through Nehru’s “socialist” legacy and entrenched it by “Nationalizing” banks and private industry. She undermined the residual, formal privileges of the Royals, in a populist move to level social differences. In politics however, it was a complete reversal as “authoritarianism” became the credo. The bureaucracy was brought to heel and made subservient to their political masters. Simultaneously “big and intrusive government” grew to an unmanageable size and power. Political and administrative centralization became the mantra of political survival. The concept of inner party democracy in the Congress disappeared. Political confrontation replaced political accommodation. The result was a shattered economy, rising corruption and the loss of two decades (1970s and 1980s) while economic growth in China and East Asia outstripped India by a wide margin.    

Modi’s inflection point in the 2010’s is derived from three features: (1) The “Bill Clinton” moment in India, illustrating formal democratization of national leadership. Modi, a man of working class origin, a rank outsider to the New Delhi policracy, breaks in, based on nothing but his bravado, energy and competence.  The only previous PM to claim such credentials was Shastri. However, whilst he was of humble origins, as compared to his peers, he was still from the educated middle class of his times and he was never an “outsider” who snatched power. Others in this queue could be Bhenji and Didi who wait for their Bill Clinton moment. Interestingly, all three are unmarried and embody the traditional “Indian” concept of the “selfless” leader, though their personal traits vary from the ascetic to the acquisitive to the romantic. (2) The tentative formal commitment of the BJP to economic growth, as the basis for poverty reduction (a rising tide lifts all boats principle). This reinforces its 2000-2004 shinning India image. (3) The prevalence of the Rule of Law. The end of an era of hypocritical and false allegiance to pseudo secularism, masking vote bank politics. The potential emergence of strong, modern, secular Muslim leaders who are focused on providing economic growth, in communities where Muslims are in dominance, rather than playing “identity politics” by pandering to the justifiable fears of a religious minority, fueled by an unfortunately “aggressive” Hindu majority.  

Over the next two decades to 2030 India shall (1) reduce poverty to 3% as in China today. (2) It shall move towards decentralization as regional solutions are preferred to local problems. The powers of Delhi shall stand sharply reduced to core sovereign matters (Defence, Internal Security, Diplomacy, Macro economic stability, External Trade, Interstate Trade, Communication, Transport and Migration). Matters of social and economic development shall be managed at the State government and Local levels. (3) Most Indians (including women) shall speak at least three languages (English, Hindi and a local language), would be literate and educated at least up to High School. (4) “Unattended” childbirth would be rare. Pre and post natal medical care would be routinely available to all. A universal medical insurance scheme would ensure basic preventive and curative care. (5) All homes would be electrified. (6) Improved sanitation and clean water would be available to all (7) Private transport would be a luxury in metros whilst, mass transport would be the rule.

Modimania can start us off on this long journey. Meanwhile the Congress should regroup as a cadre based, democratic, party over the next five years and strike abiding alliances at the national level, with regional parties in readiness for 2019. If the Congress fails to do this, other smaller parties shall collaborate, step into the vacuum at the national level and bleed it of talent. This is already happening.

Political atrophy: only “big” men no “big” ideas

The lines are drawn for the May 2014 electoral battle.

The congress lays claim to an evolved version of its historic outreach to the poor in 1971 when its tallest leader; Indira Gandhi, coined the “garibi hatao (remove poverty)” slogan. The Congress would have us believe that their appeal is to 67% of Indians who are “poor”. It is arguable though whether their calling card of minimalist public services, cheap administered food and 100 days of work would appeal to any, other than the completely deprived. These are probably most likely around 20% of the population. Many of these would be poached by caste based regional parties particularly the scheduled castes in North and Central India.

The BJP proposes to rely on a dual strategy of (1) its recent track record of private sector friendly “development” and focus on economic growth in Gujarat, Madhya Pradesh and Chattisgarh to appeal to the upwardly mobile, urbanised, educated electorate and (2) their trump card of rallying the “Hindu” (essentially non-muslim) vote using the medieval lever of polarising along religious fault lines, to reel in the rural and urban, lumpen, electorate.  Not surprisingly, the muslims (the only significant minority with15% of the population but lumped in pockets) remain deeply distrustful of the BJP and would probably focus on an anti-BJP vote siding with whosoever could defeat the BJP. Urban liberals (numerically insignificant) would similarly shy away from the BJP.

The Left, a marginalised lot currently, will probably stick to honesty of purpose and intention in ensuring equity, as their major calling card, as they have been doing for decades. This is essentially a losing battle since the congress seems to have trumped them at their own game by becoming pro-poor, pro-people. pro-environment, anti-business, anti-industry and obsessively inward looking. 

The regional parties remain fairly tightly configured around caste in the regions in which they operate. Ofcourse this is a losing endgame because there is very little upside and only the downside of sub-castes shift out to a “winning” national party like the Congress or the BJP. 

 Could there possibly be  a more depressing election? None of the parties seem to have a distinctive “big” idea for India. The approach seems to be let us get there first, then we will think about it. Listed below are “big” ideas which are not inconsistent with the general stance of the “big three parties” today (The much touted JD(U), despite the success of its Bihar model of development, remains a fledgling BJP clone, albeit anti-Modi)

Congress: India is too big to be ruled from Delhi. We want to hand power down to local levels because the poor become “visible” only at the local level. We will finance local development and implement Panchayati Raj in letter and in spirit, so that u can control your own destiny.

BJP: Technology has made it possible to monitor the condition of every village and every urban ward in India. We will ensure that every village and every urban ward shares in national growth, by aggressively using private entrepreneurs to deliver public goods and generate employment. 

Left parties: We stand for reducing inequalities in India, not by pulling down the rich, but by pushing up the poor. We believe that the State must work with the private sector to achieve this. We are not against wealth creation but we feel the wealthy must share their wealth through higher taxes to enable the State to help the poor.

These three “big” ideas cut across caste and religion, appeal to distinct interest groups and can provide a more credible basis for developing party affiliations based on ideology rather than get bogged down in caste and religion based “pork barrel politics”.

(1) The Congress could evolve into a federation of localised parties, led by the charismatic Gandhis, opposed to big government, committed to specific local goals, social and economic equity, preserving the local environment etc. but far less focused on centralized issues like inflation, external trade or defence. (2) The BJP could sharpen its appeal to business, industry and entrepreneurship led national growth and reliance on trickle down to local levels. (3) The Left to project the virtues of State led development with a strong emphasis on social and economic equity.

The virtues of multi party politics are realized only if there is some distinctive ideological difference between them. In fact the decline of national parties and the simultaneous rise of regional parties can be traced to the abdication, by the national parties, of ideological purity in their quest for perpetually being “in power”. Unless the big three focus their agendas along ideological lines, there is little to distinguish one government from the other and they all seem like multiple versions of the same old wine, in different bottles. This makes the voter reach for the most accessible bottle, albeit with some marginal thought given to the credibility of the barman. We surely deserve better.

 

Aside

Importing energy insecurity

Shortages make people do crazy things. In the 1970’s a Bajaj scooter was a prized posession because it was most easily available against payment in US$, as were denim jeans, which were smuggled in or sold by the firangi “flower children” flooding India for hash and nirvana. In the 1990’s, the humble Maruti 800 beame a “must have” since the only other options were the gas guzzlers; Ambassador and Premier Padmani. In the 2010s, gold is the the “go to” asset, as the INR crumpled.

Countries are no different. The neglect of long term, efficient, development of India’s domestic energy sources (coal, hydro, solar, wind and biomass) have made economic growth artifically dependent on petro products (gas and oil), as the fast and easy option to add electric power capacity. 30% of petro consumption today is for this purpose. Stagnating coal production, increasing coal imports, further bolster petroleum as the “go to option” for power generation. Highly efficient generation technology (developed for gas surplus countries like UK, US and now Africa) adds to the “green” character of gas based generation versus coal. Constrained by domestic supply side issues and seduced by external incentives (climate change and the engineer’s incentive to use the “best” technology) to switch to petro and gas, India fell headlong into the “shortage syndrome”- best recognised by a panic stocking up of goods….in this case gas based power plants (their installed capacity exploded since 2000), diesel fueled generators, diesel powered trains and diesel powered ground water pumps as short term answers since 2000 to the low availability of electricity.

The Mahatma’s concept of “Self Sufficiency” ceded defeat since the 1980s to the dominant, liberal, concept of an “open” economy via international movements in trade and capital (though not people). However, within this mantra “pricing power” has to be contended with by “small” buyers like India. We should learn from the US ( a big buyer) where the rapid expansion of domestic shale gas production was doggedly pursued and has decreased reliance on gas imports, leading to a reduction in international gas price. Even a “big buyer” like the US does not like being beholden to imported energy.

We are too small to move world petro/gas prices by reducing our energy import demand. However, energy security concerns should induce us to tax petro and gas consumption heavily to limit demand. We don’t do this today. The eternal scare has been the fall out of retail energy price induced inflation, but this is really a timing issue. The time to adjust energy prices upwards is when inflation is low or when energy prices dip. Today baby steps are being taken in this direction. What we need is to stride forward.

Our energy strategy is short sighted. (1) It does not limit the use of gas purely for industrial, road public transport in metros and cooking fuel use, as it should (2) It does not cap the use of petro products for power generation to existing generation capacity (3) It does not aggressively pursue hydro power generation where we have exploited only 40% of our potential. (4) It postpones rapid coal mining reform, principally due to political economy constraints. The only bright spot is the growth in renewable generation and market friendly domestic energy trade practices.

A very high Current Account Deficit (shortage of US$ to pay for imports) re-emerged as a major fiscal destabaliser in 2013, after more than a decade of stability in the external account. This is a sharp reminder, that external account stability (and our energy security) is hostage to energy imports. We import a very high proprtion (75%) of the petro and gas we consume. These constitute 40% of our import bill. India’s export performance (and hence its capacity to pay for imports) has been good. Our share of world merchandise exports increased from 0.4% in 1990 to 1.7% in 2010 (WTO 2013). Export of commercial services did even better with our world share increasing from 0.8% in 1980 to 3.3% in 2011. However, none of these export achievements have been enough to overcome the insecurity of having to import energy security in US$. Annual Petro imports (US$110 billion) are a high 50% of our FEx reserves (US$ 220 billion). China imports only 50% of the petro products it consumes and the prospect of this increasing to 70%  by 2020 (IEA) has them worried. This is despite the fact that their annual energy imports amount to only 20% of their FEx reserves. We cannot continue to be hostage to energy imports.

TERI Energy Map 2030, recommends the following steps to reduce dependence on petroleum imports: (1) Electrify rail and save diesel.   Today less than 30% of the rail track is electrified. (2) Switch passenger and freight transport to rail and save diesel by avoiding dependence on road transport. Today only 30% of the goods traffic uses rail and the share of road transport is expected to grow from 70% today to 85%. This trend needs to be reversed. (3) Increase domestic coal production which is one of the three dominant eneregy sources (hydro and solar being the other two) in India (4) Increase hydro based generation, whose share has reduced from 40% in 1980 to 12% in 2012, due to ineffective planning strategies and a defeatist approach to the genuine concerns of citizens with potential environmental fall outs. (5) Price energy competitivey to remove distortions in consumer demand across products (please we don’t need diesel powered motorcycles) and incentivise energy conservation.

Like our defence policy and our diplomacy, our energy policy is too status quoist and backward looking, to serve us well. We are not planning for a secure energy future.

Land Bill: political gains, future losses.

The Land Bill 2013 is backward looking and shortsighted. Coming  119 years after the predecessor legislation in 1894, it fails on four counts.

First, it does nothing to assure citizens that it shall rein in wilfull and unnecessary acquisition of property by the State, as has been happening in the past.  Consider that there are many Public Sector Undertakings which own land far in excess of their needs, as do the “new age” power plants which have been given coal mining licenses. The Bill actually skirts around the issue of “when and how much” is it justifiable for the State to acquire property. It focuses only on the process and amount of compensation to be paid in the event of acquisition.  It is curious therefore that it is being lambasted by industry as anti-industrialisation, not because of the higher amounts they may have to pay for land, but on account of the anticipated delays and increased bureaucracy now proposed in the process. The Bill proposes to artifically enhance the price paid for acquisition to give the disposed a fair compensation and possibly also act as deterrent to “deep pockets” from acquiring and holding large tracts land. The deterrent is over estimated. Land ownership has an average ROR of above 25% per annum which will continue to attract investments on account of its scarcity value. The provisions for enhanced acquisition price are populist and are likely to be ineffective in ensuring that only minimum volumes are acquired. The only way the volume of acquisition can be rationalized is by severely restricting the definition of public purpose to the needs of Defence and Security. The Right to Property is an essential part of empowering the ordinary citizen versus the State, which is ignored by the Bill.  Opposition should have come from the BJP and other rightist parties but “industry wallahs” typically like an interventionist State (like China or Vietnam) if it intervenes on their behalf. it is election time and all are wary of upsetting either the “poor”, “industry” and “real estate” wallahs. The pro-poor “lobby” essentially has a “left leaning” mindspace. For them, owning property is equivalent to being an oppressive, extractive, arrack swigging, landlord cum money lender.  This is a politically attractive stereotype, which all parties publicly bow to, never mind that atleast 90% of the population owns land and property. Why not use the Bill to define this Fundamental Right better and proscribe the powers of the State? We are losing a historical opportunity.

Second, the Bill displays an unerring faith in the bureaucracy and its ability to protect the rights of the poor, manage a complicated acquisition, participation, resettlement and rehabilitation process efficiently, despite all the evidence to the contrary.  Citizens today want a simplification of administrative procedures, not additional miles of red tape. The more the red tape, the more time it takes to get things done and higher the transaction cost, for getting files moving. The Policracy must rise above its class interest and declog administrative processes, not add ever more onerous procedures. Current estimates for completion of the new land acquisition process is a full five years! Only a policracy with a faith (or a vested interest) in an “interventionist” bureaucracy could impose this on citizens.

Third, the Bill shows the medieval mindset of the “policracy” under which industrial and infrastructure development and service delivery were a preserve of the government or of public sector undertakings. Hence land acquisition for private educational institutions, private hospitals and private hotels are all excluded from the definition of “public purpose”. The very same institutions if owned by the government or a PSU would be eligible. This approach runs completely contrary to everything the government has said about the criticality of private investment in infrastructure and service delivery. It confers on government the near unique ability to aggregate land in industrial volumes and then to use this leverage to enter into Public Private Partnerships with industry. The opportunity for extracting “rents” is obvious with the well known downstream consequences of fraud and corruption.  Medievalism is also evident in the requirement that there should be no change in ownership, post acquisition of the property, without the approval of government. Presumably, this is to discourage businessmen, who are “fast track approval getters”, from becoming middle men, in the real estate game. However this is a very restrictive condition for the genuine, medium level, private investor. An investor wants “full” ownership over what she has bought. This includes the right to transfer when considered appropriate. Having to go back to the government, cap in hand, just perpetuates the “license permit raj”. Once the Socio Economic Assessment and the Expert Group are satisfied with the “public purpose” and reasonableness of the project, it hardly matters who the owner is.  Despite all the high sounding support for the private sector, and the bon homie with government in CII and FICCI events, businessmen continue to have the stereotyped image of exploitative, manipulative, stingy but high living, low thinking, self seekers. This Bill reinforces that image. 

Lastly, the Bill is well intentioned in recognizing that the alienation of land can result in hardships for a larger group than just the owners. These are those whose livelihoods were dependent on the land continuing to be used for the purpose it was, till the time of acquisition. Whilst unquestionably appropriate, from the equity perspective, the problem here is the implementability of the proposal. The low ability to identify those eligible, with the robustness required, in the absence of records of informal labour  and the potential for flagrant misuse and cost inflation are obvious deterrents to efficiency and effectiveness in implementability. Are we creating an unenforceable entitlement here for workers, which may actually dissuade farmers from using labour as in the case of industry?

It is tragic that a well intentioned Bill is turned ineffective and counterproductive because of the timing of its introduction. This is a part of the pro-poor pre election bonanza that no party can afford to distance itself from. It is consequently ill intentioned, disruptively regressive and anti-poor by being pro-bureaucracy, anti-efficiency, anti-investment and anti growth.

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