governance, political economy, institutional development and economic regulation

Archive for March, 2014

Make your vote count

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In the 2009 Lok Sabha elections, only 60% of the 714 million voters bothered to vote. We don’t know how many, who did vote, were aware that the direct and indirect cost of each vote was at least around Rs 7500. Had voters been aware of the value of their vote, they might have given more thought to their vote. After all this is equal to the monthly salary of an aam admi.

This back-of-the-envelope valuation is based on the Rs 150 billion directly spent on the election plus 1% of the GDP over five years which is the conservatively assumed economic leeway available to a government. This means we assume that good governments can enhance GDP and bad governments can reduce GDP, by at least around 1% per year over five years.

This time around, more than ever before, we need to think before we vote. We cannot afford a rerun of the previous five years of lost opportunities and drift.

Unfortunately, bad news comes in triplicate. It seems our luck has run out.

Our new warships and submarines are sinking into the sea; our air-force falling out of the sky and our generals focusing on electoral politics.

Our government is so desperate for revenues that it will raise a tax demand retrospectively or inflate the demand unreasonably on hapless corporates and citizens, thereby enhancing regulatory uncertainty. The ongoing salary review of public officials (7th Pay Commission set up suspiciously close to the elections) will add to the existing fiscal burden of a fat and unaccountable public sector by at least 1% of GDP. More money for them means less money for us.

Pink slips in industry are on the rise. Spending on consumer durables is down. Housing stock lies unsold. The rupee see-saws between an artificial strengthening on the back of returning Indian hot money stashed abroad, partly to finance the estimated Rs 300 billion (US$ 5 billion) election expenses and the counter pull of a likely body blow as the US treasury reverses its easy money policy over the next six months.

At home, elections and the prospects of a Khichdi Sarkar (coalition government) raise the specter of continued executive indecisiveness and policy paralysis.

With two weeks to go for the first votes to be cast, the prospects of a clear winner are dwindling. Modi, the long-time favorite, faces incredible odds with lukewarm support from the BJP/RSS brass and in the face of a growing coalition of political parties with a single objective: block Modi from winning. His meteoric rise within the BJP; his charisma; his flair for independent rather than “group think” and finally his executive effectiveness make him a perfect target for the crabs to pull him down…and they are pulling mighty hard. Of course, it does not help that Modi has been unable to dissipate the ghosts of Godhra and reach out to the Muslim voter. For all the smiles, Modi is running now on only a single leg and it is likely to show.

Meanwhile, the ray of hope for the aam admi, on which Kejriwal rode to power in Delhi, has dimmed. The mechanics of electoral politics has polluted the freshness of Kejriwal’s appeal. Party infighting will mar his prospects. The speed with which his government started working in Delhi was breath taking. But like an inexperienced marathon runner, he spurted too early and lost speed in the first lap itself. His voluntary capitulation from governing Delhi has diluted his credibility and commitment to stay the course; deliver on his mandate and solve governance problems. Voters expect solutions for their every-day problems from a government, not more legislation and protests.

It is a sorry political spectacle out there. But are there things the politically aware voter can do to help pull India out of this morass? Yes there are.

First, in a parliamentary democracy like ours, please vote for a party not a particular candidate for MP. Nandan Nilikeni is a spectacularly good MP candidate and would make a great Minister for IT but vote for him only if you want to return the Congress to power. You may find Modi iffy on inclusion and social conscience, but vote for the BJP if you think the party works best for you. Nitish performed well in a Bihar, systematically degraded by Lallu, but does he have a party to support him? In our system individual candidates matter less than the party. A lone, brilliant individual in the Lok Sabha cannot achieve substantive change.

Second, India is deeply concerned about the criminalization of politics. The Mumbai based, Association for Democratic Reforms (adrindia.org) is doing signal service by sharing information on the declared assets and pending criminal cases for each candidate in a KYN (know-your-neta) format. Many voters may find themselves faced with a conundrum if their favorite party has put up a candidate in their constituency with pending criminal cases. Apparently around 15% of candidates, in the first phase of polling, are in this category. What should one do? If you have personal knowledge of the crime the answer is self-evident. Shun such netas. If your favorite party makes a habit of fielding criminally disposed netas, you need to think again about your party affiliations.

But remember often pending criminal charges are not an adequate indicator of criminality. Conversely, a clean record does not confirm probity. Consider that lodging an First Information Report (FIR) can be extremely easy or horrendously difficult depending on who you are. Ditto for getting the police to investigate your FIR and lodge an appropriate charge sheet in court. Lastly, getting the court to frame charges and start proceedings can be an uphill battle for the poor and poorly connected, but easy for a more forceful litigant, especially if the accused is a marginalized person.

Third, please remember MPs are not responsible for cleaning drains. That is the job of your Municipal corporator. Please do not vote on the basis of who built your neighborhood road best. MPs are meant to approve national policies and enact supporting legislation. Vote for the party whose track record in your State government, or in the National Government, has served your interests best.

The national government actually has a fairly narrow role. Be aware of the limitations of the national government. Consider that if the national government was so critical for outcomes at the local level, there should not be that much difference in the growth and development indicators of different states. After nearly seven decades of independence, inequality across states has grown, not decreased. In our system, despite the hoopla, it is the state government which matters most for your well-being.

National policies are crucial for determining (1) the rate of economic growth; (2) the cost of loans; (3) the availability of banking services; (4) the price of food and basic commodities; (5) the availability of jobs; (6) the quality of inter-state infrastructure (highways, ports, airports, railways, electricity, petro products and irrigation); (7) national defence and (8) promotion of our trade and investment interests overseas.

National policy is also key for ensuring the integrity of India and the right of every Indian citizen to travel, migrate or live securely in any place in India and access public services at their choice of residence. Around 25% of Indians do not live in the place of their birth and there can be no better indicator of nation building than the choice to migrate within India.

Assess the record of your favorite party against this simple metric because this is all that the National government can reasonably do for you. The rest is all done by your State Government, including implementing the rule of law, ensuring your personal security, protecting your property, educating your children, curing the sick, providing clean water and sanitation and developing markets, workplaces and habitats.

Make your vote count. Just think how much market research and soul searching you do before buying a microwave, planning your week-end or buying a present for your khas-am-khas friend. Your vote is at least as important.

Please don’t waste your vote by not voting or by adopting the NOTA route. Life is a forced choice exam. Do well and make sure the ink doesn’t run.

Reclaiming a strong India

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What is common between the ongoing events in Crimea (2014), the British action against Argentina in the Falklands under Maggie Thatcher (1982), the war against Tamils in Sri Lanka (1982 to 2009), Kashmir (1947 onwards) and Sikkim (1975)?

All five incidents are text book case studies on the dos and don’ts for the exercise of State power. They illustrate that when the chips are down strong nations protect themselves rather than bank upon the charity of others.

Russia has successfully reversed a partisan decision taken in 1954 to cede Crimea to Ukraine. Possibly, at the time, it was unimaginable that Ukraine could be anything but Soviet territory. Despite threatening noises from Europe and the US, Russia has gone ahead and implemented its decision to reunite Crimea with Russia.

Maggie Thatcher sunk an Argentinian ship in 1982, in a show of jingoistic aggression, to end the armed invasion of the Falklands (population 2300 people located 500 km from the East Coast of Argentina and 13,000 km from the UK) by Argentina. The UK has never needed to assert force ever again. Had they, as a civilized nation, instead requested the UN to get the Argentine army evicted, the Union Jack may have never flown thereafter, in Stanley, the capital of the Falklands.

Sri Lanka bludgeoned the Tamil Tigers and indeed every Tamil in Sri Lanka, into submission with sheer brute force in 2009, thereby resolving the problem of Tamil terrorism at least for the near term. They did this after twenty six years of a low key war of attrition in which they got little support from the World but which sapped the economic growth. Since the war ended in 2009, GDP growth spurted to 8% per annum in 2010 and 2011 and 6% in 2012, despite the adverse international economic environment.

Conversely, half way through the process of evicting the Pakistani intruders in 1947, India approached the UN, to resolve the vexed issue of Pakistan’s illegal capture of around 40% of Kashmir. More than six decades later, Kashmir remains on the boil and absorbs significant fiscal resources and executive time at the expense of the Indian taxpayer. In sharp contrast, India absorbed Sikkim (previously a monarchy) in 1975, based on the demands of democratic reformers in Sikkim. The results of the referendum in favour of joining India are disputed, but Sikkim is today an integral part of democratic India.

The common lesson from all five cases is that governments need strong and specific domestic mandates and collegial decision making, to be decisive in national interest. How can these pre-conditions for strong governments be fostered?

First, despite the happy ending in Sikkim, in matters international, we must not blindly trust our leaders to do the right thing. We need large dollops of sunshine on decision making in international affairs to grow unanimity. This needs to go beyond closed door meetings and briefings of inter-party parliamentary committees. Issues and options need to be debated publicly; risks and rewards assessed objectively and publicly, so that we aam admis also get to know and understand why we are spending the money we are, on securing our interests overseas.

Maybe we do not actually spend enough and more needs to be spent. The point is that currently only a rarified few know what our overseas interests actually are and what we pay to protect them. Even on a “need to know” basis, this charmed circle of foreign policy wonks, diplomats and select politicians needs to be significantly expanded.

Second, vibrant democracies do not survive without a strong sense of nationalism. The World is waiting, with bated breath, for China to fall apart as it becomes more “democratic”. Being nationalistic goes beyond the tokenism of paying respect to the national flag or standing to attention when the national anthem is played. At a very basic level, Nationalism is a warm glow than can be felt, but nor easily measured. It means taking pride in what we have collectively achieved and demonstrating faith that, where we have collectively failed, we can and shall prevail.

These feelings are linked to what an individual considers to be her primary identity. This sense of national identity is very difficult to foster in a culturally heterogeneous country, like ours. Even the mighty Soviet Union failed because it remained, at heart, Russian. India is more fragile than the US, which is at least, bound by English, Coke and McDonalds. We are bound together by “Hindi movies, momos, idlis and butter chicken” but are more like the European Union, without a common language, religion or race to link us.

Like the EU then, we must be bound by strong and mutually beneficial economic ties and a common economic future. Every segment of India must perceive a tangible benefit in remaining Indian, if we are to survive together. Particular attention needs to be paid to the well-being of border areas, which are the most susceptible to dissidence.  

Third, we must reject the mindless enforcement of “National norms” in matters social and cultural. We can learn from the manner in which the Indian joint family has evolved rather than splintered in the face of urban modernity. Today, parents, even the doting, die-hard, joint-family addicts, advise their children to set up a separate kitchen, ideally on the floor above or below them as a second best option for bonding, which is better than a complete split in the family.

In the national context, this means that each segment of society (the intersections of caste, religion, race and region) must get the physical and fiscal space to manage their own affairs and evolve their own individual cultural norms, at their own pace, to cope with the stress of modern life. There can be no single pattern for evolving Indian cultural norms because no such pan-Indian norms exist.

Fourth, we must learn to distinguish between a strong State and a “Big State”. Typically despots run big governments, with large numbers employed in the security establishment, because they manage the State irrespective of the will of the people. Democracies are meant to be aligned to the will of the people and hence can have lean governments.

Large governments can be slimmed down if they choose to decentralize decision making and the use of fiscal resources to user groups. Technology now enables cost effective, real time oversight over decentralized decision making. Red flags and check points can be built into electronic public financial management systems, to avoid misallocation of budgets; budget over-runs or gross mis-procurement.

Growth is slowing down across the World. Countries need to jostle within a limited pie to enlarge their share of economic growth. Only the best shall survive.

India is too large, too heterogeneous and too democratic to escape subtle economic sabotage by competitors. Existing social fissures can be deepened into grand canyons of hate. Such subversion can only be neutralized by the collective will of our citizens. But are we sensitizing our citizens to this risk and to their role in managing it?   

Subrata “Sahara” Roy: Victor, villain or victim?

Image Subrata Roy the florid, flashy, brash promoter of the Sahara Group has been in Tihar Jail since March 4, 2014. The crime committed by him baffles most aam admis, including this one.

The Supreme Court held way back in 2012 that his companies acted in contravention of the SEBI rules for public issues by unlisted companies. His legal arguments that SEBI has no jurisdiction over unadvertised issuance of Optionally Convertible Debentures by unlisted companies have been rejected by the Supreme Court and he was directed to refund Rs 175 billion (USD 4 billion) collected by his 1.2 million agents from an estimated 22 million small investors between 2008 and 2011.

In a more “liberal” environment Roy would be hailed as an innovator par excellence who extended financial inclusion to millions of investors and provided livelihood to over a million agents.

Wherein lay his innovation? Quite simply he profited by providing “informal financial services” on top of the wave of public corruption which has conservatively equaled between 2 to 5% of the GDP since the “ go go” years began in the 1990s. His modus operandi is probably simple. He provides a “cloak” of legit financial services to the corrupt public servant and politician by managing the cash generated illegally by them. This “cloak” of financial services is based on a micro-financial network of investors and agents on a staggering scale with around 3000 branches and massive investments in real estate…what else?

Similar to any other Ponzi scheme, his trick was to offer huge returns in excess of 25% per year. Ponzi schemes ultimately fail because they run out of new investors to provide the cash flow to service the existing investors because the underlying assets invariably never provide adequate return. This is where Sahara had a winning card. They possibly had access to an inexhaustible source of unaccounted cash coming to them from corrupt public servants and politicians. Forget for the moment, the cash flow available from the film industry, drugs or terrorism.

Since Sahara serviced the politically powerful, they were immune from censure. But a more basic reason why Sahara remained below the radar was possibly because they maintained a tight leash on the volume of “real” small time depositors who provided the cloak to “benami” big time investors. It is noteworthy that the Supreme Court wondered how many “real” investors they had. No one knows. But had these small time investors reached a volume where their investments exceeded the illegal cash, the scheme would have imploded. As it happens it never did.

It was Securities Exchange Bureau of India (SEBI the David) who slew Sahara (the Goliath). It investigated the retail cash collection done by Sahara agents (Rs 175 billion or around US $ 4 billion) between 2008 and 2011 against the issue of a “hybrid” instrument called Optional Convertible Debenture. It held that this was “akin” to a public issue and hence in their turf. Since Sahara had no approval from SEBI for issuing such “public” securities the cash collection was illegal. What motivated SEBI to wake up? Ostensibly they responded to a complaint by an association of investors. It is not clear if any of them had actually invested in the debentures or were simply being “high minded”. Other reasons could be: (1) the financial regulator fighting for turf with the Ministry of Corporate Affairs, who had approved the issue of debentures under the Companies Act; (2) SEBI’s apprehension that significant domestic savings were being directed away from the bourses where listed companies raise money under SEBI oversight . Between 2008 and 2011 listed companies, in India, raised USD 26 billion as new capital against USD 4 billion raised by Sahara, an unlisted Indian company, (3) as always in India, the possibility of government settling political scores.  We await an intrepid investigator to inform us, which of these was the case.

But what there are some intriguing aspects to this case:

First, why did the dog not bark? Why did no retail investor complain that Sahara had defrauded them? Subrata Roy asserts that not a single investor has been disadvantaged and that all assets are being serviced and redeemed. This seems entirely plausible in the light of the reasoning given above that the “beauty” (as Subrata himself would say) of the scheme lay in completely insulating the retail investors from risk and indeed to molly coddle them with fabulous returns, using the inexhaustible cash flow of the fatter investors.

Whilst Subrata is no Robin Hood, his novel method of socializing and distributing the gains from corruption across 30 million investors is unique in its scale . Reliance has had a similar strategy which makes investors forgiving of its poor public image.

Dhirubhai, was an early mover in this game. He had an uncanny feel for the pulse of the nation. He was the first to recognize that distributing profits to over 3 million shareholders is a good way of building social capital for a corporate. Subrata has gone much further with 30 million investors, though they are difficult to trace.

Second, why is it that the entire government machinery, except SEBI, has remained passive and silent? Why has no action been taken against the Ministry of Corporate Affairs, which since 2008 was sanguine enough about the operations of Sahara to clear their Red Herring Prospectus for collecting cash from investors?

Third, why is Subrata Roy in Jail? He is not a criminal. Even if he has committed contempt of the Supreme Court, why has SEBI failed to attach Sahara’s; issue a public notice to ascertain who their investors are and compensate them accordingly, despite being specifically directed by the Supreme Court to do so in 2012?

Is this a case of judicial activism where the Supreme Court has stepped in to discharge a public duty which appropriately lies with the executive? If so then why not name and shame those in the executive who have been hand and glove with Sahara? Why is the corruption angle not being investigated by the CBI and the CVC?

Arbitrary curtailment of human rights violates the Rule of Law, no matter how high the authority which falls into that trap.

Finally why pick only on Subrata Roy. Is he paying solely for the scale of his illegality (Rs 175 billion against Harshad Mehta’s Rs 40 billion); for his flashiness and love of the good life?

We aam admis can be forgiven for muddling the offence of corruption with the social opprobrium that an open flouting of the law should attract.

But a judicial determination guided by anger at the passivity of the executive, rather than cold, legal logic does not give comfort that India’s system of checks and balances is working.

Gender benders and the Indian State

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The duality of India’s gender equity environment is pretty extreme. At the very top there is nothing new about upper crust women exercising political power; Ahilyabai Holkar in the 18th century; Begum Hazrat Mahal in the 19th ; Indira Gandhi in the 20th and Sonia Gandhi today. Post-independence, the glass ceiling at the workplace has been progressively bent. It is fairly common now to be flown by a woman pilot; to petition a woman babu for accessing a public service; collaborate and compete with women colleagues or serve on company boards alongside women. Unfortunately there are still not enough women in the “relentlessly tough” professions; police; engineering and surgery.

At the very bottom, the poor have never had the luxury of not being gender neutral in their fight for survival. If the man cannot provide for his family, women take over the burden through self or casual employment, though it is a much harder fight to take control of common assets. Thankfully, better access to micro-finance; targeted work opportunities and the potential for economic migration in a growing economy, no longer makes it necessary for a poor woman to be a Phoolan “Bandit” Devi to survive.

The problem of gender inequity is most acute in the middle class, where upwardly mobile appearances have to be maintained. There are clearly not enough Bhenjis (Mayawati) and Didis (Mamta) around in the political space. Much the same is true for the workplace.

The formal/organized sector is the benchmark for middle class gender bending. It is here that employment is stable; compensation is adequate and working conditions bearable. It is not as if nothing has changed since 1947. Formal employment has increased, albeit marginally, and today is around 29 million or just 5% of total employment. Whilst women have benefited disproportionately, their share in formal employment increased inadequately from a low 15% in 1995 to a miserable 20% today.

Change is happening but if formal employment is to be enlarged for women, the State needs to intervene to make a difference in the next 10 years. Four initiatives are proposed:

First, government must not shy away from the “win-lose” option of pushing employment of women in the formal sector by statute at the expense of men. The private sector which has lower institutional and labour market rigidities, is already responding, on a strictly “value for money” basis to enlarge women employment. Since 1995 the formal private sector added 2.8 million jobs, of which 39% (1.1 million) went to women. Their share has increased from 20% in 1995 to 24% today.  

It is in public sector formal employment that more needs to be done. Public sector formal employment shrank by 2 million jobs since 1995 to 17.5 million today. Despite the shrinking pie of government jobs, jobs for women increased by 0.6 million to 3.3 million or 18% of total public sector employment: way behind their share in the private sector.

It will hurt men directly but government must reserve 50% of entry level positions for women across the board in the civilian cadres of government, including within the existing quotas for scheduled caste, scheduled tribe, other backward caste, and minorities (a few states). Income based “brownie points” in selection and a “one-time quota benefit, not transferable to children” can serve to churn the ensuing benefit better.    

It is shameful that our leaders have been the most regressive. The 15th Lok Sabha was unable to agree on a quota of 30% for women in politics because of opposition from backward caste based parties, who continue to be male dominated. One hopes that the emerging “chatur-murti” of Amma, Bhenji, Didi and Sonia with a possible 170 votes between them, aided by the left’s indefatigable Brinda Karat shall bring this to fruition in the 15th Lok Sabha.

Second, continuing female infanticide and the resulting adverse gender ratio is a slap in the face of our social policy. Whilst the preference for male offspring is rooted in tradition and rituals, the perceived negative financial cost of getting a daughter married is also a major inhibitor. There is ample evidence today, including from neighboring Bangladesh, that conditional cash transfers result in significant improvements in the life cycle of social protection from infant immunization to maternal health and education.  Cash transfers substitute for the opportunity cost to the family of relieving the girl child from household chores (collecting wood and water, rending to livestock) and ensure that the girl child gets minimum levels of health care, nutrition and education. The UID (Aadhar Card) is a key instrument for plugging the leakages usually associated with cash transfers. One hopes that Nilikeni’s physical departure and the likely change in government do not kill this this worthy initiative.

Third, implementing institutional arrangements, already in the Constitution, such as decentralization of administrative and political powers to lower levels of government is a key driver of change. Participation rates of women increase dramatically when decisions are taken closer to home. The woman who is a tigress at home often transmutes into a compliant mouse in the workplace, to remain “below the male opprobrium radar”.

The average Indian woman looks for succor from just four public horrors; (1) the lack of public safety in the street and often also at home; (2) informal gender bars for education; (3) biased job recruitment and assessment and (4) rigid work environments, which do not recognizes their multiple roles as bread winner; home stabilizer and comforter. Their effective participation in the public space needs to fit in within this framework. Doing so, requires adapting national work and public participation practices to local norms and culture. This is impossible at the national level in heterogeneous India.

Fourth, technology is the biggest gender bender but the government does not use it strategically. Monitoring outcomes effectively and improving access to services are two sorely neglected areas. Policing in India continues to be a low tech, “danda” swinging profession. Why cannot an FIR be filed electronically, with a phone number attached for authentication, thereby putting the onus on the police to follow up with the complainant? Why are mixed gender police patrols, armed with smart phone access, to record and report crime and access the crime database, not visible to citizens? Why are blood samples not collected at home in rural areas by mobile agents of laboratories and reports sent electronically to users? Why are interactive phone based health and education counseling services, on the Tamil Nadu pattern, not scaled up nationally? Why do development babus still not have specific household specific, annual targets for the multiple social benefit schemes of government? Why do they have the discretion to fish for beneficiaries?

Gender bending goes beyond public exhortations for change. Role models of liberated upper crust women are non-contextual and often not actionable options for the average woman.

Changing the institutional structures and incentives which reinforce traditional gender roles is a precondition for achieving gender equity. Significant change is going to be tough for men of course, but they coined the slogan “when the going gets tough, the best get going”.

Myopic Urbanization

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Divisive economics is worse than divisive politics. Proponents of Urbanization are the loudest proponents of economic divisiveness. The vision they subscribe to is of shinning cities connected by corridors of gold, glittering like diamonds in a waste land of the rest of Bharat. Their justification is that the rest of the World has adopted this approach. But India constitutes 17% of the World’s population and around 33% of the World’s poor people. It is for us to define “good practice” in development, not to blindly follow international examples, which do not relate to the context of India.

A second “best” defense of “urbanization wallahs” is that it is “inevitable” so best to plan for it. The “inevitability” is related, yet again, to the manner in which growth has happened in the past and not to the specific prospects for India in the future. The fact that even by 2039 only 50% of the population is expected to be in “urban areas” is glossed over, whilst making the inevitability argument. In any case we must not succumb, further than we already have, to the “everything is written” syndrome. It is for Indians to write their own destiny.

Here are three reasons why a divisive focus on urbanization is retrogressive.

First, people tend to fall into the category the State creates for them. Caste, gender, religion are traditional fault lines created by “Authority” such as it was defined since ancient times. None of these provide any progressive social value today. The modern World identity of Urban versus Rural is as corrosive.

The needs of a shopkeeper in a village or a city are much the same; a serviceable road linked to the habitations of their bulk suppliers and customers; electricity for extended business hours, storage of perishable goods and medicines; security of life and property; a collection service to collect the trash generated by customers and sanitation facilities; customers with money in their pockets and a bank in which to safely put her money and access credit; telecommunication links to remain in contact with current events and clean water. Why would we want to discriminate in the standards of supply of these public goods between urban and rural areas? By creating “urban” and “rural” labels we are perversely creating a modern fault lines around which antagonistic interest groups start to coalesce. Please stop this. We have enough fault lines as it is. It doesn’t help when power elites benefit from the touting of urbanization.

Second, sustainable development is indivisible. You cannot steal from the future to make the present pleasant. You cannot fatten the urbanite at the expense of the rural poor. In our democratic society, you cannot cordon-off urban development from rural prosperity as China can and does. Urban centric development is self-corroding due to unlimited in-migration from rural areas in much the same way as international immigrants storm the national borders of developed countries, spawning land and migration mafias and vote banks. Cities and rural areas are organically linked as a sugar factory is linked to the cane fields; a steel factory to the iron ore mines and an electric power generating station to the coal mines, the water or solar, wind or marine energy harvesting area.

 Area based “indivisible” development optimizing on the comparative advantage of each development area has been a standard development tool. Why have we abandoned it? Let us instead abandon the decrepit slogans of the past and opt for integrated development which maximizes value generation using resources which are available locally whilst benefiting from India’s vast, common, domestic market and the liberalization of international trade. Innovation in India need not be limited to cities it has to be a fundamental credo of growth.

Third, the literature tells us cities benefit from the economics of agglomeration. That is why incomes are higher in cities and businesses happy to locate there. Population density is higher so it is cheaper to provide public services. Product markets are larger so scale economies kick in for suppliers and effective competition can pass on the benefits to consumers. Finally, the human element; traditional identities (religion, caste and gender) are replaced by modern identities in the anonymity of cities; professional human networks leverage human capacity and aspirations change. In a recent survey, two thirds of Lady Shri Ram College alumni (admittedly an elite Delhi college for women pulling in the best) viewed their professional identity as the primary one, even over gender.

All these are indeed the virtues of cities, but should they also not make the cities self-financed? Do they justify the subsidies provided by the State to keep cities alive and humming at quality-of-life standards far above rural areas? Collection of user charges even in metros is rarely more than 40% of the cost of providing services. Revenue collected by cities from their own sources (by taxing residents and from their real estate and other assets) only meets slightly more than 50% of their expenditure. The rest is grants from the Government of the related State or the Government of India. Development schemes which are off-budget for Cities but are directly funded by the Central Government, like the Jawaharlal Nehru Urban Renewal Mission further add to their kitty of goodies. A full accounting of the actual distribution of the government’s resources between urban and rural areas, including expenditure on education, health, science and technology, industry would further skew the allocation in favour of cities, where the elite reside. This resource allocation bias for cities is indefensible.

Relying on urbanization for economic growth is an end-of-the-pipe option, like a housewife resorting to RO filtration to drink clean water as against the State cleaning the rivers and other ground water sources. It is expensive and exclusionary.

Ignoring the human cost of migration from the villages to cities, in search for work, including the life cycle social costs of predominantly male migration, in large numbers, is scary.

Lastly, in the context of the recent democratic trend of targeted social disruption as an instrument of political power, cities are powder kegs waiting to be blown up. A “soft” State, like India, cannot cope with the unleashing of such violent and disruptive, social pressures.   

 

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