governance, political economy, institutional development and economic regulation

Archive for November, 2015

Sarkari pay: Too much love

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

emoji-tears_3502911b

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

 

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

 

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

 Equity – yes! but for whom?

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

 

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

Fiscal impact to crowd out public investment, as usual 

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

 

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

Income Tax

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

 

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

 

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

Link public pay enhancement to higher than targeted GDP growth 

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

 

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

 

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

ice cream

No ice cream without results

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

Fauji “pension edge” levelled yet again

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

veterans

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

 

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

7th PC

Adapted from the authors article in the Asian Age November 22, 2015  http://www.asianage.com/columnists/it-s-rip-127

 

Bihars death wish

Adapted from the authors article in Asian Age November 9, 2015 http://www.asianage.com/columnists/bihar-election-red-flag-905

nitish lalu

photo: hindustantimes.com

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

Canny Bihari voters

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

fiji

photo: theindiandiaspora.com

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

Development wins votes

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

nitish

photo: hindubusinessline.com

“Presidential” style local candidates win 

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

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

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

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

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

RSS- out of step with the New India

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

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

modi nitish

photo: the hindu.com

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

Why no one loves Modi

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

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

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

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

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

The faithful

faithful

photo: the guardian.com

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

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

Play cricket not golf

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

Even majority governments need to build consensus

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

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

You have time, sir

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

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

lake

photo: katfin.com

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

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

Neglected next steps

There are three imperatives Mr Modi must push through:

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

old babu

photo: ibnlive.com

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

eagles

photo: amazing chaos.com

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

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

Adapted from an article by the author in Asian Age November 6, 2015 http://archivev.asianage.com/columnists/why-no-one-loves-modi-797

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