governance, political economy, institutional development and economic regulation

Archive for the ‘bureaucracy’ Category

Electric subsidy – Haryana’s burden of riches

Khattar

Today we found the grandfatherly chief minister of Haryana Mohan Lal Khattar smiling at us out of a half-page advertisement, paid for by taxpayers, announcing an “unprecedented decision” of his government. From October 1, 2018 onwards, electricity customers consuming less than 500 kilowatt hours per month would pay between 16 to 47 per cent less to their distribution utility. The advertisement proclaims that 4 million consumers in Haryana would benefit.

Cross-subsidy will increase

So who is going to pay for this pre-election bonanza and why is it necessary? In 2017-18 the Haryana Electricity Regulatory Commission (HERC) estimated that the all-in cost of supply to a low tension (LT) consumer – low tension here refers to the voltage of supply and not the potential for aggravation – was Rs 7.25 per kWh. Compare this with the paltry existing tariff which ranges from Rs 2.70 to 5.56 per kWh, increasing progressively up to a monthly consumption of 500 kWh. At no point of consumption, till 500 KWh per month, does the utility recover its cost of supply.

Fiscal red flags may be raised

With the latest bonanza, this loss would further increase. To be sure the HERC can recover some of this loss by charging even more than the cost of supply to other consumers who use more electricity at LT or increasing the tariff for Industry which uses High Tension supply. That has been the strategy all along. But there are problems with continuing the “robbing Peter to pay Paul Robin Hood” approach to finance a utility.

So why have an Electricity Act at all if it is to be flagrantly flouted?

First, the Electricity Act 2003 enjoins regulators and utilities to decrease (not increase) cross-subsidies (meeting the loss from one by over-charging another). This is not just an issue of commercial equity that customers should be charged what it costs to serve them.

Far more important, excessive cross-subsidy can and does severely distort prices and business decisions. Those charged below market rates are prone to wasteful use. Those charged more are prone to steal, game the system (by getting multiple meters) and in the case of industry, become uncompetitive versus other producers in states with more rational tariff policies.

That Haryana’s prices are severely distorted is clear from the fact that the new reduced tariffs (Rs 2 to 4.27 per kWh up to 400 kWh and Rs 4.56 per kWh up to 500 kWh) will not even meet the utility’s cost of power purchase which was Rs 4.13 per kWh last year. Increasing rather than reducing the cross-subsidy and taking it beyond the statutory maximum limit of 20 per cent is ultra vires the objectives of Section 61 of the Electricity Act 2003.

Where are the poor in Haryana and how many are they?

Trump Village unveiled in Haryana

Waiting for goodies – A village in Haryana’s backward district Mewat renames itself as “Trump Village”. 

Second, does the average Haryana electricity consumer need the deep subsidy? The answer is a resounding no. First, the level of poverty in Haryana was one of the lowest in the country at around 11 per cent in 2011 (census data) when the national average was 22 per cent. Since then it has been a high growth economy clocking 11.5 percent per annum in current prices. Poverty in Haryana is low, possibly less than the 3 per cent red flag. Second, the average per capita income is the fifth highest (2014-15) with only Delhi which is part of the contiguous National Capital region and Chandigarh which is Haryana and Punjab’s combined capital ahead of it, along with Goa and Sikkim. Third, it is a 100 per cent electrified state which had 4.1 million electricity customers in 2007. The existing retail tariff subsidizes consumption up to 500 kWh by between 63 to 23 per cent. The new tariffs would increase the subsidy to between 72 to 35 per cent.

Has HERC lost credibility?

Why was the state government in a hurry to announce these new tariffs without any supporting announcement from the regulator? Possibly, this illustrates the current impatience with due process and cynicism around independent regulation. But more likely, this is just one in a series of pre-election bonanzas.

Haryana joins the race to the bottom of the tariff reform ladder

Can Haryana afford to waste money on poorly targeted freebies? The answer is a qualified yes. Haryana’s fiscal stability, as measured by the “revenue deficit (RD)” – the excess of current spending over revenue, is better than its immediate neighbours- Rajasthan and Punjab. Haryana’s RD was high at 2.4 per cent of gross state domestic product (GSDP) in 2015-16. But it is expected to reduce from 1.4 per cent in 2017-18 to 1.2 per cent in 2018-19. The latest subsidy bonanza may, however, upset plans to meet that target.

amrinder khattar

Comparing oranges with oranges, Haryana comes out smelling sweeter than Punjab. The latter state’s RD was 3.1 per cent in 2017-18 and an estimated 2.5 per cent in 2018-19. Rajasthan is an also-ran, with an RD of 2.4 per cent in 2017-18 and 1.9 per cent in 2018-19.

Three other non-contiguous states are worse than Haryana in 2017-18 – Assam, Kerala and Himachal Pradesh. But that still leaves 24 other states doing better than Haryana. That statistic alone should make Haryana’s combative leadership and progressive citizenry stop and re-think their fiscal allocations.

Negative messaging on reform

Even if Haryana has money to spare, subsidising electricity customers is a poorly targeted priority for its resources. It also does not speak well of party discipline and ideology since the Union government ruled by the BJP, as in Haryana, has diligently followed the fiscal stability agenda.

15th Finance Commission should penalise Haryana for poorly targeted fiscal exuberance

Fiscal exuberance in “rich” states just prior to elections needs to be penalised. One hopes the Fifteenth Finance Commission evolves a formula for penalising freebies (political gifts). The judiciary can also bell the cat as it is doing in an environment and human rights. Adding the fiscal review to the overburden of the higher judiciary is a bad option. But we may be heading there if public funds are spent with impunity for partisan benefits.s

Also available at TOI Blog, September 13, 2018 https://blogs.timesofindia.indiatimes.com/opinion-india/haryanas-burden-of-riches/

#Gender & #sexuality norms #India 2018

LGBT 2

In Britain, “buggery” between consenting adults became legal in 1967. Let me hasten to assure that I use the crude term “buggery” not to mock the LGBT community. This is the physical act, defined by its antiseptic moniker “voluntary carnal intercourse against the order of nature”, which was excised from Section 377 of the Indian Penal Code (IPC), 1860, by a five-member Constitution Bench of the Supreme Court last week (Navtej Singh Johar case). Fali Nariman had argued in the Suresh Kumar Kaushal case. 2009 that the term used in the IPC was so vague that it could be interpreted to include all sexual acts which were for pleasure alone and not aimed at procreation – including fellatio, use of a condom by a hetrosexual couple and use of an artificial device by two women. All of them, per Mr Nariman, could be prosecuted. Luckily now that  transgress into privacy has ended.

The court tagged the right to choose one’s gender and sexual preferences to the expansive fundamental rights vested in our Constitution, which encourage every individual to express themselves, form like-minded communities and live enriched, free lives, albeit with reasonable restrictions.

Incremental inclusion of LGBT over a decade

Events have been moving in this direction for nearly a decade. In 2009, the Election Commission of India, under CEC Navin Chawla, encouraged voters to voluntarily register their gender as “other” rather than male or female, if it described them better. This revolutionary move was balm for the transgender community, traditionally called “hijra”, which were outlawed in the colonial period and exists today as society’s underbelly. It is easy to exclude a community legally but much tougher to excise it from social memory. Rare is the Indian parent who would risk not getting newborn children or newly-married couples blessed by hijras.

Anjali LGBT crusader

On July 2, 2009, the Delhi High Court made history by allowing the petition of Naz Foundation. It held that Section 377 of the IPC was unconstitutional. The 2011 census followed and recorded 0.5 million transgender people on a self-declaration basis.

The next milestone was the April 2013 judgment by a two-judge bench of the Supreme Court (National Legal Services Authority case) which recognised “transgenders” as a minority identity. It was the first step towards fuller state inclusion for benefits and protection. Unfortunately, the bill for enabling such rights has been under consideration since 2014 in Parliament.

Meanwhile, strongly influenced by the international narrative to actively protect individual privacy against the State or private predators, a nine-judge bench of the Supreme Court on August 24, 2017 (Puttaswamy case) ruled that individual privacy was a part of the constitutionally guaranteed fundamental rights. Using privacy as an entry point, the court also ruled that the law must not be normative on what consenting adults could do in private.

Why is the judiciary being implicitly used to make law?

Given this progressive trend, the decriminalization of Section 377 was a logical conclusion. But the lay person could well ask why adopt a tortuous, disjointed judicial process for what have been comprehensively dealt by a proactive legislation recognising first, that gender diversity is a reality and second, sexuality is a mutual choice not limited by laws or morality.

The answer is yes, these issues should be debated comprehensively and legislated on by Parliament. The judiciary has no original legislative power. It makes or unmakes law only as a default option on a petition for judicial review of whether or not a law is aligned with the basic framework of our Constitution (Keshwanand Bharati case 1973).

Electoral compulsions erode a consensus, within Parliament, on social reform with electoral gains are meagre

To be fair to Parliament, it reflects what citizens feel, think and expect. The tyranny of democracy is that it binds us to where we exist today, not where we might want to be a half century hence. History has also not helped. Rule by the Mughals, followed by the British Raj, had stymied organic social development. Alternative sexuality was hardly an issue in Ancient India. As evidence, one needs go no further than Section 282 of the Indian Penal Code, which defines “obscenity” as anything “lascivious”, appealing to “prurient interest” or which may “corrupt” or “deprave” persons and prescribes punishments for such acts or objects.

The exception to this section is revealing. Ancient monuments, their sculptures and art are exempted from prosecution under obscenity laws as are any sculptures or art meant for religious purposes. Our ancient culture and religion predates the puritanical social norms of the eighth century AD in Arabia and eighteenth century AD in Europe, which were internationalised through conquest.

Western civilisation turned the corner on including LGBT a half century ago

Europe

We are stuck in a past which is not our own. A past abandoned, even in Europe, from where we partially assimilated our prudish present. A survey by daliaresearch.com shows that six per cent Europeans identify themselves as being Lesbian-Gay-Bisexual-Transgender (LGBT). Those between 25 to 35 years are four times as likely to claim an alternative gender as compared to those above 60 years. Gender and sexual diversity is the future. But State support is crucial. In the UK, same-sex marriage is legal. But 20 per cent of LGBT have battled hate speech or worse from social conservatives.

Generating data on LGBT can improve their access to public services & make their electoral weight visible

If the European share of LGBT to total population is applied to India, we would have 70 million LGBT people. They may very well exist and if united would be a bigger vote bank than all our minorities other than the Muslims. But fear and oppression keep them in the closet. Changing the pattern of acceptable social behaviour is a long, hard struggle. Lofty judicial pronouncements change behaviour only when embedded, by law, into the lives of real people who study, marry, have or adopt children, work productively and raise families securely. This is a long haul given the current parliamentary passivity on this subject.

IIT Delhi geeks are at the frontier of change

It is endearing that 20 geeks from the Indian Institute of Technology, Delhi, an institution of eminence, are at the frontier of change. They challenged the regressive Supreme Court’s two-judge decision of December 11, 2013 (Suresh Kumar Koushal case), which had overturned the Delhi high court decision ruling that Section 377 was unconstitutional on the narrow ground that unproven harm to a small minority was not significant enough to warrant judicial intervention to curtail the legislative privilege of Parliament.

Three emerging institutional trends

The decision in the Navtej Singh Johar case last week illustrates three important trends. First, institutional collapse is not imminent in the higher judiciary. This is good news since they will have to lead social change in the face of parliamentary passivity.

Second, the Court, by coming out strongly against majoritarianism, has stirred up the political pot. This will continue to boil during the upcoming elections.

Third, failure of governance continue. Much can be done by executive action and in judicial review sanctified by the courts. Why cannot the government simply change the provision for survivor pensions for a “spouse” to “partner” as a one-time choice to be made by the pensioner? Similar changes in the definition of “family” for health insurance or social benefits can embed sexual and gender diversity deeply. Aadhaar was driven by executive zeal, and so can social reform.

Adapted from the authors Opinion Piece in The Asian Age, September 10, 2018 http://www.asianage.com/opinion/columnists/100918/377-need-a-real-change-in-state-society-norms.html

Unbundling State effectiveness – current perspectives

dreams

Context is everything. No one model exists of an effective State. Hugely diverse countries like India can benefit from a modular approach enabling sub-national jurisdictions to shape their State architecture taking into account their context, the available resources and their dreams. The last is important. “Dreams” -as opposed to short-term ambition- are a mix of inherited drivers for action. They determine who we want to be- a long term goal. Consider, that in the long term – any period after 20 years – every factor of production that appears fixed today -technology, natural resource use, and human capital- can be changed.

Core sovereign functions

A large part of the modern sovereigns effort relates to overcoming negative “externalities” (war, insecurity, crime, environmental degradation) or enhancing positive “externalities” (sanitation, public health, basic education, transport, energy and communication networks). An externality is a cost which cannot be allocated to any one entity or a benefit which is not enjoyed by just one individual. This results in the need for “collective action” to finance and execute plans to deal with externalities.

Dealing with the problem of “collective action”

Using State executive agencies to deal with externalities was the pervasive form of “collective action” till the 1970s. Experience shows that those State interventions, which work “along the grain” and align with public sentiment are effective. Consider the baffling, continuing insecurity in Kashmir despite a massive deployment of security forces. A wider domestic and diplomatic engagement with the root causes of Kashmiri disaffection could help. Note that in sharp contrast, China deals with Uigur resentment in its Xinjiang province with a heavy, repressive hand. If the Economist is to be believed, it keeps 1 million Uigurs – more than 10 per cent of this Muslim minority group- in detention camps for “re-education”.

Hybrid options for “collective action”

Hybrid options for “collective action” have emerged over the last four decades. These unbundle the core sovereign functions from those which can be undertaken by private entities. Private contractors perform even routine security functions; lease out, maintain and even operate equipment for government agencies. Government can get things done by others rather than do them itself. But using this model extensively requires government agencies to change its skill set from project implementation to project design, contracts, finance and monitoring. There is insufficient evidence that government is making that transition. Public Private Participation (PPP), with the private sector putting in capital and bearing the implementation risk, has died in India.  Government was unable to make the functional transition to design and manage contracts effectively for mutual gains. Private investors used the mechanism as a way of earning riskless returns using bank loans. The term “Public” in PPP gave banks carte blanche to extend loans to “lemons”- projects with dodgy financials.

Bridging information asymmetry

Managing information asymmetry is also a key sovereign function to reduce the transaction costs to efficient levels and allow market to grow. Legislating standards like “weights and measures” makes trade more efficient; making rules for disclosures on operational and financial results by business, makes stock markets more efficient; regulations for public disclosure of product contents, as in medicines and food, protect public health. These are “in situ” measures to bridge the information gap between buyers and sellers within a given market structure.

Making markets competitive

Non -competitive markets induce inefficiency and impede growth. On the supply side, the government’s job is to avoid cartelisation by existing suppliers and regulate the level of market dominance of individual suppliers. The Competition Commission of India, backed by appropriate legislation is the vehicle for doing this.

Aggregating demand is the flip side option to keep markets competitive. User’s cooperatives are one traditional option. Government owned demand aggregators, like the Energy Efficiency Services Limited (EESL) are another option. EESL reduced the retail sale price of energy efficient LED bulbs by 75 per cent over 2012 to 2015 just by buying and distributing at scale. Private demand and supply aggregators like Amazon and Flipkart are newer options which operate like mini-markets reducing transaction costs for both sellers and buyers.

Markets – building blocks of the future

Global ideological polarisation around the usefulness of markets for reducing transaction cost and spurring competition via innovation came when China, under Deng Xiaoping adopted, in 1979, what later came to be known as “capitalism with Chinese characteristics”. Collapse of the Berlin Wall in November 1989, signalled the end of Soviet Union style socialism and the ensuing ideological polarisation around markets.

Bumbling liberal democracy versus totalitarian efficiency

Political Science became simpler post 1990 as nations clustered around two major clusters. The larger chunk consists of nations which align with, or aspire to, the western model of governance – democracy, multi-party elections, citizen rights and public sector governance reform to minimize the direct intervention of the government in the economy. India fits squarely into this set.

A smaller set of nations, with China in the lead, subscribe to the supremacy of the Party as the mediator between the State and the people. State control remains pervasive via public investment and Party cadres in key positions in the private sector. The “national interest” dominates citizen interest. Controls on family size (till recently), continuing controls on domestic migration and a weak judiciary are the downsides.

The “middle kingdom” shines

china shine

The spectacular economic success of China over the last four decades, including in reducing poverty below 3 per cent, provides powerful evidence that the State can function as effectively as the private sector. This model produces results but also future tensions in an artificial short-term, trade-off between citizen rights and economic progress. If development empowers people, how will a system based on the sacrifices of the many for a few, shake-off the bonds of political subservience it engenders?

Listening to discordant voices or ignoring “noise”

China has the managerial freedom to implement decisions without catering to the “noise” from political opponents or muted public opinion. Curiously, this is not too different from what Elon Musk, the founder of Tesla wants. By taking Tesla private he can avoid the relentless scrutiny of shareholders and the discipline of market expectations.  In India the need for consensus is a brake distorting efficient solutions. Consider the case of the Goods and Services Tax.  The GST, an efficient tax reform, languished for over a decade. In 2016 the Union government conceded managerial ground to the GST Council. It agreed to make implementation “revenue neutral” for state governments. A back stop Union government guarantee protects against short fall in tax revenues. The potential risk of “moral hazard” is the risk.  Multiple tax rates, knowingly sacrifice the efficiency gains from a single rate of tax. But the architecture now exists; systems are stabilizing, the rates can be adjusted based on experience. Listening to the people via the state governments has paid off.

Living with the “nuisance” of judicial review

China has no patience with judicial review of its decisions. This makes the government and the Party supreme. India is a liberal democracy, even though we chose to call it “socialist” in 1976 via an amendment to the constitution. The power of “public interest litigation” effectively restricts the ability of the government to undertake significant change, except via constitutionally aligned legislation.

The initiative of the Vajpayee government to privatise State Owned Entities in 2000 quickly ground to a halt. It became impossible to implement the legislative changes required to change the public ownership of state owned enterprises like ONGC, what have statutory status since 1956 or banks, which were nationalised by legislation in 1969 and select private industries nationalised in the 1970s.  “Reform by stealth” – the Indian approach, truly has its limitations.

India, stolidly elephantine moves

Elephant

It is instructive that one and a half decades after electricity reforms were initiated in 2003 there are privatised electricity distribution utilities in the national capital of New Delhi but a State Electricity Board, created under the Electricity Supply Act 1948, continues to function in the state of Kerala – the last bastion of the Left.  India assimilates multiple ideological regimes, per the local context.

Local governments bring innovation and accountability

Successive Finance Commissions have devolved more resources and responsibilities to local bodies. But Panchayati Raj, the third level of government, embedded in the Constitution in 1992, remains sparingly implemented. One third of the annual growth in the pool of Union tax revenue must be incrementally, directly devolved to local government, as shared benefits. This will enhance local ownership of the growth process and facilitate empowered grassroots leaders to grow into future national leaders.

A nation of itinerants

train stations

Decentralisation brings to the fore, multiple potential threats – the problem of equitable allocation of funds; ideological permissiveness and political dismemberment. These are real threats.  But India has stabilizers built into the constitution– free migration and the rule of law. So long as our laws promote non-discrimination and equality, the market for work and liveability will make a person vote for national integration with her feet and move to a place, where she feels secure and productive.

One fourth of Indians do not live in the place where they were born. This is why the Aadhar unique digital identity, with appropriate safeguards for private information, is vital to secure seamless access to public services anywhere in this country of itinerants.

There is a curious dichotomy today. The world looks at India as a major determinant of its future. But we, within India, are still staring at our navel awaiting enlightenment from without. It is time we claim our place in the Sun by making our actions speak for us.

 

From the authors opinion piece at the Law School Policy Review, gust 19, 2018 https://lawschoolpolicyreview.com/2018/08/19/unbundling-state-effectiveness-current-perspectives/

Book Review: For Reasons of State

For reasons of state

India is a young nation. Three fourths of us probably have no recollection of the ravages of the Emergency period from January 1975 to March 1977.

This book was first published in 1977, just after the national elections, called by Prime Minister Indira Gandhi – in a bout of self-delusion as a referendum on the Emergency, swept out the Congress – they lost all seven parliamentary seats in Delhi – and brought in the lightly glued together Janata Party.

The authors, both veteran journalists, describe their work as an “investigation into the workings of (the) monstrous administrative machine during the Emergency and the devastation it left behind”.  It is a perfect informational tool – not just a blend of statistics and a chronological listing of events. The authors say they chose “to be accurate rather than sensational”. But the level of granularity they uncover in their investigations and the lively characterisations they add, make people and events come alive, giving the narrative a gut wrenching, virtual face-time feel.

Cashing in on current trends

Why re-publish the book now?  It is the fortieth anniversary of the Emergency. But that seems less than sufficient reason, even though the new version has a foreword by the celebrated “Indian” journalist, Mark Tully. The authors perceive a salience – the potential for constitutional subversion under today’s majority government, just as it happened during the Emergency.

The muscular track record of the Modi government and its commitment to implement deep political change evokes a visceral fear, amongst those, who apprehend that a major constitutional change can negatively impact minorities and the marginalised. The liberal order is being challenged universally, which heightens the fear that India is no exception.

Is India under a virtual emergency today?

Mark Tully points out that drawing a parallel between the Emergency and the situation today is illusionary. This assessment resonates well. Citizens voted overwhelmingly for the BJP in 2014. But the Congress has also been re-elected with a majority in the past. But each time, events conspired to temper authoritarianism. Today the BJP remains in a minority in the Rajya Sabha.  A vociferous, albeit small, opposition is active in Parliament. Democratic safeguards have actually worked. Consider Uttrakhand, where the judiciary quashed an attempt to impose Presidents rule in 2016. In Bihar 2015 and in Karnataka 2018 non-BJP governments were elected, illustrating that electoral rights remain intact.

Tully also opines that unlike the Emergency, today there is an absence of widespread anger. However, fear of a vigilante backlash or the termination of government largesse via advertisements or project funds, has muted criticism of government by non-government organisations and driven some of the mainstream media to self-censorship.

The authors believe that there are strong personal and institutional characteristics shared by the Indira Gandhi and the Narendra Modi governments. A massive mandate to rule is one such. This inevitably emboldens leaders to take strong, decisive action. There is also a desire to move quickly for results. Shackled by lumbering institutions, charismatic leaders seek to short circuit public processes. In doing so, they bring in trusted advisers, not accountable to the public – Sanjay Gandhi in the case of Indira Gandhi and the RSS in the case of the Modi government. Curiously, however, both these widely disparate centres of extra-constitutional power seem to target Muslims and Dalits.

Wannabe Lutyens denizens, charlatans and craven officials abandoned public interest 

The most interesting aspect of the book is that readers are invited to be flies on the wall, whilst dodgy decisions are taken by the high and mighty of the Emergency days. The authors do not shy away from naming specific politicians, officials and wannabes like “Begum” Ruksana Sultana, who were all actively complicit in subverting the rights of citizen in Delhi.

Ruksana Sultana

Nasbandi (forced sterilisation) and resettlement of slums were the key disrupters of social contracts and civic responsibilities during the Emergency. Slums were levelled overnight. 7 lakh hapless residents were transported to 27 resettlement colonies on the outskirts of Delhi with little more than 25 square yard demarcated plots and patchy one room houses. But under-provisioned sanitation facilities and drinking water, no markets, no access to health care or schools made these peri-urban deserts, seem designed to make the poor disappear and leave Delhi looking green and beautiful. They bred disease, death, and anger. In the 1984 organised hate crimes against Sikhs, it is these resettlement colonies like Trilokpuri and Mangolpuri, where the worst atrocities were committed.

Two perceptive chapters dwell on the travails of the Delhi police and the reasons behind its ready capitulation to manipulation by politicians during the Emergency. Imaginary threats were materialised and minor criminals magnified into severe security threats. Tragically there have been too many “Dacoit” Sunders (a Delhi badmaash who was built up into gun toting dangerous gangster, later captured by the police) who, like “Sant” Bhindranwale, in Punjab, were manipulated into larger than life figures only to meet their untimely end in a burst of righteous police action.

If a grim account of abandoned constitutional responsibilities, grossly violated official procedures and craven official machinations for personal glory can serve to entertain – this is it. Whether it puts readers off voting for the BJP or impels them to do exactly that, remains to be seen.

Adapted from the authors book review in Business Standard, July 31, 2018 https://www.business-standard.com/article/beyond-business/intimations-from-the-emergency-118073100018_1.html

Data protection – new challenges but lame solutions

LOCK

Safeguarding your privacy from government and the use of your data by companies without asking you or paying you explicitly, are current concerns, even in under developed India, where more than one half of the population remains effectively unhooked to the internet because of patchy service in low population density areas.

The proposed solutions are pretty humdrum. A committee constituted by government under B.N. Srikrishna ( a retired judge of the Supreme Court) has adopted a please-all stance. A new legislation with new government agencies and draconian provisions for imposing penalties, modeled along the European approach seems to be the best that we can come up with.

An institutional approach to data protection

A new Data Protection Authority (DPA) is to be created as an “independent regulator” for monitoring, enforcement, standard setting, adjudication and grievance handling. Will this regulator work when so many others have failed to deliver? Only time will tell. But it cannot worsen the present levels of data protection. It may cost a bit more. But it will also create additional “good” jobs. So, on the whole, we should probably go for it.

A regulatory pancake is undesirable

The committee also recommends, somewhat surprisingly, that the Unique Identification Authority of India (UIDAI), which has the mandate to issue Aadhaar and manage its database, should also be given regulatory functions, its autonomy enhanced with enforcement powers over those entities which, in turn, are authorised to access the Aadhaar information. In addition, UIDAI will also become a data fiduciary regulated by the proposed DPA, like any other data fiduciary – all this via amendments in the Aadhaar Act.

This is convoluted, but it preserves the existing Aadhaar Act while also bringing the UIDAI under the mandate of the DPA. Clearly, this device diffuses potential resistance. However, wouldn’t it be sufficient for the UIDAI to be regulated by the DPA? The issue of data privacy in Aadhaar using fiduciaries could be directly regulated by the DPA. Data privacy leaks happen not within the UIDAI database, but in agencies like banks or food distribution centres which are required by the law or by executive order to access the Aadhaar base.

No reciprocity between citizen and State rights

In the context of private data protection versus the State, the committee’s recommendations are fairly status quoist. The committee has ceded regulatory ground, near completely, by exempting all authorities controlled by the government, as defined in Article 12 of the Constitution, from the need to obtain the consent of individuals (termed data principals by the committee). The only restraint is the triple test laid down by the Supreme Court (Puttaswamy case 2017) — State rights limited to those permitted by law; the principles of “necessary” and “proportionate” restraint on privacy and finally restrain only to promote a legitimate interest, such as the “security of the state”.

Trawling Big Data for security of the State

Civil society is almost certain to be unhappy that better and more explicit safeguards haven’t been suggested over public agencies to curb the practise of gathering “intelligence” or exercising “surveillance” in the manner of a “fishing expedition” — casting the net wide to gather all possible information.

The safeguard today is that approvals for interception, under the Telegraph Act 1885, are given by a three-person committee of top bureaucrats. The number of requests — around 8,000 per month — are huge. The secretary-level committee can only hope that their junior staff has sifted the requests carefully. A similar architecture exists in state governments. Under the Information Technology Act 2000, private information stored in computers can be similarly accessed for reasons of state, including crime prevention and detection.

The committee suggests that a new law is needed to exercise better oversight over intelligence-gathering, including wider parliamentary and judicial participation. That will take time. An earlier bill to regulate the functioning of the intelligence agencies had lapsed in 2011.

Cynicism on intra-State mechanisms to check abuse of data privacy are misplaced

Surely, even within the existing laws, there is much scope for improvement. Enhancing the capacity and willingness of government agencies to adopt a minimalist approach to data use is one such. Why not use artificial intelligence to handle the huge workload of identifying unreasonable requests or those drafted without proper application of mind? Why not empower the committee of top government officials to discipline line agencies submitting unreasonable requests? Further, can these high officials themselves not be disciplined if they fail in exercising due care? Why not have a group of ministers exercise regular and specific oversight over them? It is the minister, after all, who is answerable in Parliament.

Consider that the most egregious cases of privacy intrusion relate to the use of state power. A new law to improve state functioning is a narrow and time-intensive approach to the problem. It ignores the fact that “gold standard” laws in a poor, developing country, with massive functional illiteracy, does not really work.

Data is valuable “property”. Harness it to pay “data principals” for its use

The recommendations with respect to safeguarding privacy versus business interests are broadly aligned with the “gold standard” of the European Union General Data Protection Regulations of May 2018. We have a fatal instinct for legislating for gold, but settling finally for results equivalent to baser metals.

The committee has sought inspiration from the Directive Principles of the Constitution. Article 39(b) and (c) enjoin the State to work towards redistribution of the material resources of the community for the common good and to avoid the concentration of wealth and means of production. These are non-justiciable segments of the Constitution meant to guide lawmakers. It is worrying when the judiciary starts second-guessing the lawmakers.

Consider that applying these principles bluntly could mean, at an extreme , that data aggregation should be reserved for the public sector to avoid the concentration of wealth which private data aggregators like Amazon have achieved. This could kill the goose which lays the golden eggs. Reducing inequality is a legitimate concern. But the worst way of going about it is to socialise either the means of production or value creation. More significantly, these ideological considerations are misplaced whilst  thinking through what should be done to protect data without killing the value proposition embedded in its use.

Proposed restraints on business include stiff fines and draconian penal provisions 

JAIL

Businesses and bureaucrats will also view with considerable apprehension the recommendation that severe criminal liability should extend to incidents of “intentional or reckless” harm caused to data principals. That such offences should be “cognisable” — arrest by the police without a warrant and “non-bailable”. Experience shows in the case of criminal penalties, unlike in negotiations, the heavier the stick wielded, the lighter becomes its actual use. The low efficiency of our judicial system also needs to be considered. Such draconian provisions only serve to dissuade honest, lawful businesses, but do little to discipline criminal intent.

The direction for change recommended by the committee is positive, the narrative outstanding and the information collated impressive. An incremental, contextual approach and a near-term vision, would have helped earlier actualisation of its admirable intent.

Adapted from the author’s opinion piece in The Asian Age, August 3, 2018 http://www.asianage.com/opinion/columnists/040818/to-ensure-data-safety-a-better-vision-needed.html

The price of democracy

beggar

Prof. Ashutosh Varshney of Brown University calls India an improbable democracy — poor, impossibly heterogeneous and multicultural, and ironically, only its colonial heritage keeps it going. So has our hubris cost us plenty?

Why we are not China

Forget comparing ourselves with China today. Are we at least on the same path? No, we are not. Assume a lag of a decade between China’s 1979 takeoff — Deng Xiaoping’s reforms — and India post-liberalisation in 1991. Second, assume that GDP growth is a decent proxy for national effort. Judging by the results, we have tried only one-third as hard as China to grow three decades into the reform process. Have we been tied down, like Gulliver, by democracy’s Lilliputian ropes?

Money or efficiency make the world go around

There are only two ways of increasing growth. Increase investment or increase the efficiency with which capital is used. The latter is tough but critical. Efficiency and stability invite foreign capital in, build supply chains and boost “federated” exports — many economies get a say and a share in the final product. Making the world your shareholder makes politicians more responsible — barring outliers like US President Donald Trump — and who knows, his unorthodoxy might well work for the United States.

Wasting scarce capital

Amravati

India is hugely capital starved. Sadly, it has not done well either in using capital efficiently. And it is not just the public sector alone which is wasteful. A generalised trend of wastefulness springs from poor monitoring systems available to the government, shareholders and citizens, none of which can easily check the data by triangulating information sources.

Over-designed public projects

Bengaluru airport has had charging points in its parking lot since 2008 for electric cars, which will not use them till 2030 – if then. You pay for casually over designed projects. The building of Amravati, the new capital of Andhra Pradesh, represents all that is wrong with our democracy with politicians free riding on tax payers.

Frank admissions of failure are as important as bragging about success

Finance secretary Hasmukh Adhia has admitted that the GST network has failed to provide end-to-end digitisation. We knew this. But speaking honestly and responsibly endeared him to the public. Unfortunately, no one is to be held accountable for this glitch.

Adhia

Cheap finance induces waste

Wasteful use of capital is hardwired into a system which prices capital cheaply. Most business folk will moan about the high cost of funds in India. But the fortunes, domestic and overseas troves of real estate barons and industrial tycoons were built on negative interest rates, with inflation boosting prices but diluting the real interest cost of a bank loan to zero over a 10-year period.

Four matras for democratic success 

Can we take remedial measures? The times are tough. But bad times never last. More important, are we primed to take advantage of the next uptick cycle in world economic growth? Possibly not. Here is a four-point mantra for getting there.

Efficient public services

online

First, the new national government, later this year or in early 2019, must tackle the long-ignored task of public sector reform. It is shocking that economic duality has widened since 1947. The average citizen and business is streets ahead of the government in the effective use of 21st century technology to make employees accountable. Can you imagine how the government would change if the bottom five per cent of employees were sacked every year for poor performance or if the courts disposed of cases quickly? Just focusing on achieving these two and keeping everything else on hold could retrieve democracy in India.

Make data accessible on citizen aspirations & preferences, government performance and business governance 

Second, know your citizens. Make all residents and citizens identifiable, traceable and accessible. Aadhaar is the answer. Make registration for Aadhaar painless and self-declaratory — the ability to cancel out duplicates is supposed to be built into the system — enhance its accuracy in identification; mask the private information better and multiply improved digital recognition equipment. Populate data for citizenship, electoral rights and public benefits, using Aadhaar as the base platform. Transfer all public benefits through bank accounts. Roster all government officials, below 40 years of age, irrespective of grade or cadre, to serve as field-level facilitators wherever they are posted, with specific mentoring targets, to help citizens access their benefits.

The BJP and some regional parties (Trinamul Congress, AIADMK, the Left parties) who have a cadre are ramping up to do this. Down this route lies the threat of democratic abdication. A citizen must be served by the government of the day, not tied to the apron strings of a particular party for accessing benefits.

Link official accountability with efficiency in use of capital 

Third, change public incentives and processes. Switch from lazy budgeting of inputs to specific outputs, achievable over two years and outcomes over five years. Form teams of specifically identified officials to programmes and projects; ensure that there are no transfers and the team remains intact for the next five to 10 years. This will ensure more responsible budgeting; development of job commitment and expertise and improve outcomes. China does not shuffle its officials about needlessly. They stay tied to specific tasks for long periods — many forever. We encourage our officials to forum-shop from one cushy position to another.

Stop fiddling with markets

markets

Fourth, walk the talk. Withdraw the government from being a market participant and it will work better. Markets are like forests. Naturalists like Pradeep Krishen say it is enough to fence barren land off from predators like goats to allow a forest to regenerate. Going with the grain of nature doubles results. Anything else is wasteful and inefficient.

Stop fiddling with markets and they will find their level. Focus on diluting, not alleviating, the pain of those who lose out from markets. Just that can consume all of the government. Do not dilute the bite of markets if you aim for efficiency. Equity initiatives must be front-loaded to enhance competitiveness, not installed at the end of pipe to shackle markets. Caste-based reservations for education, jobs or benefits are an end-of-the-pipe option. They gel perfectly with our real strategy of steady but inefficient, slow growth.

Democracy is not the reason for our woes. It is what we do with it that’s troubling. Democracy implies at least a 50 per cent chance of not getting re-elected. The great Mughals would not have approved of the risk profile. Neither, it seems, do our rulers today.

Adapted from the author’s opinion piece in The Asian Age, July 9, 2018 http://www.asianage.com/opinion/columnists/090718/price-of-democracy-a-4-point-growth-mantra.html

Who rules Delhi?

Delhi throne

Khichdi – Risotto if you prefer the Italian version – is a traditional palliative for Delhi belly. But Delhi’s khichdi style political governance systems are guaranteed to give anybody the runs. So bad is the mess that it is difficult to find out who rules Delhi. The Delhi Government, a contender, appealed against orders of the Union Government to clarify its constitutional mandate.

Supreme Court clarifies the law

The Supreme Court, in its July 4, five judge bench, judgement, patiently re-explained the law, without venturing to drill down to the crux of the dispute between the Aam Admi Party (AAP) government and the BJP ruled Union government – who controls the public servants in the government of Delhi? The dispute closely resembles a Saas -Bahu quarrel – principally, who gets to jangle the house keys and run the house.

Judicial decisions unlikely to resolve political power stand-off

The AAP came to power by promising to the good but poor, people of Delhi, to set right the tyrannical, corrupt Delhi bureaucrats and other elites. The AAP found, to its dismay, that they had less real powers than the Municipal Commissioner of Mumbai. Being a glorified Municipal Commissioner was of no use in leveraging the AAP onto the national level and that too within months of coming to power. AAP chose the path of open, tactically public confrontation with the Union government in a David versus Goliath stand-off.

To be sure, the BJP run Union government’s intention were hardly kosher either. It tried to swat the AAP at every opportunity. The previous Lieutenant Governor (LG), Najeeb Jung – appointed by the Congress, called an end to his stressed innings in December 2016.

Will the Supreme Court verdict change things? India is peculiarly American in its belief that good laws and sound judgements can set things right. There is little evidence to support this belief. Laws, which are out of sync with reality and judgements which are legally correct but practically iffy are not the stuff that good governance is made of.

Expectations build reality. Delhi is often described as “closely resembling a State government”. Delhi is as much a state government as we are a “federal” country – another slipshod simplification used for the essentially unitary form of our polity albeit with some federal characteristics.

How it all began

Delhi government is a “special” child of the Indian National Congress, which was in power in the Delhi Metropolitan Council uninterruptedly from 1972 till 1990. In 1991 the INC decided to embellish their jagir with a totem of statehood- possibly to appease citizens with a magic bullet which would solve all their problems. In 1992 the 69th Amendment to the constitution – prescribed a special status for Delhi. It became a hybrid between a Union Territory, like Puducherry and a State government, like Goa.

But no matter how many new, white Toyota Innova’s Mr Kejriwal adds to his cavalcade, he will remain a Chief Minister in name only and Delhi’s Legislative Assembly a caricature of democracy. This is not because Mr Kejriwal or the legislators are wanting on merits. But the constitutional arrangements militate against them having a free hand in providing good governance.

Kejriwal

The proximate cause of the constitutional spat is that the Union government claims the Delhi government has no independent powers of managing their employees. It must do so only with the concurrence of the Union government. Municipalities face a similar constraint versus the State governments, which sit on their heads. The Supreme Court (SC) has not dealt explicitly with this critical issue. But reading between the lines, two implicit messages emerge.

SC judgement implies Delhi Government competent to legislate and execute on Public services

First, the SC has specifically stated that all matters in the State list, other than the three exempted subjects of Public order, Police and Land are within the legislative authority and hence also the executive authority of the Delhi government. State public services are one such subject at entry 41 of Schedule 7, List II of the State List of the constitution. A plain reading of the SC order indicates that this subject is within the mandate of the Delhi government.

But Delhi does not have its own cadre of IAS officers allocated to it or Provincial Service Officers appointed by it, unlike other states. It is staffed by IAS and DANICS (Delhi, Andaman and Nicobar Islands) officers, made available to it by the Union government, which is the cadre control authority.

Union government’s view on services too expansive

It is unclear where the Union government’s powers to manage these cadres end. Allocation of specific officers to Delhi, training, promotion and disciplinary action are powers intrinsic to cadre management. But must the Union government also approve their posting to or transfer from one position to another within the Delhi government? These are routine decisions which affect individual officers but do not impinge on cadre management.

LG only an “engaged watcher” on all matters except Public order, Police and Land

Second, the SC drew a useful distinction between the right of the LG to be informed of all decisions of the Delhi government and his specific power to reserve a matter for the orders of the President. It was careful to emphasise that the latter is to be used only in exceptional cases. This indicates that the Supreme Court veers towards a rational and harmonious sharing of personnel management powers between the Union and the Delhi government.

The sprawling Delhi bureaucracy prefers the Union government as “Mai-Bap”

A May 21, 2015 notification of the Union Home Ministry espoused the view that the Delhi government has no powers with respect to management of public services on the specious grounds that it has no public services or State Public Service Commission of their own.

The Union government’s unorthodox viewpoint draws support from the all-powerful IAS/DANICS cadre which fear loss of prime status, versus the uniformed services, if they are subjected to control of the Delhi government whilst the police remain directly managed by the Union government. The Delhi High Court will now rule on this sensitive issue.

Dharna

Delhi’s bloated administrative architecture wastes public money. It creates a clash of political egos and a surfeit of elected authorities all elbowing for space in just 700 square km of urban space. Delhi should revert to the 1956 arrangements – Union Territory with an Administrator overseeing the existing four civilian municipalities. But each must be headed by a directly elected Mayor. If the experiment works, India’s metros could finally join the world in participatory local governance.

India’s elite bureaucrats – unshakably resilient

 

Mughals

The great Mughals (16th to 18th century) found it more difficult to manage their extended zenanas than to conquer fractious Hindustani kingdoms. The insidious politicking and power struggles of the women in purdah are well known. Less well appreciated are the strength, stability and support that the zenana afforded to the emperor, as a secure haven of peace and a source of experienced, sound, well-meaning advice. Ira Mukhoty exquisitely documents this aspect of the zenana in her new book -Daughters of the Sun.

zenana

The IAS is the metaphorical “zenana” for leaders of modern India

What the zenana was to the Great Mughals, the Indian Administrative Service (IAS) is to our political leaders at the Centre and in the states. Curiously, even the numbers match. Both the IAS and Emperor Akbar’s zenana — the largest — are around 5000 strong.

The only difference is that, unlike the zenana, the IAS is predominantly male. But this is changing. Like the zenana it is recruited on merit through intense competition. Once recruited, a minimum basic standard of life and respect is assured. But progress onto meaningful positions of power depends on both merit and political convenience. Bad political choices can end careers prematurely. Good ones can lead to a rapid rise.

IAS

Expectedly, disruptions to the existing architecture initiated by the emperor caused great trauma then, with fervent attempts made to subvert the change, as now. Not all disruptions end well either. But that is no argument for not trying to imbue knowledge competition into the workplace, as the Narendra Modi government proposes via the lateral entry of 10 joint secretaries.

Why change?

Modern workplaces have specific needs. Of these, IAS officers have only two characteristics which others may lack. First, they are the culled outcome of the UPSC exam which selects just 0.1 per cent of those who apply. This ensures that genetically they have the required level of raw intellect. Second, they have an accelerated and time-bound promotion career path. This ensures that they will always be ahead of those in other cadres. Even seniority, within a cohort of officers, is based on their score in the UPSC exam and the Mussoorie training academy. These embedded entitlements bestow upon an IAS officer ritual status, attracts respect, and often abject compliance. But an impartial, permanent civil service, as a source for leadership level advice, is an anachronism, for three reasons.

The IAS has no “skin in the game”

First, politicians today need bureaucratic advisers who have “skin in the game” — they prosper with a politician — zenana style — and go down with the politician they support. The need for “trust” and “faith” in the support senior staff around a minister is poorly aligned with the old civil service architecture of impartiality, seniority and permanence.

Quick to learn, but no deep personal knowledge or insight

Second, the explosive force of the knowledge economy and the range of new sovereign interventions call for total immersion for extended periods in a chosen area of work. This is alien to the way the IAS is managed and trained for general management purposes. To head an engineering department, it is not enough to have an engineering degree before joining the IAS. Most useful skills are non-academic and acquired on the job. Only a practising engineer can credibly navigate a politician through the likely cost-benefit of options. Our achievements in space technology, missiles and atomic energy are out of sync with the quality of our roads or public medical care. Both of the latter work areas are managed by an IAS officer at the top. And it shows.

Deep skills do not come cheap, nor do they remain captive

Urjit

Third, skilled help does not come cheap. The pervasive private sector provides the demand for top-level skills where the government can never hope to compete for talent. Only saints would give up private sector options and choose to work in the government, except for short periods, such as to round off one’s CV, enlarge networks and gain face time at the leadership levels. Facilitating short-term contracts in the government for skilled professionals is a good way of achieving the required skill infusion into the administration.

Short term hires should come and go with the government

Expectedly, the contractual top-level hires will be selected only where both ideologies and objectives match. This makes sense for both sides. The entrants and the government know that without an inside track with the political leadership, they would simply run out of time before achieving anything. In public policy, academic credentials have to burnish with zenana brownie points like loyalty and a complete alignment of objectives.

What does short term hire mean for the reservation policy?

Mayawati

This flags BSP supremo Bhen Mayawati’s concern of how to ensure that brilliant Scheduled Caste and Scheduled Tribe candidates do get a fair chance. At present, there is no caste quota for promotions in the Government of India for the elite services. The quota applies only at the time of recruitment. Currently, only two per cent of all joint secretary-level positions have been advertised for lateral entry. But in future, if lateral entries increase to, say, 25 per cent of all positions, the caste quota issue will need to be managed head on.

UPSC selection is not aligned with the hiring practices for short term experts 

Would the UPSC be a safer choice than an in-house government selection committee? Not necessarily. We have seen in the case of the appointment of judges, compromised selection is not the preserve of the government alone. But there should be a permanent selection committee comprising the secretary of the requesting department; two private sector or NGO subject specialists, and the secretaries of the UPSC and the department of personnel and training.

But safeguards to ensure merit and transparency must be built into the process

Lastly, the process adopted for lateral contractual positions must be differentiated from the existing process for internal appointments. Advertisements for contractual positions must specify the required mix of minimum educational requirements and particular work experience, along with the exact job description. Transfer from one specific position to another, during the contract, must not be allowed, to avoid gaming and to protect the incumbent.

Alas, has this come too late?

time

The Narendra Modi government’s move to open the doors for external, top-level skills is extremely welcome. But, as in the case of Air India’s disinvestment, its timing, at the fag end of the government’s tenure, loads the dice against persons of outstanding talent applying for this opportunity. Even the best house help is risk averse and abhors untimely disruptions.

Adapted from the authors opinion piece in The Asian Age, June 18, 2018 http://www.asianage.com/opinion/oped/180618/govts-lateral-hiring-great-idea-bad-timing.html

Follow the money to tackle the fiscal perfect storm

Piyush Goyal 2

Piyush Goyal, the interim finance minister, will need to be a lucky general if he is to overcome the triple challenge of widening trade and fiscal deficits and lacklustre private investment.

Exports – India’s achilles heel

Despite our comparative advantage of cheap, skilled labour and entrepreneurial zeal, export pessimism is endemic — unlike in China. Last year we imported goods worth $460 billion, while exports were just $303 billion, leaving a trade gap of $157 billion. We try and cope with the trade deficit by mimicking the American economy — minus the pull of its global currency. We maintain a strong, stable rupee and high interest rates to encourage inward financial flows of capital to plug the deficit in the external account and protect our foreign reserves.

Our saviors – inward remittances from Indians in the Gulf

Gulf workers

We are blessed that our valiant expatriates in the Gulf states regularly repatriate their foreign earnings to finance their families struggling to survive in India. Net inward remittances — around $70 billion per year — cover around one-half of our trade deficit. The inward flow of foreign direct investment and “hot money” flowing into our equity and debt markets provide the residual foreign exchange for imports.

Aping America’s strategy to manage its external account, is out of context

A chronic trade deficit forces us into economic contortions. One such is high interest rates to generate demand for the rupee, never mind that it permanently disadvantages exports and makes domestic production uncompetitive, versus imports. A new monetary policy announcement is due later this week. If the Reserve Bank of India increases base interest rates, it will be in line with its inflation targeting, rupee strengthening and external account stabilisation objectives.

High interest rates can kill our nascent economic recovery

The consequences for the domestic economy will be harshly adverse. Cheap money and a realistic exchange rate is what drove the Chinese juggernaut for years. Admittedly, it can also create bubbles. But private investment is at risk. The emerging political uncertainty and the yet to be completed corporate insolvency processes — affecting 15 per cent of bank assets — are investment dampners. Higher interest rates could well be the straw that breaks the donkey’s back. Public investment is always a poor substitute for private investment. It comes with the enormous risk of misallocating capital hugely, including for political ends.

A circle of wealth excluding the poor?

Political economy considerations also conspire to maintain the inward financial flows of “hot money”, which boosts stock market valuations. Over the last two months, foreign portfolio investors have sold a net amount of around $3 billion of Indian assets roiling our thin domestic stock and debt markets — eroding the wealth of 40 million equity holders. But it matters little for over 200 million other families, who continue to squirrel away their meagre savings into interest-bearing bank or post office savings accounts, or in gold.

Look beyond tax revenue to fund burgeoning expenditure

HAL

The Central government is constantly walking on a razor’s edge to achieve fiscal deficit targets – which is necessary to avoid stoking inflation. It is a tough call to choose between allowing oil spikes to pass through to consumer prices at the cost of stoking inflation and consumer anger, or to absorb the price increase within the general government finances, at the risk of blowing the fiscal deficit targets. The win-win solution is to find a source of additional non-debt financing, till the full benefits of GST kick in over the next five years. One option is to monetise the public investments made thus far in industrial entities, infrastructure and land.

Find a non-tax source to replace the cushion provided earlier by low oil prices

Ashok

During 2015-18, the government reduced the fiscal deficit by one per cent of GDP because of the availability of additional revenues of Rs 2 trillion from cheap oil. The government should target raising Rs 4 trillion over 2018-20 by monetising public assets, including the sale of equity in public sector undertakings. These capital inflows can help keep the fiscal deficit within three per cent of GDP. This is not easy. Embedded vested interests, which benefit from such investments, would create hurdles. Political capital will have to be spent.

Sell our “crown jewels” and monetise completed publicly financed projects 

NALCO

The disinvestment ministry was notionally empowered last year to discharge a limited mandate with respect to managing government equity in PSUs. But disinvestment remains a programme of simply selling government equity, when the stock market is high, to plug the fiscal hole and keep the fiscal deficit in check. 2017-18 was a landmark year. The government sold equity worth Rs 1 trillion due to very adroit management and with help from deep-pocket publicly-owned entities like ONGC, which bought into HPCL and other institutional investors who generated the demand pull. This was a one-off. The target this year is 20 per cent less at Rs 800 billion.

Air India is a high-profile disinvestment, which can stem the annual loss borne by the government. The 2016-17 loss was Rs 58 billion. Not enough to break the budget but unnecessary, and hence wasteful. No bids were received for it. Blame the flight of international capital to “risk-free” investments. Blame our fragile domestic political environment prior to the general election. But also blame low appetite within the administrative departments to let go of the PSUs that they control.

Don’t mimic the UPA – discipline departments which fight to retain PSU assets 

Air India

It is astonishing how quickly political capital can fade. Prime Minister Narendra Modi’s signature theme was that his writ runs in the Central government. But the foot-dragging in the Air India disinvestment case seems to illustrate that this might have changed. Admittedly, Air India is an iconic brand. For long, you felt you were home once you boarded Air India — remember that familiar smell of curry? Selling it, specially to a foreign investor, is like the British selling Jaguar-Land Rover to the Tata Group. Pragmatic but heart rending. We have yet to become business-like about our crown jewels, as the British have. We sell our assets past their expiry dates and then wonder why we got peanuts.

Focus, diligence and smart choices can make a difference

Success in navigating through this perfect storm will depend on avoiding the bureaucratic gut instinct for “tax terrorism”; monetising public assets in mission mode; monitoring expenditure closely and ensuring fiscal discipline, while absorbing the oil price increase and providing for higher farm gate prices — two politically inescapable imperatives. If the finance minister is lucky, oil prices will subside; America’s tempestuous and unpredictable President will lapse into hubris and the domestic political landscape will change for the better. But don’t wait for it to happen.

Adapted from the authors opinion piece in The Asian Age, June 6, 2018 http://www.asianage.com/opinion/columnists/060618/a-fiscal-storm-looms-dont-wait-for-godot.html

Book Review: Paying the price for aid

AID

Three themes undergird the author’s exhaustive narrative of the politics around foreign aid in India between 1950 and 1975, during the early years of the Cold War — the people who made key decisions; the domestic context and, finally, the geopolitical incentives that shaped donor responses.

The deal makers

come across as being surprisingly entrepreneurial in securing aid. Mercifully, unlike more recently, the political and bureaucratic manoeuvring was almost never for personal gain, other than managerial satisfaction at seeing pet projects fructify.

lobbied for civilian atomic power at a time when hydro and coal-based power was the norm. P C Mahalanobis, a physicist turned statistician, institutionalised centralised planning as a scientific prerequisite for development. C Subramaniam as minister for food ushered in higher agricultural productivity via the Green Revolution. Morarji Desai as finance minister and later prime minister promoted private Indian industry and trade, an outlier view, supported by G D Birla. B K Nehru — India’s economic ambassador to the US; John Mathai and later C D Deshmukh as finance minister, economist I G Patel and L K Jha as ambassador in Washington were more inclined to look to markets, international trade, the private sector and the criticality of macro-economic stability, all of which aligned more with the United States as a development model.

Jawaharlal Nehru and later Indira Gandhi as prime minister; Krishna Menon as defence minister, Sarvepalli Radhakrishnan and later D P Dhar, ambassadors to Moscow; Gulazarilal Nanda, deputy chairperson of the Planning Commission; K D Malaviya, petroleum minister; P N Haksar, principal secretary to Prime Minister Indira Gandhi and later deputy chairperson of the Planning Commission and T N Kaul as foreign secretary were the top decision makers who leant towards the Soviet Union.

The domestic context

But individuals became important only because they seized the moment in a given context. Nehru was opposed to be seen begging for aid. It did not fit with his ideology of non-alignment. But India needed lots of aid. With overt political alignment unacceptable, the second-best option for officials was to conspire and reassure donors, that India’s and their interests were aligned.

America feeds India

The establishment of the Peoples Republic of China in 1949 spurred America to save India from Communism. American aid funded technical assistance, community development, large irrigation and flood control projects like the Damodar Valley Corporation and credit lines for the import of machinery by private industries. The PL-480 programme, starting in 1960, provided desperately needed food grains against deferred payments in rupees. The accumulated amount equalled 40 per cent of the money supply by 1974. The US government generously wrote the largest cheque ever, of $2.05 billion, converting two thirds of the outstanding balance into a grant for India.

But disjointed Geopolitical compulsions act as spoilers

But the Indo-American relationship was an uneasy fit. The 1954 treaty of mutual security between the US and Pakistan was an early spoiler. India’s denial of an endorsement for US military action in Korea and later, in Vietnam, rankled. By 1969, interest in India waned, as President Nixon focused on resetting relations with China. In 1966, India accounted for one-eighth of total American aid. By 1975 it had dwindled to one-eightieth.

Soviet Union industrializes India hoping to strengthen Indian Socialism

Soviet aid comprised projects to build industrial capacity. This fitted Indian objectives of backward area development via the creation of model public sector factories in the “core” areas according to the 1956 Industrial Policy. By the 1970s, Indian industry had caught up, whilst the Soviet Union had fallen behind in technology and run out of revolutionary fervour. Meanwhile, enhanced multilateral, soft credit from the World Bank under Robert McNamara introduced new options to source industrial equipment commercially and competitively.

The West – aligned with fPakistan, wary of China and needing its buying power –  fails to provide arms to India 

The United Kingdom, the ex-colonial power, was best placed to meet India’s defence needs. But it was unwilling to supply arms against rupee payments. Military aid from the US for India was a non-starter, given that Pakistan was a close ally. The 1965 Indo-Pakistan war did not help. In 1971 the US-China détente prompted Henry Kissinger, secretary of state, to convey that America would not come to India’s assistance, against a Chinese attack, in response to India’s military action in Bangladesh. In comparison, the Soviets were generous – supplying military assets more modern that those supplied to China; readily accepting technology transfer and payment in Indian rupees. Consequently, the Indo-Soviet defence partnership has endured.

An informative, closely referenced read for diligent students of South Asian political economy, the author posits that India paid a price for foreign aid, which subverted indigenous institutions of collective decision-making, like the Planning Commission and the Cabinet. This assessment seems overblown. Institutions evolve and adapt. Their efficiency must be measured from real outcomes, not the stated objectives or the rigidity of the institutional framework.

The race towards assured mutual destruction in South Asia was fueled by competitive arms aid but civilian aid strengthened India

However, unregulated military aid has sparked off an arms race and contributes massively to the regional welfare loss from insecurity and high defence spend. But just as surely, civilian aid cushioned the negative impact of natural and economic shocks, boosted infrastructure and enhanced human development — all of which helped preserve the integrity of India’s nascent democracy. Individual, institutional or national egos were bruised in the process. In hindsight, that is a small price to pay, for what is today a sustainable and increasingly equitable, growing economy.

Adapted from the authors book review in Business Standard, May 23, 2018 http://www.business-standard.com/article/beyond-business/paying-the-price-for-foreign-aid-118052200013_1.html

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