Adapted from the authors Book Review in Business Standard, September 18, 2017 http://www.business-standard.com/article/beyond-business/bimal-jalan-reflects-117091801405_1.html
Adapted from the authors Book Review in Business Standard, September 18, 2017 http://www.business-standard.com/article/beyond-business/bimal-jalan-reflects-117091801405_1.html
Violent crimes against children are grabbing headlines. The latest is the sexual assault and murder of a student in a private school’s toilet in Haryana’s Bhondsi, near Gurgaon. However, Haryana is not the most dangerous state for kids. That dubious distinction belongs to Delhi, with a crime rate (crimes against children per 100,000 population) of 169. Chandigarh follows at 68. The safest states for kids, per the National Crime Records Bureau data, are Jharkhand, with a child crime rate of just three, followed by Bihar, at four.
Long term negative impacts of child abuse
The World Health Organisation estimates that in developed countries, six per cent of adult depression, alcohol and drug abuse; eight per cent of suicide attempts; 10 per cent of panic disorders and 27 per cent of post-traumatic stress disorders are due to abuse during the first decade of the victim’s life.
But there is scanty scientific evidence, in developing countries, of the drivers — the sources and location — of child abuse. David Finkelhor, a sociologist, tellingly comments that “there is more experimental science in the toilet paper we use every day, than in what we have to offer abused children or families at risk of abuse”.
In India, where the general standards of personal security and protection of human rights are low and public resources are stretched, child abuse can easily become just another statistic. Crimes against children increased from 14,975 in 2005 to 94,172 in 2015. Over the same period, violent crimes increased at the rate of 5.5 per cent per year — much faster than the growth of the population. Sadly, the proportion of crimes against children to total violent crimes, increased from seven per cent in 2005 to 28 per cent in 2015. Our children are increasingly more unsafe.
With whom does the buck stop?
Preventing such crimes is a shared responsibility. Initiatives include regular oversight and counselling of risky families by specialised agencies; early identification of high-risk adolescents to aid them through high school; imparting life skills training to make children streetsmart and reducing access to alcohol, drugs and weapons.
Inevitably, poorer kids are more at risk than rich kids. The same applies to other population segments at risk — senior citizens and women. The well-off can cocoon themselves from a prevailing ecosystem of insecurity. But for other vulnerable groups, it is the State which must step in to offer protection.
First, increasing the effectiveness of policing aimed specifically at controlling crime on the street and in public spaces is the key. Predators seek out low-security havens — parks, lonely lanes and unoccupied spaces to strike. India is historically under-policed. The UN standard is 222 police personnel for every 100,000 population. India has never crossed 140. Singapore — that haven of orderliness, which all Indians marvel at — has 1,074; disciplined Japan has 207; the European Union has around 347 policemen per 100,000 population.
Even this aggregate data exaggerates the level of police available for citizen centric, local policing — beat patrols, traffic management, crime prevention, detection and investigation. In India 60 per cent of the police are occupied guarding government buildings and assets (such as CISF & RPF); patrolling the borders (BSF, ITBP, SSB); quelling riots, fighting insurgency or doing VIP bandobast (CRPF and state armed police). Local policing must be strengthened much, much more.
The police is too busy with other stuff
Comprehensive police reform has never been tackled seriously despite a series of commissions — starting with the National Commission on Police Reform, 1978, and ending with the Second Administrative Reforms Commission, 2007, all of which recommend broadly similar measures. The police mandate is fractured between states and the Centre, leading to silo functioning. The Central police forces are significantly better resourced than the state police forces, though the latter are directly concerned with controlling crime. The buck often stops with the police. But they are poorly led. Senior police officers skip from helming one complex area to another, where they may have no prior experience and no long-term allegiance to the specialised force they command. Even junior officers and constables are neither specifically recruited nor are they permanently slotted in specialised areas, like crime detection and investigation; communications; community policing; traffic management; cyber security or intelligence and riot control.
The “danda” is still the primary instrument of policing
Second, the use of technology to identify high-risk locations and victim behaviour and profile potential predators is constrained by the low educational qualifications of the personnel. 86 per cent of the force consists of constables who have merely passed their Class 10 or at best Class 12 exams. The officer cadre is thin and inadequately skilled. Service conditions are terrible. Police personnel regularly do 10-hour to 14-hour long shifts, with no weekly time off. Police housing, of indifferent quality, is available only for just one-third of the personnel. Worse, the police force is highly politicised and tends to rely on fear and the use of brute force, rather than by earning the respect of citizens — a colonial hangover. These conditions are not conducive to attract committed, qualified recruits.
Too few first responders to save lives and manage trauma
Third, improving the first responder reaction, can save lives and minimise damage by getting victims to healthcare facilities. But there are just 15,500 police stations across more than 650,000 villages and road links may not be the best. Of these nearly 10 per cent lack even a wireless link. There are only 164,000 vehicles with the state police forces. Their spread across locations is likely to be highly uneven and concentrated in the major cities.
Better oversight by government of security arrangements in schools
Other than improving policing, viable short-term options include better oversight by the government education departments over school administrations. Value-add community participation, like authorising Parent Teacher Associations to certify the school’s adherence to minimum safety and security standards, can help.
Decentralise security to groups of parents & kids
Get kids and parent groups to collectively enhance their own security. Readers may remember the captivating proactivity of kids in outwitting, admittedly bumbling, adult, minor criminals from the 1950s era, in Enid Blyton’s Secret Seven and Famous Five series. Fiction can become a reality — once the imagination and interest of the kids is ignited. Herein lies the fastest and most effective route to making our kids safe.
Adapted from the authors article in The Asian Age, September 15, 2017 http://www.asianage.com/opinion/columnists/150917/to-keep-our-kids-safe-all-have-a-role-to-play.html
Rajiv Kumar, the new vice-chairman of the Niti Aayog, has made development of an organic, Bharatiya model of development as his mission. He is likely to encounter three problems in this endeavour.
A new, local model of development is doomed from the start in a globalised world
First, in a post-ideology world, marked by rapid technological transformations, economic models become outdated even before they can be tested. In these uncertain times, feeling the rocky river bed with one’s feet carefully, while crossing turbulent economic and social currents, seems the wisest option.
Second, isn’t this what Bharat has always done. We have been obsessive about the “uniqueness” of India, which seemingly requires all international experience to be adapted for use locally. This is not necessarily a bad thing, though it has its downsides.
Scaling up rapidly more important than localisation
Consider that in the five decades after Independence we have stuck, like leeches, to the Nehruvian development model of ersatz socialism based on a massive industrial public sector accompanied by the outrageous neglect of agriculture, private enterprise or international quality education and health facilities. This, when most other emerging countries, in East Asia, Southeast Asia and Latin America, switched over to a modified Anglo-Saxon, neo-liberal strategy from the 1970s and reaped the benefits of rapid growth.
To be sure, even after 1991, the reform model we followed was Bharatiya. Its core ingredients were incremental rather than big-bang reform — a strategy Russia followed with disastrous results — and careful sequencing of sector reform to minimise the pain from reforms.
It is unclear, however, whether Bharatiya incrementalism helped the poor. Chancel and Picketty (July 2017) estimate that over the period 1980 to 2014 the share of growth accruing to the bottom 50 per cent of adults was 11 per cent in India; 13 per cent in China and only one per cent in the United States. Meanwhile, the top one per cent of adults garnered 29 per cent of the growth in India. China did better by containing the share of this segment at 15 per cent, while the US did worse at 34 per cent. More worryingly, the next nine per cent of adults, from the top, garnered 37 per cent of growth in India, significantly more than in China (29 per cent) and the US (32 per cent). Where we failed spectacularly was in protecting the middle 40 per cent of adults, who got only 23 per cent of the growth versus 43 per cent in China and 33 per cent in the US.
Be shrewd and businesslike not ideologically shortsighted
One Bharatiya innovation which succeeded spectacularly was the phased introduction of currency and capital convertibility. This modified-market approach was validated by India escaping the ill-effects of the 1997 East Asian currency crisis. It is significant that Malaysia followed our innovative approach, endorsed by Jagdish Bhagwati, by reimposing capital controls after 1997, and Iceland did similarly in 2008.
Similarly, our choice of shying away from “big bang” privatisation of the public sector, unlike Latin America in the 1980s and Eastern Europe in the 1990s, worked well. We chose instead to liberalise controls over private investment, thereby enabling private companies to grow and compete with the public sector. This strategy has paid dividends in civil aviation, telecom, minerals and electricity generation. Incremental private sector investment now dominates these sectors and a competitive market-based economy has emerged.
Simultaneously, we contained the social cost of reforms. But a similar policy has not worked in banking. We were too hesitant to give up the political power which comes with the government owning public sector banks. Private banks today account for just one-third of banking assets. The massive economic problem of stressed loan accounts, amounting to around 14 per cent of publicly owned bank assets, is a consequence of our not following through by liberalising the financial sector. Bharatiyata has, unfortunately, become synonymous with crony capitalism in banking.
Aping the turtle gives time to pull a reform coalition together
The GST is operational today due to a strategy of incrementalism, driven by the need for building inter-government consensus. Early indications are positive both on the increase in revenue collected and the enhanced compliance by taxpayers. But the jury is out till the final results come in by April 2018.
In a nutshell, Bharat’s economic policies have always been unique and contextual. Some observers would even say we obsessively reinvent the wheel. It will thus be a tall order for the Niti Aayog to evolve a new Bharatiya model of development, which is completely unknown to us, or the world.
Don’t fix what isn’t broken
Third, do we need a new model of development? The existing model has served us well. The areas for deeper reform are well known and agreed. Indeed, many are already on their way. Hopefully the 15th Finance Commission will continue the task of decentralising fiscal resources, by increasing the share of devolved resources from the 42 per cent existing today towards 50 per cent. This would push the Union government to be more selective in its interventions based on the time-tested principle of subsidiarity — not doing anything that can be efficiently done at a lower level of government. The government is already allocating more resources to agriculture, education and healthcare, which had fallen through the gaps earlier, while also stepping up allocations for defence and infrastructure.
Avoid the temptation to centralise functions – There is enough to do for all.
At the helicopter level of grand plans and policies, there is no gap which the Niti Aayog can address. In fact, it would do well to exercise forbearance in areas where individual ministries are better equipped to take the lead. Where Niti can add value is in addressing the root causes of poor implementation. Tony Blair’s Service Delivery Unit did this to marvellous effect in the UK. Malaysia and Tanzania thereafter copied the template.
Check the plumbing in government. Massive efficiency gains are low hanging fruit
Niti should focus on the nitty-gritty of getting the plethora of good intentions, embedded in policies, implemented on the ground. This goes beyond close monitoring of targets or punishing laggards. The devil lies in clogged delivery chains, poor metrics to measure results and misaligned incentives, all of which need to be painstakingly mapped and then innovatively declogged. It’s a plumber’s job that needs to be done. Is the Niti Aayog willing to get its hands dirty?
Adapted from the authors article in The Asian Age, September 7, 2017 http://www.asianage.com/opinion/columnists/070917/is-niti-aayog-willing-to-get-its-hands-dirty.html
It seems to be raining rail accidents these days, with two in swift succession. The hapless Suresh Prabhu is a good general but an unlucky one. He made sweeping changes in Indian railways (IR) since November 2014 when he became Minister. Most dramatic was his willingness to diminish his “empire” by merging the rail budget with the national budget. Similarly, far reaching was his delegation of financial powers for purchase and contracts away from the moribund Railway Board to the General Managers of the sixteen different railway systems which manage operations. Good management practise, yes. But more importantly it severed the ministerial potential for graft. Not many ministers have done similarly elsewhere.
Suresh Prabhu – a good but unlucky minister
Mr Prabhu has offered to resign owning up moral responsibility. Prime Minister Modi may have to let him go, reluctantly. Such is the dharma of politics. Having another accident on his watch would be unacceptable! Of course accidents are unlikely to stop merely by replacing the minister. Data collected by the National Crime Records Bureau records that in 2014 IR suffered 28,360 accidents or 78 accidents per day. So the chances of an accident happening, anytime, are high.
IR is low on transparency
IR would have us believe otherwise. In a document titled “Transforming Railways, Transforming India” issued in 2016, reviewing achievements since 2014, the number of accidents over the period 2009-2014 is mentioned as an average of 135 per year which resulted in 693 deaths. The National Crime Record Bureau data puts the number of deaths from railway accidents in 2014 as 25,006, with an additional 3,882 people injured. The discrepancy between the IR and the NCRB database is due to creative use of data by IR, which reports only “consequential” accidents involving derailments or collisions. The NCRB data is comprehensive and based on the First Information Report filed with the police for all accidents connected with rail travel.
IR not to blame for 62 percent of accidents
To be sure, not all the 25,006 railway accidents in 2014 were due to the fault of IR. 62 percent of these accidents occurred due to “people” error – travellers walking negligently on railway tracks and getting run over or falling from over full trains. But even around 11,000 accidents year is worrisome.
Rail still safer than road transport
To be fair to IR, their safety record should be compared with the other option available to travelers – road travel. The safety record of road travel is even worse. NCRB data for 2014 records 450,900 road accidents in that year with 141,526 deaths and 477,700 injured. The combined length of the National and State Highways, which carry the bulk of the traffic, is around 220,000 km or twice the length of rail track. The number of accidents however is 16 times more; the number of deaths is 6 times more and the number of injuries is 123 times more. Whilst the safety of road travel is a poor metric to use, it does provide a perspective of the objective conditions, in which IR operates.
Other than the likely moving out of Suresh Prabhu and the resignation of the the Chairman of the Railway Board, the other – more worrisome fall out – is going to be a typical short-term, defensive response of putting safety above all else. No private utility could have survived without doing as much, routinely. Consider,how tangled the Nuclear Power negotiations became when government legislated to put the onus of criminal and civil liability for accidents on the private sector suppliers of nuclear power equipment. But government service providers have more leeway in avoiding criminal action against them for safety lapses.
Safety or speed – a false binary
But the fact is that choosing between fast, modern trains and safe travel is a false binary. The populist, Luddite approach of slowing down the speed of trains, to avoid mishaps, is like asking car owners to go back to Ambassadors to reduce the risk of accidents by traveling slower. Technology allows you to travel both faster and safer. Air travel is for example both faster and safer than road travel. The Hyper Loop, when it arrives, is expected to boost both safety and speed at lower cost. The Indian Railways compete with other means of transport like road and air. It must provide the expected level of speed, convenience, comfort and safety which comparable transport options already embed. It has failed to do that, thereby losing marketshare to road transport over the last two decades.
Just as high-speed highways and the growing network of air routes has changed the way Indians travel, the Railways must also offer a bouquet of services to suit the differentiated needs of specific routes and category of customers. High-speed, premium railway transport on high-density routes radiating out from the hubs of Delhi, Mumbai, Kolkata and Chennai can transform travel by rail. Similarly, the rapid expansion of metro lines is a smart option to reduce the urban carbon footprint and road congestion.
Both speed and safety are a function of reliable track infrastructure adequately insulated for unregulated traffic ingress and suitable rolling stock. The planned high speed, dedicated, rail traffic corridors intend to achieve precisely these objectives – much like expressways do in highways.
Sans investment, neither safety nor speed is possible
None of this — speed, safety or security — is possible, unless we step up investment in Indian Railways. We cannot manage the 108,000 km of track and 11,000 trains which run daily, by jugaad, penny pinching, dodgy maintenance schedules and techniques, antiquated rolling stock, poorly trained and equipped personnel and management systems, which have not changed since the first train ran in 1853.
Corporatize IR for efficiency enhancement
Indian Railways must be corporatized so that it can shine like other public-sector companies like National Thermal Power Corporation, Indian Oil Corporation and Steel Authority of India. This is impossible as a government department because the administrative and financial rules are unsuited to the dynamics of running a business.
Shun politics – Let IR become commercially viable
Railway tariff cannot be subject to politics. The same passenger who has no problem paying Re 1 per km for bus travel between cities pays just 28 paise per km of second class, rail travel and 45 paise per km in reserved sleeper class. Suburban rail travellers pay just 18 paise per km. This is an unsustainable and unnecessary subsidy, undeservedly enjoyed, mostly by the middle class. Rail tariff for non-AC travel must be increased to remunerative levels, thereby generating funds for improving the quality of services.
The spate of accidents has focused public attention on the need to restructure IR. What needs to be done is well known – using technology across the service delivery chain – track development and maintenance; signaling; rolling stock; communication; disaster relief and management systems. But none of this will happen unless Indian Railways is set free from the bureaucratic constraints which bind down its management cadres today. We can save lives, reduce the fiscal burden, improve rail services and make the economy more efficient by corporatizing IR. Time to walk the talk on good economics also being good politics.
Adapted from the author’s article in The Asian Age, August 24, 2017 http://www.asianage.com/opinion/oped/240817/making-trains-safer-and-faster.html
Courtesy Arvind Subramanian, India’s Chief Economic Advisor, the 4R (reform, recognize, recapitalize, resolve) approach to manage the corporate bad loans problem, has captured public imagination. But he soft peddles a fifth R, that of retribution. The big stick must be wielded for reform to be credible.
Public sector banks – flabby, politicised ATMs providing easy money to elites
Banks are flush with money. But “liquidity” for borrowers, even those who have a “special relationship” with banks, is low. The shadow of stressed loans – missed loan repayments and interest payments- makes the usual, clubby way of doing business suspect. Banks operate on big margins – between interest paid on deposits and interest received on commercial loans – of up to 5 percent, in our cartelized banking architecture, dominated by publicly owned banks. But, despite high margins, public sector bank ratings suffer. The more loans they give, higher is the volume of bad loans.
Bad loans are an outcome of shoddy risk appraisal followed by poor loan account oversight. The ugly habit of kicking the can down the road by rolling over bad loans has been the norm. On average, only around 26 percent of bad loans and accumulated interest are recovered. Using this metric, banks stand to lose around Rs 9 trillion (6 percent of our GDP) by recognizing and resolving bad loans of around Rs 12 trillion.
If corporate loans were recovered like consumption loans for cars, there would be no problem
Once a loan becomes stressed there is little a bank can do, except to recover as much as it can from the borrower; divert the proceeds to a better borrower and black list the delinquent borrower. But Indian banks rarely operate on this “sunk cost” principle. A long history of covert support to keep diseased loans and borrowers alive, under the guise of retaining jobs, has not helped. The spectacularly unsuccessful, Board of Industrial and Financial Reconstruction was still alive till January 2016. Unfortunately, so were hundreds of companies ripe for corporate euthanasia. We now have a new Insolvency and Bankruptcy Act, January 2016. But its effectiveness remains to be established.
RBI oversight of banks comes up short
Disappointingly, the Reserve Bank of India, instead of taking the bull by the horns and directing banks to start bankruptcy proceedings for bad loans, has taken the soft approach – giving banks time, till the end of 2017, to resolve the stressed loans themselves. Amusingly, to nudge bankers into doing unfamiliar, unpleasant things, extraordinary measures are being taken, to provide them administrative cover, from ex-post facto audit, vigilance and CBI investigations. Clearly, retribution against those bankers, who approved and over saw the dud loans, is not contemplated.
Loan waivers without retribution for the complicit create moral hazard
Economists, including RBI Governor caution against the problem of “moral hazard” that loan waivers create in the context of agricultural loans being written off by state governments. Apparently, forgiveness without retribution, is bad for rural borrowers, but ok for corporate borrowers. Sadly, retribution is sorely needed for commercial borrowers too, who account for 75 percent of the bad loans.
80% model borrowers, 20% delinquent addicts of “easy money”
The reality is even more nuanced. The bulk of borrowers, across sectors, are gold standard risks. Despite gross mismanagement of large corporate loans, 83 percent of the bank loans, valued at Rs 63 trillion, are serviced on time by borrowers. Moral hazard affects borrowers selectively in India. This is because retribution is also selective. Access to bank finance for small borrowers is cut off if they become delinquent and recovery proceedings are harsh. For large borrowers and the influential, more favourable terms apply.
Are only babus to be held to account?
Last month, a retired Secretary of the Coal Ministry and two other senior colleagues, were convicted for criminal conspiracy, by a trial court. The charge and the punishment meted out was completely out of proportion to their misdemeanors – less than adequate diligence in discharging their duties. Why this double standard for holding public officials to account? Rs 12 trillion of accumulated stressed loans against annual loan approvals of between Rs 3 to 5 trillion, indicates a deep rooted “conspiracy of silence” within public sector and co-operative banks; their patrons in government and the borrowers themselves.
These stressed loans, whether in industry or in agriculture, must be taken off the books of banks. But the concerned loan sanctioning and account oversight chain, whether present or retired, must be held to account on a standardized, transparent metric to establish active connivance to cheat the bank or lack of adequate diligence. This is the only way to delink quick resolution of the stressed loans from the problem of “moral hazard”.
Blacklist actively negligent founders
Second, deals need to be urgently struck with borrowers to resolve loans without access to the lengthy judicial review process. These can only happen if the big stick of sanctions is available to the negotiators. Founders, actively negligent in servicing loans, should be made to exit management positions, as a precondition for future access to bank finance. Delinquent individuals, who have been given opportunities earlier, to reform, via “greening” or rolling over of loans, should be debarred from access to bank finance.
Hold banks to account for bad loans
The argument against sanctioning bankers is bogus. It is feared bankers will stop taking decisions if sanctioned, thereby freezing the lending cycle. Till two decades ago, bank trade unions, routinely used the threat of striking work, to stop computerization or extract better wages. It was the Supreme Court which defanged them in 2003 by ruling that the right to strike is not absolute, particularly in the case of public services. No need to turn the clock back.
Stringent action against the bureaucracy has not adversely affected the functioning of government. Enshrined bureaucratic safeguards are most often the refuge of the incompetent or the corrupt. Those working transparently, in the public interest, rarely need such support. There is no reason why banks should be different.
Needed an empowered financial sector, “clean up” champion, to wield a long broom
“Moral hazard” in bad loan resolution becomes a problem, only if we do not deal equitably and transparently. Elitist cliques, spanning politics, business and agriculture, must be weaned-off, the vice of bank financed “easy money”. Swift, impartial, standardized resolution of bad loans, with judicious retribution, can drain this vicious whirlpool, which saps national wealth and reeks of inequity.
Adapted from the authors article in TOI Blogs, June 23, 2017 http://blogs.timesofindia.indiatimes.com/opinion-india/retribution-the-missing-r-in-resolving-bad-loans/
Hasmukh Adhia, India’s revenue secretary, is finance minister Arun Jaitley’s chief aide for rolling out the Goods and Services Tax. Contrary to his first name, he never smiles, at least not in public. But even he can now take a break and smile. The GST juggernaut is careening ahead. In just over a week, India would have leapfrogged into the league of economies which have walked the talk on rationalising indirect taxes.
Noose tightens on black money generation
Photo credit: Imagesbazar.com
So what will Mr Jaitley and the GST Council have achieved on July 1, 2017? First, this collegial team of finance ministers, across the Central and state governments, would have fired the first, potent salvo against black money. Demonetisation; tax raids; getting back overseas black money caches — all pale in significance, compared to the institutional impact of GST. Consider, that the most vocal protests against GST have come from dry fruit traders, cloth merchants and jewellery makers. These businesses have been traditionally cash heavy. Of course, the intrepid evader will still have tax leak holes left open. Agriculture, food items and the business in booze remain yawning gaps in the tax revenue security architecture. But the message is loud and clear: the rope is shortening. So watch out!
Lower net indirect tax, lower prices to spur demand
Photo credit: Imagesbazar.com
Second, the massive discounts being offered on pre-GST clearance of the stock of consumer durables suggests that prices of these goods will reduce. An entity, empowered to investigate and ensure that net tax reduction benefits are passed on by manufacturers and dealers to consumers, is in the offing. The history of such clunky, intrusive executive action is not encouraging. Due to information asymmetry, determining the cost breakdown of products externally, is invariably inefficient. Either the enforcement agents get compromised or they end up harassing manufacturers and suppliers for trifling results.
But in truth, it really doesn’t matter. Inflation levels are at historic lows — below three per cent per annum; the monsoon is progressing well and global demand remains damp. Babus and their counterparts in the public sector — around 18 million households — have all either been given or will soon get pay revisions. They are itching to spend the windfall.
Clunky “inspector raj” to check price rise – a bad idea
Even if the entire tax rationalisation bonanza is retained by manufacturers and dealers, it will still generate surpluses for private investment — in debt servicing, realty and equity markets. Improving the revenue steam of corporate India is vital for getting over the gargantuan NPA problem, which is bad cholesterol for growth. The good news is that most product markets are competitive. Digital marketers have cut retail margins to the bone. Even the market for services is hyper competitive — think telecom. This makes it tough for corporates to retain extra normal profits.
SMEs & Trade pay the price for becoming accountable – high compliance cost
Also, undeniably, tax rationalisation has come at a cost. The actual transaction cost, for business, to comply with digital GST processes is unknown. But GST provides a huge opportunity to India’s IT developers to innovate low-cost compliance and oversight options — particularly for value segments produced by small and medium industries. These could be perfected at home and marketed worldwide as context-specific solutions for developing countries. In 2013, at a conference in Washington, the World Bank president asked Nandan Nilekani why he wasn’t rolling out Aadhaar across the globe? Mr Nilekani responded that he was too busy at home and had no time left for solving the problems of the world. This single statement projected India’s enormous domestic, digital market potential far better than the glossies, which international consultants and governments routinely produce touting themselves. These digital opportunities have multiplied by several degrees with GST.
Multiple rates align with multiple objectives
Third, the agreed-upon somewhat clunky architecture for GST reflects compromises made to achieve the twin overriding concerns — protecting the poor and ensuring fiscal neutrality for all governments. In the absence of a direct cash transfer framework, continuing tax exemptions on mass consumption goods and services is a reasonable policy option. Given the federal structure and the plurality of our polity, there never was an option to the consensual approach adopted by the GST Council. Meeting the revenue concerns of state governments has inevitably led to six GST rates. The highest rate of 28 per cent is designed to be used for neutralising any revenue loss for state governments.
Multiple rates result in efficiency loss due to tax leakage from misclassification of goods to a lower tax rate. A good example is the amorphous classification of a storage battery as a computer peripheral (lower tax rate) versus use for backup lighting needs (higher tax rate). Multiple rates also increase the accounting load for keeping track of tax credits and debits. But the economic benefits from early implementation of a less than perfect solution far outweigh the opportunity lost from a prolonged wait for the BJP to come to power in all the states, thereby enabling a best practice single rate template to be imposed from above, China style.
Fourth, GST is good for jobs. It gives a boost to “Make in India” by withdrawing the tax advantage for imported manufacturers. Importers pay Central state tax at four per cent as special additional customs duty. But domestic products are taxed at the rates of state sales tax, which are generally higher. This disadvantage for domestic production will vanish with GST. Imports, in addition to customs duty, will pay additional customs duty at the GST rate applicable for domestic products.
Flexible implementation arrangements – to muddle through the knots
Finally, the finance minister has consistently adopted a firm but nuanced, practical stance on the implementation schedule. Recognising that small-scale industry and traders are lagging in preparations, he has agreed to defer the filing of returns by two months. Assurances have also been given that the GST rates could be adjusted if the net tax burden gets distorted or gets unbearable. A government that is open to negotiating beneficial outcomes for all stakeholders and still retains the will to keep the national interest foremost is quite clearly operating at the tax-related good governance frontier. Smile, please.
Adapted from the author’s article in the Asian Age , June 23, 2017 http://www.asianage.com/opinion/columnists/230617/its-time-to-smile-gst-to-usher-in-a-new-era.html
Thirsty travellers on highways are going to miss the inviting LED signboards offering “cold beer” to alleviate their boredom. But ask those who have lost a loved one in an accident, or been maimed in one — and they will enthusiastically support the Supreme Court’s ban on the availability of booze along our state and national highways. When the issue is emotive, the reflex response of both the judiciary and the executive is to do anything that appears adequately responsive. What could be easier than banishing booze from the highways, knowing full well that this could be just optics.
Target drivers and the owners of vehicles with punitive action
Curbing drunken driving requires that drivers, a small fraction of all travellers, be targeted. Most travellers are passengers. It doesn’t matter whether they tipple or not. Many of those at the wheel are licensed, professional cab, bus and truck drivers — much like commercial pilots. Surely the owners of these commercial vehicles should be held criminally accountable, along with the driver, for accidents caused by drunken driving, unless they can prove that they test their drivers randomly. This would automatically incentivise owners to use drivers who don’t drink. But this is a narrowly targeted option that requires follow-on administrative action and effective policing. Far splashier, instead, to go in for a blanket ban on booze — and never mind if it causes collateral pain.
Our bias against booze is vested in the Constitution
The origin of our half-hearted approach to the problem lies in the Directive Principles of our Constitution which enjoin the State to implement prohibition. These define the higher moral ground that we all must aspire to. But they are not mandatory and need a law to be passed to become implementable. We implement these only selectively — like universal education — where there is near complete consensus. But we ignore others, like prohibition, where a consensus is missing. Hence the tension between the constitutional directives and reality.
We do not have a fundamental right to drink or sell booze. We do so only at the pleasure of the State. It can be withdrawn at any time. Many would argue it should not be summarily withdrawn, specially when it will disrupt ongoing business. And because other options exist to curb drunken driving. If we are uncomfortable with the ideals specified in the Directive Principles, then the correct approach is to amend them and expand the fundamental rights to include the freedom to drink responsibly. But who will support such an amendment?
We are not French – we have no tradition or social acceptance of booze
Mainstream India has no tradition of the neighbourhood bar, from where it is all right to stagger home, helped along by acquaintances or friends. Yes, there is communal drinking in tribal areas and on special occasions in villages, where there is a lot of staggering about. But these are rare occasions. In the plains of India, most regular tipplers are men as drinking is done outside our homes. It is the anonymity of highway drinking that is attractive for furtive, male drinkers.
Economic impact of booze ban marginal – because tipplers will find a way to drink
How terrible will the booze ban be for the economy? The measure simply aims to make drinking and sale of liquor physically invisible from highways. Tippling will shift a couple of minutes away onto back streets, possibly with far worse consequences for public order. But its revenue impact will be negligible. Businesses will adjust. Web-based apps will guide travellers to back street bars and booze shops; private caches of pre-mixed booze in flasks will proliferate as will the illicit supply in dhabas along the highway.
Judiciary not the culprit – amend the constitution if you want a right to drink
Blaming the judiciary for ham-handedness is the easy part. But the Government of India and several state governments, including Delhi, Madhya Pradesh, Andhra Pradesh and Telangana, have accepted the verdict. Eighteen other states didn’t bother to contest the decision. This shows that the judiciary is aligned with the national and state-level executive in moving India, gradually, in the direction to which the Directive Principles point us.
The real culprit is drunken driving- only intelligent policing can help
But without effective patrolling, behavioural change among drivers is highly unlikely. Ask any highway traveller. There is nothing more reassuring than regularly passing by a police patrol car, specially at night. Drunken or irresponsible driving can only be curbed if the Centre, with the consent of all state governments, directly polices all our national highways. Centrally-monitored and controlled mobile patrols, responsive to distress calls and SMSes like the National Ambulance Service, equipped with paramedic and trauma support teams, should be frequently visible along the 90,000-km national highway network.
Create a National Highway Police & Trauma Support System- NHP&TS
A National Highway Police Force should be created and empowered to regulate traffic; challan errant driving; provide trauma support in case of accidents and keep the highways free of crime and irresponsible social behaviour. Back-of-the-envelope calculations suggest that an officer-oriented, multi-skilled force of 11,000 employees would cost Rs 1,000 crores annually in overheads, maintenance and salaries, with a one-time capital cost of Rs 800 crores for equipment and housing. Sounds expensive? Implemented over a period of five years, it is just 0.3 per cent of the annual revenue expenditure and 1.5 per cent of the capital expenditure for the police in the Union Budget.
Compare this with the avoided cost of Rs 1,400 crores, being the value of lives lost (42,000 persons in 2009) in accidents on national highways, computed on a present value of Rs 3.5 lakhs per life lost, based on the average per capita income, over a residual working life of 20 years. The avoided cost of injuries to 1.5 lakh people (2009) is around Rs 180 crores, assuming medical treatment and lost wages at two months’ wages per injured person. The cost of vehicles and goods lost and cost of trauma suffered is over and above this.
The economic payback of a NHP&TS system is under one year
An international-quality high way security and trauma support system makes economic sense. More important, it is yet another bond sealing the social compact between Prime Minister Narendra Modi’s government and the travelling public — urban immigrants, business people and tourists — estimated at around 230 million passengers in 2016 (assuming an average lead of 75 km) by the National Transport Development Policy Committee in 2013. There can be no better social impact investment than one which offers an economic payback of under one year.
Adapted from the authors article in Asian Age, April 8, 2017 http://www.asianage.com/opinion/columnists/080417/tame-killer-highways-liquor-ban-just-optics.html