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Archive for the ‘Democracy’ Category

Junk policy for action


Policies mean very little, unless there is a national consensus behind them, because governments change in a  Formulating a policy is a clunky, time- and effort-intensive, process. It should be attempted only if massive structural change is necessary. India has rarely been in the game of big bang reform. Our forte is incremental change. For this, key actions with outsize results are more significant than policies.

Industral licensing became ideological & lasted well past its expiry date

Also, policies can haunt a country for longer that necessary.The Industrial Policy Resolution of 1956 was one such. It was inspired by the seductive early achievements of the Soviet Union. The Bombay Plan 1944 formulated by leading industrialists, including the redoubtable JRD Tata, implicitly supported massive state intervention and regulation to protect domestic industry from foreign capital and competition. This became the trap, chaining private enterprise in regulations and excluding it from capital intensive “core” sectors.

Never mind that Jamsetji Nusserwanji Tata had invested in Asia’s largest integrated steel plant as early as 1907, helped by a buy-back arrangement from the British Indian government, which also laid a railway link to the site. It was India’s first public–private partnership (PPP).


It took us over eight decades, till 1992, to come around to the idea that leveraging public resources with private management and investment was cleverer than autarkic public investment. It took another 25 years for us to come to terms with foreign investment. In the meantime, India missed the bus of industrialisation and manufacturing, even as China marched ahead, from the 1980s, to become the factory of the world.The short point is that making a policy is no panacea for achieving results.

Were the existing low-level of health outcomes unachievable without a policy?

Health is a state government subject under the Constitution in India. But a National was formulated in 1983. Despite three decades of central planning since then, health outcomes vary significantly across states and aggregate achievements are unimpressive.

Gradual privatisation of SOEs is ongoing because there is no policy to stop it

Balco 2

Conversely, structural change is often implemented without articulating a policy.Consider the privatisation of state-owned enterprises. The National Democratic Alliance government under Prime Minister Atal Bihari Vajpayee found it impossible to build a consensus around privatisation. A comprehensive privatisation policy was therefore, never attempted. The Industrial Policy Resolution of July 1991 — which sought to weaken the stranglehold of the government over industry — had shrunk the industries reserved for the public sector to atomic power, defence, mineral oil, mining of coal, iron and other metals and the railways. This enabled the sale of minority shares in the other public sector undertakings (PSU). Then finance minister Yashwant Sinha used the 1999-2000 Budget to reduce the reserved sector to “strategic” PSUs in atomic energy, defence and railways only. All others could be privatised.

Gradual disinvestment has been ongoing, primarily with the intention of raising revenue. This year the government anticipates an all-time high of Rs. 1 trillion from disinvestment, being 30 per cent of non-tax receipts, other than debt.Seasoned bureaucrats will advise never write something down, unless you need to.

Electricity remains a “vexed” business despite reform legislation and policy

Merely articulating aspirational objectives in a policy will not achieve results. This has become particularly true in an uncertain world, made even more unstable by technology development. Clunky state action tends to come late and gets clogged into stranded assets.

This is the fate of our Mega Power Policy with 30 GW of power generation stranded because of low demand or disrupted fuel supply. Policies create huge inertia. Consider that as late as 2015-16 the Budget Speech sought to create 4 GW of additional power capacity, even as stranded power assets were building up.

Foreign policy is different 


Some policies are intended to signal political alignment and intent rather than become an entry point for concrete action. falls clearly in this genre. The “Look East” policy of the Manmohan Singh government was followed by the “Act East” policy of the present government — both signaling our interest in South East Asia. But substantively little has changed in the years since, even as China has gone, from being a dominant economic power to a power-hungry bully in the region.

Paris 2016 – the world laid to rest, climate policy & switched to voluntary actionable metrics 

India does not have a comprehensive  We tend to put development before the environment — in exactly the manner other developed countries have grown. This is pragmatic. The 2016 recognises the futility of having a single for the world. Instead, it defines a global target — reversing aggregate carbon emissions to keep global temperature rise within 1.5 degree Celsius of pre-industrial levels. Countries now evolve their own action plan, keeping in view their development needs. Collective action works better than global posturing.

Imagine the impact on Google’s share value if it bound itself to follow a medium term policy

Consider that multinational companies do not formulate business policies in an autarkic manner. They define strategies which, nimbly align with global trends to  eke out the maximum value for themselves. This is a sensible approach. We should get away from announcing sector policies. Instead, we could define incremental and jointed action plans, which result in achieving national objectives.

Google folllows the money. We could follow the Directive Principles in our Constitution

happy girl

National objectives do not need to be defined afresh. A close look at Part IV of our Constitution will suffice. The Directive Principles of State Policy were formulated more than 75 years ago. Our task is to put in place the action points to achieve them, via the annual and medium-term budgets. Politicians love announcing policies and programmes because these can be narrowly targeted at specific beneficiaries for votes. This is the downside of the dharma of  We should junk sector policies as an instrument of development. Intellectuals will disagree. But pragmatism must trump ideals.

Adapted from the author’s opinion piece in Business Standard, February 26, 2018

Delhi babus – between a rock & a hard place

delhi strike

The breakdown of a working relationship between the Aam Aadmi Party (AAP) government of the National Capital Region and its officers is a seminal moment. On February 19, AAP legislators heckled, abused and allegedly assaulted Chief Secretary Anshu Prakash, the Delhi government’s topmost bureaucrat, at the residence of the Chief Minister (CM). Both CM Arvind Kejriwal and deputy chief minister Manish Sisodia were present.

The legislators allege that the chief secretary (CS) used intemperate language in the shouting match between them. Cross-first information reports have been lodged by the two rival parties with the police. Further investigations would reveal the facts.

Chief Secretary’s complaint is, primae facie, more credible

But the circumstantial evidence favours the chief secretary’s case. He was summoned to the CM’s house for discussions at around midnight. He found a group of 11 legislators and/or partymen — notably all male — assembled. He was made to sit on a sofa, sandwiched between two legislators, who subsequently assaulted him. The bone of contention, according to the CS, was that the legislators were outraged that TV advertisements on the completion of three years of the AAP government in Delhi were not approved in time. The CS avers the advertisements violate the Supreme Court guidelines for government advertisements. The AAP contends that holding up the advertisement, churlishly, is yet another instance of how the Central government uses the office of the lieutenant-governor (L-G) to shackle the state government.

The state government-level staff and officer unions have demonstrated and resorted to work-to-rule tactics against the criminal assault on a government servant while on duty — which attracts severe punishment under the Indian Penal Code. Two legislators — the alleged assailants — have been arrested. The Delhi government is in turmoil.

Partial devolution creates potential for conflict in operations 

Beyond the inter-personal behaviour issues, which may have sparked the conflict, a larger problem looms. Are institutional arrangements for governance in Delhi so fraught that they breed conflict between politicians and the hapless bureaucrats, who have to play to the tune of two masters?

Long-term observers would say that no, that is not true. After all, for over two and half decades since 1993 — when elections were first held for the Government of the National Capital Region — this is the first instance of violent conflict.

Delhi is just a “half-state government” — to twist Chetan Bhagat’s evocative phrase. The management of land, the police and the civil service remains with the Union government, represented by the L-G. If the same party is in power at the Centre and in the state government, any conflict can be resolved internally. This safety valve is taken away when different parties are in power.

In the past – guile, maturity and sagacity avoided a breakdown of governance

However, this is hardly the first time that different parties have been in power. In 1993-98 the BJP under Madan Lal Khurana ruled the state, while the Congress under Prime Minister P.V. Narasimha Rao ruled the Union government till 1996. In 1999-2004 the tables were reversed with Prime Minister Atal Behari Vajpayee of the BJP heading the National Democratic Alliance government at the Centre and chief minister Sheila Dikshit, of the Congress, at the state level. So why the open conflict this time?

One difference is, that on the previous occasions, when power was split in Delhi between two parties, both were national parties with mature leaders, well versed and socialised in working within the constitutional constraints of the separation of powers. Put simply, ever since Independence in 1947, a “Lutyens’ political set” has evolved, which often seems to have more in common with each other than their own party brethren from out of town. This is not unlike the Washington “Beltway” syndrome in the United States.

Its different now – the Lutyens consensus is shattered

Since 2014, this “Lutyens’ consensus” lies shattered. Prime Minister Narendra Modi shuns the airy, closeted politics of the Lutyens kind. He draws power directly from the masses. Arvind Kejriwal, chief minister of Delhi, is cast in a similar mould. He exults in being “common” — preferring sweaters to jackets even in Delhi’s winter, with a trademark muffler around his head to keep the wind at bay and is usually clad in sandals rather than shoes. His partymen emulate his casual dress style.

PM Modi and CM Kejriwal are zero-sum people

Mr Modi and Mr Kejriwal are both visceral men. Every election is a zero-sum game which must be won. Compromise is akin to defeat. This strategy has worked for both of them. Neither is likely to change.

Delhi has become the battleground for Goliath Modi to slug it out with David Kejriwal. When elephants fight, the bureaucratic grass is bound to get trampled. Anshu Prakash, the incumbent chief secretary, finds himself between a rock and a hard place. A mild-mannered old-school bureaucrat, he has none of the Machiavellian skills needed to become a trusted adviser, simultaneously, to two implacable political adversaries.

Poor devolution impacts all municipalities in India

Is this sorry state of governance an outlier? Unfortunately, no. Till 1993, Delhi was a Metropolitan Council working under the Union government. In the states, municipalities work under state governments. There is inevitably a potential for conflict, or at the very least neglect (as in Calcutta through the long years of communist rule in West Bengal), if different political parties are in power in the state government and the municipality. Delhi municipalities are currently ruled by the BJP. Their staff have demonstrated in favour of the Chief Secretary. They face symmetric harassment too.  Fuzzy separation of powers and functions and inadequate devolution of finance make local bodies dependent on state governments. This stops cities from becoming the fulcrum of participative democracy and keeps them from becoming vibrant growth centers.

Delhi is a tinder box for igniting urban class-conflict – restraint is advised

Delhi violence

More immediately, in Delhi, we need a truce. The AAP would relish being dismissed by the President of India on the charge of a breakdown in the constitutional machinery. Even as traditional Communist parties remain immersed in obscure, internal ideological battles, it is the AAP which has succeeded in igniting a genuine class war in Delhi, between the “haves” and the “have-nots”. Alas, there are too many of the latter. In this classic struggle, it is the establishment — the bureaucracy and the police — which bear the brunt of public frustration. A dangerous trend, which could be a tipping point, in urban governance.

Adapted from the author’s opinion piece in The Asian Age, February 24, 2018

BJP self goals dim the shine

Gadkari 3

It is not often than an innocuous government statement becomes the fulcrum of a storm. The sudden announcement that Minister Nitin Gadkari’s plan to announce a policy for 100% electrification of transportation by 2030 was off the cards, sent shock waves through the industry and political analysts.

Subsuming Gadkari’s proposed electric vehicle policy in a broader Alt Fuel Policy makes sense 

To be fair, not having a narrow policy just for electric vehicles makes sense. Nesting actions, needed to achieve cost-effective electrification in transportation, within a broader “alternative fuels policy”, ostensibly, being prepared by the NITI Aayog, as disclosed by Amitabh Kant – the NITI CEO, who works directly with the NITI Chair – Prime Minister Modi, makes perfect sense.

It is good practice not to choose specific technical options via a policy. Instead, good policy formulation should specify a generic pathway to achieve the final outcomes- in this case lower carbon emissions, clean air and reduced congestion. In the best-case, simplistic scenario, tax incentives for the transportation industry, should be linked to the carbon emissions and road area saved per unit of travel, irrespective of the technology option adopted by them.

Leaving the technology option to industry – electric, hybrid or hydrogen-fuel powered, ensures that the market for innovation is not artificially distorted in favour of any technology.

Why put all our eggs in a China basket?

But, life is rarely that simple. Consider that China has emerged as the leading low-cost manufacturer of electric vehicles. They have also firmed-up supply chains of lithium for the manufacture of associated high efficiency batteries. Natural resource constrained Japan, is in contrast likely to push for a clean, hydrogen powered vehicle.


Strategically, our relationship with China is cool if not chilled. We lean towards a “Triad” of the US, Japan, India – for collaboration in security and transnational infrastructure development. The choice of Japan, as the partner for the Industrial corridors project to link Indian metros by fast passenger and freight trains and for the proposed Asian Africa Growth Corridor, are illustrations of such cooperation. Closer logistics integration with the US and Indian military forces, is another. Joint patrolling of the sea lanes in the South China Sea is yet another.

Clearly, relying solely on electrification of transportation, has strategic implications with respect to tying our future to China, which begs a more nuanced approach. Ministers Nitin Gadkari and Piyush Goyal might have thought up the electrification push, early in 2017 when Minister Goyal was in charge of Power, Coal and Renewable Energy, to absorb the stranded capacity of 30,000 MW in the power sector.

Boosting efficient electricity consumption by creating demand makes sense

The capacity of distribution utilities to absorb electric power is constrained by the low, regulated retail tariffs versus the higher grid cost of delivering power using coal or gas generation. This makes it sensible to explore alternative options for using power for customers who are willing to pay cost based retail prices for electricity. If additional solar capacity comes up to meet the target of 175 GW of renewable power by 2020 at grid supply prices of 4 cents per unit (kWh), capacity utilization in coal and gas-based generators will fall even lower than 60%.

white goods

Are cabinet ministers being shown who is boss?

Modi Jaitley

At the best of times there is more politics than economics in public policy formulation. But with elections around the corner, every action of government, acquires heightened importance. So, for example, could the trashing of Mr. Gadkari’s policy initiative be an indication that Prime Minister Modi is showing him who is the boss? Ministers Gadkari and Goyal are perceived to be the most effective members of the cabinet. With reverses in recent bye elections in Rajasthan and a perceived tough fight ahead in Karnataka and Madhya Pradesh, has it become necessary for PM Modi to flex his muscles to keep the cabinet orderly?

The PNB scam adds to the slight of losing three bye elections in Rajasthan

Political leaders are notoriously sensitive to perceived loss of power. Given PM Modi’s larger than life persona, this is surely, his personal Achilles heel. The BJPs lucky run over the first four years seems to be petering out. They could avoid responsibility for the Rs 10 trillion of non-performing banking assets they inherited from the UPA. But the most recent case of a fraud of Rs 110 billion in the Punjab National Bank due to poor controls and oversight by a clutch of banks shows that things have not changed.

The “no cash transactions” rule has hit the profitability of the diamond and gems industry 

More worryingly, the market capitalization of listed jewelry companies has become less than one half of their debts. Their profitability is plunging. Their interest cover ratio is barely above the red line of 1.5X with sundry debts increasing to 43% of sales.

Difficult to value jewels have always been a favoured route for hawala (over invoicing imports and under invoicing exports), which is one way to safely transfer black money abroad. Much of this is often brought back as FDI or more likely foreign portfolio investment in the stock market where returns have been generous, inflation has been subdued and the Rs artificially stable such that even exchange risk was minimized, at the cost of exports and at the cost of making domestic production uncompetitive versus imported goods.

Finance Minister Jaitley faces the heat for poor oversight over publicly owned banks

More importantly it is the timing of the expose which is like rubbing salt into the wounds of bye-election losses for the BJP, which campaigns based on “zero tolerance for corruption”. Unfortunately, Finance Minister Jaitley will be in the line of fire too, much as Minister Suresh Prabhu, was hounded out for recurring railway accidents.

Silence breeds discontent and distrust. Communicate please.

With barely a year to go for elections, the number of moving parts is increasing by leaps and bounds. The French Rafale fighter jet deal was also poorly managed. Even worse, communications outreach has failed to dispel the fiction, that it is another “Bofors scam”. Champions get moving when the going gets tough. The BJP had a fabled communications team leading up to the 2014 elections. Today, ensconced in power, the last thing on its mind seems to be, sharing carefully thought through public policy positions with citizens, in a credible manner. Not having an opposition has its own downsides. Or is it the BJP’s unerring instinct to dim the light, just when it is shining.

Also available in the TOI blogs February 17, 2018

Jaitley’s Budgetary Trident

Jaitley trident

In these cynical times, slim is the market for big ideas, unsupported by facts and figures. The Finance Minister’s 2018-19 budget proposals have met the same fate.

The three big picture proposals –a price assurance scheme covering all Kharif crops at a minimum 50% above their cost of production; boosting agri-product exports from US$30 billion to US$ 100 billion and NamoCare – providing free health insurance for 500 million poor Indians – are being referred to, snidely, as preparation for the state elections this year, closely followed by general elections by in April 2019.

There is some justification for the criticism. The means for supporting these transformative activities are not transparently embedded in the budget. Where is the money to do all this, demand the naysayers?

Imagining the future


Piyush Goyal, Minister for railways, remarked, in response to a similar question asked of him on ITV, that those who lack the imagination to think big, are forever dissuaded from “parting the seas” (not his phrase) by the accounting problems. There is some truth in what the Minister says.

NamoCare the game changing first fork of the trident

Let’s take NamoCare first. The budget provides a mere place holder of Rs 20 billion as premia. No estimate of the likely premia were shared. In subsequent press meets numbers ranged from Rs 100 billion (@Rs 1000 per family) to Rs 400 billion were shared by different official spokespersons. Such waffling does not inspire confidence.

Lazy pre-budget preparations are typical outcome of a party having overwhelming majority in parliament. Over time parliament is viewed as a mere inconvenience. It stops being, the key forum to get genuine buy-in for proposals in public interest.

There is little doubt that NamoCare is in the public interest. Heath coverage in India is abysmal. Well-off citizens, government officials and politicians are publicly funded to seek medical treatment in private hospitals rather than risk the vicissitudes of government hospitals. Citizens spend two thirds of the total spend on private health care.

It is in this context that NamoCare could be a breathtaking transition. This writer has a Rs 5 lakh health cover from a government insurance entity. Extending a similar health care cover, for free, to 100 million – the bottom 40% – Indian households, is a huge step towards universal wellness. It also shreds the status quo today, where “class” determines the quality of public service available to citizens. NamoCare is the great leveler.

Is NamoCare unviable and likely to bust the budget? The minimum likely premia is around Rs 5000 per family. This is the existing cost for a Rs 2 lakh family health coverage. Scaling up the turnover can l distribute the risk reducing costs. Scaling up the coverage will enable the government to negotiate down the cost of medical treatment with the health care industry.

Think of NamoCare as a viability gap public funding program to improve the quality of diagnosis and healthcare, rather than the cosmetics surrounding the industry today. Many private hospitals look better than fancy hotels. But the quality of health care may not match up. It is not as if, “best fit” healthcare models are not available in India.  Sankara Nethralya, in Hyderabad, is one such which combines “cut rate” prices with international quality health care.

Despite multiple private insurance companies, only around 210 million Indians (17% of the population) has in-hospital medical care cover of the generic type proposed under NamoCare. The market would be enlarged by 2X when NamoCare comes through. This means a massive incentive for expansion of the private health industry to serve the poor. It is the equivalent of Unilever’s shampoo in a sachet to level product use between the rich and the poor.

But most interestingly, once the bottom 40% are covered along with the top 20%, it is inconceivable that the middle 40% would remain outside the market. Full coverage of the Indian population within five years would create a private health care market at globally unprecedented scale. This is what the Finance Minister meant when he called NamoCare an aspirational proposal.

NamoCare emulates the success of the government financed scaling up of the market for LED bulbs, accompanied by a steep 75% reduction in the price of bulbs, without subsidization, using purely scale economy effects on production.

Critics of the proposal should think of the outlay on NamoCare as a demand boost for kick starting investment in private health care which incidentally is an employment intensive services.

The rural fork

The second fork of the trident are a revised scheme for assuring cost plus purchase of all Kharif crops or direct payment of the difference between the administered price and the market price (if it is higher) to farmers. This aligns with the pilot being implemented by Madhya Pradesh.

Clearly the direct payment option is superior although “big data” based oversight system would be necessary to ensure that “viability gap” payments are not made for the same produce, repeatedly, as was the case with the famous Integrated Rural Development Program financed cattle, in the early 1980s.

The real issue here is whether this is an equity enhancement support scheme or a productivity enhancement scheme. There is much truth to the criticism that the practice of assuring administered prices is inefficient. It promotes the status quo in which big farmers gain at the expense of small farmers who anyway do not have much surplus to market.

Also, it plays to the fanciful view that small farms are more productive than large scale mechanized farming, by making the existing farming practices seem viable. This can only prolong the pain in the context of doubling the productivity of farming. However, one half of rural income comes from farming. Changing the status quo must be done sensitively, aligned to employment opportunities in nonfarm activities, generated by growth.

Agri-exports to be liberalised

Another aspect of the rural fork of the trident is the most potent albeit the most innocuous. Mr. Jaitley has promised that agricultural exports would be liberalized. Their export can increase from $ 30 billion to their full estimated potential of $100 million. Total exports are around $ 270 million, so the target is substantive.

The minimum export price for onions has been slashed to zero – as if in response to the Finance Ministers budget assurance. But the truth is that we have a bumper harvest of onions this year and prices have crashed by around 20% over last year’s kharif crop arrival in Maharashtra – the key producer of onions.

We need to do away completely with the practice of putting regulatory controls on the domestic marketing, exports and imports of agriproducts if we are to develop a robust and productive farm sector. Farmers will be watching out for follow on measures to walk the talk of liberalizing exports.

The fiscal fork

The third fork of the trident was on the revenue side. After a gap of two decades, long term capital gains tax was reintroduced on equity. The stock market expectedly slid by around 2%. Should we worried? Dr. Manmohan Singh once famously brushed aside the stock market as a metric for the mood of investors. Stock market short term movements are created by punters who try and make a killing by anticipating or even creating the public mood.

So, hang onto your stocks. The downturn is temporary. By holding on you spoil the game for professional “Bears”, who short-sell stocks in the hope that they can buy them back cheap, after you have disposed off your stocks.

Others are worried Foreign Portfolio Investors (FPI) will exit triggering a long-term downturn. FPIs are driven by relative profit. Even after a 10% tax on capital gains, the Indian market remains vastly more profitable that what they make back home. Even if they exit following a “risk” derived algorithm, they will be back, once the bottom line starts hurting and if growth in India holds up.

Exit by FPIs could be a blessing. The INR exchange rate could drift down to more realistic levels, diluting the disincentive for exports and pricing imports at competitive levels.

Competitive exchange rates, is a preferred option for Make in India than the selective enhancements in customs duty on imports of electronics proposed in the budget. Beyond the WEF rhetoric, there are good reasons for using trade to enhance domestic competitiveness.

Without competitive pricing, medium term capital allocation signals get distorted; generate anomalies and stranded cost like our stranded capacity of 30,000 MW in power. Poor capital allocation is the consequence of cheap bank capital, industrial slow down magnified by an export slow down; the 2016 demonetization shock and the crippling, but healthy, impact in 2017-18, of GST, on manufacturers, who profited primarily, by operating in the black economy.

Mr. Jaitley’s trident is a powerful instrument to enhance equity, generate growth with “good” work and bring about transformational social changes in India. Not supporting is being short-sigh.

Also available at TOI Blogs Feb 4, 2018

FM walks the budget plank gingerly

happy kisan

The Union Budget 2018-19 appears an honest and judicious construct when first viewed on video. Reading the fine print takes some of the shine off, going by precedent. The biggest relief is that there has been no substantive deviation from the path of fiscal discipline. The fiscal deficit for 2017-18 is pegged at 3.5 percent of GDP. This is 0.30 per cent higher than the budgeted estimate for this year.

But it is well within the 0.50 leeway recommended by the N.K. Singh Committee report on Fiscal Responsibility and Budgetary Management. Disruptions caused by GST still linger. Banks need to be recapitalised to expand new credit and public investment pushed because the private sector is still sitting on its funds. The stage seems set for walking through the door opened by the FRBM committee, in the interest of growth and jobs.

More reassurance comes from the fiscal deficit target for 2018-19 set at 3.3 percent of GDP. This re-establishes the declining trend for fiscal deficit towards the magic number of three per cent of GDP, which has eluded us so far.

Marginalised agriculture gets a break 

On the expenditure side, agriculture and rural development take centrestage. This is welcome against the backdrop of agrarian distress and farmer suicides. Ajay Jakhar of the Bharat Krishak Samaj points out that an Indian farmer commits suicide every 40 minutes. No wonder then that Mr Jaitley outlined, in great detail, many of the specific measures proposed to reverse this trend.

One popular, but possibly ineffective step is an assurance that all the crops notified for the kharif cycle will be covered under the minimum support price (MSP) scheme. This means that if market prices fall below the cost of production plus 50 percent as margin for the farmer, the government will stand committed to make good the difference (as is being done in Madhya Pradesh now) or to physically procure the produce.

Ajay Jakhar

But representatives of farmers’ interests are not satisfied. They want the methodology for setting costs should be spelt out in a participative manner to ensure that a meaningful MSP is assured. The downside of an MSP type of production incentive is that it kills innovation and discourages crop diversification away from those covered under MSP. This way of assuring farmer incomes also privileges the traditional “Green Revolution” areas in the North, which unfortunately are not well endowed with the natural resources — water, for example — to sustain intensive modern farming. On the other hand Eastern India, has all of nature’s bounties, but it is too far away from the national capital-oriented policy making we follow. Consider how different things would have been if Lord Hardinge had not decided in 1911 to shift the capital of the British Raj from Calcutta to Delhi.

Agro-products exports to be liberalised – $100 billion potential

Other big-ticket items in agriculture are a more than doubling of the outlay for agro-processing industries to Rs 14 billion and assurances that the export of agri products would be liberalised to boost their exports threefold to their potential of around $100 billion. Corporate tax on income was also reduced from 30 percent to 25 percent for firms with a turnover upto Rs 2.5 billion (US $35 million) benefiting 99 percent of the registered firms in India.

Bamboo the new “green gold”


For the Northeast, a Mission for Bamboo – now recognised as a grass and not a tree to facilitate its commercial cultivation – with an outlay of Rs 13 billion. Two new infrastructure funds — one for fisheries and aquaculture and another for animal husbandry — at a total outlay of Rs 100 billion. Crop credit would increase by 10 per cent to Rs 11 trillion in 2018-19 and lessee farmers would be facilitated to access crop credit from banks — something which they cannot do today and have, instead, to rely on rapacious moneylenders.

The budgetary outlay for rural roads, affordable houses, toilets and electricity extension of Rs 2.4 trillion will leverage five time more funds from other sources and generate work for 10 million people, per the Budget documents.

NamoCare is bigger than ObamaCare – health-equity in motion

Big changes were also announced in healthcare. A new flagship scheme will provide in-hospital medical insurance to 100 million poor families with an insurance cover of Rs 5 lakhs. Compare this with the measly cover now available of Rs 30,000 only under the Rashtriya Swastha Bima Yojana. The outlay on health, education and social protection increases by around 13 per cent over the 2017-18 spend to Rs 1.4 trillion. Simultaneously, the three publicly owned general insurance companies – National Insurance Company United India Insurance Company and Oriental Insurance Company are to merged to create a behemoth conservatively valued at Rs 4 trillion and listed on the stock exchange. Listing would enable the government to progressively hive off equity in them to the public and generate the estimated Rs 1 trillion per year premium to fund this mammoth programme, nick-named NamoCare after ObamaCare of the US. The scale of the ambition embedded in the program is breathtaking. A Rs 5 lakh cover is what even the well-off deem sufficient as health insurance. More importantly it signals that for the government the life of the poor is as valuable, as that of a well off person.

Incentives for generating employment rather than buying machines

The government proposes to extend the existing scheme under which it meets the cost of a contribution of 12 percent per year towards the Employees’ Provident Fund contribution in the medium, small and micro enterprises to all the manufacturing sectors. The idea is to increase the attractiveness of employing young job seekers by reducing their cost to the employer for three years, by which time it is expected the skills they acquire will make their value addition viable on its own.

Infrastructure development – falling short

The highlights for new projects in infrastructure are that 99 smart cities have been selected with an outlay of Rs 2.4 trillion,  against which projects worth around 10 per cent of the outlay are ongoing and projects worth one per cent of the outlay have been completed. The government expects to complete 9,000 km of highways in this year. Bharat Net, the fiber connectivity programme, is also proceeding apace. The Railways will spend Rs 1.48 trillion on capital investments, mostly in new works in 2018-19. Six hundred railway stations are to be upgraded.

The nominal GDP in 2018-19 is estimated to be 11.5 per cent  higher than in the current year. The total expenditure next year is around 10 per cent higher than the estimate for 2017-18 of Rs 22.2 trillion. On the revenue side, the big increase is an estimated increase of 53 per cent (after accounting for the fact that GST was collected only for 11 months in 2017-18) in GST revenues next year by around Rs 2.6 trillion to a level of Rs 7.4 trillion, and a conservatively assessed Rs 20,000 crores from the new capital gains tax of 10 per cent on equity sold after holding it for one year. The huge increase assumed in GST and the undefined budgetary support for “NamoCare” make sticking to the 3.3 fiscal deficit target a bit dodgy in 2018-19.

FM keeps his gun-powder dry and in-reserve

Jaitley budget 2018

But who knows, maybe the finance minister has some artillery hidden up his sleeve.. Disinvestment has been assessed conservatively in 2018-19 at Rs 80,000 crores, against the achievement this year of Rs 1 trillion. The bank recapitalisation support of Rs 80,000 crores is expected to leverage new lending capacity of Rs 5 trillion. One cannot but  feel that some of the expenditure estimates are a bit conservative relative to the ambition embedded in the programmes.

The good news is ending 2018-19 with a higher fiscal deficit but equal to this year’s at 3.5 per cent is no big deal from the view point of fiscal stability, if all of it is pumped into infrastructure and other investments. But for the Narendra Modi government, which takes targets seriously, it would be an unhappy ending.

The blog and the article mistakenly mention the estimated value of a merged insurance behemoth as Rs 400 trillion. The error has now been corrected in the text. I am deeply embarrassed by this snafu. A more reasonable number is Rs 4 trillion. Regrets.

Adapted from the authors article in The Asian Age February 1, 2018

Sustaining growth in an unfriendly world


Put it down to the heavy snow in Davos or to a rare case of blunt honesty by an international agency. Whilst sharing the good news of the revival of the world economy in 2017 and its expected continued growth till 2019 at 3.9 percent, Christine Laggard – the IMF Managing Director, cautioned that 20 percent of the developing world was not part of that revival, tempering the WEF celebrations with sobriety. Latin America and resource dependent economies, had suffered negative growth, even in 2016.

India’s growth angst

India’s angst is real with growth dropping to 6.5%, versus the 7% plus real growth of recent years. We are new to this business of high growth. The two decades from 1980 to 2000 only had a growth rate of 5.7 percent per year. It is only post 2000 that a growth rate of 7 percent per year become part of our expectations. In comparison, China’s high growth period of 8 plus percent per year – with minor annual deviations – began in 1977 and continued for over three decades till 2011.

Trade liberalisation and world growth – China timed it right

The 1970s and 1980s were a good time to grow. Under the General Agreement on Trade and Tariffs (GATT) the Kennedy, Tokyo and Uruguay rounds of negotiations (1963 to 1993) reduced average tariffs from 22 percent to 5 percent. World exports as a share of world GDP increased by 40% between 1972 to 1982 (from a level of 14% of world GDP to 19%). Over the next two decades, till 2002, world exports further increased by nearly one third to a level of 25% of world GDP. The bulk of Chinese growth happened during this period of trade liberalization.

India – a growth laggard, got the timing wrong

India lost the favourable two decades from 1962 to 1982 to domestic political headwinds. We liberalized, tentatively, from 1985. But reform put down roots only from 1992. By then world growth had tapered off. During the quarter century after 1992 till 2016, only in four years, did the world grow at 4% per year or more. In the quarter century before 1992 there were 14 years when growth exceeded 4% per year with 1964 being the high point at 6.7%. India has struggled against the declining trend in world growth to pull itself up. Fresh challenges can be expected over the next decade.

Can India replace the broken “open economy” model

The world grew rapidly using the “open economy” model over fifty years till 2008. Is it now broken? And did rising inequality within economies kill it? And are we now left only with the long, dark alley of “directed Chinese capitalism”, as a viable “growth model”?

Yes it can, if only we collected more tax revenues

India can offer an alternative model aligned with the “open economy, freedom, democracy” matrix, if we can boost our tax to GDP ratio to generate the resources required for “sharing growth”. The combined revenue receipts, in India, of governments at all levels is 22% of GDP.

Meanwhile public outlays are critically short in health by 4 % of GDP; education by 3% of GDP; infrastructure by 3% of GDP and defence by 2% of GDP. This adds up to 12% of GDP.

Around one third of the additional fiscal resources could come from continuing to grow at 6% per year – an achievable target. Another one third could be met from non-tax receipts like from privatization and savings on pro-poor subsidies by targeting and distributing them better, including digitally. But we cannot escape increasing our tax to GDP ratio (all of government) to 26 % of GDP.

The broad anti-corruption framework offers hope

The drive against corruption; stricter adoption of banked transaction norms and the increasing popularity of digital transactions and online marketing are expected to ensure that tax collection in fiscal 2018 meets the budgetary targets of Rs 19 trillion (including state share of Rs 6.7 trillion).

This is despite a reduction in the budgeted nominal growth of GDP over last year from 11.8% to 9.5%. This buoyancy gives hope that continued rationalization of tax rates; improved assessment and review processes and fairer and faster settlement of tax cases will induce better tax compliance.

Specific incentives for officials can seed growth filters in local decision making

We should learn from China how to devise local incentives for enhancing revenues. 99% of the 50 million Chinese officials are locally recruited and are never transferred away. They are truly a “permanent” bureaucracy.

Secondly, a significant part of their pay is linked to the fiscal health of their local unit. A healthy unit means higher bonuses and benefits for employees. Fiscal downturns bring austerity even in the take home benefits for employees. This close and sustained identification of officials with local offices and the localities where they exist, creates a shared bond between citizens and the officials – all of whom sink or swim, together.

Recruit officials locally & keep them there, for better identification with local needs

In India, officials are birds of passage, even at the village level. Their take home pay and benefits are completely unlinked to the fiscal health of the local office or the locality they serve in. It is no surprise then that rent gouging is widely prevalent with no concern for making the locality or the employing organization fiscally healthy.

“Authoritarian” China is effectively more decentralised than “democratic” India

The Chinese government does not habitually, bail out bankrupt local governments. They must work themselves out of the holes they dig for themselves. At the same time, the government does not hesitate to formally allow policy departures, at the local level, driven by exigency. Ironically, this makes “authoritarian” China, extremely decentralized and participative, whilst India – part of the “free world”, looks hopelessly rigid and centralized in general. We must build up the bright exceptions.



No job is too dirty for me

Parameswaran Iyer, Secretary, Government of India, a sanitation specialist, recruited from the World Bank,  walks the talk, by demonstrating that composted pit latrines are no longer dirty. Commitment to field level results and competence in action.


Resilience to overcome future challenges comes from open-order economies, promoting innovation and flexible structures

The WEF has cautioned that the near-term future is full of security, climate, technology and economic risks. They advise that resilience is the best antidote to risk. For complex organisations, enhancing resilience means embedding flexible, modular structures and business relationships, which allow the freedom to alter the scale of operations to fit demand and to cultivate innovation and the capacity to work at “the edge” of the frontier. Tellingly, none of this is aligned with a heavy top down, centralized, cookie-cutter, approach. Change is upon us. We must bend lest we break.

Adapted from the the author’s opinion piece in TOI blogs, January 28, 2018

Supreme Court – between a rock & a hard place


Chief Justice of India Dipak Misra and the four judges who went public  Justices N. Chelameswar; Ranjan Gogoi; Madan B. Lokur and Joseph Kurian.  Photo courtesy 


………will bear true faith and allegiance to the Constitution of India as by law established, that I will uphold the sovereignty and integrity of India, that I will duly and faithfully and to the best of my ability, knowledge and judgement perform the duties of my office without fear or favour, affection or ill-will and that I will uphold the Constitution and the laws.

The Oath of Affirmation for Supreme Court Justices 

The Supreme Court is a solemn place, as if in mute recognition, of the enormous faith reposed by 1.3 billion Indians in it’s 25 Justices to safeguard democracy.

But last week it was thrown into a tizzy, as four senior-most Justices of the Court, adopted Gandhiji’s tactics of “direct action” and went straight to the people of India with their anguish. So deep was their despair that they bared their anguish in public at a press conference and released a letter they had addressed to the CJI, adding that they had tried to settle the matter internally, by talking to the CJI, who apparently gave them short shrift. The cause of their worry is that the Chief Justice was using his traditional discretion in allocating cases amongst judges, to direct “politically sensitive” cases to judges who could be expected to rule in favour of the government.

Prising open the clannish Supreme Court of India

Indian Supreme Court is notoriously clannish. A “collegium” of the CJI and four senior-most judges, recommend new judges for appointment to the higher judiciary. The process is opaque. The President of India -ergo the government of the day – must formally approve the appointment. This provides an opportunity to the Government to hold up an appointment. But it cannot appoint a judge by itself. This system dates back two decades when the Supreme Court ruled, in 1993, that the power of appointing a judge was inherent to its ability to safeguard the basic structure of the Constitution – its key mandate.

Failed attempts to democratise the appointments process

The earlier UPA government and subsequently the Modi government sought to substitute the “collegium” with a Judicial Appointments Commission comprising the CJI and two judges of the Supreme Court, the Law Minister of India and two eminent persons appointed by a committee consisting of the CJI, the Prime Minister and the Leader of the opposition in the Lok Sabha. The act was approved in both houses of the Parliament and by a majority of state legislatures, as is required for a constitutional amendment and notified as the National Judicial Commissions Act 2014.  However, a five-member bench of the Supreme court struck down this amendment to the constitution on October 16, 2015, thereby restoring the “collegial” appointments” system.

Justice J.S Kehar who led the bench striking down the Act went on the become the Chief Justice of India under the Modi government, as observers hailed the victory of the rule of law, constitutionality and the preservation of the fundamental principle of separation of powers in a democracy. The Modi government silently licked its wounds. But recompense was not long in coming.

The “collegium” system is not fail-safe

CJI Kehar retired on in September 2017 and the senior most Justice Dipak Misra was sworn in as the CJI on August 28, 2017 per precedent in the “collegium” system. On Friday last, the earlier supporters of the collegial system of judicial appointment were on their feet again, this time praising the four judges, who had saved democracy and lauded them for their courage and resoluteness in coming out in the open against the CJI chosen by the very same collegial system.

This just doesn’t square. So, lets assume, for arguments sake, that the CJI was sending “sensitive” cases to judges, whom he felt would decide them in a particular manner. What were the possible options available to the four judges?

Hierarchy and faux seniority rules the Supreme Court, rather than genuine collegiality

Clearly the first was to have a chat with the CJI and apprise him that they took a dim view of what he was doing. The judges say they did do that. But when nothing changed they decided to go public with the amorphous charges.

It is pertinent to ask, why they never sought to rally around them, their brother judges. There are 25 Judges in the Supreme Court. Why could they not convince the 18, or so, other “uncommitted” judges, that something needed to be done? Surely, if the four judges had managed to get an additional 10 judges around to their point of view and had they put up a common viewpoint to the CJI, the outcomes could have been different.

Why did only one, of the five Justices, who, are slated on seniority, to become CJIs till 2024, speak up?

One of the four judges, who went public, is Justice Ranjan Gogoi, who is set to take over as CJI, once the present CJI retires, in October 2018. Why did they not similarly try and get the four other Justices who can become the CJI all the way till 2024 converted to their cause? Sharad Arvind Bobde – due to become CJI in November 2019; N.V. Ramana – due in April 2021; Uday Umesh Lalit – due in August 2022 and D.Y. Chandrachud – due to become CJI in November 2022. Was it because these judges did not feel similarly oppressed? If this be the case, it significantly takes away from the bite of the allegations voiced by the four judges.

Justice Gogoi- a profile of passionate courage or a lightning rod of deep dissent?

Justice Ranjan Gogoi has certainly put his neck on the line by disrupting the placid exterior of the Supreme Court. He has also certainly riled the government. Readers may recollect that Justice Khehar, the previous CJI had also riled the government, by heading the five-judge Justice bench which totalled the NJAC Act. He became CJI nevertheless. The Judiciary and the Bar have aligned view-points which are penetrable only by insiders.

It is unlikely, that, Justice Gogoi would have gone public without consulting with and getting the support of his brother judges and the Bar. Even Supreme Court Justices are human and are allowed a touch of self-preservation. More important they are expected to be rational, sans emotion, with their heads ruling their hearts.

Does this imply that dissatisfaction, with the administration of the Supreme Court, runs deep within the brotherhood? Also does this not show that the judiciary needs to change with the times?

Good governance is about narrowing discretion, even in the Judiciary

Specifying the procedure for case allocation narrowly, rather than leaving it to the discretion of the CJI, would be a good start. Cases can be randomly allocated, using a specially designed algorithm, since all the Supreme Court judges have the same status and come to the court after years of experience. Most importantly, if the “collegial” system is not fool proof in selecting judges true to their salt, why not try the collaborative approach of the NJAC. After all, Justice N. Chelameswar, one of the four judges, wrote the dissenting judgement supporting the NJAC. No one arm of the State has a monopoly on virtue.


Also available at TOI blogs January 18, 2018

Modi@Davos – Jawboning the future


Even as Prime Minister Narendra Modi will be winging it to frosty Davos for the World Economic Forum’s annual meeting next weekend, his bete-noire — Congress president Rahul Gandhi — has decided to be different and spend the coming week in his parliamentary constituency of Amethi, in rural Uttar Pradesh. Both seek inspiration and support. But from very different sources.

A shared future less likey than a dystopian nightmare


As usual, bombast is expected to rule at Davos. Consider the title of this year’s meet — “Creating a Shared Future in a Fractured World”. It completely obfuscates the fact that everything the world has done over the past 40 years has conspired to keep the majority share of the fruits of development within the elites. The rising inequality and congealing wealth at the very top is witness to the failure of the open economy model to deliver growth benefits across the population. China’s President Xi Jinping contested this proposition in his address at Davos last year. Yes, China has lifted 700 million people out of poverty — more than any other nation. But relative poverty has increased even in China.

As if this was not enough, automation and artificial intelligence shall, over the next two decades, push ever greater masses of unfortunates outside the virtuous cycle of income enrichment. This is a prime concern for India, with 60 per cent of our current population less than 31 years of age.

It doesn’t end there. Once we create this dystopian world in which the few, engaged humans work within an insulated eco-system of high tech, the large mass of humanity will be on the outside looking in. They would be fed by subsidies thrown at them. Consider that block chain if applied widely to everyday transactions can scupper the employment of auditors, accountants, lawyers and judges — all of whom earn a living out of the problem of authenticating facts. Possibly, the efficiency benefits of automation may be high enough to finance generous handouts to the losers. But it would be a sorry society surviving on aid, rather than individual effort. We know already how debilitating aid dependency is.

This model of growth is not sustainable and needs to be junked. But it is unclear what should replace it. Davos is unlikely to help in that direction. There is never time at Davos to get beyond the breaking news.

The silver lining – WEF exaggerates the fear of a fracturing world

Consider also the assertion that the world is a more fractured place today that it was a few years ago. Nothing could be further from the truth. Just last year at Davos, China, a habitual outlier, took the lead to reinforce the need for world integration. Compare this with the China of just 40 years ago — which was not even a member of the World Bank, and which joined the World Trade Organisation only in 2001. The rapid increase in the share of domestic GDP exported today is another indication that the world has shrunk, not fractured.

Show me the money

Davos is more about striking deals than philosophising about the world order. Prime Minster Modi is a consummate deal-maker. So, expect some significant commercial action at Davos. After all, Davos is not the United Nations, where nations talk at each other. It is a forum for leveraging business opportunities through public-private partnerships.

India a leader in frugal innovation


India has already thrown its hat into the ring of frugal innovation in space technology, with our Mars mission. Davos would be a good opportunity to emphasise the peaceful development of missile technology by India — in stark and sharp contrast to China, Pakistan and North Korea.

Unparalleled deep fiscal and institutional reform

No country has taken steps, on the scale we have, to root out corruption using digital technology, banked transactions and the Goods and Services Tax. These have together negatively impacted economic growth in the short term. To be sure, there have been glitches along the way. But steadfast remedial action is delivering financial inclusion for all. This is more than just an economic revolution since it goes to the heart of culture and social practices.

Conquering terror

Mr Modi was one of the first to warn the developed world that terrorism was a hydra which strikes rich and poor alike. India has for long suffered cross-border terrorism, which seeks to incite an alternative religious reality to Indian Muslims, who are a significant minority. India’s foundations are secular.

India is quintessentially liberal and entrepreneurial.

India was a secular country even before the term “secular” was inserted, somewhat unnecessarily, into the preamble of our Constitution in 1977, during the Emergency, by then Prime Minister Indira Gandhi. Also, despite the term “socialist” having been inserted into the Constitution at the same time, India has never been a Socialist country.  Land ownership has always been personal in India. The concept of property rights is deeply embedded into our culture. The state-owned industrial monoliths — the visible outcomes of “socialism” and the entire employment in the government sector, has never exceeded around five per cent of total employment. If there is one thing India is known by it is the spirit of entrepreneurship. The government is trying to liberate “animal spirits” through light touch regulation, the rule of law and supportive infrastructure.

Can POTUS & Modi queer President Xi’s, 2017 play as “leader of the world”


US President Donald Trump seems to have upset Prime Minister Modi’s moment at WEF. The ebullient and volatile POTUS is likely to garner all the sunshine. But Mr Modi is sure to use their joint appearance at Davos. He will fashion events and his remarks in a manner which point to a genuine partnership between the United States, Europe, Japan, Southeast Asia and India. Together, these economic actors contribute nearly two-thirds of the current world GDP. More important, they share some institutional and cultural attributes, which even by the jaded standards of today, can be called morally superior — like due regard for citizens’ rights and a commitment to enhancing the transparency with which the State functions.

Some homework may show that India walks the talk on shared growth


Davos will be a tough challenge for Prime Minister Modi. He needs a credible story to explain why growth — the holy grail of the Davos crowd — has lagged in India even as growth has picked up world-wide. It would be great if he could substantiate that while headline growth has lagged, shared growth has increased, particularly if the 116 backward districts (out of 593 total districts in the country), identified by NITI Aayog have, contributed more than their share in GDP to growth.

That, after all, is the growth model the World Economic Forum is looking for.

Adapted from the author’s opinion piece in The Asian Age January 13, 2018

The two conundrums of the Modi government


The Narendra Modi government poses two conundrums for citizens. First, citizens want an effective government, like PM Modis. But they also value and actively guard their rights. Making a colonial-style government gallop, often means cutting corners and turning a blind eye to the encroachment of citizens’ rights. We are still very far from being China, where even the option to negotiate a tradeoff, between effectiveness and rights, does not exist. For PM Modi reforming the government — a long-delayed, unpleasant, plumbing task — is one way to reduce the starkness of the tradeoff as it exists today.

Harsh on corruption soft on criminality


Second, there is a yawning gap between the proactivity of government in ending corruption and the business-as-usual approach to ending criminality. For the average citizen, criminality is far more worrying than corruption. A government which does not consistently impose the rule of law uniformly loses credibility over time. The djinns unleashed by allowing hired goons to massacre Sikhs in 1984 or by allowing kar sevaks to bring down the Babri Masjid in December 1992 still haunt us.

Going up the down escalator, is hard work and wasteful

The dead weight of poor governance practices and a predilection for unorthodox solutions, to show quick results, create a drag on its otherwise creditable efforts — just like a person running up the down escalator. Switching escalators can help. But this requires a change in ideology to put growth with jobs and a crackdown on criminality first.

Growth slows

Growth has taken a hit. Fiscal 2018 will end with a probable 6.5 per cent growth and the terminal year of the Narendra Modi government — Fiscal 2019 — with seven per cent. The average growth will then be one percentage point lower than under the previous government — a point Dr Manmohan Singh repeatedly emphasises to show that this government is only about hype.

But growth is not the only metric of governance

But this is being uncharitable to the BJP government. Growth is just one of the metrics of good governance. The open economy model spits out growth but often without jobs and with growing inequality, corruption and criminality. At some point, an efficient and purposeful tradeoff can be made between higher growth and more rounded social and economic outcomes, like social protection and investing in human development. Growth has been affected because drags like the accumulated stressed assets of banks trap them into recycling credit to discredited corporate borrowers to keep the accounts “healthy”, crowding out credit to others, who could build the future. This is slowly being rectified. But the steps towards building a more responsible banking culture, to avoid reoccurrence, are not yet visible.

New beginnings in infrastructure and connectivity


Poor infrastructure and high transaction costs are another drag on growth. Higher allocations of public finance for infrastructure; doubling the rate of highway development; modernising ports and railways; tripling the number of airports connected with regular flights; promoting the free flow of goods across state borders, are positive steps to reduce the drag on growth. Allowing the overvalued rupee to realign with its real value can boost exports to meet reviving overseas demand and level the playing field for domestic producers versus seemingly cheap imports.

There is little near-term hope for private job creation

Job creation is doing worse than growth, increasing inequality, because jobs in services and manufacturing are being axed at the middle and lower end. Even in agriculture, higher productivity will depend on using machines for tasks currently done by humans, and changing regulations to allow leasing-in land for scaled-up commercial farming — again at the expense of jobs.

Reversing the trend of declining public sector employment could help. We need more specialised skills, directly linked to service delivery — nurses, doctors, teachers, engineers, accountants, tax professionals and lawyers. Better talent can be attracted by linking salary and benefits to specific positions, filled through open competition, rather than through a cadre, as they are today. The Modi government has made some lateral appointments at the highest level. But a comprehensive policy for reforming government appointments is sorely needed.

Despite the rough edges PM Modi enjoys respect and credibility

Modi mask

Quixotically, the levels of public trust and credibility that Prime Minister Narendra Modi has generated, within India and abroad, is unprecedented since the days of Pandit Jawaharlal Nehru. Admittedly, his supporters are overwhelmingly upper and middle-caste Hindus, though a tentative outreach to the lower castes, dalits and tribals has started. The minorities are caught in the “appeasement”and “alienation” paradox. Their “alienation” today is explained as an inevitable consequence of ending the practice of “appeasement” of earlier governments, to retain them as votebanks. The BJP is less ideologically committed to social and religious diversity than it is to forge a uniform national identity — China style. China faces potential social unrest — a drag on growth. We cannot afford another drag on growth.

Democracy incentivizes  political rhetoric

Democracy is about winning elections, forming stable governments, governing efficiently and ensuring justice. The BJP government has shown it can do three of the four very well. Turning up the heat on corruption has become the leitmotif of the BJP government. The costly demonetisation exercise; the rapid rolling out of the GST despite the associated implementation glitches; the strong action against corporate founders defaulting on bank loans or short-changing customers and suppliers; rapid financial inclusion and the promotion of bank and digital financial transactions to replace the use of cash — all these are initial steps towards combating corruption, increasing tax revenues and improving corporate governance.

But are we doing enough to reign in criminality?

More must be done to reduce the drag of widespread criminality. Reforming the election system to root out criminals; working with the Supreme Court to reform the dilatory judicial process and speed up the delivery of justice; enlarging the reach of judicial services; and reforming the police and prosecution systems are critical to reduce the drag imposed by shoddy implementation of the rule of law.

Use 2018 to consolidate past initiatives with just two new beginnings

2017 was a year of significant disruption and of useful beginnings. 2018 should be devoted to consolidation of ongoing initiatives rather than the scheme-a-month, headline-grabbing strategy of the past three years. Two new beginnings would, however, be welcome.

First, steps to compensate for the collateral damage caused to business, employment and incomes by hurried attempts to show results and win elections. Second, defined pathways to reaffirm the wider social compact between the government and all citizens.

inter faith 2

Adapted from the authors article in The Asian Age, December 28, 2017

BJPs half-win in Gujarat


The David versus Goliath battle in Gujarat Assembly elections has ended, as expected, with Rahul Gandhi failing to pry away the State from the BJP. But the Modi magic has been dented, particularly with the slim margin of victory and the loss of his home constituency of Unja. With a 41% plus vote share the Congress has reasserted its political credibility in the state.

What is the glue which binds the 41% plus vote share of the Congress?

Of course, it remains to be seen, how well the glue, which holds the Congress together, sticks. State level legislative assemblies do not function in a manner which provides the opposition a forum for high profile “statesmanship” as should be the norm in parliamentary democracies. It is pretty much a zero-sum game with the executive getting most of the face time.

gujarat-elections Gandhi

Five corrective steps for the BJP 

So, will the Congress leave the BJP in the dust, in the general elections of 2019? Yes, it may, unless the BJP takes five corrective steps – broaden its core leadership; roll out public jobs; junk Hindu consolidation; push federal decision-making in education and health and go hell for leather in rolling out infrastructure.

Broaden the core leadership

First, the BJP should seriously consider bolstering the public profiles of their state chief ministers and rely on them to win the state elections rather than just on the Prime Minister’s charisma. MP, Chhattisgarh and Rajasthan are coming up for elections in 2018.

It is ironical, that such homilies were once regularly directed at the dynastic Congress, which had systematically decimated its state level leadership to ward of “pretenders” to the Gandhi fiefdom. Today, it is the BJP, once a party of open entry and merit, which needs to go back to the future.

2019 will be traumatic if state level BJP leadership sits on its hands, whilst only the Shah-Modi combine toil.

Create publicly funded jobs as an interim filler


Second, if young voters are to be attracted to the BJP, it is jobs, which will do the trick. There is precious little the BJP can do, over the next two years, to turn around the gloomy situation on jobs in the private sector. But there is nothing to stop it from recruiting youngsters for government. Done strategically, every person given a job, creates hope in at least ten others. If government can increase employment by a million people, ten million others feel hopeful.

Even in the civilian (excluding the military) part of the central government, employment has declined by around 2,00,000 since 2001. There are 4,20,000 unfilled positions today. In the broader public sector, which includes all state and local governments, employment has fallen by 2 million since the peak, in 1995, of 19.5 million. Filling up these 2 million jobs provides hope to 20 million youngsters. This is a no-brainer.

Junk the strategy of Hindu consolidation

Third, the strategy of consolidating the Hindu vote. It is dead in the water. Prime Minister Modi must revert to his 2014 vision of a multicultural, meritocratic nation for the good of all citizens, with no obeisance to caste or religious divides, for narrow political ends. Hindus are not under threat in India, nor is their culture under threat of being swamped.

The minorities need to feel that they are a minority, only nominally. That being a minority is only an arithmetic fact. That what they can achieve for themselves, their families and society, is limited only by their own inhibitions and not by an unsupportive state architecture.

Just as surely, putting the young in touch with their roots; correcting history, where it may have been written with a bias; building a national consensus on language and cultural policy, are all legitimate State objectives. State actions seem menacing only when they are a cloak for achieving partisan political ends.

Extend the federal council concept (GST) to education & health

Fourth, political federalism has taken a backseat beyond implementation of the GST. The central government must broad base this principle with respect to areas in the concurrent list of the constitution, where both the Union government and the state government have a mandate to legislate. Education and health are two key areas.

Clones of the GST council could be formally created in education and health, to make decisions on allocation and utilization of funds, participative and consensual. India lags, even many developing countries in Sub Saharan Africa, on education and health metrics. Joined up action; significant expansion in the public education and health services; leveraging technology to improve the quality of services and a doubling of budgetary outlays in both sectors are reforms which can be implemented in the short term. Just focusing on these basic services can spread a warm, nurturing glow amongst voters.

Gap filling of infrastructure better then new projects

Fifth, focus on completing last mile gaps in infrastructure rather than new projects to maximize value creation. Jobs, better connectivity, lower transaction costs – all flow from public investment in this sector. Some innovation is needed. Crowd sourcing small infrastructure can reduce the fiscal burden.

More significantly, this makes private citizens and entities feel like partners not just recipients of public largesse. Assuring decent returns on private funds contributed in this manner will help. Think – functional street lights; road over or under passes for pedestrians; public toilets; better public transport; better water supply.

Bulk up budget re-allocation resources for infra, edu & health by 3% of GDP

The fiscal situation is already under severe stress. The money will need to be found by reallocating the existing funds. Additional funds to the tune of 3 per cent of GDP need to be directed towards health, education and infrastructure. Cutting back on defense allocations and starving peripheral departments of funds can achieve this objective over the next two years.


The BJP has been on a winning streak thus far. It is now time to defend the political fortress it has built. How it goes about doing so, will make the difference between a fractured, weak India in 2020 or a progressive, forward looking nation, fulfilling citizen aspirations.

Also available at TOI Blogs December 18, 2017

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