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Archive for the ‘elections’ Category

Pranab da mimics Atal ji

 

Paranab RSS

The brouhaha over Mr Pranab Mukherjee’s visit to Nagpur, as the chief guest at a valedictory function of the Rashtriya Swayamsevak Sangh (RSS), foregrounds the stunted nature of politics in India.

Politics is about reaching out

First, consider the absurdity of the prevailing schoolboy notion of “team” spirit extending to a ban on supping with one’s political opponents or with those whose ideology is distant from one’s own. This downgrades politicians to being nothing more than groupies of one or the other party – much like football fans.  Amusingly, ever more rigorous behavioural tests of allegiance are demanded, as parties themselves, become ideologically indistinguishable.

The “sameness” of post ideology politics

After all, other than the fuzzy social concept of Hindutva, there is little to distinguish between the BJP and the Congress. Even Hindutva – at least the soft Vajpayee version – is associated with no discrimination across caste or religion. This naturally includes no mollycoddling of Muslims or Christian but also rules out targeted pogroms against them. The constitution makes Sikhs, Buddhists and Jains, honorary Hindus, even though, these are distinct religious minorities. The erstwhile Karnataka government proposed this year that Lingayats be listed as a minority religion within the Hindu pantheon.

None of this aligns with the hard Hindutva line of “nationalising” Hinduism to the exclusion of all other religions. Indian Muslims often retain their caste consciousness, as do Sikhs, even though neither religion envisages caste divisions. For Baba sahib Ambedkar, caste and not religion, was the biggest social cleavage. And he was right.

Who, amongst the opposition, is not a Hindu?

opposition

Hard Hindutva remains untested as a political instrument to consolidate Hindu votes. Who amongst the opposition – Mamta Banerjee, Captain Amarinder Singh, Bhen Mayawati, Akhilesh Yadav, Lalu Prasad Yadav, Rahul Gandhi, Naveen Patnaik, Chandrababu Naidu, K. C. Rao, E.K. Palaniswami or P.Vijayan, is not a Hindu, albeit of the “soft” inclusive, Hindutva kind?

Standing tall, like Atal ji, means leaving the comfort of one’s corner 

Atal ji

Second, it is odd that, on the one hand, the “secular” camp bemoans the absence of “tall” leaders, like Atal ji, who were widely acceptable, aroused respect rather than antagonism and who could be relied upon to do the right thing by the nation. Yet, they take strong exception to Pranab da emulating the Vajpayee brand of inclusiveness, by reaching out to the RSS. Pranab da did not go to Nagpur in the naïve hope of converting the RSS into a peacenik. The purpose was to show to the current lot of political leaders, that it is possible to stand firm, on what one believes, even in the midst of political opponents. After all, our diplomats do this almost daily, when they serve on committees and in nations, where the mood may be inimical to India. By participating, one shows the public, the strength of one’s conviction and the rationale thereof. Opponents may remain opponents. But at the fringe, citizens get the opportunity to rethink role models, possibly resulting in a softening of hard positions, much like a glacier crumbling at the edges, in the face of climate change.

Demonising one’s opponent is unhelpful, listening and participating is better

Third, demonization of opponents is reminiscent of what fundamentalists do. Those who espouse a secular, liberal agenda must surely shun the fundamentalist’s tool kit. Prime Minister Modi was widely criticised by the secular crowd, for not donning a skull-cap, publicly offered to him by a delegation of Muslims in Gujarat. This was an extreme case of political symbolism, marking out Mr Modi, as being different from the average leader, who has no qualms paying lip-service to minority sentiment. The hosting of Iftaar parties, by those, not keeping the fast, is a prime example of superficial secularism.

Owisi

Asaduddin Owaisi, an MP from Hyderabad and President of the All India Majlis-e-Ittehadul Muslimeen, claims Pranab da’s Nagpur visit has “finished” the Congress. The implication is that Muslims will no longer feel “protected” by the Congress. This is entirely possible. But it could signal progress of sorts. Minorities voting for parties which advance their modern professional or business identities, rather than feeding-off their traditional identities, would be encouraging. If the Hindu vote is splintered today, why must minority votes remain transferable en-bloc, like pocket boroughs?

May Pranab da’s tribe multiply

We need more leaders like Pranab da, who are unafraid to grow a common ground between the uber Right RSS and mainstream, secular Indians. Even the Bharatiya Janata Party (BJP) should rethink its arcane electoral arithmetic, based on uniting the Hindus against the rest. The “Hindus” have never been a monolithic group. Caste and regional identities have always mattered more than the fact of being part of a family of Hindu religions. That is why Hinduism, despite all its warts – like the caste system – remains an attractive, forward looking religion, which assimilates rather than divides. Nationalising Hinduism, as the RSS is trying to do, will be as disastrously limiting, as the nationalisation of the private sector by Indira Gandhi, was for India.

Looking for repeat orders is better than one-off customers 

The BJP came as a whiff of fresh air in 2014, after a decade of more-of-the- same rule by the United Progressive Alliance. The last four years have seen some economic progress. The BJP should feel confident of citizen support based on results. It clearly overreached whilst setting targets, quite forgetting, that high aggregate targets do not matter to the average voter. Much as in commerce, repeat orders, are an outcome of a rewarding, initial customer experience. Would you buy a Patanjali product the second time, merely because their turnover is increasing rapidly or because the initial customer experience pleased you? Voters are no different. Indivisible security and shared growth remain key touchstones of State credibility. The government must strive to achieve these.

 

What Karnataka foretells

File picture shows Prime Minister Narendra Modi drinking green tea during a tea ceremony in Tokyo.

The tea leaves, following the Karnataka elections, are as muddied as they were before it — a hung House, a history of unstable coalitions and in your face examples of money power and shabby politics all around.

Modi government a bell-weather for fiscal management

The BJP not getting a majority has spooked the financial markets. Frankly, it matters little which party or parties have a majority as long as it or they live through the five-year term, thereby allowing the outstanding administrators which Karnataka has to go about their jobs and for business to plan ahead. The Narendra Modi government is a bellwether for markets simply because it has demonstrated vastly superior capacity to get the rusty levers of government working.

Only Janata (S) gains from the mess

The only real gainer in Karnataka is a regional party — the Janata Dal (Secular) under the leadership of H.D. Deve Gowda, a former Prime Minister of India (June 1996 to April 1997) and his son H.D. Kumaraswamy. The latter was chief minister of Karnataka (February 2006 to October 2007), courtesy a power-sharing agreement with the BJP after the JD(S) walked out of a similar arrangement with the Congress in 2004. The record does not inspire confidence in its commitment to political stability.

Germany lived for six months without an elected government, why not Karnataka?

Having said that, Karnataka is not a backward state where political stability is critical for survival. Germany took nearly half a year to form a coalition government after inconclusive elections in September 2017 without any adverse economic consequences. Karnataka, like Germany, has a high capacity to absorb the absence of elected government. It is above the median, amongst Indian states, in its socio-economic indicators. It is one of the four major national hubs for the tech. industry. Services account for 60 per cent of the state’s domestic product. Per capita income is 20 per cent higher than the national average.

Yogendra Yadav, a veteran political analyst, has rightly said that the hung Assembly in Karnataka is a routine affair. It acquires significance only because of what it might foretell about political economy responses at the national level. Shorn of all jargon, the question is — will the BJP continue its reformist economic agenda or will it be abandoned for more populist measures, in the run-up to the spate of Assembly elections and the national election in 2019?

BJP’s desperation for power a self goal

Mr B.S. Yeddyurappa, the state BJP leader, on being invited by the governor, Mr Vajubhai Vala, to take charge as chief minister, quickly declared that farm loans, possibly amounting to `250 billion, are waived, even before he could prove his majority. This could be a panic attack, foretelling that the BJP may not find the numbers to cobble up a majority. If it does not, the unseemly political manoeuvring to gain power will be a self-goal.

Will Modi’s reforms take root?

The two biggest reforms that have been initiated by the Narendra Modi government are incentivising formalisation of the economy via the Goods and Services Tax and using the Insolvency and Bankruptcy Act to end the long festering, toxic ecosystem of Indian banks, which spawns stressed assets. Both actions increase tax revenues, reduce the pressure on public financial resources and control black money. These are signature reforms with significant economic gains. Imposing penalties on businessmen, who misuse or default on bank loans, has enormous popular support. Neither is likely to be abandoned by the Modi government.

The next two important achievements have been taming inflation whilst playing a careful sherpa to economic growth. Low international oil prices helped finance minister Arun Jaitley to liberalise the petroleum retail price regime whilst simultaneously raising additional revenues to reduce the fiscal deficit from 4.4 per cent of GDP in 2013-14 — the final year of the UPA — down to 3.5 per cent by 2016-17, where it has remained in 2017-18. Further reductions are tough. Inflation is likely to edge up to five per cent this fiscal driven by the oil price increase, whilst the fiscal deficit shall increase to four per cent of GDP.

Piyush Goyal a hard taskmaster – will not let tax revenue slip

Image result for free photos Piyush Goyal

It is unlikely that the new, interim finance minister, Piyush Goyal, will countenance any further deviation from the path of fiscal consolidation, lest it erode India’s credit rating. He is likely to keep inflation in check by adjusting Central taxes on petroleum to avoid the full impact of the oil price spike passing through into retail prices. But this revenue sacrifice will need correspondingly higher collections of income-tax and GST — a task that the present finance secretary Hasmukh Adhia is adept at. Monetising existing infrastructure assets, to get additional fiscal resources this year, will be an extension of what Mr Goyal was already doing as railway minister.

The blessings of a cheaper Rupee

It is not all doom and gloom. The rupee exchange rate has adjusted to more realistic levels as foreign investors reallocate their “hot” money to higher return jurisdictions. This is a blessing. Letting go of the fetish of a strong rupee can boost exports; contain imports; make domestic production more competitive and induce additional flows of long-term foreign direct investment into projects. Higher international oil prices also mean more net inward remittances from our citizens working in the Gulf countries, which will balance the external account.

Focus on budget announcements for liberalising agriculture

Quickly implementing the progressive announcements of Budget 2018-19 for agro-processing, liberalisation of domestic agricultural markets and agricultural exports — which has not been in the news since — can illustrate that the government walks the talk on a sustainable doubling of farmer incomes.

Pursue enhanced health care capacity 

Investing more in primary health via well-equipped “wellness centres” and insuring the poor against the ruinous costs of hospitalisation, via Ayushman Bharat, are powerful, scaled-up initiatives, which should be foregrounded.

Actions speak louder than words

If the BJP has a long-term economic vision for India, it needs to shun acting in a purely transactional manner in the near term, with an eye to squishing out all political opposition. It has taken the lead at the national level in ensuring probity. Doing the same in the states can show that the BJP rubber is meeting the road.

Adapted from the authors opinion piece in The Asian Age, May 19, 2018 http://www.asianage.com/opinion/columnists/190518/what-ktaka-foretells-not-all-gloom-doom.html

Resurrecting ghosts is bad politics

AMU

One wonders whether Muhammad Ali Jinnah would have been disappointed or elated at a band of misguided, ultra-right Hindus, objecting to his portrait hanging in the students’ union office of the Aligarh Muslim University. Disappointment, at becoming a hate object, would fit well. the elegant, urbane man with a taste for fine suits, that Jinnah once was. Elation would align with the politician, who fueled the creation of Pakistan and who could now turn around and say – see, I told you so.

Zero-sum world view, led to partition

After all, it is a belief in the irreconcilable co-existence of Hindus and Muslims in one country, which led to the creation of Pakistan. The breaking away of Bangladesh from Pakistan, should have put an end to the unfortunate idea that only an Islamic state can assure a secure future for Muslims. Wars between Pakistan and India have deepened the distrust of the larger “Hindu” nation across the border. To be fair, we in India, have also not done a good job of forging a national identity, so compelling, that other social allegiances – religion and caste, fade in comparison.

It is true that professional, social relationships and regional affiliations – culture, language and food – often paper over the underlying segmentation of caste and religion. But seven decades of hotly contested electoral democracy has fed on and deepened the fissures, rather than cemented the gaps. In India we tend to avoid head-on collisions, preferring to skirt around intractable problems and hope that time will solve them.

Our history bears this out. Consider that a deeply traditional society was assumed to have magically evolved, on the eve of Independence, into a rational, scientific and liberal society, resonating with the personal beliefs of a microscopic, western educated elite, which was dominant in the transition from colony to independence.

If Jinnah’s vision, etched out in the constitutional assembly of Pakistan in 1947, of a Pakistan, which would not make a distinction between citizens on religion, sounds hollow, so too does our avowed adherence to secularism – the constitutional roots of which remain shallow.

India bends to avoid breaking

India is a “soft” state. The rule of law is not absolute. It has a time dimension. It is considered administratively wise to allow it to be bent, in the expectation that, with time and changed circumstance, the weight of institutional rigidity would bring it back to its rightful place. Inevitably, such flexibility in the application of the rule of law allows free play to mala-fide interests and dilutes the credibility of State actions.

Democracy can deepen divides

Democracy has unexpectedly, sharpened religious polarization. The good news is that it has also deepened caste polarization. Baba Saheb Ambedkar’s pessimism about Dalits getting justice via democratic institutions, without suitable tweaks and safeguards for positive discrimination, resonate much deeper today, than they did in the rosy-tinted period post-Independence.

Dalit empowerment has created a conundrum for traditional Hindu society. It upends the gentlemanly agreement between Dalit and upper caste political elites, to co-exist without upending the basic power structures which bind down the ordinary Dalit. For example, grooms must not ride a horse to their wedding in emulation of a custom, which was the traditional prerogative of prosperous upper caste people or display and fire into the air in celebration, at Dalit weddings.

Everyone is relatively better off

Admittedly these are mere, distant pinpricks when viewed from above. The helicopter view of Indian society remains positive and progressive. Urbanization evens the score for Dalits. The enormous expansion of the service sector has created jobs which are skill based, caste-neutral and anonymous. Similarly, exports offer opportunities for good jobs in handicrafts, textiles, leather, metalwork, carpentry – areas where Dalit and Muslim communities dominate.

Communalism, casteism and low development feed off each other

Luckily for us, much of the religious and caste angst is in the backward areas of the north and central India, where human development indicators are low and per capita incomes are below the median level. In 2007-08 India’s median Human Development Index (HDI) was 0.47. The states of Bihar, Jharkhand, Orissa, Chhattisgarh, Madhya Pradesh and Uttar Pradesh, comprising 41 percent of the total population, were well below the median.

Curiously, Pakistan in 2010, with an HDI of 0.53 was worse off that the border Indian state of Punjab at 0.61 (2008) but better than Rajasthan at 0.43 (2008). Bangladesh, in 2010, with an HDI of 0.55 was better than the Indian state on their border – West Bengal at 0.49 (2008). Cross territory comparisons are notoriously misleading. But it is startling than even several decades after political separation, the cross-border differences in South Asia are less stark than those within the country. India has made significant strides in improving human development outcomes since 2008 and achieved an HDI of 0.62 in 2015 with focused attention on backward regions. The Modi governments program of targeting around 15 percent of the total number of 640 districts for accelerated support, will further even out the spatial distribution of development and income.

In 2014 the Modi government came to power on the back of an impressive record of achievement at the state level in BJP rules states. A host of development initiatives have been unleashed, which seek to sustain macroeconomic stability, raise incomes, roll out infrastructure and reverse the ravages of environmentally unsustainable development. There are more successes than misses. This is solid ground on which to go to the people in the general elections of 2019.  It is unwise to fall into the temptation of maximizing political gains by departing from the narrative of achievement.

Also available at the TOI Blogs May 9, 2018   https://blogs.timesofindia.indiatimes.com/opinion-india/resurrecting-ghosts-is-bad-politics/

Lives dedicated to change India

RTI story

This is not a glib account of mobilising the rural poor, penned by a peripatetic babu or a drive-in-fly-out development expert. It is, refreshingly, a record of activists, who elected to spend the better part of their working lives making a difference, bottom upwards, and three decades later remain rooted in their karmbhumi — village Devdungri, Rajasthan.

school for democracy

Some came from well-off urban backgrounds and yet stuck it out in the harsh and relentless realities of the rural poor. This testifies to their commitment. But even to attribute high moral incentives to them, betrays the tinted glasses of this urbanised reviewer. The authors do not vent their frustration, voice their regrets or betray even a whiff of resentment against an uncaring world. What shines through instead, is their quiet joy and fulfillment, at doing something useful.

Aruna Roy, for all her careful attempts to disperse the credit, is the central figure. Born into a family of lawyers, she drifted into the elite Indian Administrative Service in 1968 but resigned in 1975 to work with the Social Work and Research Center (SWRC) in Ajmer. Clearly, goaded by the need to be more immediately and directly involved with real people in rural India, she left SWRC in 1983. Nikhil Dey — recently returned after college in the United States, seeking something beyond a comfortable life, became a friend; Shanker Singh, a local village official’s gifted son, adroit puppeteer and communicator extraordinaire, completed the group which bonded and decided to check out the rural empowerment landscape in Jhabhua, Madhya Pradesh. That seed did not flower. But bonds between the three deepened.

They resolved, in 1987, to put down roots in village Devdungri, which today is part of district Rajsamand in the Mewar region of Rajasthan. This was close enough to Shanker’s village, Lotiyana, to give the group an entry into rural life through his local bonds of kinship. Here, in a mud hut, rented from his cousin, the small group lived like the villagers around them and awaited a gradual immersion into the rhythm of village life and hopefully, local social acceptance — their doors and hearts open. Trust and credibility is central to an activist’s effectiveness.

MKSS

Meanwhile, the group refined the credo of their concerns. These coalesced around the need to enable the rural poor and marginalised, to look beyond their sordid reality of traditional social and cultural constraints, to understand and avail of, the constitutional rights available to them, within India’s democratic and institutional architecture. The disastrous drought, blighting the region, presented an opportunity. The standard mechanism for drought relief was to initiate civil
works.

By 1983 the Supreme Court had directed that public works must comply with payment of minimum wages. But this was rarely done. The group resolved that getting workers minimum wages would be their central concern. A related opportunity arose due to the tyrannical ways of a local sarpanch who misappropriated village development schemes for personal benefits and whose benami holdings encroached on village land.

In both cases, empowering the poor meant getting access to the government records of money allocated by the government for different schemes; the amounts spent, on what and when. At that time ordinary citizens could not access these records as a right. Often mistakenly, even a list of Below Poverty Line cardholders was conveniently construed to be secret. Consequently, in any dispute with government entities — around wages or non-inclusion for welfare schemes “the villagers were always the liars”. They had no way to prove their case because the truth was hidden inside the official records, to which only the government had access.

Getting the dispossessed to appreciate that access to information and knowledge is vital, was the easiest part. The awareness that local government intermediaries were swindling them kindled anger, and sometimes outrage among villagers. While the immediate oppressor is visible and becomes vulnerable, the veiled support of those higher up in the hierarchy, maintains the status quo. Getting villagers their rights, means changing the status quo from the top.

The political vehicle used by Aruna and her activist colleagues to generate awareness; the desire for change and an ecosystem for long-term support to deliver rights to the rural poor was the Mazdoor Kisan Shakti Sangathan (MKSS). The artful, determined and collaborative way in which it was constituted, and the strategic depth of its functioning is a delight to read. The ideological roots of the MKSS lie in the life and thoughts of Gandhi ji (non-violent protests against government apathy), Babasaheb Ambedkar (equity and dignity for all) and J.P. Narayan (social and political revolution within constitutional constraints).

The movement for access to political and social rights, formally started in 1987, expanded organically over time from the village level to the state level by the mid-1990s and finally to the national level by 2005, when the Right to Information Act was passed by Parliament. Parivartan, the Delhi-based NGO, headed at the time by Arvind Kejriwal, evolved its strategy of “direct democracy” from the MKSS methodology — a mix of rootedness in organising the poor from within; high moral, ethical and personal values; imaginative use of local folklore and theatre like the Ghotala Rath to lampoon corrupt politicians; careful research to unearth government information to pinpoint negligence, fraud or corruption using the vehicle of Jan Sunwais (public hearings).

Less successfully the MKSS also branched into directly managing kirana (provisions) stores in villages as a competitive force to make local traders less rapacious and reduce their profit margins. While useful as a temporary local intervention to break a trader cartel in a small village market, this model proved difficult to scale up. The MKSS also dabbled in village-level elections to get some of its well-intentioned members, elected and collaborate with like-minded parties. But it is far from transmuting into a political party.

Aruna and the team

Aruna, 41 years of age in 1987, is 72 today, Shanker is 64 and “young” Nikhil is 55. During the last three decades of their struggle, the Right to Information has been embedded into the accountability structure of the State, bringing the much-needed transparency. But making the State accountable to the people, in real time, is a broader unfinished task — top-down accountability and bottom-up participation, both need deepening. The good news is that the indefatigable trio is upbeat about conquering this frontier too.

This book is a must read for cynics, who want their optimism restored; those eager to share the pain and the joy of activism; organisational behavior “experts” and budding activists looking for pathways to India’s development.

Adapted from the author’s book review in The Asian Age, April 22, 2019 http://www.asianage.com/books/220418/read-it-to-know-the-pain-and-joy-of-activism.html

What the cash crunch foretells

Parliament's winter session

Conspiracy theorists are hard at work to identify the drivers behind the ongoing cash crunch, that has left the automated teller machines (ATMs) in cities and towns across large parts of the country dry. There is much finger pointing between the Reserve Bank of India and the commercial banks, both private and public sector, each accusing the other of being responsible for inefficient operations. It is unusual to see this level of discord, bordering on acrimony, between a regulator and the regulated entities.

Commercial banks bear the brunt of fuzzy policy objectives

The banks allege that the supply of high-value notes has dried up. The Bank Employees Union alleges that a shortage of imported printing ink at the currency press in Nashik could be one reason. Alternatively, this could be a covert attempt by the government to correct a problem dating back to the November 2016 demonetisation — the incomprehensible introduction of a Rs 2,000 note to replace the Rs 1,000 note as a measure to reduce black money. Phasing out the offensive new high-denomination note and stepping up the printing of new Rs 500 and Rs 200 notes instead is a more obvious and welcome blow against black money. The Ministry of Finance says Rs 70,000 crores worth of such “Hi-Value” notes can be printed in just one month. The value of such notes in circulation on March 31, 2017 (the last public data available) was Rs 7.5 Lakh Crore or ten times the value of such notes printable in just one month. So why a shortge ?

RBI waffles with poor communication

The Reserve Bank, unconvincingly, denies that there is any cash crunch and alleges the inefficiency of banks in properly allocating the available cash. Could this be a surgical strike by the banks and ATM service providers who have got unsettled by the criminal investigations into fraud or are upset with the March 2018 decision of the RBI to end the incentives for installing cash recyclers and ATMs for low-value notes? Was it their intention to embarrass the government by engineering a cash crunch to coincide with Prime Minister Narendra Modi’s visits to Sweden and the UK for the Commonwealth Summit? Possible, but far-fetched.

Cash remains king

cash is king

The most plausible reason is that the economy is reverting to its pre-demonetisation levels of cash held by the public of around 12 percent of GDP versus the hugely constrained post-demonetisation level of 9 percent of GDP in end of March 2017. Expectations were exaggerated on two counts. First, that the black economy would permanently be reduced. Second that digital and banked transactions could become uepreferred options. The second has indeed proved true. The use of cash by those who declare their incomes to tax, or even those below the tax levels, has reduced significantly.

But the big stick and carrots embedded in the Goods and Services Tax to incentivise the switch to banked transactions are not widely experienced yet. Systems and reporting compliance are clunky and curiously disadvantage the small, honest entrepreneur. Other small businesses may be unviable with a tax load.

RBI – bitten by the bug to ration currency, & create the “statistical” basis for “digital victory” 

Anecdotal evidence of how cash transactions are done show that post demonetisation, Rs 2000 has replaced the earlier Rs 1000 note as the preferred stock of currency held by high value entities and individuals. Unfortunately, RBI has squeezed the printing of this note. Prior to demonetisation, for every Rs 1000 note available, there were three Rs 500 and three Rs 100 notes. Post demonetisation, for every Rs 2000 note available, there are eight Rs 100 notes but just two Rs 500 notes available. RBI has curiously enlarged the relative supply of the highest value note (which is used mostly for individual stock of currency)  at the expense of having more transaction related currency in Rs 500 notes- possibly hoping that transactions would move to digital rather than remain in cash post demonetisation.

More importantly, not only has the overall quantum of currency, relative to GDP decreased, but even the share of Rs 500 and Rs 2000 notes, by value, in the total stock of currency has decreased, from 86 percent pre-domentisation to 73 percent in end March 2017 – possibly in expectation of individuals banking surplus stocks of money.

The ground reality is that the cash-based supply chain of goods and services is a subset of the demand for cash contributions, related to electoral politics. Highly contested elections are scheduled for mid-May in Karnataka and later this year in several other states. Cash resources will be needed to buy SUVs, print advertisements and motivate the lethargic population to vote.

Election Commission hesitates to adopt T.N. Seshan’s (ex-Chief Election Commissioner 1990-1996) muscular credo on mandate

ECI

Oddly, there is not a peep out of the Election Commission of India (ECI), which is charged with the responsibility of ensuring that election spending remains within the implausibly tight limit of Rs 20 to Rs 28 lakhs per candidate for Assembly elections. The EC has adopted an “end of the pipe” strategy. The intention is to catch the crooks once they show their hands via excess expenditure. A more proactive EC could have recognised the red flags of unusually high cash withdrawals unearthed by the media. It could have directed the Karnataka government to report on the ensuing potential for subversion of the code of conduct and the measures being taken to heighten border vigilance, to clamp down on cross-border transfers of cash. One can imagine former chief election commissioner T.N. Seshan diving through this open door for enhancing the regulatory ambit of the ECI. But today’s election commissioners appear to be content, at least overtly, with a narrower definition of their mandate, strictly as per the law.

RBI – a regulator at odds with its “caged parrot” status 

To speak the truth, the glory days of Indian regulatory institutions are over. Even the RBI, the first to be legislated into existence in 1934, is going through strained times. Demonetisation had spread the apprehension that the RBI was led by the nose from North Block in New Delhi. The extent of wilful defaults in the bad loans of public sector banks, often the consequence of ever-greening of impaired assets and plain fraud, also points a finger at the RBI for exercising inadequate oversight.

RBI governor Urjit Patel had appealed to the government through a public address on March 16 to bring public sector banks into a uniform regulatory arrangement as applicable to private banks. Domestic and international professionals support the broad thrust of a uniform regulatory arrangement for all banks. But the subsequent expose of the yawning deviations in ICICI Bank and Axis Bank from gold-standard board governance have cut the ground from under the governor’s feet.

Public credibility of commercial banks at its nadir

Mutual funds are upbeat about the prospects for equity investment in private banks. But the average person is inclined to quietly diversify away from private banks to the safe haven of public sector banks. Private insurance and healthcare are similarly perceived as being exploitative of the average consumer. It does not help that the Financial Resolution and Deposit Insurance Bill 2017 was worded so ambivalently that it fanned a deep seeded fear of savings deposits being sequestered as equity for resolving bankruptcy. Finance minister Arun Jaitley has been at pains to assure people that deposits up to Rs 1 lakh per account will remain guaranteed. But ministerial assurances provide very little comfort when elections are around the corner.

A common thread across this turbulence is uneven support from the government for beleaguered institutions and the absence of informed participation, quite unlike in the GST Council. RBI governor Patel bravely sat out the storm around the hasty implementation of the questionable policy option of demonetisation. But the Pandora’s box of crony capitalism has taken its toll. These are challenging times. Deeper bench strength, within the government, of trusted fiscal and financial expertise would help.

Adapted from the authors opinion piece in The Asian Age, April 21, 2018 http://www.asianage.com/opinion/columnists/210418/what-the-cash-crunch-foretells.html

Junk policy for action

parliament

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).

tatasteel

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 

ASEAN

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 http://www.business-standard.com/article/opinion/junk-sector-as-an-instrument-of-development-118022500673_1.html

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.

chinese-electric-cars

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 https://blogs.timesofindia.indiatimes.com/opinion-india/bjp-self-goals-rub-off-the-shine/

The two conundrums of the Modi government

DOKLAM

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

criminals

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

metro2

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 http://www.asianage.com/opinion/columnists/281217/protect-rights-of-all-or-itll-be-drag-on-growth.html

BJPs half-win in Gujarat

gujarat-elections

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

gujarat-photostory-Hardik

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.

fort

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  https://blogs.timesofindia.indiatimes.com/opinion-india/bjps-half-win-in-gujarat/

Saintliness versus efficiency

BJP winner

The BJP can put India on auto-pilot over the next eighteen months and probably still win the next general election, principally because, things are going well and the combined opposition has still to acquire the characteristics – leadership, resolve and broad agreements – of credibility. This high probability of winning in 2019 should push the BJP to evolve strategies, rather than tactics, particularly for the economy.

The key decision – morality or results

The key decision is to choose between prioritising morality or efficiency. The former entails more public delivery, the latter more private enterprise. Going down the moral route, say “zero tolerance” for corruption, has severe consequences – continued economic dislocation over the next two years; losing out on economic growth and inhibiting the availability of jobs. In a largely informal, cash based economy, like India, putting anti-corruption first, requires the private sector to reorganise, become more efficient and profitable, other than, by just avoiding tax. Whilst this adjustment plays out, the state – despite it being more inefficient than private enterprise – would need to step in with an enhanced role. The moral choice puts us on the long route to efficiency, which could last, well into the second term of the government starting 2019.

Corruption has its uses

The “amoral” choice is to junk the fundamentalist approach to anti-corruption, fix one’s eyes on the objective of high growth and navigate the waters by feeling the stones underfoot, to avoid deep pools, where corruption and inefficiency, overlap the most. Some examples of such action are – sticking to a reasonable “real” interest rate rather than go for an artificially “low” interest rate. The latter may enhance investment. But it comes at the cost of possible future stressed assets via “gold plated” bank-financed projects. Similarly, choosing Direct Benefit Transfers rather than the physical provision of subsidised public goods of indifferent quality is another example, which reduces corruption and enhances efficiency. But, in many other cases, the choice is not so obvious.

Corruption can be functionally efficient. Consider the case of information asymmetries – shorn of jargon, this simply means that it is not easy to know how or why government acts in a certain manner – whilst awarding contracts; appointing employees or allowing its assets – like land, to be misused.

Democratising access to information

If I bribe an official to understand the politics around a pending economic decision, corruption ends up “democratising information”, which is what a perfectly “transparent” system would achieve in Norway or Sweden. Consider, that prisoners in Indian jails bribe guards, merely to get minimum sanitary and nutrition conditions. Turning a blind eye to such “corruption” is “amorally pragmatic” till prisons become more acceptably habitable. After all, prison is meant to reform not penalise prisoners through health hazards. Petty corruption is the common persons way of dealing with administrative inefficiency.

Morality tends to exclude private enterprise

So, why does morality and a “big” state go together? Consider a government, which is stuck with a poorly motivated; inadequately qualified and shoddily managed workforce. Suppose it chooses to bypass public inefficiency by outsourcing public service delivery to the private sector. How will they oversee the private provider? Poor drafting of agreements and enforcement of contractual obligations generates corruption or delays execution. This is what took the fizz out of the juggernaut of Public Private Partnerships. Why for instance, did Mr. Piyush Goyal, the minister of railways decide to call in the Army to repair the collapsed pedestrian over-bridge at Elphinstone Station, Mumbai? Could it be that, contracting private parties, on an emergency basis, inevitably has lags and creates opportunities for corruption? We saw a lot of this in the run-up to the Commonwealth Games, New Delhi in 2010.

Preferring to work in-house is the obvious safe, default option for an executive which is capable and willing to work 24X7. The downside is that extensive use of state enterprises crowds out the private sector, which is hard put to better the riskless cost of finance available to the public sector. If publicly managed service delivery is sustainable, there is no harm in that. But not every public leader is an efficient “saint” and public systems, set-up by them, revert quickly to the mean, once the leadership changes.

How many Saints do we have?

Saintliness, humility and frugality make great copy and attract votes. The problem lies in scaling up a system based on virtue and otherworldliness. It is not for nothing that the competitive spirit -so important for sustainable efficiency- springs from the basic “killer” instinct to be numero uno. Saintliness is also rigid in adapting to the world. Effectiveness – getting results on the ground,  requires flexibility in implementation.

“Jhooming” can’t generate shared growth

closed market

A tax system with high nominal tax rates, which is efficiently oppressive can reduce supply because producers and service providers will shut shop, rather than risk getting their personal assets forclosed. This is worse than a tax system, which is not completely evasion proof but encourages growth in value addition. Black money, in progressively, smaller doses over time is better than a clean but scorched economy. Unlike in nature, “jhooming” may not generate shared growth.

Also available at TOI Blogs November 15, 2017 https://blogs.timesofindia.indiatimes.com/opinion-india/saintliness-versus-efficiency/

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