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Electric subsidy – Haryana’s burden of riches

Khattar

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

Cross-subsidy will increase

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

Fiscal red flags may be raised

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

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

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

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

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

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

Trump Village unveiled in Haryana

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

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

Has HERC lost credibility?

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

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

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

amrinder khattar

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

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

Negative messaging on reform

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

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

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

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

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BJP, Budget, bureaucracy, Democracy, Economy, elections, Energy, India, Judiciary and Law, poverty, Public Institutions

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Jaitley returns as FM

Jaitley returns

Arun Jaitley has returned to take charge as finance minister well before those who care for him would have advised. So what was the haste all about?

The uncharitable view would be that power abhors a vacuum. Politicians and film stars — no wonder the two often overlap — are most vulnerable to the prolonged loss of public face-time. What is most likely, though, is that he returned to his North Block corner office in order to cement his legacy as finance minister through the last and interim budget for 2019-20 of this government.

Chidambaram’s challenge to Jaitley

Chidambram 20142015 interim budget

This is a courageous move, very similar to his taking up Palaniappan Chidambaram’s implicit challenge in his interim and last budget in 2014-15 — a fiscal deficit target of 4.1 per cent of GDP — steeply reduced from 4.6 per cent in the previous year.

Mr Jaitley manfully accepted this unreal target and achieved it, noting in his budget speech: “One fails only when one stops trying”.

Fiscal stability has improved over Mr Jaitley’s tenure. The ambitious target for the current year is 3.3 per cent of GDP. Achieving this is crucially dependent on reduction in subsidies from two per cent of GDP in 2014-15 to 1.4 per cent this year, and a 0.6 per cent of GDP increase in tax collection (7.3 per cent in 2014-15 to 7.9 per cent in 2018-19).

The pressures for fiscal expansion come from the urgency to recapitalise publicly-owned banks; financing infrastructure via public funds in the absence of any appetite for India risk among foreign developers; the narrow base of unimpaired domestic infra developers and finally the compulsions of electoral politics.

Will Jaitley go for an endgame of Fiscal Deficit at 3 % of GDP

Other than achieving this year’s stretch fiscal deficit target, the finance minister needs to ponder on the target for 2018-19. Will he play the “Chidambaram card” and fix it at 3 per cent of GDP? Mr Chidambaram was pretty sure that he would not have to live within his interim budget. The jury is out on whether Mr Jaitley could reasonably assume a similar privilege. But reducing the fiscal deficit by a full percentage point of GDP below what he inherited would be in line with Mr Jaitley’s flair for challenges.

Chasing the UPA I go-go years of high growth

On growth — a sensitive issue for the BJP — Mr Jaitley has thrown a googly. He claimed recently that in trying to copy UPA-1 and chase high growth, both the banks and industry were destabilised through reckless lending and investment. This is a wise move.

It is unlikely that the growth record of UPA-1 (FY 2004-09) at an annual average of eight per cent plus would be achievable till after 2022. The IMF (August 2018 report) expects GDP growth to pick up over the next two years to 7.7 per cent. The “twin balance sheet problem” is likely to take three to five years to resolve, considering that “legal blustering” is a time-honoured mechanism for delaying a decision.

Public Sector Bank accountability and governance reform is key 

The Reserve Bank of India’s Financial Stability Report of June 2018 estimates that Gross Non-Performing Assets will worsen from 11.6 per cent in March 2018 to 12.2 per cent by March 2019. For the 11 worst-performing publicly-owned banks, the GNPAs will worsen from 21 per cent in March 2018 to 22.3 per cent by March 2019. For the six publicly-owned banks which the RBI has barred from fresh lending, the weighted average capital adequacy ratio will fall below the minimum required of nine per cent of loans.

The government has allocated Rs 2.1 trillion for bank recapitalisation, partly by increasing its own borrowings by 0.8 per cent of GDP. Additional borrowing of 0.5 per cent of GDP will be needed in the next fiscal year. Alternative schemes are being implemented like LIC, a publicly-owned insurance company, buying up the bankrupt IDBI Bank and infusing an additional Rs. 90 billion into it. This is mere fire-fighting. Unless bank lending and corporate governance become more market-friendly and transparent, investment levels will hover around the 30 per cent of GDP level — not enough for eight-plus per cent growth.

8 percent plus plus growth needs massive restructuring

Mr Jaitley’s is a nuanced claim. It implies that the growth during UPA-1 was not sustainable. The associated structural reforms to make the banks autonomous of government control; effective oversight of bank lending by the RBI and seeding economic liberalisation into field-level government regulations — labour laws, freedom from “inspector raj”, land regulation and transparent natural resources allocation, were all kicked down the road for successive governments — including the BJP, to manage.

Self goals are expensive

It is good optics to claim the present is hamstrung by the past misdeeds of others. But the BJP also scored some self-goals, most specifically demonetisation and the less than meticulously-planned implementation of Goods and Services Tax (GST)

Demonetisation was effective but cynical politics, which did not pass the “raj dharma” smell test. The GST snafu can be ascribed to the lack of expert skills or a tactical decision to trade off technical rigour against speed of implementation — a perfectly sensible trade-off in India’s fractious democracy.

India’s achilles heel- Twin deficit

India has a long history of carrying a twin deficit. The Fiscal Deficit, because government spends more than it earns annually and borrows, like the rest of us, who borrow to invest. But unlike most of us, it also borrows to fund consumption because we also run a Revenue Deficit. It is “effectively” small  at 0.7 per cent of GDP but typically we should run a revenue surplus to finance at least 20 per cent of our investment.

Our external account (net inflow and outflow of foreign exchange) is in a deficit. We have a Trade Deficit – imports exceed the export of goods and services.  60 per cent of the Trade Deficit is met from the surplus – ie. net inflow of expatriate remittances and foreign income versus outflow of interest on external debt.

What remains uncovered is the Current Account Deficit (CAD). This is met by net inflows of capital – FDI, portfolio investment and loans. The CAD is expected to increase from 1.9 per cent of GDP last year to 2.6 per cent of GDP this year, primarily because of the higher cost of oil imports. But India’s external debt is a moderate 20 per cent of GDP – of this short term external debt is just 9 per  cent, so both refinancing and debt servicing risks are manageable. And the fears of attracting American sanctions by buying oil from Iran have also receded.

The Indian Rupee is freed from its misplaced burden of being an icon of “National Strength”

A gradual rationalisation of the rupee exchange rate since January 2018 have made exports competitive and provide the required protection for domestic production from predatory imports feeding on an overvalued Rupee. The Reserve Bank of India, with its mandate for managing inflation, has kept domestic base interest rates competitive in tandem with trends in “safe havens” to manage the flight of foreign capital. The IMF estimates that the net inflows of foreign investment and portfolio capital increased from $28 billion in 2014-15 to $48 billion last year and anticipate $70 billion this year.

 

Burning his fingers once, while explicitly chasing growth, should not convert the finance minister into a growth wallflower. Rapid economic growth remains fundamental for equity. The trick is to use the lens of sustainable equity while laying our economic foundations. Growth will follow.

Adapted from the authors Opinion Piece in The Asian Age, August 30, 2018 http://www.asianage.com/opinion/columnists/300818/jaitley-returns-as-fm-to-cement-his-legacy.html

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Budget, Business, Economy, India, Public Institutions, Trade

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Secrecy, privacy and property rights

access denied

Rahul Gandhi alleged, during last week’s doomed-from the-start no-confidence motion in Parliament, that corruption in the 2016 agreement signed by the Narendra Modi government to purchase 36 Rafale fighter jets from France had forced defence minister Nirmala Sitharaman to backtrack from her assurance to disclose details of the price of purchase.

Parliamentary subterfuge – unnecessary, if there is nothing to hide

The matter could have been ended by Ms Sitharaman admitting that being new, she had overlooked the confidentiality clause – a plausible explanation since military purchases are a tough, black box to unravel. Instead, the government chose to hit back by pinning the blame on a 2008 bilateral security agreement signed by the then UPA government with France. This needed both parties to protect classified information which could compromise the security and operational capability of the defence equipment of either.

It is quite a stretch to argue that keeping the price paid a secret meets the test of “necessity” or “proportionality” which guide how much a citizen’s right to know can be restricted. The Chinese or the Pakistanis couldn’t care less what the Indian taxpayer shelled out for the fighter jets.

They likely already know the specifications of our purchases. But at the same time corruption cannot be lightly presumed to be the reason why Ms Sithraman backtracked. Expect this unresolved debate to hang like an ominous cloud as the counter to the BJP’s allegations of corruption during the previous UPA government.

The underside of unrestrained privacy

Privacy is to individuals what secrecy is to the State.  The debate on privacy got muddied by the recent arraignment of WhatsApp for being the conduit of fake news, which incited vigilante violence and hate crimes.

WhatsApp encrypts content in its pipes end-to-end like no one else. Complete secrecy attracts 1.5 billion active monthly users and 60 million messages per day. Its end-to-end encryption cannot even be decrypted by its own administrators. This rabid commitment to secure the privacy of its users doesn’t align with the extant law and is as over-the-top as is our government’s thirst for secrecy. The fundamental right to privacy is restricted by other fundamental rights, including public order, security and those embedded in Article 21 of the Constitution of India, to which privacy was also mapped by the Supreme Court in 2017.

A fundamentalist view on the right to privacy has spawned “dark”, impenetrable means of communication, like WhatsApp. This is a precursor of what could happen if the “dark web” becomes the norm. Similarly, if crypto currencies are allowed to subvert a sovereign’s power to issue currency and bury crime-related financial transactions underground, catastrophe beckons.

WhatsApp managers initially expressed technological helplessness to regulate the unsavoury use of its technology. They are now making conciliatory noises with an eye to their bottomline. Non-compliance could jeopardise their application for adding-on a payments app in India.

Psst! I have a secret

Secrets

Why has WhatsApp been allowed to linger on and not simply told to shut shop, as is China. The bottom-up view is that encrypted communication has wide appeal across political parties and individuals. We all have secrets.

WhatsApp democratises the power to have secrets, unlike the Official Secrets Act 1923, which locates this power only within the State. WhatsApp allows everyone to have secrets. This suits freewheeling democratic India.The last word on the privacy of digital data will be from the Justice B.N. Srikrishna Committee on data protection. This committee, appointed in August 2017, has worked in unprecedented grand isolation. Presumably, things have been decided behind closed doors and the collective wisdom will be revealed in due course.

TRAI recommendations on data privacy and security mundane, at best 

But in chaotic India, surprises are routine. Days before the report was to be submitted, the Telecom Regulatory Authority of India (Trai) published, on July 16, 2018, its recommendations on privacy, security and ownership of data. The TRAI recommendations are unlikely to make the committee pause and think again. It is already broadly agreed that the individual’s ownership of data is paramount. But both the fundamental right to privacy and the right to property over data are restricted. If the necessary safeguards exist to mask sensitive and personal information, the plea of privacy loses force for denying access to data, at least to the State.

Artificial intelligence requires masses of data to train machines to think and behave better than humans. Anonymised data aggregated across a large number of individuals is more valuable than oil, in order to understand and predict contextual human behaviour.

Who is “Free riding” on data?

The debate on free riding on data has focused on how aggregators free ride on individuals data. However, if an aggregator “pays” explicitly for using individual data, ownership over data should stand transferred to the aggregator. Consider that in touristy locations across the world, locals demand a fee to be photographed. Such contracts, for non-anonymised data, with adequate safeguards, should be encouraged not pushed underground.

With respect to strictly anonymised data the right to deny or withdraw access to, despite adequate masking safeguards, can be viewed as anti-development and also at a stretch anti-national. At the very least, denying or withdrawing access to anonymised data should attract a cost to be paid, since it amounts to “free riding” on the technological benefits gained by others providing their anonymised data.

TRAI has passed up an opportunity to assert that the ownership of anonymised aggregate data should vest with the entity doing the aggregation if a specific contract exists with the data generator (app user). This needs to be clarified to retain the value proposition in data aggregation.

A market for anonymised data

Conversely, TRAI has ignored the need for a market to price data. A market exists even today. But it is an informal and non-transparent market which hurts the commercial interests of the individual data owner and puts the controller or processor of data in the driver’s seat. This information asymmetry can be removed through innovative institutional development to ensure that individuals are not shortchanged and have to sell their data cheap – much like innocent tribals selling their land for peanuts. If data is the new oil, it must priced accordingly.

Restore property as a fundamental right 

demolition

We have grossly neglected property rights in general and specifically in the context of  data management. Civil society mostly focuses on safeguarding the privacy aspect of data management. There is a reason for this. Unlike privacy, the right to property stopped being a fundamental right in India in 1978. This makes it difficult to challenge laws infringing on property rights.

Conversely, the higher judiciary has been indulgent in admitting public interest litigation  (writs) challenging laws threatening fundamental rights generally, so privacy gets privileged legally over property. Privacy rights also align with the need to decriminalise gay sex. It is an emotive issue. In comparison, a right to property seems almost crass, where 60 per cent of people own no land or electric consumer durables; 40 per cent of households live in just one room and can fit their possessions into a gunny sack.

But make no mistake. Socialism erred in hiving-off the right to property from human rights. Property is intrinsic to the right to privacy and liberty. But we will have to keep arguing till we fix this error, eventually.

Adapted from the author’s opinion piece in The Asian Age, July 24, 2017 http://www.asianage.com/opinion/oped/230718/whatsapp-row-on-secrecy-privacy-property.html

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India, Judiciary and Law, Law and regulation, Public Institutions, RTI Act, technology

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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

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corruption, Democracy, Economy, elections, Environment, India, jobs, Law and regulation, politics, poverty, Public Institutions, RTI Act, Secularism, social protection

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Getting nationalism right

nationalism

If the term nationalism and the sight of the national flag generates a warm, comforting feeling in your heart, your government is doing a great job. If, however, this term and the flag, leaves you cold, clammy and resentful, there is something the government is not doing right.

Nationalism – an abstract construct – acquires a real dimension on rare occasions, like when you need visas to travel; or if you lose your passport whilst abroad; deciding whom to root for in international cricket; when a hate crime is reported against an Indian citizen; when P.V. Sindhu shines in badminton; when a stranger turns to you for help with her mobile, assuming all Indians are techies or when a cortege trundles, past draped with the national flag.

In comparison, ethnic, religious, professional, social or economic ties are more immediate and experienced daily. Should it be otherwise?

Nationalism versus globalization

Till recently, nationalism was a waning concept, marginalized by the increasingly interconnectedness of the world. The two decades post 1990, saw the world became unipolar; international trade boomed; the threat of wars receded – except in a few fragile regions. Poets dreamed, and the world seemed united, in solving the collective action problem of global warming.

Nationalism, it appeared, had bowed down to globalization and become just a set of civic duties and rights for citizens – a sub-set of broader rules governing the entire planet. High border walls, to keep citizen from escaping abroad or stopping those wanting to get in, became an aberration. Foreigners eager to become citizens became a metric of a country’s success and in the United States, the reason for it.

India appeared well placed to walk the talk. Our constitution is an enabler to pursue globalization. Our history places us at an advantage. We are no strangers to foreigners settling permanently in India. Foreigners ruled India for seven hundred years prior to 1947 and were assimilated into the mainstream. India did not come ready-made in 1947. It has been built, since then, using a mix of persuasion, pressure and perquisites. Parts of the North East, which had remained restive, have now joined the national mainstream, driven by the pervasive influence of Bollywood, domestic economic migration and adaptive political alignments. The valley of Kashmir however remains an outlier.

Drivers for sustained nationalism

The best glue for national integration is the perception that every citizen and every region is getting more from the nation than they are giving back. A positive balance, for every individual and every region is possible because in economics one plus one is more than two. Collective decisions create opportunities for adding net value, which do not exist if individuals were to decide separately. Managing climate change – a negative externality – and the beneficial scale effect from integrated markets – a positive externality – are both examples of the benefits from collective action.

Nations with complementarities should stick together. Sadly, they often don’t because of political noise or perceptions of inequity. Consider that our trade with South Asia is abysmally low. Imports are less than 1 percent and exports 7 percent of our total imports/exports. But India is not alone in such errant political behavior. Brexit happened because Britons felt, or were made to believe, they were giving more to the European Union than they were getting from it.

Inequity and discrimination – a leading cause for nations breaking up

bangladesh

Nations can splinter if systematic inequity persists and not enough is done to address the problem proactively. The creation of Bangladesh in 1971 is one such example. Pakistan managed its province of East Pakistan (previously part of Bengal) on an extractive basis, like the colonial masters prior to independence in 1947. It did not help that the new colonial masters were heavy handed, often brutally repressive fellow Muslims from Pakistan who ignored the deep Bengali cultural roots of the region. A perception of inequity fed on the fact of cultural differences and significant economic disparity between the two regions.

In comparison, India has been better at managing actual and perceived inequity at the regional or provincial level. Quotas for recruitment of tribes into the civil services have benefited the North East areas. Special benefits built into the scheme for devolution of central grants and share in union taxes, make additional resources available in tribal areas for infrastructure development. Caste, in Hindu majority India, is a significant driver of inequity. But quotas in government jobs and special schemes for livelihoods for the lowest and mid-level backward castes have levelled the field somewhat.

Embedding liberal, democratic principles in nationalism is tough

MK Stalin 2

Democracy breeds contestation. Tamil Nadu is the economic and cultural powerhouse of South India.Tamil, claims to be older than even Sanskrit,  With firebrand DMK leader, M. K. Stalin annointed to succeed strongman M. Karunanidhi; intense infighting in the ADMK after Amma and film star Rajnikanth exploring political waters, expect populism and rhetoric to prevail. A favourite ploy is to play victim and seek special status for a pan-Dravidar region, comprising the six southern states (including Puducherry). The cone of south Indian states comprises 21 percent of the population with an outsized share of 29 percent in national GDP and higher than average social indicators. Industrialized southern states benefit from access to the markets of the less industrialized northern, central and eastern India. The underdeveloped hinterland is a source for cheap, unskilled, migrant labour and a market to absorb skilled southern migrant workers.

Liberal Democracy is under stress internationally. Nationalism, conflated with authoritarian, even whimsical rule from the top, is on the ascendant. President Trump’s America First is the most distressing example, because it is a betrayal of existing international compacts. Russia, under President Putin remains whimsically self-centered. China, backed by recent economic success and the ascendancy of “Emperor” Xi, represents the most troublingly compelling, muscularly proselytizing, alternative to the liberal, democratic model of nationalism.

Partnerships, across nations, can secure the liberal, democratic order

In this dystopic, political landscape, ageing Europe and Japan emerge as beacons of liberal democracy.  Partnerships with them and select countries in Sub Saharan Africa and the Asia-Pacific can provide demographic and market dividends whilst fostering our common political and civic values, rooted in the Magna Carta.

Also available at TOI blogs March 30, 2018 https://blogs.timesofindia.indiatimes.com/opinion-india/getting-nationalism-right/

 

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Democracy, India, politics, Public Institutions, social liberals

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India’s 50-50 reforms

half reforms

Unlike politicians, who can choose their targets, business leaders have to dance to the tune of  shareholders, who buy or sell, based on the existing or the future bottom line. In politics. it is relatively easy to change the goal posts or indeed, shift the goal itself.

Changing goals

In India, the current metric for political performance, is jobs. Self -selected by the Bharatiya Janata Party, this may become a self-goal because even globally, there are few, near-term solutions.Prior to jobs, in the noughties, it was all about boosting economic growth — where again headwinds have built up. Before growth, it was about ending poverty in the 1990s. Earlier, in the late 1960s and till the mid-1970s, it was about boosting agriculture, becoming self-sufficient in food and avoiding famines. Even further back in the 1950s, heavy industrialisation and infrastructure were the mantra. Of course all these are part of development. But sequencing matters. Also, pancaking more reform targets on the existing ones, confuses even the reformers.

Partial success abounds, but excellence less visible

Seventy years on, we are only narrowly competitive in manufacturing; our infrastructure is vast but shoddy; agriculture has low productivity levels; 40 per cent of us are either poor or are vulnerable to poverty; we are still stretching for sustained real growth in high single digits; unemployment is rife and the participation rate in the workforce is a low 44 to 48 per cent, with women faring worse than men.

This is not to trash what we have achieved. But it is useful to look beyond the efforts made by the successive governments, at the outcomes and ask the question, why are the results always worse than expected?

Elusive transformative change

Tribal protest

Transformative change is disruptive. We have been slow in embedding credible instruments to mitigate the cost of disruption. This increases the risk perception of change, leading to a public push-back on reforms. Consider how poorly we acquire land in public interest. The instruments for identifying, determining and managing the acquisition are loosely supervised, at the cost of ensuing inequity and poor transparency.  Massive amounts of mineral resources continue to lie buried in tribal areas, whilst tribes prefer to eke out a subsistence level traditional life, rather than participate in the process of development. The overriding fear of every property owner, or occupier, is of being gypped in the process of acquisition, by forces beyond their control. In a democracy we cannot ignore insulating people, especially the poor, from the cost of disruption.

Public trust and credibility in short supply

Managing change successfully, requires a governance system good at modern parenting rather than a patriarchal approach to directing and controlling people and events. Our governance systems still follow the colonial legacy of collaborating with entrenched elites to get things done, somehow. Those affected at the bottom become a hindrance rather than participants. There is very limited institutional appetite or capacity to deal directly, as a change agent, with those who are most affected by change. Even when specific processes, like consultation are provided for, the approach degenerates to ticking the box, rather than using the opportunity to gather feedback on the process, test assumptions and obtain buy-in for the way forward.

“Accountable discretion” is not an oxymoron

It does not help that there is a near ubiquitous ban on the transparent use of executive discretion — prompted by misuse of the privilege in the past and a judicial preference for impossibly rigid rules, regardless of their negative impact on implementation.Consider, for example, the burgeoning non-performing loans of banks. The rule bound approach to bank lending insures the lender- manager, if sufficient security against the loan existed, on paper, when the loan is approved. The focus is on achieving secured lending targets rather than adding economic value. This makes gold plating of projects, to increase the notional value of an asset, a mutually convenient tactic between the lender and the borrower, especially at times when the real lending rate is low. Never mind that it can adversely affect the project’s viability and thereby the repayment capacity of the borrower. The public sector no longer trusts its employees. But ending supervised, executive discretion has significant efficiency costs.

Chasing impossible scale 

We succumb easily, to the insidious temptation to effect instant change at sub-continental levels, rather than build change, bottom upwards, block by block. India is heterogenous without parallel. For us, the political model should be Europe, rather than China. Multi party politics in India requires sufficient elbow room for diverse political agendas. The political architecture may prescribe the objectives and principles of public management. But being flexible in program implementation is a must.

The Constitution fixed past challenges, but under-provides for the future

Our constitution reflects the challenges faced at the time of independence rather than today’s priorities. Integration fears at the time led to a centrist constitution. This is what enabled the Union government in 1959 to dismiss the first elected E M S Namboodiripad government of Kerala. The governor of a state, appointed by the President, acting on the advice of the Union government, is another centrist feature as are the emergency powers of the Union government.

Overlapping mandates

The capacity constraints existing at independence shaped the lop-sided division of mandates between the Union and the state governments, with the former unduly burdened. The sub-state or local government came into existence only through a 1993 constitutional amendment.Delhi is a good example of poor inter-governmental allocation of mandate resulting in a governance logjam. Overlapping mandates confuse citizens. and reduce accountability. Consider that Members of Parliament get elected by getting drains made and Members of Legislative Assemblies by promising higher prices for agricultural products or by proposing a separate flag for their state — all areas outside their mandates.

Poor arrangements for resource management

The constitutional scheme for recruitment and management of the bureaucracy is unduly complex and diffuses accountability. Officials must be “owned” by the level of government they serve. Fiscal resources, at every level of the government, must be aligned with form, which should fit the functions executed at that level.

Avoid the Banyan Tree 

banyan tree

The top-down, centrist approach has the disadvantage of an overblown apex crushing the little people below. Remember, nothing grows under the Banyan tree.Change, sensitive to mitigating the costs thereof, flexible implementation of norms driven from below, with primacy for real value addition can deliver 100 per cent results in reforms.

 

Adapted from the author’s opinion piece in the Business Standard, March 27, 2018 http://www.business-standard.com/article/opinion/india-s-half-baked-reforms-why-are-the-results-always-worse-than-expected-118032601102_1.html#

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Union taxes are scraping the bottom

old men

The introduction of a 10 per cent tax on capital gains (with effect from April 1, 2018), accruing from the sale of equity, after holding it for at least one year, has generated a great deal of angst. But it is unconscionable that stock market investors who have earned windfall gains of 30 per cent over the past year should mind paying three percentage points out of that windfall as tax.

The government has gone further and “grandfathered” from the tax all equity-related capital gains accruing till January 31 — the day prior to the Budget 2018-19 proposals being made public. The stock market slid by about six per cent thereafter. Future gains will depend upon better profitability in Indian corporates; the options for alternative risk-free returns in developed markets (US treasuries, for example, which are likely to have higher spreads) and growth in India.

Even wealthy Indians dislike taxes

The new long term capital gains tax is not onerous in the present context. But at the heart of the discontent with it, is a corrosive aversion to pay tax, even by the very wealthy. There are good reasons why we are habitual benders of the rule of law.

To find the reason for this national shame, look no further than our political leaders. The Election Commission turns a Nelson’s eye to the yawning gap between actual election expenditures and the income of parties on the books. The recently introduced Election Bonds are unlikely to bring about a transformative reform.

No crony capitalist wants to be identified while buying these bonds from designated banks. Privacy of information arrangements are easily breached, to ferret out who contributed how much to which party.

Demonetisation did throw up big data on the ownership of cash. But following up on suspected tax evaders is quite another matter. The options of bribing their way out or legally delaying a final decision reduces the incentive to respect the rule of law. We are then back to square one. During the demonetisation of November 2016, 99% of the cash came back into the banking system, because tax evaders innovated, on the fly, to escape the tax net.

No wonder then, that the tax revenue at the Central level is stuck at just below 12 per cent of GDP with an additional 10 per cent in the states and local governments.

scraping bottom

Growth need higher public spends

The conundrum is that higher growth needs higher public spends of around 6-8 per cent of GDP on infrastructure, health and education. India has underinvested in these for decades. The real problem is that tax revenues are difficult to increase with 40 per cent of the population being either poor or vulnerable to fall into poverty.

China innovated best-fit solutions to boost public revenues

China had the same problem. Their solution was to decentralise development decision-making within a broad party line of priorities. Local government and local party offices worked together to monetise government assets — principally land — for private development projects. The proceeds from such monetisation generated the resources to finance infrastructure and increase spending on health and education. Without a doubt, the dynamics of working with the private sector also lined the pockets of party and government officials. But both were held to account if there were failures in achieving development targets.

India too is turning away from template solutions

The good news is that India is changing. Prime Minister Narendra Modi has made chai vendors respectable. Our next Prime Minister may do the same for pakora sellers — much derided today by some, who look down their noses, at anything but formal sector jobs. But Shekhar Shah, director-general of NCAER, a New Delhi economics think tank, cautions that formalisation, China style, can be a double-edged sword.

Formalisation of work and rising inequality

Yes, formalisation does improve work conditions and facilitates production at scale. But formalisation is often linked to capital intensive production, which results in disproportionate benefits to those, with access to capital. Unless managed with great care formalisation takes away from rewarding livelihoods for people in the bottom 40 per cent with traditional or low-level skills. President Kagame of Rwanda — till recently a darling of donors, because of his rapid adoption and implementation of the “doing business” type of performance metrics — runs a spotlessly clean capital, Kigali, with neat markets. But this is at the expense of street vendors who were priced out by the prohibitive cost of a licence.

Innovations in public finance lacking

We need to innovate, to increase government revenue, without trying to copy China. The 15th Finance Commission could be crucial in tweaking the transfer of resources to states and local government in a way which incentivises them to generate more local revenues. That is where a significant contribution to aggregate government taxes can be made, as suggested by the Economic Survey 2018-19.

Every Rs 100 spent from the budget can leverage an equal amount from the private sector.

The mantra for government spending is simple. Big ticket public development spending (both revenue and capital) must generate at least a similar level of private investment as extra-budgetary resources. Funding the premia for providing health insurance to 100 million poor families is one such scheme which can change mindsets and provide the forums for productive collaborations between the Central and state governments and the private sector. There is enough fat hidden away in the 2018-19 Budget to fund the scheme.

The National Health Insurance scheme can lead by using insurance permia to establish private or not-for-profit hospitals  

A ready market already exists — in urban and peri-urban areas, covering around 40 million poor families, as private hospitals are accessible. With an annual premia amount of Rs 20,000 crores, a similar sum as private investment can be leveraged in new healthcare facilities. Insurance companies, which will enjoy the bonanza of publicly-funded premia, will need to work with the healthcare industry to enlarge access to hospital facilities in under-covered areas. Similar state-level health insurance schemes should be allowed to lapse. States should divert their funds instead, to primary care, nutrition and public health.

Government should pull out of being the interface with citizens for service provisioning 

The government must, in a sequenced manner, pull out of the business of direct provisioning of services, except in disaster situations. Central,  state and local governments must learn to use the power of public finance to leverage private capital and management. A big push for outsourcing public services might be the only way to fill the financing gap between aspirations and today’s sordid reality.

Adapted from the author’s opinion piece in Asian Age February 13, 2018 http://www.asianage.com/opinion/columnists/130218/innovate-outsource-to-fund-deliver-services.html

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Modi@Davos – Jawboning the future

Davos

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

famished

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

Frugal

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”

POTUS

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

sharing

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 http://www.asianage.com/opinion/oped/130118/modidavos-a-new-kind-of-challenge.html

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A “green” Diwali sans firecrackers

SupremeCourtPhotos(47)

Managing winter smog in the National Capital Region (NCR) has occupied the Supreme Court since 2015. Three interim orders — in November 2016, September 2017 and October 2017— each of which changes the status quo, imposing commercial costs, illustrate the limitations of the judicial approach while balancing commercial interests with public health concerns.

Joined at the hip

joined at the hip

Delhi and Sivakasi, 2,650 km away in Tamil Nadu, are symbiotically joined. Sivakasi produces three-fourths of India’s firecrackers. Delhi and its surrounding areas are the prime consumers. Consider that 40 per cent of 610 permanent licensees for selling firecrackers are located here. Delhi also licences 968 temporary fireworks retailers. The NCR’s stock of fireworks is estimated at 6,000 metric tons — enough to fill 600 trucks.

CPCB plays truant

The reason why a substantive decision on the sale of firecrackers remains elusive is that the Central Pollution Control Board (CPCB) has failed to define the permissible ingredients for firecrackers and their volumes thereof. Without a standard regulating manufacture, the task of optimising across public health concerns; preserving employment and nurturing business potential becomes, at best, an approximation with avoidable costs. Only blunt options like banning the sale of firecrackers present themselves. The actual public health benefit of such measures is uncertain. But irreparable harm to businesses and distress to workers is certain.

At the very beginning…

Back in November 2016, during the Diwali season, Delhi was enveloped in smog. CPCB air quality reports indicated that in 2015 and 2016, the level of pollution had spiked during and after Diwali. Pitampura, a densely populated area in Delhi, suffered an increase of pollution by four times in 2015 and more than 10 times in 2016. Dealing with an emergency, the Supreme Court suspended all licences for the sale of firecrackers in the NCR on November 11, 2016. It also directed the CPCB to submit, within three months, a comprehensive report on the air pollution impacts of bursting firecrackers. The implied strategy was clear. Take stern action in keeping with the magnitude of the crisis and incentivise manufacturers and sellers of fireworks to negotiate with the government for setting standards. Since Diwali was already over, the commercial dislocation caused by the order was minimal.

The CPCB has yet to submit the report due on January 11, 2017, on the air pollution impact. Meanwhile, prohibitions on using antimony, lithium, mercury, arsenic and lead compounds were imposed piecemeal by the Supreme Court on July 31, 2017 and on strontium chromate on September 13, 2017. The court is clearly working hard despite executive intransigence.

And more recently…

Gearing up for the festival season in 2017, the Sivakasi manufacturers and suppliers requested the Supreme Court on July 5, 2017 for a modification of the suspension of permanent licenses.

The Supreme Court recognised the harm being caused to 300,000 livelihoods, despite the absence of any proven link between the bursting of firecrackers and hazardous air pollution.

The National Green Tribunal has listed seven sources of air pollution in NCR. Firecrackers are not one of them. A January 2016 IIT Kanpur report had also not listed firecrackers as among the major sources of air pollution in Delhi.

On September 13, 2017, the Supreme Court allowed a partial lifting of the suspended licences, to enable the accumulated stock of fireworks to be sold in NCR or to be transferred out. To avoid any reoccurrence of a fait accompli, it directed no more fireworks should be transported into the NCR. More significantly, it directed that the number of temporary licences in NCR be halved in 2017, and both permanent and temporary licences further halved in 2018. Taking a cue from the 1999 experience in defining noise pollution standards for firecrackers, it constituted a multi-stakeholder, technical committee chaired by the CPCB to report on the impact of bursting firecrackers on air quality. By all accounts this was a fair and forward-looking order mitigating the commercial harm caused by regulatory uncertainty while seeking to reduce the public health impact.

The puzzling about turn

Inexplicably, on October 9, a three-judge Supreme Court bench put the September 2017 order in abeyance till November 1. The intention was clearly to postpone the restitution of sale till after Diwali, thereby nullifying the positive commercial benefits. The court invoked the “precautionary principle” in the public interest. This principle advocates abundant caution if the potential for irreparable harm exists. Thereby, the significant, negative commercial impact of the order simply became inevitable collateral damage.

Regulating better is possible

Could the regulatory process have been managed better? First, it goes without saying, that this is yet another instance of the government purposefully abdicating politically sensitive, inconvenient regulatory ground. Commercial uncertainty and public health costs are bound to escalate when this happens.

Strong action effective only if sustained

CJI Thakur2

Second, could the Supreme Court have been more consistent? Yes, it could have limited its initial intervention in 2016 to simply nudge the executive to introduce safe manufacturing standards, including by using back channels for the purpose. Possibly, its strained relationship with the government during this period, over the judicial appointments issues, may have constrained it from using this practical tactic to resolve the problem.

Optionally, the court could have issued a nuanced order, suspending temporary licenses in NCR to restrict retail sale; allowing permanent licenses to continue, but at a progressively decreasing scale and directing the executive to limit the bursting of firecrackers to collective displays at pre-designated sites. This would have reduced the quantum of firecrackers burst; minimised the commercial harm and preserved the incentive for firecracker manufacturers to actively pursue formulation of safe manufacturing standards. Despite the storm in the social media decrying the  encroachment of Hindu religious rights by limiting firecrackers, the public is in favour of clean air and a cleaner India.

Green “bangers” anyone? 

bamboo

Finally, the court could have explored the manufacture of “green” firecrackers. Before gunpowder was invented in the 10th century, the Chinese made them by heating bamboo. Northeast India is resplendent with bamboo, just waiting to be used. China might also be happy to modernise this sustainable technology and commercialise it under the Make in India initiative. Green “bangers” can preserve the thrill of Diwali, only minus the smog.

Adapted from the authors article in The Asian Age October 12, 2017 http://www.asianage.com/opinion/columnists/121017/costly-flip-flops-over-ban-on-firecrackers.html

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Economy, India, jobs, Public Institutions

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Will NITI get it’s hands dirty?

Rajiv-Kumar-NITI

Rajiv Kumar, the new vice-chairman of the Niti Aayog, has made development of an organic, Bharatiya model of development as his mission. He is likely to encounter three problems in this endeavour.

A new, local model of development is doomed from the start in a globalised world 

farmer 2

First, in a post-ideology world, marked by rapid technological transformations, economic models become outdated even before they can be tested. In these uncertain times, feeling the rocky river bed with one’s feet carefully, while crossing turbulent economic and social currents, seems the wisest option.

Second, isn’t this what Bharat has always done. We have been obsessive about the “uniqueness” of India, which seemingly requires all international experience to be adapted for use locally. This is not necessarily a bad thing, though it has its downsides.

Scaling up rapidly more important than localisation

school lunch

Consider that in the five decades after Independence we have stuck, like leeches, to the Nehruvian development model of ersatz socialism based on a massive industrial public sector accompanied by the outrageous neglect of agriculture, private enterprise or international quality education and health facilities. This, when most other emerging countries, in East Asia, Southeast Asia and Latin America, switched over to a modified Anglo-Saxon, neo-liberal strategy from the 1970s and reaped the benefits of rapid growth.

To be sure, even after 1991, the reform model we followed was Bharatiya. Its core ingredients were incremental rather than big-bang reform — a strategy Russia followed with disastrous results — and careful sequencing of sector reform to minimise the pain from reforms.

It is unclear, however, whether Bharatiya incrementalism helped the poor. Chancel and Picketty (July 2017) estimate that over the period 1980 to 2014 the share of growth accruing to the bottom 50 per cent of adults was 11 per cent in India; 13 per cent in China and only one per cent in the United States. Meanwhile, the top one per cent of adults garnered 29 per cent of the growth in India. China did better by containing the share of this segment at 15 per cent, while the US did worse at 34 per cent. More worryingly, the next nine per cent of adults, from the top, garnered 37 per cent of growth in India, significantly more than in China (29 per cent) and the US (32 per cent). Where we failed spectacularly was in protecting the middle 40 per cent of adults, who got only 23 per cent of the growth versus 43 per cent in China and 33 per cent in the US.

Be shrewd and businesslike not ideologically shortsighted

One Bharatiya innovation which succeeded spectacularly was the phased introduction of currency and capital convertibility. This modified-market approach was validated by India escaping the ill-effects of the 1997 East Asian currency crisis. It is significant that Malaysia followed our innovative approach, endorsed by Jagdish Bhagwati, by reimposing capital controls after 1997, and Iceland did similarly in 2008.

Similarly, our choice of shying away from “big bang” privatisation of the public sector, unlike Latin America in the 1980s and Eastern Europe in the 1990s, worked well. We chose instead to liberalise controls over private investment, thereby enabling private companies to grow and compete with the public sector. This strategy has paid dividends in civil aviation, telecom, minerals and electricity generation. Incremental private sector investment now dominates these sectors and a competitive market-based economy has emerged.

Simultaneously, we contained the social cost of reforms. But a similar policy has not worked in banking. We were too hesitant to give up the political power which comes with the government owning public sector banks. Private banks today account for just one-third of banking assets. The massive economic problem of stressed loan accounts, amounting to around 14 per cent of publicly owned bank assets, is a consequence of our not following through by liberalising the financial sector. Bharatiyata has, unfortunately, become synonymous with crony capitalism in banking.

Aping the turtle gives time to pull a reform coalition together

The GST is operational today due to a strategy of incrementalism, driven by the need for building inter-government consensus. Early indications are positive both on the increase in revenue collected and the enhanced compliance by taxpayers. But the jury is out till the final results come in by April 2018.

In a nutshell, Bharat’s economic policies have always been unique and contextual. Some observers would even say we obsessively reinvent the wheel. It will thus be a tall order for the Niti Aayog to evolve a new Bharatiya model of development, which is completely unknown to us, or the world.

Don’t fix what isn’t broken

Third, do we need a new model of development? The existing model has served us well. The areas for deeper reform are well known and agreed. Indeed, many are already on their way. Hopefully the 15th Finance Commission will continue the task of decentralising fiscal resources, by increasing the share of devolved resources from the 42 per cent existing today towards 50 per cent. This would push the Union government to be more selective in its interventions based on the time-tested principle of subsidiarity — not doing anything that can be efficiently done at a lower level of government. The government is already allocating more resources to agriculture, education and healthcare, which had fallen through the gaps earlier, while also stepping up allocations for defence and infrastructure.

Avoid the temptation to centralise functions – There is enough to do for all.

At the helicopter level of grand plans and policies, there is no gap which the Niti Aayog can address. In fact, it would do well to exercise forbearance in areas where individual ministries are better equipped to take the lead. Where Niti can add value is in addressing the root causes of poor implementation. Tony Blair’s Service Delivery Unit did this to marvellous effect in the UK. Malaysia and Tanzania thereafter copied the template.

Check the plumbing in government. Massive efficiency gains are low hanging fruit

dirty

Niti should focus on the nitty-gritty of getting the plethora of good intentions, embedded in policies, implemented on the ground. This goes beyond close monitoring of targets or punishing laggards. The devil lies in clogged delivery chains, poor metrics to measure results and misaligned incentives, all of which need to be painstakingly mapped and then innovatively declogged. It’s a plumber’s job that needs to be done. Is the Niti Aayog willing to get its hands dirty?

Adapted from the authors article in The Asian Age, September 7, 2017  http://www.asianage.com/opinion/columnists/070917/is-niti-aayog-willing-to-get-its-hands-dirty.html

 

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