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Archive for the ‘Public Institutions’ Category

Template Rashtrapati

Rashtrapati Bhawan

Presidential elections in India are a ho-hum event for the average citizen. At best, this is a moment when the government “signals” its political identity or its governance style. The BJP-led NDA government has succeeded in the former but not the latter.

Shivshankar Menon, national security adviser in Dr Manmohan Singh’s government, uses the “minimum cost, maximum benefit” strategy as the defining principle of India’s foreign policy. This applies equally well to identify the political incentives behind presidential nominees.

Why Presidential nominations are the outcome of a MinMax strategy

The ruling party’s biggest nightmare is to nominate a candidate who loses. This is not only egg on its face, but it opens a Pandora’s box of future antagonisms between the government and the head of the state. It has never happened thus far. But it is wise to budget for minimum risk, especially when the upside of having “your own man (only one of thirteen Presidents has been a woman) in the Rashtrapati Bhawan are limited.

The Constitution severely limits action, independent of the government, by the President. But the potential for being deviously obstructionist exists. James Mason — the distinguished political scientist — credits Babu Jagjivan Ram – the original dalit face of Indian politics – with the insight of how to do a “Putin” in the Indian context and acquire covert, unconstitutional political power. The only redress against a malevolent President is to impeach him in Parliament. Whilst theoretically possible, it requires a two-thirds majority. That is tough if the President is politically savvy and actively conspires to defeat the motion, including by requesting MPs to merely abstain from the vote.

Unrealised political ambition is not an asset for being President

In the heady days after Emergency was lifted, the Janata government — a loose coalition of political interests, opposed to the authoritarian rule of Prime Minister Indira Gandhi — came to power. But it splintered. Prime Minister Morarji Desai lost his majority and resigned. Y.B. Chavan and Charan Singh sequentially failed to build their factions into a majority. President Neelam Sanjiva Reddy (1977-82), instead of giving Babu Jagjivan Ram — leader of the largest rump of the Janata Party — a similar opportunity, dissolved the Lok Sabha and ordered fresh elections. This was, at best, presidential over-reach to force an early conclusion to the drift. At worst, it was intentionally muscular, to induce an election, in anticipation of an uncertain outcome, which would allow then the President to manoeuvre and put a “pocket” government in power.

Petulance can warp Presidential efficiency 

Later a petulant President Zail Singh (1982-’87), a “trusted” political follower of Indira Gandhi, used obstruction as a mechanism to show his annoyance at being politically ignored by the debonair, apolitical Prime Minister, Rajiv Gandhi, who stepped into his mother’s political legacy, but wanted no part of its earthier political roots.

Ego is a killer for normative functioning  by the President 

President K.R. Narayanan (1997 to 2002) was a “working President”. Nothing was further from his intent than subverting the Constitution. In fact, he felt a heightened sense of responsibility to keep the ship of state credible and morally enlightened in the face of unstable minority governments. He possibly felt, albeit unwisely, that the President, being elected by an electoral college much wider than the Lok Sabha, had a stronger, deeper representativeness. He was also decidedly uncomfortable with the BJP holding the reins of power — a hangover from the post-Independence demonisation of the Hindu right-wing party. This mutual distrust led to his public speeches and media interviews being interpreted as being critical of government policy. He departed from his prepared and vetted speech at a state banquet in New Delhi and seemed to hector President Clinton of the US – the chief guest, on the proclivity of great powers to play “headman”, quite contrary to the government’s intentions.

The game is rigged so that nominees of the Union government win elections

The process for Presidential elections is constitutionally rigged in favour of the Union government. The Lok Sabha, where every Union government has a working majority, has a vote share of 35 per cent. The Rajya Sabha — where the government, like the present one , may not have a majority – has a smaller vote share of 15 per cent. State legislative assemblies have an aggregate vote share of 50 per cent. But the weight for each state Legislative Assembly varies and is indexed to its population. Just 10 of the most populous states — out of a total of 31 states — together have a 37 per cent vote share in the electoral college. An MLA from Sikkim has vote value of seven versus 208 vote value that an MLA from Uttar Pradesh commands. This is one reason why political parties go all out to capture elections in state legislative assemblies.

Union governments have traditionally played safe and fielded nominees whose reliability trumps their candour. Political placidity is preferred to ambition. Being of an age close to permanent retirement is a key qualification.

President elect Ram Nath Kovind – the perfect fit

Ram Nath Kovind 2

Ram Nath Kovind, the BJP’s nominee and the 14th President of India, is a perfect fit. He is non-controversial and low-key. His Hindutva beliefs seem to be personal rather than aggressively political. Like President Narayanan, he is a dalit and hence a symbol of continued dalit empowerment. He is the first President from Uttar Pradesh — the most populous Indian state with the largest population of Scheduled Castes. His election reiterates that Uttar Pradesh, Prime Minister Narendra Modi’s adopted karam bhumi, remains close to his heart.

Thus far the average age of Presidents, at the time of election, has been 71 years. Mr Kovind is right on the button being 71 years of age. The youngest at 64 years was President Neelam Sanjiva Reddy. His subsequent actions reiterated that unrealised ambition is not an asset for this position. But age alone is no assurance of placidity.

K.R. Narayanan — never “a rubber stamp President” — shares the honour of being the oldest at 77 years, with R. Venkataraman (1987 to ’92).

Ironically, 81 per cent of India’s population is less than 44 years of age and 97 percent was born post-Independence. But all our Presidents have been from the pre- 1947 colonial period. It doesn’t need to be that way.

The minimum age to be elected President is 35 years. But till we effectively depoliticise the presidency, by defining a code of conduct with detailed guidelines for presidential action (an Indian Magna Carta), the potential for youthful ambition to seize power covertly, will dissuade governments from taking the risk of electing a youthful, erudite President, as the face of Bharat which is India.

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An opportunity lost for being transformative

The government has played the “minimum-maximum” game to perfection. The irony is it didn’t need to do so. This was a low-risk opportunity to reinforce its commitment to cooperative federalism and to broaden the ambit of governance by pulling in apolitical talent. At the very least, it should have tried harder and negotiated in good faith, to get President Kovind nominated by all parties, rather than making him contest an election. Admittedly, there is no political tradition urging it to do so. But Mr Modi did not start out trying to be a template Prime Minister.

One hopes he will resist the institutional incentives to lapse into a transactional, rather than his earlier, transformative mode.

Adapted from the author’s article in The Asian Age, July 21, 2017 http://www.asianage.com/opinion/columnists/210717/template-rashtrapati.html

Retribution – the missing R for resolving bad loans

Courtesy Arvind Subramanian, India’s Chief Economic Advisor, the 4R (reform, recognize, recapitalize, resolve) approach to manage the corporate bad loans problem, has captured public imagination. But he soft peddles a fifth R, that of retribution. The big stick must be wielded for reform to be credible.

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Public sector banks – flabby, politicised ATMs providing easy money to elites

Banks are flush with money. But “liquidity” for borrowers, even those who have a “special relationship” with banks, is low. The shadow of stressed loans – missed loan repayments and interest payments- makes the usual, clubby way of doing business suspect. Banks operate on big margins – between interest paid on deposits and interest received on commercial loans – of up to 5 percent, in our cartelized banking architecture, dominated by publicly owned banks. But, despite high margins, public sector bank ratings suffer. The more loans they give, higher is the volume of bad loans.

Bad loans are an outcome of shoddy risk appraisal followed by poor loan account oversight. The ugly habit of kicking the can down the road by rolling over bad loans has been the norm.  On average, only around 26 percent of bad loans and accumulated interest are recovered. Using this metric, banks stand to lose around Rs 9 trillion (6 percent of our GDP) by recognizing and resolving bad loans of around Rs 12 trillion.

If corporate loans were recovered like consumption loans for cars, there would be no problem

Once a loan becomes stressed there is little a bank can do, except to recover as much as it can from the borrower; divert the proceeds to a better borrower and black list the delinquent borrower. But Indian banks rarely operate on this “sunk cost” principle. A long history of covert support to keep diseased loans and borrowers alive, under the guise of retaining jobs, has not helped. The spectacularly unsuccessful, Board of Industrial and Financial Reconstruction was still alive till January 2016. Unfortunately, so were hundreds of companies ripe for corporate euthanasia. We now have a new Insolvency and Bankruptcy Act, January 2016. But its effectiveness remains to be established.

RBI oversight of banks comes up short

Disappointingly, the Reserve Bank of India, instead of taking the bull by the horns and directing banks to start bankruptcy proceedings for bad loans, has taken the soft approach – giving banks time, till the end of 2017, to resolve the stressed loans themselves. Amusingly, to nudge bankers into doing unfamiliar, unpleasant things, extraordinary measures are being taken, to provide them administrative cover, from ex-post facto audit, vigilance and CBI investigations. Clearly, retribution against those bankers, who approved and over saw the dud loans, is not contemplated.

Loan waivers without retribution for the complicit create moral hazard

Economists, including RBI Governor caution against the problem of “moral hazard” that loan waivers create in the context of agricultural loans being written off by state governments. Apparently, forgiveness without retribution, is bad for rural borrowers, but ok for corporate borrowers. Sadly, retribution is sorely needed for commercial borrowers too, who account for 75 percent of the bad loans.

80% model borrowers, 20% delinquent addicts of “easy money”

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The reality is even more nuanced. The bulk of borrowers, across sectors, are gold standard risks. Despite gross mismanagement of large corporate loans, 83 percent of the bank loans, valued at Rs 63 trillion, are serviced on time by borrowers. Moral hazard affects borrowers selectively in India. This is because retribution is also selective. Access to bank finance for small borrowers is cut off if they become delinquent and recovery proceedings are harsh. For large borrowers and the influential, more favourable terms apply.

Are only babus to be held to account?

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Last month, a retired Secretary of the Coal Ministry and two other senior colleagues, were convicted for criminal conspiracy, by a trial court. The charge and the punishment meted out was completely out of proportion to their misdemeanors – less than adequate diligence in discharging their duties. Why this double standard for holding public officials to account? Rs 12 trillion of accumulated stressed loans against annual loan approvals of between Rs 3 to 5 trillion, indicates a deep rooted “conspiracy of silence” within public sector and co-operative banks; their patrons in government and the borrowers themselves.

These stressed loans, whether in industry or in agriculture, must be taken off the books of banks. But the concerned loan sanctioning and account oversight chain, whether present or retired, must be held to account on a standardized, transparent metric to establish active connivance to cheat the bank or lack of adequate diligence. This is the only way to delink quick resolution of the stressed loans from the problem of “moral hazard”.

Blacklist actively negligent founders

Second, deals need to be urgently struck with borrowers to resolve loans without access to the lengthy judicial review process. These can only happen if the big stick of sanctions is available to the negotiators. Founders, actively negligent in servicing loans, should be made to exit management positions, as a precondition for future access to bank finance. Delinquent individuals, who have been given opportunities earlier, to reform, via “greening” or rolling over of loans, should be debarred from access to bank finance.

Hold banks to account for bad loans

The argument against sanctioning bankers is bogus. It is feared bankers will stop taking decisions if sanctioned, thereby freezing the lending cycle. Till two decades ago, bank trade unions, routinely used the threat of striking work, to stop computerization or extract better wages. It was the Supreme Court which defanged them in 2003 by ruling that the right to strike is not absolute, particularly in the case of public services. No need to turn the clock back.

Stringent action against the bureaucracy has not adversely affected the functioning of government. Enshrined bureaucratic safeguards are most often the refuge of the incompetent or the corrupt. Those working transparently, in the public interest, rarely need such support. There is no reason why banks should be different.

Needed an empowered financial sector, “clean up” champion, to wield a long broom

Jaitley grimace

“Moral hazard” in bad loan resolution becomes a problem, only if we do not deal equitably and transparently. Elitist cliques, spanning politics, business and agriculture, must be weaned-off, the vice of bank financed “easy money”. Swift, impartial, standardized resolution of bad loans, with judicious retribution, can drain this vicious whirlpool, which saps national wealth and reeks of inequity.

Adapted from the authors article in TOI Blogs, June 23, 2017 http://blogs.timesofindia.indiatimes.com/opinion-india/retribution-the-missing-r-in-resolving-bad-loans/

 

India’s pressured public institutions

BOOK REVIEW
Rethinking Public Institutions in India
Devesh Kapur, Pratap Bhanu Mehta, Milan Vaishnav (Eds)
Oxford University Press
548 pages; Rs 995

Rethnking Pub Inst in India

Public institutional reform has a stale air about it. There are plenty of options but little action. The sombre packaging of this book adds to this gloom. Possibly, the “monkish”, value-for-money branding is a consciously adopted tactic, setting it apart from the current trend favouring glitz and hype. The authors appear to be flinging a dare — that in their case substance needs no gloss. They are right.

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The editors’ academic pedigree is reassuring. Pratap Bhanu Mehta is the best-known of them, a public intellectual extraordinaire and the acknowledged voice of evidenced, liberal political thought.
Devesh
His co-editors Devesh Kapur and Milan Vaishnav are US-based academics.
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This new publication is a follow-on of a 2007 publication Public Institutions in India: Performance and Design co-edited by Messrs Kapur and Mehta.
The contributors are an eclectic mix of UK-, US- and India-based academics and Indian civil servants, serving, repositioned or retired. What is common is their deep and systematic association with public institutional development and an enviable record of publishing their work and opinions.
Are public institutions in India doomed?
So, are central public institutions going to seed? And does that explain India’s future challenges? The introductory chapter, written by the editors, provides an elegant, broad sweep of drivers and trends in institutional malaise, highlighting areas where performance has been dangerously below par. But the helicopter view is a mite too one sided, veering to a dark view of the state of national institutions.
Institutional resilience outnumbers the failures 
A more nuanced and refreshing view emerges from the succeeding chapters, each about a single institution. James Manor, writing on the Presidency, exquisitely details how this apex institution, despite the occasional failures of individual incumbents – think Fakhruddin Ali Ahmed who signed on the dotted line to impose emergency in 1975 and Giani Zail Singh, who was not averse to being actively political – has been a steady hand, safeguarding constitutional propriety and citizen rights from potential executive and legislative transgressions.
Errol D’Souza, reviewing the Reserve Bank of India, describes its pugnacious success in enlarging its regulatory space, solely through its performance-driven credibility. E Sridharan and Milan Vaishnav pen a fluid and attractively rendered tale, about the Election Commission of India, which has similarly earned its spurs. Eighty per cent of Indians trust it because of its remarkable conduct of timely, fair and efficient elections. Madhav Khosla and Ananth Padmanabhan describe how the Supreme Court has nurtured the public’s trust by courageously and consistently ruling in favour of equity, inclusion and fair play. However, they warn that dark clouds loom unless justice is delivered more efficiently.
Navroz Dubash writing on new infrastructure regulatory institutions – the Central Electricity Regulatory Commission (CERC) and the Telecom Regulatory Authority of India (Trai) – acknowledges that in the initial years both had to fight severe challenges from publicly-owned monopolies and their patrons in government. Two decades on, they are the arbiters of positive change. The CERC has overseen competition in bulk electricity supply. The Trai has curated highly competitive private telecom customer services and tariffs. However, Dubash correctly points to the need for enlarging the regulatory space such that all actors – the Parliament, Judiciary and the Executive become active players in negotiating regulatory outcomes, with the Regulator playing the balancing role,
Institutional failure more visible in sub-national entities
“State failure” is a malaise more visible in sub-national institutions, which have failed to imbibe the positive changes taking place in related central public institutions. State governors, legislatures, the lower judiciary, state public financial management institutions, electricity regulatory commissions, vigilance departments, and election commissions are often severely blemished. T R Raghunandan woefully records that institutions of local government remain ignored, underfunded and underused, except in Kerala, Karnataka and West Bengal. Consequently, inclusive growth suffers and an opportunity is lost for embellishing and inculcating local traditions of results-based democratic functioning.
But there are black sheep at the national level too
Not all national institutions, despite inherited advantages, have developed benignly. Parliament is one such. M R Madhavan ruthlessly excavates the reasons it has lost the public trust. R Shridharan similarly unravels why the Central Vigilance Commission, India’s anti-corruption agency, and its investigative arm, the Central Bureau of Investigation, have failed to establish their credentials. The former is merely a tool, to be used selectively, by the executive against its own officials. The latter is at its nadir. The moniker “caged parrot” accurately reflects why it has lost credibility in the fight against corruption.
The Comptroller and Auditor General (CAG) of India, the supreme audit institution, gets mixed reviews from R. Shridharan and Amitabh Mukhopadhyay. The CAG is uniquely placed and significantly empowered, to guide and assist Parliament to exercise granular oversight over the executive. Its path-breaking exposure, under Vinod Rai, of massive inefficiency and financial impropriety in spectrum and coal allocations lifted its public profile. But, in its “independence”, also lies the danger of it being ignored, through a “conspiracy of silence”, between a dysfunctional Parliament and a pliant executive.
The civil service, particularly its elite component – the All India Services (AIS), which constitute 0.03 per cent of the total civil employees and just 1 per cent of the Group A employees of the Union Government – have unambiguously failed. K P Krishnan and T V Somanathan admit that nothing has changed for the better over the past decade. Recruited on merit, this tiny elite thereafter enjoy the rents accruing from that initial, one-time achievement. But the authors shrink from endorsing that the AIS be phased out and its functions reallocated to the specialist cadres of the Central Services — these constitute 99 per cent of the Group A civil employees, who currently fester despondently.
This is a multi-layered, exhaustively referenced publication, which surgically exposes the dark side of public institutional dysfunction. But it also provides sufficient evidence of institutional resilience, on which an enlightened political leadership can build. A must-have, for all those who either belong to, or wish to join, the frustratingly uplifting community of public institutional developers.
Adapted from the authors review in Business Standard June 15, 2017 http://www.business-standard.com/article/beyond-business/public-institutions-under-scrutiny-117061401505_1.html
raj ghat
Raj Ghat – Gandhi ji’s memorial keeps the flame of “independence” alive

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