governance, political economy, institutional development and economic regulation

Posts tagged ‘Andhra Pradesh’

Some more onions please

Onions comprise less than 1% by value of India’s agricultural production. The average Indian consumes less than 800 grams of the stuff per month. Onion is a seasonal fruit. Supply traditionally dips during July to September as only the stored winter crop, harvested around March, is available for consumption.

No dearth of onions

onions

photo credit: http://www.washingtonpost.com

India is the second largest producer of onions after China. We produce more than we need and export around 10% of production unless weather events adversely impact the crop. This year unseasonal rain, during harvesting, damaged the winter crop.

But demand is inelastic

Demand is relatively inelastic. Why don’t consumers say no when prices increase? First, onions are to palates in the North, Central and Western parts of India, what fish is to Bengal and curry patta and coconut is to the South. Food, chips even Uttapams taste better with onions. Onion, like Garlic, is also valued for its therapeutic value. Second, onions give a big bang for the buck. An average family spends around Rs 100 per month on the stuff. If price doubles, the burden is irksome but not a killer. Just economizing on pre-paid phone calls can make up the difference. But onion is the key savory for low income households.

It’s the politics stupid!

The fuss about onions is more about politics than economics. The political footprint of onions was established in the 1980 elections. Mrs. Indira Gandhi, on her comeback trail, after her post-emergency election debacle, shrewdly used the price rise in onions to drive home how uncaring of the ordinary person and how incompetent, the government of then Prime Minister Chaudhary Charan Singh had become. This clicked. The Congress won 67% of the Lok Sabha seats. In 1998, a sharp price rise in onions, dethroned the BJP government of Chief Minister, Madanlal Khurana in Delhi thereby establishing a new metric for good governance – the price of onions.

Delhi CM Kejriwal fingers the BJP for price rise

Delhi Chief Minister, Arvind Kejriwal has fingered the Union government for failing to control hoarding and speculation leading to the current price rise. Delhi government flooded Delhi markets in mid-August with onions at Rs 30 per kg. It plans to hold the price line just below Rs 40 per kg through public sector retail supply versus a market retail price of Rs 70 to 80 per kg.

Union government on the back foot

But the Union government claims this is too little and too late. More nimble footwork by the state government could have prevented the steep rise in onion prices in Delhi. The Union government had made available a Price Stabilization Fund of Rs 500 crore in April 2015 which state governments could use by contributing an equal amount to buy onions for retail supply at reasonable rates.

On July 2, when wholesale prices were still around Rs 20 per kg in Lasalgaon, Maharashtra-India’s largest onion mandi, the Union government brought onion under the Essential Commodities Act, thereby enabling stock limits to be enforced on wholesale agencies. It also enforced a Minimum Export Price of Rs 30 per kg to discourage exports.

In todays’ intensely adversarial, no-holds-barred competitive politics no government can ignore a public challenge. The traditionally business friendly BJP government, at the center, is particular sensitive when “hoarders” are fingered for the price rise. Maharashtra, Madhya Pradesh, Gujarat, Haryana, Andhra Pradesh and Punjab- all BJP/allies governed states – account for more than 60% of national onion production.

Grow more onions, reduce trade margins & transaction costs

Per a NCAER 2014 paper selected productivity enhancement can boost roduction. Three big onion producing states- Maharashtra, MP and AP- account for 50% of production but produce less than 17 kilo gram per Hectare against 27 and 21.5 kg/Ha in Gujarat and Punjab respectively. Again all three are ruled by BJP/NDP. Increasing productivity in just these three states can boost production by 20% ensuring sustained exports and no domestic shortages. Doing more on reducing the trade margin (better storage, faster transportation, lower market fees) can also leave more of the money with farmers whilst lowering domestic prices.

Clearly the government needs an effective and transparent mechanism, which provides the right price signals and rationalizes expectations for both farmers and consumers.

Killing export or killing farmers

Increasing the Minimum Export Price, as the government has done again this year, is the standard response. But such intervention in the market, even as it helps consumers by diverting supply to the domestic market, robs farmers of the gains from export. It also disrupts any attempt to develop export markets. Similarly, importing onions to keep consumer price low reduces the incentives for farmers to grow onions.

The fall back-leaky public distribution

But both these options are less intrusive than using the public procurement and subsidized retail supply template used for food grain. Such publicly managed mechanisms are invariably highly inefficient and ineffective with cascading losses in procurement, storage, transportation, distribution and retail sale. Sometimes inept government managed imports flood the market after the seasonal supply dip has passed and just as the new crop arrives- with disastrous impact on farmers’ incomes.

Can private distribution agencies do better?

Why not appoint a private trading agency for marginal but politically sensitive food crops, mandated to import, export or arrange for domestic distribution to balance market led demand and supply and keeping retail prices within a pre-defined retail trading band, which meets the twin needs of both farmers and consumers. This is what the RBI does for our currency to avoid excessive volatility.

Private trading agencies would charge a hefty commission for their services but it would be considerably less than the cost of direct administrative action to purchase, stock and supply onions along the Food Corporation of India model.

Onion diplomacy anyone?

Alternatively, use onions as a vehicle for building bridges with our neighbours – particularly Pakistan, which loves the stuff almost as much Punjabis. Why not negotiate a stand- by, bilateral onion supply agreement to meet onion deficits in either country on preferential terms? A similar arrangement is possible with our larger northern neighbor- China whose onion productivity exceeds ours’s. Onions can add a savory flavor to Track 1.5 – B2B- diplomacy.

Say no to expensive onions

Isn’t it high time the government bit the political bullet and said no to being bullied about the price of onions? They are not a necessity, which the sovereign is obliged to supply. The Jains don’t even touch the stuff.

To show that onions are dispensable, the entire cabinet should voluntarily say no to fresh onions during the lean period. PM Modi could launch a social media campaign to entreat well-off folks to substitute fresh onions with dried ones or switch to other seasonings, during the lean period. This can reduce demand and hence prices for those, to whom onions are the only savory they can afford other than salt and chilies.

The core of sustainable living is to adapt to what is seasonally available locally, rather than store, pack, can or transport food compulsively to cater to a menu plan made universally available but at a high cost to the environment.

Politics trumps economics hands down

But the catch is that Bihar is a big consumer of onions. People are unlikely to be amused if they can’t get their daily fix of onion, before they go to vote in November. This is one election the BJP needs to win. Visible, strong, centrally managed administrative action to lower retail prices is therefore likely to win over better options – after all the metric of good governance has to be met.

Adapted from the authors article in Asian Age August 31, 2015

Can Modi Copy Deng?

China

(photo credit: http://www.deeshaa.org)

The thought of Modi, an original and innovative doer if ever there was one, copying anyone, is so implausible that the first instinct is to perish the thought at birth. But it is interesting to list how Modi could “do a Deng” for India.

Deng Xiaoping inherited a China wracked by the inefficiencies, but blessed by the upside of Communism. Principally, five decades of communism had deadened the innately entrepreneurial spirit of the Chinese and sank the economy under the weight of a burgeoning State. But communism had also proliferated a highly disciplined party cadre across the country-much like India’s bureaucracy-except that the Chinese Communist Party marches to a single drumbeat; that of the President/General Secretary/Chairman. In contrast, the Indian bureaucracy is a discordant orchestra with multiple political conductors.

Mao built his Party cadres to weed out all those who either were, or could become, dissenters to his thoughts. Deng used the very same party to unleash the Chinese “animal spirits”. Municipalities and provinces competed viciously with each other to achieve the highest growth numbers in a no-holds-barred, single minded commitment to the bottom line, which could put the partners of Lehman Brothers in the shade.

The extraordinarily successful U turn was not surprising. Party foot soldiers are rarely ideologically committed. On top of it, if there is something in the change for them, they take to it with gusto. The Party took to “capitalism” with a vengeance. It is only now- two decades later- that President Xi is trying to unravel the resultant bundling of public and private interests.

When Deng Xiaoping became the President of China, per capita Gross National Product (GNP) was double of India’s but only around two thirds of Indonesia and Philippines (1996 WB data). By 2012 China’s per capita Gross National Income (GNI) had become nearly four times that of India; more than 1.7 times of Indonesia and nearly double of Philippines. Poverty declined in China from “Indian levels” to just 3% by 2012. Rapid economic growth based on exports, manufacturing and jobs was Deng’s mantra. But we musn’t forget the sacrifices of the Chinese people, who suffered personal and economic deprivations at the altar of national economic growth.

Can Modi do a Deng for India?

Unlike China, India is a soft state. Our citizens live in an asymmetric economic and political environment. On average, our citizens are as economically deprived as the Chinese were. But they have become accustomed to significant levels of personal and political freedom, more typical of a developed democracy. The State “includes” everyone in its warm embrace through food, fuel and income subsidies, which successive governments have honed to a fine art. Significant interest groups all receive a special package of subsidies tailored just for them. The package may not be individually very substantial. It may be threatened by inflation and increasing public fiscal stress. But the important thing is that it exists as a symbol that the State “cares”.

The only way of getting citizens to vote beyond subsidies is to rapidly enhance their individual incomes to a level where stagnating subsidies no longer mean much. For this private sector jobs based growth is the key.

Unfortunately, the world economic environment is now even less supportive of inefficient economies than it was in the “go-go years” till 2008. India remains a hugely inefficient economy because of the high transaction cost of doing business, even by domestic entrepreneurs. Some of this is due to a very inefficient and decentralized but systemic corruption.

The magnitude of corruption grabs public attention. It is unseemly but it is not the main impediment to job creation, growth or poverty reduction. In an imperfectly regulated economy, with a large State sector, regulating corruption to reduce its incidence and impact is more important than eradicating it. East Asia in general and indeed China itself, illustrates this.

But bitterly contested democracy does not allow the ruling party the luxury of “plain policy speak” based on cost benefit. A well publicised war against corruption better satisfies the masses that tax money is not being wasted.

More substantively, a policy of adopting increasingly higher levels of transparency and the  depoliticisation of economic regulation by transferring powers to autonomous, technical regulators, can significantly reduce the space for “crony capitalism”.

PM Modi, whilst condemning the “hate speech” of his errant Minister Niranjan Jyoti urged the Rajya Sabha: “let’s get back to work”. His words could well be heeded by government itself. Five fundamental institutional changes can create a Team Modi for targeting poverty; enhancing growth and increasing private sector jobs.

First, Captain Modi has to radically change the manner in which appointments are done in the Union government and adopt a transparently merit based system. For starters PMO should have an HR anchor identifying and tracking potential officers for these positions, using a variety of indicators.

Second, for improving the sustained effectiveness of the Union government, the PM has to ruthlessly prune the political executive and the bureaucracy, of elements who are, or have been ineffective or complicit in corruption. This is not about launching a witch hunt for the corrupt. It is more about identifying effective politicians and bureaucrats (of which individually there is an oversupply) and putting them in the right positions.

Third, it is not enough to improve the Union government. PM Modi has to talk Turkey with those CMs, who are similarly inclined to grow their states. Some, but not all, will be BJP governments. But the real issue here is to form alliances, not for political survival, as was the practice in the past, but for national growth. Network economies spill over across state boundaries and business uses such opportunities to locate where land is cheap, labour is abundant and pre-existing infrastructure is nearby.

CM Naidu previously used this model of cross border spill-over from Karnataka and Tamil Nadu to Andhra Pradesh’s benefit. Western UP and Haryana have similarly benefited from the economic dynamism of Delhi, irrespective of what their State Governments were up to. It is not necessary to have every CM on Team Modi’s Bench. Just getting 50% onboard, sprinkled across the country, can generate strong growth impulses nationally.

Fourth, a institutional focal point for getting CMs on board is needed. The National Development Council exists, but needs support. At the heart of the change is the willingness to share with the states, the fiscal and administrative powers available in the erstwhile Planning Commissions. How it’s is structured will be critical. Yet another anemic Think Tank is hardly fit for purpose.

Fifth, the key administrative unit, at the cutting edge level are the 604 Districts in rural areas and around 3255 “towns”. It is at this level that all reform and change is implemented. Unfortunately, this level of administration remains completely divorced from the direct responsibility for achieving the three point agenda of growth, jobs and poverty reduction in their own areas. This has to change if we are to “Do a Deng”. China determines local targets for national objectives. We must do the same.

PM Modi must provide incentives to States to “push back” senior officers from clunky state secretariats to the field. State secretariats (as also the Union Secretariat) must be slimmed down and District and urban Local Bodies strengthened. This can restore technical competence and gravitas to district and local body administration. The minimum service in field postings for IAS/IPS officers, before they can go to the State Secretariat must be increased to 15 years from the 9 years necessary today.

Every District and Town will also need base line studies of jobs, poverty levels and the size of the local economy. Their annual growth and poverty reduction targets and achievements must be available publicly. The share of local resource allocation must increase and be aligned with the path to achieve these objectives at the local level.

Today District Plans are just local segments of state government projects with specified outputs but with less than adequate linkage to the three overarching objectives. Local “Planning” is more about appeasement of local politicians rather than about achieving national objectives. More rigorous project selection guidelines; filters for assessing poverty reduction, growth and job creation potential; better oversight of expenditure and public participation in decision making are the underpinnings of success.

PM Modi does not have a centralized Party based executive to rely upon, as Deng did. But he can forge a Team of politicians, bureaucrats and non-government professionals who have a passion for lifting India out of poverty via economic growth and private sector jobs. Many are waiting for his call.

Tag Cloud

%d bloggers like this: