governance, political economy, institutional development and economic regulation

Posts tagged ‘BJP’

Saintliness versus efficiency

BJP winner

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

The key decision – morality or results

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

Corruption has its uses

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

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

Democratising access to information

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

Morality tends to exclude private enterprise

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

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

How many Saints do we have?

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

“Jhooming” can’t generate shared growth

closed market

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

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

Bimal Jalan reflects

Jalan book

 

exercises the writer’s privilege to box his reflections between three inflection points. The first is 1980, ostensibly because 1977-79 was the first time the Congress lost power at the Centre. The second is 2000, being the start of a new millennium. And 2014 is the bookend when the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) formed a majority government.
Obscure inflection points
Of these, the choice of the first two years as turning points is not immediately obvious. Conventional wisdom regards 1991 to 2014 as a near continuous development period, barring the fractious interregnum of 1997-99. In the 1980s, it is 1984 that dominates, as the end of an era with the assassination of Indira Gandhi and the beginnings of Rajiv Gandhi’s brief “Camelot” phase. The year 1980 is significant only because Sanjay Gandhi died in an air crash in June and Mrs Gandhi aged visibly. The choice of 2000 is similarly obscure, except for broadly coinciding with the start of Atal Bihari Vajpayee’s NDA government.
Dr Jalan – man for all seasons
But this is mere quibbling. The book is unconstrained by structural rigidities. It provides reflections, spanning Dr Jalan’s seven earlier publications since 1992.  It can’t get better. Dr Jalan was in the Rajya Sabha (2003-2009); the longest serving governor of the Reserve Bank of India (1997-2003) since 1992; finance secretary; secretary banking, chief economic advisor and India’s executive director to the IMF and the World Bank.
Seven key reflections
Readers would choose their own favourite reflections. But this reviewer was intrigued by the following seven.
Low public savings retard investment 
First, Dr Jalan favours the conventional view that the persistent gap between India and the fast-growing economies of Asia during the last four decades of the 20th century is explained by our low levels of investment. For this he squarely blames our ideological decision to invest in public sector industries, which failed to generate savings for future investment and instead bled scarce tax revenue to fund financial losses — a familiar story even today.
Colonial style administration ill equipped for challenges
Second, he red flags the fact that from the 1970s, we did very little to enhance the competence and efficiency of public administration. We still lack the required composition of skills and experience in the public space to provide 21st century results.
High expectation, poor execution
Third, he bemoans the fact that we unfailingly adopt best practice priorities — take the national priority for agricultural growth. But we fail miserably in making supportive policies and rules. We have throttled agriculture by ignoring the interest of the farmer to serve the interest of the consumer. Similarly, we prioritise a progressive fiscal policy. But the revenue from direct taxes stagnates while regressive indirect taxes are buoyant.
Sustained, high growth misaligned with political incentives 
Fourth, Dr Jalan’s term in the Rajya Sabha convinced him that deep political reform is the key to change India. And who could disagree? But some caveats apply. Decentralisation, as flagged by Jalan, is certainly desirable for enhanced effectiveness and public participation. But, it will not, by itself, serve to reduce the size of government. In fact, employee numbers and expenses are likely to increase as scale effects disappear.
Union government muscularity erodes state government autonomy 
In a similar vein, it is true that the Union government tends to erode the federal structure by misusing governors for narrow political ends. But constitutionally, we are a “Union of States with a centrist bias”, per political pundits, and not a federal state. Parliamentary norms and conventions are routinely subverted — a self-goal, since this reduces Parliament’s credibility.
Dysfunctional parliament erodes its own credibility
Dr Jalan cites 2006, when the budget was passed without discussion, illustrating political expediency of the worst kind. But it is open to question whether the existing process for annual Budget presentation and examination remains a productive exercise or has become mere form without substance. The cabinet system of decision-making, underpinned by the principle of collective responsibility, was undeniably subverted during the United Progressive Alliance government, since political power was dispersed beyond the government. But this was poor practice rather than a structural flaw. And it appears to have healed itself after 2014.
Judiciary – safeguarding the constitution 
Fifth, the judiciary, rightly, comes in for high praise, for progressive jurisprudence, safeguarding the principle of separation of powers, and the primacy of the Constitution. But entrenched territoriality in the judicial appointments process remains contentious.
Public sector banks – out of control
Sixth, Dr Jalan recounts, financial reforms after the Narasimham Committee report of 1998 enhanced the resilience of Indian banks. But he leaves the reader begging for more on what went wrong over the last decade to inflate stressed loans to crippling levels. Are not politicised leadership and boards the problem in public banks? And given the stakes, can UPSC selection – as Dr Jalan suggests – really be an effective bulwark? Would not ramping up private shareholding, with the government holding only a “golden share” be a more effective solution? More generally, how effective are the existing prudential norms, for limiting exposure to sector, corporate or currency risk?
Tax reform – only half done?
Seventh, Dr Jalan’s view that it is unnecessary to reopen the constitutional scheme for inter-governmental division of taxes is curious. Tax pundits advocate that GST be extended to alcohol and petroleum.
jalan 2
It is a broad canvas on which reflects, as befits one who has helmed public policy since the 1980s. Readers will look forward to his take on the more recent developments — that is, since 2014.

 

Adapted from the authors Book Review in Business Standard, September 18, 2017 http://www.business-standard.com/article/beyond-business/bimal-jalan-reflects-117091801405_1.html

 

Delhi voters slap AAP on the face

modi kejriwal

The Lion of Delhi, Arvind Kejriwal, has been bearded in his den. The BJP’s massive victory in all three municipalities in Delhi — North, South and East — has left everyone flummoxed. However, it wasn’t all one way. The AAP held onto their seats as per the outcomes of the 2014 Lok Sabha polls in the South MCD. But it lost seat share in both the North and East MCD to the Congress. In both areas, it seems there was a “ghar-wapsi” (homecoming) of traditional Congress supporters, who had fallen prey to the AAP’s promise of transformation in the 2015 Assembly election.

Delhi State merely a jagir of the Union Government

anil baijal

Anil Baijal, Lieutenant Governor – the invisible satrap of Delhi

The forceful return of the BJP can only be attributed to the TINA (there is no alternative) factor. The confrontational politics of the AAP, which burnt its boats and utterly failed to establish a harmonious working relationship with the Centre, proved costly. Delhi is a Union territory, but with a twist — like Puducherry. Both have a Legislative Assembly that elects a chief minister. But it’s biggest asset — land — is directly controlled by the Union government, as is the police force and the civil service. The lieutenant-governor is the de facto ruler of Delhi state, and he plays to the tune of the Centre, which appoints him. Not all the hugs and shared parathas between the former L-G Najeeb Jung and Arvind Kejriwal could bridge this basic gap in political alignment. The new L-G, Anil Baijal, also follows the same route, an inevitable outcome of the fractured institutional arrangements in Delhi. Only if the same party rules the Centre, state and municipalities can this alignment be matched. This is not possible till 2020, when the next Delhi Assembly elections will be held.

Kejriwal can save AAP in Delhi by stepping down as CM

manish sisodia

Can things change even before 2020, if Arvind Kejriwal resigns, admitting he has lost the mandate to rule? This might be a canny move, and put him on the high moral ground. Ajay Maken, the face of the Congress in Delhi, has already resigned, even though his party made some gains in contrast to the 2014 Lok Sabha and 2015 Assembly results. The AAP has ambitions in Gujarat. The outcome of the recent Punjab polls should have taught Mr Kejriwal a lesson — that being an itinerant leader is only possible if one’s family is part of the political elite and has spent almost a lifetime in politics. A good showing in Gujarat would be a good base for enlarging the AAP footprint into the metros in Karnataka and Maharashtra. Left to himself, Manish Sisodia is a diligent leader with balance and the tenacity to show results, on the ground, in Delhi. More roads and flyovers built at less than the budgeted cost; more mohalla clinics and better services in the slums of Delhi is a painstaking job for an executive, not a charismatic dreamer.

Modi is the king of referenda politics

The Delhi municipal elections reinforce that charisma and shock and awe tactics work wonders. Like everywhere else, since 2014, these elections were fought in the name of Narendra Modi versus Arvind Kejriwal. In a costly tactical error, the AAP sought this face-off as a referendum. Clearly, Arvind Kejriwal has much distance to travel before he can be measured in the same metric as Prime Minister Modi.

Amit Shah is a one-man school for electoral management

The Modi-Amit Shah duo’s trademark electoral tactics of “placing” the right man to lead the Delhi BJP has paid off yet again. Manoj Tiwari, a Bihari actor, has a natural entry point into the significant voter pockets of recently-domiciled Puravanchalis — slang for immigrants from UP and Bihar. An outsider to the more traditional set of Delhi BJP powerbrokers, Mr Tiwari was also the least likely to invite backstabbing, unlike the hapless BJP late-entrant candidate Kiran Bedi, who lost the 2015 Delhi state elections. In any case, Mr Shah’s style of watertight oversight, now honed over half a dozen polls, precludes any dissent within the BJP now.

“dhili” Congress unravelled in Delhi

Compare this targeted “placement strategy” of the BJP with the Congress, which failed to rally its troops behind Delhi leader Ajay Maken. Arvinder Lovely, a Sikh leader, deserted the party for better pickings with the BJP. Manoj Tiwari’s counterpart in the Congress is Sheila Dikshit and her son Sandeep Dikshit. They have familial links to the Purabaia community via the late Uma Shanker Dikshit, Ms Dikshit’s father-in-law, who was a venerated UP politician of the independence movement era. Ms  Dikshit, Delhi’s chief minister for 15 years, from 1998 to 2013, was sidelined, possibly due to infighting between her and Mr Maken.

AAP – resource thin and exhausted post Punjab disappointment

AAP workers

If disjointed leadership cost the Congress dearly, the AAP suffered from electoral exhaustion; a dwindling bench strength and failing credibility. Arvind Kejriwal held out the ultimate bait — a promise to abolish property tax — to win over the middle class. This was the final nail in the coffin of responsible politics. Property tax is the primary source of revenue for all municipalities. Its abolition would spell financial ruin and even worse services than at present. In comparison, the BJP brings to the table the coffers of the Union government. The NDMC area, which is managed directly by the Central government, is a lush, green oasis for the gilded elite — the Lutyens people — in sharp contrast to the dusty, filthy Delhi, the rest of the national capital’s residents live in. The prospect of resembling the NDMC  area was a mouth-watering possibility that few voters would pass up.

Can Modi reproduce the well being of the NDMC area in the rest of Delhi by 2019?

NDMC2

Delhi has voted for the Modi magic to rub-off on them. The denizens of other metros may contest this, but Delhi best illustrates the diligent, aspirational and yet conflicted India — riven by caste, religious, regional and class cleavages. It is a ready crucible for implementing the PM’s vision of a prosperous, equal opportunity-oriented, highly skilled, healthy and sustainable India. Mr Modi is unlikely to disappoint.

Adapted fro the authors article in The Asian Age April 27, 2017 http://www.asianage.com/opinion/columnists/270417/delhi-gives-kejriwal-a-slap-in-the-face.html

 

Disaster sans democracy in Uttarakhand

harish-rawat 2

Photo credit: NDTV.com: Harish Rawat – the unfortunate Congress Chief Minister, sacked by the President of India for failing to fulfill his constitutional mandate to get the budget approved

Nothing illustrates the cost of wantonly discarding democracy and handing over the government to unelected officials (Governor) than the case of Uttarakhand. To recap the turn of events , the President of India (read the BJP Union government) was pleased to take control of Uttarakhand on March 27, 2016, by invoking constitutionally vested emergency powers available to it if an elected state government fails to discharge its constitutional mandate.

The occasion for doing so was an allegation, by the Bharatiya Janata Party’s members of the Legislative Assembly, who are in a minority, that the Budget for 2016-17 was not approved by a majority vote in March, as required, to keep public finances running in the new year — April onwards. The ousted Congess government strongly refuted the allegation and approached the Uttarakhand high court, in appeal against the Presidents order. On March 28, a single judge of the Uttrakhand rubbished the President’s order. The Union government filed for revision of this order. A division bench however confirmed on April 21 that Presidents rule was unwarranted. The matter is now in the Supreme Court on appeal against the high court order. A ruling is expected this week but early indications are that the Court leans towards asking the ousted government to prove its majority on the floor of the Legislative Assembly, as is the norm and which aligns with what the Uttarakhand Governor had directed in the first place, once the dispute arose.

The absence of political leadership shows

But forget the legalese. The fact is that Uttarakhand has been without an elected government to take charge and be accountable for over a month now. It is fashionable for citizens to blame politicians for all the ills in the country. Unfortunately, the official machinery has failed miserably to showcase its strengths by managing the ongoing forest fire disaster. This illustrates that the “iron frame” of the bureaucracy is now so rusted that it fails to be proactive even when there are no visible political constraints on them.

Jhoom an age old practice

Jpeg

The people of Uttarakhand are no strangers to forest fires. Indeed, this writer has had out of control fires in previous years licking the boundary of his home and it has happened again this year. Just like in California, where habitations co-exist with forests, lighting fires can be property and life threatening. In India, the foresters and villagers resort to it as a low-cost, low-labour intensive practice to clear the fallen pine needles and accumulated undergrowth so that fresh grass sprouts from underneath for cattle to graze on. Till not so very long ago jhoom (slash and burn) cultivation — regularly setting fire to land and leaving it fallow to regenerate — was common practice. It is still followed in the Northeast.

The problem arises when local fires are poorly managed and they grow out of control and ravage vulnerable people (the old, the differently abled and the very young), homes, cattle, wildlife and indeed trees, none of whom can get away quickly.

Lack of advance red alerts 

Unfortunately, this year was different in a manner which people never recognised. The lack of rain created tinder box conditions. A more proactive bureaucracy would have sounded the red alert early, launched a communications campaign to sensitise the public against the danger, set up a war room fed by daily updates via sms and Facebook and designated local champions to lead the effort and build public opinion against jhoom.

chandi pd bhatt

Photo credit: indiatogether.org: C.P.Bhatt- Uttarakhand’s pragmatic Ecologist and community leader

Remember how Chandi Prasad Bhatt- alarmed at deforestation on an epic scale in the 1970s- a major cause for the Alakananda floods at that time – galvanised the women of Garhwal to launch the “Chipko Movement” (literally hugging trees) to guard against the rampant logging? He showed it is possible to build strong public opinion if people’s self-interest is shown to be aligned with a public cause. Managing perule better is a similar public interest issue.

Short sighted programme implementation

A previous government programme, which could have tackled the root of the problem, aimed at buying perule (fallen pine leaves) to incentivise villagers to collect them, rather than setting them on fire. Unfortunately it has long fallen into diuse. Villagers say it died because the amounts offered by the government were unattractive. Foresters say the villagers are too lazy to work and look for easy earnings and viable options for recycling perule were never developed. Also viable methods for recycling perule by compacting it into and selling, or the villagers themselves using it, as fire wood were never commercialised. Lack of sustained interest and lack of public finance effectively buried the programme even though it could have diluted the extent of the current ecological disaster by reducing the vulnerability of forests to catch fire.

Preventing disasters is nobodys business

But the real problem is that governments routinely under-spend on preventing disasters in comparison to the potential loss. Also, the tendency is to buy new equipment to manage disasters once they happen, rather than evolve low-cost, local options to prevent them. Had Uttarakhand done so, it would not be facing the terrible social and environmental costs of doing nothing.

A more technically savvy bureaucracy could have redesigned the old perule (pine needles) purchase programme to make it more attractive. But none of this happened. Minus a chief minister, the bureaucracy was a leaderless army. Local administrations headed by the district magistrate became a dead letter box into which the secretariat heavies dutifully dumped warnings and advice, sans funds, for guarding against fires.

This is not to say that the Uttarakhand bureaucracy was as callous as the Supreme Court described Union government bureaucrats to be. Whilst rapping them for not bringing forward evidenced solutions to reduce air pollution levels in Delhi, the court said: “Why can’t they come up with some research and solutions? You people are just sipping coffee and doing nothing”.

tea 2

photo credit: pinintrest.com: Delicately sipping tea – the bureaucrats relaxant.

What is true for Delhi is not necessarily true of state-level bureaucracies, which have responded magnificently, in the recent past, to disasters in Gujarat, Orissa, Andhra Pradesh and Tamil Nadu. But they all had a chief minister directing the coordinated effort that relief requires.

The key assurance an official seeks in an emergency is that his/her actions, taken in public interest, will be assessed not on the basis of how closely the regulations were followed, but on the context in which decisions were taken, and their effectiveness, in solving the problems disasters throw up.

This type of reassurance can only be credibly given by a duly elected chief minister. In today’s context, it takes a politician even to make the trains run on time! The colonial model, where the officials led and politicians merely presided, is past and buried.

Local political leadership is key 

Sans a chief minister in Dehradun, it is Delhi which is sending money, choppers and the Army to deal with the disaster. But only elected governments at the state and the local level can engage continuously to prevent disasters and effectively manage those that occur.

But the last thing to be wished for, in a disaster area, is a government led by officials with no effective political oversight. Even a bad chief minister is better than no chief minister at all. One hopes the Supreme Court will take note and end Uttarakhand’s misery.

 

CJI Thakur

Photo credit: Zeenews.comChief Justice of India, T.S. Thakar breaks down whilst sharing the misery of a judge’s life with Prime Minister Modi- the government promised to do better at staffing and funding the justice system. 

Adapted from the authors article in Asian Age on May 3, 2015; http://www.asianage.com/columnists/fuelling-fire-979

 

Bihars death wish

Adapted from the authors article in Asian Age November 9, 2015 http://www.asianage.com/columnists/bihar-election-red-flag-905

nitish lalu

photo: hindustantimes.com

Nitish Kumar has decisively won the Bihar election battle, defying the national trend. Why he succeeded against the might of the Bharatiya Janata Party and Prime Minister Narendra Modi needs deeper technical analysis of the voting trends. But three lessons emerge.

Canny Bihari voters

First, Bihar, like Uttar Pradesh, is a cosmopolitan constituency. This sounds odd since these are poor “cow belt” states. The people of Bihar have traditionally been outward bound via migration. But unlike Punjabis, who are ready to mingle and put down roots in their new karam bhoomi (place of work), they remain rooted in their origins. Those who migrated from Bihar to Fiji and Mauritius in the later part of the 19th century retain close contacts with folks back home. Technology has made this easier.

fiji

photo: theindiandiaspora.com

Intensely aware, the people of Bihar were unlikely to be carried away by bombast from external BJP campaigners with nary a local leader in command. Bihar cannot be ruled from Gujarat, just as Gujarat cannot be ruled from Delhi. Note that Delhi-based BJP leaders, in sharp contrast to the average Bihari, behave like the absentee zamindars of yore. They are unashamed to publicly admit that the “Delhi durbar” is a one-way ticket. Once they get a foot in there, the presumption is they have risen “above” state-level politics. But neither Bihar nor Uttar Pradesh can be won by expatriate leaders.

Development wins votes

Second, unequivocally, inclusive development wins votes. Whilst Lalu Prasad Yadav’s Rashtriya Janata Dal has proved itself to be an equal partner in the combine, the victory clearly belongs to Mr Kumar. Yet again, as in Delhi, a broad acceptability across all identity groups — caste, religion, demographic and economic — has triumphed. This is a huge endorsement of the virtues of an inclusive election agenda rather than a divisive one (like that of the BJP’s).

nitish

photo: hindubusinessline.com

“Presidential” style local candidates win 

Third, “presidential style” politics is here to stay. The election was fought and won around specific personalities whom voters knew and could identify with. Indeed, this was problematic for Mr Modi since the question was “Who is the BJP’s chief ministerial candidate?”

The BJP made the same mistake it did in Delhi, where it fielded its chief ministerial candidate in the waning hours of the campaign. By that time it was clear they were down and out. In both cases, the BJP has copied a favourite ploy of the Congress high command, which is to keep its cards close to its chest and “nominate” a puppet chief minister after the election rather than allow the candidate to directly demonstrate his/her electoral strength. This cost the BJP heavily in an election where, in sharp comparison, there was a ready, tested, well-known local leader in Mr Kumar.

Finally, has Bihar chosen well? Are they courting disaster by playing with “jungle raj”? Much will depend on how Mr Modi reacts to this defeat. If he is narrow-minded, seeks to punish Bihar for its decision and plays politics to undermine the Nitish government, Bihar is likely to be in for more of the same stilted development and under-achievement. However, Mr Modi can decide to be a statesman and view the Bihar verdict as a message that he is devaluing his reserves and his image by playing locally whilst the nation wants him to play nationally. Even from the narrow perspective of the BJP and its prospects, the last thing they want is to be seen as obstructionist or petty.

Nitish Kumar & BJP- juduva (conjoined) brothers in development

Mr Kumar is already playing with one hand tied behind his back, by the RJD. Till very recently Mr Kumar and the BJP developed Bihar in collaboration. They are, in fact, conjoined brothers in development. Mr Modi must rise above his personal feelings and go all out to support Mr Kumar to run a stable government and check Mr Yadav’s excesses. The enemy is Mr Yadav, not Mr Kumar.

RSS- out of step with the New India

The RSS must shed its growing image of a hardball-playing, narrow Hindu-vote-focused, quasi-political entity. Time was when the RSS was known for its social service and commitment to truth, honesty and self-sacrifice. Copying jihadi outfits that profess the same objectives but do not blink whist violently dividing India does not befit the RSS. Oddly enough, a failed state like Pakistan looms large in the minds of the RSS as a competitor to the glorious, continent sized country they call their own.

The Bihar election is a red flag for the BJP. For the sake of its own and national interest, a rational rather than an emotional approach is necessary. The people of Bihar have shown courage in braving the possibility of instability and “jungle raj” whilst opting for local leadership. This is an illustration of functional federalism. It would be unworthy of a national party like the BJP to seek to subvert this trend.

modi nitish

photo: the hindu.com

One of the “virtues” of under-development and poverty is that the stakes are low for courting political risks. Bihar has defied death earlier too, in colonial times. It has done so again. Mr Modi must work to increase the shadow price for political risk in Bihar with an eye on 2024. Wealthy voters are notoriously cautious and vote for stability. Ensuring a national presence for the BJP through 2024 means growing Bihar and Uttar Pradesh in the interim. Winning the war is more important than losing a battle. A good symbol of this new, high-minded approach to federalism would be if Mr Modi were to be present at the swearing-in of the new government. Actions speak louder than words. Let’s thwart Bihar’s death wish.

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

Will the Indian “Malalas” please stand up

saarah-ahmed-indian-pilot-8-march-15-513x239

Photo: Sarah Ahmed: Indian. Pilot.

July 4, 1995 — America’s Independence Day — Islamist militants take six tourists hostage in Kashmir. They decapitate a Norwegian and kill the rest, including two Americans. There has been no letup in the orgy of violence since. But now Islamists — Sunni and Shia militants — are eliminating each other in West Asia. Glee that the “enemy” is disintegrating is inevitable in both Christian and Hindu right-wing camps. But as Prime Minister Narendra Modi has repeatedly stated, albeit with scarce substantive effect, terror has no loyalties beyond the willingness to kill and maim.

The political economy of terror

Islamic terror, like terror anywhere, comes heavily loaded with political and economic objectives. The Taliban was created by the US to oust the Russians from Afghanistan in the 1980s. They and the Army are the only credible political actors in Pakistan today. Even China engages directly with them to protect its infrastructure investments and workers in Pakistan.

Saudi Arabia funds Sunni Iraqi militants to dominate the Shias of Southern Iraq and to undermine Syria’s Shia regime — all because Shias are perceived to be universally aligned with Saudi arch-rival Iran. Conversely, Russia and Iran support Shia militants in Iraq and the Shia regime in Syria. It is not inconceivable that in future Shia militants may be used to neutralise the Taliban in Afghanistan.

Ashraf Ghani — the technocratic President of Afghanistan — would probably welcome a dilution of Taliban power so that he can get on with implementing the development agenda.

Endemic warlordism and militant factionalism in North Africa and West Asia was constrained during the Cold War (1960-1990) by authoritarian regimes supported either by the US or the Soviets. Ironically both the democratic US and the Communist Soviet Union had no qualms about imposing authoritarian regimes as the norm in the region. It helped that till 1990, even the metric of development ignored politics as a factor and focused primarily on enhancing per capita income levels.

Democracy as a metric of development

The change came with the surprisingly sudden collapse of the seemingly well-off Soviet Union, a middle income country in 1990. Soviet unsustainability was ascribed to the absence of Western-style institutions — elective democracy, rule of law, small governments, markets, competition and choice.

Post 2001 (9/11), this development mantra acquired evangelical fervour, as an instrument to “civilise” the “arc of Islamic terror” stretching from Afghanistan in the east, through Egypt and Sudan to Mauritania in western Africa. The Arab Spring (2011) was hailed as the blossoming of democracy in time-warped North Africa. Once invincible, Hosni Mubarak in Egypt, Muammar Gaddafi in Libya and Zine El Abidine Ben Ali in Tunisia bit the dust and the people won. This was the expected upside.

The unintended consequences of Democracy: strengthening traditional fault lines

But two unanticipated downsides were less palatable. First, democracy became uncontainable — like a nuclear explosion. Democratic contagion travelled south and shook the gilded birdcage lives of the Sunni sheikhs of the Gulf states and deposed President Ali Abdullah Saleh of Yemen via tribal bloodletting which rode on the aftershocks of the Tunisian “Jasmine Revolution”.

Second, democracy in Egypt empowered the Muslim Brotherhood — a transnational Islamic party pushed underground by Mr Mubarak. For the G7, “Islamists” ruling Egypt was a horrific replay of the deposition of the “modernist” Shah of Iran in 1979 and the subsequent rise of a “renegade” nuclear, Islamic Iran. The Egyptian “Brothers” — beneficiaries of Islamic democracy — were presented as role models for disenfranchised commoners across the region. This questioning of the elite order was not what the sheikhs or the G7 had bargained for, or desired.

The G7 were comfortable with a “managed democracy” — the bare-bones institutions of a democracy, never mind if the

democratic spirit was non-existent. What they got was an unruly explosion of the democratic spirit — a magnified version of rumbustious, Indian style democracy, where rights trump responsibilities.

Libya disintegrated into armed militias and cost the US the life of its young, well-liked ambassador Chris Stevens. Yemen remains a cauldron of tribal militias. This democratic disorder is much like the persistent clan and tribe-based militancy in Manipur and Nagaland in India’s Northeast, funded by the drugs and arms trade with “wink-nod” support from China.

The recent bomb blast in Tunisia, which killed several British tourists, is similar in intent to the blasts in Mumbai in 1993 and the terror attacks in 2008. The former, managed by smuggler and mafia don Dawood Ibrahim, rode on the back of Muslim anguish at the unlawful destruction of the Babri Masjid by Hindu right-wing groups. The 2008 strike is credited to the Inter-Services Intelligence — Pakistan’s dirty-tricks entity. Both aimed at hitting where it hurts the most — the economy.

Tackle Islamic terror with targeted incentives for peace and development

Can we really expect Indian Muslims to remain unmoved by the global trends in Islamist terror? A few misguided young men have already joined Islamist groups in Iraq and paid the final price. But most Indian Muslims look inwards to a domestic solution to break out of the downward spiral that events drag them into. This is where government intervention can help.

First, reducing poverty helps all marginalized groups. There is a broad congruence between Muslims and poverty in India even today. Focusing on  poverty reduction more vigorously also reverses the marginalization of poor Muslims in Independent India.

Second, a more visible signal is also needed. Positive discrimination like reservations is unhealthy. It pits Muslims against the existing beneficiaries — dalits and backward castes by generating a scrabble for a fixed pie. Far better to instead to empower young Muslims to work productively in the modern economy. Modernizing the curricula of the madrasas is a long-term, sensitive but powerful option. Indian Muslims shine in private enterprises where success is meritocratic and not dependent on connections, networks or preferential access to education or progress at work. They are the core of Bollywood, handicrafts, the arts and our cricket team.  Ashwini Kumar’s Inshallah, Football is a touching film about how a dedicated Brazilian coach uses football leagues to meet the needs of aspirational youth in strife-torn Kashmir. They must be directly supported to do be better prepared for private enterprise which, is in any case, is the growing sector. Indian Muslims must also be assured that being part of the modern economy does not and should not, mean having to abandon traditional beliefs or culture. India is not France. We are a plural society.

Third, politics must lead by example.  Religion is deeply embedded in India. Politics must learn to live with religion as a political force rather than pretend to work within an a-religious framework. In this context, the new government in Jammu and Kashmir which federates the right-wing Bharatiya Janata Party of Jammu with the Kashmiri Muslim’s People’s Democratic Party in the governance of the state, is a progressive model which explicitly recognises that religion, like caste, is a legitimate basis for political action. True secularism is recognizing the right of citizens to organize themselves politically on any basis which provides a legitimate common cause.  Better to reflect traditional fault lines honestly rather than paper them over with the Band-Aid of pseudo-secular, socialist gibberish.

Fourth, women are the prime movers of social change, particularly in South Asia. Sheikh Hasina, Prime Minister of Bangladesh, Mayawati, the Dalit leader of Uttar Pradesh, and the young Pakistani Nobel Laureate Malala Yousafzai are examples. Leveraging potential Malalas in India via expanded and targeted education and health is what the government should be doing, if one-third of our population — Muslims and Dalits — are to make common cause with the rest of India.

Adapted from the authors column in Asian Age July 2, 2015 http://www.asianage.com/columnists/terror-s-echoes-home-748

Navigating India’s “perfect storm”

BeltTight

(photo credit:www.webmd.com)

It’s final now. The run of good luck PM Modi enjoyed has tapered off.

The monsoon is likely to be deficient by 12%. This would be the second year in a row. True, agriculture only accounts for around 15% of the economy and didn’t grow much last year either. But when you target 7.8% growth every basis point, added or lost, counts.

Manufacturing and services growth is already slow. Companies are at best cautiously optimistic but the caution makes new investment sticky. The money and jobs spinning realty sector, driven earlier by negative interest rates, is in a slump.

To complete the “perfect storm” scenario there are two important state level elections around the corner-Bihar later this year and UP in 2017. Neither state has BJP governments currently, so doing well in these will inevitably be a metric of how strong the Modi magic remains.

The good news of course is that every threat is also an opportunity. This is PM Modi’s opportunity to show that he is the Lion we think him to be.

Fiscal stability disaster prone

First, more will need to be spent on drought relief; restructuring of bank loans for farmers and income support schemes for farm workers. Delhi, admittedly with a miniscule rural area, has already distributed Rs 50,000 per hectare as relief for the farmers hit by the April 2015 unseasonal rain. FM Jaitley is possibly right that the drought will be localized in North and Central India. But these regions account for around 45% of the farmers. Retaining the targeted revenue deficit at 2.8 % and public investment at 14% of the budget will consequently be tough.

Postponed subsidy reform

Second, it is unlikely that subsidy corrections will now be possible this fiscal. Cheap electricity, water and fertilizer are here to stay with a possible relaxation of the tight minimum support price policy of the last few years.

Higher wage cost

Third, a significant expansion in the wage bill looms. For the armed forces it is the One Rank One Pension promise of the PM.  For the Civil Service the recommendations of the 7th Pay Commission are to kick-in from 2016. Luckily the wage bill is low by international standards- 1.6% of GDP and 14% of the budget. But even small incremental increases, unless accompanied by efficiency enhancing restructuring, are not affordable this year.

This perfect storm of shocks cannot be wished away. Better to deal with it upfront. Here are five suggestions:

Winning the market perception battle

First, don’t be cowed down by stock market fluctuations or seek to pander to them. These are short term adjustments by speculators and not reflective of annual economic prospects. Consequently, rather than play down the “perfect storm” scenario it makes sense for the government to highlight the extreme shocks they are battling with to keep economic growth growing. Even in this David versus Goliath scenario, what is key is to share a plan of action on disaster management; income support; and realigning revenue expenditure to retain the revenue deficit and investment target.

Nothing much was heard about the recommendations of the Bimal Jalan, Expenditure Management Committee (August 2014). But it could provide some useful strategic, short term revenue expenditure rationalization measures.

Cut the Red Tape

Second, stressful times also create an environment conducive for administrative reform. PM Modi’s can quickly lick babudom into shape through positive strokes. He should consider setting up a lean but empowered “Decision Support Team” in his office, manned by ten senior Joint/Additional Secretary level officers selected for their expertise in key sectors; their ability to persuade and their flair for collaborative performance.

They would be mandated to speak for the PMO and be tasked to work with the key ministries and state governments to cut through red tape holding up investment decisions. Working against weekly targets with real time feedback to the PM, the mantra for this team should be “ANA- Achievement Not just Activity”.

Those taking up such high tension assignments should expect to be on the fast track to become Secretaries to the GOI.  The PM is known to be cagey about trusting officers beyond a tiny circle familiar to him. This is not surprising given that he has never worked closely with the babudom in Delhi. But he should experiment by subjecting a larger group to the “agnipariksha” of performance. He will not be disappointed with the results.

Forget the optics of who gets the credit

Third, the knotty problem, particularly in Bihar and Uttar Pradesh, is how to be proactive in the face of state governments, which have the incentive to rebuff such support as being politically motivated.

The farmer does not distinguish between the state and the Union government (Lokniti Survey 2013) – 58% held both the state and the Union government responsible for the sorry plight of agriculture. If farmers fall through the gaps of political finger pointing, they will punish both the BJP and the SP-in Uttar Pradesh and the JD (U)-in Bihar. The beneficiaries of apathy will be Bhenji (Mayawati- the BSP supremo) in UP and Lalu Yadav in Bihar. Doing little is not an option for the Union government despite some of the shine rubbing off on the SP and the JD (U).

Don’t rattle the private sector

Fourth, it would be a big mistake to take too seriously the campaign to paint the BJP as a consort of the corporate sector. When stern action is warranted, it must be taken transparently and without rancor or bluster. But a “Preet Bharara type” of regulatory action is not what we need. Jobs are what the average citizen wants, which only the private sector can generate them.

Strong arm regulatory actions against foreign investors are bad optics- both for investment and for citizen sentiment. If our regulatory agencies are seen to be handmaidens of the government, they lose credibility. But the government also loses by devaluing an efficient instrument for regulating the private sector in a hands-off, technical manner.

Sticky revenues

Fifth, boost revenue. The tax receipt scenario is grim. First, projections for the year were over optimistic at Rs 14.5 lakh crores (US$ 230 billion) around 16% higher than the previous year. Tax receipts are bound to slide with slow external and domestic demand and lower corporate profits, despite the 15% increase in the rate of service tax. A tax receipt equal to last year’s estimate of Rs 13.7 lakh crores (US$217 billion) or 9% more than the actuals of last year is the best we can hope for- 5% points due to inflation and 4% points due to growth of the taxable base.

Getting more tax payers into the net is a worthwhile but effort intensive option with limited upsides. In 2013-14 there were 47 million direct tax assesses. New assesses have varied between 1 to 3 million per year since 2011. Even doubling the number of new assesses helps only marginally in additional revenue.

Transferring the crown jewels to citizens

There is more upside in fast tracking disinvestment. Listed Public Sector Undertakings (PSU) account for 13% of the valuation of the Bombay Stock Exchange or around Rs 13.6 lakh crores (US$ 215 billion). Of this, some equity is already held privately by minority investors. But an additional 10% can be sold without diluting government’s majority control. The problem is that, in the past, Institutional Investors have been the primary takers for such shares. Retail investor appetite has been largely absent from the tumultuous stock market for some years now and market momentum has been primarily provided by Foreign Institutional Investors.

Selling PSU shares in large volumes, without transferring majority control to the private sector, dampens the market price. Even the private IPO market is slow. Government is wary of inviting the charge of crony capitalism by selling shares to large institutional investors at cheap rates.

On the other hand, selling directly to retail investors is more defensible even if the price is low. After all the “Crown Jewels” really belong to citizens. Dispersing the ownership of PSUs widely also meets multiple objectives. Why not borrow a leaf from Dhirubhai Ambani’s 1982 market making strategy and incentivize the retail investor back into the market?

Link disinvestment, as a sweetener, to the issue of government debt for retail investors only – special convertible bonds – with a fixed return for three years at the prevailing Government Bond rate. 50% of the face value could be optionally convertible on termination in 2018-19, into a balanced bouquet of public sector equity at a 15% discount to the then prevailing market price.

A sequenced, mega issue of Rs 1 lakh crores (US$ 16 billion) of an asset backed government security can reduce the short term risk profile of PSU equity investments and pull in finance from an alternative source.

Government must come out with an evidenced strategy to deal with the “perfect storm” India faces. Of course, the PM is a “lucky General”. The drought may not materialize; the world economy may sort itself out and the opposition in Bihar and UP may self-destruct. But waiting for this to happen may be pushing the Gods too far.

Well run, PM Modi

modi run

(photo credit: http://www.iosipa.com)

Reposted from the Asian Age May 25. 2015 < http://www.asianage.com/columnists/well-run-modi-690>

Should it worry us that Modi sarkar resembles the Ethiopian Haile Gebrselassie, the greatest long-distance runner ever and not Usain Bolt, the 100-metre thunderbolt from Jamaica?

Not really. The 100-metre dash, whilst spectacular and crowd pulling, is a good tactic for disaster mitigation but disastrous for managing a huge, diversified economy. The marathon analogy suits India better. It is a test of endurance, grit and determination. Outcomes are only visible towards the end of the 42 km race. Those in the lead for the first eight km rarely end up winning.

Other than physical fitness the marathon runner needs a disciplined mind, which restrains the urge to sprint till the last mile whilst maintaining a planned and steady pace all through. Also important is the ability to transcend the near continuous pain and stress, and remain focused on the goal.

Modi sarkar has expectedly followed the epic Bollywood masala — a marathon interspersed with sprints. Citizens have been kept entertained by a blitzkrieg of short-term Bolt spirits to simulate inclusive ascent on a rising elevator of well being, whilst working steadily behind the scenes towards medium-term goals.

The opening of 80 million small bank accounts; the launch of three social protection (pension and insurance) schemes; the attractively packaged, near weekly engagements with foreign governments on their soil and ours; pushing through the border realignment with Bangladesh; the quietening down of tension with China in Arunachal Pradesh; the relatively incident-free border with Pakistan; the warming relationship with Sri Lanka; the race to make India “cough-free” by substituting clean renewables with dirty fossil fuels; the quick response to natural disaster in Nepal and Bihar; the disciplining of the bureaucracy and the Bharatiya Janata Party’s political cadres; effective management of the sensitive relationship between the BJP and its regressive cultural font — the Rashtriya Swayamsevak Sangh; the visible dominance of the Prime Minister’s Office, which had wilted under the previous government; the productive alignments with Didi’s (Mamata Banerjee) government in West Bengal; Mufti Muhammad Sayeed’s People’s Democratic Party in Kashmir; the Telugu Desam Party in Andhra Pradesh; Amma (J. Jayalalithaa) in Tamil Nadu, are all signals of aggressive political outreach.

But behind the scenes, several half-marathons have also been initiated — the blistering pace of tendering and award of infrastructure projects with results expected over the next three years; the quick decisions on defence procurements; the swift auction of coal mines to resolve the fuel supply bottlenecks; the opening up of the defence sector to private investment and management; relaxation of foreign direct investment constraints in insurance — both major sources of good jobs and the quiet continuation of the previous government’s Aadhaar electronic platform as a primary mechanism for verifying identity so necessary for subsidy reform via direct cash transfers.

Prime Minister Narendra Modi has run the first leg of the marathon with exceptional skill. But this was the easy part. The next 16 km till 2017 is what will make or break his chances for re-election in 2019. Five key measures stand out.

First, with two big state-level elections coming up, the BJP will need to marry the compulsion for populism with fiscal rectitude, which has been the leitmotif of the first year of Arun Jaitley as the finance minister of India. Reigning in inflation is a continuous struggle in such circumstances. It is fitting that the Reserve Bank of India continues to focus on managing money supply and interest rates. The ministry of finance will have its hands full substituting for the erstwhile Planning Commission in allocation of funds and enhancing real-time, expenditure management systems and metrics to ensure “value for money” spent. Key indicators to watch will be achievement of the targeted reductions in revenue, current account and fiscal deficits.

Second, introduce a poverty and private jobs creation filter. Share the assessments publicly via a “dashboard” of proposed allocations to make the allocation process more transparent and participative. Direct democracy is of Mr Modi’s signature tune. This is also a great way of self-restraining crony capitalism and populism.

Third, cut loose the railways and the public sector companies and banks from the crippling constraints of ministerial intervention. Corporatise all production and service delivery entities as a first step to reform, followed by administrative autonomy and selective listing of stock. The creeping tendency, reminiscent of the “Indira Gandhi ‘commanding heights’ syndrome”, of falling back on the public sector for getting quick results is unfortunate. The international experience shows that poor investments are the outcome if public funds are plentiful. India cannot afford “bridges to nowhere”, even if they create jobs in the short term. This implies fixing the “broken” public-private partnership (PPP) model, not effectively junking it altogether with the government assuming all the risk, as is being considered currently.

Fourth, trim the flabby Union government. The UK model of agencification and administrative reform, tight budget constraints, monetisation of assets and the levy of user charges, fits the Indian context best. Look for “asymmetric reform”, rather than whole-of-government approaches. The Aadhaar unique ID experiment is a useful example of the benefits of strategic, but narrow reform. The “Namami Gange” Clean Ganga Mission is another example. If “cooperative federalism” is to be more than just an attractive slogan the Union government must be the pied-piper, which the state governments follow.

Fifth, fix the big institutional constraints to rapid development. The last thing we need is a clash of titans — Rajya Sabha versus the government — a replay of the dysfunctionality of the American political architecture; judiciary versus the executive. Are we really keen to tread the Pakistan route? Avoid proxy veto by the Union governors over elected state governments — a throwback to the ugly days of the Emergency in the 1970s. Implement the 74th Amendment (1992), which mandates decentralisation but remains ignored two decades later.

The final 16-km dash in 2018 and 2019 will be easy if the half marathons already initiated are run well, over the next two years. The trick is not to sacrifice public interest in an all-out attempt to win state elections in Bihar and Uttar Pradesh. The question remains: will the BJP’s marathon mind rule or its sprinter’s muscles dominate?

CM Kejriwal’s plunging popularity

Kejriwal plunge

(photo credit: fundamental.bogs.com)

How justified is Mr. Kejriwal, the Chief Minister (CM) of Delhi in assuring auto rickshaw (tuk tuks) owners and drivers -his niche supporters numbering around 100,000 – annual rate revisions in tandem with rising costs, when he denies a similarly supportive regulatory regime to the three private companies which supply power to consumers in Delhi?

As a Dilli-walla, who has not had to use an inverter during the last five years because electricity is available on tap- a saving of Rs. 5000 per year- it seems obvious to me that privatizing electricity supply has been the biggest boon for citizens.

But to sustain supply at a reliability level of 99.5%, the DISCOMS have to buy sufficient power to meet peak load and maintain the wires, related transmission and distribution equipment and meters sufficiently well, to avoid breakdowns and to meter consumption accurately. Privatisation has given Delhi what only Bombay (also privately supplied) used to have a two decades ago – reliable electric supply.

Build institutions, don’t undermine existing ones

The Delhi Electricity Regulatory Commission’s (DERC) consistently fair, participative and effective decision making has supported this achievement. Not surprisingly, a recent independent survey, done by the premier Jaipur based, consumer advocacy institute- CUTS, which reviewed institutional arrangements and consumer perception, assessed the DERC as the state electricity regulator most responsive to citizen grievances.

It is consequently, decidedly odd, that the Mr. Kejriwal should try and undermine the institutional credibility of the electricity regulator by insinuating that the private DISCOMS are being favoured by the DERC tariff determination process at the cost of consumers.

Most recently Mr. Kejriwal has alleged that the newly appointed in-charge Chief Secretary (who apparently was not his choice) is also in cahoots with the two Reliance power DISCOMS.

Mr. Kejriwal has erred in mixing up the issue of whether or not the CM should choose the Chief Secretary with the unrelated issue of whether, or not, the person appointed to that position, by the Lt. Governor, has the right credentials to occupy that post.

On the first issue, good governance norms would dictate that, at the very least, the CM should be consulted and preferably should concur in the appointment of the Chief Secretary (CS). After all, unless the CM and the CS trust each other, government will become dysfunctional. The worst thing for a government is to admit publicly that it is out of control. This holds irrespective of the legal position that the Lt. Governor is not bound to seek the CMs advice on the issue since Delhi is only a “make believe” State Government with limited functions.

Populism is not sustainable

The Kejriwal government is coming across as populist, anti-reform and anti-organised private sector. Add to this the constraint that being recent rulers, with no administrative experience, it appears ham-handed at doing what it wants. The result is that even good intentions get warped by inept execution.

Why Messers Kejriwal and Sisodia seem bent upon wasting time and political capital on burnishing their populist image, even though there are still more than four long years to go before elections, is puzzling.

That Mr. Kejriwal looks to the common man for his support is welcome. After all more than 40% of Delhi residents live either in slums or in slum-like colonies. But more than “freebies”- like cheap power and free water- what each of these “slum dwellers” want is a better life for their children and a job.

Generating new jobs

Generating 1 million “good” jobs in Delhi over the next four years is a colossal task and the CM would do well to focus his energies on this task. He will need the active collaboration of the private sector to achieve this goal. The continued availability of reasonably priced, good quality electricity will be crucial so tinkering with what is working well (privatized electricity utilities) is dangerous and irresponsible.

It is all very well to grandstand by dis-allowing the entry of multi-brand retail in Delhi. In any case, these space-intensive, “deep pocket” entities which seek to provide a “complete shopping experience”, would rather locate in adjoing NOIDA or Gurgaon, where commercial space is cheaper. But what does the government plan to do to “clean up” the existing local market places and make small shopkeepers more competitive?

Why not create new jobs by servicing public spaces better with private security; better maintenance; toilets; take-a-break-spots; green spaces and parking facilities to enhance the shopping experience.  The popular Dilli Haat (market) started two decades ago is one such example.

Make the rich pay for using public road space

Delhi has around 2 million cars. Most of them are parked overnight on the streets and adjoining side-walks. Why not charge car owners for this privilege, especially at a progressive rate? Rate progression would mean that for every incremental car per household, the rate increases. Even a flat charge per car of Rs 500 per month would yield an additional revenue of Rs 1000 crore per year (rule-of-thumb basis) equal to 3% of the 2015-16 Budget estimate of Rs 35,000 crores.

The incremental proceeds could be used, in the colony where it is collected, to provide and maintain colony roads; drains; sewage systems; street lights and water supply systems. More importantly, the fee will provide a disincentive to own multiple cars; encourage owners to dump old, unused cars and free up public parking, cycling and walking space.

Public transport

The CM should also note that whilst today electricity in Delhi is of the same quality as in Mumbai, the same cannot be said of the public buses. Ensuring a 24X7 public transport system, which is secure and accessible within a maximum ten minute walk from any urban mohallah (community), is an enormous challenge which goes beyond just buying more buses. Meeting this public transport infrastructure gap will hurt he CMs support group the most – the 100,000 auto rickshaws who provide an inefficient, insecure and costly substitute for public buses. But it can garner the CM the support of 60% of the 25 million Dilli-wallas who can only afford to travel by bus.

There are still more than four years to go for the Delhi elections and it is sad to see the Kejriwal government not using this time to deliver substantial gains to Delhi citizens. Grandstanding by “taking on” the Government of India via the Lt. Governor is unlikely to get it votes. Delhi is not a city which tolerates “whiners”.

BJP ruled municipalities provide no “benchmark” competition

The only silver lining for Mr. Kejriwal is that the three Municipal Corporations, all controlled by the BJP, are even worse. It is shocking that the Modi “magic” has not brushed-off on its local worthies and the municipalities remain mired in inefficiency and corruption.

Far from setting governance standards which would force Mr. Kejriwal to up his game and perform better, the Delhi municipalities are making it absurdly easy for Mr. Kejriwal to “shine” by comparison. This is shortsighted of the BJP and bad for Delhi citizens.

End game

Mr. Kejriwal has already lost the support of the middle class. Sadly he is in danger of losing the poor also, unless he takes service delivery beyond the level of rhetoric. He knew the limited character of the Delhi government before he contested. If he now feels constrained for power he has to wait till 2017 when he will get a chance of consolidating his power base in the three municipalities. Alternatively, he has to wait till 2019 in the hope of getting a congenial partner at the national level, who will cede fuller powers to Delhi State.

Either way he has a clear three years in which he can focus on improving what lies squarely within his ambit today- electricity supply, roads, public lighting, water, drains, sewage collection and treatment and social services. Even this seems a handful given the shallow bench strength of the AAP.

Tag Cloud

%d bloggers like this: