governance, political economy, institutional development and economic regulation

Posts tagged ‘bureaucracy’

The coal-gate bell tolls selectively

patiala house

On Monday, May 22, 2017 CBI Special Judge, Bharat Parashar will sentence the five accused, convicted by him on May 19, 2017. Among the convicted are three officers – H.C. Gupta, retired Secretary of the Ministry of Coal (MOC) and two of his juniors, convicted under the Indian Penal Code (IPC) for criminal conspiracy and cheating and under the Prevention of Corruption Act, 1988 (PCC), for obtaining undue pecuniary advantage, against the public interest, for M/s Kamal Sponge Steel and Power Ltd (KSSPL).

The fearsome consequences of a criminal conviction

The conviction under the IPC invites a maximum sentence of up to six months with a possible fine. The conviction under the PCC invites a minimum sentence of one year, extending up to seven years with a possible fine. Associated outcomes would be the retrospective dismissal and withdrawal of retirement benefits for Mr. Gupta and dismissal for the two officers in service with no termination benefits. It can’t get worse for these officers.

Jail

The background to coal-gate

In November 2006, the UPA government, desiring to relieve the coal shortages crippling the economy, invited applications from end-users of coal in power, steel and cement sectors for allotment of captive coal mining licenses. 1.422 applications from 344 companies for 38 coal blocks were received.

But this gigantic liberalization measure quickly acquired notoriety. A Tsunami of public revulsion at the alleged, rampant corruption in allotment followed.  In August 2012, a report of the Comptroller and Auditor General – India’s public auditor, was leaked. It assessed the loss to the treasury from incorrect coal allocations between 2004 to 2009 at Rs 10.7 trillion.

CAG

The Vigilance Commissions waded in righteously and referred the case of allotment of the Thesgora B/Rudrapuri block in Madhya Pradesh, to the CBI for a preliminary investigation on June 1, 2012.

CBI lives up to its “caged parrot” reputation 

The CBI lodged an FIR on October 13, 2012 against M/s Kamal Sponge Steel and Power Ltd. (KSSPL) – one of the two joint allotees. It had identified deviations from the guidelines for allotment specified by the ministry of coal. However, after investigation, it filed a closure report, stating that there was insufficient evidence to prove a criminal conspiracy to cause unlawful gain for the allotee.

The Supreme Court bats straight and hard

Meanwhile, the Supreme Court, in a separate case regarding coal allotment, ruled in August 2014, that all the coal allotments done over the period 2004 to 2009 in favour of private companies were contrary to the provisions of law and terminated them.

The CBI court takes heart and revives the case 

Soon after, the CBI court rejected the agency’s closure report on October 13, 2014 and framed charges on October 1, 2015. Special Judge Parashar has been painstakingly diligent in avoiding judicial overreach. His approach has been technically exemplary. He has recorded how the ministry of coal subverted the process defined by itself and failed to exercise due diligence and adequate oversight over the actions of the coal allocation section of the ministry – headed by an undersecretary level officer. In an unedifying spectacle of poor leadership this junior officer was fingered by his immediate superiors as solely responsible for incorrectly processing the 1,422 applications received during the 36th round of coal allocation.

A tragedy of avoidable self goals in MOC

self goal

The entire process was replete with errors. The application of M/s KSSPL was incomplete. The last three years audited balance sheet were not attached as required by the advertised guidelines. But the lacuna was not red flagged. Instead, it was circulated, like all the other applications received, to the concerned administrative ministries – in this case the Ministry of Steel and the state government of Madhya Pradesh for comments and then tabled in the Screening Committee for consideration. The state government recommend that the block be allocated to M/s BLA Power – a power producer. But this recommendation was not accepted, presumably because this block was specified for non-power coal users.  But then why was the application of m/s BLA Power circulated to the concerned ministries and state government, without red flagging that it was ineligible?

M/s KSSPL – complicit conspirator or merely gaming an inefficient system

M/s KSSCL was invited to make a presentation to the screening committee despite their applications remaining incomplete. Worse, the prosecution established that the missing audited balance sheet had been with the applicant all along and that the applicant had overstated their production capacity and their net worth. Whilst there were no minimum conditions for net worth or production capacity, overstating both, could only have been done consciously to falsely claim a greater need for coal and a larger allotment than required. Having once stated this falsehood, producing the audited balance sheets was no longer possible. Considering these facts constructively, the charge against the company and its employees for cheating and conspiring to obtain pecuniary benefit at the expense of public interest is well established.

A conspiracy of one?

But who did the applicant conspire with in the government? Is it not possible that the applicant, simply used the loosely dispersed and poorly managed selection process to their own advantage, without the active criminal cooperation of anyone? Do not thieves enter through a door, inadvertently left open, to steal? Would the mere fact of an open door automatically make a beat policeman or the owner a co-conspirator?

Why the selective targeting of and within, the ministry of coal?

Second, even if there was a conspiracy, why was the relevant chain of officers in the administrative ministry (Ministry of Steel) or in the government of Madhya Pradesh not similarly charged? They did not object to the incorrect inclusion of the applicant. Nor did they object to the allocation, either during, or after the steering committee meeting. Was it sufficient for them to merely stress the need to evolve objective criteria for evaluating the applications in a pre-evaluation meeting convened by the MOC on May 11. 2007 without putting down their concrete suggestions on record? Secretary, Coal had specifically directed Coal India to identify the applications whose net worth was at least 20 percent of the capital needed to implement their proposed projects. The onus was on the MOC to follow up on these decisions. But nothing seems to have been done.

The fact that the MOC did not follow up on defining the evaluation process has been used as evidence of a conspiracy within the ministry to retain undue discretion possibly with the intent to cause pecuniary benefit against public interest, to be obtained by selected applicants. This is a valid concern.

But, if there was a conspiracy within the Ministry of Coal, surely the extent of it needs to be established. Could it not, for example, extend to the then Minister of Coal, who was also the Prime Minister- Dr. Manmohan Singh? Also, what about the undersecretary heading the coal allocations section.  He is clearly not solely to blame. But exonerating him completely, also appears extraordinarily generous, considering that he could produce no written orders directing him to circulate the applications without checking them for completeness or eligibility per the guidelines. Is it sufficient to rely on the mere fact that the three convicted officers were all from the IAS to establish that only they were part of a conspiracy?

Was the circumstantial evidence doubt proof enough to prove guilt?

Special Judge Parashar quotes the Supreme Court on the need for convictions, based on circumstantial evidence, to establish a clear, plausible, plainly visible connectedness between the actions of the conspirators for a common illegal objective. But the evidence to support this minimum requirement to establish guilt seems far too thin and speculative in substance.

Administrative disaster but criminal conspiracy…..?

What has been incontrovertibly established is that the pre-conditions for a conspiracy to be hatched existed. But in the absence of incontrovertible evidence that a criminal conspiracy existed, whilst there is ample ground for proceeding with disciplinary proceedings against the officers concerned, indicting them criminally seems excessive.

portia

Portia in Merchant of Venice – “The quality of mercy is not strain’d……….It is an attribute to God himself; And earthly power doth then show likest God’s; When mercy seasons justice.” William Shakespeare

The law must needs be blind, single-minded and mechanically predictable if it is to avoid selective targeting. Special Judge Parashar after penning a water tight judgement stopped short on excising the cancer of criminal conspiracy fully. Or can this be judicial self-restraint in the face of certainty, that additional indictments are around the corner to get to the root of the problem?

The blog is also available at http://blogs.timesofindia.indiatimes.com/opinion-india/the-coal-gate-bell-tolls-selectively/

PM to babus: Learn to work with “plentiful resources” for social and human development

DC

(photo credit; namakkal.tn.nic.in)

Prime Minister Modi, addressing the civil service officers, last week, made three telling points. First, he asked the bureaucracy to shrug off the inhibitions of the past and think big and assured that resource constraint would not limit them.

Second, he exhorted the bureaucracy to change citizens’ perception of babudom by personal example.

Third, he advised that social and human development were core sovereign areas that babus should focus on.

Taking the second first, he was bang on. Babus have taken a severe beating over the last three decades, with even the government giving this institution short shrift. Cleary, this PM is different. This warmed babu hearts, as it was meant to and possibly sparked off in a few, the determination to be different. But unless some core steps are taken to create the enabling environment for babus to earn respect, the warmth will dissipate quickly.

There are three key issues which bedevil the bureaucracy and unless these are dealt with widespread change is a dream.

Management by Janampatri

First, the bureaucracy remains mired in colonial, vertical hierarchies, with each having its own jagir of positions that only they can occupy from induction to the day they retire. Aspirants work hard to join the various silo like career lines, not because they have a talent or even liking for the type of work they do, but based purely on differential career prospect, which bear no relationship to the value addition. This is clearly out of sync with the horizontal institutional structures which are the new work place.

Of course change has to be gradual to be fair to those, who for no fault of theirs have become what the system made of them. Starting with the top is always the best way to signal change. Recruit all senior positions in the Government of India on contract for fixed terms through open selection, based on core competencies. This is what will incentivize junior babus to be performance oriented; acquire relevant skills and to specialize.

The electron is mightier than the pen

Second, government has to go 100% digital to manage the ensuing burden of monitoring, managing and rewarding performance. Digitisation also establishes audit trails, which cannot burn down, as files do. It is also crucial for fixing accountability. Lastly, digitisation promotes transparency and access to information. India lost an opportunity when it did not become part of the steering group for the Open Data initiative of President Obama in 2013. But this is where we should be heading.

Pay for value addition not status

Third a common problem, across bureaucracies, is that that the most unskilled get paid the highest relative, to the market comparators and the most skilled are severely underpaid. The logic behind this “madness” was socialism which expected you to “give” to the nation per your capability but to expect only what you needed. Since there is not much variance in human need- roti, kapda, makaan- pay scales across the vertical levels of babus were compressed unreasonable in a show of faux equity. Even today the highest gets paid only 10 times the lowest. This needs to change. In the private sector, where pay is related to value addition, this ratio is meaningless. The start should be made by making all senior positions-Joint Secretary and above- contractual, filled by open selection through UPSC and paid on market rates.

Just making these three changes can inject skills into the bureaucracy; make them more responsive to public needs and generate the right incentives for those in line for senior positions.

Are we heading for a fiscal surplus?

What about the other significant point of the PM-thinking big and learning to work with “plenty” instead of coping with resource scarcity.

The source of the PM’s confidence that a fiscal bounty is around the corner is unclear but the point is relevant in the context of his objective “minimum government, maximum governance”.  If the physical size of the government is reduced to only the skills required for core sovereign functions, the ensuing surplus public funds can be deployed.

Focus the bureaucracy on core sovereign functions

His remark gains heft when linked to his third point that he did not visualize a big role for the bureaucracy in areas which were earlier considered “prime “ positions- industrial development, commerce and infrastructure, since these were not core sovereign responsibilities. Developed economies function very well, through professional bodies and the private sector in these areas, using light touch regulation.

Instead he exhorted the bureaucracy to align their skill set with what people expected of them- enforcement of the rule of law; social protection and human development. Working with and for the disadvantaged, is a core sovereign function. This must have come as a shock to many babus, aspiring for career in the glamorous world of industry, infrastructure and commerce.  But, if and when translated into reality, a focus on using the bureaucracy primarily to fulfill social objectives is very welcome.

Management of “plenty”

Are there special skills required to work with plenty? A fiscal bounty or “plenty” has obvious advantages in improving funding even for functional areas like personnel management, accounting, auditing and technical consultancy which are fundamental to public efficiency; in improving the timely availability of budgeted amounts or in making government more receptive to innovation requiring some additional up-front cost. But perversely, plenty also breeds its own “spoilers”.

Keeping the “Locusts” at bay?

First, “plenty” attracts locusts in droves each trying desperately to get at a slice of the action. If the institutional arrangements are poor, or the government weak kneed, “locusts” will gnaw away till they bring down the very tree they feed on. The UPA 2G and coal allocation scams were exactly these.

So PM Modi is correct that the bureaucracy will need to change their skill set if they are to manage “plenty” as efficiently as they have been managing scarcity all along.

The might of public finance breeds civil service arrogance

Second, the most pernicious outcome of public plenty is the perception, within government, that it can go it alone without the collaboration of other stakeholders- civil society organisations; NGOs and the private sector. The collateral damage is of “know all” babus and surrounding supplicants, who would prefer to allow government to make costly mistakes rather than risk point out an error for fear of being labeled as a “problem creator”.

The systematic subservience, during the colonial period, of local public management systems to centralized, top-down arrangements like the District Collector or the Police Superintendent, have left an enduring miasma of suspicion, envy and mistrust, which still colours the relationship between the people and the State, seven decades into our independence.

Resource scarcity has the advantage that it humbles the State and its representatives and forces them to take help from the local community thereby creating horizontal working relationships between the State and Non State Actors. Loosening of the fiscal strings can retard this healthy socio-political institutional development.

The State has to progressively step up partnerships with CSOs and NGOs, not only when it is driven to do so by budget constraints but because of the social and economic benefits accruing from letting people manage their own affairs.  Decentralisation and direct democracy has multiplier effects, beyond just the fiscal mirage of making personnel liabilities off-budget for government.

The begging bowl is easier than community effort

Third, one of the biggest problems in lavishly funded, extended United Nations relief and rehabilitation missions is how to wean the beneficiaries away from the psyche of dependence on an beneficent external actor, be it the UN or the government.

A government of plenty begets the same dilemma. In the face of the might of public finance, the internal juices of communities, to fund and manage their own needs, dry up. Instead it is so much more convenient to stand in line with a begging bowl every time the PM comes calling and to lobby for public funds in the capital.

Gold plated stranded assets

Fourth, at the best of times due diligence, design, planning and execution of public projects is made impossibly inefficient by process norms and the political economy constraints of spending public money per the “value for money” principle. When money is scarce, decisions get pared down to the essentials. Conversely well-funded public entities make bad investments merely because they can afford to do so.

Public decisions-be they big or small, are so difficult to get made that the tendency is to lump what should be a series of separate decisions into a single omnibus project which becomes so big and involves so many stakeholders that it “just cannot fail” and has to be approved. But this also generates surplus capacity.

This tactic is unsuited to an era of rapid technological change. Excessive future commitments can become stranded assets-technology which is no longer efficient. Building 100 GW of solar capacity in the next five years has precisely this risk.

There are four key ingredients for making good decisions in a time of plenty going by the acronym- COLON.

First- Collaboration with all stakeholders is key to inclusion. Embed it in government process. Second-Outcomes like reduced electricity outages, should be monitored rather than inputs like project spend or intermediate outcomes like project completion. Third-LOcal decision making is key for ensuring buy in. Leave room for it even if it means slower implementation. FourthNo is what a Finance Minister should say to politically motivated, low social return investments. Currently we have only the fourth ingredient.

Saffron India

Image

The saffron deluge has taken everyone by surprise, like an early monsoon. The Modi storm carried away with it, anyone who rode with him and demolished all others, barring regional stalwarts like Amma, Naveen Patnaik and Didi.

Is this the end of caste as a political weapon? With Bhenji (Dalit supremo), Netaji (Ahir supremo-UP), Lallu (Ahir supremo-Bihar), Ajit Singh (Jat supremo-UP) all biting the dust and even Haryana going saffron, are voters taking caste out of national politics? Could this be stretched to say saffron can make the country less divisive- top downwards? Is there a hope that the next step could be to take caste out of state level politics? Well that clearly is Modi’s dream. But there are limits to Hindu integration and virtues in dissonance.

The democratic problem with an overwhelming mandate is that it reduces the opposition to a redundancy. In the extant case, saffron still has to contend with the Rajya Sabha where the NDA does not have a majority. More importantly, the recent Indian experience with huge majority governments has not been conducive for reforms. Of course coalitions are not a panacea for reforms either. The United Front coalitions of 1996 to 1998 were superbly ineffective. But the Janta Party wasted its massive 1977 win and Rajiv Gandhi frittered away the overwhelming sympathy vote in 1984. In comparison, significant economic reform happened only under the Narasimha Rao led coalition government in 1991; the Vajpayee led NDA government of 2000 and the Manmohan Singh led UPA I of 2004. There does seem to be a positive link between coalitions and economic reform. Possibly huge majorities induce comfort. The lack of competition douses the fire in the belly till ones time is up and it is too late.

Modi is not unused to huge mandates. After all he has led Gujarat for over ten years now. But it would be wise to pursue the idea of a “cabinet” of Chief Ministers and to engage proactively with the opposition. The last few years have seen rising inter-party acrimony making Parliament dysfunctional. To keep engaging, when not compelled to do so, is the best route to rebuild a national consensus on development priorities.

Modi is a man in a hurry, with an agenda to complete and too little time to do it in. It is consequently unlikely that he will let the baton slip. He would do well to use the UK-Tony Blair and Malaysia precedent and constitute small, vertically integrated, fully empowered, politico-technocratic teams with specific, measurable and time bound results expected from them. His secretariat is unlikely to be the laid back, free-wheeling entity it had become under Manmohan Singh, which reported to everyone but the PM. The expectation is that Modi will come to office with a pre-formulated agenda and a team to implement it doggedly.

Is the hoary city of Delhi likely to seduce him into somnolence? Again, very unlikely, given the cultural gulf tween the macho man from Mehsana and the pleasures on offer from the glitterati of Lutyens. His “quasi married” status is likely to generate many hours of speculation of who, if anyone, is likely to share 7 RCR with him.

The world will be waiting however, for any slip up on his management of the Muslim community. Whilst Modi seeks to treat all Indians the same and goes out of his way to say so, the fact is that to reverse the “selective appeasement” of the past will take time and fiscal space. Neither is available to him. This is where proxies and symbols can help to reassure minorities that he is their protector too. One important symbol will be his choice of the Home Minister, who whilst enjoying the full confidence of the PM, must be trusted by all segments of India.

Theorists will make much of the need for Modi to build or re-build institutions. This is very time consuming and effort intensive. Many of these (cabinet system; inner party democracy; the bureaucracy; federalism; the judiciary) were systematically destroyed during the long period of Indira Gandhi’s rule. Institutions do matter, particularly in a democracy, because they provide permanence in a politically unstable system. But in India we carry everything to extremes. No institution can atrophy and yet remain productive.

The central bureaucracy is one such institution. From the very beginning, it was merit oriented only at the point of entry. Even in that limited way, it did not respond to the socio-economic disabilities specific segments of India faced in getting in. This opaque, small, mostly male club can be transformed by introducing real competition at the top. This is from where the fish rots. All babu posts of Joint Secretary and above must be filled through open competition. It must be the PM (not the concerned Minister or the Department of Personnel) who must select the candidate, out of a short list of two, recommended by the UPSC. Each appointment must have a minimum tenure of three years with no job hopping allowed, even if more attractive lateral options become available.  

One new tradition, which must be reversed, is the “in your face” security apparatus. Modi was the highest security risk even before he became the PM. Now his security needs to significantly enhanced. But this challenge should be used as an opportunity to upgrade the security apparatus, rely on technology, intelligence and rapid response, rather than on a glut of gun totting men. It is only when the PM makes his security “invisible” that it will stop being the status symbol, it is today.

It will not be easy to rein in “privilege”, which is the life blood of an elitist, patrimonial State. But much of the rot we face today can be traced to this one, ubiquitous norm. Who better to try, than one who, like Bill Clinton, made it to the very top purely on merit?

Land Bill: political gains, future losses.

The Land Bill 2013 is backward looking and shortsighted. Coming  119 years after the predecessor legislation in 1894, it fails on four counts.

First, it does nothing to assure citizens that it shall rein in wilfull and unnecessary acquisition of property by the State, as has been happening in the past.  Consider that there are many Public Sector Undertakings which own land far in excess of their needs, as do the “new age” power plants which have been given coal mining licenses. The Bill actually skirts around the issue of “when and how much” is it justifiable for the State to acquire property. It focuses only on the process and amount of compensation to be paid in the event of acquisition.  It is curious therefore that it is being lambasted by industry as anti-industrialisation, not because of the higher amounts they may have to pay for land, but on account of the anticipated delays and increased bureaucracy now proposed in the process. The Bill proposes to artifically enhance the price paid for acquisition to give the disposed a fair compensation and possibly also act as deterrent to “deep pockets” from acquiring and holding large tracts land. The deterrent is over estimated. Land ownership has an average ROR of above 25% per annum which will continue to attract investments on account of its scarcity value. The provisions for enhanced acquisition price are populist and are likely to be ineffective in ensuring that only minimum volumes are acquired. The only way the volume of acquisition can be rationalized is by severely restricting the definition of public purpose to the needs of Defence and Security. The Right to Property is an essential part of empowering the ordinary citizen versus the State, which is ignored by the Bill.  Opposition should have come from the BJP and other rightist parties but “industry wallahs” typically like an interventionist State (like China or Vietnam) if it intervenes on their behalf. it is election time and all are wary of upsetting either the “poor”, “industry” and “real estate” wallahs. The pro-poor “lobby” essentially has a “left leaning” mindspace. For them, owning property is equivalent to being an oppressive, extractive, arrack swigging, landlord cum money lender.  This is a politically attractive stereotype, which all parties publicly bow to, never mind that atleast 90% of the population owns land and property. Why not use the Bill to define this Fundamental Right better and proscribe the powers of the State? We are losing a historical opportunity.

Second, the Bill displays an unerring faith in the bureaucracy and its ability to protect the rights of the poor, manage a complicated acquisition, participation, resettlement and rehabilitation process efficiently, despite all the evidence to the contrary.  Citizens today want a simplification of administrative procedures, not additional miles of red tape. The more the red tape, the more time it takes to get things done and higher the transaction cost, for getting files moving. The Policracy must rise above its class interest and declog administrative processes, not add ever more onerous procedures. Current estimates for completion of the new land acquisition process is a full five years! Only a policracy with a faith (or a vested interest) in an “interventionist” bureaucracy could impose this on citizens.

Third, the Bill shows the medieval mindset of the “policracy” under which industrial and infrastructure development and service delivery were a preserve of the government or of public sector undertakings. Hence land acquisition for private educational institutions, private hospitals and private hotels are all excluded from the definition of “public purpose”. The very same institutions if owned by the government or a PSU would be eligible. This approach runs completely contrary to everything the government has said about the criticality of private investment in infrastructure and service delivery. It confers on government the near unique ability to aggregate land in industrial volumes and then to use this leverage to enter into Public Private Partnerships with industry. The opportunity for extracting “rents” is obvious with the well known downstream consequences of fraud and corruption.  Medievalism is also evident in the requirement that there should be no change in ownership, post acquisition of the property, without the approval of government. Presumably, this is to discourage businessmen, who are “fast track approval getters”, from becoming middle men, in the real estate game. However this is a very restrictive condition for the genuine, medium level, private investor. An investor wants “full” ownership over what she has bought. This includes the right to transfer when considered appropriate. Having to go back to the government, cap in hand, just perpetuates the “license permit raj”. Once the Socio Economic Assessment and the Expert Group are satisfied with the “public purpose” and reasonableness of the project, it hardly matters who the owner is.  Despite all the high sounding support for the private sector, and the bon homie with government in CII and FICCI events, businessmen continue to have the stereotyped image of exploitative, manipulative, stingy but high living, low thinking, self seekers. This Bill reinforces that image. 

Lastly, the Bill is well intentioned in recognizing that the alienation of land can result in hardships for a larger group than just the owners. These are those whose livelihoods were dependent on the land continuing to be used for the purpose it was, till the time of acquisition. Whilst unquestionably appropriate, from the equity perspective, the problem here is the implementability of the proposal. The low ability to identify those eligible, with the robustness required, in the absence of records of informal labour  and the potential for flagrant misuse and cost inflation are obvious deterrents to efficiency and effectiveness in implementability. Are we creating an unenforceable entitlement here for workers, which may actually dissuade farmers from using labour as in the case of industry?

It is tragic that a well intentioned Bill is turned ineffective and counterproductive because of the timing of its introduction. This is a part of the pro-poor pre election bonanza that no party can afford to distance itself from. It is consequently ill intentioned, disruptively regressive and anti-poor by being pro-bureaucracy, anti-efficiency, anti-investment and anti growth.

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