governance, political economy, institutional development and economic regulation

Posts tagged ‘Deepak Parekh’

Well begun is half done

BOOK REVIEW
India Transformed
25 years of Economic Reforms
– edited 
Penguin Viking 
670 pages; Rs 999

 

India Transformed
Curating 31 essays into a story on India’s economic reforms can be a giant yawn. But Rakesh Mohan, a videshi economist and a veteran of four major government committee reports, is up to the challenge. 
THE PLUMBING WHICH CHANGED INDIA
Indians believe that the actions of civil servants determine the future of India. This is an abiding fallacy. The truth is, starting from Jawaharlal Nehru to Narendra Modi, it is politics and political leaders that set the tone, whilst civil servants dutifully follow with the plumbing. This book is not about the broader political economy of reforms. Those stories have been told elsewhere. Instead, this book examines the practices and processes — back-office stuff — that achieved reform objectives. Expectedly, therefore, essays by civil servants and public intellectuals dominate this compilation. 

 

INDIA TAKES CHARGE OF MACRO ECONOMIC STABILITY
C Rangarajan marks 1991 as a watershed moment in the  Montek S Ahluwalia agrees and debunks the J Bradford DeLong (2001) and Dani Rodrik Arvind Subramanian (2004) proposition that the 1991 reform process was overhyped; that merely becoming business-friendly would have been sufficient to yield the maximum value; that external liberalisation was merely genuflecting to the Washington Consensus. He asserts that the reform architecture responded to the local context and was designed for medium-term results. Y V Reddy deconstructs the role of fiscal federalism in stabilising state budgets. Laveesh Bhandari evidences this by citing best-fit policies and programmes innovated by states using these additional devolved resources. Jaimini Bhagwati reviews the process of capital market liberalisation that was key in enabling competitive industries to grow. 

 

USING THE GROWTH DIVIDEND
Top diplomat Shyam Saran traces the post-cold war, benign, unipolar world that gave India breathing room to grow till the 2008 financial crisis. His successor in the foreign office Shivshanker Menon establishes how economic growth engendered new foreign policy options for India — a view endorsed by Martin Wolf, who advocates even greater proactivity in world affairs. Sanjaya Baru links the recalibration of India’s security matrix to the new-found confidence from successful reform. Tarun Das points to the quiet success of Track II initiatives in forging defence and nuclear cooperation. Harsha Vardhana Singh, details how substantive tariff rationalisation opened domestic industry to competition. However incomplete, domestic factor market reform shackled export growth and enhanced the trade deficit. N K Singh and Jessica Seddon illustrate how public and private roles moved from mere co-existence to co-evolution, especially in infrastructure development. 
THE MARGINALISED 
 
rural India
But the benefits from economic reform did not accrue symmetrically. postulates that domestic labour market and regulatory rigidities continue to dull the growth potential in small manufacturing. Ashok Gulati argues that liberalisation of the exchange rate, lower industrial tariff and private investment norms never benefited agriculture due to institutional rigidities. Devesh Kapur documents that enlarged access to education was not accompanied by quality enhancement. Naushad Forbes rues the stagnation of Indian R&D spend as a proportion of gross domestic product and the skew towards science research, rather than technology development, which can constrain innovation. Nachiket Mor et al are sceptical that stepping up private investment alone can result in catching up on health outcomes. Sarwar Lateef argues for deeper governance reforms to benefit the disadvantaged. Vinayak Chatterjee laments that the PPP (public-private partnership) model died because of unrealistic asymmetric expectations between government and private developers. 

 

LISTENING TO THE “ANIMAL SPIRITS”
The voices of the intended beneficiaries from reforms — consumers and domestic suppliers — are jammed into the last segment of the book. Rama Bijapurkar caricatures the new Indian consumer, cannily devouring cheap Chinese goods and luxuriating in retail therapy, financed by the deep pocket of e-commerce start-ups. Gita Piramal points to the churn in private business league tables as illustrative of the competitive forces unleashed by reforms. Omkar Goswami adds that the concentration of business accelerated as companies sought scale economies. Services benefited disproportionately, being less constrained by the continuing hurdles in acquiring land or access to quality infrastructure. 

 

Deepak Parekh narrates how HDFC seized new opportunities in banking and insurance using its core competence in customer-friendly financial services. For Mukesh Ambani, economic reform was instrumental in fulfilling his father Dhirubhai Ambani’s dream of a global scale of operations. Kiran Mazumdar-Shaw — a first mover — lucked out. With just Rs 10,000 in her wallet, Biocon grew into a $1-billion listed company by 2004. Sunil Bharti Mittal, a spunky, first-generation entrepreneur, seized every opportunity available to establish India’s first multinational telecom company. If every second American truck has a Bharat Forge axle, Baba Kalyani has economic liberalisation to thank for it. For Narayana Murthy, liberalised import of hardware and current account convertibility alone were enough to make Infosys fly. R Gopalakrishnan recounts how storied firms, like HLL and the Tata group, also restructured and diversified. 

 

INDIA – THE QUINTESSENTIAL REFORM DEBUTANT
shy
T N Ninan describes navigating reforms in India as the impossibility of cooking an omelet without breaking the egg. Vikram Singh Mehta similarly recounts the broad consensus but only for shallow reforms in the petroleum space. Some of this reticence was because of the dharma of coalition politics. This constraint no longer exists. Will the consensus deepen now? And will it now be our time to eat?

 

Adapted from the author’s book review in Business Standard, August 17, 2017 http://www.business-standard.com/article/beyond-business/well-begun-is-half-done-117081501123_1.html

 

Gas and Power: shine a light please on “deals”.

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Elections are around the corner. Babus are petrified of taking decisions. But government is burning the midnight oil to grant “relief” to Reliance, Tata and Adanis to compensate for the poor planning and foresight of these companies under the guise of “protecting consumer interest”.

The Central Electricity Regulatory Commission (CERC) decided in April 2013 that Tata and Adani (coal based mega power plants in Gujarat) should be permitted to rupture their agreement with Gujarat and Haryana to supply electric power. The reasoning was that the cost of imported Indonesian coal had increased more than could not have been foreseen. A dissenting order by a member; Mr. Jayaraman points out that nothing in the bidding document compelled these companies to bid a fixed tariff. They could have opted to bid a variable tariff, which would have passed through the changes in fuel cost; both increase and decrease. They choose not to do so and hence forfeit their commercial rights to come back for a tariff revision. Other bidders whom they outbid did opt for variable costs and possibly were outbid on these grounds. We will never know for sure since bid details are not publicly shared on the net which incidentally is bad procurement practice.

The argument of acting in consumer interest is even more farcical. It states that since the bid tariff is no longer commercially viable, sticking to it would force the developers to abandon the project. No mention here of the penalty the developers would have to pay if they were to quit. No mention either that NTPC could happily buy the projects, just as it bought the ENRON project or Delhi Metro took over the Reliance Delhi Airport metro line when it did not make expected profits or that the National Highway Authority may have to take over the Gurgaon Expressway. The CERC argument is that the new developer would in any case have to charge more to consumers so why not just do a deal with the existing developers, since the poor consumer would have to pay more in any case. Sounds familiar to us aam admis and aurats (AAA) a circular argument which suits everyone except us. If a “deal” is to be done non-competitively then let us do it with the public sector. At least the resultant earnings will accrue indirectly to the MOF

Allowing such retro tariff revisions in competitive bidding not only knocks the concept out of the window, it is rich future pickings for CAG, CVC and CBI. To dilute this possibility the favorite ploy of babus has become to kick the problem over to an irreproachable, external entity; in this case Deepak Parekh of HDFC, who is in danger of fast becoming the MMS of Indian Gas and Power. Deepak apparently has headed (we don’t really know since neither the Gujarat nor the Haryana Government websites tell us about this) a committee, mutually agreed between the developers and the procuring state governments, to work out what should be done. This report has been submitted to the CERC in mid-September 2013, but is not on the website of CERC and even worse has not been made available to PRAYAS a NGO specializing in energy and water, which is on the Advisory Board of the CERC. See their plaintive cry for information:  http://www.livemint.com/Industry/9NOJM6JwuwPwAw2i2l0DFP/CERC-suggested-to-hold-public-hearing-on-tariff-issues.html.

The implication us AAAs will draw is that had Mr. Jayaram not dissented, the CERC would have meekly passed through the additional cost to consumers. My Jayaraman, consequently, whilst not a whistle blower, since there is no allegation of graft, is certainly a rudder for the Rule of Law prevailing over egregious commercial considerations. In September 2013 Ministry of Power amended its tariff guidelines by making fuel cost a pass through. The term “pass through” is intriguing because it seems to undercut the powers of the CERC to determine tariff in a holistic manner. The new guidelines only require the power developer to be prudent while purchasing fuel. Fuel cost can constitute 50 to 70% of the tariff. Well known transfer pricing tricks, especially in imported fuel, militate against relying on a broad test of “prudence”, to protect consumer interest sufficiently.

A similar tactic has been adopted in gas production, where the price at which Reliance will sell its gas has doubled (by the cabinet this time) on the argument that the government administered price is far lower than the prevailing international price for gas. This being true does not explain why Reliance has failed to meet its investment commitments which are the prime reason for a decrease in gas production way below the optimum levels. Even worse, the Ministry of Petroleum’s view is falling on deaf ears that retro advantage of gas price increase should not be given to Reliance on prior production commitments. All this again in the interest of consumers, ofcourse, who in the absence of a deal with Reliance, would have to pay imported prices for gas! Admittedly, Reliance (like Enron) has the disadvantage of its public image working against it. Any babu ruling in Reliance’s favor, is automatically suspect in the eyes of us AAA’s though, mysteriously, very few babus who have the guts to do so, live to regret their decisions.

 As in the case of power, a committee headed by Mr. Kelkar, aided by the hapless and overworked Mr. Parekh is meanwhile looking at the gas pricing regime. Oddly, as in power, the entire exercise is being conducted in the cozy confines of the government, CII, an NGO which ostensibly works on fuel studies and research (but for which not a single paper comes up in a Google search) and the Boston Consulting Group (BCG), a consultancy. Presumably BCG was appointed after a competitive bid. We will never know because such trivia is never shared with us AAA’s. The entire oil exploration and production process is kept tightly under wraps. Exploration, development and production contracts are never made available on the website and “commercial confidentiality” conditions of the developer are routinely cited as a reason.

 The international literature on natural resource management is rife with the need to introduce transparency and citizen participation in this sector. The reason is obvious. Oil and gas contracts involve huge sums paid and received between private developers and government. If AAA’s are not kept informed of what were the obligations of the developer versus actual delivery on the one hand and what was owed to the government and what was actually received, the instant apprehension is potential leakage of government revenue or of motivated bias in favor of the developer. Compare our non-transparent and secret regime for the oil and gas production sector with what even Ghana puts on the web: http://www.gnpcghana.com/_upload/general/saltpondfield_sopcl.pdf. Key details of the contracts and delivery on commitments, including penalties levied for shortfalls in developer obligations. In 2012 the EU made it compulsory for all extractive industries (including oil and gas firms) to share data publiclly on revenue and payments to governments. http://europa.eu/rapid/press-release_MEMO-13-541_en.htm.

The governments of India, Gujarat and Haryana all profess a commitment to “good governance”. The essence of good governance is to expand access to information for the public and to encourage their direct participation in decision making. True AAAs, like me, are clueless on technicalities like a Gas Production Sharing Contract but we sure like to be kept informed and we have technical experts who can work in our interest, independent of governments. Democracy is all about giving people a choice. Give us the information and let us use it the way we want to. Please don’t hide behind the shield of the RTI (which allows notional access to information) and force us AAA’s to seek hard copies of information from the relevant ministries. If the websites of governments have the space to trumpet their many achievements, surely they can also instantly share with us information on what contracts have been signed, with whom and the key obligations therein?

When you light a lamp, it illuminates everything around it. Please light a lamp in Indian power and gas deals. 

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