governance, political economy, institutional development and economic regulation

Posts tagged ‘Defence production’

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?

Why Planning Died in India

thebetterindia

(www.thebetterindia.com)

So what will the post-Plan India look like?

Will we veer away from the soaring flyovers; highways straight as Arjun’s arrow; high rise apartments and carefully “zoned” areas, typical of planned development and turn instead towards the squiggly, irregular lines so dear to the foreign tourist, of “charming”, little, oriental streets; buildings leaning precariously into each other; roads not wide enough to turn around a decent sized car; gloomy, shaded rooms looking inwards onto resplendent, inner courtyards with shops, factories, homes, schools and hospitals all thrown higgledy-piggledy together in the best tradition of “organic growth” fueled by private money?

Unlikely, because even the most ancient, known, Indian city-Mohenjo Daro- built in the 25th century BC was based on a rectilinear street grid (now in Pakistan) and is completely at variance with the more recent, albeit charmingly romantic, memories of traditional Indian living.

If the ancient past was at variance with recent memories, the present is rapidly evolving.  Indian values and needs are changing in response to the open economy framework adopted since 1991 and the associated diffusion of technology, competition and choice. The change is so rapid that formal institutions have yet to catch up.

Neither our laws, nor our judiciary caters to the frustration of young Indians with the plethora of “limiting”, formal traditions.

Take for instance, the case of gays, lesbians and trans-genders. Our law demonises them. But most Indians are easy about adapting to them in the same way “hands-off” manner as they good naturedly, accept foreign customs, like opening doors for women ( a custom rapidly becoming extinct in the West); as a quaint sub text of life.

Cross religion marriages is another example. It is not the norm but is generally accepted if neither family objects. Young India takes to anything modern with a vengeance. Hafiz Contractor’s lurid architecture; skin fit jeans; soppy “friends” style TV serials; head banging, electronic music, offensively fast food and horribly over-priced lounges.

Aspirational India likes multilane highways, fast bikes, week-end car holidays, fourteen hour work days, nuclear families, steel and glass buildings, swanky airports; e-commerce and want rapid change, within their lifetime.

The rapid economic growth associated with these aspirations has usually been scaled up, to encompass the middle class, only by planned investments and heavily regulated economies, as in East Asia. The downside has been rapid grow in pockets of affluence; carefully screened off; insulated from the sordid reality of the poor. Planning to skillfully create a bubble of affluence, access into which is carefully monitored for those make the bubble real but who are excluded from the bubble, except as service providers.

But if Plans and Rules cater only to the rich does it really matter if we stop planning? Even if a random approach is adopted for public investment management there is a 50% chance that investments will benefit the rich and the poor equitably. In contrast, the Impact Assessment of Planned Programs for the poor does not have a better “hit rate” so who cares?

For starters, let us recognize that the death of Planning is not new. It died a quarter of a century ago when the Berlin Wall fell in 1989.

First, the planned share of private sector in investment has been increasing with every plan and was at 50% of total investment in the last Plan. So irrespective of how much money the government invests, so long as the private sector meets its targets we could hit at least 50% of the growth target so long as the government ensures a facilitating investment environment.

Second, public investment spend comprises just 21% of total public expenditure every year. The rest goes towards meeting the existing recurrent liabilities of interest (33%) salaries (8%) and other operating expenditure just to feed the public “beast”. Rather than increasing public investment by increasing taxes, far better to leave the surplus with private actors and encourage them to invest.

Third, of the 21% which is available for public investment there is no easy way of knowing how much needs to go for funding completion of ongoing projects and what then is the residual fiscal space for new projects. It is telling that even the Union Government budget documents are not transparent about this important distinction in resource allocation.

The suspicion is that if Fiscal Deficit targets are to be achieved there is very limited fiscal space for new projects. A careful inventory of approved but unfinanced projects could reveal a project stock as high as investment spending over the next five years. This is not new and explains why the practice has been to spend on new projects by starving existing ones, so as to please the largest number of political constituencies.

Remember that incomplete road outside your window which rakes up columns of dust every time a motorcycle zips by? Well the reason why the engineers, you curse daily, are taking so long to complete it, is that money for a road or any other project is not allocated and frozen at the time the project is approved. Allocations lapse at the end of the year and fresh allocations made against which cash is released piece meal, depending on the relative power of conflicting political constituencies.

Fourth, planning died because Planners did not reciprocate the faith put in them by citizens. They “gold plated” projects (Commonwealth Games); failed to anticipate technological change and innovation (Public Transportation) and thereby created huge stockpiles of inefficient and unsustainable assets, financed by public debt.

PM Modi probably knows this and consequently is no hurry to devise a new planning set up. Of course every government wants to leave its “footprint” encrusted in projects. The Modi government is no different, if one is to judge from the bouquet of projects hurriedly announced and allocated notional amounts in the 2014 post-election budget.

The only hope this time around, is that there may be more emphasis on creating a facilitating environment and encouraging the private sector to invest rather than using public funds to determine the future.

The test case will be Defence Production. If the government can get the domestic and foreign private sector to invest in “make in India”, against buy back assurances, we shall be starting on an even keel. Nothing much there for the poor to cheer, except some trickle down in construction and services, but at least the middle class can look forward to more jobs and better wages.

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