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Posts tagged ‘Delhi Elections’

The budget of small things

jaitley 2015

(photo credit: dailymail.uk.co)

February is when the Indian Finance Minister (FM) gets flooded with unsolicited help from well-wishers on how to get his job done of presenting the Union government’s annual budget on the 28th.

This time, the flood is a Tsunami as a consequence of the Delhi state assembly electoral debacle for the BJP on the 10th February. Some fears are imagined. Others are real.

BJP only for the rich?

The BJP has traditionally been a party which works well with the private sector. If viewed through a “zero-sum” filter, this strategy could be perceived as working against the immediate interests of the poor. The classic example is whether electricity supply should be subsidized and if so to what extent and in what manner and whether the private sector’s bottom line concern for profitability can be consistent with an electricity subsidy for customers?

The “Davos mafia”- banks, big business and “growth” fundamentalists are keeping a hawks eye on everything the FM now says to detect signs of his wavering from the hard path of economic reforms announced by him last year. Their expectation is that he will resort to “populism” to placate the poor, with an eye on the nearing state elections in Bihar.

Will Bihar drive the budget?

The BJP cannot afford to lose Bihar. Doing so will surely crack the political invincibility of PM Modi. Some believe it is already dented by an ill-advised, last minute tactic in Delhi of pitting the PM versus Kejriwal, even though it was known as early as January 15th when the elections were announced, that the BJP was unlikely to win.  None of this environment is of the FMs making. But it hampers him greatly in being bold, outspoken and visionary on economic reforms- as he has shown an inclination to be.

Statistical flights of fantasy

It does not help that the Indian Statistics establishment has further queered the pitch by an ill-timed release of a new formula for calculating GDP which shows that the UPA government was doing fairly well on growth (6.9%) even in its last year (2013-14) accompanied by reduction in the trend rate of inflation (consumer price index) to 9.5% from 10.2% the previous year.

This raises the bar for the FM in FY 2015-16 to unrealistic levels in growth (>8.5 %?) and possibly also inflation expectations (<5% ?).

The dilemma of the FM is that if he follows a tough approach to economic efficiency he gets branded as heartless and gutless if he doesn’t.

Privatization can soften the subsidy cuts

Privatization of our clunky 277 publicly owned industrial companies; poorly governed 7 public insurance companies and 27 banks is a no-brainer to calm both the heart and the gut of the FM.

The share of publicly owned companies in the Indian stock market capitalization is 48%. If more of them were publicly listed this proportion would increase further.

The capital gains from privatizing- selling at least a 50% plus 1 share in publicly held equity to private investors is sufficient to meet the existing annual aggregate subsidy outlay of around Rs 4 lakh crores (USD 66 billion) for the next five years till 2020 with linked fiscal benefits from tax revenue on higher growth and profitability of these entities. Associated economic benefits like more jobs and employment would be additional.

The FM has the choice of either being fiscally profligate or remaining cautiously courageous whilst perturbing the entrenched interests which feed-off the public sector; a small proportion of unfit employees who would lose their secure jobs; petty contractors who have developed a nexus with public sector contracting authorities and Trade Union leaders. None of these are part of the 300 million poor people of India. Nor are they part of 90% of the workforce, which operates in the unorganized sector as contract labour.

The FM would be well advised to err firmly on the side of “financeable equity”. This objective points him to generate additional revenues to finance selected tax breaks and subsidies.

Here are three suggestions that could set the tone of the FY 2015-16 budget.

Metric of administrative efficiency

First, the FM should announce that this government intends to demonstrate its credentials of being an efficient administration by collecting more revenues from the existing taxes despite offering selective tax relief. This fits well with the already publicized drive against “black money” and the return of undeclared foreign assets of Indian national, residents.  This also reassures tax payers that the government intends to retain stability and predictability in the tax regime.

There is nothing like burning ones bridges to bring out the best in oneself. The FM did this last year by taking up the challenge of meeting a 4.1% Fiscal Deficit target for this year and 3.6% of GDP for the next. He should carry through this resolve now without opting for the “lazy” alternative of using the new, inflated GDP data to project a rosy revenue estimate.

Surplus income with small tax payers boosts demand

Second, the FM should demonstrate the government stated preference for “small government”; private finance lead investment and the market.

One equitable way of doing this is to leave more income in the hands of the small tax payer by increasing the income tax-free level from Rs 2 Lakhs per year (USD 3300) to Rs 5 Lakhs (USD 8200). This simple measure takes 90% of the existing assesses (around 29 million in numbers) out of the tax net but impacts only 10% of the revenue.

Pancaked, indirect taxes on consumption (customs/excise; sales tax; municipal taxes) drain 50% of the disposable income of such tax payers in any case, so there is an equity view point also along with the argument for the greater efficiency of a more focused and selective tax effort.

Increase tax revenue equitably and efficiently

India’s tax revenues need to be increased by at least 1% point of GDP but not by continually “milking” the narrow tax base available historically. This approach is neither efficient nor does it build political credibility amongst the tax victims –the salaried middle class. Imposing a new, low tax with a huge tax base as on stock or commodity market transactions and siphoning off a part of the windfall due to the crash in oil prices could be two such option.

Extending income tax to the creamy layer with huge agricultural assets on a presumptive basis is a must. Tax free agricultural income is the easiest refuge for rebranding “black money” as “white”. This loop hole needs to be stamped out.

Agricultural income tax is a tax resource reserved for the State governments. But the Union Government could incentivize States by offering a higher share of GST to states willing to introduce agricultural income tax. This would be in the spirit of efficient, equitable, cooperative federalism.

Third, the Jan Dhan Yojna for financial inclusion has opened 125 million new bank accounts during the last few months. The bulk of these accounts remain dormant. But despite such caveats, this is a good scheme. Recent work, including by Thomas Piketty illustrates that personal wealth is the biggest asset in incremental wealth creation. Why not extend then, albeit in a small measure, the key to wealth creation to the poor also?

Endow the poor for wealth creation

Dhan” (wealth) is an asset-something you own. It is a pre-condition for wealth creation. Why not open bank or Post Office accounts for the poor also? Of course the poor have no surplus to put into a bank. But the government can fill this gap by depositing Rs 10,000 (USD 164) into each of the bank accounts of all “poor” account holders as a 10 year fixed deposit from which only the interest income would be available to the account holder till maturity. To narrow the ambit and the financial implication of the scheme initially, only poor women and poor senior citizens (the most marginalized of the poor) could be eligible.

Fiscal fundamentalists will deride this measure as irresponsible in an environment when subsidies have to be contained, if not reduced. There are two reasons why their apprehensions are unfounded.

First, the small value of the deposit and its unavailability for withdrawal for 15 long years reduces the attractiveness of the scheme for would be scammers. The annual interest earned of Rs 800 (@8%) per account is not enough to attract fraud but sufficient to keep a genuinely poor person interested in the account as a source of additional income. For the Bank this provides a pool of valuable long term resources for their Treasury operations.

Second, the fiscal outlay, whilst significant, is not unmanageable. The likely pool of “poor” women and senior citizens would be around 200 million. If full coverage is targeted over a three year period, an annual budgetary allocation of around Rs 70,000 crores (only 18% of the existing aggregate allocation for subsidies) would be required. The spread effect, both political and economic, is hugely significant.

In comparison, the Union government alone spends an estimated Rs 4 lakh crores (USD 66 billion or 4 % of GDP) on subsidies. Much of this outlay is either lost in transit to the beneficiary (as in food subsidy- refer to Ashok Gulati, India’s brilliant agricultural economist) or the targeting of the subsidy is so vague (fertilizer and energy subsidies) as to benefit the poor only marginally. A “wealth and income transfer” scheme aided by the Unique Identification mechanism, where available, is likely to be more efficient and effective.

The recent developments in Southern Europe and now in Delhi should convince Mr. Jaitley that “demonstrated equity and inclusion” as a “brand” is in. Citizens do appreciate a tough “reforms” stance. But it must be balanced by effective instruments for income transfers to the poorest of the poor.

BJP, take five!

BJP

(photo credit: archives.financialexpress.com)

Delhi Assembly election 2015 is beginning to resemble a Greek tragedy for the Bharatiya Janata Party. What a change from the national elections in May 2014 when the BJP shone in comparison to the inept Congress Party. The motley crew of small regional or local parties (like the Aam Aadmi Party) also could not measure up to the exhilaration created by Prime Minister Narendra Modi who seemed capable of moving the nation, if not the Earth itself, so long as he was given a long enough lever to do so. The people responded positively in ample measure.

But charismatic, centralised leadership, like Mr Modi’s today and Mrs Indira Gandhi’s earlier, whilst a huge advantage in national elections, cannot single handedly carry a local election. Delhi is likely to make this point to leaders yet again.

It is highly unlikely that the BJP will get a majority when the votes are counted on February 10, 2015.

Why did the BJP juggernaut fail in Delhi? Here are five reasons, which are also lessons for the future:

First, there is no substitute for an empowered, decentralised leadership in state-level elections. National parties are, by their very nature, highly centralised. This is why their only option is continuous micro-management by a central election committee. In the instant case of the BJP in Delhi, this was left till too late. The media blitz, the frenetic campaigning, the Cabinet ministers unleashed in end January to make up for inept local leadership, all reinforced the general impression of panic at the BJP high table and a crass attempt at wooing the voter purely for electoral gain.

Second, never underestimate your opponent. The BJP, which has a very thin leadership, got completely engrossed in its grand project of governing India and forgot that local votes have to won locally. The fact that the BJP won all the Lok Sabha seats in Delhi by hanging onto Mr Modi’s coat tails should not have induced the lethargy it did.

In comparison, Arvind Kejriwal never let his guard down. He also had the advantage that the AAP got purged of interlopers, self-servers and free-lunchers; all of whom left it when its prospects seemed dim, post May 2014 debacle in the Lok Sabha elections.

Lean and hungry, core AAP supporters kept up the leg work amongst the voters.  They refined their agenda to suit the Muslims, Christians and disenchanted Congress supporters and carried their message door to door. India loves a fakir (ascetic) and Muffler King Kejriwal resembles one, even from the tinted window of his new Toyota Innova.

Third, performance matters. The BJP’s biggest handicap in Delhi is the non-performance of the Union Territory’s three municipal corporations ruled by it. These entities are dens of corruption and completely erode the national image of the BJP as being relatively above corruption. Prime Minister Modi came to power on the performance plank. But the sordid reality in these three local bodies did not change, not even in the last nine months of direct management by the Union government, significantly diluting the BJP promise of good governance.

Fourth, stopping petty corruption yields high dividends. The instant “governance reform”, to the relief of Delhi’s “underbelly” (street hawkers, small shopkeepers, auto drivers, casual workers, petty contractors), during the 49 days of the AAP government meant the complete stoppage of harassment by the police and municipal corporations. Once Mr Kejriwal resigned and governance devolved upwards to the Union government, petty corruption returned in full force. This reinforces the impression that Mr Modi’s extraordinary executive capacity and expansive aspirations for India are not reflected in the rest of the leadership of the BJP.

In comparison, the AAP got “tempered” in defeat. They humbly accept that they erred in resigning. They appear more politically savvy. They kept up their strategy of ground-level contact and are hungry for power. The belief is strong that an AAP government will enforce “freedom from petty corruption”.

Fifth, Delhi is a city of “winners” and winners do not take kindly to subaltern rule. Delhi has the highest per capita income in the country. Its public services are both highly subsidised and of superior quality than elsewhere. It is not surprising, therefore, that it has been a “destination city” for the last two decades. Delhi comprises people who have self-selected themselves as “winners”: by entering government service through an exactingly competitive process; migrating from the surrounding areas with “fire in their belly” to earn a better life and small and medium scale business people in tourism, hospitality, IT and exports. These are highly entrepreneurial people and expect to see the same quality in their leader.

Mumbai is no different. Maharashtra’s chief minister Devendra Fadnavis is so conscious of his relative youth (he is 44) and inexperience that he takes every opportunity to dispel the notion that he is just a shoo-in of Prime Minister Modis. He needs to do that if he is to govern the proud Maharashtrians credibly.

In Kiran Bedi, the BJP had an independent, high profile, outspoken candidate for chief minister. But she was muzzled and has looked progressively more forlorn since her nomination on January 15. Gone is the assertive confidence. The Bedi baan (arrow) has been tamed into a submissive, humble “subaltern”, basking only in the reflected glory of the Prime Minister. Not quite what she has been thus far.

In the change from being a leader to becoming a dutiful subordinate, Ms Bedi lost her edge to inspire. She now closely resembles any of the many “subaltern” leaders of the Congress, none of whom are encouraged to have an identity larger than the party. She is likely to suffer the same fate. She will have to wait for the tide to raise the BJP boat again before she can have a go at political power, most likely at the national level.

Finally, is the BJP’s likely poor show in Delhi a harbinger of what will happen in Bihar? Nitesh Kumar’s Janata Dal (U) would do well to bear in mind the lessons from Delhi’s elections.

The BJP is today India’s only real national party. Fighting the “Gir Lion” needs more than development statistics and caste calculations. Time to put the JD(U) boots on the ground to5work.

Reposted from the Asian Age February 6, 2014 <http://www.asianage.com/columnists/bjp-take-five-497&gt;

What now Mr. Kejriwal?

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What was Kejriwal thinking on his flight back from Varanasi yesterday? Did he reflect on how difficult it is in a competitive environment to get a second chance? Where would he have been, had he not frittered away his government in Delhi for a notional presence pan-India?

Maybe he was caught up in the colorful, marketing jargon, which is so popular today, to explain the “why” and the “how “of politics in a four second TV byte. Maybe he believes that he has launched a Unilever style product-shampoo in a sachet-affordable even by the aam admi and that this will be the basis of a pan Indian political empire. A top down campaign, with credibility in Delhi, translating into votes everywhere in 2019 (?) or maybe even 2024? Maybe he pondered over how to leverage himself as a brand better- an anti-corruption crusader; a karamyogi who has sacrificed a brilliant career for public service; a Gandhi (Mahatma) incarnate; a 21st century social reformer?

Possibly he does not think in the self-serving calculus of electoral gain and loss and seeks only to elevate the level at which politics is played by opening a door for decent folk, who otherwise would never have sullied their manicured toenails in the keechad of politics where the lotus blooms and the Congress mucks about.

Alternatively, he may think that a pan India campaign could surely lay a solid ground for the Delhi elections when they are held. His entire national team, which must number now close to 20,000, could descend on Delhi (RSS style) and escort every AAP voter to their booth….if they haven’t already been captured by the RSS or a desperate Congress?

Maybe he actually thinks he will win in Varanasi-that niggling (what if) last thought that smuggles its way in, just as you have drunk the “nimbu pani” and eaten the “veg” sandwich and are drifting off to snooze land, your “jhadu topi” slanted over his eyes, to screen the bright sunshine out and your seat fully reclined.

Possibly he was working out strategies to convince the Delhi voter that voting AAP is not the same as pushing the NOTA button. That this time they would be there to stay and work, not run about like a consultant, signing contracts everywhere, but executing none satisfactorily.

Is it time, Mr. Kejriwal to merge into the great Indian political mela? Is it time to build alliances with like- minded parties? The left is your natural abode. For all your talk of supporting the private sector you are a quintessential public sector man. This happens often with those, like you, who know how rapacious and self-serving small business can be. You forget that the rapaciousness of the Indian Bania is not built into her genes. It is an outcome of surviving for centuries on their own with no one else to protect them or their assets, but themselves and in the face of a grasping State which seeks only to marginalize them in the name of modernity.

Business is often a “winner takes all” game and inevitably results in huge concentration of wealth in a few hands. This is why inequality has grown significantly all over the world as business has flourished. This will not set well with your fuzzy, socialism and “equity” over growth, orientation. Be clear for once. The aam admi can never hope to have an equitable share in the wealth generated, if private business is to grow the economy. The problem is that only private business can grow the economy. But whilst growth is inherently iniquitous there are ways to induce a modicum of equity by providing opportunities to everyone. There is no option to rapid growth……to borrow from Churchill’s take on Democracy. Your fuzzy philosophy and panchayat penchant will not be able to accept this hard fact. That is why common cause with the Left is best.

Of course no one wants to side with a loser. In fact mere association with the tired shibboleths of the Left, are enough to put any voter off. But then you will not find gold plated options for getting into government every day. Possibly you and your supporters could revitalize the tired, old, men and women of the Left with your youthful energy. You share many of the virtues of the Left; austerity; financial integrity; a mass contact strategy; cadre based functioning; inner party democracy, a concern for visible equity.

Alternatively you could also align with the BJP/RSS who also share these virtues. Both you and Modi appeal to the same, young, aspirational voter who has remained an “outsider”. But of course you do not align with anyone. Good luck Mr. Kejriwal.

 

Arvind Kejriwal: Disruptive Innovator

 

Disruptive innovation (DI) is a force multiplier in business and technology. Value creation is all about getting there ahead of the competition. DI annihilates the competition, not by doing the same things better but by doing them differently, thereby changing the rules of the game. The recent greats in this line of business are Steve Jobs, Bill Gates and Mark Zuckerberg.

The Mahatma and more recently Kejriwal, are our home grown disruptive innovators in the business of politics. Kejriwal’s tactics are uncannily Gandhian. Ram Guha would be well advised to jeep a close eye on him. A squeaky clean record based on public service; deft management of a mass outreach campaign and tactical choice of public interest issues. Whilst the two “big bulls” -BJP and Congress, are going hammer and tongs knocking each other out, Kejriwal is coasting to what is being rated as an outstanding electoral debut in Delhi. Erstwhile Aam Admis and Aurats who deserted him along the way, must be eating their hearts out and cursing their lack of political foresight.   

Of course Delhi is different and it is questionable whether Kejriwal’s tactics can be scaled up nationally. Still there are solid reasons why they could.

First, he is the only person in living memory who has stood up to Arnab Goswami’s harangue and given as good as he got. Last week Kejriwal cannily got onto a one-on-one “hard talk” with Goswami. When the time came for answering what the “nation” wanted to know, Arnab found only Kejriwal (as opposed to the usual circus of views to choose from) smiling sweetly at him, from behind his spectacles and pleading in an attractive, thin voice (similar to the Mahatmas) to please give him a chance to answer. Result knock out win for Kejriwal.

 

 

Second, Kejriwal is a babu with two decades of rich babu experience under his belt, and an additional decade now as a social activist, not a dyed-in-the-wool, clueless, “do-gooder”, like Anna. This makes him practical, administratively astute and flexible enough to be compatible with politics.

Third, there is a vacuum out there for sucking up the votes (young and old) fed up with poor governance and joblessness. Unfortunately, this vacuum exists primarily in urban areas and largely amongst the middle class who want to work their way upwards. This is quite different from the poor and marginalized in rural areas who are still acquiring the “escape velocity” to be sufficiently aspirational enough to demand opportunities for self-betterment. They are  yet to get beyond electoral gifts, like the NREGA and cheap food. Nevertheless, even the urban middle class accounts for around 120 million votes and (15% of the national vote). The key of course would be to leverage votes into seats through strategic alliances.

Kejriwal is likely to use Delhi as the testing ground for his brand before scaling up in 2014. He will also have to chart out whom of the two “bulls” he should support to form a government. One hopes he will not repeat the “historic blunder” of the CPI(M) in 1996 when it made itself irrelevant, by choosing not to lead the United Front national government. In the business of politics, when you get a chance, you have to play. It is only by playing that one chooses ones destiny. If Kejriwal chooses to “play”, as he must, he will have to keep his “young” flock of elected members in the incorruptible Gandhian mould, they are in today. Not an easy task, in the enticing “gallis” of Delhi.

He will need strong local collaborators in the states. The Kejriwal political machine may consequently look more like the Congress did prior to 1939; a coalition of regional forces and strong local leaders with a common brand identity. Of course there needs to be a good business reason for such political franchisees to hang together. Usually it is the future expectations from the brand value that keeps the flock together. The Kejriwal brand still has to be built.

The tool of self-denial (fasting) is passé. Irom Charu Sharmilla (Manipur) was on fast for almost two years against the Armed Forces (Special Powers) Act, but to no avail. More embarrassing was Chandrababu Naidu’s recent, short fast in Delhi and the subsequent desperate attempts by the faster to get someone to end the fast, so he could get on with life. Jagan Reddy’s competing short fast in Hyderabad got more press, but fasting as a political tool seems to have reached its expiry date.

Civil disobedience, Gandhi style, is incompatible with middle class aspirations. In any case the Indian State is so soft and yielding that beyond a short outburst of frustration (as in the Nirbhaya Rape case), continued agitation seems futile because the government looks even more helpless than the citizen. The favorite ploy of politicos and babus at parties, in plush Delhi homes, to which they are still invited, is invariably to play “victim” after the mandatory period spent listening to individual venom-spew or petitions, whilst usefully swiveling single malt all through.

Modi already occupies the “effective government” niche. Rahul is big on “religious inclusion and helping the poor”. This pushes Kejriwal into the boutique market for AAA concerns; urban jobs and livelihoods; succor from the land and slum mafia; social protection, especially for working women and children; targeted and speedy grievance redressal and the citizen’s need to have “reachable” leaders who live with the people they represent, whose families use the very same local facilities and who make a profession out of knowing their electorate.

Concrete steps in this direction would be AAP elected members to refuse government houses and the use of government cars and push instead for an allowance for all Delhi MPs and Ministers; once in power they keep the number of hangers-on, helpers and security at a minimal; expand outreach through social media and finally the adoption of a costed and feasible five year plan addressing no more than five key concerns of their boutique constituency. The “Bulls” pander to everyone and everything. Modi departed from this typically Congress strategy by not “appeasing Muslims” but got upped in the outreach war which projected it as exclusion, rather than even handedness. Kejriwal needs to focus his agenda for it to be credible.  

Start-ups with rapidly expanding “top lines” face the temptation of selling-out to global players. The AAP will likely be offered the same opportunities, if it is not already being wooed. Gandhi was pragmatic in taking what comfort came his way but steadfast in his objectives. Kejriwal needs to measure up to high standards. If he manages to do so it would probably be a first for a babu. We wait and watch. 

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