governance, political economy, institutional development and economic regulation

Posts tagged ‘equity’

SmartCities: Making the rich smarter

The latest public “dog and pony show”, unveiled on Thursday in Delhi, is the selection of 20 cities across the richest 11 states of India for accessing the governments Smart Cities fund.

smartcitiesindia

Photo credit: smartcitiesindia.com

The near-complete exclusion of the poor “cow belt” states, except Rajasthan and Madhya Pradesh, can be explained by the need to first push public money to where elections are to be held in 2016 — Assam, Punjab, Tamil Nadu and Kerala — West Bengal being a surprising exclusion.

But what takes the cake is the inclusion of the New Delhi Municipal Council (NDMC), comprising just three per cent of Delhi’s area, which is directly administered by the Centre. The Central government owns nearly 90 per cent of the 44 sq km it comprises with marginal ownership in and around the prestigious Lutyens’ zone of power brokers, lobbyists, old-economy business people, big time realtors and other hangers-on of this rarified ecosystem — the Indian equivalent of the Washington DC Beltway.

lutyens

Lutyens Delhi a lush, green bubble in the heart of the capital. photo credit: indiatravelite.com

The NDMC is already a profitable municipality, as indeed it should be. It spends over Rs 3,000 crore ($450 million) every year on serving just 300,000 people — a per capita expense of Rs 1 lakh ($1500) per resident, per year. Compare this with the average spend in the other three municipalities of Delhi of just Rs 7,300 ($110) per capita per year — all currently managed by the Bharatiya Janata Party. More starkly, the average spend for all urban areas, across India, is a shockingly low Rs 1,000 ($15) per capita per year.

Why is the selection of NDMC for yet another barrel of “pork” so disappointing? Three reasons strike out:

First, that this should happen days before the “reformist” budget expected to be presented by the Union minister of finance for 2016-17 is unnerving. The budget is, or should be, about spending public money well and wringing out the maximum public value from it. Allocating subsidies to the rich cannot be part of a pro-poor paradigm. It symbolises all that is wrong with a bureaucracy which is all “spin” and no heart.

crown

Second, the bane of China style “big government” has been soft budget constraints and poor accountability. Big budgets lead to profligate spending. Bureaucrats are more interested in shovelling money out of the public door into private pockets and marking up their “performance” sheets, than in ensuring that the money is spent in areas where growth and poverty reduction can most be impacted. The casual allocation of Rs 500 crore to the richest local body in India, with the highest per capita income, just so that it can shine even better, speaks of a pernicious tendency in new public financial management to mimic private finance by allocating money where it can be quickly absorbed, rather than risk it where it would create the maximum social and economic value.

Third, it is no one’s case that redistribution of wealth can be done by pulling down those who are well off. But Reserve Bank of India governor Raghuram Rajan’s recent diatribe against the lack of public concern about the optics of vulgar displays of wealth strikes a chord.

Lutyens’ Delhi is the “Kohinoor” of Delhi. A small self-absorbed bubble of power, privilege and wealth. One acre of land here costs Rs 500 crore and sales happen rarely. Why can’t the power elite pay for the privileges they enjoy? Why is it so difficult to convince the 4,000-odd large private property owners — each with a minimum net wealth of at least Rs 100 crore — to pay for retrofitting their beautiful municipality? Isn’t that what participative governance means? Why must poor Trilokpuri in east Delhi comprising the marginalised, poor and the shabbiest of public services pay for keeping Lutyens’ Delhi shining?

 

Trilokpuri

Trilokpuri, East Delhi, a festering sore where only the marginalized exist. Photo credit: Indianexpress.com

Had Thomas Piketty been part of the Smart City selection committee he would have torn out his hair in a fit of Gaelic rage at the callousness with which public money has been wasted and inequality worsened. What indeed was the selection process which has generated such a warped result?

The allocation instrument is a “challenge fund” devised by the usual suspects: Fly in, fly out consultants. As expected, on paper, the process appears transparent and efficient. It is a beauty contest. Municipalities send in their proposals seeking Central government funds for up to Rs 500 crore ($75 million) over four years. But they must match the Central government allocation and also meet the criterion of performance efficiency which includes standard metrics like collection efficiency, proactivity, etc. Nothing wrong with that at all. The killer is that there is no criteria on what impact the project will have on reducing urban poverty or on reducing the depth of deprivation in access to basic public services in poor localities.

Is it any surprise then that the Smart City fund is merely ending up elevating the “boats” which are already afloat? And how is that so different from the infamous National Rural Employment Guarantee Act (NREGA) of the United Progressive Alliance, which similarly incentivised the ability to use funds quickly? Rich states like Tamil Nadu, with average informal wages way above the national average national, quickly pulled out most of the funds, whilst the poor, badly organised states faced an empty treasury by the time they got their act together. As before, the mightiest wins yet again.

Political pork, lazy bureaucrats, the use of public funds for private gain by the elites is all old hat in India and across the developing world. Nothing new in that. The pity is that it needn’t be this way. The anguish is that old style cornering of public funds with no regard for ensuring equity, persists like a deep-seeded rot.

Prime Minister Narendra Modi of all people, should know the negative feeling generated from being excluded by the establishment. He must have experienced the chagrin of public money being wasted on “gilding the lily” whilst millions of poor children, like him, had to make do with a subsistence existence. Or is human memory so frail that one quickly forgets the bad times? Former Prime Minister Manmohan Singh was fond of establishing his humble roots by saying that as a child he studied under the village lamp post. But in the 10 years that he was in power, millions of children continued to study in exactly the same way.

street light

The preoccupations of the “Delhi Durbar” are pretty compelling. That is why they say you can wear a crown in Delhi. But don’t sleep easy — it isn’t permanent.

crown 2

The lonely statue of King George V after it moved from under its domed canopy  in India Gate – since awaiting another incumbent-and relegated to a museum.

Adapted from the authors article in Asian Age January 30, 2016http://www.asianage.com/columnists/exclusive-cities-715

Sarkari pay: Too much love

A picture is worth a thousand words. Even the Oxford dictionary has conceded as much by admitting the emoji “tears of joy” as the first ever “pic-ord” which sums up the prevailing worldwide emotion of relief at even small mercies.

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This emoji must have resonated with the 10 million employees and pensioners of the Union government as they read the generally beneficent recommendations of the Seventh Pay Commission presented to Union finance minister Arun Jaitley this week.

 

Coming as it does against the disturbing backdrop of faujis (Army veterans) having to resort to public agitations to get their due, the commission’s key objective seems to have been to soothe jangled sarkari nerves by adopting equity as the leitmotif of its recommendations.

 

Even recommending erosion of the pay “edge” enjoyed by the Indian Administrative Service (IAS) by making it available to all other Group A services, fits in well with this axiom. It mollifies the other cadres whilst giving ample opportunity to the IAS to retain its predominance by other means. After all they are the ones who write the rules today.

 Equity – yes! but for whom?

But equity is an expansive concept spanning generations. How equitable, for example, are the recommendations versus citizens? Citizens have never been considered “stakeholders” by any of the commissions till now.

 

Prime Minister Narendra Modi, however, has different ideas. He wants IAS officers to go beyond the files and the political intermediaries who crowd around key government employees and to consult directly with people to know the truth. Incidentally, this was why district collectors in earlier times went on extensive tours and camped in villages. One wishes that the Commission had also followed this practice of consulting the intended beneficiaries of public services, instead of limiting consultations to only government employees.

Fiscal impact to crowd out public investment, as usual 

The Commission assesses the direct fiscal impact of its recommendations at `1 lakh crore ($15.5 billion) per year on pay, allowances and pension for 10 million employees and pensioners. The unassessed indirect impact will be at least thrice this amount, since the ripple effect raises all public sector employees’ wages in state and local governments and those in the state-owned enterprises who number 12 million, excluding pensioners.

 

The question that 220 million households — comprising the rest of India who do not partake of this public bounty — are likely to ask is why should each of them pay an additional `4,500 every year to finance this splurge?

Income Tax

Government pay is already indexed 100 per cent to inflation and pension is similarly indexed substantially. Any increase in the “real” pay — after accounting for inflation — needs to be justified against additional or better work performed. There is no evidence of any such link compelling the proposed enhancements.

 

Most importantly, the additional burden is ill-timed. It is mere statistical jugglery to justify the fiscal burden (0.65 per cent of GDP) by pleading that it is less than the burden (0.77 per cent of GDP) imposed by the preceding Sixth Pay Commission a decade ago. Another argument is that the prospects for economic growth are bright, making the additional burden manageable. This is iffy reasoning.

 

The fiscal challenges faced by the government today are far more daunting than in 2009, when there were expectations of a quick rebound in world economic growth. Consider that the aggregate, cumulative loss of state electricity boards alone is around `3 lakh crores ($45.5 billion) which needs to be dealt with to improve electricity supply. Union minister of state for power, coal, new and renewable energy Piyush Goyal has taken a hard stand against the Union government bearing the burden without basic reform within these entities. This is the right way to go. If subsidies for the poor need to be narrowly targeted, so must “real” public sector salary enhancements, and that too only to reward the few performers in the vast government machinery and not spread equitably like largesse to all.

Link public pay enhancement to higher than targeted GDP growth 

Given this background prudence dictates that even if the recommendations are accepted in-principle, actual accrual and pay out of these amounts should be graduated. An option to link pay enhancements with performance is to link their payout to GDP growth which is a specific, measurable, assignable, realistic, time-related specific, measurable, assignable, realistic, time-related (SMART) metric for aggregate government performance.

 

One obvious option is to use the existing proportion of emoluments to GDP of 2.77 per cent. This can be thought of as the “share” of Union government employees in GDP. A similar share can be justified for distribution of the recommended pay enhancements out of the actual additional value created above the GDP growth target.

 

Using this principle, for every 0.5 per cent of growth above the target (say 7.5 per cent instead of 7 per cent), the amount available in that year would be around `30,000 crore. This is less than one third of the assessed fiscal impact of the Commission’s recommendations. Once sufficient “additional” growth has been achieved — say over the next three years — the recommendations can kick in. Alternatively the implementation can be staggered annually. This forces government to perform before increasing the “real” pay of its employees. From the citizens’ point of view this is akin to hiring an auto rickshaw. You only pay after the driver has brought you to your destination — not in advance.

ice cream

No ice cream without results

There is more evidence of excessive generosity. An assured annual increment of 3 per cent seems too generous for an inflation-indexed salary even though it is calculated only on the basic pay. Unearned annual increments should not be more than 1 per cent at best.

Fauji “pension edge” levelled yet again

The concern with equity has driven the commission to extend the principle of One Rank One Pension — granted by the government to the armed forces just prior to the submission of the Commission’s report — to civilians also. This is akin to compounding an earlier mistake. Levelling the armed forces’ and civilian pensions means taking away the “pension edge” which was so tenaciously fought for and won by the armed forces. The downside is that it may spark off a second round of fauji gussa (anger).

veterans

The Commission has done stellar work in sharing employee demographics for the first time. It has also laboriously listed an incredible 196 different allowances and worked meticulously to simplify and rationalise them by recommending termination of 52 and clubbing 36 others into other allowances. That still leaves 108 allowances to be dealt with later. The government would do well to heed the advice that fuller and more transparent budgeting of allowances is necessary.

 

But pay commissions, despite their expansive mandates, are not really expected to create a new architecture for public service. Their job is to shut the maximum number of mouths with the least amount of cash. The Justice Mathur Commission could have done worse. Thank God for small mercies!

7th PC

Adapted from the authors article in the Asian Age November 22, 2015  http://www.asianage.com/columnists/it-s-rip-127

 

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.

Winning Aged Votes via Budget 2015

old man

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

For the small, timid investor and retirees, Provident Funds and Postal Savings were the investment vehicles of choice till 2000. Interest rate liberalization resulted in a progressive decrease in interest levels on long term deposits from 12% to 8.5% per annum.

The reform was sensible. Government could not afford to subsidize the growing gap between what Provident Funds assured investors and what they earned from investments-mostly in Government debt. This strategy also aligned with the objective of growing stock markets by incentivizing small investors to divert their savings to equity.

THE AGED BORE THE BRUNT OF INTEREST RATE REFORM

What the government forgot or disregarded, was that fixed return investments are the natural and appropriate choice for the aged, small investor, who treasures liquidity; safety and simplicity in transactions; characteristics typical of deposits and debt investments. Not everyone can be like Warren Buffet-the Sage of Omaha, who remains an equities guru, at age 83.

Consequently the negative impact of financial reforms has been borne by those who were least capable of doing so- the aged, retiree without an inflation indexed pension. There were two reasons why this happened.

First, high inflation, higher than the nominal interest earned, has reduced “real (inflation adjusted)” returns from interest to negative. If the interest earned is 8% per annum whilst retail inflation is 9% per annum, the investor is earning no “real” return at all. Instead she is paying an “implicit”, additional 1% on her investment to the government as “Inflation Tax”

Second, even on such negative real return, “explicit” income tax is levied at the applicable rate on the nominal return further reducing the real return to the investor and enhancing the “Inflation Tax” paid to the government.

What hurts even more is that dividend income is tax free but interest is taxed. There is a theoretical logic to this asymmetry. Dividends are paid out of the post-tax profit of a corporate. Since tax has already been paid by the corporate, on this value stream, it need not be paid again by the shareholder. Unlike dividend, interest paid by a corporate to a depositor is a “cost” and is set-off against revenue to reduce its taxable profit. Since no tax is paid by the corporate on this value stream the taxman is right to charge tax on interest in the hands of the receiver

Notwithstanding the soundness of this general principle, a solid case exits for exempting interest from income tax.

First, timid, small savers, particularly the aged, have no alternative financial instruments for investing their savings.

Financial pundits may counter that such investors should invest in the risk averaging, Mutual Funds available in the market. But Mutual Funds (MF) themselves tend to shift from equity into debt based investments in a stock market downturn, as happened during 2008 to 2013 (SEBI Annual Report 2013-14). After deducting administration costs, the returns available to MF investors, are not significantly higher that what they could get themselves from deposits.

It does not help that the Indian Stock Market, like other emerging markets, is highly volatile. In 2013 volatility in the Indian stock market was 17% as compared to 11% for the DOW and 12% for the FTSE (Bloomberg-2014). Volatility dissuades aged, timid, small savers from such stock market based instruments, since they have a strong preference for certainty of nominal return.

Second, Inflation management in an open, developing economy, hugely dependent on energy import is tricky. Our record, whilst much better than Latin America, is nevertheless worrisome for an aged person dependent on a fixed income. The government has demurred in offering inflation indexed, real interest rate, saving instruments for retail investors. Possibly the financial risks associated in offering such an investment are considered too high. How then can one expect an aged retiree to bear the inflation risk?

NARROWLY TARGETED TAX BENEFITS

Clearly, the universe of aged Indians are not all under privileged or timid or naïve investors. The cynical could well ask why should the likes of Rahul Bajaj- the illustrious, Indian industrialist, age 76 need special exemptions on interest income or for that matter senior government pensioners or retired senior employees of the formal private sector.

We hold no brief for them since they can look after themselves. In any case it is unlikely that this set allocates a significant proportion of their savings to fixed return deposits. They don’t need to since they have their inflation indexed pensions as a fall back.

Our plea is for the junior level retirees from the formal sector and all retirees from the informal sector. Assuming that 90% of the 62 million aged (5% of population above the age of 65-2011 census) are retirees from informal employment and further assuming that 30% of these-mostly in urban areas- have no income other than from savings, the target beneficiaries would be around 17 million aged people.  Most of these may not even be income tax payees. Those who are taxable would probably pay tax at the lowest tax bracket of 10%.

Consequently, the exemption is narrowly targeted at the deserving and is unlikely to result in significant loss of tax revenue.

POLITICALY CORRECT

There is widespread expectation that the FM would raise the tax free income level from Rs 3 Lakh (for senior citizens) towards Rs 5 Lakhs per year. This is a welcome but generalized benefit and not a specific benefit for the 17 million aged, lower middle class, urban retirees – all of whom are voters.

The BJP has been unfairly targeted for being tardy on social protection. The 2014 national election generated heated debate between “callous growth” and “virtuous equity”- a falsely projected zero-sum choice.

Expectedly, the FM will seek to correct this impression in the 2015 budget. But it is tough to implement efficient social protection schemes on a tight budget. Even efficient, rich, developed economies struggle to walk the thin line between providing perverse incentives to beneficiaries to become economic drop-outs and ensuring the adequacy of social security.

In the meantime, please Mr. FM, spare a thought for the average, pension-less, retiree from the informal sector. Save her from the perils of sinking her savings in unregulated “high return chit funds” in desperation, just to make her two ends meet. Exempting interest earned by individuals from Income Tax is a good way of doing this. There is no better “win-win” than this.

Delhi School Admissions; too much single malt

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Good intentions are never enough to frame good policies. Each new policy generates a host of incentives and therein lies the devil of unintended consequences. The new Lt. Governor in Delhi announced a new admissions policy for private schools in Delhi.

The policy intervenes in the school admissions market in two ways. First it reserves 35% of the available seats (5% for girls, 25% for the poor (ponderously termed in sarkari-hinglish as Economically Weaker Section (EWS) and 5% for the kids of employees).

Second, it prescribes the weights to be used for assessing a kid for admission; 70% is for those living within 6 km of a school; 20% is for a sibling in the same school; 5% is for an alumni parent; 5% for interstate transfer.

Any intervention by the State comes at the cost of distorted markets and efficiency losses. However, the modern State does intervene on grounds of promoting equity. In the case of admissions to private schools, state intervention to determine the rules is a border line case. Ideally, private unaided schools should face no restraints on their ability to manage. However, the State is so overwhelmingly present in India, by providing land to schools at cheap prices and other such goodies and our society so iniquitous, that only a Libertarian fundamentalist will question the need for state intervention.

The dramatic and very welcome change in the new policy is that school management no longer has a quota (earlier 20%) for itself. In effect, this means that the non-meritorious and well-connected or rich kids, who earlier paid-off the management through quid-pro-cos or cash and got admission under the management quota, will now have to look to Gurgaon, NOIDA or even further to get educated.  This courageous blow for merit and transparency, which has got all school managements in a twist, can only be welcomed.

The same cannot however be said for the new “local” kid advantage rule. Good schools, which make parents drool at the mouth, like Modern School, DPS and Sardar Patel Vidyalaya , to name only a few, are all located in rich and babu areas like Barakhamba Road, Humayun Road, Vasant Vihar, RK Puram and Lodhi Estate. The “local” kid advantage at a hefty 70% ensures a total wipe out for other applicants. Ergo the rich and the babus benefit. Nothing new here since privilege is enshrined in our culture.

What about the 25% reservation for EWS? Will not that ensure that rich and poor kids mingle and learn from each other? Certainly this is progressive but when combined with the “local kid advantage” it generates unintended consequences. Here is why.

In the rich and babu localities, for every one person in the house there are two persons in the “servant’s quarters” who generally work for peanuts in exchange for the significant privilege of a decent room in a prime locality. The ESW quota in the “good” schools will directly benefit this segment. One can even envisage people temporarily taking up such residence, at least on paper (as in the case of getting into the Rajya Sabha), just to get their kids admitted. The net result will be to enhance the already existing high premium on houses in these localities and crowd out other poor but meritorious kids in the rest of Delhi.

The LG would be well advised to revisit the “local kid advantage”, at the very least for ESW applicants, to allow the free flow of poor but meritorious kids to “good” schools within Delhi. Since schools in Delhi have no legal obligation to bus students to school, unlike the US, from where this rule seems to have been inspired, ESW applicants should be able to self-select what suits them best.

Similarly mindboggling is why kids, already having a sibling in a school or with alumni parents, should have a combined hefty 30% preference. What does this rule achieve except to encourage kids to free ride on their siblings and make kids complacent because their parents went to good schools? Such preferential treatment only induces rich parents to donate generously to schools, in the hope of a quid- pro-co. This is a blow against merit, against social change and in favour of privilege and must be dropped.

The third mind boggler is a 5% reservation for girls. This is a classic case of mindless gender equity overreach. Surely a better rule would have been to simply require that the admission list in a co-educational school should give preference to achieve a 40% representation of either gender. This would ensure that the co-educational character of the school is preserved (including by getting girls into schools) whilst minimizing the sacrifice of merit for equity. What if a school admission list already has 60% girls on merit? Should there be a further 5% reservation for girls on top of that, even though boys also seeking admission may be more meritorious than the girls seeking admission under the reserved quota? Why is that a social good?

Public policy is all about blending equity with efficiency as the LG knows well. The preference for paying lip service, to the single malt of equity, is not surprising in an election year, but well below par for Najeeb Jung.

 

 

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