governance, political economy, institutional development and economic regulation

Posts tagged ‘Infrastructure’

Are Marwaris taking over our heritage monuments?

Red fort

Someone else, better equipped and trained should do this routinely

Somebody needs to fund heritage preservation. Why not the Marwaris and Banias? After all they funded the National Movement for Independence. But try telling India’s die hard, Left Liberal crowd that a person in desperate need of a public toilet, does not care, whether the plaque above it gives credit to a public-sector company or a private entity. An especially abled person, with a yen for travel, couldn’t give two-hoots who paid for the ramp that makes heritage monuments accessible on her wheel chair.

None of this will wash with those who hold public management of “national” monuments and public sector white elephants dear to their heart. They would rather see them collapse, gradually, than hand them over to the private sector for making them user friendly.

Our heritage, our identity

Last year, in September, the government launched, what should have been an innocuous and much needed initiative to seek non-state (private) interest in providing better facilities at our heritage sites in exchange for on-site advertising. This is explicitly not a revenue generating partnership. No additional fee or charge, unless approved specifically by the government, is to be imposed by the non-state partner.

ex-IAS, Minister Alphons, off to a good start

Things moved surprisingly fast after ex-IAS KJ Alphons got elected to the Rajya Sabha from the BJP and joined the government as minister for tourism. Thirty-one entities have been shortlisted to “adopt” 95 monuments and sites across India.

These entities called “Monument Mitra (friends)” are required to prepare a vision document detailing what needs to be done to improve the visitor experience and how they would go about doing it, as a part of their corporate social responsibility (CSR).

The good news is that, this time around the public-sector has been spared the near compulsory burden of footing the bill. Most of the interested entities are private companies except NBCC (India) ltd. – a construction PSU for the Old Fort, New Delhi and the State Bank of India Foundation for the Jantar Mantar complex, New Delhi.

Dalmia Bharat Ltd for the Red Fort

But the selection which grabbed the headlines was the one signed with Dalmia Bharat Limited for the Red Fort in Delhi. Left Liberal sentiment was outraged at this seeming mortgage of India’s iconic heritage fort, to the Dalmia’s – an old Calcutta/Delhi based family business.

It is unclear, why the Dalmias are interested in the project, except to generate goodwill with the government and amongst citizens in their home city. The potential for getting a free Dalmia promo in the national TV reportage of the annual Independence Day spectacle at the Red Fort on August 15, might have also been a motivator.

Keeping art and heritage “aficionados” out of the process, generates suspicion

The vision document or the MOU, spelling out what the company intends to do has not been publicly shared. The Committees reviewing the expressions of interest; the vision documents and approving the MOUs consist only of the relevant government departments, to the exclusion of non-state actors, particularly from the extended arts, architecture and culture community in Delhi.

As expected, exclusion breeds unnecessary suspicion and distrust. The Modi government seems to shy away from the active participation of non- state actors in decision making. The previous government of Sonia Gandhi-Manmohan Singh went overboard in the other direction, possibly to deflect any blame from itself. A healthy balance between the two extremes would help.

The Dalmias – hard nosed businessmen, far from the sensibilities of culture.

Ramkrishna Dalmia, a Marwari from Rohtak, was the founder of the Dalmia group. Thomas Timberg notes in – “The Marwaris” that, like all entrepreneurs of the early 1900s he made his money from speculation in silver and then went on to become one of the three largest Indian industrialists along with Tata and Birla. But unlike the other two groups, the fortunes of the Dalmia’s have waned.

Dalmia Bharat Cement is a listed company with a market cap of just around Rs 220 billion – around one half of the smallest 100 top listed BSE companies. Its CSR focus is on energy conservation, rural development and solar power applications. Providing and managing visitor facilities for a significant historical monument is a significant departure from its main line of business. Of course, that is no reason to dismiss the effort outright. But it does raise doubts about their ability to perform, to satisfaction, even if the intent is genuine.

Not too many private takers for cultural spend

Government argues that corporates are not exactly lining up to spend scarce money on historical monuments. They must make do with those who are interested, even if they will have a steep learning curve. Mechanisms for technical support to the Monument Mitra and oversight of their activities, are being put in place. Cultural czars however, thumb their noses at such amateurish attempts to break into the rarified world of culture, art and heritage architecture.

To be fair to the government, not all selections, have the same problem. The well-known Aga Khan Trust – which restored Humayun’s Tomb in New Delhi, has been selected for the Aga Khan Palace in Pune; The premier hotel chain ITC and a GMR entity (builders of the Delhi airport) have been selected for the Taj Mahal and so on.
Dalmia Bharat Limited – a cement manufacturer and infrastructure developer – is an outlier for the Red Fort. One wonders why the government does not share the rationale on which the decision was made with interested citizens. This would allay fears.

Marwaris

Suspicion of the Bania (India’s mercantile caste) is deeply imbedded in the Indian psyche, possibly anachronistically. Even the Marwaris and Banias might have moved on from the rapacious image that Left Liberals have of them. We shall know soon enough. By Independence Day, August 15, 2018.

Also available at TOI Blogs https://blogs.timesofindia.indiatimes.com/opinion-india/are-marwaris-taking-over-our-national-heritage/

 

 

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Budget, bureaucracy, Business, corruption, India

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TRAI should junk net neutrality

Chairman TRAI

Telecom Regulatory Authority of India (TRAI), was once the gold standard for “light touch” regulation, in stark contrast to electricity regulators, who continue today, to be stuck in byzantine rate of return regulation and administering cross subsidy between classes of users.

TRAI loses industry focus

TRAI has changed since. Consider that on November 29 it recommended to the Department of Telecommunications (DOT) that rural users should get a limited amount of data for free, funded from the Universal Service Obligation Fund (USOF) managed by DOT. To the everlasting credit of DOT, this was shot down, as unnecessary and inconsistent with the basic objective of the USOF, which principally finances telecom infrastructure.

One third of the 250,000 gram-panchayats, targeted under Bharatnet, have been connected to broadband. Tenders have been finalized to connect an additional one half. But Bharatnet is still a work in progress. Diverting funds into revenue expenditure is unwise.

TRAI’s proposal would have taken telecom down the route of electricity regulation, where subsidies for agriculture and domestic users have proved intractable and sap the viability of the distribution utilities.

Intrusive regulation has become the norm for TRAI, suitably packaged as serving the interest of the “small” user. Regulatory experience shows that governments should steer clear of distorting business incentives by subsidizing one technology over another or by benefiting a set of users either at the expense of other users (cross subsidy) or at the expense of budgetary allocations (state subsidy).

Net neutrality has its adherents but is it backward looking

Net Neutrality

It is ironic that, way back in March 2015, Facebook had proposed a privately funded initiative to provide free access to limited or curated content, in collaboration with a Telecom Service Provider (TSP) to the same “small” users, whom TRAI now wants subsidized from public funds.

Curiously, this proposal was shot down by TRAI in February 2016 as violating “net neutrality”, cheered on by vocal, Indian “netizens”. Over 1 million netizens had jammed the servers of TRAI with outraged petitions against Facebook’s proposal. NASSCOM, which represents software and content providers, added its weight to the storm, thereby protecting the business interests of incumbent content providers.

Even IT gurus like Nandan Nilekani opposed the innovative intrusion into the cozy confines of Indian IT. Paying homage to “net neutrality” was, at the time, also justified by pointing to the elaborate systems, for protection of this concept, put in place by the Federal Communications Commission (FCC) in the United States.

United States FCC to roll back “over regulation” and restore net freedom

Ajit PaiToday, a marginally Republican FCC, incidentally helmed by Indian origin, Ajit Pai, is rolling back, what it calls stifling “over regulation” of the net in the name of restoring freedom for innovation. To be sure 22 million US “netizens” have howled in orchestrated protest, against a rule change, seemingly, in favour of business. In this charged debate, anything which is pro-business is anti-consumer. A zero-sum view of commerce which is a familiar story in India.

Closer home, the November 28 recommendations of TRAI on “net-neutrality”, expectedly, carry forward the bloated carcass of Obama style intrusive regulation. TRAI is right in asserting that neutral traffic management is a technical ideal – selective blocking, slowing down or degrading specific content even when line capacity is available is banned. No one contests that generic principle.

Competition is aso an effective tool for optimisation

The real regulatory choice today is between competition in transmission, as a compelling instrument to simulate what “net neutrality” was supposed to do versus continuing with intrusive oversight over quasi-monopolistic transmission providers. Relying on and enforcing competition, seems a more effective, hands-off option in our pervasive, low-oversight ecosystem.

Another reason why “net neutrality” as a principle stands compromised is that increasingly, the transmission needs of content vary. With new services coming online, we will need multiple transmission protocols. Consider that online text need not be continuously streamed without detracting from reader pleasure. But online heart surgery support can be fatal unless continuous streaming is ensured. The same applies to internet access for driverless vehicles. TRAI has recognized these difficulties and the possibility that the Internet of Things will transform the rules for optimum scheduling of transmission.

Regulation by exception is non-transparent

TRAI’s solution falls short of transparent regulation. It has provided for exceptions, on a case-by-case basis, from “net neutrality” norms – for emergencies and unspecified “specialized services”. The latter are distinguished from general services by their targeted appeal to a narrow set of users.

Is net neutrality obsolete?

A better option would have been to review whether “net neutrality” itself is not obsolete because it will become riddled with exceptions. It was an important principle in the 1990s, to ensure market access for fledgling innovators in content provision by prescribing a merit order for getting past monopolistic telecom transmission utilities. But today competition is rife, both in transmission and in content provision. Possibly, the need of the hour for TRAI was to seek pathways downsizing regulations to simply protecting access, to basic internet services, for small users. High value-added services anyway, provide sufficient revenue incentives, for TSPs to push availability.

Providing net access remains a challenge

A massive challenge for India, per TRAI data, is that only one half of Indian citizens are connected to the internet as compared to 81 percent in the US and 76 per cent in China. Competition has reduced the access charge to affordable levels. But the quality of services is low because of under- investment in infrastructure.

Internet Service providers need new pools of revenue

Heavy penalties for non-compliance with quality standards can improve the quality of service. But TSPs finances are already under stress. Spectrum cost is high. If government earnings from spectrum are not to be reduced and user charges are to remain low, TSPs need to find new pools of revenue to fund infrastructure development. Their business models need to go beyond being just “passive pipes” – the role which “net neutrality” forces on them.

Software and content providers are not necessarily winners either in a net neutral environment. Consider that, in 2015 Facebook got stymied in India. But which Indian “edge provider” (jargon for content providers) gained from that blocking action? Rapid growth of infrastructure is the best option to fuel demand for content. This is a better incentive for innovation than protectionist regulation.

“Minimum government, maximum governance” is a Modi mantra. TRAI appears not to have been copied.

Also available at TOI Blogs December 6, 2017 https://blogs.timesofindia.indiatimes.com/opinion-india/trai-should-junk-net-neutrality/

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Digital connectedness, Economy, India, technology

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Well begun is half done

BOOK REVIEW
India Transformed
25 years of Economic Reforms
Rakesh Mohan – 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 Indian economic history. 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. Rakesh Mohan 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

 

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Book Review, Economy, India, poverty, Public Institutions

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Needed paychecks not pink slips

Jobs 2

Photo credit: Zee news

Ask any of the 68 government departments in New Delhi, what they are doing about private sector jobs, and each will point at the other for an answer. The truth is that governments have not been held accountable for job creation since the 1980s, when neo-liberalism took root. No one advocates going down the horribly inefficient public sector job creation route again. So, it is up to the private sector and self-employment to absorb our surging army of millennials — almost 10 million strong annually — which is equal to the entire Australian workforce.

bot

Humans versus machines- who’s winning?

But does the private sector have incentives to produce jobs? Looking purely at the bottom line, machines are superior to humans. They also come with financial incentives for capital investment — cheap bank finance and accelerated depreciation for tax purposes — which boost the bottom line. Technology is fast eroding the capacity gap between the unique attributes of human labour and machines. Siri (Apple), Cortana (Microsoft), Google Now and the mellifluously named Maluuba are all cheaper than hiring a real-life assistant and are on call 24×7. Bots will progressively replace humans, more so in logically-executed routine jobs. Not only are human services more expensive, but they come with enormous social and economic costs for housing, transport, education, health and security.

Can government help preserve human employment?

highway

So, how can the government help create new jobs and preserve existing ones? Kickstarting infrastructure projects; promoting “Make in India” and resolving the bad loans burden of banks — are all great government initiatives for new employment. But their impact is medium term. In the near-term, the government needs to preserve existing jobs. Here are four options.

Market Indian skills in 34 “Aged”, rich, countries 

indian farmers

First, extend the H1-B strategy, used to great advantage in the US, for temporarily exporting Indian workers overseas. Rich countries, with ageing populations who need the workers, but fear the cultural dilution associated with permanent immigration would be the targets. Assign targets to our ambassadors posted in these locations to negotiate with their host countries to allow temporary immigration, lightly monitored by the government and directly supported, under the Skills India initiative, to acquire local language and cultural skills. The associated fiscal costs are outweighed by the social and economic benefits from repatriated earnings alone. A stretch target could be to export a million workers over the next three years.

Discourage the “paper chase” by avoiding “gold plated” human resources.

microsoft-employee

Second, build respect for skilled work by venerating those who have these skills. Our caste and hierarchy-ridden Brahmanical social norms devalue skills and overvalue “intellect” — both in the public and private sectors.  This unfortunate social milieu engenders “qualification creep”. Both Indian companies and the government routinely advertise for engineers even when an experienced mechanic is needed. Consider the irrational gap between the wage for a nurse versus a doctor. Good nursing vastly reduces the workload for doctors — specially in the emergency room for the care of trauma patients. But this noble, highly skilled profession is not a first choice today. Instead, there is a stigma attached to it, as being fit only for those who cannot afford the high cost and long incubation period for becoming a doctor. Why is a Bachelor of Arts degree needed to become a bank clerk — a high responsibility but a routine, people skills-oriented job? Only a select few, intending to teach at the college level or do research, should need a master’s degree. Tests and interviews for jobs should focus on personality and psychological attributes, rather than educational qualifications, which are rarely aligned with job skills anyway. Only when we consciously make the paper chase redundant will we value real-life skills accretion, where the maximum potential for human jobs exists.

Reward socially responsible business leadership which looks beyond the “bottom line”

murthy gates

Third, introduce disincentives for layoffs. Yes, flexibility in workforce management is a must for employers. But companies can be incentivised to be socially responsible employers. Those who go beyond watching their “bottom line” to retaining and growing their employees should be rewarded through tax breaks, access to cheaper finance and publicly recognised as nation builders. Why not devise an index to assess social leadership qualities of company honchos before they get awards and honours, get invited to Rashtrapati Bhavan; preferential access to our ambassadors overseas or get nominated on to government committees? We need to publicly distinguish between narrow-minded private employers who only watch bottom lines, and truly transformative business leaders, if the private sector is to lead in job creation.

Give incentives for digital/banked wage payments by individual employers

Around 300 million workers are employed in the agrarian and household sector as daily wagers or long-term help by individuals — farmers, rich and middle class urban households. Legislating minimum wages and benefits for this segment is lazy policymaking and can end up having a regressive impact due to weak oversight capacity. The Niti Aayog has taken the lead to plug the data gap on informal employment where most of the incremental jobs will be created. The government can step in with near-time transactional measures for light-handed regulation of such employment. As an initial step, the government should promote the payment of wages into bank accounts to generate big data on such employment. An incentive of Rs 5 credited back to the employer’s account for every Rs 1,000 paid into an employee account could help. If costs are shared between the bank and the government, a budget outlay of Rs 5,000 crores can pay for this incentive and bank annual wage payments of an estimated Rs 18 trillion, much of which is in cash today. Individual employers, with a track record of employing more than five workers and banking wages of more than Rs 10 lakhs per year, should be publicly recognised as “social growth enablers”.

Collaborative governance is key

bicycle with flag

Last, the optics must be right. The government needs to step away from the colonial pedestal of being the “mai baap” (supreme preserver). The “lal battis” (red beacons) have gone. It is time now to puncture some sarkari egos further and spread the accolades for social and economic achievements.

Adapted from the author’s article in The Asian Age July 16, 2017 http://www.asianage.com/opinion/columnists/160517/a-to-do-list-for-govt-to-create-more-jobs.html

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banking, Economy, India, jobs

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NITI’s vision 2032 disappoints

NITI vision 2

NITI vision 2032 : foggy, disjointed & barely hanging together

Prime Minister Narendra Modi and the chief ministers of states spent most of Sunday deliberating over the plans and prospects for India in the next 15 years to 2031-32. The third governing council meeting of the Niti Aayog seems to have been an underwhelming affair, judging from the two presentations put up on its website. Why this listless thinking?

Great expectations

Three years ago, when the dowdy Planning Commission was transformed into a glitzy Niti Aayog, expectations were high that it would be the loci of innovation and cutting-edge analytics in public policy. The Planning Commission was merely an extended office of the Prime Minister. Chief ministers, whilst supposedly integral to the National Development Council (NDC), which the commission serviced, felt like interlopers rather than participating members. The flamboyant J. Jayalalithaa used the NDC forum like a television station — walking in to deliver her speech and then walking out. Others stoically suffered the process, making debating points, that no one heard.

New beginnings

Some of that has changed. Mr Modi has done away with the elevated podium of yesteryear for the PM and Union ministers. Now all are seated at the same level around a round table. Another first — the meeting was held at Rashtrapati Bhavan. Symbolic, as our head of state is not the PM, but the President, with whom the Union and state governments have an independent constitutional equation. In deference to the beacon ban, the long line of official cars streaming into the venue were minus their flashing red lights, thereby letting the tricolour atop Rashtrapati Bhavan take pride of place. On optics, the arrangements were perfect.

More optics than substance

The substance, however, seems not to have been as uplifting. Five examples will illustrate.

Lacks credibility

indian dream

A car for every household – is this the Indian dream?

First, a 15-year vision which is not nuanced enough to reconcile trade-offs lacks credibility. To aim to make India a prosperous economy by 2032 is a pie in the sky. India can, at best, and that too with enormous effort, go from being a lower middle-income country (per capita at current $1,600) to become a middle-income country (per capita current $4,800). A very long shot from being prosperous. The per capita income (at current US dollars) in Latin America and Caribbean today is $8,415, while in East Asia it’s at $9,512. There is no way we can catch up to even these levels by 2032. Consider also that the high growth rates required to make this jump could negatively impact equality. The international experience amply demonstrates that high levels of growth come with the risk of increasing inequality. There is not a whisper in the vision statement of how we propose to navigate the trade-off between growth and equality — the latter being part of the PM’s vision.

More of the same

brick stacks

Second, the Niti Aayog’s vision statement is backward looking. It ignores the dislocation caused by technological developments which technology leaders like the Chinese entrepreneur, Jack Ma have been warning against. NITI aims to make India a highly-educated country by 2032. Should we not be looking, instead, at becoming highly skilled? We are already battling progressive robotisation. By 2032, artificial intelligence would have squeezed jobs further in traditional sectors. New jobs, 10 million a year, which we require and still don’t have, are only likely in highly specialised areas — like space travel, frictionless transportation and psychological counselling — niches which are not easy to robotise, rather than general education which we value today. By 2032, just as plumbers, carpenters, masons and welders would be obsolete so would equity traders, bank clerks, low-level lawyers and IT workers. We will still need pure scientists, social scientists and engineers, but in limited numbers, We already produce 2 million of these every year. But very few are of cutting edge quality. Our challenge is to develop innovative minds with appropriate skills, not to educate 400 million of our under 18 years population to become “thinkers” – the bulk of the thinking will soon be done by machines. Humans will need the skills required to choose and make wise decisions, intermediate between humans machines and train other humans to work with machines. No sign of this transformation in the vision.

Not joined up – conflicting objectives

oil pollution

Third, the vision statement wishes India to become “energy abundant”. But being energy abundant is a retrograde desire tinged with the potential for waste. Energy abundance means energy prices tumbling, spurring even more per capita consumption of energy. Surely this is incompatible with the other objective of being “environmentally clean”? Are we really aiming to provide a car or a motorbike to each household, as the vision proclaims, or do we wish to make public transport the most convenient option? Should we not be allocating funds to become energy efficient rather than spending on acquiring or developing more energy resources? The hunger for energy abundance is a stale ambition.

Mushy & emotional, not pragmatic

Fourth, the Niti Aayog aims to make us a “globally influential nation”. How is one to go about this Dale Carnegie-type revamp? India has thumped the tables of the United Nations for over five decades. And yet, suddenly today, we are more influential globally than ever before because of our large, growing markets, relatively easy access for foreign capital and technology, facilitating internal institutional arrangements and stable polity. Influence is an outcome of domestic capacity, confidence and conviction. These 3C’s are the drivers we should be looking at. Best, like Arjun, to aim for the eye of the bird and not get distracted by the clouds floating around.

Process matters for cooperative federalism

Fifth, the Niti Aayog was constituted to showcase cooperative federalism and be the entry door for its implementation. But it remains poorly organised for living by this principle. Its staff should be deputed both by the Union government and directly by the state governments, much like multilateral entities operate. It must have a permanent secretary-level board to review and clear documents to be presented to the governing council, and provide a forum for discussion and implicit negotiations between officers from the Union and the states deputed to the Aayog. The governing council should structure meetings to provide for negotiations at the political level to evoke the spirit of cooperation and collaboration. Currently, the council functions more as a receptacle for the views of state governments and offers an opportunity for the Union government to tell states what it is doing, just like the Planning Commission used to do.

Put some flesh on the vision

famine

The vision unveiled, yesterday, is muddied by a vast array of disjointed initiatives, thereby reducing the clarity of purpose expected from such a document. Words matter and must be used selectively and deliberatively. Otherwise a vision is nothing but a laundry list of wishes. For years the World Bank “dreamt” about a world free of poverty. It now recognises that wishes need to disciplined to the takable actions to convert wishes to reality.

The public expects much, much more than old wine in new bottles from Mr Modi- especially over the next decade. He and the outstanding talent in the Aayog, must allocate time for thoughtful negotiations at multiple levels. There is no other way to make others — particularly the state governments — feel like valued members of the same Team India!

Adapted from the authors article in The Asian Age  April 25, 2017 http://www.asianage.com/opinion/oped/250417/niti-aayogs-vision-2032-disappoints.html

PM NITI 3 GC

 

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Economy, Environment, India

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Change UP to change India

victory 2

When it comes to winning elections, the sophistication and efficiency of the BJP political machinery is unmatched. Of course, Prime Minister Narendra Modi’s charisma provides the base, which the party leverages, to ensure that their individual candidates win. So what does this historic win — pulling in an unprecedented 77 per cent of the seats up for grabs in the UP Legislative Assembly — mean for the nation. And specifically, is UP the tail which can wag the dog? PM Modi knows it can. This is why he has set five years from now 2022 as the milestone for changing India – not 2019 when the next general election is due.

UP the sleeping giant

The taj

UP has a rich past and a glorious future. It is the present which needs some looking after.

Uttar Pradesh accounts for around 12 per cent of India’s GDP but has 17 per cent of its population. If you sometimes wonder why India doesn’t grow more than it does or why the existing growth is not well-distributed, look no further. UP is to blame for both negative outcomes. It pulls down national metrics on per capita income and growth. It also makes us look bad on social inclusion. Nearly a quarter of all Muslims and the poor (based on the government’s poverty headcount metric) live in UP. The state’s poverty level, at just under 30 per cent, is the second highest in the country, after Assam.

UP – the key to ending poverty

child poor

If the BJP can halve poverty in Uttar Pradesh, bringing it down from 30 to 15 per cent (same as the existing levels of poverty in Rajasthan, Gujarat and Maharashtra), the national poverty ratio will fall by a massive 10 percentage points, from 22 per cent to 12 per cent. Reducing the levels of poverty in UP also has high positive externalities — particularly political. There are sizable communities of migrant workers from UP in Kolkata, Mumbai and Delhi, through whom the message of “achche din” can travel to these metros, generating a “feel good” tsunami.  Consider that if the BJP can make Uttar Pradesh grow at the average rate of national GDP, it would increase the rate of growth of the national GDP by 0.5 percentage points. This additional income, even if it is proportionately distributed across the population of the poor, would reduce poverty to single digits in UP.

Why the BJP is uniquely place to take up the challenge

BJP leaders

Cynics could ask how can we be sure that the BJP will extract the potential? Others think the BJP will face headwinds while picking a chief minister, thereby risk displeasing sections of the winning rainbow coalition. The squabbling in New Delhi in 2014 is evidence that even the BJP is not immune to internal sabotage by disgruntled cadres. The BJP works best when it functions in a vertically-integrated manner — much like the Communist Party of China. Significant decisions are all made at the very top. Targets are determined for lower level formations at the state and municipal levels. These are then vigorously followed up and performance measured against targets. Now that UP is directly controlled by the BJP, the Narendra Modi performance juggernaut can be rolled out uniformly across the state.

So here are three focused ways in which the BJP can be different.

Give UP back to real-time management by it’s bureaucracy

UP officers

UP has many Durga Shakti Nagpals – officers who seek to serve. The present Cabinet Secretary, the Chief Election Commissioner and the PMs Principal Secretary are all UP cadre officers. But two decades of “populist” rule post “mandal” in the 1990s have diminished the excellence, which was the hall mark of UP administration.

First, today UP is a state which is resource poor and deficient in entrepreneurship. Out of the 100 top companies listed by market capitalisation on the Bombay Stock Exchange, only one company — Dabur India — is headquartered in UP. The Annual Survey of Industries 2014-15 lists only six per cent of the total number of factories and industrial workers, and just five per cent of industrial capital in UP. This illustrates that government efforts remain crucial, unlike in more developed states, where private sector initiatives can substitute for government efforts. The Modi magic, of revitalising the bureaucracy through direct interaction and consultation, as is now being practised at the Centre, must be institutionalised. This “direct contact” pattern of administration at the Centre has significantly reduced the earlier proliferation of corruption and silo-based operations. Mr Modi must return Uttar Pradesh to the real-time management of its bureaucracy, who have been sidelined and broken in spirit for too long.
The State in UP has become moribund. It must be reinvented, and used as an instrument for social change.

Make UP the international “laboratory” for agri growth

farmer

Second, agriculture is the heartbeat of Uttar Pradesh. Poor rural infrastructure and lawlessness have constrained additional investment in agriculture. Eighty per cent of the poor also live in rural areas. Agriculture based on “per drop more crop”; large scale diversification to non-cereal crops and commercialisation of agriculture outside the subsidy regime format of minimum support prices; cheap fertiliser and energy can pay rich dividends. The new land leasing arrangements should be led by UP, just as Rajasthan has taken the lead in amending outdated labour laws. More urgently, crop yield is not uniform across the four sub-regions. Average agricultural productivity can be increased by 10 per cent by simply pushing up productivity in the lagging central and eastern sub-regions (which account for around one-half of total foodgrain production in UP) to the levels prevailing in the state’s western region, adjoining Delhi and Haryana.

Invest in UP’s infrastructure

gadkari 2

Finally, UP has the worst road infrastructure in North India. Power cuts are rampant, even in Noida, which is a satellite township that adjoins Delhi. A proposal to build a regional air hub to service Agra has been gathering dust because the political alignment between the Union government in New Delhi and the state government in Lucknow was not favourable since 2002. If Delhi plans to link Myanmar and Southeast Asia by road with Afghanistan and beyond, over 700 km of this highway must pass through UP. Some of transport minister Nitin Gadkari’s expertise in getting infrastructure going could be usefully applied to UP.

2017 election results are a gift – use it well

The BJP is known for its executive and managerial abilities; its disciplined cadre; its capacity to ramp up domestic and foreign investment and to link investment to results. Uttar Pradesh is likely to give it the biggest bang for every buck it spends, simply as the desire to do better in UP is matched only by the utter frustration of its citizens over their stagnating future prospects. If UP booms, India will follow. This is one chance that we simply must not lose.

bangles

Bangles in Firozabad, brassware in Moradabad, rich textiles in Varanasi, the juciest mangos from orchards across the state, Nimish – the flavoured forth from early morning milking of cows, Mughal delicacies from Lucknow and Rampur, ancient monuments at every turn and a culture bred by centuries of civilised life – UP has it all, except transformational leadership- will Modi be the one? 2022 will tell.

Adapted from the authors article in Asian Age  March 13, 2017 http://www.asianage.com/opinion/columnists/130317/if-bjp-can-uplift-up-all-of-india-will-gain.html

 

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Funding the Republic

tricolour

The tricolour flutters happily at the Peer Makhdum Shah Dargah in Mahim, Maharashtra, hoisted by the peer’s devotees, as a symbol of the Indian Republic being alive and well. 

India is a Republic. But often it feels as though only the Union government must carry the can for doing unpleasant things – like levying tax on those who have the surplus income to add to the national kitty or getting heavy with tax evaders. Of course it is a juggalbandhi. The Union government invariably wants to grand-stand and hang on to financial muscle power so necessary to play “big brother”. State governments are only too keen to accept the federal goodies being thrown at them and thereby avoid the pain of efficiency enhancing structural reform in politics and in government. To be fair, the financial and political firepower of the Union government and individual states is asymmetric in favour of the former. This makes it difficult for a state to chart a lonely, unique, development path. The good news is we may be coming to the limits of this asymmetric sharing of development responsibilities.

The Union lacks funds for its core functions

Consider that rapid infrastructure development and public investment to strengthen competitive markets have become the stepchildren of the annual Union Budget process. This continues a trend, started by the previous government, of shoring up state government finances, at the risk of being stingy on spending in areas of its own core, constitutional mandate.

The Economic Survey 2017 notes that state fiscal deficits reduced sharply from 4.1 per cent to 2.4 per cent of the gross state domestic product (GSDP) over the last 10 years, since state governments adopted the Fiscal Responsibility Act. Enhanced Central transfers to states and reduced interest payments, courtesy debt restructuring, benefited states to the extent of 1.8 per cent of GSDP. To their credit, most states used the additional fiscal space to cover the revenue deficit and lower the fiscal deficit to below the target of three per cent of GSDP.

But how long can the Centre play the role of a responsible elder brother, darning his own clothes, whilst buying new ones for his younger siblings?

India’s poor infrastructure constrains growth. Low spending on infrastructure also limits job creation — something India needs. The Union government expenditure on infrastructure has increased from 0.6 per cent of GDP in 2015-16 to an estimated 0.9 per cent of GDP in 2017-18. But it remains inadequate. Adding the state government and corporate — public and private — expenditure on infrastructure totals less than three per cent of GDP in 2017-18 versus the five per cent of GDP we should be spending.

broken-bridge

Dodgy infrastructure: the bane of the Republic. photo credit: indiamike.com

Repairing the broken system for bank credit and private investment

Bank and corporate finances are the second black hole which the Centre’s Budget was unable to address. Banks have accumulated bad loans to the extent of `12 trillion, or 17 per cent of their assets. The Economic Survey 2017 exhaustively discusses the “twin balance sheet problem” — of banks that must write down at least one half of the bad loans and of large private companies that face bankruptcy, for failing to use the loans productively over the past eight years.

construction

The finance minister has been explicit that the government should not bail out the private companies who made bad decisions. This is well-intentioned but difficult to implement.

There are 13 public sector banks that account for 40 per cent of these bad loans. Merging them with efficient banks can mask the problem for some more time. But such mergers can spread rather than contain the contagion. Selling or closing a failed public bank or enterprise requires courage and conviction. Our inclination is to retain the “crown jewels” no matter how tarnished they get. Air India has got a capital infusion of Rs 1,800 crores in 2017-18 on top of the Rs 5,765 crores over the last two years.

Fifty private companies account for 71 per cent of the bad loans. The public mood is for the government to go for their jugular. This will make it politically difficult for the government to fund write-downs of debt. But vigilantism against corporates can rock the growth story, which we can ill afford.

judge

A fast track quasi-judicial process must distinguish between “wilful” and unintended default, caused by systemic shock. Different rehabilitation regimes should be determined for the two categories of defaulters. Wilful defaulters should be pilloried. The downside is that picking and choosing defaulters, itself can perpetuate what this government abhors — crony capitalism.The finance minister has allocated Rs 10,000 crores in 2017-18 for recapitalising banks. This is a placeholder. All eyes are trained on the additional resources unearthed by demonetisation. The RBI is yet to disclose the value of Rs 500 and Rs 1,000 notes which remain undeposited. This may be around Rs 1 trillion. Transferring the resultant excess sovereign assets, from the RBI to banks, can buy some breathing room.

Second, the incremental tax collection from demonetised “black money” deposited in banks, can fund infrastructure development or recapitalise banks, as it dribbles in over the next two years. This windfall was to be distributed to the poor as cash support. But recapitalising publicly-owned banks, albeit with more vigorous oversight and more transparent and intrusive stress tests, has a higher priority. More credit for corporates translates into more investments, more jobs and higher economic growth. These are the fundamentals that must accompany fiscal stability.

More “give” rather than just “take”, needed from States

We are in the middle of an incipient financial emergency, which can be triggered by a shock. The RBI cautions against thinking that inflation has been tamed. Other than food and oil, where prices remain low, inflation hovers just below the red flag of five per cent. This limits the headroom available to overshoot the fiscal deficit red flag of three per cent of GDP.

The Centre needs considerable fiscal slack to fund infrastructure development and recapitalise the banks. State governments can help by enhancing their own tax resources. Imposing income tax on agricultural income and vigorously collecting property tax are low hanging fruit available to them. These measures can add around one per cent of GSDP to their resources. This will enable the Union government to scale back the long list of Central sector schemes for human development and social protection and use the funds instead for its core mandate — developing infrastructure, markets and a competitive private sector.

gst

The Goods and Services Tax Council meets: State’s follow the take rather than give strategy. 

States may well ask why they should bother, since they were never partners in the illicit gains from mega crony capitalism. But this would be short-sighted. Faltering economic growth adversely affects all boats. An increase of six per cent in economic growth boosts state government tax revenue by one percentage of GDSP with more jobs in tow. But above all, cooperative federalism must have some give — along with the take. This is the time for states to give to the Republic, as equal partners in national development.

Adapted from the author’s article in the Asian Age, February 14, 2017 http://www.asianage.com/opinion/oped/140217/to-raise-resources-give-and-take-needed.html

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Finance Minister or supermom

mom

Will Finance Minister Arun Jaitley protect wailing babies; photo credit: mubasshir.blogspot.com

High expectations in the near mystical ability of any finance minister to find a balm for all economic ills is common across all Budgets. Like all of us, finance ministers are egoists. They respond to expectations, like a supermom does to wailing babies.

The chorus of expectations from finance minister Arun Jaitley in Budget 2016-17, is no different. Growth fundamentalists expect a growth-oriented Budget — presumably heavy on infrastructure and investment. One may well ask then, why the accompanying demand for lower interest rates or for more investment than last year? Last year’s investment-lite Budget — just 1.7 per cent of the gross domestic product — pulled off GDP growth of 7.6 per cent, if government data is to be believed, despite the depressing economic environment.

Low social sector allocations

Social sector fundamentalists fret about low allocations for education and health — the building blocks of tomorrow. In the last Budget, the proportion of devolution to state governments was increased by 10 percentage points as per the recommendations of the 14th Finance Commission. Basic and secondary education, and primary health are state government mandates as per the Constitution. It is, thus, up to the states to get on with the job of prioritising social sectors in their spending.

Inadequate spend on defence

Security groupies worry about our poor defence preparedness. But they simultaneously support large pay and pension increases for the men in uniform who significantly outnumber the amount of modern equipment available to equip them with. No one seems to be thinking about reducing boots on the ground and using the money saved to upgrade much-needed equipment in this age of drones, airborne rapid action deployment and missile warfare.

air force

India’s aging fleet of fighter jets; Photo credit: indianexpress.com

Creaky infrastructure

Business, meanwhile, slouches about in the shadows, cribbing privately about the slow pace of the over-hyped initiative for rapid infrastructure development like the Delhi-Mumbai Industrial Corridor which is a confusing mishmash of railway lines, transportation hubs for improving freight movement and murky land deals for providing the usual real estate sweetener of houses, offices and malls. The fact that the Japanese are funding the railway freight component was probably its strongest point since both, the availability and cost of domestic funding, are at a premium for long gestation ventures. Ditto for the Ahmedabad-Mumbai bullet train.

plans

More plans than progress; Photo credit: dnaindia.com

As if all this was not enough to put any human into the ICU, public sector banks, egged on by the Reserve Bank of India, have chosen to make the December 15, 2015, quarter their “show and tell” moment.

Domestic shock: high levels of stressed bank assets

Whilst the financial cognoscenti may have known for years, the average depositor is just about finding out about the rot in government banks. Loans worth Rs 6 lakh crore have been extended over the years to borrowers who had no intention of paying them back. Instead of writing-off these loans when they soured or providing reserves against a potential loss, government banks have been dressing up their accounts to look good on paper by restructuring the unpaid loans. In essence, kicking the bad loans football down the road into the lap of the Bharatiya Janata Party government and Raghuram Rajan, governor of the RBI.

The result is that unless the government steps in and coughs up possibly Rs 4 lakh crore to recapitalise government banks over the next two years, bank finance will remain difficult to get and, even if available, it will be expensive. Despite the high margin these banks charge between the rate at which they get finance from the RBI and the rate at which they lend to borrowers, dodgy sets have reduced their profitability and affected growth. As a consequence, the market has sharply marked down the value of the equity of listed government banks.

Three trade-offs before the Finance Minister

Should Mr Jaitley bite the bullet and provide for reviving the government banks or should he keep this on hold and push public money directly into new infrastructure projects? The first option compromises short-term growth, the latter medium-term growth.

Mr Jaitley has to also choose between living with the unwise commitment to increase government pay and pension by 23.5 per cent or enhancing social protection and rural income support. The former helps the middle class, the latter the poor.

Another choice is between theory and practice. Should he stick to a fiscal deficit target of 3.5 per cent of GDP for 2016-17; increase tax revenue by hiking the rate of service tax; levy capital gains tax on equity and income-tax on dividends or should he play to the God of all things — the lack-lustre stock market — and keep tax rates low but blow out the fiscal deficit target?

Unfortunately, much as he may want, the finance minister cannot play supermom and please all. One hopes that he will bite the bullet and set about capitalising government banks — the engines of growth. Hopefully he will also set in motion fundamental reform in government banks. One extreme but useful step could be to explore support funding from the International Monetary Fund in the event of domestic or external shocks — like another drought or a sharp increase in oil prices — disrupt his plans.

The government of Gujarat has shown the way and the President’s address hit the right notes on safeguarding the allocation for social protection, rural income support and human development. The middle class may have to wait for their salary bonanza till growth-driven revenue buoyancy enhances the fiscal space available for such largesse.

To be cannily pragmatic or rigidly correct

The supermom character of the finance minister should kick-in whilst managing the trade-off between retention of the fiscal deficit target, tax revenue enhancement and managing stock market expectations. This is where the finance minister’s judgment will be key in doing something for everyone without disappointing all.

Our friendly Jats in Haryana have made their point with characteristic aplomb. By summarily cutting off the supply of water to Delhi they established a clear quid pro quo between water for Delhi in return for reserved government jobs for themselves. They seem to have won. Mr Jaitley could learn from their earthy pragmatism.

Who said that supermoms have an easy life?

Jaitley in parliament

Finance Minister Arun Jaitley in  Parliament: Adept at keeping hopes alive. Photo credit: oneindia.com

Adapted from the authors article in Asian Age February 26, 2015 http://www.asianage.com/columnists/finance-minister-or-supermom-261

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The Modi government is being formed on the back of a mandate for honest and effective governance. Fortunately, it inherits a raft of incomplete social and economic equity initiatives from the UPA II. These need to be continued, deepened and tweaked to deliver more bang for the buck.

But every government craves the opportunity to distinguish itself from their predecessors. The Vajpayee government is remembered for the inter-city state highways it built, state enterprise privatization, albeit stymied half way through and the blot of Godhra.

Clearly, everyone wants a full stop to future Godhras. But the mere absence of organized violence is rarely memorable even though it is immensely difficult to achieve in a tinderbox political environment. What then are the “headline” opportunities that Modi.gov could grab?

Infrastructure, coal and defence present themselves instantly. The former two, to build an enabling India. The last, to deter the many “spoilers” of an Indian development story.

Within infrastructure, the real opportunity is in the railways. China now exports railway projects and technology and we are, reportedly, keen to learn from them. But the truth is that we have not served our cause well over the last two decades. The last memorable Railway Minister was Madhavrao Sindhia; not just for his dashing, good looks but for ushering in the era of “fast Shatabdi trains” in 1988.

What has held railways back since then is the “fiefdom” the Ministry became for coalition partners interested only in distributing goodies. Should not the railways them be privatized to nip its politicisation in the bud? Certainly not. Out of all the infrastructure sectors, railway privatization is the trickiest. Secondly, as we have learnt from the power sector, it makes little sense to privatize a sector, in which tariff setting is highly politicized, before it is stabilised.

The Rakesh Mohan committee on railways (2001) laid down a blue print for the sustained financial viability of a railway system performing on par with international standards of efficiency. More than a decade since, the situation has only degraded further: antiquated track and rolling stock; poor customer orientation; declining service and safety standards; distorted tariffs which are either not remunerative or are not competitive with air and road options.  

The target should be to restore, the low proportion of freight and passenger traffic presently carried by railways, to more economically and environmentally efficient levels with a push towards rapid electrification of rail tracks.

Convert the Railway Ministry into a set of publicly owned companies with core expertise in production of rolling stock; freight or passenger traffic with self-owned rolling stock and track and facility maintenance. These companies should be Board managed and have only an arms-length relationship with their administrative Ministry, which should be the Ministry of Transport. Corporatisation will distance railways from being the “freebie-bag” it has become. This has happened, in the case of National Thermal Power Corporation and POWERGRID, both power sector publicly owned companies, where sound technical and financial decisions are taken by professionals.

Coal, whilst actually being one step ahead of railways, since Coal India is already corporatized, seems even more degraded. The next step should be to privatize it and closely review the vast unused or sparsely developed mining areas which have been allotted to these companies. This could be the Maggie Thatcher moment for Modi.

Abolish the largely discredited Ministry of Coal, as an independent entity; merge it along with oil and gas into a Ministry of Extractive Energy Sources. Appoint a savvy, industry friendly, politician; a Sharad Pawar clone, to restore positive energy into the fractured government-energy industry relationship and watch this sector take off.

Defence is the third big area, which India has pussy footed around for too long. Revamping the structure of our defence forces to be lean and mean with less tail and more teeth; modernization of weaponry, aircraft and warships; minimum levels of usable ammunition stocks and efficient procurement processes; integration of operations across the three services and para-military units; compensating defence personnel handsomely, for putting their life on the line, and re-integrating then productively in civilian life, post retirement, should be near term goals. Opening up defence production to the private sector, including foreign investors can kick start a dormant, defence industry led, domestic supply chain, mini, revolution.

The ideal Minister to manage this mini revolution would be the personable and upright, economist, writer and investigative journalist; Arun Shourie, who displayed nerves of steel as Minister Disinvestment in the NDA and navigated both, the political perils of rapid economic decision making and the roving eye of the CAG, with equal dexterity and success.

The Modi.gov reform and restore agenda is likely to be fairly full. The challenge is to isolate the few lead stories which could be the bell weather for its commitment and credibility to work in national interest; its ability to kick start the economy and generate productive jobs for the educated unemployed.  

Railways, defence and coal are not low hanging fruit. All three have deeply embedded elite interests; the risk of failure is high and the likely adverse fall-out significant. Reforming them is not for the faint hearted. But that is precisely why they are good choices to announce ones arrival. The one that succeeds at reforming the three would have bent and strung Shiva’s bow.   

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