governance, political economy, institutional development and economic regulation

Posts tagged ‘Municipal Governments’

Delhi babus – between a rock & a hard place

delhi strike

The breakdown of a working relationship between the Aam Aadmi Party (AAP) government of the National Capital Region and its officers is a seminal moment. On February 19, AAP legislators heckled, abused and allegedly assaulted Chief Secretary Anshu Prakash, the Delhi government’s topmost bureaucrat, at the residence of the Chief Minister (CM). Both CM Arvind Kejriwal and deputy chief minister Manish Sisodia were present.

The legislators allege that the chief secretary (CS) used intemperate language in the shouting match between them. Cross-first information reports have been lodged by the two rival parties with the police. Further investigations would reveal the facts.

Chief Secretary’s complaint is, primae facie, more credible

But the circumstantial evidence favours the chief secretary’s case. He was summoned to the CM’s house for discussions at around midnight. He found a group of 11 legislators and/or partymen — notably all male — assembled. He was made to sit on a sofa, sandwiched between two legislators, who subsequently assaulted him. The bone of contention, according to the CS, was that the legislators were outraged that TV advertisements on the completion of three years of the AAP government in Delhi were not approved in time. The CS avers the advertisements violate the Supreme Court guidelines for government advertisements. The AAP contends that holding up the advertisement, churlishly, is yet another instance of how the Central government uses the office of the lieutenant-governor (L-G) to shackle the state government.

The state government-level staff and officer unions have demonstrated and resorted to work-to-rule tactics against the criminal assault on a government servant while on duty — which attracts severe punishment under the Indian Penal Code. Two legislators — the alleged assailants — have been arrested. The Delhi government is in turmoil.

Partial devolution creates potential for conflict in operations 

Beyond the inter-personal behaviour issues, which may have sparked the conflict, a larger problem looms. Are institutional arrangements for governance in Delhi so fraught that they breed conflict between politicians and the hapless bureaucrats, who have to play to the tune of two masters?

Long-term observers would say that no, that is not true. After all, for over two and half decades since 1993 — when elections were first held for the Government of the National Capital Region — this is the first instance of violent conflict.

Delhi is just a “half-state government” — to twist Chetan Bhagat’s evocative phrase. The management of land, the police and the civil service remains with the Union government, represented by the L-G. If the same party is in power at the Centre and in the state government, any conflict can be resolved internally. This safety valve is taken away when different parties are in power.

In the past – guile, maturity and sagacity avoided a breakdown of governance

However, this is hardly the first time that different parties have been in power. In 1993-98 the BJP under Madan Lal Khurana ruled the state, while the Congress under Prime Minister P.V. Narasimha Rao ruled the Union government till 1996. In 1999-2004 the tables were reversed with Prime Minister Atal Behari Vajpayee of the BJP heading the National Democratic Alliance government at the Centre and chief minister Sheila Dikshit, of the Congress, at the state level. So why the open conflict this time?

One difference is, that on the previous occasions, when power was split in Delhi between two parties, both were national parties with mature leaders, well versed and socialised in working within the constitutional constraints of the separation of powers. Put simply, ever since Independence in 1947, a “Lutyens’ political set” has evolved, which often seems to have more in common with each other than their own party brethren from out of town. This is not unlike the Washington “Beltway” syndrome in the United States.

Its different now – the Lutyens consensus is shattered

Since 2014, this “Lutyens’ consensus” lies shattered. Prime Minister Narendra Modi shuns the airy, closeted politics of the Lutyens kind. He draws power directly from the masses. Arvind Kejriwal, chief minister of Delhi, is cast in a similar mould. He exults in being “common” — preferring sweaters to jackets even in Delhi’s winter, with a trademark muffler around his head to keep the wind at bay and is usually clad in sandals rather than shoes. His partymen emulate his casual dress style.

PM Modi and CM Kejriwal are zero-sum people

Mr Modi and Mr Kejriwal are both visceral men. Every election is a zero-sum game which must be won. Compromise is akin to defeat. This strategy has worked for both of them. Neither is likely to change.

Delhi has become the battleground for Goliath Modi to slug it out with David Kejriwal. When elephants fight, the bureaucratic grass is bound to get trampled. Anshu Prakash, the incumbent chief secretary, finds himself between a rock and a hard place. A mild-mannered old-school bureaucrat, he has none of the Machiavellian skills needed to become a trusted adviser, simultaneously, to two implacable political adversaries.

Poor devolution impacts all municipalities in India

Is this sorry state of governance an outlier? Unfortunately, no. Till 1993, Delhi was a Metropolitan Council working under the Union government. In the states, municipalities work under state governments. There is inevitably a potential for conflict, or at the very least neglect (as in Calcutta through the long years of communist rule in West Bengal), if different political parties are in power in the state government and the municipality. Delhi municipalities are currently ruled by the BJP. Their staff have demonstrated in favour of the Chief Secretary. They face symmetric harassment too.  Fuzzy separation of powers and functions and inadequate devolution of finance make local bodies dependent on state governments. This stops cities from becoming the fulcrum of participative democracy and keeps them from becoming vibrant growth centers.

Delhi is a tinder box for igniting urban class-conflict – restraint is advised

Delhi violence

More immediately, in Delhi, we need a truce. The AAP would relish being dismissed by the President of India on the charge of a breakdown in the constitutional machinery. Even as traditional Communist parties remain immersed in obscure, internal ideological battles, it is the AAP which has succeeded in igniting a genuine class war in Delhi, between the “haves” and the “have-nots”. Alas, there are too many of the latter. In this classic struggle, it is the establishment — the bureaucracy and the police — which bear the brunt of public frustration. A dangerous trend, which could be a tipping point, in urban governance.

Adapted from the author’s opinion piece in The Asian Age, February 24, 2018 http://www.asianage.com/opinion/columnists/240218/trouble-in-lutyens-land-babus-as-political-fodder.html

Budget to Build Institutions

Patna nagar nigam images

(Photo credit: viewpatna.blogspot.com)

We are, for the most part, what institutions make us. Some of us, who are exceptional, disrupt the status quo and change the universe. But generally, such special talents are best in small doses. India has too little of compliance with formal institutional norms and a little too much, of the libertine spirit. Of course, when it comes to informal institutions like caste, religion or class the reverse is as forcefully true.

How can we rework our formal institutions?

What ails most institutions in India is that they lack charismatic leaders and citizens do not see the “value” attached to them. Parliament, for instance, is commonly regarded as a troublesome, distant cousin, who has to be invited to weddings, but from whom most decent folk would run a mile. The Judiciary, even though it has acted repeatedly for the poor and marginalised, is viewed with trepidation, because of the serpentine coils of due process it has wrapped itself in. The Police has traditionally been just plain bad news but now, even the civil bureaucracy, commands scant respect.

One reason for the decline of institutions is that most are closely associated with the legacy of the colonial government. Indeed many are still housed in the same buildings. Most still follow the same rules, which protect the State’s, rather than the citizens’, interests.

But more fundamentally, the conundrum is that India’s Independence struggle was not against the institutions embodying the “Raj”. It was against the foreigners in power at the time. We have retained all the vestiges of the colonial government; a centralized government; symbols of distant, almost princely privilege, for the elected representatives and an under-regulated (albeit also increasingly poorly protected) bureaucracy, trained and organized, to subsume the difference between public and self-interest.

The demise of institutions is a familiar lament. Can it be reversed and what can Budget 2015 do about it? Clearly, the decline is not related to a lack of finances, so change in resource allocation norms provides no solutions. Since 1991, the Budget Speech has become an instrument for announcing big ticket policy changes and this is where it could help. There are three major policy changes for building institutions, which merit inclusion in the Budget Speech of the FM.

First, build the autonomy of Municipal Government. ModiGov is focused on urban areas for economic growth. This is sensible. 700 million (50%) Indians, many of them not yet born, are expected to live in urban areas by 2034. Projectised resource allocations for roads, bullet trains, electricity, water, housing and “smart” cities are being made.

But allocating resources is just the first step. Unless the institution of Municipal Government is restructured, it is unlikely, that the good governance environment required to use these additional resources effectively, can be created.

Local problems need local solutions. But state (provincial) governments are loath to devolve powers downwards. India is a federal democracy. The Union can only persuade and incentivize. It cannot direct state governments to devolve powers.

The FM should use Budget FY 2015 to provide incentives for State Governments to devolve fiscal and administrative powers and functions to municipalities. One option could be a Challenge Fund, with a replenishing, annual corpus of Rs. 10,000 crores (USD 1.5 billion), open to competition amongst the Fifty Four cities, each with a population exceeding one million. Every year, the best five to ten devolution proposals, received from state governments, could be selected. Each selected city would get a direct, long term soft loan, against achievement of milestones, from the Union government via a Special Purpose Vehicle equal to 50% of the average state government grants provided over the previous three years.

This is a “win win” because it enables fund-strapped State Governments to redeploy their funds to other areas, whilst also ensuring more autonomy to dynamic and growth oriented States and cities.

Why is municipal autonomy important? Pan-national schemes are too clunky to be effective. Remote management undermines local participation, ownership and decision making. Meddling in city governance, by state governments, is usually motivated to extract “rent” or some other form of private benefit.

Politically, such devolution makes sense for the BJP, which is a party dear to urban hearts. In fact, rather than go for elections to Delhi State immediately, the Union government should first merge the three municipalities of Delhi into Delhi State, making it the first City State of India. The Union government could retain direct control of the Lutyens Delhi area, where the rich and the powerful live.

Second, is to build the autonomy of regulatory institutions and signal that where a regulator exists the government shall defer to the collective wisdom of that institution. Unless this is done, autonomous regulation cannot be effective. Making regulators effective is key to building investor confidence.

The prime example is the Reserve Bank of India (RBI) which is one of the oldest autonomous regulators.

The positive regulatory experience with the RBI (1934) and then with the Securities Exchange Board of India (SEBI) (1992), encouraged India to expand the area of autonomous regulation for governing Telecommunications (1997); Electricity (1998); Insurance (1999); Anti –Trust/Competition (2002) and Pension Funds (2013).

Our institutional record on managing macro-economic stability is poor. High inflation not only hits the poor the most but also erodes the confidence that the government is in control of the economy. Line managers in government have a hands-off approach to using funds effectively. The government seems complicit in being less than adequately focused on inflation. Public wages are 100% inflation proofed, whilst the poor and employees in the private sector have no such safeguards. Large scale public failures to produce domestic natural resources (oil, gas and coal) in sufficient volume, result in the import of inflation when international commodity prices are high. Poor infrastructure increases the cost of transit. Draconian regulations stifle competition and markets and increase transaction cost.

FM Jaitley needs to clear the air on the institutional arrangements for managing inflation and interest rates. The FM said in his maiden Budget Speech in July 2014 “We look forward to lower levels of inflation…” and asserted the need for “….macro-economic stabilization that includes lower levels of inflation”.

Both objectives have been substantively achieved. The trend is heartening and the FM is entitled to take credit for it. But in the aftermath of this success, there have been discordant voices on interest rates. The RBI Governor has consistently said that windfall benefits from lower international petro and food prices alone should not be the basis for reducing interest rates. The FM has publicly advocated a divergent policy of reducing interest rates to stoke growth.

This public discord is avoidable noise. It perturbs perceptions and muddies expectations. It makes a “dear money” policy less effective. It postpones investments, as entrepreneurs wait for the expected lowering of interest rates. Public unanimity on monetary/interest rate policy issues, with the RBI Governor taking the lead, seems the best way forward.

The Budget Speech provides a good occasion to underline the autonomy of RBI and to give it credit for monetary policy management. The FMs support for an autonomous RBI is bound to be reflected in the relations between other line ministers and their autonomous regulators.

A big gap in the regulatory architecture is the absence of an autonomous regulator for fossil fuels (coal, gas and oil). Coal, gas and oil have consequently suffered from regulatory uncertainty and mismanagement. This is in sharp contrast to the manner in which Central Electricity Regulatory Commission and Telecom Regulatory Authority of India have rationalized the bulk electricity and telecom markets, respectively.

Announcing a time bound plan to legislate an integrated fossil fuel regulator (Federal Energy Regulatory Commission of the US provides a good model), builds on the existing trend to club energy related departments-Coal, Electricity and Renewable Energy have been clubbed under the amiable and eminently qualified Minister, Piyush Goyal. This step would also signal the intention of the government to reverse the politicization of natural resource allocations, whilst also inflation proofing the economy from supply side disruptions.

Third, make the transport sector competitive. Indian Railways (IR) is the life-blood of integrated India. Its declining share in transportation is a result of previous governments bleeding it for political gains. As early as 2001 the Indian Railway Report, chaired by Dr. Rakesh Mohan, laid out a road map for its commercialization. Corporatization is a first step in giving IR the autonomy to compete. Corporatisation will also encourage IR to leverage its considerable assets; use the PPP model aggressively and improve its services. Minister Suresh Prabhu is quick off the block by devolving financial powers to Regional heads to enhance efficiency and transparency in the tendering system, within the existing architecture. But formal restructuring, which requires a bargain to be struck with the unions, would make his job easier.

National Thermal Power Corporation and Bharat Heavy Electricals Limited, both companies listed on the stock exchange, are shining examples of the advantages of corporatization and listing of State Owned Enterprises and their ability to grow, even in a competitive environment. Corporatisation of IR could be followed by restructuring, including possible vertical and horizontal unbundling and a public listing to enlarge its shareholding and expose it to the discipline of the markets.

Bullet trains are a visible symbol that India has arrived. But without the enabling governance structures to sustain such hi-tech assets, today’s advances could easily become tomorrow’s “stranded assets”. It would be a pity if the “smart” cities; the industrial corridors and the bullet trains go the way of toll roads and become pot-holed, one-night wonders. Projects only feed fish. It is institutions which teach a person how to fish.

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