governance, political economy, institutional development and economic regulation

Posts tagged ‘NDA’

Bimal Jalan reflects

Jalan book

 

exercises the writer’s privilege to box his reflections between three inflection points. The first is 1980, ostensibly because 1977-79 was the first time the Congress lost power at the Centre. The second is 2000, being the start of a new millennium. And 2014 is the bookend when the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) formed a majority government.
Obscure inflection points
Of these, the choice of the first two years as turning points is not immediately obvious. Conventional wisdom regards 1991 to 2014 as a near continuous development period, barring the fractious interregnum of 1997-99. In the 1980s, it is 1984 that dominates, as the end of an era with the assassination of Indira Gandhi and the beginnings of Rajiv Gandhi’s brief “Camelot” phase. The year 1980 is significant only because Sanjay Gandhi died in an air crash in June and Mrs Gandhi aged visibly. The choice of 2000 is similarly obscure, except for broadly coinciding with the start of Atal Bihari Vajpayee’s NDA government.
Dr Jalan – man for all seasons
But this is mere quibbling. The book is unconstrained by structural rigidities. It provides reflections, spanning Dr Jalan’s seven earlier publications since 1992.  It can’t get better. Dr Jalan was in the Rajya Sabha (2003-2009); the longest serving governor of the Reserve Bank of India (1997-2003) since 1992; finance secretary; secretary banking, chief economic advisor and India’s executive director to the IMF and the World Bank.
Seven key reflections
Readers would choose their own favourite reflections. But this reviewer was intrigued by the following seven.
Low public savings retard investment 
First, Dr Jalan favours the conventional view that the persistent gap between India and the fast-growing economies of Asia during the last four decades of the 20th century is explained by our low levels of investment. For this he squarely blames our ideological decision to invest in public sector industries, which failed to generate savings for future investment and instead bled scarce tax revenue to fund financial losses — a familiar story even today.
Colonial style administration ill equipped for challenges
Second, he red flags the fact that from the 1970s, we did very little to enhance the competence and efficiency of public administration. We still lack the required composition of skills and experience in the public space to provide 21st century results.
High expectation, poor execution
Third, he bemoans the fact that we unfailingly adopt best practice priorities — take the national priority for agricultural growth. But we fail miserably in making supportive policies and rules. We have throttled agriculture by ignoring the interest of the farmer to serve the interest of the consumer. Similarly, we prioritise a progressive fiscal policy. But the revenue from direct taxes stagnates while regressive indirect taxes are buoyant.
Sustained, high growth misaligned with political incentives 
Fourth, Dr Jalan’s term in the Rajya Sabha convinced him that deep political reform is the key to change India. And who could disagree? But some caveats apply. Decentralisation, as flagged by Jalan, is certainly desirable for enhanced effectiveness and public participation. But, it will not, by itself, serve to reduce the size of government. In fact, employee numbers and expenses are likely to increase as scale effects disappear.
Union government muscularity erodes state government autonomy 
In a similar vein, it is true that the Union government tends to erode the federal structure by misusing governors for narrow political ends. But constitutionally, we are a “Union of States with a centrist bias”, per political pundits, and not a federal state. Parliamentary norms and conventions are routinely subverted — a self-goal, since this reduces Parliament’s credibility.
Dysfunctional parliament erodes its own credibility
Dr Jalan cites 2006, when the budget was passed without discussion, illustrating political expediency of the worst kind. But it is open to question whether the existing process for annual Budget presentation and examination remains a productive exercise or has become mere form without substance. The cabinet system of decision-making, underpinned by the principle of collective responsibility, was undeniably subverted during the United Progressive Alliance government, since political power was dispersed beyond the government. But this was poor practice rather than a structural flaw. And it appears to have healed itself after 2014.
Judiciary – safeguarding the constitution 
Fifth, the judiciary, rightly, comes in for high praise, for progressive jurisprudence, safeguarding the principle of separation of powers, and the primacy of the Constitution. But entrenched territoriality in the judicial appointments process remains contentious.
Public sector banks – out of control
Sixth, Dr Jalan recounts, financial reforms after the Narasimham Committee report of 1998 enhanced the resilience of Indian banks. But he leaves the reader begging for more on what went wrong over the last decade to inflate stressed loans to crippling levels. Are not politicised leadership and boards the problem in public banks? And given the stakes, can UPSC selection – as Dr Jalan suggests – really be an effective bulwark? Would not ramping up private shareholding, with the government holding only a “golden share” be a more effective solution? More generally, how effective are the existing prudential norms, for limiting exposure to sector, corporate or currency risk?
Tax reform – only half done?
Seventh, Dr Jalan’s view that it is unnecessary to reopen the constitutional scheme for inter-governmental division of taxes is curious. Tax pundits advocate that GST be extended to alcohol and petroleum.
jalan 2
It is a broad canvas on which reflects, as befits one who has helmed public policy since the 1980s. Readers will look forward to his take on the more recent developments — that is, since 2014.

 

Adapted from the authors Book Review in Business Standard, September 18, 2017 http://www.business-standard.com/article/beyond-business/bimal-jalan-reflects-117091801405_1.html

 

Some more onions please

Onions comprise less than 1% by value of India’s agricultural production. The average Indian consumes less than 800 grams of the stuff per month. Onion is a seasonal fruit. Supply traditionally dips during July to September as only the stored winter crop, harvested around March, is available for consumption.

No dearth of onions

onions

photo credit: http://www.washingtonpost.com

India is the second largest producer of onions after China. We produce more than we need and export around 10% of production unless weather events adversely impact the crop. This year unseasonal rain, during harvesting, damaged the winter crop.

But demand is inelastic

Demand is relatively inelastic. Why don’t consumers say no when prices increase? First, onions are to palates in the North, Central and Western parts of India, what fish is to Bengal and curry patta and coconut is to the South. Food, chips even Uttapams taste better with onions. Onion, like Garlic, is also valued for its therapeutic value. Second, onions give a big bang for the buck. An average family spends around Rs 100 per month on the stuff. If price doubles, the burden is irksome but not a killer. Just economizing on pre-paid phone calls can make up the difference. But onion is the key savory for low income households.

It’s the politics stupid!

The fuss about onions is more about politics than economics. The political footprint of onions was established in the 1980 elections. Mrs. Indira Gandhi, on her comeback trail, after her post-emergency election debacle, shrewdly used the price rise in onions to drive home how uncaring of the ordinary person and how incompetent, the government of then Prime Minister Chaudhary Charan Singh had become. This clicked. The Congress won 67% of the Lok Sabha seats. In 1998, a sharp price rise in onions, dethroned the BJP government of Chief Minister, Madanlal Khurana in Delhi thereby establishing a new metric for good governance – the price of onions.

Delhi CM Kejriwal fingers the BJP for price rise

Delhi Chief Minister, Arvind Kejriwal has fingered the Union government for failing to control hoarding and speculation leading to the current price rise. Delhi government flooded Delhi markets in mid-August with onions at Rs 30 per kg. It plans to hold the price line just below Rs 40 per kg through public sector retail supply versus a market retail price of Rs 70 to 80 per kg.

Union government on the back foot

But the Union government claims this is too little and too late. More nimble footwork by the state government could have prevented the steep rise in onion prices in Delhi. The Union government had made available a Price Stabilization Fund of Rs 500 crore in April 2015 which state governments could use by contributing an equal amount to buy onions for retail supply at reasonable rates.

On July 2, when wholesale prices were still around Rs 20 per kg in Lasalgaon, Maharashtra-India’s largest onion mandi, the Union government brought onion under the Essential Commodities Act, thereby enabling stock limits to be enforced on wholesale agencies. It also enforced a Minimum Export Price of Rs 30 per kg to discourage exports.

In todays’ intensely adversarial, no-holds-barred competitive politics no government can ignore a public challenge. The traditionally business friendly BJP government, at the center, is particular sensitive when “hoarders” are fingered for the price rise. Maharashtra, Madhya Pradesh, Gujarat, Haryana, Andhra Pradesh and Punjab- all BJP/allies governed states – account for more than 60% of national onion production.

Grow more onions, reduce trade margins & transaction costs

Per a NCAER 2014 paper selected productivity enhancement can boost roduction. Three big onion producing states- Maharashtra, MP and AP- account for 50% of production but produce less than 17 kilo gram per Hectare against 27 and 21.5 kg/Ha in Gujarat and Punjab respectively. Again all three are ruled by BJP/NDP. Increasing productivity in just these three states can boost production by 20% ensuring sustained exports and no domestic shortages. Doing more on reducing the trade margin (better storage, faster transportation, lower market fees) can also leave more of the money with farmers whilst lowering domestic prices.

Clearly the government needs an effective and transparent mechanism, which provides the right price signals and rationalizes expectations for both farmers and consumers.

Killing export or killing farmers

Increasing the Minimum Export Price, as the government has done again this year, is the standard response. But such intervention in the market, even as it helps consumers by diverting supply to the domestic market, robs farmers of the gains from export. It also disrupts any attempt to develop export markets. Similarly, importing onions to keep consumer price low reduces the incentives for farmers to grow onions.

The fall back-leaky public distribution

But both these options are less intrusive than using the public procurement and subsidized retail supply template used for food grain. Such publicly managed mechanisms are invariably highly inefficient and ineffective with cascading losses in procurement, storage, transportation, distribution and retail sale. Sometimes inept government managed imports flood the market after the seasonal supply dip has passed and just as the new crop arrives- with disastrous impact on farmers’ incomes.

Can private distribution agencies do better?

Why not appoint a private trading agency for marginal but politically sensitive food crops, mandated to import, export or arrange for domestic distribution to balance market led demand and supply and keeping retail prices within a pre-defined retail trading band, which meets the twin needs of both farmers and consumers. This is what the RBI does for our currency to avoid excessive volatility.

Private trading agencies would charge a hefty commission for their services but it would be considerably less than the cost of direct administrative action to purchase, stock and supply onions along the Food Corporation of India model.

Onion diplomacy anyone?

Alternatively, use onions as a vehicle for building bridges with our neighbours – particularly Pakistan, which loves the stuff almost as much Punjabis. Why not negotiate a stand- by, bilateral onion supply agreement to meet onion deficits in either country on preferential terms? A similar arrangement is possible with our larger northern neighbor- China whose onion productivity exceeds ours’s. Onions can add a savory flavor to Track 1.5 – B2B- diplomacy.

Say no to expensive onions

Isn’t it high time the government bit the political bullet and said no to being bullied about the price of onions? They are not a necessity, which the sovereign is obliged to supply. The Jains don’t even touch the stuff.

To show that onions are dispensable, the entire cabinet should voluntarily say no to fresh onions during the lean period. PM Modi could launch a social media campaign to entreat well-off folks to substitute fresh onions with dried ones or switch to other seasonings, during the lean period. This can reduce demand and hence prices for those, to whom onions are the only savory they can afford other than salt and chilies.

The core of sustainable living is to adapt to what is seasonally available locally, rather than store, pack, can or transport food compulsively to cater to a menu plan made universally available but at a high cost to the environment.

Politics trumps economics hands down

But the catch is that Bihar is a big consumer of onions. People are unlikely to be amused if they can’t get their daily fix of onion, before they go to vote in November. This is one election the BJP needs to win. Visible, strong, centrally managed administrative action to lower retail prices is therefore likely to win over better options – after all the metric of good governance has to be met.

Adapted from the authors article in Asian Age August 31, 2015

Saffron India

Image

The saffron deluge has taken everyone by surprise, like an early monsoon. The Modi storm carried away with it, anyone who rode with him and demolished all others, barring regional stalwarts like Amma, Naveen Patnaik and Didi.

Is this the end of caste as a political weapon? With Bhenji (Dalit supremo), Netaji (Ahir supremo-UP), Lallu (Ahir supremo-Bihar), Ajit Singh (Jat supremo-UP) all biting the dust and even Haryana going saffron, are voters taking caste out of national politics? Could this be stretched to say saffron can make the country less divisive- top downwards? Is there a hope that the next step could be to take caste out of state level politics? Well that clearly is Modi’s dream. But there are limits to Hindu integration and virtues in dissonance.

The democratic problem with an overwhelming mandate is that it reduces the opposition to a redundancy. In the extant case, saffron still has to contend with the Rajya Sabha where the NDA does not have a majority. More importantly, the recent Indian experience with huge majority governments has not been conducive for reforms. Of course coalitions are not a panacea for reforms either. The United Front coalitions of 1996 to 1998 were superbly ineffective. But the Janta Party wasted its massive 1977 win and Rajiv Gandhi frittered away the overwhelming sympathy vote in 1984. In comparison, significant economic reform happened only under the Narasimha Rao led coalition government in 1991; the Vajpayee led NDA government of 2000 and the Manmohan Singh led UPA I of 2004. There does seem to be a positive link between coalitions and economic reform. Possibly huge majorities induce comfort. The lack of competition douses the fire in the belly till ones time is up and it is too late.

Modi is not unused to huge mandates. After all he has led Gujarat for over ten years now. But it would be wise to pursue the idea of a “cabinet” of Chief Ministers and to engage proactively with the opposition. The last few years have seen rising inter-party acrimony making Parliament dysfunctional. To keep engaging, when not compelled to do so, is the best route to rebuild a national consensus on development priorities.

Modi is a man in a hurry, with an agenda to complete and too little time to do it in. It is consequently unlikely that he will let the baton slip. He would do well to use the UK-Tony Blair and Malaysia precedent and constitute small, vertically integrated, fully empowered, politico-technocratic teams with specific, measurable and time bound results expected from them. His secretariat is unlikely to be the laid back, free-wheeling entity it had become under Manmohan Singh, which reported to everyone but the PM. The expectation is that Modi will come to office with a pre-formulated agenda and a team to implement it doggedly.

Is the hoary city of Delhi likely to seduce him into somnolence? Again, very unlikely, given the cultural gulf tween the macho man from Mehsana and the pleasures on offer from the glitterati of Lutyens. His “quasi married” status is likely to generate many hours of speculation of who, if anyone, is likely to share 7 RCR with him.

The world will be waiting however, for any slip up on his management of the Muslim community. Whilst Modi seeks to treat all Indians the same and goes out of his way to say so, the fact is that to reverse the “selective appeasement” of the past will take time and fiscal space. Neither is available to him. This is where proxies and symbols can help to reassure minorities that he is their protector too. One important symbol will be his choice of the Home Minister, who whilst enjoying the full confidence of the PM, must be trusted by all segments of India.

Theorists will make much of the need for Modi to build or re-build institutions. This is very time consuming and effort intensive. Many of these (cabinet system; inner party democracy; the bureaucracy; federalism; the judiciary) were systematically destroyed during the long period of Indira Gandhi’s rule. Institutions do matter, particularly in a democracy, because they provide permanence in a politically unstable system. But in India we carry everything to extremes. No institution can atrophy and yet remain productive.

The central bureaucracy is one such institution. From the very beginning, it was merit oriented only at the point of entry. Even in that limited way, it did not respond to the socio-economic disabilities specific segments of India faced in getting in. This opaque, small, mostly male club can be transformed by introducing real competition at the top. This is from where the fish rots. All babu posts of Joint Secretary and above must be filled through open competition. It must be the PM (not the concerned Minister or the Department of Personnel) who must select the candidate, out of a short list of two, recommended by the UPSC. Each appointment must have a minimum tenure of three years with no job hopping allowed, even if more attractive lateral options become available.  

One new tradition, which must be reversed, is the “in your face” security apparatus. Modi was the highest security risk even before he became the PM. Now his security needs to significantly enhanced. But this challenge should be used as an opportunity to upgrade the security apparatus, rely on technology, intelligence and rapid response, rather than on a glut of gun totting men. It is only when the PM makes his security “invisible” that it will stop being the status symbol, it is today.

It will not be easy to rein in “privilege”, which is the life blood of an elitist, patrimonial State. But much of the rot we face today can be traced to this one, ubiquitous norm. Who better to try, than one who, like Bill Clinton, made it to the very top purely on merit?

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