governance, political economy, institutional development and economic regulation

Posts tagged ‘NGOs’

Union Budget 2015: Well-meaning but lacking spirit

(photo credit: dnaindia.com)

Clothes truly make a man. FM Jaitley’s budget, presented to Parliament today, turned out to be constructed the manner in which he was dressed- a Modi jacket over a shirt, trousers and chappals (flip flops) for shoes. Nothing objectionable of course and yet unexceptional.

Tarun Das, the veteran Industry budget watcher, known for drawing up lists of good and bad points, complained that he could not find one thing to quibble about.

The Congress foot soldiers predictably fingered the paucity of direct measures to boost agriculture and made vague and unsubstantiated noises of the poor being let down.

“Thinkers” were left wondering what the log frame was for going from the budget allocations to the near term objective of generating jobs. Particularly relevant if Indian grew at over 7% per the new GDP calculations even as pink slips were the order of the day in FY 2015 and investment nose-dived. Clearly just doing more of the same is unlikely to generate jobs and the problem is not the lack of skills it is the lack of demand for skills.

The middle class stood around puzzled about how and why they had not been given tax relief. The poor…well they are just too busy working to bother too much about the national political economy.

Expectedly, this was a timid budget and not calculated to set the Yamuna on fire. The FM has a very “young team” who are still learning how to get a gas connection in Delhi, so they could hardly add little, expect technical tweaks.

One such is changing the way in which the GDP is calculated so that, almost overnight, economic growth estimates for 2014-15 went from a shameful 5% earlier to 7%.

Clever statistics also enabled the FM to “achieve” the challenge he had taken on in July 2014 of running with his predecessor’s very stiff Fiscal Deficit target of 4.1% of GDP.

FM Jaitley is at heart a lawyer and lawyers are by nature aggressive, garrulous and argumentative. Predictably his rhetoric was expansive. He berated incremental change as the hall mark of the previous Congress regime and defined his vision as “a quantum jump” which would “make India fly”.

Wisely however, he did not seriously seek to implement the rhetoric. He maintained broad continuity in inter se allocations across functions. Even the tax proposals had very limited surprises barring a possible promise of a tax bonanza for the corporate sector.

State Owned Enterprises are not being privatized and are slated to grow and provide a significant amount of the Rs 1.25 lakh crores ($20.5 billion) the FM expects to invest in FY 16.

Pushing the right buttons

The FM pushed a number of “buttons” to rally the relevant stakeholders.

Greening city transport

For the “Green” brigade, he proposed a misguided but mercifully paltry, subsidy Rs 75 crores ($ 12 million) for the development of electric vehicles. One hopes this money will be used to develop electric public carriers like buses or trams and not cars. Urban congestion is so extreme that even if commuters don’t choke to death on exhaust fumes, courtesy electric cars, they could starve to death as commuting time increases and urban traffic, grid locks become a regular event.

Relief for NGOs

Yoga teachers and schools can expect to benefit from their new status as charities. The NGO community will certainly appreciate the enhanced tax free limit of 20% of their income from commercial operations.

Broadening digitized cash support

The enhanced compulsory use of digitized transactions through banks, including the Post Office which becomes a payments Bank for state subsidies and the disallowance of large cash payments is very welcome. Digitised audit trails are sorely needed to start the clean-up of the black economy.

Soak the rich

Soaking the rich always gets favourable reviews and the FM did this with finesse. Tellingly however he got no cheers from colleagues in Parliament, who seemed to look more worried than gleeful, particularly when he requested them to voluntarily not accept gas subsidy which will now go directly into the bank accounts of consumers.

He garners an additional, estimated Rs 8000 crores ($1.3 billion) by abolishing the clunky, expensive to administer and iniquitous Wealth Tax and substituting it with a 2% surcharge on individual income above Rs 1 crore ($164,000). There are only around 100,000 such “super-rich” tax payers who are unlikely to complain. Of course the rather small number of the income tax paying “super-rich” illustrates how pervasive is unaccounted income and wealth and how far we have to go to unearth “Black Money”

Social protection for the poor

The spate of pension and insurance support measures are directionally correct but the poor will await implementation before they cheer.

Giving hope to corporate India

Corporate India also gets a break with a promise to reduce the basic Corporate Tax rate from the prevailing 30% to 25% over the next four years. The catch is that exemptions which today reduce the effective collection to just 20% of Corporate India’s income is also scheduled to be reduced. So the net gain is unclear. In the meantime they had better read the FM’s lips- to quote Ronald Reagon.

Election politics

West Bengal and Bihar, both states which go to the polls soon, will receive special central assistance in addition to the increased allocation they have already got per the recommendations of the Finance Commission. This explains the renewed bonhomie between the BJP and Nitish Kumar and Didi (Mamta Banerjee) respectively, Chief Ministers of Bihar and West Bengal.

Fiscal devolution kick starts Cooperative Federalism

The biggest plus from the budget is implementation of the spirit of “cooperative federalism” by transferring 42% of Union tax proceeds to states from around 32% earlier, per the recommendations of the Finance Commission. Transfer of an additional 20% as central grants will further boost total transfers to states to 62% of Union tax revenues. This “big bang reform” in fiscal devolution sets the stage for State governments to take direct responsibility of the functions allocated to them under the constitution. They can no longer plead a lack of resources.

FM Jaitley is right that reform is a year around activity and does not begin and end with budget promises. Let us hope he walks the talk. The biggest public service he could render is to make the budget presentation process devoid of “news value” by following a year around dialogue with stakeholders and continuous results on basic reform steps.

This was a budget without many surprises. Maybe we have evolved to being an economy, in which the budget is a mundane, technical exercise, of interest to economists and accountants, but of little immediate consequence for those who live in the real world.

Corruption Red Flags and the Original Sin

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The Left has the best track record with respect to controlling corruption, followed by the BJP, with the Congress in the rear. Apologists of the Congress would be quick to assert that often corruption is part and parcel of rapid growth. They are right. China, Indonesia and Malaysia are good examples where rapid growth over the last 30 years has also resulted in large scale corruption.

Conversely, it is also true that an obsessive desire to end corruption, as projected by Kejriwal and the Aam Admi Party (AAP), also negatively affects growth. Even the NGOs and international development agencies know that corruption is like an original sin (the others being illicit sex, drinking and envy) and cannot be ended. It can only be managed, as in the developed world, so that citizens do not encounter it in their daily lives and public finances are conducted with relative probity.

Shanta Devarajan, a World Bank economist, known for his innovative take on economic problems, like Swaminathan Aiyer, pointed out in 2010 that “quiet corruption” (the kind that that the average citizen encounters) costs the economy much more than “grand corruption” of the 2G, Coal-gate kind.  http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:22501207~pagePK:146736~piPK:146830~theSitePK:258644,00.html

“Quiet corruption” is the “rent” that a babu collects for delaying decisions (speed money); is a babu using her discretion to unfairly benefit someone (bribe); it is sending the government decision making process into a spin thereby benefiting someone who profits from the status quo (babu googly or red herring noting on file); it is habitually being averse to taking a decision (babu evasion).

The media reports (Indian Express, January 13, 2014) that Jayanthi Natarajan, the Environment Minister till recently, had stacked a huge bundle of files relating to clearances in her house. This instantly raises “corruption red flags”, at the very least, of “quiet” corruption.

What is odd is that of the 350 files returned to the office from her home, when she resigned, 180 files had not even been seen by her! at least there was nothing on file to indicate that she had. Even odder, she had seen and signed 119 files but had held them back in her home. Why and for what reason? An additional 50 files, signed by the Minister, were in possession of her staff!  Not reading files and keeping them in the “in tray” is a classic red flag for corruption hunters. Signing files but holding on to them is an even more significant corruption red flag. Letting her staff hang on to signed files is the biggest corruption red flag.

Despite the plethora of red flags it is a sign of low expectations from the present government that this case has not raised the kind of furor that coal-gate had. If a babe had committed these sins she would have been hanged by the government but when it comes to Ministers the rope is very, very long.

The BJP, which is the most likely party to form the next national government, or be instrumental in supporting a minority government, must draw the correct lessons, as must Kejriwal and the AAP.

First, just by ensuring that the offices of Ministers do not become clog-holes of files and insisting on time bound dealing of files, by everyone in the chain, corruption can be hugely reduced.

Second, Sarkari corruption hunters like the CVC and now the Lokpal must zero-in on cases of frequent submissions of files and reversion with queries, the favourite babu trick of avoiding a decision.

Third, it is high time, India, at least at the national level, abandoned paper files for electronic functioning as in any other modern day country. Electronic filing and processing has the advantage of security; instant file tracking; generation of management information on “clog-holes” of undealt files; audit of who accessed the file at what time and the changes made therein.

Fourth, the advantage with digitizing government functioning is the heightened levels of seamless transparency which become possible. Managing the information requirements of the Right to Information Act will become a lark with complete digitization, since all it would require is to find the data and email it or print it out.

The economy needs a kick start. What better way than to target complete digitization of government functioning from 2016. The international experience shows that corruption levels drop precipitously when “big brother” is watching as is possible in real time electronic processes. Of course this only works in regimes where “big brother” himself is not corrupt.  

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