governance, political economy, institutional development and economic regulation

Posts tagged ‘OROP’

Sarkari pay: Too much love

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

emoji-tears_3502911b

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

 

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

 

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

 Equity – yes! but for whom?

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

 

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

Fiscal impact to crowd out public investment, as usual 

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

 

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

Income Tax

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

 

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

 

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

Link public pay enhancement to higher than targeted GDP growth 

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

 

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

 

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

ice cream

No ice cream without results

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

Fauji “pension edge” levelled yet again

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

veterans

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

 

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

7th PC

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

 

Retired Generals win OROP: will the tail of pensions now wag the dog?

It is just as well that Finance Minister Jaitley was away in Turkey rapping with the G20 about “India’s strong fiscal fundamentals”, even as a small part of that fiscal stability was compromised, with nothing much gained, except possibly 20 million votes that the armed forces represent.

Faujis (armed forces) deserve better but not this way

victory

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

The approval of One Rank One Pension is a bad decision. This is not to say that Faujis don’t deserve a better deal. They do – particulars the officers. But succumbing to the OROP demand meant compromising on a sound principle. “Rank”- a level of command responsibility entrusted to a soldier, should only have historical and ceremonial value post-retirement. Associating pay, or even worse pension, with rank is indefensible.

OROP creates perverse incentives

Consider the perverse incentives rank based pay generates. First is the “toe in” incentive to just cross the rank hurdle and be equated thereafter for life. Not very inspiring. Second, rank as a basis for pay, is a huge disincentive for specialists – high quality surgeons, robotics engineers, pilots, staff on nuclear subs, missile technologists, communication specialists. These “geeks” may not have, nor may they want, the “command profile” that comes with a high rank. Civilians call such profiles “desk warriors”- being good at babugiri or administering power.

Two options exist-though both are bad ones- for getting around this conundrum. One-proliferate “Ranks”, as is done in civil service, to create a top heavy architecture but accommodate time scale promotions. Second-compensate specialists by adding on allowances. But this still does not protect their pensions. Therein lies the potential for a second bad decision.

India’s Chief Missile “Geek” and most loved, people’s President of India- late A. P.J Abdul Kalam – a role model for technologists in India’s defence forces. 

Kalam

Army versus  para military forces- chalk and cheese

The third bad decision would be to extend the OROP principle to the Para Military Forces (PMF). Unlike the Armed Forces, senior PMF officers do not suffer the disabilities of their men, who live in much worse conditions than do the jawans of the army. The “in and out” rotation of officers from the Indian Police services and the lack of regimental tradition binding officers to their men are other differences. Most tellingly the “khaki” these forces wear, is stained by the disrepute that the civilian police has brought to that glorious colour.

Happily, the term of the 7th Pay Commission has also been extended up to December 2015 because it has much to mull over in the context of OROP. Here are five suggestions.

Who should pay for OROP?

First, OROP will cost between Rs 10,000 to 20,000 crores annually. This is not a killer. The money can be found over time. Fast forwarding disinvestment, including in the defence departmental undertakings, is an option. But it is a bad principle to sell the “crown jewels” just to service pensions.

The best option is to implement the “there is no free lunch” principle. The Pay Commission should find the money by cutting back on the pay increase it might otherwise have given to faujis. The OROP demand was for inter-generational equity- between those recently retired and the more aged veterans. It is only fair that what fauji pensioners gain should be paid for by faujis in harness today, by foregoing any anticipated increase in pay.

serving fauji

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

On a life cycle basis faujis should have an edge

Second, assess the extent to which OROP corrects the post 1973 skew against the armed forces. Compare the pay and pension earned over an average life cycle of a fauji and a civilian, taking into account the shorter tenures and the fewer promotion opportunities of the former. If the skew persists, rather than an “edge” the armed forces should enjoy, this is the time to correct it.

Pensions and fiscal stability

Third, move explicitly towards fiscal sustainability. Since 2004, the government’s liability on pension stand capped at its “defined contribution” per new civilian employees. But the liability remains open-ended with respect to the armed forces who enjoy an assured level of pension. Is this the “edge” they should continue to enjoy? Fiscal prudence dictates that a “defined contribution” pension, as for civilians, should be the way to go even in the armed forces.

Find the fat in the army

Fourth, previous Pay Commissions, have refrained from suggesting rationalization of personnel- officer to jawan ratios; substitution of mobile strike capacity for “stand and hold” physical presence and clearer separation between the tasks performed by the army and the para military forces. This is where the fat lies to finance OROP. The army, which constitutes more than 80% of the pay and allowances and 90% of the pensions paid in the armed forces, should specifically be in the cross hair.

bungle

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

China has just signaled its transition to a modern superpower by cutting 300,000 redundant, possibly “tail” related jobs, in the People’s Liberation Army, whilst simultaneously sharpening its teeth. India needs to do the same.

Government servants must not feed off the bottom half of India

Lastly, there is little justification for an overall increase in government pay in general. It has been 100% indexed to inflation since 1996. In nominal terms, the per capita net national income increased by 124% over 2006-2015 but the distribution of growth is skewed in favour of the top 50% which includes government servants. The salary including DA, of government servants increased by 113%.

Government servants likely increased their share of the national income, versus the bottom half of India, who do not enjoy automatic inflation hedging. But there has been no appreciable change in the quality of services provided by government to citizens over the last decade. Private employment has been hit by the global economic slowdown, jobs are scarce and inflation a continuing risk.

The bottom line is that the proportion of national income pie available for government salaries must remain capped. The combined share of the public sector (including parastatals) in national employment is barely 5%. Public sector pay must reflect performance and the market test.

Mind the gap please

The demand for government jobs is skewed-very high for unskilled, semiskilled work. But at the other end the Governor of the Reserve Bank bemoans that cutting edge economists are not available for public service. The armed forces face a shortage of officers against sanctioned posts. Doctors, nurses, good teachers, professors, scientists and engineers are similarly scarce. Children of government servants vote with their feet by preferring private sector jobs.

Public sector pay policy must first address demand supply gaps, before fiddling with the pay for positions and cadres where there is excess supply. These latter are usually those, where job entitlements are significant but accountability limited. The tail must not wag the dog.

Adapted from the authors article in Asian Age September 8, 2015: http://archivev.asianage.com/columnists/orop-rough-cut-379

Indian angst

Abandoned Faujis

abandoned faujis

Delhi. Fauji veterans agitate, unsuccessfully thus far, for implementing the One Rank One Pension principle. This is a promise, unadvisedly made to them, by both the previous and the present government. They boycott the celebrations commemorating the 1965 war. Even those who fought to win that war stay away effectively devaluing the event. An unintended and unfortunate outcome is that scores of disciplined ex-soldiers and one prominent fauji brat get on-the-job training, on how to enter politics to safeguard your rights.

Mandal revisited

Patel

Ahmedabad. An angry, young man clad in faux fauji combat fatigues, conducts a caste maha-panchayat of half a million Patels. The occasion is the demand for inclusion in the list of backward castes, eligible for affirmative action (reservation) as a fast track route to a government job or admission into schools and colleges. The young leader’s social media profile has him posing with a gun in hand-very much like Bihar’s notorious upper-caste Ranvir Sena or the face-book friendly young militants in Kashmir today.

Life on the edge

Mumbai, the city of dreams, a sordid, family drama unfolds of a possible filicide; secret serial marriages and shady doings, so bizarre that it could only happen in star crossed Bollywood.

The Proletariat strikes back

strike

Across India, labour unions prepare for a general strike of all workers on September 2 to express their rage. The cause- dissent against dilution of the regulatory ambit of the labour laws; opposition to privatization of State Owned Enterprises and Foreign Direct Investment in Railways, Insurance and Defence; support for regularization of contract workers and the demand for better social protection measures.

Were all these happening in the 1970s it would be pretty commonplace in that decade of social unrest and hartals. But this is 2015, with a stable BJP government in place and more than half way through the first quarter, of what was once touted, as the India Millennium.

Have we than gone horribly wrong already even before we have begun? or is there a grand design behind this ripple of disquiet?

Has the OROP been deliberately allowed to fester so that it can be settled, with a flourish, just prior to the Bihar elections with the personal intervention of the PM, making the fauji vote thereby indebted to him?

Is the Patel agitation merely a manufactured storm? Is it calculated to subside with strong and reassuring intervention from Delhi to help the floundering Chief Minister Anandiben, thereby reinforcing the “strong leader” image of the PM?

Is the impending general strike and the prospect of extended labour unrest; lost jobs and forgone income, meant to scare voters in Bihar into opting for stability and the BJP, rather than taking a punt at the alternative politics of the rag-tag combination of Nitish Kumar, Lalluji and Arvind Kejriwal?

Truth is stranger than fiction, so none of these scenarios can be summarily discounted. But one thing is clear. The government needs to tighten its boot straps if it is to be an instrument of economic and social change.

Four priorities emerge:

Legally correct but bi-partisan

First, the rule of law must prevail in spirit. This is not yet visible. Using the letter of the law for one’s own ends is not the same as the rule of law prevailing. The golden rule is to err on the side of administrative effectiveness, simplicity and comprehensive reading of the law. Delhi presents an opportunity. The electoral mandate of the Delhi government is unquestionable. Respecting it and developing a positive functional relationship with it is in the long term interest of democratic governance. After all in every harmonious family-as the Speaker Mahajan of the Lok Sabha views Delhi to be- the youngest – even a rebellious, member’s foibles are accommodated.

Where are the tough economic reforms?

Second, clear signals for undertaking tough economic reform are a must. This is a government which garnered far reaching support on the basis of its reformist credentials. The government agenda is long on “win-win” options but not so impressive where there is no option to causing some pain. Initiatives crying out for attention are- (a) restructure electricity utility debt to make them financially viable; use the energy and commodity price decline to move to a “hands off” regulatory regime for energy prices; (b) make State Owned Entities/Public Sector Banks autonomous. Delink them from the control of their administrative ministries. (c) Enhance government effectiveness by boosting the availability of specialized, functional skills at decision making levels. The absence of even a game plan towards these objectives is worrying.

Make one, keep one-the mantra for government employees

Third, make jobs not skills. People learn better on-the-job. Medium, Small and Micro Enterprises (MSME) are ideal for maximizing the jobs per unit of capital. Facilitate them by- (a) Ensuring metered supply of 24X7 electricity on priority feeders (b) Supply electricity at the actual cost of grid supply (c) Provide incentives for such businesses to meet environmental standards. Forge a compact with state governments to make the rural development, panchayati raj, labour and industries department staff focused on employment and migration at the Development Block level. Encourage monitoring using rapid survey techniques. Remember what is monitored gets done. Reward Blocks which excel at growing employment in MSME. These measures fit well with the financial inclusion and social protection initiatives already underway.

Junk the colonial district management architecture

Fourth, change from the bottom-upwards is always the prudent way to start. End a relic of colonial rule, under which the District Magistrate is mandated to exercise oversight of the police via judicial powers under the Criminal Procedure Code. It is high time that the Police Commissioner system, already functioning in metros, is extended to all districts. The district level civilian administration would consequently be free to focus on development- for which they are best trained and equipped. This simultaneously empowers Police Officers and makes them squarely responsible for maintaining law and order- an unpardonably ambiguous mandate today. It also kick starts the process of modernizing the somewhat creaky, colonial legacy of district level general management- often the missing link in speedy implementation today.

The calendar from now to 2019 is chock a block with state assembly elections starting with Bihar later this year. The die has already been cast, the major populist decisions have been taken, including special aid for Bihar and Smart Cities. Now the outcome will depend on smart vote management- an area where the BJP excels. Time to strategize on improving the knotty fundamentals of growth and development with decisions kicking-in as soon as the votes are cast in November.

Soothe gussa fauji pensioners

OROP

photo credit: ex-servicemenwelfare.blogspot.com

Ex-servicemen are angry that their attractively titled demand — one rank, one pension — is not being implemented by the government. OROP as a “brand” is a huge communication success, hitting all the right buttons — simplicity, easy comprehension and being evocative of equity.

It is not surprising therefore that Prime Minister Narendra Modi adopted it in his election campaign. The United Progressive Alliance, caught napping, made a notional budgetary provision in February 2014, but did not survive the general election to be held accountable for its implementation. This pledge was repeated by Prime Minister Modi from the ramparts of the Red Fort on August 15. But fauji pensioners were not impressed.

Top babus, secretaries to the government and generals retire at a fixed apex pay since the Fifth Pay Commission (1996). Their pension increases to reflect all future revisions in apex pay. Those retiring below the apex pay have to make do with pension revisions at 50 per cent of the minimum of the revised pay scale, even if they retired at the maximum of the pay scale. Hence the inequity. Babu and fauji apex level officers thereby invite the charge of being self-serving.

A bit of history here. The armed forces have traditionally enjoyed an “edge” in the compensation they get versus civilians. The logic for the premium is accepted and remains rock solid even today.

Till 1973, fauji pay was reviewed separately. The 1970s were bad times for all government servants. Faux socialism required that government salaries be stagnated in the name of removing poverty. But the axe fell most heavily on Army pensioners via the Third Pay Commission, 1973. The result was that the payout ratio (the proportion of last pay to pension) for fauji and civil pensioners was made the same — 50 per cent — by reducing the fauji payout and increasing the civilian payout.

Real basic pay under the Fourth Pay Commission (1986) doubled, but inflation adjustment was only partial. The Fifth Pay Commission (1996) doubled the basic pay and provided for 100 per cent inflation indexing including for pensions. This fixed the earlier problem of pension not keeping pace with inflation. The Sixth Pay Commission (2006) tripled real pay. Whilst this was necessary, it stoked the angst of pensioners, other than the creamy layer, because pension adjustments lag behind salary revisions. With every pay commission, pensioners fall further behind. Only faujis have led the agitation for OROP, possibly because of the high regard the public has for them versus a less than rosy public perception of other government employees.

Kohima

The principle that fauji salaries must have an edge over civilian salaries has been consistently accepted. Suitable salary scales exist to illustrate this “edge” of around 10 to 15 per cent of basic pay. But in a classic case of maintaining the form whilst subverting the spirit, the benefits of the designed “edge” are only notional and not real. Here is why.

First, the sharply pyramidal structure of the armed forces limits the potential for promotion. In comparison, the civilian cadres are much less sharply tapered. Since pay is still effectively linked to position or rank, this means that civilians’ pay outgrows the notional salary “edge” over the first 16 years of their service. Thereafter, they lead not lag the fauji pay.

Second, stringent health requirements also ensure that faujis retire much earlier than civilians. Estimates suggests that 60 per cent of fauji officers retire by the age of 54. A soldier retires at the age of 35, while other ranks retire by the age of 45. In comparison, all civilians carry on earning promotions and pay enhancements till the age of 60.

Shorter service spans and fewer promotion avenues ensure that at retirement faujis have a basic salary which is around 40 per cent lower than a civilian who started service at the same time at an equivalent grade. To provide an equated pension to a fauji, the pension payout ratio has to be at least 75 per cent, as it was till the Third Pay Commission slashed it to 50 per cent.

The other options to safeguard the “edge” are to increase the salary scales of faujis significantly above civilian pay or to proliferate the number of senior positions — as it happens for civilians — to safeguard promotion prospects and income. Neither is an optimal solution to deliver more bang for the buck. Both require complex negotiations between losers and gainers within the armed forces.

The fact remains that OROP, as a principle, is flawed. It is not consistent with the principle of efficiency and it violates the principle of contracts. Pension is a stream of future payment for past services. Pay is a dynamic concept which changes as markets and job requirements change. Pay must reflect current market conditions. Pension is like a fixed annuity, albeit indexed to inflation to protect pensioners. Increasing the base pension amount as pay increases, as envisaged in OROP, is indefensible.

What then is the way out of the Jantar Mantar logjam, where the agitating faujis vent their gussa?

Good practice suggests that huge changes in pay be avoided since they lead to intergenerational inequity — future employees get paid much more, even in inflation indexed terms, for doing the same job. But such pay changes are sometimes necessary to correct a long neglected problem. Interim solutions can be one way to smoothen the transition. This is the way to go.

The government can restore the pre-1973 pension payout of 75 per cent but only for those faujis who retired between 1973 and 1995 when pension was not 100 per cent inflation indexed. This will significantly soothe the gussa of faujis whilst creating no untoward precedents for civilians.

The cost is around Rs 10,000 crore per year (back of the envelope estimates) or 7 per cent of the annual defence revenue budget for a period of four years.

Righting a wrong is costly but best done whilst the cost is bearable. Giving fauji pensioners short-shrift, whilst feting them publicly is inconsistent. Let January 26, 2016 be when the President of India soothes the gussa of 1.6 million fauji veterans.

Adapted from the authors article in Asian Age August 23, 2015: http://www.asianage.com/columnists/soothe-gussa-fauji-pensioners-476

Navigating India’s “perfect storm”

BeltTight

(photo credit:www.webmd.com)

It’s final now. The run of good luck PM Modi enjoyed has tapered off.

The monsoon is likely to be deficient by 12%. This would be the second year in a row. True, agriculture only accounts for around 15% of the economy and didn’t grow much last year either. But when you target 7.8% growth every basis point, added or lost, counts.

Manufacturing and services growth is already slow. Companies are at best cautiously optimistic but the caution makes new investment sticky. The money and jobs spinning realty sector, driven earlier by negative interest rates, is in a slump.

To complete the “perfect storm” scenario there are two important state level elections around the corner-Bihar later this year and UP in 2017. Neither state has BJP governments currently, so doing well in these will inevitably be a metric of how strong the Modi magic remains.

The good news of course is that every threat is also an opportunity. This is PM Modi’s opportunity to show that he is the Lion we think him to be.

Fiscal stability disaster prone

First, more will need to be spent on drought relief; restructuring of bank loans for farmers and income support schemes for farm workers. Delhi, admittedly with a miniscule rural area, has already distributed Rs 50,000 per hectare as relief for the farmers hit by the April 2015 unseasonal rain. FM Jaitley is possibly right that the drought will be localized in North and Central India. But these regions account for around 45% of the farmers. Retaining the targeted revenue deficit at 2.8 % and public investment at 14% of the budget will consequently be tough.

Postponed subsidy reform

Second, it is unlikely that subsidy corrections will now be possible this fiscal. Cheap electricity, water and fertilizer are here to stay with a possible relaxation of the tight minimum support price policy of the last few years.

Higher wage cost

Third, a significant expansion in the wage bill looms. For the armed forces it is the One Rank One Pension promise of the PM.  For the Civil Service the recommendations of the 7th Pay Commission are to kick-in from 2016. Luckily the wage bill is low by international standards- 1.6% of GDP and 14% of the budget. But even small incremental increases, unless accompanied by efficiency enhancing restructuring, are not affordable this year.

This perfect storm of shocks cannot be wished away. Better to deal with it upfront. Here are five suggestions:

Winning the market perception battle

First, don’t be cowed down by stock market fluctuations or seek to pander to them. These are short term adjustments by speculators and not reflective of annual economic prospects. Consequently, rather than play down the “perfect storm” scenario it makes sense for the government to highlight the extreme shocks they are battling with to keep economic growth growing. Even in this David versus Goliath scenario, what is key is to share a plan of action on disaster management; income support; and realigning revenue expenditure to retain the revenue deficit and investment target.

Nothing much was heard about the recommendations of the Bimal Jalan, Expenditure Management Committee (August 2014). But it could provide some useful strategic, short term revenue expenditure rationalization measures.

Cut the Red Tape

Second, stressful times also create an environment conducive for administrative reform. PM Modi’s can quickly lick babudom into shape through positive strokes. He should consider setting up a lean but empowered “Decision Support Team” in his office, manned by ten senior Joint/Additional Secretary level officers selected for their expertise in key sectors; their ability to persuade and their flair for collaborative performance.

They would be mandated to speak for the PMO and be tasked to work with the key ministries and state governments to cut through red tape holding up investment decisions. Working against weekly targets with real time feedback to the PM, the mantra for this team should be “ANA- Achievement Not just Activity”.

Those taking up such high tension assignments should expect to be on the fast track to become Secretaries to the GOI.  The PM is known to be cagey about trusting officers beyond a tiny circle familiar to him. This is not surprising given that he has never worked closely with the babudom in Delhi. But he should experiment by subjecting a larger group to the “agnipariksha” of performance. He will not be disappointed with the results.

Forget the optics of who gets the credit

Third, the knotty problem, particularly in Bihar and Uttar Pradesh, is how to be proactive in the face of state governments, which have the incentive to rebuff such support as being politically motivated.

The farmer does not distinguish between the state and the Union government (Lokniti Survey 2013) – 58% held both the state and the Union government responsible for the sorry plight of agriculture. If farmers fall through the gaps of political finger pointing, they will punish both the BJP and the SP-in Uttar Pradesh and the JD (U)-in Bihar. The beneficiaries of apathy will be Bhenji (Mayawati- the BSP supremo) in UP and Lalu Yadav in Bihar. Doing little is not an option for the Union government despite some of the shine rubbing off on the SP and the JD (U).

Don’t rattle the private sector

Fourth, it would be a big mistake to take too seriously the campaign to paint the BJP as a consort of the corporate sector. When stern action is warranted, it must be taken transparently and without rancor or bluster. But a “Preet Bharara type” of regulatory action is not what we need. Jobs are what the average citizen wants, which only the private sector can generate them.

Strong arm regulatory actions against foreign investors are bad optics- both for investment and for citizen sentiment. If our regulatory agencies are seen to be handmaidens of the government, they lose credibility. But the government also loses by devaluing an efficient instrument for regulating the private sector in a hands-off, technical manner.

Sticky revenues

Fifth, boost revenue. The tax receipt scenario is grim. First, projections for the year were over optimistic at Rs 14.5 lakh crores (US$ 230 billion) around 16% higher than the previous year. Tax receipts are bound to slide with slow external and domestic demand and lower corporate profits, despite the 15% increase in the rate of service tax. A tax receipt equal to last year’s estimate of Rs 13.7 lakh crores (US$217 billion) or 9% more than the actuals of last year is the best we can hope for- 5% points due to inflation and 4% points due to growth of the taxable base.

Getting more tax payers into the net is a worthwhile but effort intensive option with limited upsides. In 2013-14 there were 47 million direct tax assesses. New assesses have varied between 1 to 3 million per year since 2011. Even doubling the number of new assesses helps only marginally in additional revenue.

Transferring the crown jewels to citizens

There is more upside in fast tracking disinvestment. Listed Public Sector Undertakings (PSU) account for 13% of the valuation of the Bombay Stock Exchange or around Rs 13.6 lakh crores (US$ 215 billion). Of this, some equity is already held privately by minority investors. But an additional 10% can be sold without diluting government’s majority control. The problem is that, in the past, Institutional Investors have been the primary takers for such shares. Retail investor appetite has been largely absent from the tumultuous stock market for some years now and market momentum has been primarily provided by Foreign Institutional Investors.

Selling PSU shares in large volumes, without transferring majority control to the private sector, dampens the market price. Even the private IPO market is slow. Government is wary of inviting the charge of crony capitalism by selling shares to large institutional investors at cheap rates.

On the other hand, selling directly to retail investors is more defensible even if the price is low. After all the “Crown Jewels” really belong to citizens. Dispersing the ownership of PSUs widely also meets multiple objectives. Why not borrow a leaf from Dhirubhai Ambani’s 1982 market making strategy and incentivize the retail investor back into the market?

Link disinvestment, as a sweetener, to the issue of government debt for retail investors only – special convertible bonds – with a fixed return for three years at the prevailing Government Bond rate. 50% of the face value could be optionally convertible on termination in 2018-19, into a balanced bouquet of public sector equity at a 15% discount to the then prevailing market price.

A sequenced, mega issue of Rs 1 lakh crores (US$ 16 billion) of an asset backed government security can reduce the short term risk profile of PSU equity investments and pull in finance from an alternative source.

Government must come out with an evidenced strategy to deal with the “perfect storm” India faces. Of course, the PM is a “lucky General”. The drought may not materialize; the world economy may sort itself out and the opposition in Bihar and UP may self-destruct. But waiting for this to happen may be pushing the Gods too far.

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