governance, political economy, institutional development and economic regulation

Posts tagged ‘value for money’

SmartCities: Making the rich smarter

The latest public “dog and pony show”, unveiled on Thursday in Delhi, is the selection of 20 cities across the richest 11 states of India for accessing the governments Smart Cities fund.

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Photo credit: smartcitiesindia.com

The near-complete exclusion of the poor “cow belt” states, except Rajasthan and Madhya Pradesh, can be explained by the need to first push public money to where elections are to be held in 2016 — Assam, Punjab, Tamil Nadu and Kerala — West Bengal being a surprising exclusion.

But what takes the cake is the inclusion of the New Delhi Municipal Council (NDMC), comprising just three per cent of Delhi’s area, which is directly administered by the Centre. The Central government owns nearly 90 per cent of the 44 sq km it comprises with marginal ownership in and around the prestigious Lutyens’ zone of power brokers, lobbyists, old-economy business people, big time realtors and other hangers-on of this rarified ecosystem — the Indian equivalent of the Washington DC Beltway.

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Lutyens Delhi a lush, green bubble in the heart of the capital. photo credit: indiatravelite.com

The NDMC is already a profitable municipality, as indeed it should be. It spends over Rs 3,000 crore ($450 million) every year on serving just 300,000 people — a per capita expense of Rs 1 lakh ($1500) per resident, per year. Compare this with the average spend in the other three municipalities of Delhi of just Rs 7,300 ($110) per capita per year — all currently managed by the Bharatiya Janata Party. More starkly, the average spend for all urban areas, across India, is a shockingly low Rs 1,000 ($15) per capita per year.

Why is the selection of NDMC for yet another barrel of “pork” so disappointing? Three reasons strike out:

First, that this should happen days before the “reformist” budget expected to be presented by the Union minister of finance for 2016-17 is unnerving. The budget is, or should be, about spending public money well and wringing out the maximum public value from it. Allocating subsidies to the rich cannot be part of a pro-poor paradigm. It symbolises all that is wrong with a bureaucracy which is all “spin” and no heart.

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Second, the bane of China style “big government” has been soft budget constraints and poor accountability. Big budgets lead to profligate spending. Bureaucrats are more interested in shovelling money out of the public door into private pockets and marking up their “performance” sheets, than in ensuring that the money is spent in areas where growth and poverty reduction can most be impacted. The casual allocation of Rs 500 crore to the richest local body in India, with the highest per capita income, just so that it can shine even better, speaks of a pernicious tendency in new public financial management to mimic private finance by allocating money where it can be quickly absorbed, rather than risk it where it would create the maximum social and economic value.

Third, it is no one’s case that redistribution of wealth can be done by pulling down those who are well off. But Reserve Bank of India governor Raghuram Rajan’s recent diatribe against the lack of public concern about the optics of vulgar displays of wealth strikes a chord.

Lutyens’ Delhi is the “Kohinoor” of Delhi. A small self-absorbed bubble of power, privilege and wealth. One acre of land here costs Rs 500 crore and sales happen rarely. Why can’t the power elite pay for the privileges they enjoy? Why is it so difficult to convince the 4,000-odd large private property owners — each with a minimum net wealth of at least Rs 100 crore — to pay for retrofitting their beautiful municipality? Isn’t that what participative governance means? Why must poor Trilokpuri in east Delhi comprising the marginalised, poor and the shabbiest of public services pay for keeping Lutyens’ Delhi shining?

 

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Trilokpuri, East Delhi, a festering sore where only the marginalized exist. Photo credit: Indianexpress.com

Had Thomas Piketty been part of the Smart City selection committee he would have torn out his hair in a fit of Gaelic rage at the callousness with which public money has been wasted and inequality worsened. What indeed was the selection process which has generated such a warped result?

The allocation instrument is a “challenge fund” devised by the usual suspects: Fly in, fly out consultants. As expected, on paper, the process appears transparent and efficient. It is a beauty contest. Municipalities send in their proposals seeking Central government funds for up to Rs 500 crore ($75 million) over four years. But they must match the Central government allocation and also meet the criterion of performance efficiency which includes standard metrics like collection efficiency, proactivity, etc. Nothing wrong with that at all. The killer is that there is no criteria on what impact the project will have on reducing urban poverty or on reducing the depth of deprivation in access to basic public services in poor localities.

Is it any surprise then that the Smart City fund is merely ending up elevating the “boats” which are already afloat? And how is that so different from the infamous National Rural Employment Guarantee Act (NREGA) of the United Progressive Alliance, which similarly incentivised the ability to use funds quickly? Rich states like Tamil Nadu, with average informal wages way above the national average national, quickly pulled out most of the funds, whilst the poor, badly organised states faced an empty treasury by the time they got their act together. As before, the mightiest wins yet again.

Political pork, lazy bureaucrats, the use of public funds for private gain by the elites is all old hat in India and across the developing world. Nothing new in that. The pity is that it needn’t be this way. The anguish is that old style cornering of public funds with no regard for ensuring equity, persists like a deep-seeded rot.

Prime Minister Narendra Modi of all people, should know the negative feeling generated from being excluded by the establishment. He must have experienced the chagrin of public money being wasted on “gilding the lily” whilst millions of poor children, like him, had to make do with a subsistence existence. Or is human memory so frail that one quickly forgets the bad times? Former Prime Minister Manmohan Singh was fond of establishing his humble roots by saying that as a child he studied under the village lamp post. But in the 10 years that he was in power, millions of children continued to study in exactly the same way.

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The preoccupations of the “Delhi Durbar” are pretty compelling. That is why they say you can wear a crown in Delhi. But don’t sleep easy — it isn’t permanent.

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The lonely statue of King George V after it moved from under its domed canopy  in India Gate – since awaiting another incumbent-and relegated to a museum.

Adapted from the authors article in Asian Age January 30, 2016http://www.asianage.com/columnists/exclusive-cities-715

Why spend more on babus? 7th Pay Commission

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Babus are looking forward to another bonanza, courtesy the 7th Pay Commission, which the previous government constituted just before demitting office. The armed forces, always better organized, are first off-the-mark with an earmarked Pay Cell already created, headed by a two star General, to lobby for better terms and conditions. Other Unions and Associations will also gather themselves together, once PM Modi signals the go-ahead.

Here are five reasons why he should not do so.

First, the history of Pay Commissions (the first was in 1946 with the rest following almost every ten years) validates that they achieve very little beyond finding the lowest commonly agreeable formula, for farming out pay increases to babus and the armed forces.   Never has the pay increase been linked to higher productivity or even to aggregate measures of productivity, like economic growth. Growth, admittedly an overly-broad measure, is now on the downslide and expected to remain that way for at-least another two years. Aam admis find it difficult to swallow, that babus should get paid more, whilst they themselves are struggling to make ends meet.

Second, babus have been getting 100% inflation neutralization twice a year, since 1996. The dreaded inflation (often itself the outcome of loose fiscal control and inefficient expenditure policies) consequently, flows-off babu backs, like water-off a duck, but swooshes down onto aam admis and makes their life miserable. The biggest sufferers are the 700 million poor.

The urgency for another increase in the “real” pay of babus is difficult to justify, in a strained fiscal environment, where subsidies have to be gradually moderated and administered prices of petroleum products, electricity, fertilizers increased-all of which stoke inflation.

Government also has to increase the tax-GDP ratio in 2014-15 to provide the funds needed for stepping up long forgotten defence equipment; higher outlays for education, health, sanitation, water and infrastructure; all this within a fiscal envelope which does not further aggravate inflation. Increasing existing babu compensation, in real terms, will only stoke the flames of inflation.

Third, if the government feels that the existing pay structure does not promote efficient functioning, it has only to look at the reports of the past two commissions. Both Commissions recommended excellent measures for linking pay enhancement to productivity, which remain unimplemented. The Administrative Reforms Commission did similar stellar work in 2008. Throwing more money at the problem of inefficiency is a highly ineffective way of trying to deal with it, which is bound to fail. Better to brush the dust of previous research and get down to implementation.

Fourth, less than 4% of India’s working age population of 500 million (ILO) is employed by government. The total formal sector employment (including in government) is less than 10%. Unlike government, in the rest of this “labour aristocracy” there is no assured inflation indexing and individuals have to justify every year, why employers should even neutralize inflation let alone give them an additional increase in “real” pay.

The residual 90% of other workers live in a jungle, where they survive by their wits, with no help from law or regulation. The Minimum Wage Act is a non-functional piece of legislative gloss, which is regularly contravened in the unorganized sector. None of us, including babus and politicians, who employ household help or buy products made in the informal sector, where “sweat labour” is the norm, walk-the-talk, by being willing to pay the prescribed minimum wage rates.  Even the lowest level of compensation in government is way above the minimum wages.

Fifth, the process of babu pay determination has acquired a routine automaticity, which needs to be disrupted. Opponents of abandoning the business-as-usual stance, argue that the outcome of stagnating babu pay in real terms will be higher levels of corruption. This is difficult to buy. Despite the consistent increase in babu pay since 1952, corruption has also grown not decreased. Babus, even at the leadership level, including the previous PM, “passively accepted” corruption, even if they have not actively associated themselves with the loot. They have not endeared themselves to aam admis by such behavior.

PM Modi has already started the process of interacting directly with babu-level chains of command and demanding from them, measurable, targeted performance, aligned with the government’s priorities. Pay rewards should follow only in 2018 (one year prior to elections in 2019) if performance improves.

Between now and then, the government should start publishing Annual Service Delivery Report Cards for every urban ward and every rural village, listing the manner in services have improved. Pay rewards beyond 100% inflation indexing (which already exists) should come only if the citizen reports show improvements from 2015 to 2017.

Let’s apply the same “value for money” standards to public finance, which resonate so well with our personal lives, vividly captured in the “kitna daite hai” (how many miles does it go in a liter of fuel?) metric, popularized by MARUTI.      

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