Sunday, 29 September 2013

Why Kejriwal’s AAP is looking like old wine in new bottle

So, the Aam Aadmi Party (AAP) is all set to make an impressive debut in electoral politics, if the latest opinion polls are to be believed. We’ll have to wait till November-end to know. 
If the polls are correct, Arvind Kejriwal and his team will deserve kudos. Delhi has always been the fiefdom of the Congress and the BJP (and its earlier avatar, the Jana Sangh) and both need to be given a good jolt. But what after that? That’s a question the AAP cannot ignore.
Ever since the AAP came into existence a year ago, Arvind Kejriwal has been promising that the party will usher in a new kind of politics. That has also been the running theme in all interactions that party leaders have had with the public. They have been fanning across the city since August, meeting small groups of people in public spaces. In all of them, brandishing the broom – the party’s symbol which they say they asked for – the leaders vow to sweep out all that is bad in Indian politics and bring in what they insist will be an entirely new kind of politics, no matter how long it takes and regardless of how the party fares in elections.
Unfortunately, that is exactly where the AAP promise flounders. There is little evidence till now that the `new’ political style and culture that AAP promises is anything more than the way the party is managed and the behaviour of its elected representatives. So, the party has a transparent and democratic organisational structure; only candidates with a clean reputation are chosen in a very transparent manner; elected representatives will not use red beacons on their vehicles or live in sprawling government bungalows and be surrounded by a phalanx of security personnel. The kerfuffle over a key member, sociologist Yogendra Yadav, being sacked from the University Grants Commission (UGC) is at variance with these lofty ideals, but more on that later. 
A new political culture cannot just be about the way a party is organised or functions. Nor can it be limited to symbolic gestures like shunning red beacons. It also has to be about the way a party engages with the voters. (Actually, AAP is not the only non-traditional party to have a strong ethics code in place. Several new do-gooder parties that emerged on the political landscape after 2007 are doing the same – fielding squeaky clean candidates, taking donations only by cheque, putting up lists of donors on their websites. It’s just that the AAP has managed to grab national attention, thanks to the India Against Corruption Movement, in a way that the others did not.) 
When one talks about old-style politics, the association is always with caste-religion-community based politics and economically ruinous populism. A new kind of political culture should entail a movement away from such divisive and fiscally imprudent politics. Instead, the AAP has only continued down the same path, down to some well-known Muslim figures joining the party at a public function. At that do, Kejriwal admitted that there were already a large number of Muslims working for the party. He then gave a somewhat unconvincing explanation that this special function was organised to highlight the politics of hate that was taking centrestage. Couldn’t this be done in any other way than putting an AAP cap on top of a skull cap that one of those who joined wore? How is this kind of tokenism any different from what mainstream parties do? 
Take also the pamphlets that the AAP candidate have been distributing in their areas. The promises they make include waiving of water bills and providing 700 litres of water a day to every family free of charge, halving of electricity bills and regularisation of unauthorised colonies. Where is the new paradigm in this? A couple of months back, the Congress government in Delhi regularised a host of unauthorised colonies and is now tom-tomming it on FM radio ad spots. The BJP, which has been out of power for 15 years, has also been promising cheaper power bills.
Nor is the AAP lagging in making tall promises. One of the ads it has placed on the back of autorickshaws laments the lack of security for women in the capital and promises – hold your breath – an exclusive commando force for women! 
And now the issue of Yadav’s expulsion from the UGC. This is very clearly a vengeful and stupid move by the UPA government. But the idiocy and meanness of the human resource development ministry does not diminish the fact that Yadav is also not entirely in the clear. He had been appointed to the UGC as an academician, which is what all commission members are. When he joined the AAP, he should have quit the UGC. Yadav says he had offered to resign last year and that the UGC told him to stay on and that his removal has been done not by the UGC but the ministry. But this is a kind of hair-splitting that does not speak well of the leading light of a party taking the moral high ground all the time. If he had insisted on stepping down from the UGC when he formally joined the AAP, that would have been something completely different from the way normal politicians behave. 
Right now, the popular disenchantment with the mainstream parties is so overwhelming that the AAP is getting away with mere marketing gimmicks, passing off the same old model as a radically different product. There is, of course, the matter of whether the public really wants a different political discourse. There’s no getting away from the fact that people are not really concerned with their elected representatives framing and legislating sensible policies. All they want is for them to do favours – recommend a child to a school here, stop the demolition of an illegal construction there, swing something somewhere else. Corruption too is not as big an issue as it is being made out to be. It is an issue only if people see that the politicians are concentrating only on filling their personal coffers without addressing their problems. Let’s face it: honest people don’t get elected; `effective’ people do. If they are also honest, that’s an added bonus. 
The AAP has probably realised this and that is why it is not departing from old-style paternalistic, sops-driven politics. Right now, its only USP is the `added bonus’ – people with clean reputations. But if these people don’t deliver on the things the public wants, disillusionment will soon set in. And then the AAP will be just another party. Is it prepared for that?

The Lost Heroes of Economic Freedom

First published in Forbes India:
When the history of India is written, no future historian should pity us that in a country where great saints have lived, there was not a single Indian to point out the absurdity of the ‘permit-licence-quota raj’.” So said C Rajagopalachari (Rajaji) when asked why he persisted in criticising Nehru’s economic policies when no one heeded him. G Narayanaswamy, a close associate, recounts this anecdote while penning a piece on him in Profiles in Courage: Dissent on Indian Socialism.
As the debate over two economic models—a welfarist-socialist one and a market-oriented one—gets increasingly cacophonous, it is worthwhile to remember a time when such energetic pow-wows were near-absent. When the predominantly left-of-centre intellectual climate—which dominated every field from academia to films—obscured any contrarian view.
And yet a few voices in that wilderness refused to be stifled, forcefully and cogently arguing for a liberal economic order and warning of the dangers that the Nehruvian model posed not just to the economy but to the polity as well (a prediction that came true in 1975). Today, as the economic punditry space bursts with numerous illustrious advocates for an open economy, there is danger of those older voices being forgotten.
Perhaps the least well known of these (outside the rarefied world of economists, that is) is that of BR Shenoy. Shenoy’s many treatises provided the intellectual underpinning to the battle against development economics and centralised planning.
His solitary dissent note to the memorandum of the panel of economists on the Second Five-Year Plan (of which he was a member) is a must-read critique of deficit financing and the dangers of over-ambitious plans. “Controls and physical allocations are not a necessary adjunct to planning... There are great advantages in allowing freedom to the economy, and to the price system in the use and distribution of the needs of production,” he wrote.
Shenoy stands out because he was from the academic world, which did not put up a strong enough opposition to the Nehruvian socialist world-view. There were right-of-centre economists but few who consistently attacked the economic path that India was taking the way Shenoy did. A later generation of economists—Jagdish Bhagwati and Meghnad Desai, among them—was vocal in its criticism but they were largely based abroad and their influence increased only after India liberalised its economy in 1991.
In the overwhelmingly socialist-inclined political space, it was the founding triumvirate of the Swatantra Party—Rajaji, Minoo Masani and NG Ranga—who ceaselessly championed an alternative economic model. Rajaji, the legend goes, was the one who said the ‘licence-permit-quota raj’ had replaced the British raj. The Jana Sangh (the predecessor of the Bharatiya Janata Party) was also in favour of an open economy but its economic ideology was overshadowed by its cultural conservatism and jingoistic nationalism.
It was Nehru’s increasingly statist policies that brought the three Congressmen together, with the Nagpur session of the Congress in 1959 (advocating joint co-operative farming, considered a euphemism for collectivisation of agriculture) triggering the final break with the party and the launch of the Swatantra Party. For 15 years, it presented a trenchant and principled opposition to government micro-management of the economy, deficit financing and high levels of taxation. An impressive showing in the 1967 elections was followed by crushing defeat in 1971. The party disbanded in 1974, by which time Rajaji had died and Ranga inexplicably rejoined the Congress. It was left to Masani to keep the Swatantra ideology alive till his death in 1998.
And then there was the Forum of Free Enterprise (FFE), set up in 1956, which single-mindedly debunked myths about socialism in the popular mind and countered the anti-private sector calumny of the socialists. The Forum was the brainchild of AD Shroff—one of the authors of the Bombay Plan of 1944 and a non-official delegate to the Bretton Woods conference—who had been opposing Nehru’s socialist views since the mid-1930s. With consumer activist MR Pai heading the secretariat for 20 years, the Forum provided a platform to an array of voices through writings, lectures and essay competitions.
Though better known for his annual analysis of the Union budget, eminent lawyer Nani Palkhivala (who was FFE president for 32 years) needs also to be remembered for his 1965 book, The Highest Taxed Nation, which made the very points that tax reformers of the early 1990s did. In the courts, he not only defended personal freedoms but also economic freedom, challenging bank nationalisation and a newsprint control order in the 1970s.
All these people were reviled by the establishment and subject to slander campaigns, the most common being that they were American agents. The Swatantra Party was labelled a businessman’s party (though the majority of industrialists did not fund it). A central minister told Shroff that Nehru wanted him to disband the FFE. But these voices refused to pipe down.
Were these the only dissenters? Certainly not. There were people like Freddie Mehta, Hannan Ezekiel, DR Pendse and Jay Dubashi (who later became an ideologue for the BJP), to name just a few. But it was natural for them to speak out against socialism since they were associated with private industry. The first three worked for the Tata group and Dubashi was director of the Economic and Scientific Research Foundation under the Federation of Indian Chambers of Commerce and Industry.
Eyebrows will be raised that IG Patel, Manu Shroff and several illustrious economists from the Bombay school do not find a mention here. But not all of them were vociferous or outspoken in the way the others were. Patel and Shroff worked for the government and though they may have slipped in some liberal ideas into economic policy, they were not open dissenters or radical reformers.
That’s why it is necessary to doff our hats to these brave voices which ensured that India will not be pitied in the way Rajaji had worried about.

Sure, poverty fell, but no thanks to UPA’s NREGA

First published in
As the country heads closer and closer to elections, there will be a slow and steady release of facts, figures and sundry survey reports showing 10 years of United Progressive Alliance (UPA) rule in good light. In end-June, the National Sample Survey Organisation’s Employment and Unemployment in India, 2011-12 indicated an uptick on the employment front between 2009-10 (when the last survey was done) and 2011-12 (though a lot of questions remained unanswered, as this story in Forbes India shows). And now the latest poverty estimates released by the Planning Commission yesterday show that poverty decline between 2004-05 and 2010-11 has been faster than between 1993-94 and 2004-05.
Critics – especially political opponents – would be quick to pick holes in this. First, they would probably latch on to this interview that former member of the National Statistical Commission, Amitabh Kundu, gave to The Indian Express. In this, Kundu has argued that if the survey had covered 2012-13, the poverty estimates would not have been that satisfying. So it looks as if the 2011-12 survey was done only to show the UPA in good light. 
This question was raised in the case of the employment figures as well and the current and former chief statisticians refuted the conspiracy theory of statistical skulduggery. Large sample surveys are done by the NSSO every five years. After the 61st round in 2004-05, there was a 66th round in 2009-10. But since that was a bad economic and agricultural year, it was decided that the results would not be comparable with 2004-05 and so it was decided to conduct another survey in 2011-12, after just two years (when the next survey would actually have been due in 2015). This decision was taken even before the results of the 2009-10 survey were out. 
Next, the sceptics will mock the poverty reduction achievements on the grounds that the estimates follow the Suresh Tendulkar poverty line, which is laughably low. But this too deserves to be junked. When the Tendulkar poverty line was adopted in 2009, it actually showed a higher incidence of rural poverty than the earlier Lakdawala formula did. Secondly, when the controversy over the Tendulkar formula first broke in 2010 – and critics (notably from the anti-growth and anti-reforms brigade) insisted the formula was flawed, an exercise was done to show poverty estimates using both formulas. The rate of poverty reduction between 1993-94 and 2004-05 was shown to be slightly higher under the Lakdawala formula (0.77 percentage points) than the Tendulkar formula (0.73 percentage points). So clearly, the Tendulkar formula does not underestimate poverty. 
If the left and the BJP really want to get after the UPA government on poverty, it should be on how this reduction was achieved. The Congress and the intellectual gurus of its welfarist approach will no doubt crow that this is the result of the so-called inclusive growth agenda followed by the UPA since 2004. Specifically, they are going to credit the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) with the achievement. But as economist Surjit Bhalla points out in his column in The Indian Express today, this cannot be true. Using the NSSO data, Bhalla points out that MNREGA accounts for a small share of casual employment. Casual work as a percentage of total rural employment, he shows, was only 1.6 percent in 2009-10 and 2.1 percent in 2011-12. And within casual work, MGNREGA accounted for just 36.4 percent and 37.1 percent in 2009-10 and 2011-12 respectively. So MGNREGA, he argues, accounts for just 0.65 percent of total rural employment. 
He also debunks the theory that MGNREGA has helped increase rural wages. MGNREGA wages, he shows, rose by only 25 percent between 2009-10 and 2011-12, while non-MGNREGA casual work wages rose by 39 percent. 
And then comes Bhalla’s most damning indictment. The decline in poverty between 2009-10 and 2011-12 was by 13.1 percentage points; MGNREGA accounted for only 1 percentage point of this reduction. The left will not take up this line of argument because it would not like to junk a welfarist scheme, not matter how bad an idea it is. The BJP too is not averse to supporting bad economic ideas (witness its lack of opposition to the food security bill). 
But the real arraignment of the UPA’s so-called dole-oriented approach to inclusiveness is in these figures, not in junking the Tendulkar line.

Why Congress can’t tell opponents not to politicise Food Security Ordinance

Critics of the National Food Security Ordinance (NFSO) have been rapped on the knuckles twice in two days by prominent Congress leaders. 
Yesterday, Digvijaya Singh told Congress bete noire, Narendra Modi, to stop playing politics over the food security law. In response to Modi’s barbs about the ordinance being a meaningless piece of paper, Singh said the main purpose of the ordinance was to ensure that food reached the poor and “it would be good if Modi did not politicise it”. 
Today, Finance Minister P. Chidambaram, while addressing a press conference on the state of the economy, called the ordinance “the most important legislative measure of UPA-2”. With a piously stern expression on his face, he said, “I know that there are people who mock at the ordinance. I feel sorry for them. Nothing is more important than food security.”
Singh’s advice to Modi is not entirely misplaced. After all, the BJP’s opposition to the food security law is not a principled one, centred on the rejection of an inherently flawed rights-based entitlements approach. Political parties are united in championing bad laws and the food security law was no different. The BJP knew the vote-pulling power of this law and simply wanted to deny Congress the credit for legislating it. Even as the party stalled Parliament during the last session, BJP leaders were constantly making public statements that they wanted the National Food Security Bill passed.
But the Congress asking people not to politicise the NFSO is amusing at best and galling at the worst. The right to food legislation has been about nothing but politics from the start. Riding high on the so-called success of the National Rural Employment Guarantee Act (NREGA), the UPA-1 had promised a right to food in the 2009 election campaign and got set to work on this soon after it came to power. (This much one will have to concede to the Congress – it doesn’t make entirely empty poll promises.) 
Is ramming through an economically unsound law not playing politics? That too, with issues as serious as poverty and hunger? It is no one’s case that people in India are not going hungry, though the government surveys have themselves shown that the number is declining. But if people don’t have access to food it is not because there is no food – India has far more than its needs for its buffer stocks – but because people don’t have purchasing power. Legislating a right to food does not address this problem, which is at the root of food insecurity. There has been enough evidence that the food security law is going to play havoc with government finances. The deleterious domino effect this will have on the economy, which already appears to be in free-fall mode, has been pointed out time and again. Economist Surjit Bhalla has pointed out that the Bill will cost 3 per cent of GDP in the first year alone. Bhalla will no doubt be dismissed as a free market fundamentalist, but equally alarmist caution has been voiced from economists who are part of the government establishment. But the Congress leadership has not paid heed. Is that not playing politics? 
Chairman of the Commission on Agricultural Costs and Prices, Ashok Gulati, has pointed out the deleterious effect of the food security law on agriculture and the entire food economy in a paper, National Food Security Bill: Challenges and Options, (co-authored with Jyoti Gujral and T. Nandakumar). Those concerns too have been ignored. Is that not playing politics? 
And yet all these critics of the food security bill – the majority of whom are economic right-wingers, but social and political centrists – are dismissed with just one damning indictment: they are not pro-poor. Never mind that they have far more sound suggestions to pull people out of poverty and ensure food security. 
The target of Chidambaram’s admonishment was Modi, but it could well have been directed at all these critics of the food security law. Because in the binary world that the Congress seeks to push public discourse into, if you are a trenchant critic of the party, then you are a rank majoritarian communalist enamoured of Modi. And if you are not an ardent supporter of the food security ordinance, then you are an unfeeling soul who wants the millions of the poor to starve to death.

Bite this: Survey proves cash transfer critics wrong

Cash transfers to the poor, so the cynics would have us believe, are a bad idea because they will be misused. Men will divert money for food, education and health to alcohol and tobacco consumption. Don’t think, they say, that giving money to the woman in the household will check this. She doesn’t take decisions in the family and she won’t have the power to check the man. But a survey based on two pilot projects on cash transfers in nine Madhya Pradesh villages from June 2011 to January 2012, jointly conducted by trade union body SEWA Bharat and UNICEF, rebuts almost every charge that the cash transfer pessimists throw at this alternative method of delivering welfare benefits to the poor. 
Bite this. Cash transfers did not increase spending on the ‘private bads’ in the project villages. On the contrary, ‘good’ spending increased across a range of expenditure heads – education, health, food and sanitation.
And chew on this. The proportion of underweight children came down; incidence of illnesses came down; the number of children working as wage labour fell; wage labour among adults too declined and self-employment increased; and indebtedness reduced. 
“Cash has a transformative effect by unlocking constraints to development,” Guy Standing, of the School of Oriental and African Studies, University of London, who led the survey said while presenting the preliminary findings at a conference in New Delhi.
The first pilot, Madhya Pradesh Unconditional Cash Transfer (MPUCT), covered eight villages, while the second, Tribal Village Unconditional Cash Transfer (TVUC), was conducted in one tribal village. In both pilots, the behaviour of the beneficiaries was compared to that of people in other villages (12 in the case of the first pilot and one in the case of the second) who did not get any cash handouts. The cash transfers were unconditional and universal. That is, every single person (a total of 6,000) in the pilot villages around Indore were given monthly cash grants – Rs 300 per adult and Rs 150 per child – without any conditions about how they were to spend it. They were free to use it in any way they wished. “Conditions,” noted Renana Jhabvala, president of SEWA Bharat (part of the SEWA family), “lead to corruption and harassment.” 
Freed from any nanny-like supervision, people who got cash handouts showed they could be quite responsible in spending it. Education got top priority, with those in the cash transfer villages spending 40 percent more on schooling than non-cash transfer villages. Though only 40.2 percent of households in the cash transfer villages had a school within one km distance of their homes, the children spent less time in commuting as compared to those in non-cash transfer villages, where 48.3 percent of households had a school within 1 km distance. The fact that those in the cash transfer villages were spending more on transport to send their children to school is evident from the 10 percent difference in transport spend between the two sets of villages. That is probably why, though there was no significant difference in enrolment in cash transfer and non-cash transfer villages in the baseline study, the final evaluation study showed a 11 percent increase in enrolment in the former set of villages. There was also an increase in spending on uniforms, books and stationery. 
People also started spending more on foods higher in the value chain, with 52.6 percent buying more fresh vegetables and 63.9 per cent buying more milk than before. In the tribal villages, households reporting sufficiency of food increased from 51 percent to 82 percent between the baseline and final evaluation survey. With better nutrition and better basic living standards (31 percent of cash transfer villages spent on changing their toilets, and more people switched to electricity and gas for lighting and cooking), health indicators also went up. In the cash transfer villages, 47.4 percent households reported no illnesses in three months prior to the survey against only 34. 6 percent in the non-cash transfer villages. 
With women getting money in their individual capacities, there was a 33 percent increase in them getting medical treatment for illnesses. Women also took medicines more regularly, whereas earlier there were spikes in medicine intake depending on the availability of money. More importantly, the physically disabled in homes got better treatment. The survey showed 48 per cent disabled individuals in the cash transfer villages was hospitalised for treatment against only 2 per cent in the non-cash transfer villages. There was also an increase in resort to private healthcare, showing that cash grants gave people more choice. 
Another criticism against cash transfers as an income support measure is that it discourages people from working. (It’s another matter that they don’t subject the National Rural Employment Guarantee Scheme to the same criticism.) The survey showed that wage labour accounted for 40 percent employment in cash transfer villages against over 50 per cent in non-cash transfer villages. The proportion of self-employment was higher in the former against the latter. Many families, the survey showed, used cash grants to buy tools (ranging from sewing machines to seeds and fertilisers) or livestock to increase production. 
Does this mean that the debate over cash transfers has been definitively decided in its favour? Not quite. These findings need some caveats. As NC Saxena, member of the National Advisory Council, pointed out at the conference, the cash transfer in the project was an additional sum that people got and was not a substitute for subsidised government schemes. So it gave people extra cash, which made it easier for them to make choices. Would that same effect have been possible if the cash transfer had been accompanied by a withdrawal of a public service, whether it is ration shops or government clinics or schools? 
The area around Indore was also more prosperous and developed, increasing the chances of positive findings. Sonalde Desai of the National Council of Applied Economic Research, who gave the expert response on the findings, noted that the survey results should take into account the bias factor in the perception-based responses – people would tend to paint a rosy picture when quizzed on the benefits of any cash support. 
But the value of the pilots and the survey is that this is the first-ever attempt to cut through the ideology-driven posturing on cash transfers and pave the way for policy making based on hard empirical evidence. And that is a big, big step forward.
I subsequently wrote a more detailed piece on this for Forbes India. Here is the link to that.