Sunday, 13 July 2014

Earth to Mr Jaitley: socialism is not pro-poor, markets are not anti-poor

So why did the Narendra Modi government, whose high-pitched pre-election rhetoric promised a decisive rightward shift in the management of the economy, debut with a budget that would have done the Congress proud? This is something both Congress president Sonia Gandhi and former finance minister P. Chidambaram have smugly pointed out.
This piece by M. K. Venu argues that the maiden budget was `socialist’ because Modi wanted to be seen as pro-poor. Venu quotes finance minister Arun Jaitley telling him in an interview done for Rajya Sabha TV that in a country with so many poor people, any economic philosophy which is totally market based will not work. Listen to the interview here.
That is the problem – the assumption that socialist policies are pro-poor and market-friendly policies are not.  This fairly widely-held assumption is itself based on two wrong assumptions, one about socialist policies and the other about pro-market policies.
That socialist policies are pro-poor flies in the face of evidence from India itself. India’s economic policies were overwhelmingly socialist before 1991. Indira Gandhi’s socialist agenda got an emotional anchor, as it were, with the Garibi Hatao slogan. Apart from the plethora of anti-poverty schemes, all economic policies supposedly had a pro-poor focus. And yet the pace of poverty reduction has been faster post-1991, once India embarked on pro-market policies!
All manner of subsidies have been rolled out in the name of the poor; any withdrawal is slammed as a move to abandon the poor to the vagaries of the market forces. But, barring a few, these subsidies really go to the better off. The poor are anyway left to the market forces. Take Delhi, where highly subsidised water and electricity supplied by the government go to the middle classes while the poor, who live in slums and unauthorised colonies, pay several times more for the same facilities supplied by the market. Yes, the rates are exploitative but the so-called pro-poor state is just not present in these areas peopled by the poor. Yes, the issue is that of governance, and that precisely is the point. Good governance is not about socialism or capitalism; it is about how efficiently the state goes about fulfilling its responsibilities.
Now for the other bogey that Jaitley seems to be mindlessly parroting – that a pro-markets approach necessarily neglects the poor. This stems from the trenchant criticism by the critics of socialism of the dole-centric approach to helping the poor, especially the rights-based entitlements legislations that the Congress initiated (and the BJP supported). But the question whether doles are more effective in helping the poor needs to be examined. This question came up last year when poverty figures released by the Planning Commission showed a sharp decline in poverty levels between 2009-10 and 2011-12 and also a decline in the absolute number of poor. The Congress party was quick to claim credit – not for the years of highest ever economic growth during UPA 1 (which they otherwise kept boasting about), but for welfare measures during its rule, especially the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). 
But economist Surjit Bhalla questioned this claim in this article. Using NSSO data, he pointed out that MGNREGA accounted for only 1 percentage point of the 13.1 percentage points decline in poverty between 2009-10 and 2011-12. In this second article, he gives a more direct link between growth and poverty reduction.
Now to the wrong impression about pro-market policies.
Venu’s article argues that Modi’s statements that government coffers are meant for the poor is `very socialist in its tenor and intent’. This reinforces the completely fallacious image of pro-markets ideologues as unfeeling cads who want the government to work for the well-off and the rich. Not even free market fundamentalists (except those in the loony fringe) argue against measures to help the poor. There will, they admit, always be disadvantaged people who will need the helping hand of the state. The point of divergence between socialist policies and pro-market policies is not about helping the poor; it is about how to help them.
The socialist approach is through price-distorting doles and welfare programmes (no matter how leaky and inefficient they are). The pro-markets approach is to get the state to stop meddling in, and micro-management of, the markets and to concentrate on providing public goods, thus ensuring high growth which will bring more people above the poverty line (no matter how high or low it is set).
Venu cites two new schemes in Jaitley’s budget - Deendayal Upadhyay Gram Jyoti Yojana and  Shyama Prasad Mukherjee Rurban Mission – as examples of BJP social sector schemes and calls this BJP’s own brand of socialism. But these are not welfarist schemes; these are schemes to provide physical infrastructure - clearly the role of the state even in a market economy – that will spur economic activity and growth. Socialist policies do not bring high growth; pro-market policies do. We have seen that in India.
High growth will not only help address the problem of poverty, it will, far more importantly, provide the resources for targeted interventions to help the poor and the needy. If there is no money in government coffers, even socialist states cannot help the poor. Such interventions should ideally be through income support and cash handout measures than inefficient welfare programmes that are liable to corruption and cornering by the better off, leaving the poor where they are. Even Amartya Sen has not argued against excessive state intervention in the markets; he too believes growth is necessary for poverty reduction. It is another matter that he prefers inefficient welfarism over more efficient income support measures.
The problem with the discourse on political economy in India is that words like socialism, pro-poor and market friendly are bandied about, especially by politicians, without adequate understanding of what they mean. Jaitley’s statements prove this.

Wednesday, 9 July 2014

India just published its most explicitly pro-markets policy document in history
Each year, the Economic Survey offers a snapshot of the economy and a glimpse into the government’s thinking on important policy matters. Along with the budget, it is the most important annual statement on policy made by the government of India.
This year, the Economic Survey tabled by finance minister Arun Jaitley in Parliament earlier today, is an emphatic statement. It is the first policy document in modern India that has explicitly pitched for a market-based economy and for the government to work on an enabling regulatory framework. It goes to the extent of saying that market failure should be demonstrated before the government considers stepping into any sphere of economic activity.
If this document is any indication, the Narendra Modi government intends to usher in an unprecedented policy push towards a markets-based economy and away from the welfare-centric approach favoured by all the previous governments, including the earlier governments led by the Bharatiya Janata Party (BJP) .
Since the mid-1990s, Economic Surveys have pitched for many reforms—of the labour market, real estate market, agriculture, the food economy and the subsidy regime. But none have set out a case for the market economy in such explicit terms as this one has.
Consider this: a chapter titled Issues and Priorities has a section called Foundations of a Market Economy. The opening paragraph says: “The biggest challenge today is improving state capacity suitable for a market-based economy. A long-term, careful and systematic effort is required for undertaking institutional change.” This is perhaps the closest a government can come to in moving away from a socialist legacy which has got enshrined in the Constitution. The Preamble to the Constitutions describes India as a sovereign, socialist, secular, democratic republic (the words socialist and secular were inserted in 1975).
And mull on this: “In a market economy, the economy thrives because the state interferes only when there is ‘market failure’, i.e. monopoly power, asymmetric information or externalities.” The Survey argues that any restrictions on private activity must be “part of a known and predictable regulatory regime unlike now where a lot of restrictions—well intentioned as they are—are not part of a stable framework.”
That is probably a veiled reference to the retrospective amendment of tax laws by the previous government, an issue that has been making foreign investors extremely jittery. It could just as well be interpreted as a reference to the ruling BJP’s opposition to foreign direct investment in multi-brand retail. One of the first actions that the BJP government in the state of Rajasthan did was to rescind the earlier Congress government’s decision to allow FDI in retail. There are differing schools of thought within the ruling BJP on economic matters.
Though the Survey speaks about the state intervention in the case of market failures, it insists on credible and strong grounds for such intervention. “Before a state intervention is initiated, it is important to demonstrate that there is a market failure. It should be shown that an intervention will solve the market failure. Further, the costs to society of government intervention should be outweighed by the benefits.” The significance of this is underlined by the fact that even a reformist government like the present one thinks it fit to impose stockholding limits on potatoes and onions and clamp down on exports when prices of these vegetables started heading north.
Will these issues influence the budget that is to be presented tomorrow?
Many of the issues that need to be addressed in order to lay the foundations of a market economy are not within the scope of the Union budget—they relate to other ministries and to state governments (state-level regulations do more to hamper economic freedom). Within the BJP itself there is a group that is not in favour of a genuinely free market economy; it prefers to protect domestic business against foreign competition.
How much of the prescriptions in the Economic Survey will be carried out by the government? This depends on the degree of consensus that differing factions within the BJP can reach. In the past, Economic Surveys have made bold and reformist suggestions. The governments of the day have not always closely followed the policy recommendations.
But as the Survey points out, this government may not have the luxury of inaction. Setting up legal and regulatory frameworks for a market economy is one of the three key measures it recommends to revive investment (the other two are ensuring a low and stable inflation rate and fiscal consolidation). There is hope, then, that this government will move—slowly—in the direction of a real market economy.

Monday, 7 July 2014

The Essential Commodities Act is essentially problematic
Perhaps it is not surprising that the Narendra Modi government has brought onions and potatoes under the Essential Commodities Act, 1955. After all, a committee of chief ministers that he headed on the issue of food prices had recommended that offences under the Act should be made non-bailable and cases should be tried by special courts.
That a committee which rooted for liberalisation of agricultural markets and reform of the Agricultural Produce Marketing Committee Acts should want an outdated piece of legislation strengthened is a bit of an anachronism, but the Indian political economy is full of such contradictions.
Yesterday’s move has come on the back of steady and rapid rise in the prices of these two items, throwing already stressed household budgets out of kilter. There have been reports of hoarding, which is what prompted the decision. But  is this the right way of going about it?
The Essential Commodities Act has its origin in a pre-Independence wartime measure - the Defence of India Rules of 1939. These were promulgated to address the problem of wartime shortages and consequent hoarding. Section 3 of the Essential Commodities Act gives the central government powers to control the production, supply and distribution of specified essential commodities listed in it. The list is drawn up after joint consultation between the centre and the states, and the latter impose stockholding limits on the listed commodities (these vary as conditions and food habits in states differ widely).
The intention may be noble – after all one cannot deny that hoarding and creation of artificial shortages does happen. The retail price of onions in Delhi has been double of what it is in the Azadpur mandi. Ahead of the Delhi assembly elections last year, tomatoes started disappearing from the market and prices headed north. Charges of hoarding were scoffed at, especially since tomatoes have a lesser shelf life than onions and potatoes, till the market was suddenly flooded with stocks and prices crashed the day after voting.
But invoking the Essential Commodities Act is problematic. Stockholding limits do not distinguish between food processing industries and food retail chains, which need to hold large stocks for their operations. Food processing industries especially need to keep stocks for a few months at a time so that fluctuating prices don’t throw their economics out of gear. But under the Essential Commodities Act, these can become liable at least for harassment. These are corporate entities with large, earmarked storage facilities which can be easily identified. So it is easy for inspectors to go after them.
On the other hand, identifying the actual hoarders is not at all easy. These may not be small traders but their operations are not corporatized and they have many avenues to spirit away and hoard supplies. The conviction rate under the Act is also abysmally low. So the hoarders go scot free and genuine players in the food economy are harassed.
The Act is not in tune with present times. It made sense at a time when the transport infrastructure across the country was poor and markets not integrated. So a production shock in one part of the country could lead to hoarding and black marketing. That’s not the case any more. Shortages in one part of the country can be countered if there is ample supply somewhere else.
So does that mean no steps should be taken against hoarding? Certainly not. The state has to step in where there is a clear case of market distortion. There is another legislation called the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities (PBMSEC) Act, 1980 which the centre and states can invoke to check hoarders.
There is, however, a problem with this law – it is linked to the Essential Commodities Act. So action under the PBMSEC Act can only be taken against offences punishable under the Essential Commodities Act. The list of items that the PBMSEC can be invoked for comes from the Essential Commodities Act. And it is the stockholding limits under the Essential Commodities Act that defines hoarding.  It is this anomaly that needs to be addressed, not pushing more and more items under the Act whenever there is a price shock.
The Essential Commodities Act is out of tune with current realities and needs to be either scrapped or drastically overhauled to deal with crisis situations like supplies getting disrupted due to war, natural calamities and breakdown of law and order. But if even an otherwise natural reformist like Modi wants the Act to be retained and strengthened, looks like the country is going to have to live with an ineffective, harassment-prone law. And ordinary people will continue to suffer.

Do a FRBM on subsidies, Mr FM, put a cap on the subsidy bill
President Pranab Mukherjee, once the finance minister, has often been blamed for the mess the economy itself is in. Why, even his successor from his own former party, P. Chidambaram, has often hinted that the economy may have been in better shape if the fiscal easing that Mukherjee had done in the wake of the global meltdown had been reversed a year earlier than it ultimately was.
But one has to give credit to Mukherjee for one initiative in his last budget in March 2012, which has not got the attention it deserved. Dealing with the vexed issue of subsidies, Mukherji had said he would try to restrict the subsidy bill of the Centre to under 2 per cent of GDP in 2012-13 and bring it down to 1.75 per cent of GDP over the next three years.
It is another matter that the subsidy bill in 2012-13 actually shot up to 2.54 per cent of GDP, up from 2.41 per cent in 2011-12. Mukherjee could perhaps disown responsibility, using the excuse that he had moved to Rashtrapati Bhavan within a few months of that landmark statement.
But it is a pity – and a surprise - that Chidambaram did not take this ball and run with it. After all, he had, in his first stint in North Block in the United Front government backed by the communist parties, made bold to commission a discussion paper on government subsidies. He got an update done in 2004 soon after assuming charge during his second shift. In both his stints – and in between – he had constantly stressed the need to trim this bill.
Capping the subsidy bill is a sound idea and one that Arun Jaitley needs to push. It imposes a measure of discipline on the government, saying this is all the cloth you have, now cut it in a manner as to make the most of it. Decide which subsidies are more important, give more to those, less to the others but all within this limit.
Mukherjee took the initial step; Jaitley needs to take the next one and get legislative backing for this, something similar to the Fiscal Responsibility and Budget Management (FRBM) law. Once the cap is set – to be achieved in a phased manner over a period of time like Mukherjee suggested - any move to spend more than the cap will have to be get parliamentary approval. How will this help?
Right now the subsidy burden is a problem of only the government in power. When it attempts any trimming exercise, the rest of the political class comes together to force it to roll back subsidy cuts. Getting legislative backing for a subsidy cap will force Parliament to debate on an appropriate ceiling. Hopefully, it will be one that will not threaten macroeconomic fundamentals. Indeed, the very process of debating the need and level of the cap will reinforce the logic of reining in subsidies, highlight wasteful and unjustified ones, bring out hidden ones, strengthen the case for the necessary ones and focus attention on effective delivery. Importantly, the ownership of that cap will be that of Parliament as a whole.
Since breaching this cap will also require parliamentary approval – an exercise that will involve going through the legislative rigmarole – governments will not be so cavalier in infringing it. This might force more serious efforts at ensuring that only the really deserving get subsidies.
And even if a government does go back to Parliament, once again the entire debating process will again highlight its own inefficiencies and put a black mark on its fiscal performance. So it will try to come back on track soon.
This does sound too easy and good to be true. After all, Parliament did legislate the FRBM Act. And Parliament itself allowed it to be breached. But no party is denying the legitimacy of the milestones set in the FRBM Act and the fact that the UPA government breached it is something that it is constantly pilloried for. The whole process of legislating the FRBM Act – from the time the idea was floated to actual enactment – took a few years and intense debate. Thanks to this, Parliament is serious about it; there is no talk of raising the deficit caps or postponing implementation or even scrapping it.
In taking the initiative to legislate a cap on subsidies, Jaitley can show his party as a fiscally responsible one. It was Yashwant Sinha, during the NDA regime, who initiated the FRBM legislation. It just so happened that the Act got passed toward the end of the government’s tenure and the UPA government notified the rules, allowing it to take credit. But the sheen was taken away from that credit by the fact that first Chidambaram asked for a pause in its implementation (in 2005) and then Mukherjee amended it to relax the deadlines.
Jaitley can now do for subsidies what Sinha did for overall fiscal consolidation.  It will be a feather in the BJP’s cap both economically and politically.

Wednesday, 25 June 2014

Planning Commission should go, but its expertise should be used

This piece was published in That heading doesn't capture what I am saying- that it should go forever but giving the link anyway.
 So, for the first time since 1950, the country does not have a Planning Commission. The fact that the rooms of Yojana Bhavan, the building that houses this ode to a socialist economy, are still populated does not mean anything.
Technically, the Planning Commission is the deputy secretary and the various members. The denizens of Yojana Bhavan are merely the secretariat to the Commission. Technically, they are all jobless, as of now.
The Narendra Modi government may not have formally rescinded the March 1950 cabinet resolution setting up the Planning Commission, but by not naming a new commission, even a month after taking over, it has indicated that it has little use for the body that dominated the management of the economy for 64 years. Already one of its central functions – Plan allocations in the budget -- is being handled directly by the finance ministry. It was rather ridiculous for one body to sit and determine how much funds ministries and states should get and what they should spend it on.
This rather dismissive approach is not new. It was expressed in far more contemptuous terms by Rajiv Gandhi, who ridiculed the Commission as a bunch of jokers. But he stopped short of dismantling it. None of the post-1991 governments too questioned the Commission’s relevance. The closest anyone came to it was Bharatiya Janata Party (BJP) which, in its manifesto of 1998, said `the Planning Commission will be reformed and reorganized in light of the changing developmental needs of our country’. However, the revamp plan drawn up by Jaswant Singh, the deputy chairman during its 13-month first tenure, only attempted to expand the Commission’s empire. Subsequent BJP manifestos remained silent on this matter.
But the idea that the Commission needs to be recast in a different mould stayed. Singh’s immediate successor, K. C. Pant (in the National Democratic Alliance government of 1999), roped in private consulting firms to suggest what the Commission’s role should be. In the United Progressive Alliance’s (UPA) second stint, Manmohan Singh tasked member Arun Maira to suggest how to overhaul the Planning Commission as a Systems Reform Commission. We never got to know what this meant, though Maira has been vocal in complaining that nothing got done. Nevertheless, the proposed name change itself was a major gain; it showed growing acceptance of the irrelevance of the Planning Commission in a liberalised era.
So, the Modi government’s failure to name a new Commission is welcome. In fact, it is high time the cabinet passes a resolution quashing the 1950 one.
But should all the economist-bureaucrats in Yojana Bhavan be given a golden handshake and the piece of prime real estate be turned into a money-spinning office complex? (Incidentally, this was a suggestion given in the late nineties by a Congress ideologue before he took a  ideological left turn.)
Perhaps not. Over the six decades of economic management, the Planning Commission has built up some expertise and resources which could be put to good use. What could these be? Here are four possibilities:
* It will be silly to assume that economic policy making will be done in a vacuum, without any forecasts and projections on macro-economic indicators. Sure, there’s a chief economic advisor and a planning unit in the finance ministry but that need not preclude an independent think tank kind of body that will monitor economic developments, assess their impact on India and provide intellectual inputs for economic policy. During Pant’s stint as deputy chairman, a Delhi-based consulting firm ACOR had suggested something on these lines, comprised of experts on contractual appointments. It had said this could be called the Planning Commission Policy Research Institute or the Strategy Research Institute of the Planning Commission. The Planning Commission nomenclature will have to be dropped, though.
*  Why not, as former minister, Arun Shourie, suggested in a recent newspaper interview, replace the Planning Commission with a Reforms Commission? There is a slew of second generation reforms that are needed; there could be many more that are not evident right now. A Reforms Commission can suggest how to sequence reforms, how to implement them and also help in the political management of reforms. It could be something similar to the Productivity Commission of Australia which its website describes as the `government's principal advisory body on all aspects of microeconomic reform’. Its recommendations, which cover both private and public sector, are based on extensive research and public enquiries.
* Another option could be to have something like the Congressional Budget Office of the United States. The CBO, though it is part of the Congress system, provides independent assessment and analyses of the economic and other costs of every legislation. Its recommendations are taken with utmost seriousness. This is something that is completely missing in India. There is hardly any impact analysis of laws and the result is that the government is ill-prepared for the costs – economic and non-economic - that surface at the time of implementation. India sorely needs a  body that assesses the impact of our multiple regulations and laws both before they are passed and periodically when they are implemented.
* We have seen enough examples of inter-ministerial wrangles making for messy policy, policy paralysis and implementation problems. The Prime Minister’s Office is supposed to sort these issues out but sometimes it may need some expert inputs to work out a compromise. For years, the Planning Commission has played a coordinating role between ministries as well as between the Centre and the states. Why not institutionalise this in a new organization?
A body that replaces the Planning Commission can do any one of these or a combination of these. The basic idea should be that the idea of central planning is anachronistic and contradicts the spirit of a liberal economic order. It’s time to make a clean break from the past.

Tuesday, 17 June 2014

Some bad days are needed for good times to roll

This was published in Nai Dunia, 17 June 2014.
Giving below the English draft that I sent.

Prime Minister Narendra Modi’s remarks in Goa on Saturday that tough economic measures will have to be taken to put the economy back on track have invited predictable jokes about achche din and bure din. Perhaps the BJP brought these jokes upon itself by overdoing the achche din aane vaale hain message during the elections, but this is neither the time nor the subject for jokes.
Because the simple truth is that the economy is in a bad state and government finances are in even worse shape. It is true that the UPA government was not fiscally responsible. Former finance minister P. Chidambaram may have kept the fiscal deficit at 4.6% of GDP, but this has been done by postponing some expenditure (which the new government will have to bear) and getting some revenue in advance. So the Modi government’s first economic step will have to be to restore some order to government finances. Sound government finances are the foundation of a robust economy.
The other major problem facing the government is that of inflation, which is still not in the comfort zone. The Reserve Bank of India governor Raghuram Rajan has moderated his hawkish stand on interest rates to give the new government time to address the structural issues that are fuelling inflation. The government needs to get cracking on these to create an environment where he can bring down interest rates. 
So what are the tough measures that Modi is planning? It is clear by now that the only person who knows Modi’s mind is Modi himself, but if he is really serious about doing what he has indicated, these are some of the steps he could – and should - take.
One, on the revenue side, increase in tax exemption limits may not happen (though media reports say this is expected). The inflation monster has not been tamed yet and giving people more money to spend without addressing supply shortages and bottlenecks will not be a wise step. The economy certainly needs a demand push, but this has to be calibrated. Besides, an increase in the exemption limit to Rs 3 lakh is expected to cost the exchequer Rs 60,000 crore a year, according to the finance ministry. This is certainly not the time for such giveaways. The corporate sector, too, will have to reconcile itself to having some excise cuts given by the previous government taken away.
Two, on the expenditure side, there will be a drastic overhaul of the subsidy regime. The President’s address and Modi’s own statements during the elections show a welcome emphasis on infrastructure. This will mean that the bias towards revenue expenditure – which is 86% of total expenditure – will be corrected and capital expenditure will get the focus it sorely needs.
But revenue expenditure has one item that is committed expenditure – interest payments, which absorb over 40% of tax revenues. Defence and salaries too cannot be touched. That leaves subsidies, which eat up 25% of tax revenues. Interest payments do not affect people’s budgets directly, so it can be safe to assume that when Modi speaks of tough measures, he intends to cut the subsidy burden significantly. This is something the economy has been crying out for.
Subsidy reform will not mean withdrawing all subsidies or drastically cutting allocations across the board. What it will mean is better targeting, which means only the genuinely needy will get subsidies and a lot or undeserving people will not.
If Modi is really serious about subsidy reform, then the cap on subsidised LPG cylinders should go back to nine. That will not only result in a saving of nearly Rs 4000 crore, but it will still cover 89% of the population.
His government should also allow decontrol of diesel prices or at least allow price hikes. This will have an immediate inflationary effect, but that will fade out in time. Importantly, it will also moderate wasteful consumption and bring enormous savings to the government.
A far more tricky issue will be tackling the food subsidy, the biggest subsidy item at nearly 40% of the total bill. The BJP backed the National Food Security Act (NFSA) which could lead to the food subsidy bill ballooning. But this problem will have to be tackled. One way to bring down the food subsidy bill would be to bring down the cost of procuring foodgrains. This could mean not allowing huge increases in the minimum support price. There are other ways to reduce this cost – reforming the procurement mechanism and eliminating inefficiencies but that will be a long-drawn out process. The farmers will be up in arms, but the government will have to remain firm. 
There are a whole lot of other tough measures that the economy needs but these are the ones that will bite the people. That is why governments are generally loath to take them. The fact that Modi seems to be preparing the climate for these unpopular measures is a good sign. It shows two things. One, that he is not going to let politics prevail over good economics. Two, he has realised the necessity of explaining things to the people, something all reforming prime ministers and finance ministers from 1991 onwards have ignored.
People are not unwise. They know the need for belt tightening and cutting wasteful expenditure – they do it all the time with their household budgets. Surely, they will realise that if they want achche din forever, they will have to put up with bure din for some time.

Thursday, 29 May 2014

Modi’s government may be small; the state continues to be big

Narendra Modi’s 45-ministry government has attracted a lot of attention. It is also being hailed as the first step in what could be his signature style of governance – minimum government, maximum governance.
Sorry, but it isn’t.
Modi’s government is certainly a lean government, but it isn’t a minimum government. Let’s not confuse the two concepts. A lean government is about size and numbers. A minimal government is about a philosophy, a certain view of the role of the state.
A minimal state, as defined in the classical liberalism lexicon, is about the state confining itself to just a few areas. There is consensus on two – defence of external boundaries and enforcing law and order as well as upholding the rule of law. There are departures from this point on details. Some liberal streams include the provision of public goods as a responsibility of the state and there are differences on the definition of public goods as well. But the broad point is this: the state should not get into too many areas and most definitely not in areas where people are able to manage their own affairs through their own individual enterprise.  
India is not familiar with the idea of a minimal government. Before 1947, it was used to a colonial-feudal set up and post 1947 that got converted into a mai-baap sarkar. The state kept assuming more and more responsibilities till it was present in practically every aspect of the lives of individual and enterprises, riding roughshod over personal and economic freedoms. And yet the size of the government remained relatively small. Indira Gandhi, remember, ran lean governments. The unwieldy size of ministries is a post-seventies phenomenon. Remember also that gargantuan cabinets continued even after 1991 even as the command-and-control economy structure got steadily dismantled. 
It was only the Swatantra Party that came close to articulating the idea of a minimal state. The second of the 21 principles of the party stated: `. . . The party stands for the principle of maximum freedom for the individual and minimum interference by the state consistent with the obligation to prevent and punish anti-social activities, to protect the weaker elements of society and to create the conditions in which individual initiative will thrive and be fruitful. . .’ It is unfortunate that the party did not get much traction.
Modi’s government doesn’t quite pass this test.
It will if his government decides that the state should not be running hotels, airlines and providing telecom services and gets rid of the public sector in these areas. Instead, Modi talks about strengthening public sector undertakings. It is not clear if the government will pursue an aggressive disinvestment agenda.
It will pass with flying colours if the information and broadcasting ministry, steel ministry, culture ministry and the Planning Commission were disbanded. These are clearly, clearly relics of the socialist era. There are a host of other ministries that could make it to the axing list, but changing their role instead into a more of facilitating/regulatory role can be a subject of debate. Closing down these four is a complete no-brainer; no debate is needed.
There are some who argue that since the increase in the role of the state led to the unwieldy size of the government, limiting the size of the government will automatically result in a reduced role for the state, since administration will be a challenge otherwise. This argument is flawed. One, as already noted, Indira Gandhi ran a tight ship but one which was omnipresent and omniscient. Two, reducing the number of ministries and departments will not lead to shedding of work. On the other hand, technology can make it easier for the state to have its tentacles everywhere – far, far more easier than in the seventies.
Though Modi’s minimum government maximum governance idea does talk about the government moving from an interventionist to a facilitating role, the focus is more about using technology to speed up processes, clearances and permissions and make them transparent. It does not question the need for the myriad procedures that any interface with the government involves. It does not question the number of points of interface with the government. It is about making the government efficient in its current role, not about questioning its role.
Maybe that will come. Maybe Modi will realise that the problem with governance in India is that the state/government has taken on far more responsibilities beyond what should be its core responsibility of defence, law and order, upholding the rule of law and provision of public goods. Maybe he will realise the need for the state to focus on just these and do its job well.
Modi must be persuaded into making the 45-ministry government the first step of an ideological leap of faith. A small government must also mean a small, but effective, state.

Tuesday, 20 May 2014

A call to arms: Time to get the classical liberal agenda going

What does the stupendous victory of the Narendra Modi-led BJP in the recent elections mean for India’s liberals - the genuine liberals, not the left-of-centre variety?
But first, let’s get definitions out of the way. The word `liberal’ has been appropriated by far too many pretenders and it’s time for the real liberals to reclaim the tag. The genuine liberals are those who believe in the supremacy of the individual, a small but strong state and no overbearing state intervention in the economy. Not for this section a paternalistic state, one that encourages a dependency syndrome in the garb of empowering people. Not for this section any compromise with personal, intellectual, cultural and economic freedoms. And with the rule of law.
This section was starved of a political voice after the Swatantra Party disappeared from the scene in the mid-1970s, though it has been making itself heard, especially after 1991, through other forums. It cheered the initiation of the economic liberalisation process but despaired at the continued overhang of the socialist era, in the form of the paternalistic-cum-nanny state. Contrary to the lampooning of it by the leftist brigade as `neo-liberals’ pushing the agenda of big business, this section has been warning against the economic reforms process being more pro-business than pro-market and pressing for a correction of this skew.
This group (barring a section that is firmly with the Congress) has, undoubtedly, aligned itself with Modi, decisively rejecting the fear-mongering by the leftists and the Congress. His articulation of the minimum-government-maximum-governance idea, spot-on linking of corruption with lack of transparency in governance and promise to address that, disinclination for sop-driven welfare-ism, clear focus on infrastructure and an enabling business environment has resonated with them. Other post-1991 governments had opened up the economy, but no Prime Minister (not even Atal Behari Vajpayee) had articulated a cogent view of the role of the state the way Modi has.
The liberals have quibbles with Modi’s silence on privatisation and his opposition to foreign multi-brand retailers, but see these as minor details that don’t detract from the fact of a directional shift in economic policy and the role of the state.
This, the liberals seemed to have realised, is the closest they could get to the old Swatantra model. For them the decisive mandate that Modi has got is an affirmation of their belief fact that people – even if they don’t understand ideological labels – are instinctively against dole-centric policies (it isn’t as clear as that but let’s leave that for now).
This group will obviously want Modi to deliver on completely dismantling the socialist edifice that had been built up in the pre-1991 era. They know it can’t be done overnight – the stroke-of-pen reforms got over in the early 1990s. It will be a long-drawn out process, with roadblocks aplenty and even some rollbacks. But they will give him time so long as his focus is clear and he reins in the swadeshi economics brigade in the BJP and the sangh parivar which gave the Vajpayee government a hard time. Some leading lights of this group could get closely involved with a Modi government. 
But there are concerns.
One, what if Modi’s promise of a new economic paradigm isn’t what it seems? What if, as Vivek Dehejia asks in this article, `Modi’s instincts are certainly pro-business, but are they pro-free market’? Wouldn’t this run the same risk of encouraging the kind of cronyism that became rampant in the past decade? Two, will he decisively junk the dole-centric welfare model, which the BJP is not entirely averse to (after all it merrily went around supporting the rights-based entitlement legislations)?
Three, and this is a larger concern, what about the role of the RSS in the personal, cultural and intellectual space? The fact that Modi will not allow the RSS to dictate the economic agenda is clear; that he will do so in other areas as well is not. He hasn’t revealed his mind on the issue of non-economic freedoms, the upholding of which is just as important to the liberals as the ensuring of economic freedoms. He has, till now, remained silent on this. There has been no reaction to the Supreme Court order on Section 377. He has also never come out and expressly condemned attacks on intellectual and cultural freedoms as well as provocative statements against Muslims by the rabid right-wingers.
Also, though they don’t buy the mass-murderer imagery that the so-called `secularists’ propagate, they are critical of Modi’s failure to check the 2002 riots. Upholding the rule of law and protecting life and property is an essential part of the classical liberal agenda.
So there is a dilemma.
Should the liberals remain silent on the social issues, and concentrate their energies on getting the economic agenda going, ensuring particularly that this agenda is a pro-market one and not a pro-big business or worse pro-business house one? After all, the entire left-of-centre brigade will be extra-vigilant on the non-economic freedoms, looking for the first chance to trip Modi up. Should the liberals focus on redefining the role of the state in a way that it doesn’t get into the personal and intellectual space and on strengthening institutions so that they can never become compromised regardless of the regime in power? But what if the doomsday predictions of the `secularists’ come true and gangs of sanghis go around attacking minorities,  young couple indulging in PDA and getting books and art shows banned? Should they remain silent spectators because the economic issues are getting addressed?
Would criticising Modi strengthen both the fringe elements in the sangh parivar, who want to push their exclusivist and conservative social agenda, as well as the leftists/Congress supporters, who are just waiting for any opportunity to discredit and pull down India’s first avowedly right-of-centre government?
These are questions the liberals have to wrestle with in the coming days.
The problem they will face is that if they criticise the government, they will be at the receiving end of the ire of the online and offline Modi fanatics as well as the we-told-you-so jeers of leftists and Congress supporters. If they remain silent, the latter will label them fascist sympathisers waiting for suitable rewards. 
But is this twin attack new to them? Haven’t the liberals always been criticised and labelled by extremists on both sides, as well as Congress sympathisers masquerading as neutral intellectuals? Should the fear of such name-calling come in the way of making the most of the first opportunity they have got to expand the genuinely liberal space in India?
Certainly not.
The Swatantra had limited success because the intellectual climate in the sixties and seventies was overwhelmingly leftist. That is no longer the case.
So why can’t the liberals work with the Modi government, flooding it with new ideas and creating an environment for greater receptivity to economic reforms, something that has been sorely missing till now? At the same time, any attempts to subvert institutions, impose an artificial intellectual consensus or a conservative social agenda and snuff out dissenting voices (including left-of-centre voices) should also be opposed. The two approaches need not be contradictory.
History will not forgive India’s real liberals if they pass up this opportunity.

Saturday, 26 April 2014

The Scalping of Daljeet Kohli: A Silly and Wasted Effort
In December 1997, this writer had gone to interview Pranab Mukherjee, then an ordinary MP of the Congress Party. The news of a Congressman, Rangarajan Kumaramangalam, joining the Bharatiya Janata Party had broken just an hour earlier. When I mentioned this to Mukherjee, he burst out with an incredulous look on his face: `Mohan-da’s son joining the BJP? How is that possible?’ 
For those who don’t know, Rangarajan (popularly known as Ranga) was the son of Mohan Kumaramangalam, a leading light of the Communist Party of India who joined the Congress in 1967 and became an integral part of Indira Gandhi’s leftist band. He had died in 1973 and so was spared headlines similar to those playing out a day after Manmohan Singh’s half-brother joined the BJP.
Mukherjee’s reaction to Ranga jumping parties and the current buzz over Singh’s brother shows one thing will never change in this country – the typical Indian refusal to see an individual and his or her choices outside of the family context.
Mukherjee’s reaction was not to a Congressman switching sides, but to a left-wing Mohan-da’s son joining a right-wing party. Daljeet Singh Kohli was just another businessman, whose decision to join a party would have been a `non-event’, as finance minister P. Chidambaram quite rightly put it. The only reason the BJP made his entry into its ranks a huge spectacle was his relationship with Manmohan Singh.
Modi’s reported statement on the occasion – `Dr Manmohan Singh’s brother has joined the BJP and this will add to our strength’ – reflects poorly, not on Singh and the Congress, but on himself. Is the BJP in such a bad shape that it requires the entry of a little-known brother of a man whom its leaders have never ceased to mock as the weakest-ever Prime Minister to give it strength? Does a party which is supposedly riding to victory on a Modi wave have to resort to such gimmickry?
Even as a political strategy – to show that everyone from the party to the family is abandoning Singh – it doesn’t make sense. It would have, if Singh was standing for elections and was prime ministerial candidate. He is not; he will retire from active politics and perhaps go into oblivion after his Rajya Sabha term is over. So what is to be achieved by `embarrassing’ him? It will only give a Congress which has already abandoned him a chance to say in private – see, we were right to junk him.
By the way, the Congress too has not shied away from splitting families on political lines, the most famous example being of the Scindia family, where Madhavrao was wooed into the Congress fold, deeply hurting his mother, Vijayaraje Scindia. So let the party not take a moral high ground on the Kohli affair.
The way the media has reported this is also a comment on its intellectual bankruptcy. Why should Kohli joining the BJP be an `embarrassment’ for Singh? Why is one brother said to have `deserted’ another?  Why is this a `psychological boost’ for the BJP? Didn’t the person writing this – and the editors clearing the copy – stop for a moment and think of the inherent contradiction between stories of a BJP on a high and requiring Kohli, of all people, as a psychological boost? Perhaps the most ridiculous aspect of this is Chidambaram being asked about it at a press conference where he was rubbishing Gujarat’s economic model. Shouldn’t the questions have focused on pinning him down on the UPA’s shaky economic performance, instead?
This is not the first time the media has tried to put Singh in a spot over the political leanings of his family members. The fact that his youngest daughter was working for a human rights organization in the Untied States criticizing the government’s counter-terrorism drive after 9/11 was, we were told, certain to embarrass him and affect his equation with the Bush administration. Didn’t it occur to anyone that this would be a non-issue in a culture which celebrates individualism and will not hold family members accountable for each other’s opinions and ideological leanings?
But why this obsession with family at all?
Why is Karuna Shukla quitting the BJP not about a senior party leader being sidelined but about Atal Behari Vajpayee’s niece on being ignored? If she were not Vajpayee’s niece would it have been alright for her to be ignored? Kohli too brings in the family angle. He says he joined the BJP because he was unhappy with the way the Congress treated his brother. So there is no ideological affinity with the party. (The irony of joining a party which has repeatedly mocked his brother in rather insulting terms is probably lost on him.)
Individuals can make choices that are different from that of their families. They are doing that all the time. They break away from the traditional occupations of their families and pursue their own paths. Children rebel against parents. Siblings take different paths. Families break up permanently with a lot of bitterness. And family members may even have irreconcilable ideological differences.
What’s more, this is quite common in Indian politics. Mohan Kumaramangalam’s father, P Subbarayan, who was a Congress leader, was supposed to have cried when his son became a communist. Subbarayan’s daughter, Parvati Krishnan, was also a member of the CPI. Ranga’s sister is in the BJP while his son has joined the Congress.
There are examples galore of families with members in different parties (apart from the Gandhi bahus, of course). Anil Shastri, son of Lal Bahadur Shastri, is in the Congress, while another son, Sunil, was with the BJP for several years before returning to the Congress, and a third son’s widow, Neera, is still with the BJP. One grandson, Siddharth Nath Singh, is in the BJP and another, Adarsh Shastri, has joined the Aam Aadmi Party. Noted lawyer, the late L.M Singhvi was in the BJP and his son Abhishek Manu Singhvi is a leading light of the Congress and was so even when his father was alive. Digvijaya Singh’s brother, Lakshaman Singh, quit the Congress for the BJP where he remained for 10 years before returning after a vituperative personal comment about his brother by Nitin Gadkari.
The ordinary public is quite aware of these differences in political families and their only reaction is one of amusement or cynical taunts about these families having ensured that they will benefit regardless of which party is in power.
How will they view the BJP holding up Kohli as a kind of trophy? There will be a few more jokes about Singh (mostly from die-hard BJP and Gandhi family supporters), some more about Kohli, but many more about the BJP. Is Kohli all that they could get, people are already sniggering. But mostly people will shrug it off. Singh is not even on their radar. That’s why the scalping of Kohli makes no sense at all.

Sunday, 20 April 2014

Why Left’s intellectual bullying won’t work any more

`We cannot so easily hand over a good writer to the Modi camp, not without a fight. . .’
Those are the words of S Anand, founder-publisher of Navayana, in an interview with Business Standard.  Navayana is the publishing house that withdrew an agreement to publish the translation of a novel by noted Tamil author Joe D’Cruz because he praised Narendra Modi.
So, the intellectual world’s worst-kept secret is out. Writers and artists belong to `camps’. They don’t inhabit the free, boundary-less world of ideas where, yes, there are rightist and leftist slants, but only to give an edge to debates. Those belonging to one ideologically-rigid camp will not tolerate one of their members being tolerant of, or agreeing with, the other. Anybody doing that will be found guilty of apostasy and be bullied back into the fold. So, contracts will be reneged on, books and articles will not be published, and opprobrium will be heaped on the renegade. And if that fails, they will be blackballed.
What else is Navayana’s action, and the words Anand has used in the interview, other than bullying? `We genuinely hope and believe Joe will eventually reconsider his views, which have drawn flak in Tamil literary and political spheres’. The implication is clear - the publication of the book (perhaps with another translator) will depend on D’Cruz revising his views on Modi, or at least publicly saying so.
Even when he is admitting that Navayana’s action may have been a bit haste, Anand cleverly shifts the blame on D’Cruz, accusing the latter of airing his support for Modi after signing the contract because he sensed the translator and Navayana would not have come on board otherwise. As writer Mukul Kesavan (who can by no stretch of imagination be called a Modi sympathiser), asks very aptly in this piece in The Telegraph, what if D’Cruz had aired his views after the book was published – `would Navayana have physically withdrawn the book and pulped it? Stacked the copies up and burnt them?’ He adds: `just to ask the question is to know the answer: of course not.’ Maybe he is right, but that scenario is not entirely beyond belief or possibility.
The D’Cruz affair has shattered another myth - the left-of-centre intellectual brigade’s sanctimonious pretence that it is the sole defender of intellectual freedom against the right-wing - specifically the Hindu right-wing – ravagers of this space.
The intellectual terrorism of the oxymoronic left-liberal brigade has actually been the elephant in the room for very long. Navayana’s immature action and rationalisation has only brought into the open what has always been done silently and in a very sophisticated manner. The rabid right-wing has very stupidly got books, plays and art exhibitions banned, physically attacked independent writers and artists and vandalised buildings and very rightly attracted public revulsion for itself and sympathy for the objects of its attack.
The left clique, in contrast, has for decades labelled people who hold positions diametrically opposite to it – American agents, World Bank-IMF stooges,  corporate apologists, pro-establishment, Hindutva types, and, lately, sanghis – and banished them to intellectual and academic Coventry, far  more effectively and without any taint of censorship being attached to it. 
Sometimes, it has not been silent. There have been occasions when an award or a official post being given to someone perceived to be a right-winger, or supported by a right-winger, or simply opposed by a left-winger or two on some selection committee has been openly and hysterically attacked. Let us not forget how, through the sixties and seventies and even part of the eighties, universities and academic institutions were systematically packed with left-leaning academics and right-leaning ones effectively sidelined.
If D’Cruz hadn’t gone public with what happened, his would have been yet another unnoticed case of successful gagging of non-left voices. Anand sounds peeved that the author `chose to speak to the media before he responded to my and Geetha’s [the translator of D’Cruz’s novel] emails or calls’. Is that a grouse that D’Cruz didn’t give them space for intellectual intimidation?
Can you imagine the outrage that would have ensued if a publisher with a right-of-centre ideological bent had dared do what Navayana did to an author who criticised Modi or wrote something that would have got khakhi knickers all a-twist? The muted criticism of Navayana is almost akin to deafening silence, in contrast.
Instead, there are too-clever-by-half attempts at sophistry, drawing distinctions between right wing and left wing intimidation.  What happened to Wendy Doniger’s book was censorship, we are told; this is only a publisher exercising his right to freedom to publish only certain kinds of authors. So, here is a publisher saying his decision to publish a book will be determined not by its contents but by the political views of its author. That’s not censorship? Anand is not a left-wing Dinanath Batra, the self-appointed guardian of Hindu history? Seriously?
For far too long had the right-of-centre band (the economic and social/cultural liberals as well as the conservatives) been edged out of the public discourse space by the left-of-centre cabal. But they are beginning to challenge this mafia and reclaim their place. They will not be intimidated any more by either whispered calumny or open taunts, by social or intellectual ostracism or by allegations that they have struck cosy deals with the New Establishment. Their resolve to fight back will not be weakened by broad hints that their freedom is short-lived and dependent on their not criticising the New Establishment. If and when they face attacks from this New Establishment, they will not go running into the arms of the self-appointed Sole Upholders of Liberal Values and beg to be forgiven for their transgressions and be taken back into a left-leaning world.
Joe D’Cruz has shown the way by standing up. The country needs more of his kind.

Thursday, 9 January 2014

An Adarsh lesson for babus: Don’t flirt with political bosses

There has been a noticeable silence from the bureaucracy over the decision of the Maharashtra government to go soft on the politicians indicted by the J. A. Patil commission on the Adarsh Housing society scam, even as proceedings against the officials allegedly involved continue.
Contrast this with the outraged reactions when retired coal secretary P. C. Parakh was named in the first information report (FIR) in the coal block allocations case. Or when young IAS officer Durga Shakti Nagpal was suspended for taking on the sand mining mafia in Greater Noida in Uttar Pradesh. Serving and retired IAS officers demanded that safeguards be put in place to ensure that bureaucrats are not victimised for bona fide decisions and actions they take in the course of their work.
The contrast in responses is natural. Parakh and Nagpal were seen as honest officials being persecuted for legitimate decisions. The officers named in the Adarsh scam are seen as having benefited from illegal actions.
Important though this difference is, dare one suggest that the bureaucracy’s silence in the Adarsh case is a tad misplaced? The issue is not whether the officers are innocent or not; the issue is the patent double standards that the Maharashtra government has adopted.
The state government sees no duplicity. The politicians, chief minister Prithviraj Chavan quibbled, had merely extended political patronage and not indulged in any criminality. He is perhaps technically correct. After all it is the bureaucrats who initiate files, make notings and, in some cases, sign on decisions. Politicians merely indicate what they want done.
In Andhra Pradesh, eight IAS officers are facing criminal charges in cases of alleged corruption by former chief minister, the late Y. S. Rajashekhar Reddy. Some politicians are also in the dock, but the officers became more culpable because they had done the paperwork.
Look also at what happened when Parakh’s name figured in the coal block FIR. The Prime Minister’s Office issued a statement which detailed the movement of the file related to the allotment of coal blocks to Hindalco. The statement said that the Prime Minister merely signed something Parakh had proposed. Worse, information and broadcasting minister Manish Tewari and external affairs minister Salman Khurshid said ministers could not be going through every word and notation on a file before signing it.
This has a clear message for the bureaucracy – when push comes to shove, politicians will stand by their own and disown official. This is not just an end to the days of anonymity of the bureaucracy – the unwritten code that existed in the fifties and sixties that ministers would take responsibility for decisions they had signed off on. It is an indication that politicians now expect bureaucrats to take the rap for everything, much like drivers have to own up to hit-and-run accidents committed by their rich employers.
Who is to blame for this state of affairs? Unpalatable as it may be, the truth is that the bureaucracy has brought upon itself a lot of the problems it is facing today. Indira Gandhi has rightly been blamed for politicising the bureaucracy, but could it have happened to the extent it has unless bureaucrats also played ball?
The onus of change, therefore, cannot be on politicians alone. Why would they initiate change in a system that works for them all the time? It is the bureaucrats who must now put the political establishment on notice – that they will no longer be willing accomplices or supine doormats.
But this will mean doing a lot of things differently.
It will mean not taking verbal orders, especially if they are illegal. There is a convention that verbal orders are recorded in a note without delay. The fact that the Supreme Court had to recently give an order insisting on this practice shows how rarely it was being followed.
It will mean using the various protections that service rules offer to resist pressure and do one’s job with integrity.
But above all, it will mean bureaucrats presenting a united front to the political establishment.  Many bureaucrats succumb to pressure because they cannot fight the system alone. They need to have the confidence that their colleagues and seniors will stand by them. This solidarity cannot be episodic but has to be sustained.
Harassment in the form of frequent or clearly vindictive transfers can be checked by the cabinet secretary at the Centre or the chief secretaries in the states. But often they do not pull their weight adequately. If the head of a service refuses to stand up for those under his charge, who will?
Political bosses find ways to get around stubbornly upright officers by using other pliable officers. A senior officer can use his position to browbeat a junior. And a willing-to-be-compromised junior can put the senior in a spot by drafting a note or manipulating a file in a particular manner. Ashok Khemka, the controversial Haryana cadre IAS officer, has accused two other officers of conspiring with the state government to harass him because he tried to block some allegedly dubious land deals of Robert Vadra. One of the two officials, he has alleged, had a role in approving these land deals. Clearly, for every upright officer, there are several others who not only facilitate wrongdoing but also the harassment of conscientious and principled colleagues.
The Adarsh case should be a wake up call for all those bureaucrats who either willingly collude with the political establishment for rewards ranging from comfortable/lucrative postings to material gain or silently acquiesce in wrongdoing.  At the first sign of trouble, the politicians will abandon them and leave them holding the can. And then their colleagues are not likely to rally around them.
There are two lessons for the bureaucracy. One, don’t get into too a cosy relationship with the political bosses; stay within the boundaries set by the Constitution.  Two, stand by your own, especially when upright colleagues are being harassed or facing pressure.  But the second will not be possible without the first. No Supreme Court order or administrative reform measures will work if bureaucrats willingly break ranks to flirt with their political bosses.

Wednesday, 8 January 2014

AAP’s volunteers shouldn’t be Youth Congress redux

`This is like a return to the Emergency days.’ That startling comment came from my mother yesterday as she was reading the newspapers. She was referring to this report in the Indian Express Newsline which said that the Delhi health minister Satyendra Jain has dismissed the existing hospital management societies, Rogi Kalyan Samitis, and that Aam Aadmi Party volunteers, with their trademark caps, were conducting inspections and helping out with administration in government hospitals, apparently without formal orders.
The RKSs were headed by the local MLA and comprised representatives of hospital administrations, doctors, civil society members and patients. They were part of the National Rural Health Mission eco-system and were the interface between hospitals and the public. Jain said the samitis were defunct and that he had received a lot of complaints of corruption and malfunctioning.    
Three days earlier, Delhi’s education minister Manish Sisodia had announced that volunteers would be recruited to monitor government schools. They will visit government schools and monitor toilets, water supply, cleanliness and presence of teachers and report their findings to the education minister every day.
So what’s all this to do with the Emergency? Apparently during those dark days, similar volunteers from the Youth Congress would go around `checking’ various things – from the working of government babus to the number of guests and the quantity and kinds of food being served at weddings (those were the days of guest control order). Needless to say, bullying and muscle flexing was common and the `volunteers’ would often be `pacified’ in various ways. 
Going by the Indian Express report, the muscle flexing may have already started. Hospital administrators and doctors are complaining about the AAP volunteers barging into labour rooms and calling doctors out of surgeries to complain and threatening filing of Right to Information (RTI) applications.
One needs to allow for a measure of hyperbole in these reports. Let’s face it, public hospitals are not the best run places and any attempt at reform will affect those who are benefiting from the current mess. The Indian Express journalist does not appear to have personally witnessed any bullying but is going by the accounts of doctors and managers. It would be natural for them to exaggerate things in the hope of derailing what could be a welcome initiative by discrediting it.
It’s also a bit unfair to liken the AAP volunteers to members of the Youth Congress which, at least in Delhi, was viewed with a fair bit of alarm. In contrast, AAP has come to power on the wings of a lot of goodwill from the public and its activists are fired by a sense of idealism about changing the way politics is conducted – the kind of politics the Youth Congress represented.
And yet, there is need to set off the alarm bells.
The current system of governance in Delhi needs to be overhauled completely but little is to be achieved by dismantling existing structures in a hurry. Jain, according to the Indian Express report, plans to replace the RKSs with new Jan Swasthya Samitis, which will be devoid of political interference. But shouldn’t that have been done before the RKSs were wound up? Why create an anarchic situation with volunteers having a free run of hospitals? Anarchy is romantic and even acceptable as long as an organization is in an activist mode. Once it comes into a position of responsibility, it has to function according to a set of rules and procedures. If these procedures are blocking reforms, then change them by all means but creating a vacuum is not the answer.
Delhi needs an active and vigilant citizenry; but this should not become an aggressive vigilante mode, which is susceptible to misuse. The initial lot of AAP volunteers may be an idealistic bunch which would not misuse powers, but can AAP stand guarantee for each and every volunteer, especially those flocking to it in droves after it formed the government?
Even if there is no misuse, reckless vigilantism is also dangerous. People who believe they are morally superior – as many AAP volunteers do – invariably adopt to a `my way or the highway’ route. This was precisely the attitude of Anna Hazare, from whose Jan Lokpal movement AAP was born. There is a certain impatience with and disdain for any criticism or urging of caution.
So it wouldn’t be surprising for overzealous volunteers to refuse to accept perfectly valid reasons for some official not being able to do things the way they want it to be done. Not all of them will be able to distinguish between genuine problems in doing things their way and clear attempts to block reform. The Delhi law minister forcing the law secretary to call a meeting with judges (something only the High Court can do) and accusing him of siding with the old regime is a case in point. When this is the case with the law minister, can ordinary volunteers be capable of more discretion?
A Firstpost article had wondered if the AAP revolution was similar to the French or the American revolution? But remember what happened during the French revolution, when vigilantism gave way to mob rule?
Governance in Delhi needs to be shaken up, no doubt. Only AAP has this as an agenda. But in implementing this agenda, the party needs to take care that its cadres don’t become like the vigilantes of the French revolution. Or like the Youth Congress during the Emergency.

Sunday, 5 January 2014

Modi's poochandi effect on Congress

Harassed Tamilian parents troubled by their naughty children invariably use two words to get them to behave. Poochandi varan (poochandi is coming) or poochandi koopuduta (should I call the poochandi).
A poochandi is a fictitious fearful person – I remember being told as a child that a particularly frightening looking vagabond was poochandi  - who would, children were told, take them away. The threat invariably worked – children ate their food, drank their milk, went to sleep or did whatever their elders wanted them to.
Narendra Modi seems to have had a similar poochandi effect on the Congress Party (thought it is rather difficult to think of a 129-year-old political party as a below five-year-old child). Psyched by the very real possibility of a Modi-fronted BJP coming within more than touching distance of power in 2014, the Congress and the government that it leads are suddenly in a policy and implementation overdrive, doing all that they had dithered over all these years.
Gone is the arrogant complacency; there is now a new sense of purpose. So an obstructionist environment minister is shown the door; the norms for approvals are eased; coal supplies to nine power plants have been cleared as have some port projects; and Rahul Gandhi is no longer sounding lost and confused. His focussed speech at Ficci last Saturday and a press conference on the Lokpal Bill the Saturday before that signalled this change. His press conference yesterday following the meeting of Congress chief ministers could be another sign that the party is not taking its eye off the ball. Lost in the noise over the rap that Maharashtra chief minister Prithviraj Chavan got are the four actions Congress-ruled states have been told to take to tackle price rise and reach essential commodities to the poor.
One of these is time-bound. By January 15, the states have to remove fruits and vegetables from their respective Agricultural Produce Marketing Committee (APMC) Acts. They have also been told to be strict in implementing the Essential Commodities Act (ECA) to deal with hoarders and to invoke the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities (PBMSEC) Act, 1980 against chronic offenders. And they have to take steps to immediately implement reforms in the public distribution system (PDS) in line with the Food Security Act. Finally, Congress-ruled states have to open fair price shops run by state governments on self-help groups of women to sell essential commodities like fruits, vegetables and eggs at reasonable prices.
Clearly, someone in the Congress has finally got the message that rising prices is not something the Reserve Bank can control through higher interest rates and that supply bottlenecks have to be eased. Delisting fruits and vegetables – the items that have seen the highest levels of inflation – is a good first step in that direction. Of the 12 Congress-ruled states, three – Maharashtra (Vashi), Karnataka (Bengaluru) and Andhra Pradesh (Hyderabad) – have the largest fruits and vegetables mandis, according to the Financial Express. This move will enable framers to bring fruits and vegetables directly to the market, which will help in easing prices and bring some relief to household budgets, though some agriculture policy watchers like Devinder Sharma are skeptical of this happening. It remains to be seen if the chief ministers can take on the powerful lobbies that control these mandis merely because Rahul Gandhi has asked them to.  It will be great if they can.
The other steps Gandhi announced may not be so effective.
The Essential Commodities Act (ECA) is dusted out and deployed every time the inflation dragon rears its head, but its effectiveness is somewhat doubtful. Both its critics (who want it scrapped) and supporters (who want it to continue) agree that the ECA has not been able to check price spikes whenever there is a shortage of some food item. On the other hand, it is implemented in a ham-handed manner and often becomes a tool for harassment. 
The logic behind setting up more fair price shops to sell fruits and vegetables is not clear. If these items are delisted from the APMC Act, and if silly rules don’t hamper hawkers and street vendors, the cooling effect on prices will make such steps redundant. Special outlets work only during times of price spikes. In Delhi, for example, government sales outlets were set up to sell onions at cheaper rates. Unless this is a way of doling out shop licences ahead of the elections.
The PDS reforms will take time to pan out. They have more to do with improving the last mile of the PDS chain – transporting food grains from godowns to fair price shops and then to the consumer – to eliminate diversion. This requires the deployment of technology – Aadhar, digitization of ration cards and list of beneficiaries, smart cards, use of GPS and SMS to track movement of food grains, to name just a few. These can’t be done overnight.
Questions naturally arise about the haste that is driving the flurry of decisions and actions. Are decisions and actions being pushed through without enough thought going into them, just like the Lokpal Bill was passed without sufficient discussion? Could these then lead to more problems some months down the line – when the Congress isn’t around to deal with them? These are questions that need to be asked and answered.
There are reports that Veerappa Moily, as environment minister, may give the go ahead to GM crops. The hyper-active and obstructionist green lobby has been red-flagging this and had managed to persuade the previous two ministers, Jairam Ramesh and Jayanthi Natarajan, to block field trials. But in overturning these, are essential precautions – that are in place in countries that have embraced BT foods – being given the go-by? When easing environmental norms for large industrial projects, are necessary safeguards being junked?
Is the fear of the Modi poochandi leading to rash decision-making?
Actually, it was the Congress and those whom economist Arvind Virmani calls the LIMPs (Leftist Intellectuals, Media and Politicians) who first portrayed Modi as poochandi. Except that they used the H-word from Europe of the 1930s. Poochandi varan, they warned the public, pointing to 2002, fake encounters, Haren Pandya’s murder, the snooping controversy and a lot more. Your freedoms will be jeopardised; your lives will be in danger, they all warned. But the public didn’t get spooked.
I remember a young cousin turning the poochandi tables on my grandmother once. Should I call the poochandi, she asked, when my grandmother did not do something she wanted. It was a sign that she wouldn’t be frightened any more.
Voters in four states have, in effect, shown that they are not going to be frightened into not voting for the BJP. They, too, have turned the poochandi tables on the Congress.
Whether the poochandi comes or not is immaterial. What matters is the effectiveness of the threat. It is the Congress that is now being spooked into action. Someone now has to ensure that it is the right action in the right direction.

Inflation needs a political solution

So, India’s central banker Raghuram Rajan did not hike rates on 18 December, even though both wholesale and retail inflation persisted at elevated levels. The man who was expected to act like a hawk, is being panned for behaving like a dove, taking a benign attitude to inflation.
Rajan made it clear that he is not comfortable with such labels and that, far from being soft on inflation, he was keeping a close eye on it. If inflation did not ease, he said, he would act appropriately. Maybe he had a problem with the choice of birds, and would have preferred to be compared to the wise owl instead.
Will inflation – particularly food inflation – ease over the next month? Given that general elections are due in a few months, the government and the Congress Party will certainly hope that it will. The results of the recent assembly elections made it very clear that the public will be unforgiving about rising prices. However, opposition parties would do well not to gloat about the government’s plight. What India is seeing today is not a cyclical or seasonal high inflation that will correct itself. High inflation, especially food inflation, has got entrenched and is not likely to go away soon. It is certainly going to pose a huge challenge to whichever government comes to power in May 2014. And there is no quick solution for it.
The persistent high inflation that we are seeing now is an economic problem created by politics. The solution, too, is rooted in politics. The UPA cannot escape the blame for the current high inflation. The unchecked populism during its ten years is mainly to blame. Finance minister P. Chidambaram admits that higher farm gate prices and higher rural wages (thanks to the NREGA effect) had played a role in rising inflation. But he justified both decisions as being right. “The argument that inflation must be contained by suppressing farm gate prices or rural wages is a specious argument that ignores the needs of the poor and deserves to be rejected,” he said at the Delhi Economics Conclave in mid-December.
It is by now well established that the rising food inflation is the result of increasing demand, thanks to growing prosperity, far outstripping supply. This statement, however, needs to taken with a bit of caution. While expenditure on fruits and vegetables (which has seen the highest levels of inflation) grew by 42 percent between 2004-05 and 2011-12, data from the National Horticulture Board shows that production increased 53 percent. Dr Ramesh Chand, director of the National Centre for Agriculture Economics and Policy Research (NCAP), explains this discrepancy, pointing out that given the huge increase in demand even a marginal fall in production in some months has a huge multiplier effect on prices. This becomes more marked in vegetables that lend themselves to hoarding – potatoes, onions and tomatoes, which have almost become necessities now. So clearly, there is a supply bottleneck issue that needs to be addressed. For this, traders and the entrenched cartels in farm goods are to blame.
How is this to be tackled? The solution is an economic one – liberalising and bringing in more competition into agricultural trade. But politics is not letting it happen.
The issue of monopolies and cartels in agricultural trade has to do with the state-level Agricultural Produce Marketing Committee (APMC) Act which set up regulated zonal wholesale markets to which farmers in a particular area are bound to sell their produce. This not only encourages monopolies, but also stands in the way of the integration of farm production with the national market. According to an ICRIER report on the non-alcoholic beverage sector, even in cases where food processing firms buy produce directly from the farmers, they have to pay the APMC cess.
There is near-unanimity that the APMCs need to go or at least be modified to allow more competition and that a barrier-free national market is the best way to tackle food inflation. Unfortunately, this is something that is solely in the realm of state governments. A model APMC Act, which allowed for more competition, was drawn up by the Centre during the National Democratic Alliance (NDA) government. During the NDA and the UPA reign, there have been attempts to prod states to adopt this model legislation. A committee of state ministers in charge of agricultural marketing has unanimously endorsed the need to adopt the model Act. And yet, only 17 states have done so. So strong is the political hold of the vested interests that control these markets.
When food inflation started heading northward in 2002-03, the NDA government cooled prices by releasing part of food grains stocks through the public distribution system and selling grains at cheaper rates to millers. The government is sitting on huge food grain stocks, but it is wary of offloading this because of the requirements of the Food Security Act. Can the damage be contained? There is a provision in the legislation to move to a system of cash transfers, which will obviate the necessity of huge public stockholdings. This is again a political call that either the present or future governments will have to take. Do parties have the gall to take this route? Remember that this unwise piece of legislation was green-lighted by all parties.
Former finance minister Yashwant Sinha recently recalled an anecdote from his tenure about the finance minister of a northern state losing his temper when the Union finance secretary suggested that states abolish a tax on trade in food grains in order to keep food prices down. For the minister, filling up his state’s coffers were more important than the larger macro-economic implications of rising food prices.
When politicians across the country and across parties refuse to see economic logic, can there be an easy solution to the inflation problem? There is no point drawing comfort from the fact that high inflation is being driven by food prices and that core inflation is largely at acceptable levels. As C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has warned, sustained food inflation gets generalised and spreads to other sectors. Given the current levels of distortions in the marketing of food grains, cereals and fruits and vegetables, high food inflation is unlikely to be a temporary phenomenon. Rajan, at his press conference on Wednesday, clearly said that the RBI could not indefinitely wait for the supply side to catch up with demand pressures on the food front and that if necessary, he would take steps to bring demand closer to supply. That is obviously the only solution that will be left.
But just because inflation targeting is one of RBI’s mandates, is it justified to put on it the entire onus of solving a problem that is not of its creation in the first place? In doing that, isn’t the political class that is responsible for the situation being let off the hook? Won’t the use of monetary policy to address a supply-side problem lead to other problems? These are questions all political parties need to mull over. It is time inflation is seen as a political problem requiring political solutions. The structural problems cannot be addressed overnight. The benefits also will take time to materialise. If any new government does not take action early enough, five years down the line (or even earlier during elections to state assemblies) it will find itself in the same situation as the UPA.
In October 2012, when Rajan’s predecessor D. Subbarao hiked rates to tackle inflation amid fears that it would hurt growth, a miffed Chidambaram had said he would walk alone if necessary to face the challenge of growth. Chidambaram or whoever the finance minister will have to walk alone to address the challenge of inflation. At any rate, they can’t expect the RBI governor to walk alone on this issue. They – and the entire political class – will have to support him.

Save the country, Dr Singh

It is indeed interesting that in all the reactions—solicited and unsolicited—that have come after the drubbing that the Congress party has just got in the assembly elections, one voice has not been heard at all—that of Prime Minister Manmohan Singh. That, clearly, is a measure of the man's irrelevance. But what he does in the next few months will become increasingly relevant, by virtue of the office he occupies.
Local factors and the disarray in the Congress party no doubt added damaging volume to the anti-Congress wave, but what led to that wave in the first place? Was it not a complete popular disenchantment with the functioning of the United Progressive Alliance government headed by Singh, whose policies have fuelled inflation, messed up the economy and fostered widespread corruption?
Singh is as responsible as the Gandhis for electoral debacle. Had he refused to be a mere figurehead, quietly rubber-stamping the Sonianomics brand of populism and turning a blind eye to corruption, the country would not have been in the mess it is in and the public would not have been so angry as it is today. As prime minister he could have put his foot down on several issues. He did not.
So what do the next few months hold for the country? Any Congress strategy for 2014 cannot revolve around revamping the party machinery alone. Since the Congress is the main party in the UPA coalition, the Central government’s actions or non-actions will also be part of this. The Congress could play it two ways. It could, for one, decide to get the UPA to do a course correction so as to recover some of the lost ground. What can a lame duck government do will remain a question, but the prime minister’s former press advisor Sanjaya Baru has argued in this piece that quite a bit is possible. 
Inflation—the one issue on which people unforgiving—will obviously top the list. The Congress is now claiming a conspiracy is behind the onion price hike. Perhaps, but let’s not forget that food inflation has remained at elevated levels for over a year. The reasons for these are structural and as Finance Minister P Chidambaram himself admitted recently, there is no easy or quick solution to the problem. "I am afraid it will take some time to contain this inflation. We are paying a political price for that and I acknowledge that, but those are the facts," he said on 15 November.
When the country’s finance minister is throwing in the towel, there is no scope at all for taming the inflation dragon within the next five months.
Reviving an ailing economy should be another priority. Here, too, the scope of easy and early successes is doubtful. There are several reform-oriented legislations that need to be passed but that seems unlikely, with an aggressive opposition and uncooperative allies.
Baru has suggested that the government can address issues like uncertainty over tax policy which could alleviate concerns of investors. While that could help the stock markets, quell the fears of foreign investors and arrest a possible flight of capital, it is hardly likely to bring in electoral gains.
The government could shake off the policy paralysis it is caught in and get into action mode, clearing pending projects, ironing out policy glitches and the like. Plan expenditure is only 43 percent of what is budgeted for the year (of which capital expenditure is only 40 percent of what is scheduled) and it could decide to step this up. All this will revive sentiment and businesses may perhaps not put off their investment plans till after the elections. But it takes several months for investment plans to make their effect felt on the economy. So the benefits are not going to come within five months.
Realising that these steps may not reap the expected gains and that it will face certain defeat in May, the Congress could opt for another strategy – to lay booby-traps for the next government. It will then get a stick to constantly beat that government with. Fortunately, the government won’t be able to push bad legislation like the proposed National Right to Homestead Bill through Parliament (though some good legislation will get hit as well) but that will not stop it from taking decisions that are clearly populist and which will leave an enormous fiscal burden for the next government. Some of that has already started. The June decision on pricing of natural gas (read Firstpost editor-in-chief R Jagannathan's criticism of this) and the early announcement of the Seventh Pay Commission are cases in point.
Using the fact that the fiscal deficit is already at 85 percent of the full year’s target, the government could put a lid on spending on the grounds of wanting to stick to the target of 4.8 percent of GDP. That will leave a lot of the spending for the next government. Already, tax refunds are being delayed and oil companies are not being reimbursed for subsidies in time.
The government could also go on a populist announcements spree. Already, news reports say, Chidambaram is under fire for hard decisions and there is a call for rolling back fuel subsidy cuts. Rural Development Minister Jairam Ramesh, for example, wants to hike old age pensions paid under social welfare schemes, when there is evidence that much of this is not reaching the intended beneficiaries.
The assembly elections did not give a clear picture on how voters respond to welfare schemes. Welfarism didn't appear to work in Rajasthan and Delhi but seemed to work in Madhya Pradesh and Chhattisgarh. So, what is there to stop the Congress from announcing schemes? If it brings in the votes, that’s great (and the fiscal bridge will be crossed when it comes); if it doesn't, well, the next government will have to deal with the economic consequences. The only thing that might stop the UPA from doing this will be the fact that many welfare schemes are implemented by the state governments and non-Congress governments may just walk off with the credit.
The first path will put the economy back on the rails, but the gains for the Congress will be uncertain. The second could swing things in favour of the Congress, but will spell ruin for India. It is now up to Singh to choose between the two. As prime minister, he can still has veto power (though some of his ministers may slip things through). 
Dear Manmohan Singh, for the sake of the country, please opt for the former. You have nothing to lose but your reputation as a doormat.