Beyond voting: Why we can’t outsource change to netas

http://www.firstpost.com/politics/beyond-voting-why-we-cant-outsource-change-to-netas-1270437.html

What a sad reflection on the Delhi voter that a 67 percent turnout in an assembly election is being hailed as record-breaking and historic. The missing names in the voters’ lists and other glitches that prevented people from voting would not have made more than a difference of a few percentage points. It is the lowest voter turnout in the country (as it has always been) from a place where whining by the people is perhaps the highest.
Those lower down in the class hierarchy – the lower middle class and the poor – have always made up the bulk of the voters in Delhi. It is the relatively better-off and the well-heeled who preferred to grumble about The System in the comfort of their homes instead of actually getting out and doing something about it, even if it is just to take a couple of hours off on a holiday to stand in a queue and vote. They didn’t need to, because they could manage The System, regardless of who was in power. Maybe this section also came out to vote this year.
Various explanations are being offered for this year’s high turnout – the galvanising chutzpah of the Aam Aadmi Party, the Narendra Modi appeal and the dissatisfaction with the Sheila Dikshit government – but one will have to wait for the results to see which of these proved decisive. But it isn’t about this year alone. Depressing as the voter turnout scenario is, one must perhaps take grudging cheer from the fact that it has been increasing over the years. Something is obviously changing.
But does this indicate a more active engagement with politics and democracy, as almost the entire commentary on this year’s phenomenon seems to suggest? Voting during elections is seen as sufficient for doing one’s duty by democracy. Once that is done, everyone retreats into their apathetic, insular worlds for another five years. That is where the problem lies.
Engagement with democracy cannot be merely a quinquennial affair involving pressing a button on a voting machine. It involves being in a constant state of alert and speaking out – on everything from overflowing drains to corruption in high places. It is about keeping the pressure on elected representatives through the five years and not just at the end of that period.
It is also about the way we engage with our immediate environs, taking responsibility for our actions or non-actions, as the case may be. There is little point in knowingly flouting the law and bribing officials to, say, build an unsafe structure and then blame only politicians and officials when disaster strikes.
There is little point in turning away when a woman is being harassed or not accompanying someone who has been to a police station and following up a complaint and then blaming the government for lack of women’s safety.
Harassment bribes can be fought; there are mechanisms for that. It requires putting up with some inconvenience. That’s not easy to do for a middle class that is sapped of all energy by the daily grind of living life in Delhi. But are we doing even the little bit that is possible?
There is little point in demanding the right to recall or that elected representatives be held accountable to us when we are not even willing to hold office-bearers of our resident welfare associations (RWAs) – who are far more accessible, since they are our neighbours – accountable. One can’t go lower than the RWA as far as building blocks of democracy are concerned. But attendance at general body meetings held once in three months (sometimes even less) to discuss the colony’s problems and how the RWA’s budget is to be spent is rarely more than 30 percent, across Delhi. As a result, most RWAs are dominated by a few groups, which run amok whenever they are in power, just like political parties and politicians do.
Given this attitude, what is the guarantee that people will actively participate in the mohalla samitis that the Aam Aadmi Party has promised to set up? The proposal involves dividing assembly constituencies into zones (based broadly on municipal wards) and holding regular town hall kind of meetings which all residents of that zone can attend and discuss how the budget for that zone should be spent. It could, as supporters claim, deepen democracy by involving people more closely in the governance process, something they are excluded from currently. Or it could lead to anarchy, as critics insist. But given the high levels of public indifference, will either of these assertions even get a chance of being tested?
Change is not something that can be outsourced to a Narendra Modi or an Arvind Kejriwal or whoever else represents change at a particular point in time. They can come up with solutions for the macro issues, but it is the people who have to ensure that those solutions make a difference at the micro level. The leaders and political parties can bring in steps to bring corrupt officials in line, but they can’t come to your locality to supervise how roads are being built or see if officials are harassing someone for a bribe.
The change that they represent and perhaps facilitate will come only when individuals shake off their ennui and put the systems they may set up to good use. When we refuse to pay a bribe even if it means harassment. When we follow up repeatedly on a faulty public works project. Are we ready for that? Or will we go about our lives as usual and then, at the end of five years, blame Modi or Kejriwal for failure to bring change and then look for some other messiah?
The record voter turnout in Delhi is a cause for celebration only if it is a tentative first step towards a more active citizenship and a more sustained engagement with governance systems, inconvenient as they may be. Only that will lead to sustainable change, set the foundation for an entirely different kind of politics lead to a deepening of democracy.

The middle class too sells its vote

http://www.firstpost.com/politics/campa-cola-to-aap-the-middle-class-too-sells-its-vote-1234619.html

In April 2011, anti-corruption crusader Anna Hazare, riding high on middle class adulation, made a seemingly pithy remark. Indian voters, he said, can be bought for as little as Rs 100, one saree or a bottle of alcohol. They don’t, he lamented, understand the value of their vote.
It was an odious remark directed specifically at voters at the bottom of the economic pile, those who lived below, at or just above the controversial Rs 32-a-day poverty line. But barring a few commentators who slammed it, the ordinary public were delighted by it. Absolutely spot on, they said. It is the vote-bank politics that panders to these people which is ruining the nation, they sneered. The politicians regularise their slums and illegal power and water connections, give them illegal ration cards, protect the goons and so on.
And then there was the sanctimonious posturing. We don’t do these illegal things; we are law-abiding. We don’t go running to those vile politicians to bail us out.
That claim has been effectively shattered by the sight of the well-off residents of Campa Cola housing society in Mumbai not allowing demolition teams to enter the complex to bring down illegal structures as ordered by the Supreme Court. No tear-jerking histrionics were spared to whip up public sympathy. Pressure was put on the local politicians. In doing all this, the Campa Cola residents behaved no differently from the slum dwellers for whom actress Shabana Azmi sat on a dharna several decades ago and was roundly reviled for doing so.
There are some who hold that this case cannot be compared to that of demolition of slums. But the merits of this particular case are not relevant. The point is that the middle class is no different from the unwashed masses when it comes to breaking laws and then trying to go scot free.
The Campa Cola case isn’t an isolated one. In 2006, in Ulhasnagar in Maharashtra, public pressure forced the government to issue an ordinance that regularised illegal buildings. That same year in Delhi, a drive against unauthorised buildings had people who were singing paeans to chief minister Shiela Dixit suddenly turn against her. They even wanted the Delhi Master Plan to be changed to make the constructions legal.
The middle class also likes to believe – and more than that it would like others to believe – that its members vote responsibly and cannot be bought off. Nothing could be further from the truth. The middle class are as liable – and willing – to being bribed for its votes as the poor. Except that the bribe in question is not rice at Rs 1 a kg or cookers, television sets, laptops (regularisation of unauthorised constructions is something both classes have in common, though); the stakes are much higher.
What else was the announcement in September of the constitution of the Seventh Pay Commission but a bribe to the middle class voter? Why do reservations in educational institutions and government jobs become an issue before every election (the latest being quotas in Central government jobs for Jats)? Who else but the middle class of the target communities will benefit from this? What makes the Aam Aadmi Party zero in on electricity bills as the key election issue in the Delhi assembly elections? The majority of the Delhi voters are from the middle class (and are perpetually averse to paying bills and taxes) and this issue has touched a chord with it.
Remember also that the middle class is not a single ethnic/caste/community bloc. So its members are part of community-specific vote-banks (Muslim, upper caste Hindu, OBC Hindu, Dalit Christians etc.) that politicians woo and successfully at that through sectarian give-aways and promises.
What is also conveniently forgotten is that many of the freebies that are given in the name of the poor – notably the fuel subsidies – actually benefit the middle class. That is why one will never see the middle class criticising the economically disastrous subsidies on cooking gas, petrol and diesel, even as they denounce the equally ruinous food subsidies for the poor. And the middle class is quite willing to barter its votes for getting its illegal constructions regularised. In 2000, then Union urban development minister Jagmohan was a hero when he demolished slums in Delhi; he became a villain when the demolition drive targeted encroachments and unauthorised constructions in middle class and upper middle class localities. The demolitions became a major issue in the municipal elections and Jagmohan, who had to face the ire of his own party, lost the 2004 elections. The party cadres, facing the wrath of the middle class, simply abandoned him.
The middle class is going to play a huge role in the coming elections – the assembly elections round the corner and the general elections next year. And the middle class will be wooed – as a group and community-specific sub-groups – by politicians with all manner of promises. There will also be demands that the middle class will come up with, which will be met to the extent they can. Is this wrong? No. In a democracy, these are par for the course. But let the middle class not take the moral high ground that it is above selling its vote like the despicable poorer sections do.

Shutting doors on FTAs is a bad idea, push through reforms instead

http://www.firstpost.com/economy/shutting-doors-on-ftas-is-a-bad-idea-push-through-reforms-instead-1217035.html

News of finance minister P Chidambaram and chairman of the National Manufacturing Competitiveness Council, V Krishnamurthy, speaking out against India’s growing penchant for free-trade agreements (FTAs) invited a quick clarification from the commerce ministry.
Yesterday, The Times of India reported that Chidambaram and Krishnamurthy differed with Planning Commission Deputy Chairman Montek Singh Ahluwalia on the benefits of FTAs. According to the report, both Chidambaram and Krishnamurthy said FTAs had not been advantageous for India.
By evening the commerce ministry put out a press release pointing out that the effects of FTAs had not been as detrimental as they have often been made out to be and that there is an in-built mechanism of review in all agreements.
The last paragraph of the press release was a gentle rebuke – “. . . Indian exports to different regions are crucially dependent on competitiveness which is guided by other factors such as ushering in the second generation reforms on taxation, rolling out of GST, reform in labour laws, upgradation of infrastructure relating to power, ports and roads.”
Indeed, the lament over FTAs is really a lament over the complete lack of competitiveness of Indian industry and hence of its exports. That is why import of goods at zero or low duties under FTAs are possible and hurt domestic manufacturers (though the consumer benefits) even as Indian goods are not able to make significant inroads into markets that are now open to them.
Interestingly, Indian companies are using the FTA route innovatively, setting up manufacturing bases in countries with which India has signed these agreements and then importing the finished goods under the low duty regime. They do this for two reasons. One, the raw materials are available in those countries and importing them are costly. Two, it is easier to do business in those countries.
It is not as if Chidambaram and Krishnamurthy are not aware of this fundamental problem. Way back in 2006, The National Strategy for Manufacturing document put out by NMCC noted that “in order to attain competitive edge in manufacturing the constraints being faced by the sector have to be mitigated.” It then listed some ‘generic issues’ – lack of proper infrastructure, higher transaction costs, higher interest rates, inadequate power and other disabilities and regulatory issues, among others – that it would take up.
The report also notes that India suffers on competitiveness due to various factors such as higher import duties, including inverted duty structure; higher incidence of indirect taxes; sub-optimal levels of operations; lower operational efficiencies; higher transaction costs; lower labour productivity; higher cost of capital; and inadequate infrastructure. Taken together all of these are estimated to push up the cost of Indian manufacturing by between 15 percent and 30 percent.
Needless to say, keeping the cost of manufacturing low is the first step to being competitive. Chidambaram can address some of these issues – those relating to taxation and cost of capital - as they fall within the purview of the finance ministry. What is preventing him from doing so?
The solutions to the other problems are also well known and have been repeated any number of times for more than a decade now by economists, chambers of commerce, global consultancy firms and, yes, even by NMCC.
It is a telling comment on economic policy making in India that there has been no progress on these, with successive governments putting them on the backburner. By lowering import duties, without addressing these issues, FTAs can hurt domestic industry really badly. But using the poor competitiveness of Indian industry – because of bad policies – to stall FTAs is not the right remedy, since the country will lose out on the benefits they bring. And even if we take that approach, there is always multilateral trade liberalisation through the World Trade Organisation (WTO) to deal with.
Another WTO ministerial is scheduled for December in Bali and it is not clear which way it will go. If the Doha Round gets revived, then countries will have to prepare themselves for greater trade openness. If the deadlock continues, the popularity of FTAs (which became the preferred route to trade liberalisation because of the WTO logjam) will increase. Either way, it is clear that we are getting into a scenario of greater integration with the world economy. It has its advantages and disadvantages. It is necessary to maximise the first and minimise the other.
For India, both require a very strong dose of internal economic reforms. There is simply no getting away from this – for either this government or any government that comes to power after the next general elections.

Don’t allow 1984 to be whitewashed

http://www.firstpost.com/politics/not-just-2002-dont-whitewash-culpability-of-congress-in-1984-riots-1203581.html

Yet another anniversary dawns. Of the cataclysmic events of October-November 1984, when the assassination of a Prime Minister set off the cold-blooded, targetted retaliatory butchering of thousands of innocent Sikhs over three days. 
Yet again political parties will play their set games over the killings, even as the community agonises over the fact that the guilty have not been brought to book. The Bharatiya Janata Party (BJP) will raise the issue and the Congress will ask about the Gujarat riots of 2002.
There will be some non-political voices who will ask about both. And there will be another set of non-political voices which will be dismissive, and scornfully so, about 1984 being raked up. Yes, yes, 1984 is condemnable, it shouldn’t have happened; but can we now get on with asking questions about 2002, they will say impatiently. This section also wants to know why one should talk about 1984 whenever 2002 is mentioned.
But there is a very good reason for talking about 1984, especially in the context of 2002. Because there is a pernicious attempt being made to downplay 1984, make it fade away from public memory even as no effort is being spared to ensure that 2002 never does. This is not to argue that 2002 should be allowed to be forgotten. Neither 1984 nor 2002 should be allowed to be forgotten. The memories of both need to be preserved if only to remind Indians of the kind of diabolically violent politics that the two mainstream parties have both indulged in, with equal measure. 
What is worse is the attempt to draw artificial distinctions between 1984 and 2002; to somehow show that 1984 was not as vicious as 2002; that it was handled better; that Congress leaders have expressed regret for it and that Narendra Modi has not. Is it a coincidence that such distinctions started when it was found that the attacks on Narendra Modi for the 2002 riots were being blunted by lack of justice for the victims of 1984? 
No double standard is too odious in order to whitewash 1984. No fact too important to be airbrushed away.
Over 3000 people were killed in 1984, more than double of those killed in 2002. In 1984, only Sikhs died; in 2002 both Hindus and Muslims died (though admittedly Muslims died in larger numbers). And yet 2002 is a pogrom; 1984 is not!
Yes, Modi’s failure to check the 2002 riots is a bigger black mark than Gandhi’s failure to stop the 1984 massacre. Modi had been in office for six months when Godhra and the subsequent riots happened. He should have had that much political and administrative savvy to ensure that the bodies of the Godhra victims were not taken in a procession. The 1984 killings happened within hours of Gandhi being sworn in and, remember, this was immediately after his mother – the Prime Minister – was assassinated. A supposedly capable home minister – no less a person than P. V. Narasimha Rao – was in charge.
But what of Gandhi’s actions and words after the events?
Why are we supposed to accept that Gandhi’s famous `when a big tree falls, the earth is bound to shake’ speech is not as insensitive as Modi’s equally famous kriya-pratikriya (action-reaction) speech?
Take also the Congress advertisement campaign ahead of the December 1984 elections, which seems to have faded from public memory. These ads, carried in all the major newspapers, clearly identified Sikhs as the `other’.  One in the series was about whether you could trust your taxi driver – the sketch that accompanied it was that of a Sikh.
The ads and the speech came more than a month after Mrs Gandhi’s assassination. By that time reason should have got the better of emotions. Let us be charitable and say that Gandhi spoke without thinking when he gave that analogy of a big tree. But were those ads also cleared without thinking? He was firmly in charge of the party and the government at the time they were put out. Could it have been done without his knowledge? Could he not have nixed them?
Much is made of the fact that Gandhi felt deeply about the 1984 killings. Yes, he did express his anguish in his first address to the nation. In 1998, Sonia Gandhi did the same about both Operation Bluestar and the 1984 massacre during a visit to the Golden Temple. Manmohan Singh said sorry on the floor of Parliament. Modi has steadfastly refused to do so. Worse, he even inducted people like Maya Kodnani (now facing death for her role in the 2002 riots) into his council of ministers.
What the whitewashers of 1984 would probably like us to forget is that Gandhi made two of those accused of instigating the 1984 killings ministers in his government. One was a cabinet minister, the other a minister of state. And remember these Congress biggies were repeatedly given tickets by the Congress party – even after Sonia Gandhi took over. How are teary-eyed commiserations with riot victims compatible with rewarding those responsible for their plight? Going by this logic, all that Modi has to do is shed a few tears, say sorry, bring on expressions of anguish to his face when talking about 2002 and then merrily go on shielding and rewarding people who perhaps should be behind bars.
The impatient rejoinder this attracts is that courts have not held these Congress leaders guilty. So why not wait till the courts hold Modi and others who led the 2002 rioters guilty? How can they, comes the prompt response, when the police refused to register FIRs, witnesses are browbeaten, people who speak up harassed and even Supreme Court appointed panels suppress facts to protect him?
These are very valid points. But why is it so easy to assert this about 2002 and deny it about 1984? Why are we expected to believe that in the case of 2002, police refusing to file FIRs shows a sinister conspiracy, but in the case of 1984 it means particular incidents never happened at all?
What is perhaps more galling is the attempt to deny the Sikhs their hurt over 1984. Those enraged by the 2002 riots are incensed by the Sikhs protesting the acquittal of Sajjan Kumar by a Delhi court in a case related to the 1984 killings. That is apparently a communal attitude and a sign that the Sikhs want Narendra Modi as Prime Minister! This from the very sections who criticise the rabid Hindutva types for adopting a if-you-are-not-with-us-you-are-with-the-Congress attitude.
The focus on 2002 is needed, we are also told, because the riots stemmed from an ideology of antagonism towards Muslims. The Congress isn’t anti-Sikh; the sangh parivar is anti-Muslim. Yes, there is a strong anti-Islam strain in the sangh ideology; the Congress is not antagonistic to any one community. But will it make Sikh families feel better to know that they were not the targets of a hate mentality, but only of momentarily inflamed passions (never mind that these passions were fanned by senior party leaders)?  Will this lessen the pain of seeing the killers of their relatives go scot free?
One can understand – even accept – the Congress and the BJP indulging in one-upmanship over the two riots. They are political parties competing with each other for power. This jousting over riots is par for the course.
But when the non-political thinking classes start drawing distinctions between two horrendous hate crimes presided over by the two main parties with the sole purpose of showing that one is worse than the other, it is worrying and dangerous. Because this sends out a message that one kind of violence is acceptable, another is not. And once this point of view gains currency, the very people it is directed against will start using it to their benefit.
So today, please remember and feel angry about 1984. And in February-March next year, please remember and be angry about 2002.

Address the micro to deal with the macro

www.firstpost.com/economy/ease-of-doing-business-in-india-worsens-world-bank-rbi-on-same-page-1200811.html

So Reserve Bank of India governor, Raghuram G Rajan, didn’t surprise anyone with his credit policy announcements today. Everyone was expecting the policy rate to be hiked and that is what he did. Now there will be endless debate on whether this will affect growth and whether the central bank should be so focussed on fighting inflation as it clearly is under his watch.
Coincidentally, the World Bank-International Finance Corporation’s joint publication, Doing Business 2014 also released today. And once again, as it happens every year, India figures somewhere at the bottom. This year, it ranks 134. (This is lower than last year’s ranking of 131, but this could well be because more countries have been added to the list). Even among the eight South Asian countries, India ranks sixth, with its rank much below the regional average of 121.
What’s the connection between the credit policy and the Doing Business report? On the face of it, not very much. The credit policy is about macro issues – inflation, growth, current account deficits. The Doing Business report is about extremely micro issues like business regulations, registering property, construction permits and the like.
But getting the micro issues right can sometimes help address the macro issues as well. The central bank has to do a tightrope walk between growth and inflation, but it can be no one’s case that both are its headache alone. The policy environment also needs to address these issues. It is very clear that high inflation is driven largely by food inflation and that this, in turn, is mainly due to supply side constraints - constraints which are just not being addressed even though it is very obvious what they are and how they can be overcome.
Similarly, it is also amply clear that it is not high inflation alone that is dampening growth. Growth is also being affected by lack of investments – companies are just not spending money on new projects or expansion of existing projects. The high cost of money, because of a hawkish monetary policy, is just one reason for the poor investment climate. The other is the difficult operating environment. Growth cannot come in a difficult business environment.
This is where the Doing Business report becomes relevant. The report looks at how countries have performed on 10 indicators – starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and resolving insolvency. These indicators broadly cover all the areas that make doing business easy or difficult. Unfortunately, India does not fare well in many of these areas. There are only two areas where its record is creditable. One is getting credit, where it ranks 28 and the second is protecting investors where it ranks 34. Interestingly, these are both areas that are overseen by strong regulators working with a large measure of independence – the Reserve Bank and the Securities and Exchange Board of India. 
But it trails even some of its South Asian neighbours, which are much smaller economies, on most of the other indicators.  It is the worst performer in South Asia in three indicators. These are starting a business (it ranks 179 globally), dealing with construction permits (182) on this score and enforcing contracts (186 in the global ranking). The only other country to trail in three indicators is Afghanistan! Worse, India’s ranking is much below the regional average for South Asia, which is 86 in starting a business, 114 in dealing with construction permits and 137 in enforcing contracts.
Reforms in most of these are not ideological issues and do not require political consensus or legislative changes that could become hostage to political stand-offs. They just require a realisation on the part of policy makers and implementers at all levels – national, state and local government – that the problem of economic revival and robustness is not just that of the central bank or the Union finance ministry alone. Each of them will have to address the non-political, non-controversial issues like clearances, permissions, infrastructure that fall within their respective purviews.
In the wake of the credit policy, there will be renewed demands for the government to make some big announcements or make some grand gestures to perk up investor interest. The focus will perhaps be on easing caps and restrictions on foreign investment or announcing some big infrastructure projects. But there will be little point in ending restrictive conditions on FDI in retail if getting licences to set up a store is going to be extremely complicated.
It will not be possible to reform all the areas that the Doing Business report highlights overnight. Even if the reforms are fast-tracked, the benefits to the macro economy may not come overnight. But in the obsession with the macro, we should not lose sight of the micro.

Scams, FIRs and business sentiment

www.firstpost.com/business/cbi-case-against-km-birla-corporate-india-should-not-cry-wolf-1183133.html

Is India Inc. under unprecedented attack? And is this going to dampen business sentiment?

India Inc. would certainly expect the nation to believe so. Days after the Central Bureau of Investigation (CBI) named industrialist Kumar Mangalam Birla in its first information report (FIR) in the coal blocks allocation scam, the Supreme Court has asked the investigative agency to look into undue favours shown to top corporate houses. There are reports that the CBI is planning to name more businessmen in fresh FIRs.

Corporate bigwigs have been careful not to comment on the Supreme Court order but have come down heavily on the government and the CBI in the Birla FIR case. This is going to affect business sentiment and kill investments, they have warned. One can understand such alarmist statements from them – after all they will come out in strong defence of one of their own.

But it’s different – and worrying – when ministers also start holding out such veiled threats. Five key economic ministers berated the CBI for its action, with oil minister Veerappa Moily even invoking the sceptre of Aurangzeb, no less.

Almost exactly two years back – on 10 October 2011 – then law minister Salman Khurshid said much the same thing, when corporate big shots were put in judicial custody for alleged corruption in the 2G scam case. “If you lock up businessmen, will investment come?” he said in an interview to the Indian Express.

Commerce and industry minister Anand Sharma said he couldn’t “fathom how a case of impropriety can be made against Birla, an iconic industrialist respected all over the world”. It is equally difficult to fathom how Sharma arrived at the conclusion that iconic, respected people cannot commit improprieties. There are far too many examples in the recent past of businesses logging dizzying growth and their promoters becoming respected icons of their respective industries only to have these companies implode.

This article is not implying that Birla is among these fallen icons or that he is guilty of impropriety in Coalgate. Nor is it giving him or his company a certificate of good conduct. This article is not about Birla or Coalgate. It is about the rather shady nexus that has come to mark the business-politics interface.

The statements made by ministers are flawed for two reasons.

One, they only serve to reinforce the impression that the government is batting for big business houses and treating them with kid gloves – the bigger the business, the softer the gloves. It has given a handle to all opponents of India’s liberalisation process, who have always argued that this is benefiting only a few big industrialists. To that extent, the ministers speaking out like they did at a time their government is headed for elections on a pro-poor and inclusive growth agenda is only proof of utter political incompetence.

Two, if a country’s investment climate is going to be affected by companies being investigated for alleged wrong-doing, and if ministers are going to warn that India could end up going the Russia way “where investors are not prepared to go and billionaires are put behind the bars” then it is a very sad reflection of the way business is done in the country. (Someone should point out to Moily that Birla and other iconic industrialists may not exactly be flattered by the Russia reference.) It is an admission that the Indian businesses do not function in a transparent rule-based system. Who is that an indictment of?

Just look at some of the issues that the Supreme Court has asked the CBI to probe, based on intercepts of corporate lobbyist Niira Radia’s phone.

*  supply of low floor buses by Tata Motors to the Tamil Nadu government.

* allotment of coal blocks to Anil Ambani’s group and iron ore mines to Tata Steel

* kickbacks in the aviation sector

* favours shown by a former director general of hydrocarbons to Reliance Industries Ltd.

Some of the biggest names of India Inc. will come under the scanner (of course, they could well come clean). If, as Firstpost editor R. Jagannathan has argued, the FIR against Birla was designed to ensure that the Coalgate investigation doesn’t reach the Prime Minister, could it be that the panicky statements of ministers are designed to put off closer scrutiny of a slew of dodgy policy decisions that have not yet come to light?

There are a host of reasons why India is a bad place for business. Infrastructure sucks, money is expensive, permissions don’t come through, decisions are not taken, rules are not transparent. Addressing these issues will provide a strong foundation for healthy businesses and a robust economy. But this does not get the kind of attention that is showered on possible action against one corporate house. Ministers, instead, indulge in turf wars, squabble over clearances, green-light economically ruinous policies, introduce opacity into policies and create any number of rent-seeking opportunities. In fact, they do everything possible to make India a difficult investment destination. Corporate India would like the more fundamental issues to be addressed, but it is quite comfortable in operating in a shadowy environment, so long as it can get away with it.

So, yes, India’s investment climate will be affected if investigating agencies and the courts try to clean up this messy operating environment. Companies that have got used to prospering by managing the system will take time to adjust to an environment where they will have to play by a different set of more transparent rules. They will try to scuttle any move to a more transparent system by creating a scare about investments drying up.

India’s liberalisation saga till now has been more pro-large business than pro-market (the latter is what it should be). Economists championing an open economy – including present Reserve Bank governor Raghuram Rajan - have lamented this time and again. It is often said that it requires a crisis for India to reform. Perhaps the unravelling of a series of scams and sweetheart deals will be the crisis that India needs to reform its business environment. 

So if the current churn is going to bring a directional shift in economic policy making – from pro-business houses to pro- free markets, then it needs to be welcomed. There will be some short term pain. But the gains that will come will be far more sustainable and provide a stronger foundation for the economy.

 

A flawed case for social engineering

http://www.firstpost.com/india/rte-in-pvt-schools-how-govts-social-engineering-may-backfire-1177635.html

Will compelling private schools to ensure that 25 percent of their students must be from the economically weaker groups affect the quality of education in these schools? It most certainly will, private schools have always maintained. In the absence of hard evidence, they haven’t been able to back up their claims. But then, nor have those who rubbished these gloomy prophecies as elitist claptrap been able to irrefutably disprove them.
Well, there’s good news for the latter and, therefore, bad news for the former. A recent study by a University of California San Diego professor, Karthik Muralidharan, junks the theory that the reservation proviso could bring down the grades of general category students in private schools. This is alarmist misinformation by a small fraction of snobby schools in the major metros, Muralidharan scoffed at a talk he gave in the capital last week. He feels the much-maligned Clause 12 of the Right to Education Act – which mandates the reservation – is actually a “rare example” of a policy that improves equity and efficiency. It could also be the biggest school inclusion programme in the world, he believes, given the huge numbers involved in India. 
Muralidharan’s assertion isn’t an ideological one; it is based on evidence from the Andhra Pradesh School Choice project. The project was initiated to find answers to two questions. One, are private schools more or less effective than government schools regardless of the social and economic background of the students? (It is often argued that private schools are able to show better student performance because these students come from relatively better off homes than those who go to government schools). Two, how will the intake of economically weaker students under Clause 12 affect the students who are already in the private schools? 
The four-year project, which started in 2008, was conducted in 180 villages in five districts of Andhra Pradesh by the Azim Premji Foundation, as part of a memorandum of understanding between the state government and the World Bank. In all these villages, students in government schools were offered vouchers which would allow them to study in a private school of their choice in the village. 
The vouchers covered school fees, books and stationery as well as uniforms and shoes but not the cost of transport to private schools that were not in the village. Nor did it compensate for the loss of mid-day meals that are provided in government schools. Then, a lottery first chose 90 villages that were to be treatment or voucher villages. The other 90 villages that did not get selected for vouchers became the control villages. Within the voucher villages, another lottery chose students who had applied for vouchers. A total of 1,980 households out of the 3,097 that applied for the voucher got it. Of these, 1,210 accepted the vouchers and enrolled their children in private schools at the start of the project. Private schools that participated in the programme were not allowed to cherry-pick students; they had to accept the students who won vouchers and chose to study there. The rest of the households who had applied for but did not get the vouchers were the control group, whose children continued in government schools. Independent tests then looked at learning outcomes of students after two years and four years. Since both sets of students were from identical socio-economic backgrounds, any differences in learning outcomes, the thesis went, would be because of the change in schooling. 
Most of the results were predictable, of course. The voucher students who went to private schools did better than the non-voucher students. The study reaches this conclusion in a somewhat roundabout way. On the face of it, there was not much difference in scores on two main subjects – Telugu and maths. So it did appear that private schools were not more effective, and that differences were because of family background. 
But then it was found that private schools had less qualified, less experienced and lower paid teachers than government schools. They, however, had better attendance than their government school counterparts. Private schools also had longer days and years and more teachers. And though they spent lesser time teaching Telugu and maths, they spent more time in teaching English, social studies and Hindi (this was taught as a third language, which government schools did not). What’s more, the similar scores in Telugu and maths were achieved despite private schools spending less time teaching them than government schools did. So clearly, private schools were giving more bang for the buck, since the per-child cost is one-third that of government schools. 
The survey, however, knocks the bottom out of the argument of many private schools that Clause 12 will adversely affect the performance of students already in private schools because of lower-performing scholarship students. The study found no effect at all. It then looked at whether the number of scholarship students was a factor – the more the number of such students, the greater the negative effect. That too drew a blank. 
Going by these findings, Muralidharan – who thinks Clause 12 is not a bad idea – suggests that schools should not be allowed to cherry-pick from students hailing from lower income backgrounds. This, he argues, could happen if compliance with the proviso is seen as something that schools should be doing at their individual level. Instead, he says, it should become a `system-level’ issue, with the provision being implemented in a coordinated way at the city, block or district level. He suggests a system of private schools providing audited enrolment and fee data to the government; low income parents listing their preference for private or government schools; and a lottery system to allocate schools to children from low income families. 
Muralidharan could be treading on thin ice here. The method he suggests could be quite complicated when it comes to actual implementation, given the huge numbers – of students and schools – involved. It also places too much faith in the efficiency of government systems. Efficiency levels vary widely from the centre to the state to local governments, between states, within states and between local bodies as well. 
But the problem with his thesis is that he thinks Clause 12 is the right way to ensure equity in education. That is just not true. Forcing equity like this may work in a few individual cases; it cannot be a national-level government policy. It is not just an issue of whether elite schools want to take children from lower income backgrounds. Parents who pay a bomb to send their children to these schools do so because of their exclusivity. It may sound snobbish but people are entitled to their snootiness. The state cannot force social engineering; it will backfire. In any case, the elite schools will simply bribe their way out of any lottery or other system that is put in place. They won’t find it difficult to do so; the very people who will be implementing or overseeing this system – the politicians and bureaucrats – send their children to these elite schools because they do not want them to mix with the hoi polloi. 
So, instead of looking at how to fix a few elite schools which cater to a very small minority of school going children, why not look at expanding the education market? If the idea is to ensure that all children get access to a basic minimum quality of education, a better way would be to make it easier for private schools to come up, within a broad regulatory framework with reasonable rules. Also, it might be better to design a proper school voucher programme which will allow parents to choose between government and private schools. This could go hand-in-hand with changing the way government schools function so that they compete with private schools for the voucher students. There will be no need for complicated lotteries which will invariably be rigged, given the kind of cronyism that prevails in India today.