Renu Pokharna

Archive for February, 2012|Monthly archive page

The Hour Of The Untamed Cosmopolitan

In Politics, Poverty Eradication, Quotas, Tribal Development on February 28, 2012 at 10:30 am

AFTER ALMOST two decades, in many ways, the election of 2009 was a normal election. No overriding consideration drove the voting across the country. Diverse configurations in diverse places determined the fate of different candidates and parties. Different regions had different logic even within a given state. Still, underlying the diversity there were some common themes.

First, I think people were looking for ways to lower the temperature of politics. High-pitched politics has reigned in our polity for nearly 15 years now. My suspicion is people were a bit tired of this. For example, the past two elections showed that in Uttar Pradesh, only one percent of the electorate was interested in Ram Janmabhoomi. The BJP probably played down the issue this year because their internal assessment showed the same thing. Except in West Bengal, nowhere did the election involve an emotional arousal of the kind we have come to routinely expect.

There are reasons for this. In our society, we live with radical diversities — diversity that is not based on tamed forms of difference. The US is a perfect example of tamed diversity. You get every kind of food and dress and cultural activity in America. You think you are very cosmopolitan if you can distinguish Huaiyang food from Schezwan food, or South Korean ballet from Beijing opera, or Ming dynasty china from Han dynasty china in a museum. This is diversity that is permissible, legitimate, tamed.

Radical diversity is when you tolerate and live with people who challenge some of the very basic axioms of your political life. Like most of South Asia, Indians have an old capacity to live with such diversity. A powerful example is Sajjad Lone contesting the election this year. Nobody objected that a secessionist wants to take an oath of allegiance to the Constitution. Everyone spoke of it glowingly. I consider that a tolerance for radical diversity. In such a society, all excesses are ultimately checkmated.

In India, we live in a country where the gods are imperfect and the demons are never fully demonic. I call this an ‘epic culture’ because an epic is not complete without either the gods or the demons. They make the story together. This is a part of our consciousness, and ultimately, I think it influences our public life. People go up to a point with their grievance, then get tired of it. They realise that to go further is a dangerous thing because it destroys the basic algorithm of your life. They say, enough is enough, let us go back to a normal life. This election represents something of that consciousness. We probably need this kind of interregnum in politics. They have a soothing effect on our public life. This is what most Indians feel.

The second underlying theme is that people were searching for a sort of minimum decency. Negative campaigns, excessively personal attacks, hostile slogans — all of this seemed to upset the voter. When the BJP and the Left targeted Manmohan Singh, making him the butt of jokes and accusations, Singh became a hero for the very qualities people joked about. His weakness, his absence of a political base, his susceptibility to pressures of the Congress high command — instead of looking like liabilities, these things suddenly began to look like a marker of a genteel type of politics. I think that paid dividends. Contrasted with their shrill opponents, Sonia and Rahul Gandhi’s conduct too paid dividends.

(I asked a waiter at the India International Centre in Delhi what he felt about the election results. “It’s been very good,” he said. Was he a Congress supporter, I asked him. “It’s not that, sahib,” he replied. “That Sardarji is a good man. He is educated, he is not a thief, and he is a newcomer to politics. Still, they got after him, calling him weak and scared. Who can enjoy watching that? I am just happy that this election result has shown there is a god watching above.” I quote the waiter verbatim because I think the idea of “a god above” might have been a consideration with many other people as well.)

THE THIRD and interlinked theme this election was the voter’s desire to bring down the arrogant. The way Mayawati has lost, in what was once thought an inelastic support base, points to something very significant. Many people did not like the way she threw her weight around; her ostentation; the dozens of statues she is erecting in her likeness, her assumption that even if she did nothing to serve it further, history was waiting for her. Others did not like Narendra Modi. Yet others, Prakash Karat. Arrogance of style. Arrogance of ambition. The arrogance of neglecting the people. All of this was punished by the voter.

Narendra Modi has marginalised all possible opposition within the BJP, and sidelined the RSS, Bajrang Dal and VHP. They cannot really muddy things for him easily anymore. He is a man looking for power and he has used and discarded them. He has a solid support base in West Gujarat and among middle-class Gujaratis, so there is no question of him fading away, but this election doubts have been planted about his capacity to emerge as a pan-Indian leader. He was billed as a star campaigner for the BJP, but the Indian voter has sent back a strong message scaling him down.

Controversial leaders rarely make it to the top job in India. Modi is determined not to talk of communities, determined not to apologise or even make a gesture towards the Muslim community to atone for the sins of Gujarat 2002. His refrain is that he is the leader of five-and-a-halfcrore Gujaratis, implying he is also the leader of Muslims. But this election should teach him some lessons in humility and modesty. It should give him some access to the language of politics in India. He will learn his lesson. Indian politics has taught humility to lots of people from Indira Gandhi to Mayawati. It will teach humility to Narendra Modi also.

Unfortunately, there is a big similarity between Prakash Karat and Narendra Modi — however unpleasant that thought might be. They are both men who do not understand the wisdom of accommodation and cannot stomach the dilution of ideology.

Like Modi and Mayawati, this election has scaled down the arrogance of Prakash Karat, but the debacle of the Left Front points to a deeper malaise.

IN BENGAL, the party had been in power too long. In a society like ours, when any political party is on an ascendant, all gangs, thugs and extortionists gravitate towards that party. In UP, this mafia element was first attached to the Congress; then it moved to the BJP; then the SP; then the BSP, mirroring their rising political graphs. In Bengal, 32 years into power, all anti-social elements had become entrenched within the CPM. The party’s coercive might was enormous. In village after village, people from other parties were prevented from campaigning. That arrogance and control has not loosened very much, but it has started to crack. In the long run, I think Prakash Karat has done a lot of good to Bengal. These three decades of continuous rule had rotted the system to the core. If you miss power once in a while — however bad the Opposition may be — it keeps people and parties on their toes.

(For instance, I believe it is good the BJP got a shot at winning power at the Centre one time. Not only did it limber up the Congress, it also allowed the BJP to get a sense that it can come to power if it gets its formulas right. This is very important to keep the rabid fringe like VHP, Bajrang Dal and Shiv Sena in check. When you have legitimate power, you don’t have to use street power. You rein them in because it’s counter-productive and you want respectability.)

But criminality and arrogance is not the only reason for the Left Front’s rout in Bengal and Kerala. The trouble is, their kind of Leninism has not survived anywhere in the world except in Cuba, Bengal and Kerala. Chandan Mitra would add tartly, “And the People’s Republic of Jawaharlal Nehru University.” This ideology has such an Edwardian ring to it, I am surprised it even captivated so many in India. The point is, this sense of a vanguard of the proletariat, this whole position is protected by middle-class activists. This is why despite 32 years in power, the truth is that the kind of revolutionary changes in social structures that have swept across India have not even touched West Bengal. Everything there is still controlled by the upper castes, and in some senses, it is the most casteist society in India. West Bengal is one state in India, for instance, where you cannot even dream of having a dalit chief minister. In contrast, in south India, the whole thing has opened up. So much new energy has been released. But has Bengal produced an AR Rahman? Or his guru, Illayaraja? Genius flowering from the bottom of society. Such release of energy from the non-brahminic castes has absolutely no parallel in Bengal.

There is little hope that the churn of this defeat will bring in any fresh thought into Marxism in Bengal. It cannot, because this is the last remnant of a colonial culture. That is why our Marxists are locked into their textbooks. That is why they haven’t picked up anything from Latin American Marxism or European Marxism, that is why there has been no new indigenous innovation.

In such an intellectual world, rethinking comes through only two things: death and retirement. Once people start retiring and dying, a new generation will come in. Then it will be easy. They will just not bother with what has gone before. Ideas like this die out of neglect and carelessness, not through dramatic confrontation.

The other important trend this election has thrown up, is the return of support to larger national level parties. One could read this as the start of a significant course correction. With the extreme proliferation of smaller parties and interest groups, perhaps the fragmentation of electoral power has stopped yielding dividends.

Voters have realised it is best to allow larger parties to come to power at the Centre.

The interesting thing is, though the pitch has been scaled down, one cannot read this election result as a post-Mandal era of politics. Many of the Congress’ traditional vote banks — the dalits and Muslims in UP, for instance — had moved away from the Congress to more ‘specialist parties’: the dalits moved to the BSP, the Muslims to Mulayam Singh. In Bihar, they moved towards Lalu. The attraction of these parties was that, being smaller, they were much more captive to the demands of their vote base. In a large, national party like the Congress, others’ demands checkmated your demands. Ironically, the movement back towards the Congress is a sign that the specialist parties like SP and BSP have become too big and bloated with ambition, and so less responsive to their vote banks. In effect, the Congress is now the new small party trying to build a new support base. People feel it might be more responsive to their needs.

There are other reasons why it would be premature to read this election as a post-Mandal era. In India, except in very small, modern, urban pockets, the unit of mobility is not the individual; the unit of mobility is caste. The lowest common denominator for any party decision on their choice of candidates is caste — all other considerations of aptitude and intention come after that. In fact, we cannot reach a post- Mandal era of politics yet because entering politics from the periphery is still a very crucial instrument in Indian politics.

Some of the parties lay less emphasis on it because their constituencies have arrived in the mainstream. The Marathas, Patels, Vokkaligas, Lingayats, Jats. Yadavs too talk less about it because they have just arrived. Perhaps, with Nitish Kumar, Kurmis too will feel more secure. But there are still hundreds of communities who are not well represented. Now that the big communities have organised themselves and reaped the benefits, the smaller ones want a slice of the pie. Just as the Kammas emerged in the 1970s and 1980s through NTR, the Kapus have emerged this election through Chiranjeevi. These are much smaller communities. Earlier, they would have voted under larger umbrellas. Now they think they can carve out a smaller, more targeted domain or space in the political arena.

Recently, the Gujjars began to lobby violently for Scheduled Tribe status — as if a mere Parliamentary decree can turn a group into a tribe. This sort of misuse, battles for quotas, unreasonable demands for affirmative action, and other forms of vote bank wheeling-dealing will continue to happen. But in the long run, all of this will be good for India.

As representations in the system give different communities larger space, everybody’s stake in the democratic system will increase. In the long run, there will be so many crosscutting configurations, the problem will take care of itself. There is a big difference between caste groups angling for 35 or 40 Lok Sabha seats like Mulayam or Lalu, and a caste group contesting for eight or ten. Chiranjeevi, for instance, just has four or five seats. The scale is going down because we have already accommodated a lot of people. The next generation will not face this. They will inherit a much more inclusive world.

FINALLY, a last word on arrogance. The Left parties may have been defeated this election, but the leftist impulse is intact in our society. In fact, it is an imperative. It would be a big mistake if the UPA saw this victory as a mandate for unbridled liberalisation. Some care for the bottom of the society, some belief that the poor should be a priority focus is vital for this society to survive and retain its idea of itself as a humane society. You cannot pay Rs 12,000 for a meal for two people in a five-star hotel and come out and throw Rs 10 to a boy competing with a dog for the garbage and think you have done your duty. Neither can you wait 200 years for the so-called trickle down effect that never comes.

It is no accident that the real factor that won the UPA this election is its NREGA scheme and loan waiver for farmers. Even if 90 percent of this money is pilfered, it permeates into the countryside. Not all of the corruption is in Delhi and Bhubaneswar. A lot of the siphoning happens lower down the chain. Even those who rob, must spend. This boosts the local economy. This pays electoral dividends. India’s poor always vote. That is India’s best checkmate for arrogance.

 

30 May 2009,  Tehelka

 

Don’t exhort, don’t fine

In Bizarre Laws, Corruption, Urban Management on February 22, 2012 at 8:27 am

Governments typically use two tools to encourage citizens to engage in civic behaviour like paying their taxes, driving safely or recycling their garbage: exhortation and fines. These efforts are often ineffective. So it might be a good time to expand the government’s repertory to include

positive reinforcement. Rewarding good behavior can work. As every successful parent learns, one way to encourage good behaviour, from room-cleaning to tooth-brushing, is to make it fun. Not surprisingly, the same principle applies to adults.

In this spirit, the Swedish division of Volkswagen has sponsored an initiative they call ‘The Fun Theory’. Their first project involved getting people to use a set of stairs rather than the escalator that ran alongside it. By transforming the stairs into a piano-style keyboard such that walking on the steps produced notes, they made using the stairs fun, and they found that stair use increased by 66%. Next, the Fun Theory sponsored a contest to generate other ideas. The winning entry suggested offering both positive and negative reinforcement to encourage safe driving. Specifically, a camera would measure the speed of passing cars. Speeders would be issued fines but some of the fine would be distributed via lottery to drivers who were observed obeying the speed limit.

This example illustrates an important behavioral point: many people love lotteries. Some governments are using this insight. New Taipei City in Taiwan recently initiated a lottery as an inducement for dog owners. Owners who deposited dog waste into a special depository were made eligible for a lottery to win gold ingots, thus literally turning dog waste into gold. The top prize was worth about $2,000. The city reports that it halved the fecal pollution in its streets during the initiative.

In mainland China, lotteries are used for a different purpose: tax compliance. As in many parts of the world, China has a thriving cash economy, and it is common for small businesses like restaurants to evade paying sales tax. To combat this behaviour, the government printed special receipts that are supposed to be given to restaurant customers when they pay. Cleverly, each receipt includes a scratch-off lottery ticket, giving customers an incentive to ask for a receipt.

Lotteries are just one way to provide positive reinforcement. Their power comes from the fact that the chance of winning the prize is overvalued. Of course you can simply pay people for doing the right thing, but if the payment is small, it could well backfire. (If the total dog-prize money had been divided up evenly among all those who turned in their baggies, I estimate that the price paid would have been about 25 cents per bag. Would anyone bother for that?)

An alternative to lotteries is a frequent-flyer-type reward programme, where the points can be redeemed for something fun. A free goodie can be a better inducement than cash since it offers that rarest of commodities, a guilt-free pleasure. This sort of reward system has been successfully used in England to encourage recycling. In Windsor and Maidenhead, citizens could sign up for a rewards programme in which they earned points depending on the weight of the material they recycled. The points were good for discounts at merchants in the area. Recycling increased by 35%.  The moral here is simple. If governments want to encourage good citizenship, they should try making the desired behaviour more fun.

 

17 Feb 2012, Hindustan Times

India Should Re-Wrap Economic Reforms

In Politics, Uncategorized on February 22, 2012 at 8:23 am

I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, “no power on earth can stop an idea whose time has come”. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.

— Manmohan Singh, finance minister, Budget Speech, July 24, 1991

In the two decades since Manmohan Singh’s hat-tip to Victor Hugo, and open markets, per capita income in India has grown from $309 to $1,477 (in today’s dollars), outstripping that of 19th century US and 20th century Japan. Life expectancy at birth grew by seven years, infant mortality rate fell by 40 percent and wage inequality between scheduled caste and other workers declined during the same period. Caste-based differences in grooming, eating and occupation narrowed as more open markets allowed a greater number of people to access a wide range of consumables and services. Yet, despite these lofty successes of the 1991 reforms, pro-market policies are viewed with deep suspicion and antipathy in India.

The reason for that perhaps lies in the way reforms were thrust on the country. A 2008 paper by Peter Boettke, Christopher Coyne and Peter Leeson titled ‘Institutional Stickiness and the New Development Economics’ has an explanation that could fit India. The economists theorised that big institutional changes should be rooted in existing cultures, customs and belief systems of a nation to succeed. They called it métis.

Métis is a set of informal practices and expectations that allow ethnic groups to build successful trade networks. The diamond trade in New York City, for instance, is dominated by orthodox Jews who use a set of signals, cues, and bonding mechanisms evolved over centuries for trading. The trade would not function as smoothly if random traders were placed in the same setting. This difference can be ascribed to métis. Because it is based in the accepted, understood, and habituated mentalities and practices of indigenous peoples, the presence or absence of métis explains the stickiness of various types of institutions. In fact, métis can be imagined as the glue that gives institutions their stickiness.

A large portion of the Japanese métis, which was harmonious with large-scale organisations, trade and market exchange, remained intact in the post-war period, helping in its successful reconstruction. While the Japanese adopted a constitution affirming their commitment to Western democratic institutions, much of the language expressed pre-World War II traditional Japanese social and political values.

Why did India fail to do this? The reasons are embedded in what and who influenced post-Independence India’s politics and economic thinking. The foremost perhaps is the Nehru-Gandhi family’s socialist bent. Socialism took India from one of the first developing countries to manufacture automobiles in the 1930s to one whose primary export was communicable diseases by 1991. No member of the Congress party dares say Nehru or Indira Gandhi got it wrong because the Indian métis is incompatible with socialism, even when moving away from it. Manmohan Singh began his July 24, 1991, Budget speech by saying how he was “overpowered by a strange feeling of loneliness” because Rajiv Gandhi was no more. He went on to say, “thanks to the efforts of Pandit Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi, we have developed a well-diversified industrial structure.”

Forty years of socialism meant that India produced political parties which excelled in winning elections in a socialist economy! Winning elections meant selling ‘collectivist’ ideas that were alien in an India métis. Market reforms in India remain a set of ‘dry economic ideas’ because there are few with the experience of selling these as ‘political ideas’. The reformers were unable to convince even the intellectual elites in influential economic institutions and learning centres. That meant the premier institutions dedicated to studying economics and Indian society did not believe in reforms, at least initially.

It has had its natural consequences. Not only did economic reforms sell poorly, the new policies edged out—instead of integrating and modernising— traditional economic institutions and practices like badla (stock market lending mechanism), hawala (a much-maligned, but low-cost and efficient money transfer mechanism), and rural moneylenders.

It is time India expresses economic freedom through its own social values—not as a tool, but as a value in itself. Economic freedom ought to be seen as a pre-requisite to benefitting from a rich tradition of business and entrepreneurship inherent in India’s diversity. Various communities have showed sharp business acumen, innovation and entrepreneurial skills. Indian managers are prized assets even on Wall Street. The Sikhs, Jains, Marwaris and Parsis have demonstrated their skills in building world-class businesses.

The idea of economic freedom must also be explained through the thoughts of influential Indian intellectuals. It is no secret that B.R. Ambedkar’s economic beliefs tilted towards Adam Smith rather than Karl Marx. Freedom fighter and India’s second home minister C. Rajagopalachari went even further. “A free market…will result in expansion of industry and rise in employment,” he wrote in 1958. Rajaji, as he was widely known, believed that political freedom could not survive unless it was sustained by economic freedom.  The idea of economic freedom is not new to India. The challenge for reformists in India is to promote elements of the Indian métis that are in harmony with a free market economic outlook. In short, the way in which economic reforms are presented matters.

1 Feb 2012,  Forbes

A liberal vision for India

In Tribal Development, Trickle Down, Uncategorized on February 22, 2012 at 8:21 am

India yearns for its liberals to unite behind a vision of great prosperity

In 2011, India made a distinct turn away from economic freedom with the failure of FDI in retail and the Cabinet nod for the so-called Food Security Bill—‘food’ for none, job ‘security’ for babus and a ‘bill’ for the rest of us. This turn towards statism will not be without terrible consequences. In spite of the two decades of progress brought about by a marginal increase in economic freedom, India has lost the plot. The question is why.

At least in part it is because economic freedom is not, and was not even in 1991, defended as a matter of principle. To defend opening up of the retail sector to foreign investors or doing away with import duties on used cars as singular measures is playing in socialist terrain, for those against liberty will point to specific gains from curtailing freedoms while promoters of freedom have only yet unknown gains to offer. There is an urgent need to change the very terrain of public policy debate in India, and we must begin by paying heed to the following passage from Nobel Prize winner, F A Hayek’s book The Constitution of Liberty: “…freedom is almost certain to be destroyed by piecemeal encroachments. For in each particular instance it will be possible to promise concrete and tangible advantages as a result of curtailment of freedom, while the benefits sacrificed will in their nature always be unknown and uncertain. If freedom were not treated as the supreme principal, the fact that the promises which a free society has to offer can always be only chances and not certainties, only opportunities and not definite gifts to particular individuals, would inevitably prove a fatal weakness and lead to its slow erosion”.

And a defence of liberty as a principle ought to offer a vision for India—a vision with answers to three fundamental questions. One, how can India become rich? Two, what about income-inequality? And three, what about the caste-system? We look at each in turn.

One, how can India become rich? Modern economic growth happens through widespread application of science to production processes. And this happens not by government intervention but by entrepreneurship. Simon Kuznets, who won the Nobel Prize in 1971, tells us that “many economically important inventions of the late nineteenth and early twentieth centuries were the results of attempts to apply new scientific discoveries, attempts by people like Edison and Marconi who were no scientists but who understood the scientific advances and were impelled to look for practical applications”. The Soviet Union despite having had a very high number of PhDs per capita at one point did not produce a single innovation in consumer goods! This is because entrepreneurs bloom only in free market economies. Economists James D. Gwartney, Randall G. Holcombe, and Robert A. Lawson in a cross-country study of 99 countries for the period 1980-2000 find that “holding constant geographic factors and changes in human and physical capital, a one-unit increase in a country’s EFW [an index of economic freedom] rating increases the growth of per capita GDP by about 1.24 percentage points.” And 1.24 is not a small number; with the magic of compound interest a two unit increase in EFW could by itself double incomes in 29 years. In short, both theory and history tell us that the only – and yes only – way ordinary Indians can become wealthy is through a market economy.

Two, what about income distribution? The market process is a leveling process both on the production and consumption side. A characteristic feature of a laissez faire economy is the introduction of new products and new production methods. This means capital employed in old production methods continuously become obsolete, and the wealth of owners of that capital depreciates in value. New entrepreneurs rise to riches and old fall, Vilfredo Pareto called this the “circulation of elites”. The elite in capitalism (unlike in Feudalism or Communism) are like the occupants of a hotel, the hotel is always full but never of the same people! That is the story on the production side. As for the consumption side, suffice it to quote the great Joseph Schumpeter: “the capitalist achievement does not typically consist in providing more silk stockings for the queen but in bringing them within the reach of factory girls…” The vast majority of government redistribution plans appear pale in contrast to the capitalist redistributive process. And redistribution through profit- motive rewards success in serving others unlike redistribution through vote-motive which reflects success in stealing from others.

Lastly, what about the caste system? Capitalism nailed feudalism in the Western Europe, and it promises to do far worse to the caste system in India. Kuznets tells us that “Amongst the concomitants of modern economic growth are…an increase in the non-personal forms of economic organisation, and a rise in the relative important of economic achievement in the scale of social values”. Non-personal forms of economic organisation—no city dweller knows the caste of her milk producer—limits the domain of discrimination. And the growing influence of economic achievement flies in the face of by- birth social values. Interesting fairly modest increases in economic freedom seems to have brought above significant improvements for Dalits in India. In a 2011 paper, University of British Columbia scholars Hnatkovska, Lahiri and Paul find that wage gaps between Scheduled Castes (people from the bottom rung of the Hindu caste system) and non- Scheduled Castes have declined since the 1980s. This is no surprise, profit seeking firms link wages to worker productivity, not caste! Progress however is not merely an income- story. A recent survey of 19,087 Dalit families in two districts of Uttar Pradesh found that access to markets had improved Dalit grooming and eating practices, and increased access to jobs traditionally considered to be non-Dalit. In short, a market economy is the antidote to the age old caste system. And unlike the government’s lets-enlighten-the- masses formulas which work well solely on Ministry of Education’s policy documents, markets revolutionise the minds of real people—bottom up.

A liberal vision for India is thus a vision of great prosperity, less inequality and an inequality which is more a reflection of individual choices and abilities rather than birth, and a system whose very logic is antithetical to the caste system. India yearns for its liberals to unite behind such a vision; 2011 tells us that halfhearted measures might just not be enough. The liberal must say to the collectivist, ‘this is my vision for India, what is yours?’

 

16 Feb 2012, Pragati

CAG gets a toehold in RAW

In Bureaucratic Delays, Civil Services Reforms, Corruption on February 22, 2012 at 6:13 am

The Comptroller and Auditor General (CAG) has got a toehold in the auditing process of Research & Analysis Wing (RAW), India’s premier intelligence agency.

In directions issued by the cabinet secretariat earlier this month, RAW has been told to submit a copy of its annual internal audit report to CAG. The report is prepared by a senior officer of the Indian Audit Service. A series of follow-up steps are also listed in the communication, which has been the subject of high-level discussions over the past few months.

RAW’s audit process came up after CAG completed its special audit of the National Technical Research Organisation. The report was critical of purchases, procedures and recruitment.

RAW’s audit practices were discussed at a high-level meeting at CAG headquarters, which the RAW chief, officials of the cabinet secretariat and PMO attended.

The RAW chief has been asked to “personally’’ keep CAG informed of how the audit paras listed in the internal report have been “settled.’’ The RAW chief is expected to keep the CAG posted on action taken by it on audit objections or expense anomalies.

RAW has also been advised to set up a monitoring committee headed by its chief, which will periodically review the settlement of audit objections. Agency officials said the directive is a reiteration of old guidelines, and that interaction with the CAG and cabinet secretariat, on the lines suggested, has been set in motion.

 

21 Feb 2012,  Indian Express

 

 

Safety awareness still eludes sanitation workers: Study

In Dalits, Gujarat on February 22, 2012 at 6:10 am

A study by the Indian Institute of Management, Ahmedabad has found that the city’s sanitation workers continue to work without safety equipment, spend a quarter of their income on medical treatment and remain, except for a handful, unaware of schemes tailored for them or the fact that physically carrying human excreta or night soil and entering manholes is prohibited.

The findings assume significance in view of a 2006 Gujarat High Court ruling that stipulated safety equipment and prohibited entering manholes, and a “prevention of manual scavenging” workshop organised by the state Social Justice Department, the Kamdar Swasthya Suraksha Mandal (KSSM) and IIMA last week.

The study by IIMA’s Public Systems Group interviewed 50 workers and their families — most from the Valmiki community — and found 45 of them never donned safety equipment and four did not specify whether they used them or not. Interestingly, 18 are employed as permanent workers by the Ahmedabad Municipal Corporation.

A section on health issues faced by the workers showed that 15 workers died in the first half of 2010, and the community remains prone to “tuberculosis, asthma, cough, backache and infections of the respiratory tract”. Forty-seven workers said they had no idea what kind of illnesses their work could lead to.

“What was immediately notable was that there is a high incidence of death among men due to workplace-related injuries that has led to a rise in the number of widows and therefore a rise in women-headed households,” noted the study.

Concerning education, the study found that six workers could not name any literate family member, and the most educated members of 31 families had passed primary school. On the positive side, seven families listed members as having passed higher secondary, and two families had college graduates.

According to the study, most of these families were staying without toilets and running water facilities at their houses “made of mud, wood and bamboo”.

 

21 Feb 2012, Indian Express

Fund and Flag

In Civil Services Reforms, Foreign Aid, Politics, Poverty Eradication on February 22, 2012 at 6:08 am

Don’t throw away DFID and its good work in a fit of unthinking nationalism

 

It is tough being the Department for International Development (DFID), the UK aid agency, in India these days. While Indian politicians are all too happy to score points against the erstwhile colonial masters and Indian leader writers hold forth about blood money and colonialism by other means, newspapers back in the UK scream that aid money is not buying enough influence or allegiance.

The only real justification for foreign aid has to be that we care about desperately poor people, irrespective of who they are or where they live. It makes sense for the DFID to be in India, because after all the bluster and brave talk from Indian elites, it is still true that 30 per cent of the world’s poorest live in India. And this ought not to be a surprise. Despite a couple of decades of fast growth, despite the Bollywood billionaires and space programmes, India is still a very poor country, with per capita incomes around 10 per cent of those in the United Kingdom, after adjusting for differences in prices and such things. All the talk about India possibly becoming the second largest economy in the world in two decades, apart from perhaps being slightly over-optimistic (growth rates are slowing dramatically right now), obscures the fact that this is mainly because India will have 1.5 billion people by then, and something like half of them would have grown up half-fed and quarter-educated.

This does mean that there is a limit to how much the UK government can do to help out. Even if they wanted to, they simply don’t have the money. We in India will ultimately have to do most of the work of solving our own problems. But that does not mean that help right now is not needed. I have long been an advocate of taxing the rich more (wealth taxes, for example), but in the short run, given how footloose the smart money tends to be and all the other challenges of tax collection, it is hard to imagine India raising more than a few per cent of GDP by raising taxes. That is a lot of money, but there are lots of problems to solve — education is a mess and so is healthcare, not to speak of infrastructure. Or, take nutrition — 50 per cent of children in India show signs of serious malnutrition, that’s several hundred million children. And every little bit helps. What logic would justify walking away from them, because the pride of a few elite Indians is affronted by what they view as British charity?

Of course, the argument does not end here. Perhaps even with the best of intentions, aid is doomed to be ineffective because it is foreign, as a number of scholars (and many leader writers) have suggested. My sense is that the evidence on this, like the evidence of most propositions in economics at this level of generality, is too ambiguous to bear the weight that is given to it — many social programmes fail, even in the developed world — and I’m not sure that aid-funded social programmes fail more than the rest (though it is always easy to find instances of aid funded — and non-aid funded — disasters).

More importantly, the DFID, at least in India, has been very careful to avoid the standard pitfalls of donor-funded programmes. They have focused on specific problems — mainly nutrition, sanitation and child and maternal health — without offering a recipe for all of poverty. They have gone where the poor are — in Bihar, Madhya Pradesh and Orissa. And, perhaps most importantly, they have stayed away from offering readymade solutions. Their work has always emphasised that we do not know why these problems are the way they are and that research will have to play a central role in coming up with effective solutions.

This last point highlights what I see as the most important contribution foreign aid can make to India. The culture in most government departments in India is dominated by a combination of expediency and received wisdom (this, sadly, might be one of colonialism’s most lasting contributions). Departments are mostly run by non-specialists who expect to hold the job for a year or two and, therefore, don’t necessarily have the time, inclination or capacity to learn what is needed to really tackle hard problems. And even when they want to get it right, the nature of politics is such that those in government never want to emphasise the possibility of failure or the need to scale down ambitions. This is where donors have the potential, and where the UK aid agency has shown a particular commitment. Precisely because it is not the government, the DFID can focus on a single problem or two, take the long view, emphasise trial-and-error, get to know the subject area well and think carefully. Through all that, it can get us to solutions that the government system may not be able to get to and more generally, inspire, through acculturation and imitation, a model of governing that will enable India to ultimately solve its own problems. It is not the money that the UK government gives us that is its biggest gift but the ability of its aid agency to be patient, serious and open, and it would be a tragedy if we throw it away in a fit of unthinking nationalism.

 

21 Feb 2012, Indian Express

A solid sense of security

In Bizarre Laws, Bureaucratic Delays, Centre-State Relations, Politics on February 22, 2012 at 6:03 am

 

It’s not just the NCTC — we need to provide a statutory basis and oversight mechanisms for all our intelligence agencies

The protest by eight chief ministers, characterising the Union government’s decision to give powers of search and arrest to the National Counter Terrorism Centre (NCTC ) under Section 43 (a) of the Unlawful Activities Prevention Act 1967 as an assault on federalism, comes in the wake of a “sticky bomb” attack that injured an Israeli diplomat in the high-security Lutyens Delhi. The attack, perhaps, is a precursor to the export of a new wave of terror to India. In any other democracy, both the decision and the attack would have triggered a larger debate about the nature and functioning of our law enforcement and intelligence structures.

India’s counter-terrorism structures and operational capacities to pre-empt and prevent terror attacks suffer from both design flaws and capacity constraints. The complete absence of a consensus on national security issues turns debates into slanging matches, replete with political and communal overtones. It is not surprising, then, that the rhetoric of zero tolerance against terror has never turned into an operational reality.

In sharp contrast, a survey of global counter-terrorism efforts reveals that nothing has been allowed to stand in the way of crafting an effective pre-emptive response to terror. After the Munich Olympics outrage, counter-terrorism through the use of military, law enforcement, intelligence and other resources to identify, circumvent and neutralise terrorist groups has been among the principal security concerns of Germany. The counter-terrorism effort in Germany is directed by the federal coordinator for intelligence, who reports directly to the German chancellor.

In the wake of the 9/11 attacks, a national counter-terrorism centre was created at the federal level by the US government, with the 2004 intelligence reform legislation, to serve as the primary organisation responsible for the war on terror. Its objective was straightforward — ensure that terrorists do not strike again. The rationale — focus all elements of national power in the fight against terror by clearly delineating national priorities, breaking down inter-agency barriers and overriding federal qua state jurisdictional issues.

Similarly, Spain in the wake of the Madrid train bombings in 2004, and Britain after the London bus bombings in 2005, have substantially beefed up their counter-terrorism structures. Britain has an organisation called National Counter Terrorism Security office, exclusively dedicated to this purpose. In Russia the National Counterterrorism Committee (NAK) is tasked with coordinating all federal-level anti-terrorism policies and operations with the powers to intervene at the federal, regional or even municipal level. Even Sweden has designated its security police as the lead agency in the fight against terrorism. Most of these countries, in addition to being democratic, have strong federalist impulses.

What was required was a national organisation exclusively tasked with confronting every part of the terrorists’ life cycle, from radicalisation to recruitment, financing to training for an attack. The decision, therefore, to establish the NCTC by drawing executive power from Article 72 of the Constitution and empowering it under the UAPA, needs to be understood and located in this security environment.

However, the decision to create such an institution through an executive order and locate it within the Intelligence Bureau (IB) does raise certain valid concerns, given the tenuous legal basis of our intelligence structures, the lack of an independent oversight mechanism and the atmosphere of permanent political distrust in a polarised polity.

In response to a Parliament question in July 2009 pertaining to the legislative act from which the Intelligence Bureau draws its right to function, the government came up with this: “The Intelligence Bureau figures in Schedule 7 of the Constitution under the Union list”. When pressed that this may not be an appropriate answer, the government emphatically reiterated: “The Intelligence Bureau finds mention at S.No.8 in the Union list under the 7th Schedule of the Constitution of India”.

Entry 8 in the Union list enunciated in the government’s response merely gives it the legislative power to enact a statute to bring a Central Bureau of Intelligence to be called by whatever name (IB or BI) into existence. A mere mention of a subject in the laundry list of legislative powers neither gives an organisation life nor legitimacy. Unfortunately, no such law has ever been enacted by successive governments since the commencement of the Constitution.

Similar is the case of India’s external intelligence service, the Research and Analysis Wing (R&AW). Responding to a Parliament question about the law/statute which enables the R&AW, the government admitted that there is no specific statute governing its functions or mandate. However, a formal charter listing the scope and mandate of the R&AW governs its functioning

Contrast this with the position in other countries. The Central Intelligence Agency (CIA) was created by the National Security Act of 1947 and is empowered by the Central Intelligence Agency Act of 1949. MI5, the domestic intelligence service of the United Kingdom, draws its legal authority from the Security Services Act 1989, and its sister organisation MI6, or the SIS, from the 1994 Intelligence Services Act, thereby subjecting its activities to the scrutiny of the British Parliament’s Intelligence and Security Committee. The Foreign Intelligence Service of Russia draws its legal basis from the Law on Foreign Intelligence Organs 1996. The German Federal Intelligence Service Bundesnachrichtendienst (BND) draws its legal sustenance from the Federal Intelligence Service Law 1990. Its activities are supervised by the Parliamentary Control Commission (PKK) for intelligence services, which in turn is empowered by the law over the Parliamentary Control of Intelligence Activities 1978.

The current challenge should be turned into an opportunity, both by the government and by Parliament, to provide a statutory basis and an oversight mechanism for our intelligence agencies. A template in the form of a private member’s bill introduced by me in the Lok Sabha entitled “The Intelligence Services (Powers and Regulations) Bill 2011” already exists. The NCTC can be incorporated in omnibus treasury legislation with statutory safeguards that clearly delineate the role of state governments in this existential struggle. This should be in addition to the operational standing council NCTC order 2012 seeks to create. This would prevent the bogey of federalism from derailing the fight against terror.

 

21 Feb 2012, Indian Express

 

 

SC Vodafone verdict may hamper tax transparency, says govt

In Bizarre Laws, Business, FDI, Red Tape on February 22, 2012 at 5:57 am

The review petition filed by the Centre against the Supreme Court judgment on the overseas deal between Vodafone International Holdings (VIH) and Hutchison Group says the verdict will have “consequences” on the government’s measures to promote tax transparency.

The petition contends the judgments suffered errors on the face of the record, and refutes the court’s finding that “the question involved in this case is of considerable public importance, especially on Foreign Direct Investment”.

The Government says the case did not involve any inflow of monies into India because the sale consideration was admittedly paid outside India by VIH, a British Virgin Island Company to Hutchison Telecommunications Int (Cayman) Holdings Ltd a Cayman Island company.

The Government says that the FDI policy was in no way under challenge or scrutiny in the instant case. Besides FDI policy of the government and the interpretation of taxing statutes operate in two different realms, it added.

It argues that it was a patent error in the finding that the offshore transaction, which gave the Vodafone holding company a 67 per cent stake in Hutch-Essar, was “bonafide,” “structured FDI” into India.

A three-judge Bench on January 20 declared that both Vodafone and Hutch were not “fly by night” operators or short-term investors and had contributed substantially — Rs 20,242 crore — to the exchequer between 2002-03 and 2010-11, both by way of direct and indirect taxes.

The review finds fault with the court relying on the provisions of the Direct Tax Code Bills of 2009 and 2010 as one of the reasons to base its judgments on. The petition questions why the court relied on Direct Tax Code Bill 2009, when the Bill has not even been presented in Parliament, but was only a draft put up for public discussion.

The Centre said the court had failed to appreciate that Vodafone had a presence in India at the time of the transaction; it was a joint venture with Bharti Airtel.

Court ruling to affect other sectors: Sibal

New Delhi: The Supreme Court judgement cancelling 122 telecom licenses allocated on first-come-first serve basis has ramifications for other sectors like mining where the same principle is adopted, Telecom Minister Kapil Sibal has said.

“I have been saying this repeatedly that the impact of the judgement is far-reaching. It has implications not only on the (telecom) sector but on other sectors as well,” Sibal said. “We will do that. As and when we do that, we take that decision, it will be placed in public domain,” he said.

21 Feb 2012, Indian Express

Last straw on the fisc back

In Bizarre Laws, Malnutrition on February 18, 2012 at 7:18 am

The huge expenditure on the food bill, with the attendant leakages, could well make fiscal recovery impossible

In the first part of this article, we have estimated the actual cost of implementing the food security bill in its current form. In this part, we now examine the fiscal sustainability of the same. The current state of the revenue and expenditure trends of the Central government (refer table) show that while revenue growth has significantly weakened, expenditure growth has accelerated sharply. In particular, during the last five years (FY11 over FY06), tax revenues have increased only by 13 per cent, as compared to 15 per cent between FY04 and FY06.

On the other hand, non-Plan expenditure during FY06-FY11 (i.e. subsidies have grown by 30 per cent and interest payments by 13 per cent) is significantly higher than over the period FY04-FY06. Additionally, gross market borrowings increased by 32 per cent during FY06-FY11, against a decline of 2 per cent in the earlier period.

In fact, the fiscal stress being currently faced is worryingly similar to (if not worse than) the decade of ’80s that witnessed a sharp deterioration, finally leading to the 1991 crisis. For example, market borrowings had increased by 12 per cent for the decade ended 1991, while they have increased by 32 per cent in the last five years; non-Plan expenditure had increased by 20 per cent during the ’80s and has now increased by 30 per cent and fiscal deficit itself has increased at the rate of 30 per cent during the last five years as compared to 18 per cent for the decade ending 1991. Disturbingly, it is the composition of fiscal deficit that is worrying, with revenue deficit increasing at a much faster pace than fiscal deficit (same scenario as in ’80s) and thus productive capital expenditure being squeezed out. It is clear that some very urgent and strong steps are today required to avert any fiscal crisis. In this context, the fiscal sustainability of the food security bill is seriously in doubt.

Some observers, however, argue that it is churlish to argue against additional financial allocations for fighting the curse of hunger and malnutrition when the Central government regularly forgoes huge amount of revenues. This argument is based on the statement of revenue forgone included in the Annual Union Budget Statement (for the year 2010-11, the revenue foregone as stated in the budget was Rs 5,11,630 crore / 6.5 per cent of GDP).

It is important to examine the veracity of this argument specially because, as eminent a person as Amartya Sen cited this in his recent P.R. Brahmananda Memorial Lecture delivered at the Indian Economic Association’s annual conference in Pune in December. A closer look at these numbers, however, reflects the following:

One, excise duty concessions of Rs 198,291 crore: These are revenue forgone on account of mass consumption goods like medicines, tooth powder, candles, post cards, sewing needles, kerosene stoves, etc. Clearly, exacting the excise duty from these items would have worsened the fate of the poor.

Two, customs duty concessions of Rs 174,418 crore: These are concessions for importable goods consumed for exports as defined under Section 25 (1) of the Customs Act. It is important to note in this context that import duties on components used for exports are universally exempt as taxes are not supposed to be exported. Moreover, is it anybody’s case that these import duty concessions be removed because by doing so, we may lose a significant part of our total export revenue (of this, gems and jewellery exports alone contribute close to 15 per cent of exports). Furthermore, a simple exercise shows that if we strip gems and jewellery exports from our foreign exchange earnings, our short-term debt (residual maturity) as a percentage of reserves, touches 48 per cent from the current level of 44 per cent.

Three, personal income tax concessions of Rs 50,658 crore are primarily related to exemption limits for income tax — these will have insurance premia, contribution of charities and political parties, interest payments on loans for higher education, etc. This could arguably be eliminated, but are we prepared for the distress that it will cause to the salaried class?

Finally, tax concession of Rs 88,623 crore is primarily related to export undertakings established in Special Economic Zones and to 100 per cent export-oriented units. Other areas for concession under this head are accelerated depreciation for industries established in new and hilly regions, scientific research and even contribution to political parties. However, studies including one by ICRIER in 2007 (“Impact of Special Economic Zones on Employment, Poverty and Human Development” by Aradhna Aggarwal) and by Panduranga Reddy C., Prasad A. and Pavan Kumar G. show that SEZs have a significant positive impact on foreign exchange earnings, employment generation and hence poverty reduction. The net cost benefit impact of SEZ is therefore highly positive.

Given the above details, it may not be completely misplaced to argue that the additional expenditure for implementing the food security bill is far greater than any actual revenue forgone for promoting economic activity in the country.

So where do we go from here? We believe what is important is that we must strive to improve our tax base now. As Graph shows, India’s tax revenue as a percentage of GDP is much lower compared to its neighbouring countries. As a case in point, consider the following facts. The total number of assessees expanded at a measly 3 per cent for the five-year period ending 2009-10, the number of returns in excess of Rs 1 crore is only 0.06 per cent of 34 million assessees and the number of PAN card holders was 96 million for the year ending 2009-10 (hence the filing gap is more than 60 million).We must, therefore, expand our tax base immediately.

Second, to implement such food safety bills, we need to improve our delivery mechanisms drastically to plug leakages. A significant portion of foodgrains, mainly rice and wheat, meant to be distributed to eligible families under the PDS gets diverted to the open market. The diversion rate was estimated to be around 36 per cent in 2004-05 (study quoted by the ministry of food, consumer affairs and public distribution). Measures like involving gram panchayats, self-help groups, van suraksha samitis and other community institutions in the running of fair price shops could be used as an effective delivery mechanism to plug leakages (Banerjee and Tiwari, ET, January 28, 2012).

These apart, delivery mechanisms like cash transfers/ food stamps could also be successfully replicated in India. For example, the largest cash transfers such as Brazil’s Bolsa Família and Mexico’s Oportunidades cover millions of households. The food stamp programme is also a central component of America’s nutrition assistance safety net. The stated purpose of this: “to permit low-income households to obtain a more nutritious diet by increasing their purchasing power” (The Food Stamp Act of 1977, as amended, P.L. 95-113).

Food security, an urgent necessity, will be ensured only when Indian agriculture is modernised and productivity and yields rise in the coming years. In our view, it will, therefore, be far more effective and sustainable to allocate additional public resources for developing agriculture, infrastructure and delivering new technologies to the sector. This will more effectively ensure food security in the country.

Rajiv Kumar is secretary-general, FICCI, and Soumya Kanti Ghosh is director, economics & research, FICCI. The authors thank Nibedita Saha for research. Views are personal

 

16 Feb 2012, Indian Express