Friday, December 21, 2018

Salvation lies within

Wishing all the readers a very happy holiday season ahead and a joyful New Year 2019. May all be kind, stay healthy, cultivate optimism and serve Mother Nature. Amen!
The next post from my Diary would be on 2 January 2019
Some food for thought
"In every tyrant's heart there springs in the end this poison, that he cannot trust a friend."
—Aeschylus (Greek Poet, 525BC-456BC)
Word for the day
Nebulous (adj)
Hazy, vague, indistinct, or confused
 
Salvation lies within
You have read the suggestions of the globally reputable experts to remove the growth impediments of Indian economy (see here).
Indubitably the effort is commendable and suggestions very valuable. But as I noted yesterday, these suggestions seek to maintain and somewhat improve the status quo. In that sense, these are incrementalist only. Moreover, since the group of experts itself recognizes that the status quo is not a pretty picture in itself, rather the conditions are pathetic in many important areas, the approach may be lacking, in my view.
Believing that the present conditions are poor and challenging, and the current approach and ecosystem has mostly failed in tackling the problems afflicting the Indian socio-economic milieu, a zero based approach is worth trying in my view.
In five decades of post Nehru period, there have been many national movements which have attempted to redefine the India's social, political and economic milieu.
Most notable of these movements are Naxalite movement of 1960's spearheaded by Charu Mazumdar and Kanu Sanyal et. al.; Jaiprakash Narayn's "Total Revolution" in 1970s, V. P. Singh's "Jan Morcha" in late 1980's, and L. K. Advani's "Ram temple" movement in early 1990's.
Besides, many regional movements have also had notable impact on the Socio-political order. Kanshiram's movement for social justice to the bottom of the pyramid, viz., "Bahujan Samaj" is amongst the most prominent ones.
Though most of these movements have had material influence on our socio-political order, none of these movements could sustain to achieve a potent revolution that could catalyze a complete break away from the politically feudal, economically colonial and socially divisive legacy of British Raj.
After five decades, the society continues to be deeply divided on the lines of religion, caste, and community. Socio-economic inequalities obdurately persist. Social and gender prejudices run deep into citizens' mindset.
The political consequence is that the populace as a whole still prefers to closely identify with religion, caste, community, region rather than the Nation. Reflecting the divide, the elected representatives are often seen pursuing parochial agenda; many a times at the expense of broader national interests.
The economic consequence is that we have failed to devise a "National" approach in economic planning and programming. A fragmented approach in defining economic agenda, has often led to clash of regional aspirations and misallocation of scarce national resources. Indian Railways, various river water disputes, conspicuous regional growth imbalances and wasteful "tax exempt industrial zones" are some classic examples.
I would like to present the following 5 point agenda, that will challenge the status quo and seek to establish a sustainable growth model based primarily on the Indian ethos, rather than typical post industrial revolution western paradigm which is mostly materialistic, neo feudal, and phlegmatic.
1.         Bring temple to the core of economy
Religion has been a major force in core Indian ethos. Traditionally it has been the influence of religion that has brought the concepts of scientific inquisition, righteousness, moral rectitude, social responsibility, environmental sustainability, debt management, HR management, and just & fair taxation, etc. in the trade and commerce.
Post Independence the State has been over focusing on micromanaging businesses and ignoring key social issues. This has weakened the core fabric of Indian society, inasmuch as that taking pride in our rich heritage has become synonym with bigotry for all - the so called "nationalist" who takes pride, the so called "secularist" who is too scared to take pride, and the so called "rationalist" who find nothing to take pride in Indian heritage.
Consequently, places of worship have degenerated from being center of learning & spiritual evolution to shelters for hatemonger, fearmonger, power seeker, and wealth hoarder. Many of these promote superstitions and block scientific inquiry to the detriment of society at large.
In my view, if we want to make this century belong to India, then Indian State—
(a)   should leave business completely to private enterprise;
(b)   play a much larger role in social awakening and create an enabling environment of mutual trust, self motivation, and compassion;
(c)    make the Temple (of course including Mosques, Churches, Monasteries, Gurudwaras, Mutts, Agiyaris, Derasars and others) play a larger evolutionary role in progress of the society, rather than continuing to degenerate further and stay a stumbling block in the path to socio-economic progress; (Taking their gold for managing current account deficit is not sufficient!)
The State must realize and accept that politicians and bureaucrats are naturally and seriously handicapped insofar as their understanding of business is concerned. They should just secure borders, maintain law & order and promote social harmony. So far they have focused on the former at the expense of the latter for the disastrous consequences. (read more here)
Moreover, Indian people in general have been seen to be most compliant, philanthropic, and honest while dealing within their own small local communities. There is strong anecdotal evidence of numerous democratic assemblies within various communities and localities. From my experience I know for certain that most Indians not only feel comfortable working with the members of their own community, but are usually most productive when operating within the network of their “Own people”.
The regulatory framework therefore must take cognizance of these local communities. The ecosystem should be designed in such a manner that these communities are assigned the responsibility of self regulation of their members in matter such as tax compliance, sustainability and environment protection, financial discipline, women empowerment, disease prevention, etc.
2.         Let our children grow as Indian
A couple of years ago, the government of Maharashtra decided to erect a colossal statue of the great Maratha King Chatrapati Shivaji off Mumbai coast, broadly on lines of the Statute of Liberty off New York coast.
The effort to commemorate of one of the greatest sons of India is commendable, but the proposed statute may not be a justice to his memory and stature. It may be seen as yet another poor attempt at Americanization of India.
This needs to be appreciated that the Statue of Liberty is deep rooted in the American consciousness. Freedom of people, thoughts and ideas is at the core of American State. The Statue came after the American State enshrined the idea of liberty in its consciousness. The flame carrying lady represents what USA stands for. It is widely considered both a reminder of core values, and inspiration to many.
In India, outside the erstwhile Maratha kingdom, the knowledge about the ideology and Vision of Chatrapati Shivaji is scant. The school history books outside Maharashtra contain few short stories about his valor, but nothing beyond that.
Unless, the students across the country are taught about the great vision, struggle and contribution of the great king, in a manner that it leaves an indelible imprint on their collective conscience, the proposed Statue may just remain a tourist attraction.
Not only this, the same is in fact true about most great kings, saints, religious leaders and literary genius. School students in Maharashtra read little or nothing about history and legends of South, East or North India. The same is true about most states. The students are taught only about the respective regional personalities.
Students in Mumbai & Delhi could not even name all North Eastern states. None of several 10th class Delhi students I spoke to were aware about a region named Rohilkhand in India (located just 160kms from Delhi). Students in UP, Punjab, Bihar, Rajasthan are mostly ignorant about Tukaram, Thiruvalluvar, Subramanya Bharti, Eknath, and Chandidas.
To a person sitting in Mumbai, Bangaluru, Chennai or Hyderabad, the state of Uttar Pradesh (UP) may not mean much more than – Taj Mahal, Varanasi, Lucknow, Kebab, taxi drivers and construction labor. Very few residents of the western and southern states appreciate that UP is as diverse as India itself. Various regions of the state, i.e., Awadh, Brij, Rohillkhand, Bundelkhand, Purvanchal, and Doab, have distinctly identifiable history, food, dialect, customs, deities, and problems.
The consequence is that student grow up with mostly misplaced sense of supremacy of their regional identities and culture vis-à-vis other regional identities and cultures.
Under these circumstances, how could one expect people in general to have a national approach to any issue! Politicians who emerge from these people only, naturally have parochial viewpoint of most issues concerning growth and development of the country.
3.         Take factories to farms
The mission of the government to double farm income by 2020 is commendable. However, it may not be sufficient. The farm income must rise much higher, led by superior productivity gains and higher realization.
The measures initiated so far, e.g., higher support prices, cheaper credit, crop insurance, improved irrigation, cash fertilizer subsidy, better market access (eNAM, roads etc.) have definitely improved the state of agriculture in the country. But this improvement may not be sufficient. A lot more needs to be done, rather urgently.
Firstly, the business of agriculture in the country needs to be restructured; well, as a business.
A material part of the agriculture in India continues to be a sustenance measure, not a business. It suffers from huge disguised unemployment, underemployment and poor returns.
Secondly, the historical transition of farm workers to industry during the developing stage of growth may not work in current Indian context.
The so called developed economies have transited the labor from farm to factories, when industry and mining were still labor intensive and global competition was not much. The productivity gains were immediate and tangible.
It is no longer the case. The industry in India is already capital intensive. Even traditional labor intensive industries like gems & jewellery, textile, leather, mining and construction are becoming increasingly automated to stay viable against the global competition. Emulating China model may not work in India, as our political and economic model is entirely different.
Moreover, the skill and training requirement for modern industry do not allow a straight farm to factory transition. So the options get limited to unskilled construction sector jobs and building industry around farms where the skill of the farmers could be suitable employed.
While MNREGA and ambitious rural road program is taking care of unskilled construction jobs, there is little effort to take factories to farms.
The ambitious Make in India program mostly aims to substitute imports. We are trying to compete with manufacturing powerhouses like China, Vietnam, Taiwan, etc. This defies the basic principle of making economic decisions.
Whereas, what we need is to promote the export traditional Indian stuff which is our strength.
My suggestion would be that the government should acquire all farm holdings below the viable size and consolidate these into large sized farms. The respective land owners and/or and landless farmers tilling the acquired land should be employed at minimum wages plus a share in profit. The money for this venture should be raised by selling most of the industrial undertakings in the public sector, as their purpose of being in public sector has already been served.
For the larger farm holdings, the government should encourage the farmers to partner with the food processing industry on cooperative model. The factories must be taken to farms.
4.         Change the political paradigm
The present political structure of the country is not very conducive for a higher trajectory of economic growth and development either in terms of popular parameters or in terms of quintessential Indian ethos.
A study of the history of Indian politics would suggest that unlike western democracies only an abysmal minority of Indian voters are strongly committed to a political or socio-economic ideology.
The political discourse in India is usually dominated by contemporary issues and personalities. The economic issues raised during elections are mostly confined to the slogan of poverty alleviation. In recent times corruption has also become a popular electioneering slogan.
Perhaps, no political party seems to have taken issues of poverty alleviation or corruption seriously. Therefore no one has bothered even to outline a conceptual or ideological framework for solving these problems.
Ideologically, the Congress Party abandoned the most acceptable and perhaps most suitable Gandhian Socialism in favor of Nehruvian Socialism that was a poorly mixed concoction of Leninist central planning (central ownership and management of resources and businesses) and British colonial legacy (discretionary patronage to the faithful and loyal).
The model was certainly at cross-purpose with the constitutional federal structure. Poverty, poor governance and corruption were natural off-springs of this system.
BJP (earlier Jan Sangh) started with Deen Dayal Updhaya's Integral Humanism. However, in 1990s it adopted Gandhian Socialism (which is not too far moved from the Integral Humanism) as the principal doctrine.
The present leadership has presented a concoction of Integral Humanism and Laissez-faire model used by some developed economies principally USA.
Politically leadership preaches "Human Being" as the fulcrum of policy making. Whereas the executive is more focused on "Business", "Markets" and "Macroeconomics" as central themes. The conflict is for everyone to see. The consequence is that we seem to be moving in no direction.
The people at the left end of the spectrum exercised significant sway on the bottom of the pyramid in Indian society since independence. They controlled most of labor unions. Though divided between Marx, Lenin and Mao they still were the preferred choice of landless, oppressed and intelligentsia. There was a time when being poor, intelligent (economist, thinker, poet) or rebellious meant being communist.
The things however began to change in late 1980s post dismantling of USSR and the German wall. The Lenin and Marx were relegated to the history lessons. The economic reforms initiated in China under Deng Xiaoping's supremacy, further pushed back the traditional Marxists.
Insofar as the Lohiaites (socialist parties occupying the left of the center space in Indian politics) are concerned, they deserted both Lohia and his ideologue Gandhi as soon as they came into power. Degenerated into motley feudals, they mostly have no commitment to any economic idea and mostly follow the Congress Party's status quoits agenda.
The rise of Aam Aadmi Party (AAP) from a massively popular anti-corruption civil society movement 5years back had given hope and raised expectations of people. This party had no ideological baggage and promised to address the problems as they exist, without any legacy concerns. This party has also degenerated into a motley group of egotists, having no commitment to their raison d'être.
In my view, a continuation of the current state of quandary with respect to economic growth model is a major hindrance in our path to higher growth orbit.
I strongly believe that the inherent austerity, industriousness and enterprising skills of the Indian populace are sufficient to provide escape velocity for moving the Indian economy into higher orbit.
Limiting the role of government to developing and maintaining the institutional framework relating to law & order, sovereignty, external security & relations, municipal functions, inter-state relations and facilitating trade & commerce, may improve economic conditions much faster than otherwise.
5.         Make growth inclusive and sustainable
A key economic reform would be to earnestly hand over the ownership of natural resources to “the public”, instead of few ministers controlling the resources. The trusteeship of all the natural resources may be vested in the local body of people. The local people should determine how these resources should be exploited. Industry based on these resources if developed on co-operative model with equitable ownership of (i) local people (ii) financial investors and (iii) technical experts who would manage the business, the growth could be fast, equitable, and sustainable.
In summer of 2013, the tribal villages of Niyamgiri in Odisha, unanimously rejected the proposal of Orissa Mining Corporation (OMC) and Vedanta group to mine bauxite from Niyamgiri hills and forests under the Forest Rights Act of 2006. The decision was widely hailed as historic.
Two years later, similar situation emerged in the forests of Chhattisgarh. As many as 17 gram sabhas, falling under Hasdeo-Arand coalfield, passed a resolution opposing the re-allotment of coal mines and have written to higher authorities seeking dialogue on the issue.
The protagonists of faster economic development dismissed the protests as yet another mischief of foreign funded NGOs who are allegedly paid to stop India from becoming an economic super power!
The pragmatic are asking , what is the fun in faster development if it is not sustainable?
The austere and humanitarian Gandhians say the goal (faster economic growth to eliminate poverty) is important, and means are equally important.
Amongst the recent examples, the following two are most noteworthy—
The most cited welfare measure of the incumbent government is implementation of Ujjawala Scheme, under which the government has proposed to provide subsidy to 8cr BPL families for acquiring a LPG connection. At present the beneficiary families are required to get refill of LPG cylinders as per the norms applicable to all other LPG users, i.e., 12 refills per year at subsidized rates and more refills at market driven rates. As per recent claims, more than 4cr families have already availed benefit under this scheme.
I must admit that this scheme may definitely benefit the target households and prove to be a great help. But when we juxtapose the scheme to the history of fuel subsidies in the country, it appears a blunder.
Once introduced, it almost took 50yrs to remove the kerosene subsidy, and it was possible only once enough electricity generation started and cooking gas availability got materially augmented. In the meantime kerosene and transportation fuel subsidies constrained the fiscal position of the country materially for many years.
Now consider this. 8cr intended beneficiary household means at least 16-20cr voters under influence. To put this in political perspective, please note that in 2014 Lok Sabha elections the incumbent BJP was polled a total of 17,16,57,549 votes (won 282 seats) and principal opposition party Congress was polled a total of 10,69,38,242 votes (won 44 seats). BSP at third place got 2,29,46,182 votes and won no seat.
With this political dynamics, ignoring this huge block of 16-20cr voters would be very difficult for any political party. It is only a matter of time, when some political party will promise free 12 refills per year to the beneficiaries of Ujjawala scheme and put a fiscal burden of close to Rs1trn on the nation.
This eventuality could have been easily prevented, if the scheme was implemented through a legislation to be passed by Lok Sabha as a money bill, clearly providing that it is one time subsidy of Rs1600 and no further subsidy could be provided under the scheme by any government. The government has obviously not learned anything from history.
Another blunderers populist announcement relates to a major road project in the Garhwal Himalaya. The project aims to connect the four sacred temples in upper reaches through a wider road network. The stated objective of the project is to make it more convenient and safer for the pilgrims to visit these sacred temples and develop the tourism infrastructure in the state.
As a frequent visitor to the region, I can vouch that the ecology of the region is already facing serious threats. The Kedarnath tragedy of 2013 is just an illustration of the disasters we are going to face rather frequently. Worst the
This widening of roads will not only cause cutting of numerous trees, but also result in massive increase in vehicular traffic and number of pilgrims visiting the region. Rise in pollution & garbage, pressure on infrastructure, massive construction of room capacities and other conveniences will thoroughly destroy the sanctity of the place itself; and kill the sacred rivers that originate from there.
If I am minister today, I will completely ban private vehicles in 100km radius of these sacred temples. Allow only disable and senior citizens to travel by public buses to the temples. Develop the traditional pedestrian route to the temples. Provide tented accommodation with bio-toilets along the way. Ration the number of pilgrims visiting these temples, and make it compulsory for all pilgrims to plant one tree each and pay for their maintenance for one year.
Read with the following
May also read the following
 
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Thursday, December 20, 2018

Challenge the status quo

Some food for thought
"It is not the oath that makes us believe the man, but the man the oath."
—Aeschylus (Greek Poet, 525BC-456BC)
Word for the day
Kaleidoscopic (adj)
Continually shifting from one set of relations to another; rapidly changing
 
First thought this morning
Emboldened by the recent electoral victories, the Congress Party is making aggressive postures. It is taking the lead and setting agenda for 2019 elections. BJP and other political parties are either meekly following the agenda set by the Congress Party or busy defending themselves.
Congress governments in three states may not be the only outcome of the recently concluded state elections. Another major outcome is that Congress has regained its confidence, and people are now willing to believe that BJP is not totally invincible. That changes lot of equations in electoral algebra.
The unfortunate part is that the Congress is not learning from the past mistakes and setting a poor agenda for the election. Not only it is indulging in adhocism, but also forcing all other political parties to follow the suit.
Please pardon me for my complacency; but I rest assured that not much will change for better in next 12months, insofar as policy setting and governance is concerned.
Chart of the day
 
 Challenge the status quo
I sincerely believe that any agenda for reforms in India, that is incrementalist, will not change the conditions in any significant measure, howsoever earnestly and efficiently it is implemented. At best, it will help maintaining the status quo; which is not a pretty picture in itself.
Here I would like to reiterate what I wrote a couple of years ago.
It would be fair to assume that most students will return the answer sheets blank, and leave the examination hall, distraught.
Some may try to test their ingenuity and offer literary solutions to the complicated problems, still hoping to score zilch.
A few would however contend that being students of literature, they are naturally the only genius around. These few would offer detailed literary explanations which may not make any sense to the conventional students of physics or literature; and still insist that the solutions offered by them are the best. Hoping to pass with distinction, they might also take this opportunity to ridicule the students of physics and celebrate their superiority. This is the group I refer to as "Radicals".
I am inclined to view the present day Indian economy as the examination hall described above. Though most stakeholders (economists, bankers, administrators, politicians, regulators, traders, borrowers, lenders, consumers, producers, et. al.) can apparently read the problems plaguing the Indian economy, most appear clueless about the solutions. And that is precisely what they are doing day and night - reading the problem; sometime in hush-hush sounds; sometimes raising the decibel to the maximum; sometimes in the secret chambers and sometimes in front of the mammoth crowds; sometimes with audacity and sometimes with jitters in their spine.
The Radicals are the one who are offering solutions. Totally unassimilated, these solutions naturally do not appeal to the conventional mindset. These solutions are therefore mostly liable to be rejected as hazardous, for these seek to rattle the status quo. These are also subject to the derision of the conformist and purist, as they approach the problem from a completely unexpected tangent.
Admittedly, these solutions may very well fail to solve any of the problems, Indian economy is facing today; or even exacerbate the problems; though this cannot be known today. As Shakespeare would tell us “There are many events in the womb of time which will be delivered.”
What matters today is to make an effort, howsoever radical or unassimilated it may seem. That is what is needed to administer a sense of calm on the stressed nerves of the common people, who are finding the current conditions unfairly severe to them.
I therefore appreciate the Radicals steps like Demonetization. It might have failed in delivering the desired outcome. Rather, it may actually have killed the growth momentum, as many experts have claimed. Nonetheless, it was a commendable attempt to break the status quo. It would be disheartening, if the radicals are bogged down by failures or underperformance of their solutions.
Being a radical myself, I would therefore like to approach the problems afflicting the Indian economy from the other side, rather than just incrementally trying to improve the status quo.
First, I would like to focus on the strengths of the India and Indian people, rather than weaknesses. Some key strengths of India and Indians since ancient times, have been their spirituality, austerity, devotion to Mother Nature, and tolerance to diverging thoughts and practices.
In post independence period, we have seen erosion in most of these strengths. Superstitions and mundane rituals have replaced spirituality. Ostentatiousness has replaced austerity. Exploitation of Mother Nature is a norm rather than exception. Intolerance is rewarded.
No matter what economic model you follow or regulatory steps you take for sustainability and environment protection, alleviation of poverty and rural stress, and equality of women, the results would remain under par, unless we strengthen our foundation.
In simple words, the pests have infected the roots of our socio-economic tree. Spraying pesticides on the leaves and fruits will yield almost nothing, in my view.
Tomorrow I shall present my thoughts on the areas of concern highlighted by the panel of experts (see here).
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Wednesday, December 19, 2018

Removing growth impediments

Some food for thought
"The best measure of a man's honesty isn't his income tax return. It's the zero adjust on his bathroom scale."
—Arthur C. Clarke (English Writer, 1917-2008)
Word for the day
Vivify (v)
To enliven; brighten; sharpen.
To give life to; animate; quicken.
 
First thought this morning
Thirty four long and painful years have elapsed since a large tree fell shaking the earth in National Capital of India and many other town too. Hundreds of families have since went through immense pain and suffering.
Every now and then we hear that some progress has been made in delivery of justice to these families. Yesterday was one such day. Delhi high court reversed the judgment of the lower court and ordered life imprisonment for the Delhi Congress party leader Sajjan Kumar. I am sure it is not the last word, and the matter will be go in to appeal in Supreme Court and may take another 1-10years to get finally settled.
While the law is taking its own painfully circuitous and manipulable course, the reaction of various political leaders to the latest judgment is highly deplorable.
For example, the finance minister who has also served as Law Minister of the Country in 2003-2004, while welcoming the Delhi HC judgment, focused overwhelmingly on how the Congress Party had scuttled the investigation in the matter.
He failed to offer any apology to the victims for the inordinate delay in serving of justice. As spokesperson for the government, he also failed in assuring the nation that efforts would be made that such delays shall not be repeated in future. He also failed in apologizing for the fact that in these 34years, BJP has been in power for 11years. He also failed in commending the role of Civil Liberty Organizations, which have been mostly branded anti national and naxals by BJP and its sister organizations, played a key role in bringing Sajjan Kumar to justice.
He though did not forget to list appointment of Nanvati commission by NDA 1 and formation of SIT by NDA 2, and that will surely be used to seek Sikh votes.
Chart of the day
https://www.zerohedge.com/sites/default/files/inline-images/EM%20vs%20China%20GDP.jpg?itok=2T4RN48Q
 
Removing growth impediments
Continuing from yesterday-
The group of economists has made the following suggestions to remove the growth impediments to the Indian economy,
Fiscal consolidation to create space for more investment
While the center’s fiscal deficit has been steadily brought down, the combined deficit of the states – even after adjusting for UDAY – has continued to widen in recent years and, thereby, largely undone the center’s consolidation. Consequently, the consolidated fiscal deficit in 2017-18, stood above 6.5%, not very different from its levels five years ago. Our primary suggestions to make progress on this difficult issue a
  • Sticking to the path laid out by the FRBM Review Committee such that the consolidated fiscal deficit is brought down to 5% and general government debt to 60% of GDP
  • Provide incentives to states to be aligned with the center’s fiscal goals:
  1. Use the model of the GST council as a successful example of cooperative fiscal federalism.
  2. Use Finance Commission awards to reward good behavior.
  3. Central guarantees for the market borrowings of the states that go beyond pre-specified limits need to be removed gradually so that a state faces market borrowing costs that are correlated with its fiscal performance.
  • Better accounting for contingent and off-balance sheet liabilities of the states and the center, so as to estimate overall government financing needs, and therefore its claim on savings.
De-risk the external sector
India’s heavy dependence on oil imports often results in “boom-bust” cycles on the balance of payments when crude prices change. These sharp swings complicate monetary policy, as well as exchange rate and liquidity management, and create undue external and fiscal volatility (since oil prices also alter the fiscal math). We should:
  • Undertake a systematic program to hedge global crude prices.
  • Carry out a set of steps to de-risk the external sector by:
  1. Attracting more FDI,
  2. Dis-incentivizing “hot money”
  3. Encouraging more hedging of foreign currency borrowing by firms
  4. Developing domestic substitute financial assets linked to gold prices.
Fix Stressed Sectors
Careful but quick policy reforms are needed for the sectors/areas that are stressed. These include agriculture, infrastructure (including power), exports and banking. Typically, we need to redeploy government effort in each of these sectors, focusing it on areas where it is truly needed to play an enabling role, while freeing the sector of excessive bureaucracy and intervention, which results in inadequate access to markets, distorted prices, and poor incentives. We should guard against the temptation to focus on the specifics of the World Bank measures, while neglecting the broader impediments to producing in India. We now consider each of these sectors in more detail.
Agriculture & the rural economy
We need deep rooted transformation of agriculture, treating it not as a sector that has to be propped up through repeated sops, but as an engine of India’s job creation and growth. For that, it is imperative that we thoroughly reform agricultural and land policies.
A key source of agrarian distress in recent years has been that the terms-of-trade confronting farmers has turned progressively more adverse, partly as a result of policies to combat food inflation. While low inflation is desirable in itself, the impact on farmers also needs to be taken into account. A policy priority should be to reduce distortions in farm product prices as well as input prices. Another important enabler is technology, both in educating and informing farmers, as well as in opening access to markets. Some specific proposals include
  • Increase investment in research and infrastructure. Eschew loan waivers that divert resources from needed investment.
  • Ensure that farmers receive more of what is paid by the consumer by
  1. Improving farmer access to domestic and international markets by reducing fees, restrictions on competition and building the necessary infrastructure.
  2. Foregoing frequent closing or opening of access to international markets
  • Facilitate farming at scale for relevant crops through the creation of farmer/producer cooperatives, and by enabling easier long-term leasing of land, for which land titling is an important prerequisite.
  • Move to a fixed cash subsidy per acre cultivated based on digitizing and identifying plots (as demonstrated successfully by the Rythu Bandhu Scheme of the Govt. of Telangana). Improve and expand the current Pradhan Mantri Fasal Bima Yojana (PMFBY), especially as the climate gets more volatile.
  • For landless laborers, the best short-term policy option is likely to be to strengthen the National Rural Employment Guarantee Scheme.
Infrastructure
Accelerating the pace of the infrastructure build-out will help in a number of ways; it will create jobs in construction and new economic activity around the resulting roads, ports, airports, railways, and housing; it will promote inclusion as it connects interior rural areas to markets; it will make our exports (and import-competing manufacturing) more competitive as it reduces input costs such as land (as cheaper areas are connected) and power, as well as improves logistics and reduces transportation costs; it will open up India to both domestic and foreign tourism, which can be a tremendous source of semi- skilled jobs. This will require
  • Untangling stalled projects through continued efforts to improve the land acquisition process, addressing environmental clearance issues, improving raw material availability and establishing various sector regulators.
  • Improving access to land for development.
  • Freeing up public resources for investment through public finance reforms (asset recycling, asset swaps, expenditure reform).
  • Revitalizing public-private-partnerships with appropriate and enforceable risk allocation.
  • Creating Special Economic Zones, not necessarily with a sole focus on exports, but also for domestic production. It is important, however, that the SEZ do not degenerate again into opportunities for land-grabbing and rent-seeking.
Power
Despite having some of the largest reserves of coal, as well as having substantial unutilized power generation capacity, India is both short of coal as well as short of power. These are policy self-goals, arising from both the dominant presence of government in coal mining and power distribution as well as populist impulses in pricing. We need to:
  • Free energy pricing to generate more exploration, especially for cleaner gas, while using carbon taxes (or tradeable carbon use permits) to align private incentives and social costs.
  • Expand participation in auctions of mining rights for coal
  • Allow more competition in allocation of natural gas blocks and exploitation of natural gas resources.
  • Improve access and reliability of the power grid so that the use of inefficient diesel generators is reduced.
  • Reform distribution by creating competition for state monopolies.
  • Integrate renewables into power production, recognizing there will be a need for additional balancing power and storage.
Exports
India’s non-oil, non-gold current account has deteriorated by almost 3% of GDP in the last three years, suggesting an urgent need to improve the underlying competitiveness of the tradable sector. Boosting exports should be the lynchpin of that strategy. In addition to the ways suggested also consider Trade agreements, simpler documentation procedures at ports, and low and stable tariffs are needed so that we can be part of global supply chains. High tariffs and other impediments to cross- border trade not only hamper domestic exporters but will also discourage foreign manufacturers from seeing India as a viable part of their supply chains.
Financial Sector
Given the non-performing asset (NPA) build up in the banking system, it is imperative we make the banking system more robust and well capitalized, expand its capacity to extend credit, and improve incentives to lend to the most productive sectors. While the recent travails of the NBFCs are a matter of concern, some of their problems stem from an overly rapid expansion of their balance sheets as they grew to substitute for banks. Stability in the banking system will help spread stability to other parts of the financial system as, of course, will the reverse.
The main challenges for the banking sector are to improve governance, transparency, and incentives in the banking system. Key measures should include
  • Cleaning up bank balance sheets by reviving projects that can be revived after restructuring debt.
  • Improving governance and management at the public-sector banks and then recapitalizing them.
  • De-risking banking by encouraging risk transfers to non-banks and the market; and reducing the number and weight of government mandates for PSBs, and banks more generally.
The non-bank financial sector needs a strong banking system as well as deep equity and bond markets, supported by liquid secondary markets and a robust regulatory and legal infrastructure. Key priorities include:
  • Developing a liquid and deep corporate bond market through policies to encourage institutional investor participation.
  • Enhancing liquidity in the government debt market and making it more attractive to institutional and retail investors
  • Developing missing (or nascent) markets like fixed income derivatives to hedge the credit and interest rate risk of fixed income securities.
Making growth inclusive and sustainable
A good job is often the most important form of inclusion. In addition, we need to help individuals obtain the human capabilities that will enable them to secure and hold that job, as well as protect those who cannot get jobs. Let us now turn to proposals on inclusion.
Education
The single greatest limitation of the Indian education system is its inability to deliver universal functional literacy and numeracy in primary school. Several studies show that students who fail to achieve basic skills by the end of class 3 learn very little in subsequent years even if they are enrolled in school. Our top education policy priority is therefore:
  • A national mission to achieve universal functional literacy and numeracy by class 3. Key elements of delivering on this mission should include:
  1. Improve incentives of existing teachers to attend and teach well
  2. Providing districts/schools with resources to hire supplemental tutors/utilize new technologies that will provide small-group instruction to students so that they can be taught at the right level.
  3. Independent measurement of learning outcomes with rewards/recognition to states/districts/blocks/schools based on improvements in learning.
The Right to Education (RTE) Bill’s input-based approach to education quality was unlikely to succeed given the extensive evidence that most school inputs are neither necessary nor sufficient for improving learning outcomes. We therefore recommend:
  • Repealing all input-based mandates for schools under the RTE (for both public and private schools) and changing the approach to regulation of private schools based on transparency and disclosure as opposed to input-based mandates.
  1. Such an approach will facilitate (as opposed to inhibit) the expansion of quality private- school providers.
  2. It would also facilitate localized cost-effective innovations by government schools, which may be made difficult by the RTE (such as hiring tutors without formal teaching credentials for providing supplemental instructional support)
  • Finally, since school education is mainly in the domain of state governments, we recommend that the MHRD seriously implement the initiative established by the NITI Aayog under it’s “School Education Quality Index (SEQI)” initiative. Implementing the SEQI consistently, and tying some amounts of central funding to the extent of improvement in these indicators over time will help to:
  1. Shift the policy focus to outcomes rather than inputs and programs
  2. Encourage state-led innovation in cost-effective policies to improve outcomes
  3. Facilitate documentation and sharing of best practices across states
While improvement in schooling is a key building block to education, we cannot neglect either vocational training/skilling or college education. Both will be critical to providing our youth with the wherewithal for the jobs of the future. High quality research universities will be essential, both to train the teachers for our colleges as well as to fuel the innovation needed for the next stage of our growth.
Dealing with the skills shortage
There is wide recognition that the current models of publicly subsidized skilling are not performing very well even though skills are extremely scarce. What seems to work better is the skilling provided by private firms that are training their own labor force. We propose that:
  • The law be amended to allow for multi-year fixed term labor contracts, renewable when they end. Severance payments should increase steadily with duration of tenure. The intent would be to move more of contract labor into these fixed-term contracts. These will protect labor better, both initially and over time, and give business some flexibility, as well as greater incentives to invest in training labor.
  • We study why public-private partnerships have in general not been a success in skilling and identifying and share best practices, since we cannot afford to give up on this vital issue. In particular, it is worth exploring whether it works better to get firms to expand their existing training programs to include trainees they will not necessarily hire, since these training programs clearly provide useful skills -- rather than relying on stand-alone training firms.
  • Governments could set up paid internships for those under twenty-six to work as support staff in government departments in field or staff positions. Performance on these could be an eligibility requirement for applying to government jobs. This will both help relieve the manpower problem in government and generate on the job skilling.
Women’s labor force participation
There are clearly both supply-side issues--families not allowing women to work, women feeling disempowered—and demand-side issues—lack of women-friendly jobs in the private sector as well as discrimination. Some useful first steps here:
  • Greater representation of women in state and national parliament, as well as in public administration, the judiciary, and the police has been shown to reduce bias against women and encourage families to invest in women as earning members.
  • Public safety is an important issue for women, and increasing women in the police is a way to make women feel safer.
  • Going beyond quotas, increasing awareness of the costs of not having more women in the work force, as well as behavioral change interventions targeted at both women and their families to encourage women’s work are also needed.
  • Women-friendly policies in the private sector need to be encouraged but legislating that they will need to pay for child care and maternity leaves may just discourage employing women. These need to be subsidized by public funds, at least until private firms start recognizing that they need women.
Healthcare
There is much to be done to reform the healthcare system in India. Increasingly, non-communicable diseases (NCDs) like heart disease, diabetes, and cancer play a much bigger role, so healthcare needs to be reoriented to address these.
  • Expand the public health outreach efforts to private sector providers including those without a medical degree. Given that they provide most of the primary healthcare, they have the reach to transmit our public health interventions (immunization, exercise, testing). Studies in West Bengal suggest that training the private sector health providers improves their performance (measured by sending them “fake” patients) by a very significant amount. Based on that West Bengal has already begun to train many thousands of private sector health providers. Overall, it might make sense to
  • Build a second district hospital in every district head-quarter outside the state capital. Once it is built and is operational, refurbish and modernize the existing district hospital and bring it to acceptable standards. The current district hospital is typically over-crowded in part because it is the only part of the public system that works somewhat better and private alternatives are expensive. The second hospital will provide much-needed back up for the Ayushman Bharat Scheme if the private hospitals do not cooperate. They can also serve as centers for diagnosis and treatment of NCDs.
Environment
Even while business complains about the difficulty of getting environmental approvals, the quality of our environment leaves much to be desired and with climate change looming we should be thinking in terms of reaching peak emissions within the next decade or so and then sharply reducing them. For all of this we need to get more professional about the environment and climate change, as well as more transparent about the regulatory process.
  • A new environmental protection law should be enacted under which pollution regulation is delegated to a fully independent regulator who is appointed for a five-year term and removable only by impeachment. The regulatory agency must be funded automatically through a charge of a fraction of industry revenue. The regulator must be required to use the best available scientific and economic evidence to set pollution fees for pollutants (or inputs closely linked to pollutants) equal to the estimated monetary value of the harm that they cause, and to levy fines for non-compliance. In addition, the regulator may limit or ban some pollutants, and shut down industries that fail to comply. Revenue from fees and fines should go to the government to be used to compensate losers, finance pollution control and clean alternatives, or for the general budget, and should not go to the regulator.
  • Policies that would improve energy pricing in the short term pricing can include:
  1. Setting Coal India prices at international parity
  2. Price electricity at social marginal cost and then use revenues for fairer energy access through, for instance, funding connections under Saubhagya (free of fixed costs) and giving fixed transfers to agricultural users.
  3. A separate policy is needed for pollution from cooking and heating fires that is responsible for 25% of Indian air pollution.
  4. Adopt EURO fuel standards faster than at present.
  • Long term planning changes includes city design that seek to increase public transport, micro electrical vehicles and cycling. India should invest in rail that is easier to electrify (relative to roads). Building regulations should minimize artificial heating and cooling
  • Congestion pricing of city traffic by onboard GPS tracking should be mandatory, with revenues used to improve pavements and public transport. The municipality could compensate existing vehicle owners and drivers through a temporary refund of automobile use taxes.
Social Protection
India has more than 400 separate social protection schemes. A vast majority of them are funded at very low levels and do very little. However, they absorb some amount of bureaucratic capacity. And despite the wide variety of schemes available on paper, as the many protests make clear, people do not feel protected. In particular while MGNREGA provides some support for the rural landless, most other relatively poor people have only the PDS to fall back on. This is one reason that it is so difficult to remove any government scheme, however inefficient. There is a clear need to create a reliable pipeline for providing compensation for losers, as we move towards a more rational system of social protection. The Direct Benefits Transfer is a good starting point and building on it by being credible in compensating losers will be key. Specifically we suggest
  • Going through the hundreds of schemes and getting rid of most of them, to leave us with a small number that are targeted towards important forms of risk that people face.
  • Moving beyond the cash vs kind debate by adopting a choice-based approach on an experimental basis. For example, we could give beneficiaries the choice of opting for a cash transfer instead of subsidized food through the PDS -- instead of policymakers opting for one or the other. With mobile banking and the PDS being digitised with e-PoS machines to enable portability of benefits such a choice-based approach is feasible.
  • Automatically indexing social protection programs (such as pensions) to inflation to ensure that their value is not eroded over time. This is especially important since recipients of social welfare pensions are among the most vulnerable.
These suggestions are good and effort of the team is commendable.
I would however like to make the following two comments:
(1)   There are any theoretical suggestions in this. It would be great if the panel of experts could actually list some tangible actionables to this.
(2)   These suggestions may improve the status quo materially. In that sense most of these are incrementalist ideas. I sincerely feel that in many areas we need to break the status quo and think about some radical changes.
I have been frequently presenting my suggestions on these lines. Would be happy to reiterate in next couple of days.
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