Friday, February 15, 2019

Mandate 2019 - Agenda for political reforms

Some food for thought
"A writer may tell me that he thinks man will ultimately become an ostrich. I cannot properly contradict him."
—Thomas Malthus (English Economist, 1766-1834)
Word for the day
Synastry (n)
The comparison of two or more natal charts in order to analyze or forecast the interaction of the individuals involved.
 
First thought this morning
I find three social media messages, I received yesterday, worth pondering over.
The first message asked me to guess "how many companies in India made recurring PAT higher than US$25mn for two consecutive years (FY17 & FY18) giving a return on capital employed (RoCE) of 20% or more?"
I guessed "around 100".
I was not far from the truth. Only 94 companies achieved this distinction.
Two hours after answering the question, I realized how amazingly simple is the life of investors in Indian equities. Just find companies that have done it for 5 consecutive years and chose 20 stocks of your liking from that basket of 45 odd stocks.
The second message was a worksheet from a leading brokerage. It showed how I could make cool 30% return in 15days, by putting in a leveraged application in Bharat 22 ETF offering.
The message left me in a state of Shock & Awe. Nifty CPSE is down ~34% in past one year. Nifty CPSE is 5% lower than the level it was five years ago. Major CPSE IPOs like Bharat Dynamics and Hindustan Aeronautics have caused serious wealth erosion to investors. Still this brokerage is encouraging investors to leverage 9x and invest in this offering!
The third message (received separately from more than 20 sources) was data about the companies where the quantum of shares pledged by promoters has increased sequentially in each of the past four quarters. The data was presented in isolation, without any mention of the nature of pledge or reason why promoter might have pledged shares.
The palpable purpose appeared to exacerbate the panic that prevails around such companies and take advantage.
It would have been better if any such data is presented with some rationale. The incremental pledge could be compensate for the fall in market price of security. It could be additional collateral for the loan taken by the company, say for acquisition etc. It could also be that promoter has borrowed in his personal capacity to increase stake in his own company or to fund some other business venture.
 
Mandate 2019 - Agenda for political reforms
As I highlighted yesterday, the primary problem of India, as a political entity, could be traced to collective lack of commitment in our Constitution. (see here)
The initial governments in post independence era somehow missed to realize the need for making all citizens committed to the Constitution of India. The subsequent governments have conveniently perpetuated the mistake through omission.
(It may be pertinent to mention here that there was a strong attempt made during the period of emergency (1975-1977) to make citizen committed to the Constitution. Fundamental duties were prescribed in the Constitution through 42nd amendment. Also the words socialist & secular were added in the preamble to make the primary character of our republic clear to all. However, since the methods used were coercive and the constitutional sanctity of the government itself was questionable, that attempt failed miserably. No subsequent government however has tried to undo the 42nd amendment. This makes "Socialism" and "Secularism" quintessential characteristics of our republic.)
In light of this, let me discuss the agenda for political reforms in India.
Agenda for political reforms
“For indeed any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another; and in either there are many smaller divisions, and you would be altogether beside the mark if you treated them all as a single State.” (Book IV, The Republic, Plato)
During my various journeys across the country, I have acquainted myself with various people; appreciated their way of living; admired their culture; collected some souvenirs, recipes, anecdotes and returned to my cocoon- relaxed, happy and little wiser.
In the process, I could develop appreciation for a variety of people - their varied customs & appearance - and usually felt comfortable even in a cross cultural environment. Subconsciously, more effort was spent on identifying how other people are different from my own ways, rather than discovering the points of convergence. (If someone alleges that this is an act of racism – well I admit it certainly is.)
The one thing that has bothered me most for past few years is the doubt about the “Indianness” of “India” and “Indians” as we understand these ideas in common discourse.
Deriving from my discussion on social, political and economic conditions with people of various regions, I suspect that the idea of “Indianness” perhaps only exists in films, army manuals, national holidays, political speeches and patriotic songs. The compositions my children write describing “Unity in diversity” appears mostly mythical to me.
A national approach to anything is conspicuous by its complete absence in general public discourse. People have strong dogmatic allegiance to their caste, religion, locality, region and state, generally in that order. I saw little evidence of any effort being invested by the system - local politicians, teachers, social workers, police or administrators - in developing an “Indian” identity of people.
The failure of national economic policy in recognizing this regional diversity is perhaps the primary reason for sub-optimal outcome of our efforts. No special efforts are needed to discover that most of the states, regions within states and communities within regions have diverse socio-economic behavior. Hence, their needs and requirements are also distinct. A blanket policy for all is therefore least likely to succeed in meeting its objectives.
At country level the regional socio-economic disparities and cultural differences are well highlighted. These are indeed popular ingredient of any political and cultural marketing campaign in India. However, not much awareness is seen about the differences that exist at the state level.
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 regions differ in terms of caste, community, and religions dynamics. Differences in terms of weather, water and electricity availability, crop patterns, flood-draught cycle, political influence, urbanization, physical infrastructure, income disparities and other social indicators are also rather stark. Same holds true for many other states also.
Unjustifiable socio-economic disparities amongst various states and regions within states, materially different socio-economic status of various castes and communities in different states, has frequently led to demands and agitations for new administrative units (states and districts).
The legislatures have been mostly unsuccessful in developing and adopting a consensus framework for federal structure of the country (Though some attempts like Sarkaria Commission have been made). Certainly there has been a marked improvement in state-center relationship in past 25years, but this could be more due to political compulsions rather than any structural change in approach. This has been the period when regional parties have played critical role in government formation at the center.
It would therefore be reasonable to say that the post independence political organization of the country designed primarily on lingual basis may no longer be relevant in the current context.
The political problem therefore is to develop a political organization that fully assimilates the aspirations of the people, addresses specific local problems, promotes mutual trust & harmony, bars incompetence and knavery from public office, and insures that the best is selected and prepared to rule for the common good.
This could be achieved, in my view, by taking the following initiatives.
1.    Make the democratic process more equitable and participative. The following specific measures are suggested to meet this end.
(a)   Amend the Constitution and Representation of the People Act, 1951 suitably to provide for the following:
Local Bodies
(i)    Any adult person willing to contest elections, must first contest elections of a local body (Municipality or Panchayat). There should be no party system in these elections. All candidates should contest as independent individuals.
(ii)   Every adult citizen eligible to vote in a local body election, should have equal opportunity to get elected for a term of three years. All expenses for such elections shall be borne by the state. (Takes care of dynasty and nepotism)
(iii)  The local body council shall be a permanent body with 1/3rd members retiring by rotation each year. No person shall be elected to a local body for more than 2 terms, consecutive or otherwise.
(iv)  To win local body election, a candidate must score at least 51% of all the eligible votes, not just the number of votes casted. (Takes care of compulsory voting)
(v)   Local bodies should be exclusively responsible for execution of all civic issues (Health, School Education, Vocational Training, Sanitation, Water, Energy, Sports, Land Developments, Local Roads, Lower Courts, etc.) and shall have right to impose direct tax, in addition to the national income tax.
(vi)  Local bodies should have the right to decide the issues of socio-economic backwardness and special treatment (reservation etc.) required in the interest of justice and equity for any particular community, caste or class. (Takes care of social justice and equity)
(vii) A national accountability commission (NAC) should be established as a constitutional body. NAC shall evaluate the performance of all local bodies every three years, and rank these based on a pre defined objective criteria.
State Assemblies
(i)    The individuals who have served 2 complete terms as an elected member of a local body, should only be eligible to become members of State Assemblies. No person shall be allowed to serve more than 3 terms as member of a State Assembly.
(ii)   State Assemblies should have a fixed term of 5 years. Party system should be allowed in State Assemblies. These assemblies should have two types of members - elected (75%) and nominated (25%)
(iii)  The Chairmen of the top ranked local bodies, who are eligible to become member of state assemblies shall be nominated to the State Assemblies.
(iv)  The State Assemblies so elected and constituted shall elect one of their members as Chief Minister. All the members shall be permitted to participate in the election of CM without any party whip. A CM once elected, shall continue as such for at least for 2yrs (or remaining term of the assembly if less than 2yr).
(v)   The State Assemblies shall primarily be responsible for maintaining Law & Order in the state, Higher Education, Interstate Relations, Center State Relations, Disaster Management, State Highways, Appellant Court and Local Body Coordination.
National Parliament
(i)    The National Parliament shall have two chambers - Lok Sabha (elected) and Rajya Sabha (Nominated).
(ii)   Lok Sabha shall have a fixed 5 year term. A person who has served for at least one complete term as an elected member of a state assembly shall be eligible to contest election for the Lok Sabha.
(iii)  No person shall be allowed to serve more than 3 consecutive terms and more than 5 overall terms as member of Lok Sabha.
(iv)  The Lok Sabha so elected and constituted shall elect one of its member as Prime Minister. All the members shall be permitted to participate in the election of PM without any party whip. A PM once elected, shall continue as such for at least for 2yrs (or remaining term of the assembly if less than 2yr).
(v)   The Rajya Sabha shall be a permanent house. Each member of Rajya Sabha shall have a 6year term, with 1/3rd of the members retiring every two year. No person shall serve as member of Rajya Sabha for more than one term of 6yrs. All members of Rajya Sabha shall be independent of any party affiliation.
(vi)  Each State Assembly shall nominate one of its ex Chief Minister to Rajya Sabha. Besides, President shall nominate from retired CJI of Supreme Court, Chief of Defense Staff, CAG, Home Secretary, Vice Chancellors of Top 3 Universities, Chairperson of IPTA/NSD, IG Police, Governor of RBI, Chairman CBDT, President of CII/FICCI/Assochem, members of Lok Sabha who have served at least 3 complete terms as such member, etc.
(vii) Lok Sabha shall deal with matters relating to Constitution of India, interstate coordination, National Highways, Railways, Civil Aviation, Rivers, Ocean, Space, National Defense, Foreign Relations, Science & Technology, National Income Tax, GST, Immigration, etc.
(viii)   Each legislation proposed by the Union Cabinet, must first be approved by the Rajya Sabha. The Rajya Sabha must return any proposed legislation referred to it within 30days with or without changes. The Union Cabinet shall then present the proposed legislation, after incorporating the changes, if any, suggested by Rajya Sabha for consideration and enactment.
(b)   All elected members shall be entitled to receive prescribed salary (National parliament: Grade 1; State Assemblies: Grade 2; and Local Bodies: Grade 3).
(c)    All the appointments, transfers, promotions etc of government employees, judicial officers shall be done by National/State Personnel Authority. None of the elected member shall have any role to play in this.
(d)   The National Parliament and State Assembly role shall be limited to considering the demands of various departments and authorities and allocating funds. The actual procurement shall be done by a transparent system to be managed by a National/State Authority, as per the specified criteria.

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