A clarification

Friends,
Several of you have sent emails on the Margadarsi issue and Lok Satta Party’s stand. Clearly, there has been a misunderstanding about our position. I gave a statement in good faith with an intention to raise the quality of public debate, and focus on key issues in dealing with financial institutions. We have neither supported, nor opposed any individual, group or party.

The statement essentially outlines three objectives in dealing with such matters.

Protecting depositors’ interests: Deft handling by regulatory agencies is required to prevent a run on deposits.

Promoting financial stability: Trust in institutions is critical to prevent a cascading effect and eventual collapse.

Role of the Regulator: The RBI, as the Central Bank, has an impeccable record of regulating financial institutions and laying down monetary policy. The Central Bank must act to protect the depositors, prevent cascading effect, penalize wrong doing, and it must be allowed to do so without fear or favour.

All these are unexceptionable points made in the hope that the quality of public discourse will be enhanced by reason, dispassionate analysis and a problem solving approach.

At no stage did Lok Satta Party attack any party or government, nor did it support any individual or group. However, when society is aroused by passion with great ease, it seems to be difficult to steadfastly pursue public interest sans partisanship. Several people misconstrued our comments as unreserved support for a business group, or unrestrained attack on the government. A careful examination of facts clearly proves otherwise.

This stand on preventing a run on deposits is consistent with the Lok Satta’s movement’s stand, earlier, when urban banks were collapsing. Lok Satta then strongly criticized the government’s inept handling of the situation and argued for a revolving fund with contributions from banks and governments to give confidence to depositors.

Lincon once said, “Public opinion is everything; without it nothing can be done, and with it nothing can fail.” In this case, people are divided on the issue and positions are taken easily, and articulated with passion. Once we had realized that for a Party dedicated to creating new politics for a new generation, this issue is a needless digression, I publicly stated that Lok Satta Party would serve public interest better by staying away from the issue. Since then, we have maintained silence on the subject.

Some of our friends and well – wishers have, obviously, strong views on the subject, and they are entitled to them. Lok Satta Party has no interest in the matter, except to protect the interests of depositors and promote rule of law.

I hope you understand and appreciate the fair, balanced, rational, legally correct and morally sound position of Lok Satta Party on this issue. Some may still disagree, and we respect their views. But we have an excruciatingly difficult task of building a better democracy, and we need to put this episode behind us. The nation’s future and the opportunities created for all children irrespective of birth are far too important to permit needless digressions.

Breaking the realty-black money nexus

Dear Citizen,
In the midst of robust growth indicators, one issue which is causing concern is the black economy and the role of real estate in that. Some estimates put this parallel economy between 25 and 50% of the accounted GDP. The negative consequences of such a large parallel economy are all-too-evident.

Corruption is both a cause and consequence of unaccounted money.

• Competition is eroded with tax evasion, and genuine tax-payers find it difficult to survive in the market.
• Tax, GDP ratio is depressed as a large part of the economy is unaccounted.

The consequent failure of public services and decline in infrastructure are all evident in India. With poor quality public goods, the poor suffer disproportionately. The consequent decline in productivity affects the whole economy. Parallel economy encourages wasteful expenditure, and resources are misallocated at the cost of pressing national needs. Unaccounted and untaxed money breeds envy and discontent in society. All these causes and consequences of parallel economy are well-known.

In India, real estate is the sector which feels the impact of black money most. Our land prices are shooting up irrationally. True, land is a scarce commodity, and cannot be created. This supply constraint is further aggravated by our cultural obsession with land. Far too many people are in search of land as a safe investment outlet.

While land is a scarce commodity by definition, the demand-supply gap is aggravated by bad policies and misgovernance. Despite our small land mass (2.5% of the world's land surface), India accounts for almost 12% of the global agricultural land. There is also huge potential for developing residential and industrial areas. Mere building of roads and creation of infrastructure will open up vast areas for utilization. Instead, development is limited to small pockets, and real estate prices are reaching the stratosphere.

The new development of townships and special economic zones is hampered because land holders typically want to hold on to their property for speculative purposes. Experience teaches us that land prices shoot up a hundred times or more with even modest development, and therefore no farmer or land-holder is content with the measly 'compensation' offered under the Land Acquisition Act. Even if above market prices are offered to owners, there is severe resentment as farmers do not share in the anticipated prosperity.

High stamp duties have traditionally fueled black economy, as sellers declare sub-market prices to reduce tax liability. In a market dominated by unaccounted money, those who wish to disclose real prices are at a great disadvantage. The seller has to pay high capital gains taxes with full disclosure. If he wishes to buy a property, in turn he has to pay a large part of the sale consideration - typically 50 to 70% - in cash, which in turn needs black money! Most people are therefore forced to evade taxes and further enlarge the parallel economy.

Land registration has always been a source of corruption. Rent seeking for placement of officials dealing with land records and transfer of property is ubiquitous. In turn, the officials extort payments from citizens for all land-related documentation and sale registrations. Absence of periodic land surveys and poor record-keeping have added to the woes of citizens and corporates. Land ownership is difficult to establish, and many innocent buyers have been cheated by unscrupulous real estate agents. This further shrinks supply of reliable land with assured titles, and leads to escalation of land prices.

Corrupt state politicians and bureaucrats are increasingly using their control of government land and land records as a source of patronage and extortion. With the decline of license-permit raj, control of land has become one of the key sources of corruption. The state politicians can dramatically alter the fortunes of favoured individuals and corporates by allotment of land.

• There is no rational policy for land allocation, nor is there a proper assessment of realistic needs.
• In alienation of government land, market does not operate, as there is no competition and all decisions are discretionary.
• On the few occasions when land is auctioned, the prices are inflated unrealistically as realtors indulge in strategic high bidding to enhance the market value of their other assets, or some buyers pay unreasonably high sums in a state of irrational exuberance.
• Rent control laws have further inhibited development of land, and created scarcity by diminishing supply.
  
  Clearly, unrealistic real estate prices, huge black economy and phenomenal corruption are a drag on the economy. This will eventually inhibit growth and enhance the risks to individuals and businesses.
  
  The government can act in a few simple ways to disentangle the complicated mess we have created over the decades.
  
  First, supply can be enhanced by opening up more land for development by building roads and infrastructure.
  
  Second, stamp duties need to be rationalized, and land records updated by periodic surveys and computerization with full public access to all information.
  
  Third, in all developmental projects like special economic zones, land losers can be given equity in the form of ownership of a portion of the developed land. This will give farmers a share in the prosperity and make available more land for development.

Finally all alienation of land for profitable activities should be non- discretionary and by public auction.

Simultaneously, a few concomitant steps need to be taken to curb black-money in land related transactions.

• Giving right to charities to acquire land at 50% above the declared purchasing price within 6 months.
• High vacant land tax to inhibit speculation without development; and
• A reasonable estate duty on inheritance of non-agricultural land are measures which promote transparency and equity.

The governments need to act with clarity and good sense before our growth is hampered by irrational land prices and the growing black economy.

Rehab deal for farmers won't stem suicides!

My fellow citizens,
The union government's announcement of the Rs.17,000 crore rehabilitation package for farmers in the 31 suicide-prone districts of AP, Karnataka, Kerala and Maharashtra focuses attention on the plight of agricultural sector in a fast-growing economy.

Emphasis on irrigation, interest waiver, watershed development, seed replacement and dairy industry is welcome.However, the deeper causes of agrarian crisis need to be critically examined and addressed.

Three fundamental long-term trends have led to the prolonged crisis.

First, agricultural commodity prices have been declining world-wide and in India for decades.

The recent growth spurt in global economy witnessed steep rise in the prices of industrial raw materials.But food prices are stagnant, as greater prosperity does not increase food consumption beyond a point, and higher production actually depresses prices.

Second, the restrictive trade and pricing policies of agricultural commodities had caused immense damage to farm sector for decades until the 90's, and weakened rural economy and farmers' capacity to withstand shocks.

Belated efforts to restore balance in the terms of trade coincided with accelerated shift to services, leading to neglect and decline of agriculture.

Third, the share of agriculture in the gross capital formation (GCF) fell dramatically over two decades from 15.4% in 1980-81 to 8% in 2001-02.

As a share of GDP, GCF in agriculture fell from 3.5% to 1.6% during this period.

The crisis has been aggravated by distorted priorities and irrational policies of governments over the years. Three examples will suffice.

Free power or un-metered power at fixed slab rates promoted excessive investment and over exploitation of ground water, and eventually led to water depletion, failed tube wells, indebtedness and impoverishment.

Stultifying state control and consequent corruption and cronyism in cooperatives undermined a potentially vibrant support system, denying farmers credit, quality inputs, market access, processing facilities, technology and management.

Undemocratic and unaccountable control of markets in most states denied farmers market intelligence and bargaining power, and made them vulnerable to money lenders, extortionists and mafias.

The misery of rural populace has been compounded by the criminal neglect and failure of state in education and healthcare. Even poor farmers and labourers are forced to spend huge sums out-of-pocket for indifferent private schooling and hospital costs. A high proportion of rural families incur huge debts at usurious interest rates to meet rising hospital costs, driving many to despair.

Even a casual glance at the comparative trends of GDP growth in farm and non-farm sectors indicates the magnitude and gravity of the crisis afflicting agriculture.

• About 55% of the population dependent on agriculture shares only 20% of the GDP.
• In effect, the income per capita of this vast population is only one-fifth of the rest of the people dependent on industry and services.
• With agriculture growing at 2% and the rest of the economy recording over 9% annual growth, the share of agriculture is failing each year by almost 1% of GDP. If the current trends continue, agriculture's share of GDP will decline to about 14% by 2014.

Even maintenance of the income per capita differential of 5:1 between other sectors and agriculture would require a shift of about 11% of population from agriculture to non-agricultural occupations, reversing the current ratio of 55:45.

Given the slow rise in employment opportunities in non farm sector, such a huge occupational shift seems impossible; which means that agricultural incomes will register a further relative decline from the current ratio of 1:5!

Clearly, the majority of the population has no place in the growth bandwagon, making rapid growth unsustainable, and society and polity unstable.

The farm crisis needs a robust, all-out response from the Indian state. Certainly we need to invest heavily in agriculture, harness every drop of water, and enhance productivity through better inputs and extension. But much more needs to be done.

First, wherever farmers need protection from cheap imports, tariffs need to be raised. Cotton is a good example. Foreign governments are heavily subsidizing their cotton farmers, and Indian farmers are unable to compete because of low import duty. It is no accident that a large proportion of suicides are in cotton belt.

Second, national policies must be pursued in respect of ground water, cooperatives and markets. Judicious price incentives will remove distortions in ground water use, and democratization, member-control and competition will liberate the cooperatives and agricultural markets from the clutches of corrupt politicians and bureaucrats, and unscrupulous money lenders and mafias.

Third, the focus should be on value addition, particularly in case of perishable crops. Extreme price fluctuations and distress sales can easily be prevented by creating a network of processing industries, guaranteeing fair price to both farmers and consumers.

Fourth, a massive programme should be launched to promote high value crops like medicinal plants, and bio fuels. India is well-placed to take advantage of the next agricultural revolution in the offing, as both food and fuel will compete for the same land, with the end of the era of cheap oil.

Fifth, special attention needs to be paid to artisans, occupational groups, animal husbandry, poultry and fishery sectors. Agricultural crisis acutely affects the artisans and occupational groups in villages, and skills, credit, market linkages and a measure of social security to them are critical. Sixth, we need to develop urban amenities in rural areas and promote non-farm activities and services sector.

Finally, the state needs to focus on its core functions and guarantee good quality, accessible, free education and healthcare to all citizens.

Much of the rural distress is the consequence of state's failure in basic services.

We cannot sustain high growth rates, nor can we alleviate rural distress, without transforming our politics and governance.

Make the poor more productive

Dear friends,
The impact of economic liberalization on poverty levels in the country has been vigorously debated by economists and politicians over the years.

The data seems inconclusive, and scholars often seem to arrive at conclusions suspiciously close to their own ideological proclivities. The broad consensus appears to be that poverty is declining; it is difficult to conclude that the decline in poverty is attributable to liberalization and rapid growth; and the decline in poverty is less than what the free market enthusiasts hoped.

Ultimately, from the perspective of those who are neither investors enjoying dividends or capital appreciation, nor owners of fixed assets enjoying rental income, employment and income are the key determinants of economic prosperity.

Employment statistics may give us a better indication of the impact of growth on the lives of the poor.

The findings of the six quinquennial surveys of NSSO on employment situation between 1977-78 and 1999-2000 make interesting reading.

· The proportion of those employed in the population has been higher (380-390 per thousand) in rural India in the period 1988-2000 than in urban India (315 - 324 per thousand).

· Correspondingly, the number of unemployed persons per thousand population has been higher in urban India (18-22) than in rural India (7-12) during same period.

· In general, all over India, unemployment fell during 1988-94 (from 22 to 18 per thousand in urban areas, and from 12 to 7 in rural areas), and remained unchanged during 1994-2000.

Clearly, higher growth has not made a significant dent in unemployment.
Also a higher proportion of population is employed in villages than in towns, though rural employment is at the low end of the value chain and yields subsistence income mostly. Urban unemployment seems higher largely because the unemployed rural youth are migrating to towns and cities in search of livelihoods. The Southern and Western states are close to population stabilization levels, and villages are getting depopulated on account of migration.

Unemployment is highest among the 20-24 years age group, just as youngsters enter the job market. Over 85% of all the unemployed are between 15 and 29 years of age. This shows that in most cases unemployment is not on account of lay offs or job hopping. Clearly, young people are considered unfit for employment as they lack skills, and in time they acquire some skills and get employment.

In most advanced societies, unemployment declines with education. As young people acquire new skills through education, they become more productive wealth creators, and are in demand in the job market. The striking feature in India is that in each social group, unemployment rises with higher level of education!

There is a clear and unambiguous link between unemployment and poverty. The percentages of unemployed below poverty line among ST, SC, OBC and others in the country stood at 37.6, 29, 27 and 16.9 respectively. At least 37% of the ST unemployed were living below poverty line, while only 17% of the unemployed belonging to the social groups "Others' were below poverty line.

From this analysis, three broad conclusions can be drawn.

First, migration to urban areas is accelerating among young people of employable age. Villages are getting depopulated on account of lack of job opportunities, and cities are getting congested and the urban poor live in appalling conditions.

Second, education is often of indifferent quality, and there is an increasing disjunction between education and skills. It is not uncommon to find even engineering graduates unemployed, or working for paltry wages of Rs 3,000 per month.

Third, even when employment of some form is available, the wages are low on account of low productivity and little value addition. Jobless growth, or subsistence employment with low wages will neither reduce poverty nor stimulate demand for good and services. Eventually, unemployment will retard both growth and social cohesion.

The state must play a proactive role in employment generation in five areas.

First, a massive programme of skilling of our youth should be launched with participation of public sector, private businesses and financial institutions. Micro efforts of this kind have been very successful, but the challenge lies in their replication on a mass scale.

Second, our education needs to be substantially improved, with meaningful skills imparted at high school and college. Apprenticeships and technology workshop instruction in Germany, vocational technical schools in France, community colleges in the US, and vocational training institutes with internship in Latin America - all have useful lessons to offer. Our own polytechnics and ITIs have largely been ineffective, as the skills imparted are inadequate, the institutions did not respond to changes in the labour market, and there is no interaction with industry.

Third, we need to create economic activity in rural areas by creating urban infrastructure and amenities, and promoting manufacturing and service sectors based on local resources and needs.

Fourth, a significant boost to rural economy is needed by incentivizing value addition to agriculture through post-harvest technologies and agro-processing.

Finally, the state must improve delivery of education and healthcare so that the people at the low end of economic pile can get basic services free of cost, and their productivity is improved.

There is much that needs to be done to eliminate poverty, enhance skills and productivity, and promote employment and incomes. From whatever starting point we examine these questions; the answers are always linked to the nature of our politics and governance. It is time we cleaned up our politics and created a first rate governance mechanism we sorely need, and richly deserve as a people.
Don't you think so?

Magnanimity for the millions on the margins?

Dear friends,
The spate of brutal killings of Salva Judem members by Maoists in Chattisgarh and encounter deaths of Maoists in Andhra Pradesh expose the fault lines of our society and polity. These are not acts of violence inspired by extra-territorial terrorist agencies to destabilize our nation.

These Maoists are the products of anguish, despair and bitterness resulting from decades of misgovernance and an economic growth process which relegates millions to the margins. The causes are internal and rooted in the alienation of large segments of population on account of denial of opportunities and elementary justice.

Organized violence of all kinds undermines economic growth, destabilizes the society and weakens the nation. However, ideological violence can only be eliminated by addressing the causes of alienation and bitterness, even as the assaults against the constitutional order are firmly repelled. Mere counter-violence and intelligence may deplete Maoists for the time being. But as long as the underlying causes are not addressed, more and more disenchanted citizens are likely to take to the gun to fight the injustices of the system, however misplaced their methods are.

Centuries of vertical fragmentation and social hierarchies led to unimaginable misery and denial of justice and opportunity. The social movements that accompanied freedom struggle gave some semblance of hope to the oppressed sections. The work of Mahatma Jyotiba Phule in Western India, Narayana Guru's remarkable efforts to liberate Ejhavas in Kerala from caste oppression, and Ramaswamy Naicker's Self Respect Movement are three noteworthy examples of such social mobilization for inclusion of sections which were hitherto on the margins of Indian society. The leadership and intellectual vigour of Babasaheb Ambedkar gave a new meaning to the quest for equality and justice, and made it an integral part of our constitutional order.

Sadly, independent India witnessed the decline of social movements. Simultaneously, the political commitment for the inclusions of Dalits and oppressed segments in the mainstream society has been symbolic at best. Issues of real empowerment have been neglected, and politics of tokenism have become the norm. If India pursued robust policies for human development and rapid economic growth, the situation might have significantly improved by now. But excessive state control led to politics of patronage and rent-seeking, and depressed economic growth. Politics of tokenism became a substitute to genuine empowerment and human development. The result is the extremely uneven growth process, and exclusion of large sections of population from the benefits of self government.

Ideally, economic liberalization, competition and the unleashing of the entrepreneurial potential should help bridge the social divide. As skills and capacity for participation in wealth creation determine social mobility, birth and patronage should cease to matter. But tragically, the Indian state did not create conditions for such social mobility. India never created conditions for human development of the disadvantaged sections. The limited educational opportunities created in the early decades after freedom benefited the upper castes, and created a sizeable body of people with skills, knowledge and entrepreneurship. But the Dalits and other disadvantaged sections were largely denied the fruits of education and development. Over the past three decades, the unmet demand led to growth of private education, and state institutions declined. The poor too started sending children to private schools, adding to their financial burden. But much of private education too is sub-standard. As a result, most of the poor children never fulfil their potential, despite the genetic endowment.

Today, the future of nearly 70% of children can be predicted with reasonable certainty on the basis of conditions at birth - caste, literacy level of parents and income. The bulk of the children have no opportunities for vertical mobility. Near collapse of public health systems and low level of skills even if some smattering of education is imparted have further compounded the misery of the poor. Ubiquitous corruption, over-centralization, oppressive state machinery, and failure of rule of law broke the backs of the poor already groaning under social inequity. Discrimination by birth is thus institutionalized, despite a liberal constitution and democratic trappings. Justice is denied to most of the people, and law applied to different people in different ways. Dominance of money and muscle power in elections made politics a huge part of the problem, not the solution.

It is these cruel circumstances which breed anger, alienation and violence. If we do not address these fundamental issues, violence will undo all fruits of freedom and economic growth. And growth itself will be stunted because of violence, and non-participation of the bulk of the people in wealth creation. As the illiterate eke out a precarious livelihood through drudgery, the 'educated' are unemployed for want of skills.

This spiral of violence can be reversed only if we focus on education, healthcare and skill promotion. All parties claim to be committed to these worthy goals. But for these fruits to reach the poor, we need to redefine politics. Politics as business should give way to politics revolving round the people's lives and empowerment. The oppressed sections which depend on the state for education and healthcare must be enabled to truly participate in politics and decision making. Total decentralization of power, comprehensive political reforms to restore the spirit of service to politics, and radical reforms of the police and the justice system to ensure swift and real justice to all sections must be integral to the new political culture.

As Martin Luther king said, "the silence of good men is far more dangerous than the brutality of bad men." The thinking sections need to mobilize the people whose future is at stake, and act now.

What is your take on this issue? I look forward to hearing from you all!

The intelligent way to assuring security

Dear concerned citizen,
Once again, cowardly and murderous terrorist groups have attacked India's financial capital. Once again, the citizens of Mumbai, in the midst of the shock and grief, have exhibited uncommon courage, resilience and tolerance. As in April 1993, in July 2006, all of India showed how a great nation could transcend prejudice and bigotry, and uphold its liberal, humane traditions.

But the hurt and anger remain, and they need to be channelized constructively and creatively to secure the nation against future dangers. The economic consequences of terrorism are obvious. Direct loss of life, limb and property cause great misery. Disruption of economic activity on account of infrastructure breakdown undermines growth. The psychological impact of terrorism, fear and insecurity could dampen investment, depress capital markets, damage work ethic and lead to gloom and pessimism. The swift and demonstrable return to normal life in Mumbai is the best answer to the terrorists and their foreign backers.

The Prime Minister echoed the sentiments of the nation while paying wholesome tributes to the citizens of Mumbai and Srinagar and asserting that India would defeat the merchants of death and destruction by our resolve and defiance. The Leader of the Opposition rose above politics and focused on unity and national purpose.

These murderous bombings once again show that sleeper cells in Indian cities can be activated at will to unleash horror and destruction. While these cells may be ultimately controlled from Pakistan, the links are increasingly complex, involving several tiers within India, Bangladesh, Nepal, UAE , Gulf region and Europe. The telecommunications revolution and globalization have given enormous advantages to the terrorist outfits, just as they have accelerated growth and promoted prosperity.

The recent spurt in terror attacks in Jammu and Kashmir and the Mumbai blasts show that our national security capabilities need strengthening. In particular, we need to focus on three areas.

First, the intelligence and security infrastructure to fight terrorism needs to be strengthened. In a highly globalised, technologically sophisticated world, this would need greater access to technology, and highly trained, adequate manpower. Investment in these may be expensive in the short term, but could prevent far greater losses later. Our total security related expenditure is about 4% of GDP now. More expenditure would mean diversion of precious resources; but being penny-wise could greatly enhance the risks to our national security and economy. It would be sensible to invest in smart technologies and excellent training instead of massive expansion and visible presence of security forces. Equally important is effective integration and coordination among the many security agencies - R & AW, Military Intelligence, State intelligence wings, and all police forces.

Second, the intelligence agencies need to be given the freedom and flexibility to operate effectively. Democratic accountability should not mean tying up intelligence and security forces in procedural bottle necks. Recruitment of personnel on short-term basis in India or abroad would be necessary from time to time. The heads of intelligence agencies need the freedom to act swiftly and secretly. Similarly, procurement procedures need to be relaxed to suit intelligence requirements. Obviously the IB cannot procure high quality surveillance equipment or other sophisticated gadgets through advertising, open tendering or display of specifications on the web! The authority to discretely purchase state-of-the art equipment to suit our special requirements is vital in order not to alert terrorist outfits and hostile powers. Many such procedures need to be streamlined, with suitably amended processes of accountability, to enhance the capacity of security agencies to cope with growing challenges.

Third, we need to revisit the legal framework which exists to combat terrorism and other threats to national security. Many jurists and security experts argue that the normal criminal laws are not adequate to bring terrorists to book. Witnesses are silenced by fear of reprisals; judges and their families are threatened with violence and retribution; and rules of evidence and standard of proof required to establish guilt have become tools in the hands of terrorists to escape the clutches of law. Foreign nationals determined to undermine our unity and security cannot be allowed to use our constitutional freedoms against us. The imperatives of national security have to be acknowledged and recognized while making laws to combat terrorism. It is better to have strong laws enforced justly and humanely, than to have weak laws forcing the security agencies to act extra-legally. The money laundering law is widely regarded as toothless, and needs to be strengthened so that the international supply chains of terrorists can be cut off.

Finally, domestic political rivalries should not be allowed to come in the way of national security. The union government must be seen to be firmly in command, and its authority needs to be respected whichever be the party in power. A perception of weakness or lack of cohesion will only embolden terrorists. Our democratic system has been our greatest asset to national security, and unrestrained squabbles should not be allowed to weaken the country. Similarly the Union and States should work, and be seen to be working, in concert. For instance, SIMI network is suspected to be involved along with LeT in the Mumbai blasts. And yet, the UP government is said to be reluctant to extend the ban on SIMI. Such discord can only harm the country.

In the ultimate analysis, our security is guaranteed only when all segments of society share in prosperity, and have common stakes in the future. Alienation breeds resentment and violence. Harmony in society and opportunities for all are the best safeguards for the future. Meanwhile, the threats of foreign-sponsored terrorism cannot be underestimated. We need to do whatever it takes to eliminate such threats. Only then freedom, peace and growth can be assured.

What do you think needs to be done?Is there anything else we could add to the list of solutions?Think my fellow Indians!Ponder!

For a better tomorrow,see the big picture

Friends,
One of the great challenges in any society is increasing administered prices, or reducing subsidies in a politically palatable manner. All democracies wrestle with the problem of reconciling the clash between the short-term political price a government has to pay for temporarily unpopular decisions, and the long-term social good which results from such decisions.

The recent increase in petrol and diesel prices holds a mirror to this classic dilemma. But such a dilemma is not merely the government's problem; the interests of future generations and the whole society are linked to the capacity of a government to take the painful but correct decision. The media, civil society, political parties and opinion makers have the duty to examine these issues and raise the standards of debate.

The oil pool deficit in the current year would have been about Rs. 73,000 crore if prices were not increased to partially offset this deficit. Even then the impact of price increase is only Rs.9,200 crore.

The government also reduced the customs duty from 10 to 7.5% and thus exchequer loses about Rs 6500 crore, reducing the deficit further. The Government is issuing oil bonds to a tune of Rs. 28,000 crore to reduce the oil pool deficit. To that extent, the burden on government increases, except that there is deferred cash outflow. Finally, the oil companies will share a loss of revenue of Rs. 24,000 crore, which in effect is a subsidy to consumers. All these and other steps would bring down the deficit to a manageable level of Rs. 3000 crore. Clearly even with price increase, the government and oil companies are bearing an additional burden of Rs. 52,000 crores, and government is foregoing a revenue of Rs. 6500 crore.

With international crude prices skyrocketing beyond $70 per barrel, any government would have to pass on at least part of the burden to the consumers. Most countries have enhanced oil prices. Britain which imports only 20% of its oil needs, in contrast to our 60%, has priced its petrol at 95 pence per litre (nearly Rs. 82). Most of the nations have realized that global oil prices are likely to further increase as demand continues to grow and supplies stagnate. Over the next few decades we are going to face the severest oil crisis for over a century.

Importing countries have to brace themselves for two consequences of this crisis.

First, oil prices need to be increased, as governments cannot absorb the costs.

Second, the world's dependence on oil needs to be reduced, and consumers and industry should have an incentive to go for energy efficient technologies, more sustainable life-styles and renewable fuels. Otherwise unmanageable fiscal deficits will force governments to bankruptcy; and societies will suffer grievously as oil becomes costlier and more scarce. That is the reason why even rich countries are also raising prices in the interests of society.

One of the criticisms and concerns raised by our economists and parties is the low Tax-GDP ratio in India. Our taxes probably account for 16 - 18% of GDP making it one of the lower shares among large economies. Clearly, better infrastructure, education, healthcare, justice, policing and other public goods cost more money, and low tax base will hurt the poor and inhibit economic growth. If governments give up taxes in order to keep oil prices low, it will only deplete the treasury at the cost of much-needed public goods and services. If other taxes are raised to subsidize oil, it only means that the government is removing the money from the citizen's right pocket and putting it in the left pocket!

Given our low tax-GDP ratio, and the appalling quality of infrastructure and public services, the burden of oil price increase has to be borne by consumers. What we should demand is that every rupee collected is wisely spent by the government for the larger good of our children. Greater transparency, decentralization, accountability, and citizen empowerment must be the watch words.

In fact, the subsidies in energy sector have largely been just dysfunctional and detrimental to the economy. Low price of LPG and kerosene is leading to unauthorized diversion of subsidized LPG and kerosene as automobile fuel. The government is losing an estimated Rs. 15,000 crore per annum in subsidies through diversion. Adulteration with kerosene, which is priced low, is leading to serious environmental pollution and damage to vehicles. Subsidized oil and excise duty concessions on automobiles are promoting private motors leading to more pollution, congestion, higher oil consumption and trade deficits.

But if subsidies have to be given there are two prime candidates.

First is high quality, reliable public transport which will reduce oil consumption, pollution and congestion.

Second, viable alternative, renewable, indigenous fuels like ethanol. This will pave way to the shift to indigenous fuels and reduce green house gas emissions and global warming, rejuvenate agriculture and put our money in our own people's pockets. Even the US is subsidizing ethanol to promote its production. Brazil is saving vast amounts of foreign exchange by producing ethanol at about $ 25 - 30 per barrel.

Sometimes, being wise and compassionate requires toughness. We need to have a comprehensive review of our energy and pricing policies, and delink government from oil pricing decisions. The market should determine the prices, and all subsidies saved should be used for education, healthcare, infrastructure and alternative fuels. We must focus on long-term energy security, renewable biofuels and reduced dependence on costly, imported oil. Politicians have an obligation to look at the bigger picture, speak truth, and mobilize public opinion in favour of rational policies. If today's transient comfort is at the cost of better tomorrows, our children will pay a heavy price for our thoughtless follies.

So,what do you have to say friends?

Where the economy is being chained

The redoubtable Economist (June 3rd - 9th, 2006), in a special report on Indian business, asks the provocative question: "Can India fly?".

The answer is that it has taken off; but its people could fly much higher without the fetters imposed by poor policies and incompetent government. Most objective observers share this cautious optimism.

The policy issues are mired in politics and populism. But Indian entrepreneurs and workers have a way of boosting production and productivity despite policy errors. The real problem areas are infrastructure, education and healthcare.

Power sector problems are very well-known, but half-hearted attempts by the Union, and populism, incompetence and corruption in states are severely undermining economic growth. When there is will, there are clearly ways of improving the situation.

Witness the much-maligned Gujarat. Three years ago, the losses in power sector were of the order of Rs.2,500 crore. In a bold initiative, the Gujarat government separated the agricultural feeder lines from domestic supply. Farm power is charged at Rs.850 per HP (at 1700 units consumption and 0.50 ps/unit). Today, all villages get 24-hour domestic supply, and the power board is making a tidy profit!

The Union itself is guilty of disjointed policy and incoherent execution in many sectors. Take energy sector. We have several players - ministries of oil and gas, power, coal, mines, non-conventional energy, and nuclear energy, and several public sector behemoths. Each functions as an isolated, vertical silo and there is no integration or convergence. This, at a time when dramatic changes are sweeping energy sector globally, and vital new initiatives need to be coordinated. Health sector provides another example. Nutrition, water supply and sanitation - three key determinants of health - are each managed in splendid isolation. Within health itself, the various disease control programmes, NACO, and AYUSH function as separate empires with very little convergence.

In states, the situation is at times even more alarming. Often key positions are filled routinely, with square pegs occupying round holes. The tenure of key public servants is usually under a year, and in many cases below 6 months! In this merry-go-round, there is neither authority to deliver, nor accountability. Everybody complains against everyone else. A classic system of realistic and plausible alibis is created, in which we have only victims and no villains. Not surprisingly, corruption is rampant.

In general, delivery of services, not withstanding a few notable successes, is poor. Education and healthcare are two important areas of failure. At the policy level, there is welcome recognition of past follies. More attention and money are now allocated to these sectors. In the absence of real reform in delivery, more funds would only lead to more leakages and dissatisfaction.

Do we have to live with this unhappy state of affairs, or can we improve performance? Will our economy be held back by poor governance? The answers lie in our approach to delivery over the next few years. A priceless opportunity beckons us. Indian economy can be truly unleashed and poverty ended if only public money is put to good use and services are delivered properly.

We certainly need comprehensive political reform to change incentives in public life and eliminate corruption. Equally, we need rational, growth-oriented, wealth and employment generating policies. Past orthodoxies need to be given up. But our economy need not be held back until these political and policy failures are addressed. Competent delivery can still be ensured within the political constraints, accelerating growth and reducing the burden of poverty.
There are four broad approaches which can yield significant results in delivery.

First, we need effective convergence of key sectors and services at all levels - Union, state and local. The fact that there are about 70 Groups of Ministers in the Union shows how disparate the functioning of departments and ministries is! Significant restructuring at every level is both necessary and feasible. This better coordination alone will improve both policy making and execution.

Second, a rational personnel policy needs to be evolved and implemented at all levels. Development of domain expertise, selection of the right person for the right job, a guaranteed tenure, clear mandate and adequate resources should be the key elements of personnel management. No elected government can completely ignore compulsions of politics, ideological affinity and personal chemistry. But it is possible to improve performance even within those constraints by sound management. Such management requires parallel recruitment for a tenure, competition, and honourable retirement for those whose strengths do not match the requirements of a growing economy. The barriers between public and private sectors should be lowered, and mobility should be encouraged.

Third, we need fusion of authority with accountability. The bane of our administration is complete divorce between the requirements of a job and the resources at the command of key functionaries. Mistrust, inadequate delegation, over-centralization, excessive procedural rigidities, and low risk-taking capacity are the characteristics of most public servants. As a result, most functionaries tend to take the line of least resistance. Routine files and meetings account for over 90% of the time, and neither innovation nor actual outcomes are pursued with vigour. We need to create a system of clear lines of accountability and clothe functionaries with commensurate authority and provide resources.

Finally, the focus must shift from expenditure and outputs to outcomes. Even physical targets are meaningless except in infrastructure sector, and outcomes need to be monitored in service delivery. For instance, educational attainments, health status, out of-pocket expenditure, economic burden of disease and skill levels can all be measured through random surveys with sufficient granularity to make assessments at district and block levels. We have impressive capabilities in organizations like NSSO, and they need to be strengthened to measure and assess outcomes in key sectors and programmes at grassroots level. Such feedback would be a tool for midcourse corrections as well as monitoring. The additional cost would be marginal, considering the vast outlays now proposed in key sectors of education, healthcare and social security.

Good intentions and the way to hell

It is said that the way to hell is paved with good intentions. Well- intentioned, but unwise policies can devastate local economics.

The plight of farmers and labourers in Kolleru area of Andhra Pradesh - the low land between Krishna and Godavari deltas - is a striking example of misplaced policies and institutional mistrust causing disproportionate damage to the economy. Three decades ago, there was hunger, malnutrition, disease and distress in Kolleru area. Though located between two great deltas enjoying irrigation over a century, Kolleru area suffered drought and flood alternately. Being at the tail end of both irrigation systems, the farms were dry when there was no rain; and being low lands, they were inundated when it rained. Severe flooding caused devastation in 1964, 1976, 1983, 1986 and 1989.

Since the 1970's the government actively encouraged the farmers take to fish farming: loans were granted, training was imparted, and technology was transferred.

In time, a thriving pisciculture led to rural prosperity. Adversity was converted into opportunity, and the wasted drain water became a source of wealth creation. Now, over 600,000 tons of fish are produced in that area valued at Rs. 2000 crore, supplying food to the rest of India. The sale of fish from Kolleru never exceeded 15,000 tons earlier. In this densely populated area, people's livelihoods, incomes, health, economy, and state revenues - all improved dramatically.

Such high growth led to some aberrations. At times, with the connivance of officials, farmers encroached upon drains, and obstructed flood flow, leading to inundation. Several big farmers and entrepreneurs saw an opportunity in pisciculture, and started taking large tracks on lease, paying annual rental of Rs. 20,000 per acre typically. There are vague complaints of possible ecological impact of pisciculture. All these have practical answers: encroachment should be evicted from drains, and the channels cleared of silt and weed; small farmers should be strengthened, and big farmers should be evicted from government lands traditionally cultivated by local farmers, and now leased out; industrial and municipal pollution in the upper reaches should be stopped; and pisciculture practices should be improved reducing dependence on fertilizers.

Instead of such rational policies, the government, which had earlier actively encouraged pisciculture, now decided to throw the baby with the bath water. Following years of uninformed media campaign, the state, without genuine consultation with the local people, declared an area of 300 sq. km as a wild life reserve, on the pretext that migratory birds including Siberian cranes needed untouched wetland. Fish and birds together actually form a mutually beneficial relationship: bird droppings make natural fish feed; and fish plankton and the resultant ecosystem feed birds. Both growth and nature could be sustained by wise policies. Instead the misplaced policy has the effect of snatching poverty from the jaws of prosperity!

About 35,000 acres of fertile land, including about 10,000 acres of land granted to the local dalits and backward classes is now part of the wildlife reserve. In this area alone, the annual fish production is about Rs. 500 crores. The livelihoods of over 100,000 people in the area are now jeopardized. All this, without any land acquisition or payment of compensation! A fair compensation would be of the order of Rs. 5000 - 7000 crores. All rights of farmers over their own lands are practically extinguished and they are directed to resort to 'traditional fishing', and agriculture without any chemicals. Fish tanks are destroyed in great haste. Drains are left unattended, increasing chances of inundation in upper reaches. Pollution from industry and municipalities is not stopped. But agriculture and pisciculture are blamed for ecological damage.

If agriculture is unacceptable on grounds of pollution, there is farming and pisciculture in 12,00,000 acres in the upper reaches, and the waste water drains into Kolleru. It is absurd to think of curtailing agriculture in this rich rice and fish bowl with over 3 million population! And if such 'pollution' is harmful, then the wild life reserve in the lower reaches has no meaning. State's folly is now compounded by institutional mistrust and logjam.

Under the law, the State government can declare an area as a wild life reserve. Once such notification is issued, all authority vests in the Union, and the State cannot correct its follies. Even the Union executive has no real power, as the wild life board and its standing committee take over. Even they cannot correct the mistakes, as the Supreme Court decided that all proposals for changes even if approved by the State, Union and the wild life board, should be cleared by it. The Court itself created sixteen empowered committees with extraordinary executive powers.

In the Kolleru case, a few well-meaning activists went to court, and obtained orders for demolition of fish tanks even before land is acquired. Neither compensation for lands, nor a comprehensive package of rehabilitation entered the picture. Agriculture is now criminalized, as par with smuggling or counterfeit currency. Now, even as politicians slowly recognize their folly, they are helpless to correct the mistakes. A system of alibis is created with everyone claiming helplessness. When the region is finally devasted economically without commensurate benefits to society, no one can be held accountable.

This is a classic case of chopping off the head for a simple headache. Can we disentangle the mess we created and promote rational policies and sustainable growth? It will take years of dedicated efforts, wisdom and restraint from all players before some sanity is restored to our polity. Meanwhile, will somebody, anybody the State, Union, the Courts - understand the pain, anguish and needless suffering inflicted on the helpless population of Kolleru and protect their rights and livelihoods? Or will we add to the growing rural alienation, unrest, and resort to violence, which have bedeviled our skewed growth?

The risks and rewards of corruption

The recent CBI raids and allegations of disproportionate assets of a prominent Haryana politician to a tune of Rs. 1500 crore have barely evoked any interest among political pundits and media. There is such cynicism prevailing about politicians, that most people tend to believe the worst about 'them'.

But we have to acknowledge that corruption is all-pervasive in our society. The much-talked about corruption perception index of Transparency International places India pretty low in terms of integrity in public office. A CMS-TI study in 2005 estimated that the monetary value of petty corruption in 10 sectors alone is of the order of Rs. 21,000 crores per annum. When you consider the collusive or 'grand' corruption and all the sectors of the economy, easily ten times this amount is collected in bribes annually. The 3 million trucks in road transport industry provide an illustration.

Typically, each truck pays about Rs. 200 per day as bribes at check posts, octroi centres, and other places. Thus, petty corruption in truck transport alone accounts for over Rs 20,000 crores per annum! Clearly, corruption amount of Rs 200,000 crore every year is a realistic estimate by any standard.

The disclosure of assets of candidates which came into effect in 2002 with Supreme Court intervention has created some unusual situations. Many politicians known to be wealthy, but corrupt disclose very little income or assets, whereas honest politicians with legitimate income disclose much more. The net result is, disclosure of assets has become somewhat ludicrous, and often distorted. There are still many honest politicians and public servants. It would be extremely debilitating to our democracy to paint all public servants - elected or appointed - by the same brush.

Huge, unaccounted and illegitimate election expenditure, mostly incurred by the candidates as an investment in politics as business, demands multiple returns to sustain it. Even a casual analysis shows the multiplier effect of illegitimate election expenditure on corruption: risk premium is high in politics; provisioning for the next election has to be substantially higher than the previous one; a high return on risky investment is the natural expectation; the many party 'cadres', who in mass-based parties are actually mercenaries, need to be rewarded with access to public money and opportunities to make a 'living' at cost of state or society; and the many intermediaries in the vast cycle of corruption demand their own pound of flesh, thus multiplying the corruption proceeds several fold. Direct theft of public money through treasury malpractices is both rare and easy to detect and punish. In a robust and open democracy, complex systems need to be evolved to sustain such a web of corruption. Transfers and postings of officials and even junior employees often has a price. At times some form of auctioning actually take place, and the positions go to the highest bidders. The bids can be one-time payment for a tenure, or monthly payment of a guaranteed amount.

The expensive private political advertisements in language papers and bill boards extolling the virtues of this municipal chairman or that MLA, not to speak of state party basses and chief ministers is an indication of the huge expenditure which goes into politics as investment in anticipation of multiple returns. Such large expenditure by political wannabes for self-aggrandizement or pleasing political godfathers significantly adds to the corruption load on the system.

This tragic vicious cycle of corruption is undermining competition, jeopardizing vital services, diminishing quality of lives, distorting public life, and impeding economic growth. Bhanoji Rao and Srinivas Kolluru estimate that our growth rate will increase by about 1.65% at current investment levels if our integrity reaches Singapore levels. Competition and choice in the economy have successfully curbed corruption; telephones is a good example. Transparency and technology have been effective in reducing supply. But technology succeeds only when processes are reengineered. Land records computerization in AP did not reduce corruption in land registration; but in Maharashtra there was greater success. Recently issuing driving license and renewal has become largely corruption-free, thanks to sensible process reengineering coupled with application of IT.

But there are core areas which cannot be taken out of state control. Already justice system is 'privatized' by armed gangs taking law into their hands, and providing rough and ready 'justice' for a price through brutal means. In fact, this state failure has vastly complicated our politics and inducted murderers into legislatures. Therefore, the standard libertarian mantra of 'privatization' does not address the problem adequately. It only tends to shift corruption from the economic areas of decision making to the core areas of state functioning. Therefore, while efforts should continue to curb the supply of bribes, we need to look hard at the demand side.

One simple solution is to make it much harder for corrupt public servants to enjoy the fruits of their perfidy. For instance, the Law Commission, in its 166th report (1999) recommended confiscation of properties of corrupt public servants. Jammu and Kashmir recently enacted such a legislation. Such a law effectively enforced along with strict curbs on benami transactions (as advocated by Law Commission in its 57th report in 1973) will reduce the rewards of corruption drastically, and increase the risks hugely. This is a relatively simple and easy measure which should find broad acceptance across the political spectrum.

A lot more needs to be done to transform the political culture and to change the electoral system in order to make it possible for honest men and women assume public office without illegitimate expenditure. But the first sensible step is to make the corrupt pay.

Crossing the Rubicon...Tamil Nadu style

In a democracy, elections are not merely about choosing representatives and deciding which party should be entrusted with the responsibility for governance. Elections are also about political education and determining priorities for the future. But over the decades, most parties in India have failed to utilize elections as a means of mobilizing public opinion to obtain a mandate for meaningful change. Instead, elections have become a way of determining who will rule.

Over the years, cynical and shameless manipulation of the poor and powerless voters through competitive populism has become the dominant feature of our elections. The current Tamil Nadu Assembly election has shown that this process of manipulating the vote has reached the nadir. The DMK-combine promised colour televisions to each family!

This is by no means the first time when a party offered freebies to the unsuspecting and hapless poor. Most candidates habitually offer money and liquor for vote. And since the early 1970's politicians perfected the art of using public money as inducement for vote. Ostensibly, all these promises are intended to eliminate poverty. But the gullible poor remain as vote-banks, and no significant dent is made in poverty.

The Garibi Hatao politics of 1970's and the populist policies of NTR and MGR are good illustrations of the poor becoming an assured vote bank, even as their condition remains largely unaltered. The absurd campaign of Devilal in Haryana in 1987 marked a new low, when he promised to give irrigation water without 'depleting the power in it' as opposed to Congress which generated hydro-electricity before allowing it to flow into irrigation canals! Devilal again hit headlines in 1989 by promising to write off farm loans. The loan waiver was eventually implemented by VP Singh government in 1990. The credit system suffered irreparable damage, and farmers continued to be in distress after the loan waiver.

Politics of free electricity has dominated our electoral landscape for long. Several states resorted to this, including the present Congress government in Andhra Pradesh. Farmers continue to pay huge bribes for new connections or services, power supply is erratic, and utilities suffer serious losses at great cost to the tax payer. And yet, the cynical governments resorting to such short-term ploys reap rich political dividends.

But all these pale into insignificance in the face of the brazen promise of DMK in Tamil Nadu to give colour televisions. By this reckless promise, the sovereign voters are converted into mendicants. The tragic death of several poor women while distributing free sarees in Lucknow in 2004 forever reminds us how the voter has been reduced to a beggar. But Mr Karunanidhi now seeks to institutionalize such mendicancy. In such political calculations, people are not human beings with dreams and aspirations, and dignity and pride. They are reduced to being voters whose compliance is necessary for the power of a few manipulators.

When poll promises are always made with an eye on the votes, what is wrong with Mr Karunanidhi's promise? Because, this time by offering colour TV sets, the politicians have crossed the rubicon. Most of the subsidies and freebies offered by parties so far can be justified on the ground that they were meant to help fulfil potential, or prevent suffering, or support the weak and vulnerable. But colour television sets cannot be justified on such grounds by any stretch of imagination. That is why Mr Karunanidhi's election promise has implications beyond Tamil Nadu and this election.

If such a reckless electoral tactic goes unpunished or unchallenged, who knows what tomorrow will bring? In a future election, a party may offer free motorcycles, another will promise refrigerators to all, and a third will give motor cars! And why not guarantee a hundred bottles of free liquor annually to every family? And all this, with public money. This will certainly bankrupt the treasury. Election will go to the highest bidder. Once such promises are honoured, nothing much more can be done. Education may be in perilous state denying poor children an opportunity to enlarge their horizon and acquire skills; we may have more televisions than toilets, and people may suffer indignity, humiliation, inconvenience and ill health on account of public defecation; and public health may be in shamble forcing millions into sickness and debt trap. But once people get televisions and scooters, the state does not have resources to do the things which it ought to do.

Therein lies the real tragedy. The state is ready and willing to do what it need not, or ought not to do, at the cost of its essential functions. Poverty is perpetuated, and millions remain as vote banks, seeking alms and freebies which will never improve their condition. The netas and their families of course continue to thrive in the 'service' of the people. The servant becomes the master, lording over people, and the sovereign citizens become mendicants propping up the political fortunes of a few individuals and their kith and kin.

This must stop. If the parties have any sense of shame and spirit of public service left in them, they must come together to put an end to this culture of mendicancy. The media, which are busy peddling the week's sensation, must rise above the mundaneness of daily occurrences, and mobilize public opinion to reshape politics. The time is now, before all parties subvert our democracy fully and public office becomes the preserve of the highest bidder.

Can Merit and Social justice be compatible?

Dear friends,
The recent debate generated by the proposal to reserve 27% seats in Union educational institutions for backward classes has predictably been very shrill and hysterical. Reservation is a classic zero-sum-game issue and polarizes society intensely, as the gains to a social group are matched by losses to another. Prejudice and bitterness in this debate must be overcome by facts and logic. We all need to step back a little and take a deep breath.

There are three critical issues we need to examine before reaching any conclusions.

First, even today the future of a child can be predicted fairly accurately at birth based on caste, family and gender in most cases. Such a predictable future determined by the accident of birth and unrelated to abilities and hard work is an unacceptable disgrace in modern civilization. Poor children from deprived sections are as brainy and sharp as others, and yet they seldom fulfill their potential, as opportunities for vertical mobility are denied.
As a result, much of the gene pool of our society is wasted. Sustained high growth can be preserved only if we include all social groups in a modern, humane vision of an egalitarian society where all sections are winners. There is a clear and compelling case for strong affirmative action policies to promote equity and opportunity and preserve peace and harmony. Otherwise, violence will become arbiter of social justice. Equity and social harmony cannot be delinked.

Second, our quest for social justice and opportunities for all must be combined with the search for excellence. Clearly, in a modern society competence and performance are critical for economic growth, service delivery and governance. We need to devise means of affirmative action which ensure high standards of performance.

Third, thousands of youngsters would never have found dignity and opportunity without affirmative action policies. While there are obvious distortions, the fact remains that reservations benefited large sections, and many of them performed creditably once opportunities are provided. Equally, the benefits of reservation are uneven, with families which prospered early through preferential treatment enjoying a huge lead over the poorer, uneducated families.

Given the complexity of the issue and the unevenness of outcomes leading to distortions, there is resentment on both sides. The poorer SCs, STs and OBCs feel cheated by politics of tokenism and lack of access to education and employment. The other sections, particularly the poorer among them, feel discriminated and resent diminishing opportunities relative to demand. Given the enormous hunger for quality education, the availability of seats in institutions of excellence and the perceived fairness of selection are hugely contentious issues.

What do you think?Can we promote equity with efficiency? Can 'merit' and 'social justice' be made compatible? Can preferential policies be taken out of the prison of zero-sum-game through win-win solutions?

Happily, rational solutions are available to these dilemmas. Policy makers and media need to focus on them, instead of indulging in feverish invective and hype. Political expediency, social ostracism and rage must give way to rationality, wisdom and long-term solutions. What, then, can be done?

First, preferential policies must be coupled with incentives for performance, particularly in professional courses and in institutions of excellence. This can be done by giving a head start to candidates from disadvantaged groups. For instance, if 90% is the cut off score for general candidates, preferential groups can be admitted at, say 80% or 75%. This provides motivation and incentive to reach a benchmark, and guarantees uniformly high standards. The preferential candidates must be given free, intensive coaching during plus two course to meet these standards.

Second, a 'Means Test' must be adopted for preferential treatment. Among disadvantaged groups, reservations can be primarily for families with low income, and those below a certain grade in government or profession. And among other sections, poor candidates can be guaranteed free tuition, and no student will be denied higher education for want of money. A system of scholarships, endowments and soft loans can be institutionalized.

Third, there is a case for rationalizing the reservations for BCs. Mandal Commission report is over 25 years old, and periodic surveys and reclassification are needed for determining groups deserving preferential treatment and identifying the most backward classes (occupational groups) for special privileges.

Fourth, there is need for deregulation and expansion of higher education to suit the needs of a growing, large economy. Accreditation, academic freedom, rating and transparency instead of licensing and regulation will expand opportunities vastly. In addition, state institutions must significantly expand capacity to meet the demand for quality higher education.

Finally, school education and healthcare must be the corner stones of governance. Tony Blair staked his government's reputation and survival on the quality of education; George Bush was elected in 2000 on the basis of his record in school education as Texas Governor. In India, public policy, political discourse and governance are largely divorced from education. Education engages the attention of politicians and media only when reservations become an issue. The appalling failure of the state in the social sector is at the heart of the persisting inequities.

But those who argue that good school education is a substitute for preferential treatment must recognize that the poor and disadvantaged cannot be held guilty for monumental governance failure. Neglected groups are hungry for good education and opportunities. Even poor rural Dalits are spending Rs.200 per month per child in the hope of 'convent' education. The nation needs preferential policies and good school education. Meanwhile, we can design programmes to combine equity with efficiency.We can create a win-win situation!

Questions :
1.According to you,what is the best way to make Merit and Social Justice compatible?

Your opinion and ideas will help fuel a very necessary debate on this contentious issue.I look forward to hearing from you!

Energy Security – Time for Plan B?

The recent foreign policy debates are largely centered around our future energy needs. Frenetic economic diplomacy to secure nuclear power generation oil and gas contracts, and laying pipelines on the east as well as west to transport fossil fuels are certainly of value in the short and medium term. Long-term supply contracts and investments in exploration in oil-rich countries will give us some leverage. But we need to plan for the future with clarity in an integrated manner.

Let us look at the bigger picture to understand the threats to our energy security. A recent book – “Plan B 2.0” by Lester Brown – paints a grim picture of the global situation in the next hundred years. Brown is not an evangelist with apocalyptic vision. He is an optimist who recognizes the many opportunities to shape a better and more secure future in the next century.

Brown points out that we are very close to peak oil production, and, “indeed, when historians write about this period in history, they may well distinguish between before peak oil (BPO) and after peak oil (APO)”. He analyses oil prospects in three different ways. First, anticipate future production trends using the reserves/production relationship, a method pioneered by King Hubbert. This analysis suggests that nearly 95% of all the oil in the world has already been discovered. Major global companies – Shell, Chevran Texaco, Conoco-Phillips – reported that their 2004 production greatly exceeded new discoveries. Geologist Walter Youngquist notes that in 2004 the world produced 30.5 billion barrels of oil, but discovered only 7.5 billion barrels of new oil.

The second approach separates the world’s principal oil-producing countries into two groups – those where production is falling and those where it is still rising. Of the 23 leading oil producers, output appears to have peaked in 15, and is still rising in eight. The post-peak countries include the US, Venezuela, UK and Norway. US oil production declined by 44% since 1970, from 9.6 mbd to 5.4 mbd, and Venezuela’s production declined by 30%. The eight pre-peak countries are Saudi Arabia, Russia, Canada, Kazakhstan, Alegeria, Angola, China and Mexico. Sadad al-Husseini notes that annual world oil demand is rising by 2 mbd. In addition, the annual decline in production in existing fields is 4.4 mbd. In other worlds, new production must increase by 6.4 mbd every year. This is virtually impossible. While new finds are declining, there is vast amount of oil is stored in tar sands in Canada and oil shales in Venezuela. Only a quarter of it can be recovered, but at great environmental cost.

The third approach is to examine the actions of major oil companies themselves. Leading oil companies are investing heavily in buying up their own stocks. Mobil ($ 10 b) and Chevran Taxaco ($2.5b) spent vast amounts to buy back stock. As Brown says, “With little new oil to be discovered and world oil demand growing fast, companies appear to be realizing that their reserves will become even more valuable in the future”. Also, there is no substantial increase in exploration and development even after oil prices shot beyond $ 50 a barrel.

All these approaches lead to one inescapable conclusion. We must plan for after peak oil (APO). For India, there are five options. First, nuclear fuel, with all the caveats and limitations, offers significant opportunity for power generation. Our current 3% can, and should be enhanced to about 15-20% in the next decade. Second, we have significant coal reserves. But our coal is of poor quality (calorific value averaging 2500 Cal per kg), and is highly polluting with vast ash content (often exceeding 40%). On top of it, our nationalized coal companies have become dens of corruption and incompetence. In most coal belts, a vast network of mafia operates, and a whole new political economy grew around mining. Dhanbad coal mafia is a classic example, but it represents only the tip of the iceberg. Coal mining needs to be opened up to competition and private investment, and ruthless action is needed to eliminate mafia links and criminal influence.

Third, we need to harness all renewable sources of wind, tidal energy and solar power. These forms of power are self-limiting, and can at best be tapped in small quantities at community level, and will work best in conjunction with centralized power grid.

The fourth is generation of biofuels utilizing our vast agricultural land, which at 140 mha accounts for 12% global farm land. In a fundamental sense, agriculture should meet most future energy needs, and supply fungible, easy-to-use biofuels. This will put pressure on food supplies. Plentiful, cheap oil distorted world economy over the past 50 years. In 1970, 1.49 bushels of wheat could buy 1.79 barrels of oil. Since then, this ratio increased from 1 to 13, meaning that now we need to sell 13 bushels of wheat to buy one barrel of oil. As food and fuel compete for land, the need for biofuel production will raise food prices. That may actually be good news for a country like India, where 55% of the people living on agriculture enjoy only 21% of GDP. But massive investments, R & D, and planning are required to tap our vast potential. Finally, India needs to look at demand side management. Increased energy efficiency, better public transport, and imaginative urban planning are vital to reduce demand.

Clearly, integrated energy management is the key to our energy security. Segmented approach – coal, power, oil and gas, non-conventional energy, agriculture – can no longer yield dividend. Will the government act on Plan B quickly?

Growing Agrarian Crisis

As the Finance Minister gets ready to present the budget for next year, the sector which causes him the greatest anxiety must be agriculture. The past year has been relatively good in terms of rain fall and the Rabi yields should be encouraging. But in general, for over a decade now agricultural growth has been sluggish, stuck at about 2%. And there are four good reasons to be concerned about low agricultural growth rates.

First, sustained high GDP growth rates demand doubling of agricultural growth from 2% to 4% per annum. Second, unless agriculture yields better incomes for the rural population, domestic demand for manufactured goods and services is bound to taper off, adversely affecting growth in secondary and tertiary sectors. Third, the share of agriculture in our GDP is rapidly declining. Agriculture accounted for 31.3% of GDP in 1991-92 but by 2003-04 this share fell to 22.1%. This relative decline is leading to misery and a sense of deprivation in rural India. Finally, nearly 60 percent of population still depends on agriculture directly or indirectly, and jobs in non-farm sector are not created on the required scale to absorb the agricultural workers and new entrants to labour pool.

If these challenges are not addressed swiftly and aggressively, there could be serious social strife and political volatility. Already the evidence of rural distress is mounting, with endless news of hunger, farmer suicides and large scale migration to urban areas in search of livelihood. The spread of left wing extremism across large tracts of the country over the past decade is one more manifestation of growing despair and anger in rural India. The numbers are revealing. The income per capita of over 55 percent of Indians dependent on agriculture is only 23% of the rest of the population. Such deprivation of the vast majority of people in a poor country has debilitating consequences to our economy and polity.

What can the FM do to stimulate agriculture and rural economy? Protection from cheap imports is certainly necessary. But in an increasingly globalized world our consumers will not accept higher prices of edible oil and pulses when cheaper imports are possible. Cotton farmers can be given added protection by higher tariffs. The past few years have seen over 100 lakh bales of cotton import, which exceeds the preceding 30 years’ cumulative imports! But with the end of the WTO quota regime, India must aggressively expand its market share in garment sector. Therefore, cotton prices cannot be allowed to rise beyond a point, if our garments are to be globally competitive.

A lot of needless subsidies have only sucked up precious resources (urea) or led to growing corruption without benefiting the farmer or consumer (food subsidies and cotton procurement). Most of these subsidies can be rationalized or ended, and those resources can be channelized into capital in agriculture sector to boost productivity. Credit expansion is already a stated policy goal, but it yielded mixed results. Excessive state control of credit cooperatives, extortion of predatory public officials, poor land records, weak credit infrastructure, and sluggish demand for agricultural products limit the credit expansion. The state extension machinery is virtually dysfunctional, and the corruption and incompetence of public agencies is resulting in short supply of seeds and sale of substandard inputs. Effective institutional mechanisms must be evolved to address all these issues – subsidies, credit, extention and inputs.

In addition, focus on three areas is critical for the future of agriculture. First, agricultural markets need to be reformed and opened up. Regulated markets enjoy a monopoly, and corruption and incompetetence are rampant. While the mandis function tolerably well in same states, in other states they are a source of political patronage and corruption. In case of vegetables, fruits and fish, the farmers are entirely at the mercy of local mafias and extortionary middle-men. Years ago, when Andhra fish farmers wanted to enter Kolkata markets, they had to submit to extortionary demands of local mafia. Only timely intervention of the then chief minister Mr Jyoti Basu helped both the farmers and the consumers. Agricultural marketing is a state subject and strong incentives are needed to nudge states to quickly reform the markets.

Second, value addition to agricultural produce is the key to the future. Tomatos sold at Rs 16 per kg a month ago in Andhra Pradesh, and they now sell at Re 1 a kg! The story on onion price fluctuations is too well known to bear repetition. These price fluctuations in case of perishable commodities is very common. While a few lucky farmers may benefit from high prices, most are driven to despair, and often the low price does not cover even the costs of harvesting. Agro processing on a massive scale will stabilize process, add value, raise incomes, assure markets, boost local economy, and create new jobs. Budgetary support for infrastructure and investment, and policy support to boost agro-processing are vital to revive agriculture.

Third, millions of rural youth are both unemployed and unemployable. Declining agriculture cannot give them livelihood, and industry cannot absorb them. A massive programme to promote skills and boost investment in small and medium enterprises in rural areas is essential for job creation.

For years, budget pronouncements have been long a rhetoric and short on action when dealing with agricultural revival. Will the 2006-07 budget be different?

One Step Forward, Two Steps Backward!

One of the disquieting features of Indian politics and public policy is the colossal damage done to the rural and agricultural sector by successive governments, all in the name of the people. If the explicit objective is to undermine the rural agriculture-dependent population, our governments could not have done a more thorough and effective job!

For decades the babus and politicians did their best to undermine agriculture. In the late 50’s and 60’s, collective farming was the fashionable goal. Congress party even attempted to emulate the soviet model, and only timely intervention from sane voices saved the day. In an insane moment in the 1970’s, even trading in food grains was sought to be nationalized, and orders have been issued! Mercifully, the scheme soon collapsed because of rampant corruption and incompetence of government.

Public policies have always tended to hurt farmers and producers. Compulsory procurement of food grains at below-market rates, phenomenal corruption and inefficiency, unfavourable terms of trade, restrictions on trading movement and storage of farm produce, all undermined agriculture. Rural credit institutions are extremely weak, and most farmers are forced to borrow from usurious money lenders. Fair markets in general do not exist, with the exception of the Mandis of Punjab and Haryana (thanks to the foresight of Choutu Ram), and marketing committees in most states are sources of political patronage and corruption. The scams in cotton procurement are a good illustration of government bungling.

The saddest part of the story is the unconstitutional, vice-like grip of politicians and bureaucrats over farmers’ cooperatives. The story of the dairy cooperatives in Andhra Pradesh is a good illustration of corruption, incompetence, malice and gross perversion of the Constitution perpetuating rural poverty.

The Constitution clearly guarantees the fundamental right of citizens to form and run cooperatives [19(1)(c)] and to carry on any trade or business [19(1)(g)]. The state has ignored this constitutional liberty for decades, and controlled the cooperatives in a most brazen and arbitrary manner. In time, corruption and incompetence of government bureaucrats led to collapse of most cooperatives, forcing some rethinking. The Brahma Prakash Committee (1990), the model cooperative law (1991), the Vaidyanathan Committees (2005) and several other expert reports emphasized the need for autonomous, democratic and professional management of cooperatives free from government control. The UPA government’s NCMP reiterates such commitment.

In 1995, AP was the first state to enact the Mutually Aided Cooperative Societies Act (MACS Act), recognizing the constitutional liberty of cooperatives in respect of societies which do not have government share capital and do not seek government assistance. Out of the eleven district cooperative milk unions, 8 district unions and about 5000 primary milk societies chose to be registered under MACS Act. The results over the past few years have been stunning.

The dairy cooperatives under MACS Act more than doubled their turnover in five years, and profits and net worth soared. The farmers get the highest price (Rs.195-225 per kg of fat), and profits are shared by members as price difference and bonus. The cooperatives provide other free services – artificial insemination, feed, veterinary care, and medical facilities for the families. In contrast, the dairy cooperatives which remained under government control collapsed, losses mounted, and are under liquidation. Farmers are forced to sell milk to private companies which formed cartels and offered less price (Rs.175 per kg fat). The government-controlled dairy federation is a white elephant with large, over-paid, inefficient staff and endless corruption. The federation offers even less price than the private companies and both provide no other services to farmers.

Given this backdrop, the AP government took an extraordinary decision this month. By an ordinance, all the successful, well-functioning dairy cooperatives under MACS Act were brought under the repressive 1964 Act, all elected managements were dismissed in the dead of night, and bureaucrats took over all the 5000 cooperatives at primary and district levels. The reasons cited by the state are laughable if the consequences are not tragic! The government, under whose control and watch all district unions collapsed, claims that the law is to improve the financial performance of diary cooperatives and serve farmers! With ‘friends’ such as these, farmers need no enemies! In the face of the Constitutional guarantees, proclaimed public policies, and compelling and incontrovertible evidence of financial collapse under government control, it is shocking that states still keep playing these political games for control and corruption in this day and age! Farmers end up losing heavily, and this loss often marks the difference between life and death in times of distress.

On issues like this, the hapless farmers will eventually win the legal battle, thanks to independent judiciary and a written Constitution. But even then, enormous struggle has to be waged not to improve formers’ conditions, but simply to stay where they were! This is a classic case of one step forward, two steps backward!

The states’ actions in agriculture, cooperatives, education, healthcare and local governments are going to determine the economic future of rural India and urban poor. Governance in states, rural incomes, constitutional liberties, and citizen-centric administration are inextricably linked. And yet, even in states which are ruled by major parties with a powerful stake in the Union government, vindictiveness, unconstitutionalism, adhocism and an attitude of ‘might is right’ seem to prevail. The right hand does not know what the left hand does! Clearly our economic future increasingly depends on altering political incentives and reforming governance.

Outcomes in School Education – Testing Boards

The Compiling and release of the Annual Status of Education Report (ASER), 2005 is a landmark event in the evolution of school education in India. Pratham, a reputed civil society organization conducted a nation-wide survey of school-going children in 485 rural districts. 776 small and big groups along with about 10,000 volunteers participated in this massive exercise, and assessed the elementary education outcomes on a large, randomly selected sample of nearly 400,000 children in 9521 villages.

The findings of ASER are revealing, and give us valuable insights into the state of our elementary education. While the information pertains to school children in the 6-14 years age group, it also helps us understand the state of secondary education by revealing the state of the foundation in early schooling. Even more significant, the quality of teachers and their commitment and accountability can be inferred from the quality of outcomes in schools.

The results of ASER-2005 are mixed. There is happy evidence of increased allocations to, and emphasis on, school education through various programmes like Sarva Siksha Abhiyan and Mid-day Meals improving enrollment and retention in schools. 93.4 percent of all children (6-14 years) are at school. There are of course, inter-state variations. But the overall situation has improved. 75.1% of all children are in government schools, and 16.4% are in private schools. About 3% are in madarassas and alternate schools, leaving 6.6%, or 11 million children, out of school. More than half of those out of school were never enrolled.

But the learning levels of the children in schools reveal a far more distressing picture. 34.9% of all school-going children in 7-14 year age group cannot read even a short, easy paragraph (level 1; Std 1 level difficulty), and 51.9% cannot read a simple story (level 2; Std 2 level difficulty). Even in the 11-14 year group, 31% children cannot read the level-2 passage. While private schools fare better than government schools, the difference in outcomes is not high. While over 65 percent of children (Std II-V) in government schools cannot read a level-2 passage, over 52 percent of children in private schools too cannot read! Clearly, the problem transcends the usual analysis of public sector vs private sector debate.

Performance in Arithmetic tasks is equally distressing. Over 41% of children (7-14 years) cannot do a simple two-digit subtraction; over 65% of children cannot divide a three-digit number. Even among the children in 6th and 7th standards, 40% in government schools and over 33% in private schools cannot do a simple division. For a country which prides in its technical manpower pool, proficiency in mathematics and ability to provide back-office services to the world, this is an alarming situation.

Clearly, the children who are either genetically better-endowed, or are fortunate in being born to educated parents or having caring, competent teachers do very well, and are able to find jobs demanding high productivity. Some of them successfully compete with the best in the world, and bring laurels to India and make us proud. While the best products of our education are a match for the best in the world, the average is appallingly low. That is why, nearly 80% of our gene pool is untapped and the productive potential of the bulk of people is wasted. The results are low productivity, poor skills, and massive unemployment even after several years of schooling, or even college education.

The ASER – 2005 also dispels some other myths. The states traditionally regarded as better-governed are doing as badly as others, or in some respects even worse!

But there is hope. Our society values learning, and parents are willing to pay any price for giving their children a head start. ASER shows that the debate on education is now moving a few notches up, and is focusing on outcomes. A few practical steps can dramatically improve school education.

First, at the very minimum, we need State Testing Boards and a National Testing Board to regularly monitor education outcomes and provide invaluable data.

It is axiomatic in education that what is important is what gets tested! These Testing Boards could adapt the best practices elsewhere to suit our conditions. Standardized assessments practices in the US, France, Germany, Sweden, England, New Zealand, Scotland and Japan offer as excellent models. Our own NCERT has developed both the “National Curriculum Framework”, and “Minimum Levels of Learning”, both of which can form the basis for evolving sensible criterion-referenced assessments across the country. The current examination system is extremely flawed. Pressure on teachers to improve pass percentages often leads to rampant mass-copying. I remember a Chief Minister extolling the virtues of his minister for enhancing the X Std. pass percentage from 26 to 94 in six months, little realizing that these inflated numbers only demonstrate the ingenuity of teachers under pressure, not better outcomes! Testing Boards can first take up random sampling tests and identify the weaknesses in outcomes and facilitate strategic interventions for remedial action. Such a low cost initiative will build pressure on the system to deliver, and sensilize parents and community. Stake-holder empowerment through School Boards, and nation-wide standard tests for university admission can follow.

ASER 2005 has provided an invaluable tool to improve school education. There is nothing more important for enhancing our productivity and giving opportunity to poor children. Will the government act?