Return and reforms

Will Manmohan Singh’s return to the finance ministry result in some reforms?

Pranab Mukherjee, an over-rated, over-respected and over-portfolioed cabinet minister presided over the finance ministry at a time when the results of UPA government’s gross mismanagement of the Indian economy began to show. His remedies worsened the malaise—not only has the economy slowed down, domestic and foreign investors have been given reason to believe that India’s economic managers are not only unserious, but also nearly banana. Retrospective taxation—Mr Mukherjee’s gift to economic policymaking—is an abomination and exemplifies how awfully perverted the UPA government’s thinking has been.

So, with Mr Mukherjee out of the cabinet (and undeservingly heading for Rashtrapati Bhavan) and Manmohan Singh taking over the finance portfolio, what are the prospects for reforms? None at all, argues the astute Swaminathan Anklesaria-Aiyar. Quite a lot, contends Sanjaya Baru. The truth may be in the middle, but despite Mr Baru’s valiant cheerleading, the odds are stacked up in favour of Mr Aiyar’s prognosis.

Samanth Subramanian sought my views for his report in The National. Here is my full response to his questions:

Q. Do you think the PM has the political capital he needs to make bold changes? Do you think, for that matter, that the government will risk making possibly unpopulist changes with the elections less than two years away?

Whether or not there will be any reforms depends on how much Manmohan Singh is willing to face down the Congress party establishment in order to secure his own place in history. It’s not so much about political capital but as he said in his 1991 speech “Sarfaroshi ki tamanna ab hamare dil mein hai/Dekhna hai zor kitna baazu-e-qatil mein hai.” Does he have Sarfaroshi ki tamanna?

Q. How much can any possible economic reforms redeem Manmohan Singh’s otherwise awful leadership of this UPA government?

What Manmohan Singh can do at this stage is revive the narrative of reforms, by setting out a long-term road map and by implementing the ones he can. The signal this will send will help set the economy back on track and hopefully redeem his own record.

Q. If you had to make a short, three-item wish list of reforms you hope he could enact, what would that list be?

Liberalise education, liberalise labour laws and start fixing land acquisition. Toying with fuel subsidies, reversing GAAR etc is mere signaling…the fundamental strengths of the economy can be reinforced only by liberalising education, labour and land acquisition. Playing around with financial markets and FIIs is mere tinkering. He must do what is necessary to revive direct investment, both domestic and foreign.

Everyone loves a good outrage

The reform agenda must be defended from Montek Singh Ahluwalia’s attackers

As far as op-eds go, this one marks a new low from P Sainath. It is not uncommon for him to frame grave issues in a divisive manner by conflating them with unrelated matters—like, for instance, agrarian crises and beauty pageants. This technique seeks to arbitrage outrage, as if decent people cannot be anguished at a tragedy without having to contrast it with an unrelated celebration. But when Mr Sainath links the poverty line, expenses incurred by the Planning Commission chief while traveling on official business overseas, the lavishness with which some tycoons spend their private funds and dubious dealings of crony capitalism, it can’t merely be his usual, unfortunate and misguided conflation.

Make no mistake: Mr Sainath’s hatchet job on Montek Singh Ahluwalia is part of an internal campaign against reform-minded individuals within the UPA government. This week’s manufactured controversy over renovation expenses of toilets in the Planning Commission’s headquarters is another manifestation of the same campaign.

Let us examine Mr Sainath’s cleverly framed allegations. His case is that at Mr Ahluwalia’s travel expenses are exorbitant, at an average of $4000 per day abroad. You would think he would give you some comparable data to prove Mr Ahluwalia has been unusually proliferate in spending public funds. Say, for instance, the average daily expenditure when cabinet-ranked Indian officials travel abroad on official business. Or for instance, the average daily expenditure incurred by Mr Ahluwalia’s counterparts from other countries. These would be like-for-like comparisons. Mr Sainath, however, does not do that. He compares these to a income of a person on India’s poverty line. All this proves is that $4000 is much higher than Rs 28. It does not even come close to proving that public funds were misspent, nor does it show that Mr Ahluwalia was unusually liberal with his expense budget. The onus of doing this research is on Mr Sainath, the person making the argument.

How Mukesh Ambani spends his personal wealth is irrelevant to the argument—he is free to spend his money as he pleases, even if it does not suit our tastes—, so is a discussion on cronyism and corruption in IPL. You don’t need to read the Planning Commission’s response to conclude that Mr Sainath’s allegations are sensationalistic nonsense.

But why choose Mr Ahluwalia at all? Mr Sainath’s arguments against profligacy would have been worthy of respect if he had compared the travel expenses of the top officials of government—from President Patil to the lowest ranking minister of state. How much, for instance, does Sonia Gandhi, as chairperson of the National Advisory Council, spend on her foreign trips? Whatever her political role, she’s an official of equivalent rank. How much do the members of the National Advisory Council spend on their foreign and domestic trips? Unless we have some numbers to compare with, we can’t say anything about Mr Ahluwalia’s trips.

What we do know is that Mr Ahluwalia is among the few people known to be advocating economic reforms in the UPA government. Singling him out with a view to making him the lightning rod for public outrage has all the signs of a political hatchet job. The objective is to discredit the reformist agenda by associating it with imaginary wrongdoing. After running the Indian economy to the ground, the socialists that haunt the UPA government’s policymaking are now trying to bury the narrative of reform, liberalisation and markets through subterfuge and intellectual dishonesty.

It’s no different with the renovation expenses of public toilets in Yojana Bhavan, the Planning Commission’s headquarters. One of the earliest reports on this, in the Times of India, again compared toilet renovation expenses with the the poverty line. Few in the mainstream or social media bothered to ascertain the scope of the renovations and compare it with similar renovations conducted in New Delhi’s public and private buildings. The purpose of the revelations was to insinuate wrongdoing on the part of Mr Ahluwalia, rather than to establish whether there was any wrongdoing at all.

Mr Ahluwalia is guilty: of not throwing his credibility on the line to compel the UPA government to launch the second-generation reforms, and to prevent it from engaging in monumental fiscal irresponsibility that has put India’s future at risk. Like his mentor Prime Minister Dr Manmohan Singh, he becomes complicit in the UPA’s misgovernance. He will have to answer these charges both to the nation and to history. This does not mean he’s lavishing public funds on unnecessary foreign excursions, building gold-plated toilets or taking a cut from the renovation contractor.

It is fair for the Opposition parties to politically exploit the situation to their advantage. However, it is in the national interest not to allow a campaign of unfair personal calumny to discredit the reform agenda—or indeed, to prevent Mr Ahluwalia from a chance to redeem his reformist record—to succeed. The Acorn completely agrees with Mint’s editorial defence of Montek Singh Ahluwalia. Mr Ahluwalia has “done far more for the poor than the busybodies and peddlers of poverty porn who are now attacking him.”

Troop movements of the curious kind

Understanding the unusual movement of two army units towards New Delhi

The byline of the report shows its seriousness. It could not have been filed without the approval of the highest levels of the Indian government. It is deeply worrisome. In January 2012, almost 60 years after the Indian republic was established, some people in the government were concerned about a military c-, well, curiosity.

The report presents a set of facts saying “(it) is too early to answer all the ‘hows, whys and the what-nexts’ of this.” It is not even clear if all the relevant facts are out in the open. Even so, at this time, what should we make of these disturbing revelations?

The two most important questions at this time are the following. First, why were the two military formations moved in an ostensibly unusual manner? Second, why did the government permit this report to be published at all, and why now?

The first question has three broad explanations. The most innocent is that this was a tragedy of errors brought about due to the atmosphere of mistrust between the army chief and civilian government officials. Triggered by the timing—General V K Singh’s petition to the Supreme Court—the civilian establishment panicked and overreacted to the unusual but unthreatening events. A crucial point is the allegation that the army headquarters did not notify the defence ministry of the movements of the two units towards New Delhi, which is the required protocol. Army commanders do not need authorisation to move troops on exercises, but need to notify the ministry when the geography of the National Capital Region is involved.

A less innocent explanation is that the movement of units was deliberate designed to unsettle the civilian establishment and nothing more. The third, and the least palatable explanation is that some people in the army thought they could pull off a political stunt, much like the dharnas, gheraos and public protests that you see in the capital on a daily basis. (No, there is no fourth explanation, this is India.)

While we do not know if any of these reflect what actually happened, the odds are heavily stacked in favour of the innocent explanation. That’s already cause for deep concern. It remains to be seen if the defence ministry will investigate the unusual troop movements further. Ideally, it ought to. At this time, however, it is unclear if this can take place without exacerbating the atmosphere of mistrust that has been created.

The second question is this: why is it that the government allowed this report to be published? On a matter as sensitive as this, it is highly likely that the Indian Express would have accepted a request not to publish such a report if the government would have made it. So why wasn’t such a request made? The honourable reason is that it is just as well that the public is kept informed of the slightest risks to our democratic setup. The political reason might be to get back at General V K Singh.

Again, we do not know the answer to this question either. What we do know is that the situation has been allowed to reach to such a point that the banana flavour is palpable. Things have gone far enough. We need a new Defence Minister. Considering what might come next under this government, it is just as well that he stays on.

Update: Framing the debate

Since this post was published earlier this morning public discourse has gravitated around two issues: on the motives and propriety of the Indian Express in publishing this story and on whether or not a military coup was attempted.

Let’s get the first out of the way—unpalatable, unsavoury and unbelievable as it may well be, the newspaper acted in the public interest by publishing it. You might quibble about the size of the headline or the sensationalisation, but unless you think bad news and potential risks ought to be hidden from public view, it is hard to justify an argument against its publishing. (Full disclosure: I occasionally write op-eds for the paper, including one last week on restructuring the armed forces)

Next, while the article alleges that the army undertook unusual movements without notifying—and notification is different from authorization, a point that many commentators have missed—the defence ministry as it was required to, it does not suggest a military coup. This is a very important distinction. Presuming that a coup could be the only motive behind the alleged mobilisation precludes us from considering other possibilities.

The report is not only about what the army did or didn’t do. It is also about what the civilian establishment did. It should be quite easy to establish whether a terror alert was sounded in New Delhi on January 16-17th, and whether the defence secretary flew back from Malaysia to meet the DGMO and send the troops back. The Indian Express cannot be fabricating these easily verifiable facts. If indeed these events occurred, then the objective reality is that of severe mistrust between the uniformed and civilian leadership in the defence ministry that had serious consequences on the ground.

What is of public interest, then, is what caused civil-military trust to break down? What mistakes did the civilian establishment make in the days and hours leading up to January 16/17? What mistakes did the army make? These questions need to be examined dispassionately in order for us to be able to attempt to restore that trust.

The defence minister dismissed the report as baseless. The prime minister uttered two brief non-committal sentences, warning us of “alarmist reports which should not be taken on its face value” and reminding us of the obligation to “do nothing to lower its dignity and respect in the public”. This is no trifling matter. It behoves on the UPA government and Prime Minister Manmohan Singh to spell out—both in parliament and in public—what it intends to do to restore trust between the armed forces, the civilian establishment and the people of India.

Cheap tablet, unaffordable mistake

The macabre antics of the India’s human resources development ministry over Aakash are the equivalent of Marie Antoinette’s “let them have cake” attitude

The matter is so serious that mincing words is the irresponsible thing to do. There is a demographic bulge on the horizon and two crucial areas will determine whether that bulge will result in a demographic dividend or severe demographic discount. The first is whether the 30 million children born every year will be educated and skilled enough to be productive members of modern society. The second is whether the Indian economy will generate enough jobs to provide them with adequate livelihoods. The median age in India is around 26 today, which means half the population is under that age. The general shortage of skilled manpower in everything from the armed forces to IT companies to cafe chains indicates that a substantial fraction of this population is not employable—because of the failure of India’s education system.

Unless something is done ten years ago, the demographic dividend will be diluted. Unless something is done now, the demographic dividend will be wiped away, leaving India with a demographic discount. As before, people will call it the “problem of overpopulation” instead of calling it by its real name—the problem of under- and misgovernance. Government exists to ensure the well-being of all its people. It is perverse to contend that population must be controlled because the government is incapable of serving it. It is the government that must boost its competence to ensure that it can perform its functions satisfactorily regardless of how big or small the population is.

In India’s case, the traditional and massively failed approach is to treat both education and jobs as if they were contagious diseases: insulated behind high walls, preventing ordinary people from having easy access to them. The government has failed to deliver education and jobs. So after over sixty years of failure, it’s time to try a different approach. Liberalise education (and labour) and let the solution begin to scale at the same pace as the problem. (See Ajay Shah’s article in this month’s Pragati)

The UPA government’s right to education act is not the answer, although some may claim it’s an improvement over the past. Instead of liberalising education so that the private sector can deliver education at prices and qualities that the people want, the UPA government has placed the entire education sector under the thrall of the Delhi Straitjacket. Disguising a bad policy—which is bound to increase corruption in society—in the language of “rights” may be increase the feel-good factor among sections of the public, but we are still moving in the wrong direction.

Why is all this relevant to a discussion on a cheap tablet computer? To show how deeply wrong Kapil Sibal’s priorities are. First, instead of working on a war-footing to work out how to strengthen the delivery of primary and secondary education, Mr Sibal is focused on the higher education sector. The clever excuse might be that primary education is a state subject. That still doesn’t mean that he should be tilting at the windmills of higher education at the expense of the taxpayer. The education cess imposed on transactions is grotesque—what does the government do with its ordinary tax revenues that it has to collect more money, ostensibly to improve education, but then subsidise fast depreciating assets solving a non-existent problem?

Second, as Atanu Dey has extensively written in the context of the One Laptop Per Child project, what Indian education needs is good teachers and good schools—not gadgets. Once you have good teachers and good schools you might want to supplement it with gadgets. But go look at any central or state government university, college or polytechnic—look the quality of the teachers, their pay scales, their morale, their working conditions and their work culture. No gadget, however cheap or indigenous, can help when campuses are decrepit shells of what they ought to be. How can anyone with a conscience accept that providing college students with a cheap, indigenous computer will even begin to provide them with education and skills they need to be productive members of society?

Third, let’s say—for the sake of argument—that some college students do need computers. Let’s further assume that they cannot afford the Rs 10,000 that can purchase a decent netbook. Should this mean that the Government of India must immediately procure these from a vendor (while lying to the public that the product is “indigenous”)? That’s what Mr Sibal announced initially when trying to create international headlines with the news of a $35 ‘indigenous’ tablet.

Clearly something—most likely reality—didn’t work out. So Mr Sibal has another announcement. “There have been some problems with DataWind (the company the government had contracted with) I must confess,” he admitted. “Therefore, I have got into the act. The IT ministry has got C-DAC and (state-run) ITI Ltd into the act, and I am going to ensure that this product is fully indigenous and truly an Indian product.” Mint, quoting unnamed government sources reports that the “..government is now planning to launch an upgraded version of the tablet as a completely indigenous product under the supervision of a high-powered committee comprising members from the Centre for Development of Advanced Computing (C-DAC), department of information technology, the IITs at Kanpur, Mumbai, Chennai and Jodhpur, and some public sector units.” (Aside: The message to investors is beware of contracts you sign with the Indian government.)

So a bureaucracy will design a gadget and a public-sector unit will produce it, before a subsidised product is ‘sold’ at Rs 2,276. What is the justification for the implicit and explicit subsidies that are being thrown at a gadget, especially in the computer market where the brutal forces of Moore’s Law relentlessly lower prices faster than the speed at which two Indian government departments can organise meetings?

Here’s a simpler, cheaper solution: why not get the government give vouchers (of say, Rs 10,000) to every student it intends to reach. Let the student use it to buy the computer of his or her choice from the open market, paying the difference in case the choice is more expensive. This is still an unnecessary expense but may be a far more efficient way to go about putting computers in the hands of college students. There is no need for Datawinds, C-DACs, IITs, ITIs or any public sector units at all.

Finally, it should shame every thinking Indian that a cabinet minister—ironically, one in charge of education—can get away with lies that every educated person knows are lies. Can anyone, anywhere in the computer industry claim a product is indigenous without being laughed at? After claiming that Datawind’s gadget was indigenous, Mr Sibal now says the new government-produced gadget will be really indigenous. These are lies. Should the national motto be so cheaply sacrificed at the altar of an inferiority complex? When it comes to educating our kids, maintaining our health or defending our country, the right approach is to procure the best that the money can buy, whether foreign or indigenous. Indigenousness is not a virtue, even when it is practical.

In the economic history of India, the UPA government will be held singularly responsible for squandering an excellent decade—of high growth, healthy revenues and a strong fiscal position that it had inherited from its predecessor. It has wasted eight years pushing dogmatic approaches to education and resisting labour reforms. Mr Sibal’s antics—there’s no more civilised way to describe his championing of the cheap tablet—show just how frivolous the UPA government is on a matter intimately concerning our future. “No schools, eh? Let them have a cheap tablet then.”

What to debate when you are debating in the dark

The General’s birthday lawsuit is a red herring

Much is being said and written, often with great passion, about the controversy over General V K Singh’s age. [See Mint’s editorial, Manoj Joshi’s article in Mail Today and this report in the New York Times for a background.]

That it has taken the Indian Republic into hitherto uncharted territory is not in doubt. Without real political leadership and competent management of the behemoth called government, it is likely that matters will end up in court. That has happened. If the Supreme Court decides on the issue (or whatever it decides, including referring it to the Armed Forces Tribunal), a legal precedent would be set. Now, both unwritten norms and legal precedents can be decorous and inexpensive ways for organisations to function. But the transition from norms to legal precedents often gets complicated, ugly and dirty. It is a test for the Indian system, and on the face of it, there is no reason to believe that it will fail.

On the public debate itself, the fact is that very little about what happens behind the closed walls of the army headquarters and the defence ministry is in the public domain. Few people outside the defence establishment, and some of those within, know what the real motivations of the various parties involved are. The phrase “those who know, won’t talk; and those who talk don’t know”, is relevant to this case. So we end up with gossip, speculative commentary or an opportunity for people to unleash their own biases and take potshots at their favourite targets.

Does this information asymmetry mean we don’t debate the matter at all? Far from it. It merely means that the issue must be framed in a manner so as to hold to account those in government who ought to know the facts and are accountable to us. In this case, the Defence Minister. What was A K Antony doing all this while and why? That is the governance issue here. The army chief’s age is itself an procedural, administrative or legal matter, but for purposes of overall governance, it is a red herring. The incompetence, inability or unwillingness of the Defence Minister and the Cabinet Committee on Security, and through collective responsibility—the Prime Minister and his Cabinet—to handle this matter before it blew up is the question that we both can and should debate.

Can a government that manages an administrative matter in so cavalier a manner be trusted to manage matters relating to national defence any more effectively?

The mantra for the alternative

Economic freedom, individual liberty and competent government

Longtime readers might recall that this blog has long argued that India’s crisis of governance arises from the UPA government’s institution of entitlement economics, surrender to competitive intolerance and returns to political violence. Corruption and unaccounted money — issues that have captured popular imagination in the last few months — are merely symptoms of the underlying disease. Ridding the body politic of this malaise requires the building of a political alternative around a new mantra:

Give us back our economic freedom, and let it reverse the entitlement economy of corruption and cronyism.

Give us back our individual liberty, and let it reverse the competitive intolerance that is destroying India’s social capital.

Give us a government that restricts itself to being competent in its basic duties — like ensuring the rule of law –, and let it reverse the tide of violence and the grammar of anarchy.

Peace! Peace! Peace!

Societies with greater economic freedom have lower corruption

And India must focus on economic freedom

In the light of the current debate over the solution to corruption, here’s something to think about. There is a correlation between higher levels of economic freedom and lower perceptions of corruption. Here’s an old chart that shows the relationship. It uses 2006 data, but it should hold with newer data as well (Update: Barbarindian has a chart with the latest data, LT @centerofright).

Economic Freedom vs Corruption Perceptions
High economic freedom correlates with low corruption

(Click on the chart to enlarge it.)

This chart shows a correlation. And correlation does not mean causation (OMIPP alert!). In other words, from these data alone, we cannot conclude that higher economic freedom causes lower corruption. We can, however, conclude that wherever there is greater economic freedom, perceptions of corruption are lower, and vice versa,

The question is: which variable should we focus on? There are enough rules, laws and agencies to investigate and prosecute corrupt officials. Clearly, there is overwhelming dissatisfaction over the efficacy of this method. There’s nothing to prove that one more super rule, super law and super agency will do the trick where so many others have failed. Indeed, it is likely to worsen the problem by adding to the red tape and logjam.

It therefore makes sense to shift focus to economic freedom. It’s worked to reduce corruption in India in some fields. You don’t have to bribe the telecom department officer and the line-man to get a phone connection anymore. That’s because there is relatively more economic freedom in the sector: from infrastructure to services, from retail to equipment, there are multiple providers. You have the freedom to choose, the freedom to switch and the freedom to reject phones, plans and providers.

But when the UPA government sought to curb economic freedom—by the blatant abuse of executive power—there was massive corruption.

Indeed, in sectors where there is relatively more economic freedom, corruption has generally been “kicked upstairs”, as this article in Pragati shows. In the 2G spectrum case, it was not prevented and punished in time by a man of well-known integrity. This should be an indictment of that man rather than the system.

Related Link: The 2011 Economic Freedom of the States of India shows how states that have greater economic freedom do better in a wide range of governance outcomes.

Cultivating authority, evading responsibility

“Those who are politically strong are constantly running away from political responsibility,” writes Pratap Bhanu Mehta

You should read his piece in the Indian Express in full. Excerpts:

The prime minister will take you only up to a point. The Centre does not carry any credibility, because there it has no genuine interlocutors. There is no other leader who can carry the imprimatur that they are acting on behalf of the nation, who can provide a healing touch when needed. More and more of our conflicts will require this kind of constant political engagement. Rahul and Sonia Gandhi, in political terms, carry that mantle as much as anyone does; but they steadfastly refuse to risk it on anything other than politically easy welfare schemes. The scandal of Indian politics is not simply that the prime minister is politically weak; it is that those who are politically strong are constantly running away from political responsibility.

And it has sent a message: the purpose of politics is not solving problems; it is the evasion of responsibility. [IE]

Manmohan Singh’s foreign travel

The Indian prime minister is going to places he shouldn’t. And not going to places he should.

It’s becoming a pattern. First, Prime Minister Manmohan Singh attends a summit of an international grouping that has little relevance to India’s foreign policy priorities. Then, at the “sidelines”, he meets the Pakistani leader who happens to be there too, and then surprises everyone with the outcome. His imprudently went to the SCO meeting at Yekateriburg, met a usually conciliatory Asif Ali Zardari, and appeared to blow hot. He unnecessarily went to a NAM meeting at Sharm-el-Sheikh, met a usually belligerent Yousuf Raza Gilani and handed him a lollipop. He now plans to go to Trinidad to attend a meeting of an irrelevant international organization—the Commonwealth—and intends to meet the Pakistani leader at the sidelines.

Now, if Dr Singh believes that he has to attend meetings of outfits that are peripheral to India’s interests, then he has gotten his priorities very wrong. Since he became prime minister in May 2004, he is yet to visit capitals of countries that are of direct relevance to India. The absence of top-level stewardship has meant that relations with Jakarta, Ho Chi Minh City, Singapore, Canberra, Seoul and Tokyo—some of India’s most important geopolitical partners—have been at drift. Other than through SAARC, another non-performing outfit, he has not visited even neighboring capitals. Yet he finds the time for not one, but three multilateral summits in the first four months of his second-term. At a time when China is rapidly developing its influence in East Asia and the subcontinent, the UPA government’s failure—and Dr Singh’s personal absence—in Asia has damaged India’s interests in the region.

On the other hand, Dr Singh might merely be using these faraway places as an excuse to meet a Pakistani leader at a neutral venue. If so, then he is not only running an important part of India’s foreign policy by subterfuge, but also, running the risk of damaging outcomes like that at Sharm-el-Sheikh. As K P Nayar wrote in the Calcutta Telegraph, the key official in the foreign ministry handling Pakistan affairs was not even in the delegation that went to Egypt. Without criticising the prime minister’s authority to use his own judgement on key foreign policy decisions, it borders on the irresponsible not to pay attention to composing the negotiating team properly.

The Prime Minister’s Office must state clearly what exactly Dr Singh hopes to achieve at these trips. If the purpose is to attend diplomatic Club-Meds, then he is guilty of very misplaced priorities. If the purpose is to meet a Pakistani leader, then it must not be done by stealth. Dr Singh can invite his Pakistani counterpart, visit Islamabad or indeed, set-up a Reykjavik like summit in a third country.