UPA 2 - sputtering reforms drive

    In May 2009, after the re-election of UPA alliance for a second term many of us hoped that the reform process would get a reboot. After a resounding win without the support of the left parties the obstacles to reform agenda seemed minimal. For those who expected swift action, the last two years have proved rather disappointing.

    Talk of police reform has disappeared from the public conversations lately. The Union law minister has been talking up judicial reforms.But there is no endgame in sight. Prospects of Lokpal bill remain uncertain. Financial reforms have been on the cards for the last couple of years with no progress. And there is no mention of tackling much needed labour reforms.
   
    On the brighter side, although targets have been missed the disinvestment program has been restarted. UPA-2 is pinning great hopes on "Aadhar" in it's efforts to reduce waste in administering welfare programs.
   
    Reading the reporting on his interaction with the media yesterday, you get the sense that the Prime Minister has a clear idea of the path forward. Despite all the negative press about him lately, he still is the best person to be on the job. He needs to crack the whip and show that he means business with a renewed emphasis on reforms.

Fuel price rise - tough medicine

    The raising of fuel prices over the last weekend was greeted with customary anger.  Cost of transportation fuels, especially diesel having a negative impact on the already high inflation are warranted. Inflation in India cannot be lowered  without addressing the supply side issues.

    Attacks by the opposition and allies of UPA notwithstanding, some of the subsidies are hard to justify.Cooking gas(LPG) is primarily used by the middle classes. In recent years, increasing number of diesel car models are offered in the market. Apart from being greener, these cars also take advantage of the subsidies that were never targeted at this sector.

    With crude oil prices still remaining above $90 a barrel,such misuse of government funds is unsustainable.Incomes of middle class families have risen steadily through the last few years. They ought to take this increase on the chin and carry on.

Two decades of reforms - decline in fertility rates

    Total fertility rate(TFR) is the average number of children born to a woman over her lifetime. When the TFR reaches 2.1 , it is called the replacement level of fertility. This is the level at which the population stabilizes.
    Generally,poor countries start out with a high total fertility rate(TFR). As they grow richer the TFR stabilizes. In turn , the population also stabilizes. One of the common refrains you hear about India is that the population of the country is too high. No doubt, the total population of the country is very large.What about the growth rate? One of the primary drivers of population growth is TFR. Here is the trend line:

    It is a little hard to get the exact number from the graph, India's TFR is around 2.6 now. The number has seen a steady decline over the last 20 years. According to an estimate,India's TFR would reach 2.1 around the year 2025. In the past 20 years , the rate of GDP growth has been steady and rising. This should translate to a rapidly decreasing TFR. Here is a snapshot of some of the states:

TFR rates for select states

    The choice of states in this graphic is deliberate. Bihar,Madhya Pradesh, Rajasthan and Uttar Pradesh commonly known as BIMARU states have seen sluggish growth in GDP and socio-economic development for the most part of the last two decades. Then there are the relatively progressive states of Gujarat,Maharashtra,Tamil Nadu, Karnataka and Andhra Pradesh. The TFR's for these two groups of states are in two seperate leagues. Here is the same data in numbers:

TFR decline in numbers for states

   
As you can see, compared to the BIMARU states, the states with greater GDP growths in the last two decades have seen a larger decline in TFR. The BIMARU's together make up more than a third of the country's population. Although some of these states have shown some promise lately, they still have a long way to go. Until then , these states will be a drag on every indicator of overall progress for the country. It is about time policy makers put more effort into improving the lot of these states.

A 'Unique' challenge

This piece in business standard illustrates the size of the challenge faced by the Unique Identification Authority of India(UIDAI). Any system that can hand out an average of 1.5 million biometric cards every month is mighty impressive. In this case, that rate of performance is barely enough to keep up with the growth in population.The goal is to generate one million identification numbers a day:

Even a cursory look at the UIDAI website for the month-wise enrolments of Aadhaar numbers shows the enormity of the task.
In February, the UIDAI generated 1.11 million Aadhaar numbers. In March, the generation of numbers saw an increase of 37.5 per cent to 1.78 million, only to fall again to 1.32 million in April. In May, it showed an increase of 64 per cent to reach an all-time high of 2.16 million. At present, in the month of June, 1.5 million Aadhaar enrollments have taken place. The sudden rise in May is attributed to vacations in schools and colleges.
R S Sharma, director general of the UIDAI, says he sees no reason to doubt the authority’s ability to generate a million numbers every day by October. Others in his department doubt his optimism.

They have roped in some of the top talent to work on this.Smart thinking has gone into awarding contracts:

When an individual is enrolled, his biometric data must be compared with everyone else’s to ensure there is no duplication. Sometimes the workers who show people how to place their fingers on the scanner accidentally scan their own fingerprints. As enrolments hit a peak of about 1m a day, the system will need to carry out a staggering 14 billion matches per second.

This mighty task has been awarded to private contractors in an unusual way. There are three vendors: Accenture and L-1 Identity Solutions of America, plus Morpho of France. The firm that does the fastest, most accurate job gets 50% of the work; the others get 30% or 20%. This allocation is frequently reassessed, so if the second-best firm starts doing better, it picks up some work from the leading firm. This keeps everyone sharp.

    Most large projects suffer from cost overruns and delays. It is hard to imagine UIDAI being immune to such problems. At a time when responsible democracies rarely build large monuments to showcase their countries , this project comes close to being a national monument albeit an effort to do some public good.

Will it be a worthy initiative? All of us will have to wait to find out.

After lokpal ..

The endgame for lokpal bill is yet to be reached. But it seems reasonable to assume that some variant of the bill will be passed eventually. If the overall goal of activist groups is to tackle corruption in public life, you have to ponder about the next step.

    The idea of Lokpal is borrowed from variants of the Ombudsman model of other developed countries. Holding public administrators accountable is a fine goal. But there are a lot of other parts of the system in dire need of fixing too. The judicial system should be an area of focus.

    The system is famously slow, with more than 30 million cases pending in courts. Disposal of cases is inefficient. Even the most straightforward cases take forever to be resolved. Lately, the quality and integrity of judges has also come under the scanner.
   
    Anna Hazare is suggesting that judiciary reform is the next big item on the agenda.There has been talk of a  reform bill for some time now. But not much progress has been seen on that front. From the civil society's point of view, if and when the lokpal bill is resolved this ought to be the next big fight to pick.

Number two investment destination?

This new study from ASSOCHAM caught me by surprise. It says Karnataka is the second most preferred investment destination in India now. A regular news junkie would surmise that most of these investments would be in the services sector. But, the study says that manufacturing was the largest component.

Nearly 44 per cent of these are in manufacturing sector followed by 22.4 per cent in services, 15 per cent in power and about 14 per cent in real estate. The projects are in different stages of implementation, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in its study titled ‘Karnataka – Next Growth Leader in the Making.’

    Karnataka has a history of volatile politics. Except for the period between 1999 and 2004 the state has not seen a single chief minister complete a full term since 1977. And lately, the state has been in the news for mostly the wrong reasons.

Robust infrastructure, active policy support are essential pre-requisites for the manufacturing sector to thrive. One has to wonder if the state has turned a corner of if this is just a blip.

Black money - got any ideas?

    So the Government is seeking ideas from simpletons like you and me to combat the problem of black money. They have even created an email-id , bm-feedback@nic.in to send in ideas. A cynical observer would think this is just another dog and pony show. I am going to take the bait and offer my sparkling idea.

    The overall amount of black money in tax havens is estimated at about $500 billion. Some say that the figure could be as high as $1.4 trillion. Since we are not sure , i am going to assume it is about $250 billion - a low-ball figure to be sure.

   My solution has two two parts to it. Step one, get the tax haven countries to share account information. Step two,create a framework to repatriate that money.

   First, offer a free trade agreement to the relatively clean tax-havens like Switzerland. Their banks will be allowed access to the banking and financial sector of a growing Indian economy in exchange for concrete information of illicit accounts held in their countries. Build pressure on tax haven countries that are unwilling to co-operate. This could be a real possibility.

"It is a big issue in India. At the same time, it is a global issue. People are uniting against it." Owens said. He said the OECD had adopted a set of criteria for blacklisting tax havens if they refuse to cooperate.

"We are making sure that all countries, including OECD member countries like Switzerland, Luxembourg and Austria, implement the decisions. Otherwise they will face sanctions," said Owens.

The Paris-based OECD, a grouping of 34 countries, accounts for nearly 80 percent of world trade. Although India is not a member, it has close relations with OECD and has joined its multilateral platform initiative to check tax evasion and money laundering.

    Assuming that the total value of illicit money is close to my estimate of $250 billion , a reasonable mechanism has to be put in place to entice the repatriation. Levy a 40% tax on the money stashed away. That would yield a revenue of $100 billion to the exchequer. Make it mandatory for the other 60% of the money(a total of about $150 billion) to be invested in an independently constituted Infrastructure development fund.
    Long term Infrastructure bonds would be issued and a reasonable interest would be paid out. That way, the erstwhile tax evaders can still keep part of the money and earn some income out of it. The infrastructure fund can then leverage itself to a ratio of 1:10. With a capital of $150 billion , it could borrow up to $1.5 trillion for investments in infrastructure. That could easily satisfy the investment needs for the next five year plan.

Alright, the whole idea may sound infeasible. But,i am not offering unsolicited advice. I was wondering if you folks had any thoughts ? If there is something to offer, post your views as comments. I will collect them all and send an email to bm-feedback@nic.in.

Rethinking NREGS

    When NREGS/NREGA was launched in 2005 it was seen by many as another well intentioned idea destined to be wasteful. However, it has proven to be popular and successful to some extent. Now, some of the unintended consequences are coming to light.

Ever since the start of the program, which guarantees 100 days of work a year for rural households, the flow of migrant labour to Punjab and Haryana states has dropped to a trickle, forcing farmers such as Malik to hike farm wages massively, and still he cannot find enough workers.

.....

"Four or five years ago, it used to cost Rs 500-800 ($11-$18) to plant an acre of paddy. Last year the labourers took a tenth of the paddy and Rs 3,000-4,000 ."
This rise in wage levels and farm costs in rural India is worrisome, with evidence it might be feeding into the high inflation that is the government's biggest economic headache and prompting a hawkish stance at the Reserve Bank of India (RBI).

......

Critics say MNREGS is wasteful and riddled with corruption, and the infrastructure created is of shoddy quality.

A recent World Bank study on welfare programmes in India including MNREGS said they did not give the "bang for the rupee" warranted from such huge spending.

    NREGS now costs about 1 percent of GDP, that is roughly in the range of 10 to 15 billion USD a year. It begs the question, Is it the best way to provide jobs to unemployed?

    A better alternative could be the kurzarbeit model that was implemented in Germany. It is a program where the state pays some part of the salary when an employer retains or hires a worker. India could bring about the much needed labour reforms and couple it with incentives for employers to hire and retain workers. That may prove a better alternative to the current form of NREGS.

Two decades of reforms - remittances

    The post reform Indian economy has seen a noticeable influx of foreign money. It has taken the form of FDI, FII and remittances from emigrants. Yet, the last category of inflows have proven to be steady and rising.

    The chart below illustrates the trend since 1981. Growth since 1991, especially in the 2000's is hard to ignore. These inflows now make up about 3.6% of GDP. The trend can be attributed to various factors. Increased outward migration, high tech nature of the skills of migrants and improving investment prospects especially real estate in India have all played a part.

Source: econ.worldbank.org

     Although small in absolute numbers, the outflow of money has also seen remarkable growth lately. Indian companies and individuals are increasingly looking outward for investment and education. This graph below could be a sign of that trend.

Source: econ.worldbank.org

   
    Much like the migrants, money seems to be moving in both directions rather smoothly.

If imitation is flattery ..

For those who have not seen this http://ipaidabribe.com/ , it is worth a peek. It is a web-site run up by an Indian non-profit to combat graft. It is a place where people can vent their anger, read other's stories of fleecing and organize with fellow citizens.

Lately, it has received some publicity in both the national and international press. Now, the web-site has a raft of imitators. One of the sites is apparently named "I made a bribe".

It is unclear if the Indian web-site has caused any change in behavior of those in power. And it is difficult to know if some of the international web-sites would be allowed to flourish. But the idea is certainly causing people to pay attention.

Response from a disgruntled populace

A quick follow up to my earlier post about the movement against corruption. What else can the civil society do in the face of an unresponsive government?

They could try and stage a referendum if the constitution allows it.That is exactly what Italy did today. The state of California has a rich history of doing this as well.

I am not entirely sure this can do a lot of good. What starts out as a well intentioned means of enforcing accountability could end up creating more chaos and grid lock. Read more about California if you are interested.

Two decades of reforms - IT and knowledge industry

The sector that has seen the most dramatic rise as a consequence of reforms of 1991 in India is the  information technology industry.Today the industry contributes 5 percent to the GDP and supports well above 2.5 million jobs in the country. This graph below sourced from this blog post gives you a good idea of the boom since the mid 90's.

The impact of reforms is well illustrated here.The country started as an IT services destination and is now diversifying into more than just IT. Blue chip companies like EADS, Merecedes Benz, GM conduct substantial Research & Development operations out of India these days.

Although the industry is still small when the working population and overall GDP is put in perspective, the future still looks good enough. Policy makers from the early 90's can rightly take some credit for this.

Wriggling out of the Quagmire

So, you are elected to govern a country after winning an election. There are longstanding problems in quality of governance, which you acknowledge but don't make a very serious effort to resolve.

The constitution allows an individual or a group to express their opinions and participate in peaceful protests against perceived grievances. The civilian, unelected entities take up the cause and start raising the issue .The media provides front page coverage to the ongoing fracas. The middle classes are fed up and empathize with the protests despite the colorful background of some of the leaders.

The government is in a pickle.What could possibly be a good response? Would  negotiations with unelected civilians and a counter offensive in the media help get you out of the quagmire?

How about laying out a long term plan to tackle corruption , not just one piece of legislation? Propose a slew of measures, i.e. police reform, reform of judiciary etc. Communicate the plan effectively , appoint an elected representative to oversee a timely and effective implementation.

Wouldn't that send a signal of competence and reassure the people , instead of the on-off, erratic response that we have seen so far?

Shiny new airplanes

When Air India placed a huge order for new planes in 2006, it raised a few eyebrows  for the way the order was placed. There were also questions about the need for so many long haul planes. Now those voices seem to be getting louder.

On the heals of strikes and heavy losses, comes the news that Air India now is reconsidering it's aircraft acquisition plans for the 787's. It is understandable that this is not as big an issue as the 2G scandal, but it is still big enough. As to why this not getting more attention in the media is a mystery to me.

'Aadhar' for a people

The much anticipated Unique ID project, 'Aadhar' is making steady progress. Concerns have been raised about the privacy/security issues and the cost of the project. People who work in the IT industry know that projects of this size generally tend to have teething problems. Missed deadlines, cost overruns and implementation flaws are all part of such a mammoth undertaking.

Any solutions that are devised to reach the entire population for a country the size of India would have to be groundbreaking in nature. 'Aadhar' will not be a silver bullet for all the shortcomings of our system. It could yet to do some good.

The creation of 'Aadhar' is enabling access to banking services for people who never had any. The biggest expected payoff is in the area of administration of existing schemes like NREGA. In theory, the direct transfer of money to the beneficiary's accounts should reduce waste and abuse.

The creation of national population register(NPR) would enable collection of more elaborate data.

During the preparation of NPR, the enumerators will collect from each household 35 details related to total number of persons living there, their sex, number of dwelling rooms, number of married couples, source of drinking water, type of latrine, fuel used for cooking, type of floor, wall, roof, whether anyone owns car/two wheeler, anyone availing bank service among others.

These data points should help in designing and administering any new development schemes. 

As to which of these benefits truly materialize, we will have to wait to find out.

A rare case of planning ahead

In my living memory i had never seen this before. The Indian Government is allocating a sizable chunk of money for the preparation of athletes for the 2012 Olympics.
 
In the greater scheme of things, an investment of Rs.260 crores may not be huge. Even if money were never a factor, it takes a lot longer than a year's time to identify talented athletes and nurture them for the Olympics. And then, there is the perennial problem of using allocated money effectively.

However, it is good to see some attention being paid to Olympic sports amid all the hype surrounding cricket, especially after the world cup. Despite all the debacles in organizing the 2010 commonwealth games, the Indian athletes performed rather well.

Even if the money provided now does not result in additional medals , it may do some good for 2016. It also might encourage the corporate sponsors to chip in with greater support. But don't ever compare this effort to China's or Britain's.

In the absence of quick convictions

Mr karunanidhi has expressed his dismay at the conditions in Tihar jail.

While recounting the conditions inside the Tihar, where he went to meet his daughter last month, Karunanidhi broke down a few times.
“You know the conditions in Tihar jail? A flower kept there will wither away quickly due to the heat,” he told the gathering, which included his relatives and childhood friends.

The duration of her stay appears to have grown longer. Then there is Mr. A. Raja who has been in Tihar for more than three months now. There has been a strange but understandable sense of schadenfreude by the Indian media in covering these high profile imprisonments.

For the politicians and industry executives who are locked up in Tihar on 2G charges, it must be a dramatic climbdown in lifestyle. Cynical observers of Indian justice take it for granted that the well healed and highly connected individuals never face justice irrespective of their crime.

In the future, would the prospect of a long period of incarceration in a tough jail act as at least a partial deterrent to misconduct by public figures? I hope so.

Is the genie out of the bottle?

The defense minister has a curious take on the ongoing fracas between civil society and the government.

Mr Antony said,  "The walls of secrecy are crumbling...in every field...whether it is politics...or administration...judiciary...business. The trend's started...the movement's started...you can't stop it mid-way."

He also seemed to refer to the growing confrontation between civil society activists and the government over how to introduce a sharp law to check corruption.

"All those who are in key positions in India...they are still not ready for this transition...that is why there have been some problems...but this is another phase of Indian democracy," the minister said. 

From this point on, it is immaterial what the yoga guru ends up doing. People have now found that the government can be made to negotiate with civil society. The politicians know there can be real electoral consequences to egregious graft.

In more than one way, this looks to be a breaking point. Will the momentum be sustained?

Two decades of reforms - maternal and child health

A huge letdown from the boom of the last two decades is the lack of progress made in the country's health indicators. Especially child and maternal health.

Here is a good snapshot of some key indicators. As you can see , in areas of  infant mortality, nutrition and child health India has far too much ground left to cover. Here is an interesting take on health-care being the low-hanging fruit that can yield out sized returns for modest investments.

Hoping that we can maintain a brisk pace of growth and somehow the benefits of that would trickle down to the most vulnerable is deeply misguided.There is an urgent need to raise investments in the health sector. And also to make sure that money already being spent is targeted effectively.

A spectacular self goal

If there ever was a way to alienate a large swathe of the middle class and political parties across the spectrum in one single attempt , the handling of Baba Ramdev situation by the government is hard to top. As M.J. Akbar points out the yoga guru has far less to lose than does the UPA.

The common man has lost patience with successive government's continued inability to improve governance. The sympathies of the public will always be with people who are willing to wage a fight. In most such public protests the ruling incumbents are often in denial and behind the curve in reacting to events on the ground.  Despite attempts at explaining what happened last night by the spokepersons of the government, they just do not have the moral high ground any more.

On the flip side, if this was a covert attempt at provoking more such protests from other wannabe crusaders, they could not have been more successful. The events of the last few days may be a harbinger of something more dramatic to come.

Kanimozhi conundrum - Act 3

This one is more of Dayanidhi Maran's dilemma. Is this another instance of "nothing is regarded as confirmed until it is officially denied" ?

Given the colossal business empire that has been built by the Karunanidhi family, no amount of scrutiny looks excessive. The burden of proving their innocence is theirs to bear. You ought to be naive to believe only a handful of politicians caused the 2G spectrum.

Unless the guilty are convicted and are handed strong sentences, movements like Anna Hazare's and Baba Ramdev's will continue to resonate strongly with the public. There should be no easing of the pressure.

Update: So, Mr.Karunanidhi is willing to accept some blame for the 2G 'situation'. The self pity of a politician.

RBI engineered slowdown

RBI's efforts to cool down inflation and growth of GDP are showing the intended results. There is little doubt that this was the right thing do to. However, it is commonly known that the current bout of inflation had nothing to do with Monetary policy in India.

If there is a silver lining to all of this, it is that RBI has plenty of room whenever it decides to loosen interest rates and provide a boost to growth. This is in stark contrast to many of the developed world economies where interest rates are already at historical lows.

As D. Subbarao points out , the government has to start addressing supply side issues to get a handle on inflation in the long term. Any reforms that are initiated will take several years to show consistent results. There is a desperate need to show some urgency in this regard.

But , amid all that is going on with corruption scandals you don't get a sense the government is paying enough attention except for the occasional sound byte . I'll believe it when i see it happen.

BJP in karnataka - missed opportunity

The state of Karnataka has a long history of unstable governments. Although this does not provide the complete picture, the list of chief ministers over the years is a good indicator to go by. The only exception in the list is the period of 1999-2004, which coincided with the growth of Bangalore as an IT hub.

In that context, the near majority mandate that BJP received in the 2008 elections was seen as a start of a new era by optimists. Sadly, it hasn't been. The recent kerfuffle involving the Reddy brothers is just another episode in a long list of snafus this government has had.

It was hoped that a party that came to power in a southern state for the first time would show some eagerness to prove itself. In that regard, optimists like me were hoping that governance would improve. Instead stories of rampant corruption have become commonplace. After three years, it is increasingly evident that the BJP has blown it.

'Mismanagement' of Air India - possible election issue?

Here is another story chronicling the awful state of affairs at Air India. Calling some of these details shocking would be a massive understatement.

When Bob Haygooni paid a midflight visit to a cockpit at his new employer, Air India, he was shocked. The pilots, he said, had completely covered the windows with newspaper to keep out the sun.

“All you had in the cockpit was this yellowish glow, as the light permeated the newspaper,” Mr. Haygooni recalled, saying it was a visibility hazard he had never seen before in 30 years of flying.

But “this was a normal thing at Air India,” said Mr. Haygooni, a former United Airlines pilot who flew for the Indian airline for 16 months. In April 2010, however, he decided that the paycheck was not worth his concerns over what he considered the government’s haphazard approach to running its state-owned airline.

One safety concern noted by the interviewed pilots was that veteran Air India captains often left cockpit doors unlocked — a practice most carriers around the world abandoned after the 9/11 attacks in the United States. They also said captains tended to leave the cabin during flights, leaving co-pilots alone for long periods. They said pilots’ smoking in cockpits was also common.

The money being lost every year alone, which is in excess of a billion dollars could be put to use to solve many of the aviation bottlenecks in the country. To put this money in perspective, the total cost of building greenfield airports in Hyderabad and Bangalore from scratch are said to have been $600 Million each.

It is anybody's guess if this is a result of incompetence or willful sabotage. In either case, this should be a huge stick for the opposition parties to beat the government with. It is time the UPA and it's allies get a lot more heat for Air India's mismanagement in the coming elections.