Lok Satta
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Dr.Jayaprakash Narayan's2002
(Saturday, 7th December, 2002 'People Power' ) Crisis of confidence and governanceWhile the world revels in finding a solution to every problem, we relish in identifying a problem for every solution. One of the great miracles of the past quarter century in the global economy is the emergency of Asia as an economic giant. Rao Chalasani, the then chief investment strategist of Everen Securities, predicted in the midst of the Asian economic crisis in 1998 a rapid recovery of much of South East Asia despite the then prevailing gloom. As he pointed out, the virtues central to the new growth model of Asia are a high savings rate, strong commitment to education, solid work ethic, integrity of the family unit and social contract providing harmony. Critics like Joseph Stiglitz pointed out that the IMF solutions are both inconsistent and counterproductive, and have in fact led to deepening of crisis in Asia at that time. Draconian measures related to currency value, current account surplus and government budget surplus were all sought to be imposed by the IMF at the same time. Serious contraction of imports, austere measures in government and substantial increase in unemployment were the unhappy consequences, leading to social unrest and delayed recovery. But most of the Asian tigers did recover rapidly because of the Asian virtues. South Korea is a prime example of this resilience, growth and modernity. China, of course, was largely unaffected by the Asian crisis, and for nearly a quarter century continues to be the fulcrum of economic growth in Asia. In fact, the rapid growth in China is one of the important factors stabilizing global economy in the face of deep economic crisis in the US since 2000, relative stagnation in Europe, and prolonged slump in Japan, the original Asian tiger. In the midst of all these breathtaking changes and rollercoster rides, India remains largely untouched. The phenomenal growth rates of Japan, China and Asian tigers bypassed us. As we never reached great heights, great lows were not possible. And our politicians and bureaucrats indulged in self-congratulation for past non-performance and modest growth rates. At the height of Asian crisis people in the Indian establishment talked disparagingly of the Tigers, and gloated over our economic stability. However, even a cursory visit to South Korea during the 'crisis' period would have helped us realize that their crisis situation was far better than our 'success'. If we set our sights low, there can never be failure! This ostrich-like philosophy has been the single biggest reason for India to become a champion underachiever in the post-war world. We are forever described as a nation whose vast potential remains unfulfilled, and a caged tiger which refuses to break out of the chains of poverty and mass misery. Is there a way out? Should India forever be contented with the modified 'Hindu' rate of modest growth and perpetual poverty, illiteracy, illhealth, misery and corruption? Despite significant and at times spectacular individual successes, should we be resigned to the fate of collective underachievement? A few vital breakthroughs in recent decades impacting lives of tens of millions of people give us a glimpse of what we are capable of. Tamil Nadu is yet another state mired in surreal politics, corruption, polarization, and politics of fiefdoms. And yet over the past two decades birth rates plummeted, bringing population to stable level, on par with Kerala. Emphasis on school education and primary health care, and one well-conceived and well-implemented programme of mid-day meals in schools transformed the state despite the usual political and bureaucratic vagaries. Literacy rates went up significantly, population reached stable levels, skills were improved, investment flowed and economy is growing impressively. If every major state can become a Tamil Nadu, we will have another Asian miracle in India! Andhra Pradesh is the state with appallingly low levels of literacy, next only to Bihar and Orissa among major states. Despite poor social indicators, sustained campaign mode of family planning programme implementation over two decades brought the state close to stable population. Amazingly, low literacy proved to be no obstacle, and crude coercion was unnecessary to reduce birth rates, generating hope that most of India can indeed contain population growth rapidly. Karnataka too is close to achieving stable population level. Perhaps the greatest miracle is in Rajasthan. This traditionally backward state, lumped with Bihar, Madhya Pradesh and Uttar Pradesh as a Bimaru state known for extreme poverty, social backwardness and appalling ignorance has been quietly transformed over the past quarter century. Rajasthan is no longer a Bimaru state, and by Indian standards it is now a middle-income state. If Rajasthan, through political will and purposive administration could accomplish this, there is no reason to despair of the plight of the other great, Hindi-speaking north Indian states. Maharashtra has achieved another great miracle. Corruption has been almost totally eliminated in the subordinate judiciary in that state. A proactive High Court ensured removal of a tenth of all trial court judges, and judicial probity has been restored. The Supreme Court supported these strong initiatives. Rajasthan High Court has followed suit, and strong steps are initiated to remove judges tainted with corruption. If two major states could eliminate corruption in one whole branch of government in a short span, is it impossible to dream of corruption-free India? And finally, the Aroles achieved the ultimate miracle of low-cost, high-quality, accessible health care through a replicable model over two decades ago, and transformed the lives of 100,000 people in Jamkhed area in Ahmednagar district of Maharashtra. There is nothing which prevents the replication of that model in all the 600,000 villages of India,except our lack of ambition and imagination. Clearly, there is tremendous scope for achieving high literacy, stable population, accessible health care, and removal of poverty and elimination of corruption. There are only two great obstacles to this great national resurgence - crisis of confidence, and appalling governance. We need to shed many of our delusions, and address these two monumental problems. Even now it is not too late. Fundamental political and governance reforms and sound economic policies, backed by a surge of national will can, and will, transform India into the next Asian miracle. We can catch up with China, and be the engine of growth in South and Central Asia. The people of India are ahead of our politicians and are ready for change. Do the elites have the courage to dream big, and the will to build institutions which can replicate our successes? (Saturday, 9th November, 2002 'People Power' ) A plea for balanced federalismThe recent spurt in terrorist violence and the unresolved Cauvery river water dispute brought to the fore once again the imbalanced nature of our federalism. For long scholars have argued with reason that our Constitution is quasi-federal in nature, and in times of emergency (under Article 352) and imposition of president's rule under Article 356, it becomes completely unitary. These apart, the states in India are completely at the mercy of the Union for their very existence. Articles 2 and 3 of the Constitution give the Union unlimited powers to establish, merge, separate or alter the boundaries of states at will. The only restraint is that the Union shall not introduce a Bill for such purposes in Parliament without first referring it to the Legislature of the State affected by it for expressing its views. All these features, coupled with nomination of governors by the Union, the power of governors to withhold assent to a Bill and to reserve it to President's assent make our federalism skewed in favour of the Union. However the developments over the years have restored the federal balance to a great extent. The Supreme Court judgment in the Bommai case made Article 356 practically a dead letter. The Union's increasing dependence on bipartisan consensus to get any Bill passed in Rajya sabha made adventurism unlikely. Coalition governments with strong presence of regional parties made the Union government dependant on states for its survival. The Forty Fourth Amendment of the Constitution during Janata government made proclamation of Emergency under Article 352 virtually impossible. With economic liberalization and dismantling of license-permit-quota raj, the Planning Commission lost much of its power and control over states. Fiscal devolution in India has been a model of mature and balanced federalism, thanks to Finance Commissions. The states' share of Union tax revenues is now over 40 percent - 29 percent direct devolution, and about 12 percent through planning commission grants and centrally-sponsored schemes. Even these funds are allocated in a fairly objective manner, based on an agreed formula. True, there are still over 200 centrally sponsored schemes, and there is a case for direct devolution of most of these funds and plan grants through the Finance Commission mechanism. But on balance, we can conclude that our federalism is far more mature and balanced than ever before. However, there are certain areas in which the Union's weakness is hurting the country. Take the Cauvery dispute. Year after year the problem surfaces, and the Union is helpless. In 1991, during Bangarappa's chiefministership, there were serious allegations of government inciting riots and violence against Tamilians in Karnataka. Timely rains rather than good sense of the states or institutional arrangements have been giving us respite in most inter-state river water disputes. The Union is often a helpless bystander as states indulge in political posturing and play dangerously parochial power games. Entry 56 in list-1 is too feeble and inadequate to permit decisive role to the Union. When your state is your constituency, it is difficult to be restrained or fair-minded. Similarly law and order and crime control are state subjects included in list-2 of the Seventh Schedule. Terrorism, serious financial or banking fraud, cyber crime and drug trafficking do not respect state boundaries. Only well-coordinated, national action can check these offences and safeguard our lives, liberty and vital interests. Often the states lack national perspective, and do not have the expertise to deal with certain crimes. In 1987, when naxals abducted several IAS officials in Gurthedu in East Godavari district, the matter was treated as the State's problem, and a dangerous precedent was set by agreeing to the terms of extremists. In 1990, when Rubina Sayeed was abducted by terrorists in Kashmir, again the state was forced to capitulate. Such disjointed, knee-jerk responses obviously emboldened terrorists and played havoc with national security. There is obviously a strong case for effective and automatic Union jurisdiction of all such offences. Inter-state barriers like octroi are another example of parochial interests hurting national economy. We cannot have national unity or economic integration without free trade across the length and breadth of the country. Severe restrictions on education and employment and sons of the soil policies have been impeding growth and diluting standards, particularly in professional courses and universities. Again there is a case for the Union to be entrusted with these subjects. Finally, linguistic and other minorities are often at the mercy of the state concerned. It is always easy and politically profitable to spread hatred and venom against vulnerable, politically insignificant minority groups. If the Union cannot guarantee life, limb and dignity of all citizens, then nationhood loses its meaning. These four areas - inter-state river waters, terrorism and other specified crimes, inter-state trade, and protection of vulnerable minorities - need to be transferred to the Union. We certainly need a truly federal state based on the principle of subsidiarity. What can be done locally should never be entrusted to a larger unit. But what clearly can be handled only by the Union should not be entrusted to the smaller units either. Rapid changes in technology and security environment, and threats to our unity, integrity and economic prosperity need to be addressed swiftly and decisively. Balanced federalism must be a two-way traffic. It is in the larger interest of political parties and the Union and states to periodically reexamine the division of powers under Seventh Schedule. A diverse, vast and complex society needs to be alert and sensitive in its response to changing environment. Only then can we secure unity and promote prosperity (Saturday, 28th October, 2002 'People Power' ) Poll verdicts & political shenanigansThe continuing political uncertainty in Jammu and Kashmir after the courageous participation of voters, braving bullets and bombs, once again exposes the shenanigans of our politicians. The murky politics of power and dissidence in our largest state of UP too expose the increasing divorce between people's mandates and government formation. Democracy is about people's verdict and peaceful change. If the vote becomes merely a power of attorney to allow a legislator to do as s/he pleases after election, and if all we get from our representatives is unbridled lust for power and pelf regardless of public good, then democracy is reduced to a medieval power game. This propensity to undermine people's verdicts and hop parties at will was best illustrated by the shameful events in the last UP Vidhan Sabha. The Tenth Schedule of the Constitution incorporated in 1985 through the 52nd Amendment was greeted with great relief by all advocates of political morality. However, its spirit was violated on innumerable occasions. And in UP in October 1997, even the letter of supreme law was ignored with impunity. The people elected 66 BSP members to UP Assembly. 12 of them violated party directive and voted for the Kalyan Singh government during the confidence vote in October'97. Though the Constitution mandates that defecting members violating party whip should be disqualified if they do not constitute one-third of the legislature party, the then Speaker, Kesrinath Tripathi refused to act. In an audacious piece of political chicanery, the Speaker held that the whip issued by Ms Mayavati as leader of the BSP in the House was not valid as it was not issued by an authorized person within the meaning of para 2(1)(b) of the Tenth Schedule! Supreme Court is yet to hear the appeal filed in that case! In all mature democracies, an acceptable political culture has evolved over a period of time, and defection for personal gain or violating people's verdict is unthinkable. In an evolving democracy it is hard to sustain politics of principle without the aid of legal provisions and strong institutions. The Tenth Schedule discourages individuals from straying, but rewards collective defection. As a result splits are engineered, and constitutional coups are planned with meticulous precision. Politics is reduced to a numbers game without any sense of fairness, principle or obligation to the electorate. The UP case showed that partisan Speakers can violate even the Constitution with impunity. There is another major unintended consequence of the Tenth Schedule. Once the law provided that violation of party whip on any vote attracts disqualification, party legislators who may honestly differ on a piece of ill-conceived legislation are now forced to submit to the will of the leadership. The use of whip to force Congress MPs to vote for Muslim Women's Bill in 1987 to undo the Supreme Court verdict in Shah Bano case, and the shameful episode of Congress members abstaining on party orders during the vote in the impeachment case of Justice Ramaswamy are two particularly ugly instances which undermined our democracy and society on account of this mindless obedience. Clearly, all legitimate dissent is stifled and smothered, whereas collective plunder of the state goes on merrily unchecked. Obviously major reforms are needed in the anti-defection provisions if we are to preserve even the limited sanctity of electoral verdicts:
A democracy can survive only when rule of law is respected. If the process of power itself is vitiated and no rules of conduct apply, soon the state is seen as illegitimate, and governance is reduced to constitutional brigandage. The parties have great stakes in amending the anti-defection provisions for their own survival and credibility. Can we trust our legislators to exhibit a modicum of enlightened self-interest, and end this scourge of defections? (Saturday, 12th October, 2002 'People Power' ) A belated, but welcome, initiativeThe sub-continental air is thick with elections. With polls completed successfully in the troubled state of Jammu and Kashmir, elections being held at last in Pakistan giving democracy a modest chance, and Gujarat poll dates to be announced soon, there is talk of political competition and elections everywhere. But the middle classes in the sub-continent in general are showing enormous contempt for the political process. There is very unhealthy cynicism and dangerous yearning for authoritarian solutions.In many ways the three-year dictatorship of Musharraf, and his continued prominence after elections, both as self-appointed president and chairman of the newly created national security council, have been made possible because of the apathy of the elites and middle classes. While Pakistan and India never fail to flex their muscles and exhibit mutual antipathy, both societies are similar in some respects. We both view elections as mere power struggle, and power as private property. Ideals and ideas, vision and policies, institutional vitality and accountability have very little to do with our democratic process. Understandably therefore, the methods deployed to acquire power are judged only by the success of the outcome, and not by the purity of the means! The candidate disclosure issue which saw complete divergence of opinion between the political elites and the public is an illustration of this relentless pursuit of power as an end in itself. The response of the well-heeled and well-educated to this democratic deficit is one of despair and hostility. But such hostility to political process can only lead to one outcome - authoritarianism by invitation. We only have to look at Pakistan to realize what such despotism does to a society. The only antidote to the ills of a democracy is more and better democracy. What is needed is painstaking, systematic steps to set our house in order and make democracy real and meaningful. While we haven't done as well as we hoped over the past 55 years, it cannot be denied that there has been modest progress. And whatever be our failures, democracy is not responsible for them. It is our own inability to evolve truly democratic and fair practices, and failure to adhere to them scrupulously which led to many evil consequences - unbridled corruption being the most visible. The inference is clear; we should quickly address our governance crisis, and engineer democratic reforms. But even when such attempts are made, as a nation we don't seem to take any notice of them. It is as if we have a masochistic impulse which makes us love self-flagellation and ignore anything which may improve our conditions. The stony silence which met the Election and Other Related Laws (Amendment) Bill, 2002 (introduced in Parliament in March, 2002) aimed at significant political funding reform, is one illustration of this apathy. This Bill is quite far-reaching in some respects and deserves the serious attention of all concerned citizens. This Bill, if it becomes law, has five important consequences.
In any sane democracy, such major political funding reforms would be discussed and debated endlessly and disseminated widely. Somehow, we seem to revel only in vituperative criticism and have no interest in real reform. Happily these reforms have bipartisan support. The Congress party initiated the process with Manmohan Singh Committee, and the ruling combine responded positively. The fact may be that the Bill leaves scope for improvement. True, such a law alone will not eliminate the incentive for illegitimate and high election expenditure (either for ego gratification, or in anticipation of multiple returns in a corrupt system), but it certainly provides for legitimate means of funding, and eliminates the alibi for political corruption on grounds of fund requirement. Certainly a lot more needs to be done to make our democracy mature and corruption-free. A shift to proportional representation; separation of powers in states; speedy justice; empowered local governments; strong, independent anti-corruption mechanisms, and instruments of accountability - all these are needed. But sensible funding reform is a key ingredient in any reform agenda. Politicians need to be applauded for a welcome, if belated, initiative. Let us condemn what is wrong in politics, but let us not throw the baby with the bath water. We need better and more democracy, and certainly saner and truer politics. (Saturday, 28th September, 2002 ) Perfect means, confused endsFor over half a century, economic prosperity has been the goal of post-war world. Even by 1939, the United States emerged as an economic giant, and the war only enhanced its economic strength and global power. Western Europe was devastated by war, but with American support in the form of Marshall plan, there was rapid reconstruction and recovery. Japan too resumed its place among the prosperous nations quickly, thanks to the high levels of human development achieved even by late 19th century. Eastern Europe under Soviet control floundered economically, but whatever be the faults of socialist model, there was high emphasis on education and health care. Though communism collapsed eventually, the high level of human development ensured that there is an enduring foundation for economic growth. Despite the tumultuous 90's, many East European nations are improving their economic performance. The real problem is with the central Asian republics. China too essentially followed the same model. China's modernization and economic surge since 1978 have been possible because of the high level of literacy and health care achieved in the first three decades of communist rule. Despite the disasters of 'Great Leap Forward' and the excesses of the cultural revolution, phenomenal success was achieved in human development. South East Asia too achieved impressive levels of literacy and health before the economic boom. Quantum jump in economic growth was always preceded by human development. It does not necessarily follow that high level of human development guarantees economic prosperity. Political stability and peace are necessary conditions for growth. Sri Lanka, which achieved impressive levels of human development even by the 70's has not made an economic breakthrough because of two decades of civil war. Similarly, relatively small nations can sometimes witness economic boom without human development. This is almost always because of abundant natural resources which are in short supply globally. The boom in the middle-East and countries like Morocco and Brunei is based on a single commodity which commanded premium price. But such a boom is necessarily short-lived unless those nations invest heavily in human development and improve the skills and productive capacities of the people. With commodity prices showing a long-term decline and modern technology finding cheaper substitutes in time, large scale export of natural resources cannot be sustained. The lessons of the past six decades are clear. Human development is the precondition for prosperity. And more importantly, good health and higher quality of life are the very purpose of economic growth. Einstein once famously said that the twentieth century was characterised by perfection of means and confusion of ends. In India, this confusion continues in the twenty-first century too. Healthy life is obviously a goal of all economic activity, and good health is a precondition for productivity and growth. And yet, we have steadfastly failed to create a viable, well-functioning health care model. In Punjab in the forties, most villagers were chronically ill with Malaria, and there were not enough healthy workers on the farms. Control of Malaria itself significantly improved agricultural productivity. But that lesson was never internalised. True, there have been significant gains on the health front over the past 50 years. Average life span has been doubled, and many communicable diseases are under check. But there is far too much of avoidable suffering even today. And this is unacceptable in modern era. Planning Commission's figures show that only 42% of our children are fully vaccinated against preventable communicable diseases. Human Development Report 2002 shows that only 31% population has access to adequate sanitation facilities. These two indicators are a damning indictment of our health care system. Our health expenditure is certainly lower than in many countries. The US spends 12.8% of GDP on health, 5.7% in public sector, and 7.1% in private sector. Most OECD countries spend 8 - 12% of GDP. Our public expenditure on health is around 1% of GDP, and private expenditure is 4.2% of GDP. But there are countries whose expenditure is lower, but results are better. Sri Lanka spends only 3.5% of GDP (1.7% public, 1.8% private), and China only 5.1% (2.1% public, 3% private). But infant morality in Sri Lanka (27) and China (32) is less than half of that in India (67). In many other verifiable indicators like average life span, birth rate, death rate, our performance is well below that of Sri Lanka and China. We account for the largest number of tuberculoses cases and preventable blindness. Thanks to uncontrolled proliferation of mosquitoes, malaria is rampant, though there is obviously gross under reporting: we report only 191 cases per 100,000 population, as opposed to neighbouring Sri Lanka's 1111 cases! All these statistics establish two things. We need to invest more in health. But more happily, the current expenditure levels also can bring better results if only resources are properly deployed. Our public health institutions are in shambles. There is misallocation of resources, coupled with poor delivery of services. Hospitals, medical education and dispensaries account for over 60% of the budget and only 26% is spent on preventive care and family welfare. Nearly 60% of all pubic health expenditure is in the form of wages. These distortions result in two inequities. The poor benefit more from preventive care and primary health, and denial of these services hurts them disproportionately. Preventable disease is a major cause of impoverishment and indebtedness of the poor. And as the public health delivery is appalling, the few services provided are cornered by the more influential, depriving the poor. We need to make primary health centres accountable to local governments, and ensure better value for the money. Once they function effectively, a little more investment in infrastructure, vaccines and medicines will yield huge improvements. We are relatively good at military style campaigns. The success of pulse polio programme is a good example. We need to design special programmes for Malaria and Rheumatic heart disease (RHD). Nearly 200,000 children a year fall prey to heart disease on account of simple sore throat between the ages of 5 and 15. Compare this with total heart surgeries, mostly coronary bypasses, of under 100,000 in India every year, at a whopping cost of about Rs 1000 crores. And yet, RHD can be eliminated by simple use of antibiotics for sore throat, at an annual cost of under Rs 10 crores!. Such are the miracles of modern medicine. All is not lost in this war against preventable disease and avoidable suffering. We have the technology, vaccine and drug production capability, and highly skilled manpower in India. The people understand the value of health. Improved health care delivery is politically profitable. States like Kerala and Tamil Nadu showed what can be achieved. Lower birth rates in southern states show that poverty and even illiteracy need not inhibit successes in health care. Low costs yield high dividends. Many pioneers like Dr Arole have shown how great improvements are possible with minimal inputs, few resources and local talent. All it takes is genuine commitment, and capacity to build institutions to deliver services. Economists and politicians would do well to focus on viable health care systems, reallocation of resources and instruments of accountability. (Saturday, 31st August, 2002 'People Power' ) Public good or private gain?In our country the more things change, the more they remain the same! We have had interminable debates on the merits and demerits of public sector vs private sector for two decades now. Meanwhile global economy has changed beyond recognition. Most countries, which subscribed to state monopolies and government ownership altered their policies radically. USSR collapsed, and east Europe has been liberated. China is almost entirely market driven, and state is retreating from business functions rapidly. And yet, our Union cabinet dithers on disinvestments! Let us examine a few facts. First, the efficiency and competitiveness of public sector, vis-à-vis private sector. Disinvestment ministry has quoted a NCAER study to conclusively establish that public monopolies cannot effectively respond to changed conditions. Comparisons of factor productivities, profitability and cost structure - all show the dynamism of private management and inertia of state control. As the total factor productivity in private sector recorded 3.4% growth since 1985, in public sector there is a negative growth of - 1.1%. Manufacturing PSEs continue to show losses, while manufacturing private sector shows decent profits. From resource utilization point of view and competitiveness, the most critical comparison relates to cost structure of power and fuel, wages and interest as a ratio of net sales. In 1990-91, the public sector (minus oil sector) spent 37.7% of net sales on these three heads, as opposed to private sector's cost of 21.7%, with a net saving of 16 %. Amazingly, by 1997-98, this difference in cost incurred has increased to 38.3% of net sales, with public sector spending 54.5 % of net sales on these three items, and private sector 16.2 %! Increased competition and open markets forced private sector to reduce costs to a tune of 5.5 %, whereas public sector costs went up by almost 17 %! There cannot be a more severe indictment of public sector management. The managers are not at fault; the same personnel in private environment produce excellent results. We must recognize that even if all else is equal, public sector culture does not foster the best management practices. With the economy opened up, and competition growing, continued insistence on government controlling PSEs will only erode their assets, and eliminate them from the market. Second, the debate on strategic sale vs diluting government's equity. Again data shows that sale of shares yielded public exchequer a PE ratio of 4.4 to 6; whereas the strategic disinvestments in the last 2 years yielded a PE ration of 11 to 89. Earlier, a sizeable part of the equity was picked up by public sector financial institutions, and indirectly contributed to UTI's losses. And government control is only continuing the hemorrhage of public funds. In 1997-98, the total liability of government on PSEs (budgetary support, guarantees and waivers) was Rs.13,065 crores, as opposed to dividend of Rs.3,609 crores. In 2000-01, the liability mounted to Rs.25,377 crores, and dividend is Rs.8,260 crores. Over the past two years, equity of Rs.891 crores was divested through strategic sale yielding Rs.11,315 crores to the government. The saving to government (10 % interest on borrowings, and annual losses) on this equity was Rs.1,257 crores per annum, while lost dividends amount to a meager Rs.52 crores ! And how did the capital market respond? From January to May 2002, the PSE shares index in BSE rose by 73.5%, as opposed to 14 % rise for the total BSE index! Once the disinvestments blues became evident, the PSE shares took a beating of 4 to 26 %! Can there be any doubt about the best method of disinvestments? Finally, the champions of state control and mere dilution of government equity without change of management must answer a fundamental question. Have people elected them to govern, or to run businesses? Socialism took roots as a moral philosophy based on compassion and concern for equity at a time when predatory capitalism of robber baron variety led to extreme degrees of oppression and misery. But today's market economy adapted the best features of humanism, welfare and sustainability. Resort to outdated arguments and shibboleths, and criminal waste of scarce public resources at the cost of justice, rule of law, education, health care and decent infrastructure is cruel to the poor and disadvantaged. Quality schooling, accessible health care, speedy justice and security net for the indigent are the best anti-poverty programmes. A government which cannot provide these has no moral authority to take upon itself other burdens, and discharge them incompetently. Ministerial office and bureaucratic sinecures have become private fiefdoms, and loss of patronage and control unnerves those in authority. But equating self-interest of those in power with public interest is an insult to the intelligence of the long-suffering people of the country, and a cruel irony in a society impoverished by bad policies and worse governance. The considerable political skills and energies of the opponents of disinvestments should be deployed to set the right priorities for public expenditure, and get good value for citizens for every rupee spent. (Saturday, 31st August, 2002 'People Power' ) A difficult time for politiciansAll democracies are prone to a healthy dose of skepticism about their politicians. Once the distinguished chaplain of the US Senate Reverend Everett Hale was asked, "Reverend, do you pray for the Senators every morning?". He replied calmly, " No; I look at the Senators, and pray for the country". This is a difficult time for a politician in India. Suddenly, a series of exposés, and scams put the politicians in the dock. The Gujarat carnage, the oil dealer scam, the vociferous opposition to disclosure of financial details of candidates - all make people more skeptical and irreverent. For decades, political patronage in license-permit raj has been an integral feature of our governance. So why this fuss about a few dealerships? Politicians actually came forward to disclose criminal records. And yet, why are they roundly criticized? The government actually introduced in March 2002 a potentially far-reaching legislation for political funding reform. But all that people care for is disclosure of financial details of candidates, their spouses and dependants! What makes people so belligerent, and politicians so defensive? Two factors contributed to this sudden resurgence of people power. A decade of rapid economic growth and exposure to satellite television and modern communications changed the world of educated, middle-class Indians beyond recognition. We now understand our potential as a nation, and are starting to ask uncomfortable questions. Not too long ago, a few sops from politicians, and a few crumbs from bureaucrats were sufficient to shut us up. Obsequious obeisance to authority has been our tradition. Today, modern notions of accountability and popular sovereignty have at last caught up with us. Politicians can no longer get away with a fraction of what their predecessors managed. Major changes are in the offing in our polity and society. The nation is in a state of flux. In order to make this transition smoother, and the outcome positive, we need to answer two questions. First, what is the role of constitutional authorities? Second, are politicians the villains they are made out to be? We are blessed with strong and independent constitutional authorities - the Election Commission, Supreme Court, Public Service Commission, CAG etc. A mature democracy does not allow excessive concentration of power in any agency. It is said that the United States has the largest number of final decision makers in a country. Power is dispersed horizontally and vertically, and there are checks and balances everywhere. 80% of the real power in India is concentrated in the hands of the DM of the district, CM of the state and the PM. However wise and worthy these functionaries may be, this power has to be dispersed, exercised transparently and made accountable. Empowered local governments and independent constitutional authorities are two means for such dispersal of power. This does not mean unelected constitutional authorities can exercise veto power over politicians. In a democracy, the ultimate authority and responsibility rests with elected politicians. But within reasonable limits, constitutional functionaries should play their rightful role without being maverick adventurists. Only with such institutional checks can liberty be safeguarded. It is the failure of these checks which led to the disastrous emergency. Now, are all politicians bad and cannot be trusted? Far from that. Politicians have an extraordinarily difficult job to do in a complex society. They reconcile conflicting interests, and make difficult choices in the face of unlimited wants and limited resources. If healthy skepticism degenerates into revulsion of politics, democracy is endangered. What we need is more politics, not less; more democracy, not less. We need to understand the primacy of politics in a democracy, and appreciate the compulsions under which politicians work today. Unthinking invective, and hasty judgment make us, a part of the problem. The cost of elections is skyrocketing. The recent Saidapet assembly byelection in Tamilnadu is reported to have cost over Rs. 10 crore! Byelections to Kanakapura, in Karnataka, Vuyyur, Medak and Siddhipet in AP entailed astronomical expenditures. In order to sustain themselves, governments and parties have to pander to the whims of legislators elected at exorbitant expense. Any major party which attempts to break the unwritten rules has to pay the penalty. The cadre and ideology-based left parties are the only significant exception. But they too are facing problems of poaching and defection in some states. Parties are torn between their desire to please the public, and their need to appease their legislators and cadres. No wonder, they attempt to run with the hares, and hunt with the hounds. It is easy to sit in judgment of politicians. Real reform is possible only when we understand the nature of our electoral system, and approach the political process with great respect and sympathy. Then how will change come? Unsustainability of status quo is forcing change. The license raj and kleptocracy of the 70's are much harder to sustain today. And yet, politics has become far more expensive, demanding evermore returns. Meanwhile media are more aggressive, and communications revolution brings the scandals and scams to our drawing rooms instantly. All this presages fundamental change. If we understand the nature of the problems, and focus on the solutions, this transition will be less painful and more orderly. We need to bring back glory to politics, not undermine the political process further. A Musharaff will not provide a solution; he will add to our problems. The greatest asset we have is democracy. In our exasperation, if we look for a knight on a white horse, we will have discarded our most precious possession, our liberty. Equally, the politicians must seize the opportunities for political reform, not resist even the slightest improvements for fear of exposure and loss of patronage.They should stop behaving like frightened animals in a cage. (Saturday, 17th August, 2002 'People Power' ) Soap opera that's Indian politicsFor observers of Indian political and public scene, life does seem to imitate art. Just when you think things will settle down, and the nation will focus on the key goals, there is a new scandal or scam or sensation or drama. Like in a soap opera, week after week we are subjected to titillation, suspense and excitement, sans good sense or clear direction. This week's theme is oil dealerships, and the nepotism and corruption associated with selections. Once again, legislators are up in arms, parliament is paralysed, grave statements have been issued, and speeches have been made. This time around, the dealerships have been unilaterally cancelled, leading to a host of court cases and unending litigation. Parliament has been adjourned sine die. If past experience is any indication, within a week a new revelation or event will captivate us and the cycle will repeat. It is time we got out of this perpetual déjà vu sensation. Corruption in allocation of scarce commodities and dispensing patronage in awarding contracts and business opportunities are as old as public sector. In our post-independence economy, public enterprises are synonymous with private gain and bureaucratic and political control. The old-fashioned notion that public enterprise is for public good is not believed any longer even by ardent socialists. Obviously the answer lies in state getting out of business, and focusing on its legitimate activities of rule of law, public order, justice, education, health-care, infrastructure and natural resource development. But such linear logic of elimination of state monopoly as a way of reducing corruption ignores two hard realities. First, the obvious resistance of those in control of state apparatus to any rational economic policies. Even now, the debate is on who gets patronage, and not on how to ensure real and fair competition. Many ministries are fiercely resisting loosening of their hold or diluting state control, let alone divesting their portfolios. We have the same time-worn cliches and jaded arguments of national interest, strategic sectors, core areas, cross subsidies, and so on. Essentially, those who benefit from control of state monopolies are loath to giving up the golden goose. That, despite the avowed objective of rapid disinvestment, and creation of a ministry for disinvestment under the charge of the capable, and committed Mr Arun Shourie. If this scandal proves anything, it is that the state cannot be trusted to manage oil companies, or any other enterprises. Yes, there is plunder in private sector too. But public money is not looted, only private investment. If bank loans are swindled, such entrepreneurs ought to be jailed. It is the failure of public sector banks to fund legitimate economic activity, and their largesse to dubious enterprises that created the problem of willful defaults in the first place. And then the state's failure to enforce rule of law, or create a regulatory mechanism for effective debt recovery and a safety mechanism to allow safe landing for failed businesses and bankruptcies is the major cause of the crisis. The failure of state cannot be an argument against competitive and fair markets. In any case, private sector has to compete in the market in order to retain its market share and survive. And with trade barriers crumbling, there is also external competition. The public outrage at the shameless plunder of public assets and rent-seeking should be channelized towards ending state monopolies and encouraging real competition in private sector. Second, as long as demand for illegitimate funds for political activity and rent-seeking is not curbed, privatization will only shift the burden of corruption from economic areas of decision-making to non-economic, sovereign areas. Appointment and placement of public servants, public order, justice, taxation and revenue collection, crime investigation and execution of public works are all sources of rent for the rapacious bureaucrat and greedy politician. That cannot be curbed until two conditions are met - rule of law must be reestablished, and there must be greater certainty of detection and exemplary punishment for corruption; comprehensive electoral reform should be undertaken to make honesty compatible with public life. The former requires reform of judiciary and crime investigation; and the latter, political reforms. Both upset the status quo, and are painful for incumbents and vested interests. No matter where we begin, the circle always ends with electoral, political and governance reforms. Tehelka, telecom scam, oil dealerships, Bofors, HDW, urea, and a host of other scandals - all point in only one direction. As long as the political class feigns collective amnesia and cultivated blindness, such scandals will continue in some form or other. Under current conditions, almost no government at any level can afford to be honest. It is somewhat naïve to expect politicians to give up public office at the drop of a hat. The answer lies not in vilification of the political class, but in comprehensive political reforms. Unsustainability of status quo is certainly forcing reform. But if we wait for such compulsions, then reform will be chaotic, and sometimes traumatic. We need to take a hard look at our political system and elections and bring about rapid changes in an orderly manner. Until then we cannot escape the periodic déjà vu and unending political soap operas. (Saturday, 6th August, 2002 'People Power' ) Skewed priorites in infrastructureThe recent political controversy surrounding the bifurcation of Eastern Railway and the creation of East Central Railway with its headquarters at Hajipur once again raises two questions: the role of government in running enterprises, and the plight of infrastructure sector. It is by now well-recognized that public sector is often a euphenism for political patronage and private aggrandizement. Politicians in power or out of it, and career bureaucrats as a rule have no respect for economic logic or wealth creation. A few more jobs to cronies, promise of illusory gains to constituents, cushy rehabilitation for favoured sidekicks, luxurious jaunts, and kickbacks in contracts and purchases are the golden eggs which make PSUs so attractive. In this anxiety to make a killing while the going is good, if the golden goose itself perishes, well, its too bad! In any case that is the problem for successors. This cynical approach has been the hallmark of PSU management. For decades state monopoly in telecom sector held back services and growth and caused misery to hapless consumers. Happily, the march of technology, with ever more efficient and cheaper services on offer, ended this monopoly. But even now we have the absurd situation of paying more for long distance calls within the country than for overseas calls through internet telephony! All this in the name of protecting the revenues of inefficient state monopolies and private oligopolies. Airlines have been managed as private fiefdoms of the presiding ministers. Any attempt to inject competition and efficiency, and invite investment is resisted fiercely with predictable invocation of pride in national carriers. Oil sector has suffered decades of loot by meddlesome politicians, and even now monopolies continue despite the facade of opening up. Steel plants were once the favoured trophies. But again decades of wasteful practices and sloth led to disastrous consequences. And when a competent manager makes valiant efforts to improve efficiency and profitability, he is often victimised, as the chief executive of the public sector behemoth, Rashtriya Ispat Nigam, has discovered to this chagrin. The mismanagement of power sector has been too well-documented to need elaboration. Not surprisingly, Railways, the largest employer in the world, are a treasured monopoly for personal aggrandizement. Obviously transport sector needs major state presence in the foreseeable future. No matter how much we detest state's role, large infrastructure cannot be built through private initiative. High capital costs, long gestation periods, low rates of return, vulnerability to state policies, and political vagaries make private investment in rail transport and roads risky, difficult and unattractive. State is a necessary evil. But it does not require a genius to recognise that the problem is not about where an office is located, but how to modernize the railways and make them efficient and economical. Freight traffic in railways, which was close to 80% in 1950's is now at a precarious 20%. Precious fossil fuels are consumed on expensive and polluting road transport. Railways have too many short-distance, slow moving passenger trains, and too few long-distance fast trains. Passengers have to plan weeks in advance, and wait with trepidation for ticket confirmation as departure date approaches. Many of the tracks are in a state of disrepair, and are unsafe at any speed! Where the track is in good shape, signaling is outdated, forcing low frequency of operations despite heavy demand. Pubic transport in cities is in shambles. Image-savvy state governments can only think of expensive international airports as new fashion statements, but have no time for planning or investment in viable transport systems. Rs 2000 crore investment is planned for daily overseas traffic of 200-300 passengers, making it a ludicrous proposition. The modern day Mary Antoinettes mock at the plight of millions of passengers - if they don't get rail tickets, why can't they fly? Mamata Banerjee's populist rhetoric might yet serve a useful purpose if it focuses our attention on what is wrong with our rail transport. Certainly the state will have to play a critical role in laying and managing the rail track and controlling traffic. But should it also run trains? Can't we separate track and station management from train running? National Air Ports Authority runs airports, but we can still have multiple airlines competing. It is time we recognized political shenanigans for what they are, and focused attention on the real issue of providing modern, efficient, sustainable infrastructure as an engine of economic growth and symbol of human liberty. (Saturday, 20th July, 2002 'People Power') Distancing people from politicsThe government and political parties have acted with uncharacteristic speed and dynamism to thwart the disclosure provisions ordered by the Election Commission (EC). The chain of events starting with the Supreme Court judgment on May 2, and culminating with a draft bill circulated by government on July 15 is revealing. Suddenly, the political consensus, which eludes the nation even in testing times, resurfaced! All parties seem to be more or less unanimous that candidates for elective office must not be forced to disclose their criminal record and financial details. Suddenly, there is solicitous concern for the privacy of the individual, rights of the accused and supremacy of the legislature. Based on the May 2 judgment of the Supreme Court, the EC framed guidelines and sent to government on May 14 for incorporating in the Conduct of Election Rules. The government dithered and finally the Cabinet discussed the proposals on June 18, and decided that a legislation was called for. An all-party meeting was convened on 8th July, a full week after the expiry of the two-month deadline imposed by the Court for implementing the disclosure provisions. The EC had no choice but to enforce the Court directions, and orders were issued on June 28. The all-party meeting was duly held on July 8, and there was impressive unanimity in opposing disclosure provisions and questioning the jurisdiction of the judiciary. On July 15, a draft bill was released. Several issues came to the fore in public debate on disclosures. Three of them deserve serious consideration. First, the alleged discretion given by the EC to the Returning Officers (ROs) to reject the nomination in cases of proven incomplete or false disclosure, provided such lapses constitute a defect of substantial character. Politicians have expressed concern about the ROs acting as "unguided missiles" in the hands of unscrupulous rivals. This concern is both amusing and revealing. In some ways, it is an extraordinary admission of politicians' propensity to use administration for partisan purposes, and the complete subversion of rule of law which has become synonymous with political skill. And now the same politicians turn round and innocently complain of possible victimization! The truth is, in the past 50 years of election history, out of the more than 150,000 nominations filed, not even a dozen cases of frivolous rejections can be cited. Even assuming that candidates harbour genuine fears of arbitrary exercise of powers, all it takes to eliminate discretion is a simple amendment in Rule 4 of Conduct of Election Rules, 1961. Clearly, RO's discretion is a red herring to denounce the disclosure provisions, and the real motive is to prevent disclosure. Second, the argument of judicial transgression into legislative arena. Undoubtedly, legislature is supreme in law making. But disclosure has been ordered by the Court as an extension of the citizens' right to know under Article 19 of the Constitution, and as a natural right flowing from the concept of democracy itself. It is perverse to argue that voters have no right or obligation to know about candidates seeking their mandate. The Supreme Court's jurisdiction in interpreting and defending fundamental rights is inviolable. True, there have been judicial incursions into executive and legislative spheres earlier. True, the judiciary's claim to appoint itself without any say for elected government is untenable. But the parties have chosen the wrong issue and wrong time to establish legislative supremacy. If anything, this self-serving approach has undermined the legitimacy of political process, and made judicial activism more likely, not less. Finally, this whole controversy has hurt the democratic process. Parties and politicians are seen to be ranged against public opinion. The draft bill released on 15 July makes a mockery of professed concern for clean politics. The bill says no disclosure shall be permitted other than that provided by it. And a new disqualification is proposed to give an impression of some reform. Those who are charged by Courts with heinous offences in two separate cases, that too six months before nomination, stand disqualified. Only murder, waging war against government, abduction, dacoity, terrorism, and narcotic offences, if committed repeatedly and charged by courts, can separate criminals from politics! The real intent of the bill is revealed more by what it omits, than what it says. There is not a word about financial disclosures! The message to the nation is as disturbing as it is clear. No matter what people say, it is politics as usual. Legitimate political process is critical for the survival of our democracy. We need more politics, not less; more democracy, not less. But short-sighted politicians are distancing people from politics, and painting themselves black. It is sad for politics, and sadder for democracy. Sensible citizens must stand up and restore politics to people, and reclaim the republic for the true sovereigns. (Saturday, 6th July, 2002 'People Power') Political process the hurdleOn June 28, the Election Commission gave effect to an earlier judgement of the Supreme Court by making candidates' disclosure of criminal record, educational qualifications and financial details mandatory. This was based on the Supreme Court's decision that the electors have a right to know about the candidate whom they choose for public office. As the Court pointed out, the Commission has the authority to act under Article 324 of the Constitution, and wherever there is void in legislation, it ought to step in. The response of the political class to the Supreme Court's decision and Election Commission's order is disappointing. There are many decent and honest politicians in all parties, who are aware of the crisis of governance affecting our polity and economy. The central issue today is that public office is seen as the quickest route to private gain. Unaccountable power, pelf, privilege, patronage, and petty tyranny have become synonymous with public office, elective or appointed. The loss to the nation is far greater than the private gain to those in power. The politician is more a victim of a vicious process than he is the villain as honesty and political survival are increasingly incompatible. The bureaucracy perhaps is more culpable, and this despite its life-long security provided by constitution. But politicians are elected to change things for the better. They have the ultimate responsibility. And good sense and wisdom demand that they grab opportunities to cleanse the system and enhance the legitimacy of the system. However, the government dithered when the Election Commission sent proposals on May 14 for changing the rules to provide for full disclosure at the time of nomination. A host of arguments were advanced to bury the issue: it is impossible to implement the Supreme Court directive; it requires a change of law; the Court is encroaching upon the Parliament's territory; political consensus needs to be evolved among parties; no one can contest if disclosure is mandatory; candidates' privacy will be invaded; crime syndicates will learn of politicians' wealth and resort to blackmail and extortion; the people do not care about these disclosures; these reforms are elitist preoccupations, and so on. Our capacity to defend the indefensible is extraordinary. If a small fraction of this energy and innovation went into creative pursuits and governance improvements, India would be a world class economy. All it takes to enforce disclosures is an amendment of Rule 4 of Conduct of Election Rules, 1961. The Election Commission was forced to issue orders under Article 324 only because the government refused to act in time. The truth is, people, as the ultimate sovereigns have a right to know about candidates. Equating active citizenship with elitism, and glorifying passivity and ignorance are antithetical to democracy. Politicians, whose legitimacy comes from the people's mandate, are imperiling the system by resisting reform. Politics is about the promotion of people's happiness. It is too serious a business to be left to politicians alone. The assumption that entrenched political parties have a monopoly on wisdom is dangerous. We need much richer and focused public debate on governance issues. The sharpest minds in the country and the media have to pay attention to our political process. Mere criticism is counterproductive, and we need to debate and agree on specific reforms. The period of Civil War in the US witnessed high quality debates. Yet the opponents' intentions were always respected. The early years of our own freedom struggle saw deep analysis and rich debate. Everyone in public life laments mounting corruption, poor infrastructure, appalling quality of public services, low level of human development, increasing criminalization of politics, judicial overload, and economic retardation on account of poor governance. And yet the political class seems incapable of responding to the challenges except in crisis situations. And in turn, crisis is defined as either fiscal collapse or political instability. Clearly, enlightened citizens must force reform. Our predicaments are by no means intractable. There are practical, effective answers to most of our problems. The best practices in our own country and abroad serve as useful guides to us. Happily, we live in a glorious age of scientific advancement and communication. The fruits of liberty and technology can easily transform the lives of all our children in a short span of about 15 years. That is the lesson from the experience of the Asian tigers and China. But politicians must act quickly and decisively to make this dream a reality. Candidate disclosure is just the first step in our political reforms. Political funding, voter registration, management of parties, system of election, centralization of power, accountability, judicial delays - all are crying for our attention. The political process, which ought to be the solution, has become the main hurdle. Political reform is the key to our prosperity. (Saturday, 22nd June, 2002 'People Power') Perils of the Westminister modelThe events of the past one month in Maharashtra hold a mirror to the crisis in our democratic polity. Once again, the nation witnessed buying and selling of legislators, party hopping, back room deals, political instability, holding MLAs captive in tourist resorts in other states, a vote of confidence, and the usual scramble for loaves of office in the impending cabinet expansion. This has been seen in several states all over the country over the years. Now this culture of ayarams and gayarams has inflicted a grievous blow to India's most prosperous state. Quick, if questionable, disqualification of defecting legislators even before they voted against the ruling combine on the floor of the house saved the day for the government. From time to time we are rudely awakened to face the ugly realities of our politics of pelf and self-aggrandizement devoid of all principles and public good. We all suitably express our distaste for the low standards of public life, and get on with our lives once the visible crisis passes. What we fail to understand is the deep and continuing crisis in our political process, reducing our democracy to shambles. A legislator is elected in our country not as a law maker and custodian of public interest. A legislator is essentially a disguised executive, and his primary objective is to exercise unaccountable power. He is often the uncrowned king of the constituency. Politics has become big business. A lot of money, often a crore of rupees, is spent by a leading candidate for election as MLA. Once elected, the MLA decides everything that matters - transfers, postings, promotions, contracts, tenders, licenses, public projects and police cases. Robert Wade graphically documented this intricate web of corruption and abuse of office mediated largely through transfers and placements in states. While influence and power flow in one direction, money flows in the opposite direction. All functionaries in the state machinery are willing or passive players in this vicious cycle of dangerously stable equilibrium. The administration has to do the MLA's bidding, or else there will be dissidence, rebellion and defection leading to the fall of government. Candidates spend exorbitant sums because they get multiple returns. Such returns are possible as they are the de facto and unaccountable executives. The government has to satisfy legislators because its survival depends on their good will. Given the conditions of our society, there is always this unspoken compact between the government and the legislators in a system in which the executive is drawn from the legislature, and survives only as long as it enjoys legislative majority. Honesty and political survival are thus no longer compatible under these circumstances. Our politicians are not crooked by nature. They are compelled to venality and corruption in order to acquire power and survive in office. The price paid by society to sustain governments is horrendous. Rule of law, justice, competent governance, integrity, fairness, economic growth - all are causalities. What we have in the process is change of players, but the rules of the game remain unchanged. No matter which party is elected to office, the people end up being losers. Therefore voters look for the short-term gains and either sell their vote or are swayed by emotion and divisive impulses. In this system, the state government, legislators and senior officials - all want centralization, discretion and patronage. That is the reason why the corrupt, centralized, automatic system of governance is very resilient. We need to take a hard look at our system of drawing executive from legislature. A clear separation of powers between legislature and executive with sufficient checks and balances to prevent abuse of office alone will break this vicious cycle of money power, corruption and survival of governments. We need to elect the head of the government directly, and he should be free to choose his cabinet from outside legislature. Such a government will have fixed term of office, and will have to carry the legislature with it in order to get laws passed. Its powers are actually more limited as the legislature will zealously guard its independence. Now the legislature is least interested in making laws, and whatever the government wants is enacted, as long as it enjoys majority support in legislature. Yet, many people harbour legitimate fears of authoritarianism at the national level if a single individuals is seen as the fountain of all executive power. In reality, a directly elected president is much less powerful than a prime minister enjoying a comfortable majority. However, these fears of bonapartism cannot be dismissed lightly. Therefore it would be best if we continued with the parliamentary executive as the national level. But there cannot be any fear of authoritarianism of the directly elected executive at the state level. The Union government, Supreme Court, Election Commission and other constitutional authorities are more than adequate to check executive tyranny in states. For too long we persisted with the disguised executive model in states based on the Westminster system. Governance has been a causality, and the nation paid a heavy price as a result. It is time we woke up from our deep slumber and redesigned our democracy to ensure integrity, stability, competence and good governance through separation of powers. (Saturday, 8th June, 2002 'People Power') Lessons from Enron CollapseAn efficient market economy needs effective and independent regulators, speedy justice and mechanisms to enact laws to protect the investors and citizens. These are the lessons we in India need to learn from the US response to the collapse of Enron. Enron was originally an interstate natural gas pipeline company formed in 1985 by the merger of Houston Natural Gas with InterNorth. In1989 Enron began trading in natural gas commodities, and in 1994 trading in electricity. It soon became the world's largest electricity and natural gas trading company. In a series of breathtaking developments beginning two months before, Enron collapsed by December 2001 and filed for chapter 11 bankruptcy protection. The growth and collapse of Enron make a fascinating study. But what is more important is the lightening speed with which the US government, legislature, regulatory agencies and justice system responded to the crisis. This quick response limited the damage to the US economy, and is now instituting new safe-guards against future failures and crises. The crisis for the global energy trading giant started on October 16, 2001 when Enron reported a $618 million third-quarter loss and disclosed a $1.2 billion reduction in shareholder equity, partly related to partnerships run by its CFO Andrew Fastow. The regulatory agencies responded swiftly. Within a day, the Security Exchange Commission (SEC) acted and sent a letter to Enron asking for detailed information. By October 20, the Internal Revenue Service (IRS) sought and obtained information from the Republican House Majority Issues committee to show how it raises and spends its money, and it revealed large donations from Enron. By October 22, the informal SEC enquiry was publicly acknowledged by Enron; shares of Enron sank by over 20% on the news. On Oct 28 and 29, US Treasury Secretary O' Neill and Commerce Secretary Evans were approached by Enron for help, but both refused to intervene. By Oct 31, SEC enquiry was upgraded to a formal investigation. By Nov 8, Arthur Anderson, the accounting firm, received a federal subpoena for documents related to Enron, and Enron filed documents with the SEC revising its financial statements for the past five years to account for $586 million in losses. On Nov 29, SEC investigation was expanded to include Arthur Anderson. On Dec 2, Enron filed for chapter 11 bankruptcy protection, marking the swift collapse of the once trading giant. Legislature immediately began hearing on the subject. By Dec 12, Joseph Berandin, the chief executive of Arthur Anderson appeared before Congress. On Jan 3, 2002, Senator Joseph Lieberman chaired the full Governmental Affairs Committee heading the investigation of the White House's involvement in the collapse. Top executives and directors of Enron were subpoenaed by the Senate Committee. By Jan 10, the Justice Department began criminal investigation of Enron's collapse. On Jan 24, congressional hearings on the subject began. On Feb 24, the Justice Department instructed the White House to preserve any documents related to its dealings with Enron, and the White House agreed to comply. Institutional improvements followed equally rapidly. On Feb 14, SEC revealed its plans to alter its policies on corporations' disclosure of financial information. Within days, Judiciary stepped in as class action lawsuits were filed against Arthur Anderson and Enron by shareholders. The Congress filed an unprecedented lawsuit against Vice President Cheney as he refused to disclose details of interaction between Enron executives and Bush administration's energy task force which he headed. On March 7, President Bush himself revealed to public detailed proposal to require corporate chief executives to vouch personally for their companies' financial statements. On March 20, the House and Senate proposed pension reform plans to offer more legal protection to workers in the wake of the Enron controversy. On April 2, the Senate called for new laws and dramatic changes in American business executive behaviour. Results of investigations and policy changes started flowing by April 2002. On April 9, David Duncan, Arthur Anderson's lead Enron auditor pleaded guilty to obstruction of justice in destroying Enron-related documents. On April 11, the House of Representatives passed Bush's new pension reform bill in the wake of Enron scandal. On April 17, a House committee approved legislation passing a new auditor oversight board. On April 24, the House passed accounting reform package, calling for stricter oversight and disclosure policies. Wonder of all wonders, prosecution already began against Arthur Anderson in a Houston court, and the trial is in final stages by June first week. This breathtaking speed is not peculiar to Enron or the US. The junk band scam occurred in the US in 1980s. The chief accused Michael Milken was tried swiftly and sentenced to jail term and has already completed his sentence. Nick Leeson, the accused in Barings Bank scandal in Singapore was apprehended, tried, and sentenced to six and a half years term, and has already completed his sentence. Now witness the securities scam of Harshad Mehta and the stock market scam of Ketan Parikh. Years after the scam, Mehta died of natural causes, and as of now nothing of consequence happened. Ketan Parikh case is still under investigation. The less said the better about Bofors, HDW and other scandals. No wonder, our people exhibit little faith in capital markets, governments, regulators and courts. We need to get our act together if we want rapid economic growth. Rule of law and trust in institutions are the paramount requirements for a well-functioning market. Mistakes and accidents are bound to happen in any system. The test of the system's resilience is how it responds to events, internalizes lessons of past experience, and institutes safeguards to protect its citizens. (Saturday, 25th May, 2002, 'People Power') Democracy and politics of fiefdomsThe Gujarat carnage over the past few weeks and the continual Kashmir imbroglio deflected national attention from a momentous event in the evolution of our democracy. On May 12, we have successfully completed 50 years of our parliament. This is a rare achievement among post-war democracies. There is a lot to celebrate. We are a robust and cheerful democracy. Our people treasure the freedoms guaranteed to us under the Constitution. Elections have been held to Lok Sabha under the Constitution of our new republic without break since 1952. The only exception was the shameful episode of emergency when the term of Lok Sabha and State Assemblies was prolonged, and elections were postponed. But the resounding verdict of the largely illiterate voters in March 1977 against the tyranny of emergency restored our freedoms and taught our political class an unforgettable lesson. Fierce political competition exists in India and all parties have the freedom to put across their points of view to the people and seek their mandate. Power always changes hands peacefully after electoral verdicts. Winners do not punish or imprison or behead the losers. Elected governments have real power and are not accountable to the army or an oligarchy or a coterie. These democratic practices fulfil the conditions laid by Myron Weiner for a functioning democracy. We only have to look across our borders on all sides to appreciate how privileged we are to be free citizens in a democracy. And yet, there is a deep sense of discontent plaguing most people. We find the political process, which ought to be the solution, is the main problem itself. While electoral verdicts result in change of players, the rules of the game remain unchanged. In fact elections themselves are tainted with unaccounted money power, criminalization of politics and rampant polling irregularities. If a Ganghiji or Ambedkar were to contest today, chances are they would lose hands down! And yet we are a truly functioning democracy. This paradox of serious distortions in electoral process on the one hand, and reasonably fair verdicts at macro level on the other hand baffles us. This is possible largely because ours is a system of compensatory errors. Most of the leading parties and candidates are good at this game of manipulation, and each neutralizes the other! Mercifully the state is genuinely neutral in our elections, and strong institutions like the Election Commission ensure a fair degree of impartiality and efficiency. But a democracy which neither facilitates rapid economic growth nor creates conditions for peace, harmony and rule of law in many parts of the country does not satisfy us. While democracy seems to be doing better, we feel worse! Even the communal disturbances deliberately provoked by the political class expose its bankruptcy. The only way parties feel assured of vote mobilization is through crude appeal to primordial loyalties. Politics of individuation are anathema to our parties, and vote bank politics through caste and communal polarazation are a sure recipe for political relevance. Worst of all, we have created political fiefdoms resembling ancient monarchies or medieval Zamindaris. Little dynasties have spawned all over the country and these oligarchies have a vice-like grip over our legislatures. A careful analysis of the nearly 5000 legislative offices in States and Lok Sabha will reaveal that probably two-thirds of them are controlled by about 10,000 well-connected political families. No matter which party wins, power alternates between members of these families. Politics has become big business. Big investments are made in elections, and much bigger profits are reaped once elected to office. A legislator is more a disguised and unaccountable executive than a public representative. For too long we trotted out democracy as an excuse for our failures. In reality, democracy is our strength, and all these and other ills could be corrected genuinely democratic instruments, backed by the consensus which only democracy fosters. And yet, we deliberately distorted our democratic institutions and practices, and blame everything on the failure of democracy. The real problem is not a surfeit of liberty, but a deficit of democracy. The ills of a democracy can be overcome only by more and better democracy. Decentralization of power, restoration of rule of law and speedy justice, comprehensive electoral reforms to attract the best talent and reject the professional parasites, and instruments of accountability - these are needed to invigorate our democracy and promote economic growth. There is much that we can be proud of in our record of 50 years of parliament. There is also much that has gone wrong. The political class owes it to the nation to give up shibboleths for once, and provide clear, honest direction. We need simple, uncomplicated national goals, and specific, practical, effective institutional reforms to achieve them. We have it in us to make lot of difference in a short-while. The millions of jobless youngsters are getting impatient. We need to act quickly. (Saturday, 11th May, 2002, 'People Power') Amazing political consensus to keep the voter in the dark!Marx famously said that every system has its own seeds of destruction embedded in it. To invert the logic, every human predicament has simple, practical solutions. For instance, the best solution to electoral irregularities, criminalization of politics and corruption is the glare of publicity and exposure. Sunlight is the best disinfectant. It is this logic which led to the landmark judgement of the Supreme Court on 2nd May 2002. On an appeal filed by the Union government on a Delhi High Court judgement, the Court directed the Election Commission to "call for certain information on an affidavit by issuing necessary order in exercise of its power under Article 324 of the Constitution from each candidate seeking election to public office as a necessary part of his nomination paper". This information to be obtained includes criminal record or prosecution details, cases pending against the candidate, his assets, liabilities including defaults and overdues to public financial institutions, and educational qualifications. Enforced properly, this information will help voters make an informed assessment of candidates, and force parties to nominate those with a clean record. This certainly is a significant milestone in the evolution our democracy. As is said, success has many fathers. A few newspapers and magazines started preparing lists of candidates with criminal record. Then in 1999 Lok Satta movement launched a bold initiative with public participation to screen the candidates for criminal record. A list of 45 candidates with details of their criminal record was released after painstaking effort and thorough verification in the 1999 Lok Sabha and AP Legislative Assembly election. Many on the list were incumbent legislators and ministers. This campaign captured the imagination of the people. The parties and candidates could only make one complaint - that there were others whose names were missing from the list! This screening of candidates, continued since then, has had a salutary effect on criminalization of politics. The process of criminalization was arrested, but not reversed. The media glare and public revulsion forced parties to reject new candidates with criminal record. In one case, a major party was compelled to change its nominee for a Zilla Panchayat president's office because of public pressure. But entrenched politicians with criminal record continued. Based on this data a few concerned citizens (Association for Democratic Reforms and PUCL) filed PILs finally leading to the Supreme Court's judgement. Amazingly, this case managed to achieve something so elusive in India: it forged a national consensus of the major political parties on an issue of national importance. They all seem united in opposing the SC judgement! The mainstream political parties resisted disclosures with all their might. The Solicitor General, on behalf of the Union government argued that the Court cannot direct any such disclosure of candidates' record, and only Parliament should enact the amendments to law. Political parties alone can decide whether such amendments should be brought and carried out in the Act and Rules. Clearly, the government is neither willing to bring in the legislation, nor does it want disclosure of candidates' antecedents to the voters who are allegedly the ultimate sovereigns. Some democracy! Even more interestingly, Congress Party, which impleaded itself as an intervenor in the case, has also argued that no such disclosure of candidate's record should be ordered. The party argued that only Parliament should decide the question of stopping entry of criminals in politics, or even disclosure of criminal record of candidates and "furnishing of information regarding assets and educational qualification is not at all relevant for contesting election and even for casting votes." Clearly, the Court judgment directing mere disclosure of candidate's record for voters' information had to be extracted from the teeth of opposition of political parties. A lot more remains to be done. The Election Commission must now issue orders making full disclosure a necessary part of the nomination. Failure to disclose details should entail rejection of nomination. The media should give wide publicity to the candidates' antecedents and enable informed choice by voters. Civil society should launch major efforts to force other electoral reforms - accountable political funding, decriminalization and curbing polling irregularities. Criminals in politics, monumental corruption, grotesque misgovernance or communal carnage - all these generate predictable reactions in our society. Endless publicity, a lot of self-flagellation, blame throwing, clever power games and, at the end of it all, business-as-usual. Everything is reduced to "who is in power", and not "how to change the way things are run". This statusquoism will not do. No system is perfect. But in a wise system, self-correcting mechanisms are available to prevent perversions and to correct distortions. We need to focus on best practices and improvements in the way we are governed. And there are answers staring us in the face. The political class and bureaucracy are so resistant to change, that even small improvements need heroic efforts. The ball is in civil society's court. Media and the public should check our overwhelming obsession with power games and focus on specific solutions and force reform. Public opinion is the only antidote to this incredible inertia of the establishment. As someone said, if peaceful and orderly change is not possible, violent and chaotic change will be inevitable. (Saturday, 27th April, 2002, 'People Power') Empowering agriculutre in the best possible wayOne sector, the management of which will make or mar India's economic future is electricity. For over a decade we have been incessantly talking of power sector reform, and yet the results, so far at least, have been disheartening. We focused on the one area which has been our strong point - generation, and ignored distribution which is our weakest link. As a result, hardly any private investment - domestic or foreign - materialized. Only about 6700 MW private generation capacity came up - a third of the expected investment. Meanwhile the annual losses in SEBs went up from Rs 3000 crore in 1991 to over Rs 30,000 crore in 2001. Some estimates put it closer to Rs 40,000 crore. During this period, the revenues realized by SEBs fell from 85% to 69% of the cost of supply, leaving a huge gap of 31%. Payments by SEBs to NTPC for power supplied fell to 69%. If this trend continues, there is every likelihood of many SEBs collapsing, and dragging down NTPC along with them. But the good news is that at last the key issues are beginning to be addressed. There are three central issues in power sector - power purchase agreements and fuel policies; distribution management; and agricultural power. Let us focus on agricultural power. The oft-repeated goal in agriculture is to make sure that the tariff is at least 50% of cost of supply, and in any case should be not less than 50 paise per KWH. But such an approach has three fallacies. First, cost of supply at current level of distribution losses and thefts is unsustainable, and the burden of corruption and inefficiency cannot be transferred to consumers. In any case agricultural consumption is from base-load stations during off-peak hours. Second, agricultural economy itself is going through turbulent times. Any effort to exorbitantly increase power tariffs for farmers dependant on lift irrigation is bound to lead to severe political backlash. No party can afford that. Third, the real issue in distribution is energy balancing and reducing losses. Emphasis on tariffs alone will not do. Given these factors, we should evolve an effective, practical and sustainable approach to agricultural power. Mere tariff increase to close the gap between cost of supply and revenue realization will not work. What then is the way out? Let us look at the facts. Out of the power sector losses of nearly Rs 40,000 crores, agricultural subsidies account for about Rs 6,000 crore. But the real damage is on account of non-metering of agricultural power in many states. Tamil Nadu, AP, Karnataka, MP, UP, Bihar, Punjab and several other states do not meter agricultural power. They either supply power at a slab rate based on connected load (a fixed amount per annum per connected HP), or provide power free as in Tamil Nadu, and in Punjab until now. Non-metering has three serious consequences. First, there is no energy balancing, and nobody knows what the T & D losses are. In AP for instance, all that we know is that only about 43% of the power which goes into the grid is metered and billed. The balance 57% is either agricultural consumption, or technical losses in T & D, or thefts. We have neither precise idea of how much power is lost and in what manner, nor are we in a position to localize the problem. Localization is the key to reducing losses and thefts. Second, the farmer has no incentive to save electricity, as his tariff is not based on consumption. It is always tempting to keep the motor on as long as power supply is available. Higher capacity, low-efficiency motors are installed since the slab rate is low. A lot of energy is wasted, causing losses to power sector and damaging the environment. Third, in low rainfall zones water table is fast-depleting, causing long-term damage to agriculture. The answer therefore is clear. Our first priority should be to meter every single agricultural consumer, and have a low, graded tariff based on consumption. Tariff should increase with consumption to discourage waste. The policy should be aimed at conservation of ground water, and water-intensive crops should be prohibited under lift irrigation. Finally, there should be an incentive for metering. For instance, under each agricultural feeder, if 80% of farmers accept metering, better quality of power (longer hours, more convenient time etc) can be guaranteed. Agricultural power policy, in the first instance, should be revenue-neutral for a reasonable period (say, five years), and should aim at energy conservation, metering, and graded tariff. Only then can we save power, balance energy, localize thefts and losses and improve distribution. Power saved, when sold to industrial and commercial sectors, will yield much more revenue than higher agricultural tariffs. High tariffs in agriculture will simply not work. The impossible best, as they say, is the enemy of the possible good. (Saturday, 13th April, 2002, 'People Power') Clear and present dangers of regional disparitiesOne of the great challenges confronting contemporary India is the growing regional disparities. Prof. Amaresh Bagchi and NJ Kurian point out that the percapita income (1996-99) of Maharashtra is Rs 19,248 and that of Bihar is Rs 5,465. This maximum / minimum ratio was 1.87 in 1960-63, 2.50 in 1970-73, 3.28 between 1987-90 and is now at 3.52. The high-income states of Goa, Maharashtra, Gujarat, Punjab and Haryana, with a population share of 20% account for 33.8% of NSDP. Their share of NSDP was 27.6% in 1970-71. The middle-income states of Tamil Nadu, Kerala, Karnataka, AP and West Bengal have a population share of 29% and NSDP share of 32.9%. In their case, the NSDP share has not increased (70-71: 34.6%), but the population share declined from 33.4% in 1970-71 to 29% in 2001. The five low-income states (BIMARU + Orissa) account for 45% of the population and 30% of NSDP share. In these states, the population share is increasing, and NSDP share declining. The trends are clear. The regional economic disparities have been growing in India since 1970. Economic liberalization process has not checked this divergence. In general the Northwest, West and South are showing positive signs of growth and investment. All these States enjoy higher than national percapita income except AP (93%). The Eastern and Northern parts of the country are lagging behind. All these States have percapita income below 75% of national average, with the exception of Rajasthan (81%) and West Bengal (85%). The low-income States are registering lower growth rates than the rest of India, increasing regional disparities. After the demise of the USSR and erstwhile Yugoslavia, India is the only truly multi-ethnic, multi-national State with such large regional disparities.While China has disparities, its 85% Mandarin-speaking population with shared ethnicity, history and culture, and the spectacular growth rates achieved help it to overcome the pressures generated on account of backwardness in large tracts of Central Asia and Tibet. The dominant and authoritarian role of the monolithic Communist Party also helps smoothen the wrinkles of regional disparities. In India we are dealing with poorer states accounting for almost half the population, and a modest national growth rate. While migration is taking place to faster growing regions, it is extremely limited due to linguistic and cultural diversity, and less than welcome policies of various states. As a result, even Mumbai city is showing declining trend in population growth. In the post Second World War, there is no example of a democratic society sustaining such huge regional disparities. If this trend persists, there are clear and present dangers to India's unity and integrity. Already insular regional chauvinism has altered the political landscape of many states. It is a tribute to our society's resilience that we could absorb the plurality, linguistic diversity and economic disparity, and remain a united country. But we need to focus special attention on the Eastern and Northern region. We cannot allow UP, Bihar, MP, Orissa and Assam to fall behind further. But what can we do? We have extremely non-discretionary fiscal devolution in our federation. Even marginal increases in allocation to poorer states recommended by the Eleventh Finance Commission are resisted politically. In any case, mere fiscal devolution does not guarantee proper deployment of resources. But there is some good news. West Bengal, with its agricultural growth and urbanization, can be the engine of prosperity in the East. Rajasthan has shown significant growth in recent years, and is now almost a middle-income state. North and East have abundant water, fertile land and minerals. There are three things required to stimulate investment and growth - infrastructure, trading opportunities, and public order and rule of law. Massive investments are needed to build roads and bridges in Eastern UP, Bihar and Orissa. The Union can finance infrastructure with a special package of large low-interest loans, the utilization of which can be monitored closely. This has to be outside the normal fiscal devolution. It helps all of India. Yashwant Sinha, hailing from Bihar, must take the lead and ensure infusion of massive resources in his own home state. If farmers and traders have to transport goods hundreds of kilometers for want of roads and bridges there can only be subsistence and no growth. India's unity demands that partisan politics be kept out of economic policies. And yet we cannot subsidize waste, corruption and inefficiency. But there is room for intelligent central intervention and support. The recent belated but aggressive steps to open up Eastern and Northeastern India to Southeast Asia is wonderful news for this region. We need the road and trading links with Thailand and beyond. This will make Eastern India an extension of ASEAN and spur growth and trade enormously. Ultimately there can be no growth without public order and rule of law. Governance in UP and Bihar is in shambles, and medieval conditions prevail. All parties should sit together and evolve a comprehensive strategy to restore rule of law in the region. Empowering panchayats even as they are made accountable is one way. Far reaching police reform and creation of local courts for speedy justice are vital. We can ignore the growing regional disparities only at nation's peril. All of us have a deep and abiding interest in the future of all regions of India. (Saturday, 30th March, 2002, 'People Power') A refreshing breath of fresh air from MaharashtraWith the approval of the Bill to replace POTO by the joint session of Parliament, one of the most contentious chapters in our legislative history comes to a close. Now the ball will be in the law courts. Judiciary is the last bastion of defence against abuse of authority and arbitrary exercise of powers. We need a competent and clean judiciary, particularly in subordinate courts, to render justice and protect our liberties. All of us complain about the decline of our institutions of state and growing corruption and arbitrariness. No organ of state is exempt from this decay. But much of our discussion stops with wailing and self-flagellation, and there is little tangible and practical action to improve things. We have come to accept corruption and incompetence as the natural order of things. There are endless controversies, fiery speeches, commissions of enquiry, parliamentary walkouts and marches on the streets. Then it is business as usual until the next juicy scandal. In this somewhat depressing milieu of cultivated status-quoism, Maharashtra High Court has shown refreshing courage, leadership and resolve to improve the quality of judiciary. Some years ago, a metropolitan judge was arrested after his links with mafia became public. People started whispering about the decline of judiciary too. In this backdrop, Mumbai High Court proved that it is possible to significantly improve things. The level of integrity of individual officials is common knowledge to those who are familiar with government functioning. Despite this endless talk, the corrupt officials go scot-free. Mumbai High Court, with its great tradition of integrity, independence and competence, decided to remove this canker of corruption. Mumbai Bar too is one of the most progressive in India, free from the usual communal and caste prejudices. The High Court has complete administrative control over subordinate judges. There is a notional appeal to the Governor on the administrative orders of the High Court, but as per Supreme Court judgments the Governor again is bound by the advice of the High Court in deciding the appeal. But so far these powers have not been adequately exercised, and judicial rectitude suffered on account of this indifference. But now Mumbai High Court acted decisively to cleanse subordinate judiciary. Over the past 2 years, over 150 judicial officers (over ten percent of the total) in Maharashtra have retired voluntarily or compulsorily on allegations of corruption, impropriety and incompetence. Special inspecting judges looked into complaints of corruption. If there are credible complaints or prima facie evidence of wrongdoing, the judge in question is given the option of retiring with full benefits including permission to practice law if he chooses to do so. The other option is to face departmental enquiry and risk dismissal with no retirement benefits and no right to practice. Most judges chose to retire without demur. A few resisted, and were dismissed. Some went in appeal to the Supreme Court. The Court has held that the departmental authorities have unlimited powers of framing rules of conduct and rules of enquiries, freedom of action untouched by Criminal Procedure Code and Evidence Act, or even rules of natural justice in case of administrative orders, full discretion in appreciating evidence, authority of awarding any punishment after following rules of natural justice, and immunity from reappreciation of evidence and reversal of orders by judiciary. As Mr BJ Misar, a retired IPS officer from Maharashtra says, the impression that our legal system or judiciary obstructs anti-corruption measures, or that the Constitution gives undue protection to corrupt public servants is wrong. What Maharashtra High Court accomplished is a cause for celebration. We can now say with confidence that corruption in judiciary in a large State has been completely eliminated. This is no small achievement. Maharashtra is larger than 90% of the nations. If we can clean up a whole organ of state in one major State, we can eliminate the scourge of corruption from all branches of government all over India. All it takes is will, professionalism, painstaking hard work and transparent action. Some may cavil at allowing officials suspected of corruption to retire. But the impossible best is often the enemy of the possible good. When the problem is so large, swift action and significant results are far more productive. We need to act quickly and decisively to fight corruption and maladministration everywhere. And we should learn to celebrate these wonderful successes and replicate them. India suffers from a crisis of confidence on many fronts. The nation owes a debt of gratitude to Maharashtra High Court for showing us that big improvements are possible in our society. We should capitalise on that and act decisively. So far our politicians and bureaucrats have been complaining most of the time, and have become a part of the problem and not the solution. The example of judiciary in Maharashtra should open our eyes and make us look for innovative and courageous ways to improve our governance. (Saturday, 16th March, 2002, 'People Power') How do we reduce and retarget subsidiesOne of the recurring themes of Indian public expenditure and budget making in the last decade is the fiscal rigidities making it difficult for governments to change policies and priorities. In the Union budget, interest payments, defence expenditure, transfer of resources to States and wages are more or less inflexible, and there is no room for manoeuvering. It is now axiomatic that subsidies cannot be removed without incurring high political and social costs. Similarly, in States too repayment obligations, wages, administrative costs, expenditure on ongoing schemes and projects, state's share in centrally sponsored schemes etc are inflexible, leaving little room for innovation. Again subsidies are hard to cut. The result is less than adequate social expenditure and poor quality infrastructure. As early as in 1992, Dr Manmohan Singh as Finance Minister lamented the shackles imposed by these fiscal compulsions. The only two changes subsequently are, defence expenditure shot up significantly in recent years, and wage expenditure of both the Union and State increased greatly with the acceptance of Fifth Pay Commission recommendations. Economists, analysts and politicians owe it to the country to evolve mechanisms to break this logjam. However, there are realistic and effective options still available. But we need courage and skill to exercise them and achieve tangible results. Let us take subsidies as an example. For fiscal 2002-03, major union subsidies account for Rs 37,392 crore. Food subsidy alone will cross Rs 21,200 crore. Power subsidies and losses (which will eventually be subsidized) in States will probably account for Rs 40,000 crore. And there are other subsidies in States too. Is there a way of reducing these subsidies, retargeting them without inviting massive social unrest and political opposition? Obviously it is not easy. Desubsidization anywhere in the world has always been painful, and politically risky. The peanut quotas and resultant subsidies increase the price of peanut butter in the US significantly. And yet, these quotas withstood Reagonomics and Gingrich revolution. The rise of Solidarity in Poland is linked in no small measure to the rising food prices from 1970 onwards, eventually precipitating the collapse of communism in Eastern Europe. The sudden increase in the administered prices of food in December '70 led to riots in the Baltic cities of Gdansk, Gdynia and Szczecin, and Gomulka was ousted from power. His successor, Edward Gierek had to again raise food prices in 1976, leading to violent strikes in Warsaw and Radom. Fresh price rises in 1980 touched off nation wide strikes, and that was when solidarity was created at the Lenin Shipyard, Gdansk under Lech Walesa's leadership as an independent, self managing trade union. The rest is history. But there are ways of reducing subsidies in a politically acceptable way. Let us suppose the administration of food subsidy (the consumer part of it) is transferred to local governments. We can actually quantify the amount of subsidy based on the food grain offtake and price differential at the local level. Then the Union or State can ask the local government to retarget the subsidies to reach the deserving poor and cut down on leakages. This will work if the subsidy amount so saved is made available to the local government for other desirable activities, say infrastructure building or social expenditure. Once local government is assured of additional resources based on performance (cut in subsidies), it will have an incentive to reduce subsidies and unlock these resources. The money saved can thus be used for schools, drains, water supply, roads, health centres and sanitation. Since there is a clear link between subsidy reduction and alternative public goods and services, a powerful local constitutency will be built favouring reduction in subsidies. In centralized administration, there are only losers in subsidy reduction, and no corresponding gainers. But once it is decentralized, and savings are alternatively deployed, the same family which loses a subsidy will gain directly through better public goods and services. Or there will be as many or more gainers as losers. We will then have achieved two objectives. Subsidies would be reduced, and expenditure is directed towards more desirable goals. This principle can be applied to several subsidies - food, agricultural power, irrigation etc. The key to desubsidization is creating alternative stake-holders or alternative stakes at the local level. This is possible only when we are willing to go outside the box, and redesign institutions. A centraized democracy cannot exercise painful options, because people perceive all pain and no gain. If the taxes raised or resources saved are perceived to go to a centralized, callous administration, or to fill the huge hole called fiscal deficit, then people are unlikely to accept desubsidization calmly. What appears to be a criminal waste for an economist or administrator is often the real income which sustains a poor family. When a family has to make do with reduced income, it makes choices willingly because all members know where the money is going. It is easier to accept privation if you have alternative gain, or if your loved ones get something in return. This applies to individuals, families, and societies as well. But to apply these lessons, we need to redesign the Indian state and reinvent the citizen-centered government based on the principle of subsidiarity. Our fiscal crisis and governance crisis are inseparable, and need to be addressed together. (Saturday, 1st March, 2002, 'People Power') Budget blues : Money is not always the solutionOnce again, the nation's attention is reverted on the Lok Sabha . Until 1991, the only fascination budget speeches offered was on account of changing tax rates. The arbitrary and frequent changes in tax rates, and the equally irrational concessions offered in customs and excise duties to favoured industries were the ubiquitous features of budget - making for four decades. Mercifully, the long term Tax policy is now in place for both direct and indirect taxes. Also income tax rates are no longer an object of trepidation. However, whatever the Finance Minister has an offer for us, there are by now certain unchanging constants in recent years. Fiscal deficit remains stubbornly at the 10% GDP range for the union and states, and around 5% for the union alone. Industrial and manufacturing sector is growing sluggishly, though there are some indications of demand picking up. Expenditure pattern in government is rigid, and unyielding to policy prescriptions. In fact, the Finance Minister's room for * is severely limited. At the union level, the interest payments, central transfers to states, defence and wages account for well over the reserves. There is no significant reduction possible under any of these heads. And unemployment continues to mount. Given these inflexible realities, what is it the government can do in the short and medium term? For this, we should rise above the din of the stock market and tax rates and even disinvestments, labour policies and second-generation reforms will not suffice. We should look at the big picture . There are real and serious concerns we need to quickly *. What is more, most of these things cost no money. Let us focus on four issues. Banking sector is flush with funds. Interest rates are of record low levels. Inflations is under control. Manufacturing sector is in doldrums. But the tragic irony is that many small and medium enterprises, which are valiantly, and successfully fighting to survive both external competition and economic show down are denied credit. Banks are simply not responsible to customers' credit needs. Otherwise thriving units are either stagnating or declining for no fault of theirs. The message is clear : don't waste time in wealth creation and production of goods. Speculation in capital markets, corruption and outright cheating of the public are far more profitable (with little risks). Obviously financial sector must be made to move, and more quickly. They must be made to understand that due diligence is different from callous indifference and inaction. It is now over a decade since we started the power sector reforms. 'Reform' has now become a catch phrase devoid of all meaning. Prudent and economic use of resources, and increase in productivity and production are ignored. We are going through the motions of 'regulators', independent power projects (IPPs) , unbundling of power sector etc, but most of these are devoid of substance and spirit. There is no tangible and realistic effort to reduce transmission and distribution losses. And IPPs are in a mess. High costs, guaranteed rates of return, faulty fuel allocations, bad fuel policies without regard to future energy costs, cronyism, arbitrary decisions and corruption have brought a bad name to private generation. The center should sit with the states and resolve the mess. There are practical solutions. But where necessary the whip must be craved. The center is talking of VRS for a million employees. If they achieve it, well and good. But past experience shows that the burden often continues, thanks to overly generous VRS policies with an eye on numbers. In any case, the real question is public employment in states, and redeployment over 50% of the employees in most states are unproductive, and most of them are deployed not in service delivery, but as support staff. We need to redeploy them and make them accountable. Kerala's predicament today is not a local issue. All states are in the same boat. A national approach is needed to make employees deliver. Finally, there are measures which will significantly improve the climate for investment and wealth creation. Urban land ceilings, rent controls, poor land record documentation, and lack of protection of property rights are three such issues which led to corruption, artificial housing shortage and economic stagnation. None of these can be justified, and there can be dramatic rejuvenation of our towns and cities with sensible, and pragmatic land policies. One can understand, if not condone delay in addressing other problems which need resources - public transport, capital formation in agriculture, marketing infrastructure, education, speedy justice, rule of law etc. But there is no excuse for delaying action on areas which require no monetary inputs. We are suffering from excessive lethargy and focus on irrelevant issues diverting national attention. Between the small things we won't do and the big things we cannot do, nothings gets done. Budgets will come and budgets will go, but these issues need to be addressed to rejuvenate the economy and fulfill our potential. (Saturday, 16th February, 2002, 'People Power') We need a better and more focussed state.Classical liberals (libertarians) are intelligent, articulate, freedom-loving people. Unlike the "bleeding heart" liberals of the US, libertarians hate big-government, and are particularly opposed to centralized state or bureaucratic control. In much of this opposition and love of liberty, they are right. The history of 20th century is the triumph of liberalism against fascist authoritarianism and collectivist totalitarianism. It is now axiomatic that the government which governs the least is the best government. Public opinion has also come to accept that government has no business to run businesses. Libertarians naturally oppose high taxation or huge public expenditure. As Milton Friedman so succinctly explained, a citizen knows best how to maximize his happiness by spending, as he deems fit, the Rs100 in his pocket. The alternative of transferring to the state most of it and hoping that someone, somewhere will take sound decisions for him (an unsound assumption), and receiving only a small fraction of it in the form of public goods and services (after transaction costs, leakages, inefficiency and corruption) is clearly unattractive to most of us. In many ways, the concept of unalienable rights of life, liberty and pursuit of happiness as propounded by the American Founding Fathers appeals to libertarians. But closer examination of the OECD countries shows that in the real world most states pursue economic policies which combine the libertarian principle of laissez faire with expenditure for promoting social good in the form of education, health care and welfare. Not withstanding Ronald Reagan and Margaret Thatcher, the public expenditure in OECD countries is about 45% of GDP on an average. India's public expenditure as a share of GDP is lower than every OECD country, except the two city-states of Hong Kong and Singapore. The social expenditure alone accounts for 25% of GDP, adjusting for country-variations. The high-income countries spend 5.6% of GDP on public education and 6.4% of GDP on public health. Medium income countries spend only 4.6% and 3.2% of GDP on education and health respectively, while poor countries spend a measly 2.5% and 0.8% on these two sectors. What does this indicate? Limited government and political and economic freedom to citizens are vital for individual growth and national advancement. But liberty cannot be construed in a very narrow and negative sense of state not abridging individual freedoms. State is not merely a necessary evil to defend our frontiers, maintain public order, protect citizens and ensure justice. State can, and should, also be a positive institution to create basic infrastructure, develop natural resources, and most of all to provide quality school education and effective primary health care. Liberal think tanks and academics have been vehemently advocating rollback of the state from these areas. While state's role in business is now universally opposed, there are no realistic substitutes to state in school education and primary health care. It does not mean that state alone should provide these services. Private and voluntary sectors have a significant role, and nowhere in market economies is that role more pronounced than in India. Nor does it mean that state should necessarily provide these services. Stakeholders groups and voluntary organizations often do the job much better. But the financing has to come from the state. And by state I do not mean the centralized, remote, big-government, but localized, citizen-centered government starting with a community of stakeholders, and expanding in concentric circles to local, provincial and federal governments based on the principle of subsidiarity. We have to recognize that social goods like school education and primary health care cannot be accessed by most citizens without state's intermediation or funding. And in our country, with vertical heirarchies, caste divisions and moral neutrality to social inequities, state's role is critical. With the state failing in these sectors, the bulk of our gene pool is wasted, and educational opportunities are effectively limited to a quarter of our population; poor people end up suffering and spending much more than the rich in market-driven private health care systems. Making education a profit-making enterprise has resulted in mushrooming of countless colleges that produce mostly literate, semi-educated, unemployable graduates. It is easy for the well-heeled and well-connected to ridicule the role of the state. But the fact remains that the future of the vast majority of our children is dictated by the circumstances of their birth. The potential of most children remains unfulfilled. Opportunities for vertical mobility are severely restricted for the bulk of the population. Paradoxically in the 1950's and 60's children had better opportunities. But the decline in public education and health care makes the situation increasingly unacceptable. Abdication of state is no solution We don't need big-government or high taxation. What we need is a better and more focused state that helps every child fulfil its potential and provides opportunities for vertical mobility. And we need to get good value for every rupee spent. If we are too myopic to see the obvious, the result will be hatred, violence and chaos. We owe it to ourselves to learn the lessons of the last century and act quickly to improve public education and health care. (SATURDAY, FEBRUARY 2, 2002, 'People Power') The Indian Economy : Doing better, and feeling worse(Sunday, 27 January, 2002)We the middle Class, must take to politicsThe low polling percentage in MCH elections - about 50% - has raised many eyebrows. Elections are the very lifeblood of a democracy. Honest and capable citizens freely chosen as their representatives in a fair election process constitute the essence of good governance. An election is therefore about 'who' get elected, 'how' the election is conducted and 'what' they do after the election. Elections involve organization of political parties, evolving a platform, mobilizing public opinion, campaigning to convey the message to the voters, and obtaining support to get elected. If effective public participation is absent, elections and democracy are reduced to a farce. Let us analyse the causes of low voter turnout and understand what we can do to encourage popular participation. First, we must understand that polling percentages under Indian conditions are deceptive. Lok Satta's surveys reveal that voter registration is extremely flawed. In urban areas in AP, about 26% of the names in electoral rolls are of ineligible, dead or fictitious persons, and need to be deleted. In Hyderabad city this percentage of wrongful inclusion is 22.3%. therefore any polling percentage should be calculated on a smaller base excluding ineligible votes. Among the eligible votes registered, the actual polling percentage is about 66%, which is not bad at all. That still leaves us with two problems. About 34% of those eligible and registered to vote have not voted. And there are some 16% or more eligible persons living in the city who are not enrolled as voters. Lok Satta mounted a campaign with MCH during November 16 - 30 to include and delete names in voter lists. The Election Commissions (EC) at state and national levels were very proactive but the citizens' response is luke warm, with only about 40,000 additions and deletions - probably 10% or less of what needs to be done! The EC has partially agreed at Lok Satta's insistence to make the post office a nodal agency for voter registration, and make the process accessible. Under these circumstances, reduced polling percentage may actually mean declining false voting! Second, many voters are repelled by the political process and inadequate choice of candidates. Parties have become private fiefdoms, and decent people increasingly shun politics. Muscle power, distribution of money and liquor, lack-lustre and irrelevant campaigns put off many people. We should make political process more attractive, honest and people-friendly. Internal democracy in parties, choice of candidates through some form of primary elections, and interactive and civilized methods of campaigning like TV debates are needed to enthuse voters. Third, many among the middle and upper classes have not internalized the notion of democracy - equality of human dignity and principle of one-person, one-vote. There are many who stay away from the polls for fear of having to rub shoulders with their domestic servants! Unless we all recognize the dignity of labour, and respect each individual regardless of birth and occupation, we cannot build a democratic or peaceful society. We should realize that our security and well being lie in the prosperity and dignity of all. As Lincoln put it succinctly, a nation divided against itself will fall. Fourth, there is growing cynicism about the outcome of elections. Many people feel that no matter who wins the election, we, the people, end up losing! While the poor still vote to express their anger, or show their relevance at least for one day, or because they get paid for the votes, the middle and upper classes shun polls. But it is dangerous to ignore politics and elections. As Plato said, "the punishment suffered by the wise who refuse to take part in the government, is to live under the government of bad men." The only antidote to the ills of a democracy is more and better democracy. By staying away, we are only ensuring the victory of crooks and fools and perpetuating a vicious cycle. Finally urban people fail to recognise the importance of local governments. The businessman, the bureaucrat and the academic feel comfortable dealing with a centralized government extending patronage to cities. There is aversion to local politics. We fail to realize that all governance is about people, and all politics is local. In villages, people understand the value of local governments, and take greater interest. We need to recognize that the city government matters. Rudolph Guiliani made a spectacular difference to New York city as a Mayor. His leadership, skill and commitment revived a city on the brink of collapse. The key to success is that he had the power to make a difference. With local governments emasculated, we fail to give them importance. We need to genuinely empower the city government and establish the links between our vote and public good; our taxes and public services; and authority and accountability. Only then will people be enthused. Now that election is over, we need to take city governance seriously. Ward committees in each locality with share of taxes and control over staff will make all the difference between decay and rejuvenation. Citizen's Charters compelling timely response and compensation for delay will work miracles in delivery of services. Local justice through speedy procedures, right to information, and a strong and independent ombudsman are ways to bring life back to the city and make citizen the centre of our political process. We need to stand up and fight for these. If we don't care, no body will. Certainly the rapacious politician and corrupt bureaucrat will not care to improve things. Let us begin with our locality and city, and the country will take care of itself. (SATURDAY, JANUARY 19, 2002, ‘People Power’)Local governments and fiscal managementLocal governments have been constitutionally mandated with the enactment of the 73rd and 74th amendments in 1993. Sadly, the Constitution only provides for over-structured and underpowered local governments. The results are mixed. The role of local governments as schools for democracy is well recognised. But their importance in reducing corruption and improving economic management has not been adequately recognised. Let us examine the relationship between fiscal deficits and centralisation. Our combined fiscal deficit remains pretty high at about 10 per cent of GDP despite valiant efforts of successive finance ministers. It is no surprise, because there are no magic wands to control deficits. We must either raise taxes, or reduce subsides or control wages. Selling PSUs does not make a dent in deficits because even the modest projections of sale revenues of Rs 10,000 crore annually have never been realised, and even if realised will hardly make a difference. And in any case, deficit reduction is not an end in itself. Improved services and quality infrastructure are the goals we should seek as better value for the money spent. In a centralised government it is impossible to persuade people to pay more taxes. When higher taxes show no prospect of better services, people devise ingenious ways of avoiding taxes. Despite public expenditure accounting for 28 per cent of GDP, the allocation for education, health care and social security is a meagre 5 per cent of GDP, as opposed to 25 per cent in OECD countries. Naturally people do not see how their tax money is benefiting them. And when people have to pay bribes for the simplest of services, it is hard to summon the will to pay more taxes. De-subsidising is easy to prescribe, but difficult to deliver in a poor country. The poor family that gets real income of Rs 100 every month as food subsidy cannot give it up to fill the fiscal hole. This is true everywhere. When food subsidies were sought to be drastically reduced in Poland in early ‘80s, it led to food riots, and eventually paved way for the rise of Solidarity under Lech Walesa and collapse of communism in Eastern Europe. But if such subsidies are administered locally, and people see alternative uses for their money, they are more likely to accept de-subsidisation. If the amount saved by de-subsidising can be locally used for building roads, construction of toilets, improving health facilities, etc., people can then see where the money is going and are willing to give up consumption subsidy in order to build an asset or improve the quality of life. As to wages, we cannot realistically reduce this burden. In reality the number of government employees as a proportion of population (1.3 per cent ) is not high by global standards. Wages are not translated into public services because of two reasons. First, most employees are wrongly deployed. We have too few teachers, health workers, judges and policemen, and too many clerks, peons and drivers. Second, in a centralised milieu employees are utterly unaccountable. Authority has never fused with accountability, and we have a system of alibis for non-performance. Only in a local government can we retrain employees and re-deploy them in desired sectors, and institute effective systems of accountability. Our fiscal crisis, misgovernance and corruption cannot be addressed by finance ministers. The problems are far more fundamental, and need restructuring of our governance apparatus. Local governments will not automatically reduce corruption, nor will they promote better leadership overnight. But as employees are held to account locally, we can check corruption. And as the citizen sees the link between his vote and public good, better quality leaders will start emerging. But it takes patience, faith and painstaking institution-building. Our fiscal federalism is on a reasonably sound footing. Some 42 per cent of central revenues are now transferred to states — 29 per cent as financial devolution, and the rest in the form of plan assistance and centrally-sponsored schemes. The states are demanding 50 per cent, but the gap between the demand and today’s devolution is not large. The real failure lies in transferring of functions, funds and functionaries from states to local governments. Articles 243G and 243W and the 11th and 12th Schedules of the Constitution listing subjects to be dealt with by local government do not have the same force as the VIIth Schedule providing for clear and distinct jurisdiction of states. We need to recognise the importance of local governments. Elections for Mumbai and Hyderabad Municipal Corporations are now being held. Mere elections of new mayors and councils will not do. We should redesign institutions and improve governance to give good value for our money. Only then can the fiscal crisis engulfing us be averted. It is high time we recognised that all governance is about people and all politics is local. (SATURDAY, JANUARY 05, 2002 ‘People Power’)There is no room for cynicism and despairThe New year brings little cheer to the long-suffering people. War clouds are hovering over our skies. Much of the economy is stagnant. The share of the manufacturing sector as a proportion of GDP is in decline.Tax revenues are well below projections, and expenditure — mostly unproductive — continues to mount. Capital markets are jittery and investor confidence is low.Banks are flush with funds, and yet legitimate credit requirements of the surviving manufacturing enterprises are not met. But spurious companies get large loans for imaginary purposes. Securities scam will now die a natural death with the demise of Harshad Mehta. The nation does not seem to care at this colossal failure of justice. Every crisis is overtaken by the next one! There is a deep sense of disappointment at lost opportunities and unfulfilled potential. The sabre-rattling that followed the December 13 attack on Parliament has served two vital purposes. It enabled the US and the West to apply pressure on Pakistan to curb militant groups.And it strengthened Musharraf’s hands in dealing with the jehadis and extremists. Paradoxically, Musharraf, an avowed liberal whose hero is Kamal Ata Turk, is India’s and Pakistan’s best bet to rebuild Pakistani society and eliminate the influence of gun-toting jehadis and hate-filled Mullahs. He certainly has no love lost for India, nor do we have reason to trust him. But controlling the maverick elements in ISI and curbing the extremists are beneficial to both countries.Our talk of decimating Pakistan or breaking up the country is both irresponsible and counter-productive. We do not have to add to our woes an unstable and uncontrollable neighbour feeding on religious frenzy and in which all state authority collapsed. Both nations need to move forward with a vision of genuine liberal democracy, enlightened self-interest, and economic prosperity. Hate campaigns will do no good for either country. The real problems for both countries are internal. Pakistan’s problems are its own business. But we need to focus on ours without resorting to alibis all the time. Of the million or so families which play a pivotal role in our politics, bureaucracy, business or professions, some 90 per cent have become colonists in their own country. These elites have delinked their future from that of the country. They have no confidence in the nation’s future. Strangely it is today’s elites who benefited the most from our society in the past five decades, what with free higher education, government sops, patronage, wages and expense accounts from the exchequer, and infinite opportunities of corruption at the cost of the hapless majority. With green cards in hand many youth are leaving the country. There is no point blaming them for wanting to escape. Poor infrastructure, unreliable systems, ubiquitous corruption, the rule of the mafia, sub-standard education and inaccessible health care deter even the most stoic of our citizens. As someone said, brain drain is better than brain in the drain. The sad part of our crisis is the incapacity of the middle classes and ruling elites to envision a humane, liberal, efficient society that provides opportunities for all. And those who care are often impatient, seeking miracles overnight. Many nations could overcome their problems only by clarity and relentless pursuit of institutional improvement.The world has faced many similar problems and we can easily adopt the best practices in, say, policing, judicial reform, urban management, public transport, and a host of other sectors.In our own country, Kurien’s work in dairy co-operatives and Arole’s work in health care provide outstanding examples of replicable models. None of our problems is intractable, and we don’t have to reinvent the wheel. But what we do is endless dithering.Even where some movement is seen, as in case of the recent Bill on political funding reform, tokenism and marginal change become the norm. A lot more can be done, but it needs patient, painstaking, systematic and professional effort. The other trap we find ourselves in is cynicism and despair. We tend to ignore what is possible, and blame all our failures on lack of national character and decline in values. Once we reach that conclusion, we are absolved of all responsibility to change things, and can continue merrily with status quo! But the reality is we have immense potential, and we are accomplishing quite a bit in select areas. All we need is better designed and accountable systems which reward good behaviour, and punish deviant conduct. There are specific, practical, effective, time-tested remedies to most of our predicaments. There is no room for cynicism or despair. Realistically India can accomplish a great deal more with a few sensible, practical steps backed by institutional reforms. The people are ready and willing. Does our leadership in all walks of life have the courage to respond? (The author is the National Coordinator of Lok Satta movement)
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