Legislative paralysis spells RIP for UPA

governancenow.com, dec 14, 2011
Governance on auto-pilot
On November 21, Montek Singh Ahluwalia, deputy chairman of planning commission and a key policymaker of the UPA, made a confession: "By February (2012), you will have the January data and if it turns out that inflation is not coming down by then, then we really don't know what we are doing."

This came after three years of consistently predicting that inflation would come down after the next rabi or kharif harvest. Harvests have been consistently good too, but inflation shows no abating, barring a marginal dip so typical at this time of the year. He may still be hoping for a miracle but few would wait until February to endorse that he and his mentor prime minister Manmohan Singh, or anybody else in the UPA for that matter, really know what they are doing.

Look at some recent developments:

* Last week, the government rolled back its FDI policy after the cabinet endorsed it;

* Two bills – Copyright (Amendment) Bill and Commercial Divisions in High Court Bill – were withdrawn in Rajya Sabha on Tuesday. The first one because of conflict of interest: Kapil Sibal  was piloting the bill, but his son is counsel for a music company which stood to benefit from it. And the second one because even Salman Khurshid piloting the bill, which had already been passed by Lok Sabha, acknowledged that it had far too many flaws.

* Tuesday saw the cabinet holding back the Food Security Bill because of strong protest from the allies - NCP and Trinamool Congress.

* Lokpal Bill is stuck because not only the opposition but even the ruling Congress members disagree to some of its key formulations through their dissent notes to the standing committee report. Everyone agrees, and that includes the Congress, the bill is flawed. Anna is waiting to start his next round of fasting from December 27.

* Parliamentary standing committees have shot down three bills relating to UID and higher FDI in insurance and pension, saying these are flawed, directionless or simply, bad policies to adopt.

* Two key economic reforms – (i) Direct Tax Code (DTC), proposed in the budget a couple of years ago, is yet to be notified or implemented and (ii) Goods and Services Tax (GST) is stuck because of strong political opposition.

* Cabinet cleared three bills on Tuesday – Judicial Standards and Accountability Bill, Public Interest Disclosure and Protection to Persons Making the Disclosures Bill and Right to Grievance Redress Bill.

All the three are flawed and fail to address the issues they seek to address. Their passage, which looks highly unlikely in this parliament session at least, will in no way make a material difference to the existing arrangement.

There are other worries.

*Apart from these, the Index of Industrial Production (IIP) for October 2011 reflects a recessionary trend. It shows a minus 5.1 percent growth. Manufacturing, mining and capital goods are all showing negative growth. And this has a lot to do with 13 hikes in interest rate that the RBI has affected in the past two years.

The RBI wanted to check inflation by interest hikes but such hikes have ended up spiking industrial growth as investment has dried up. Economists have been crying hoarse that inflation is a supply side issue while interest hikes are meant to address the demand side issues and would prove counter-productive. It has.

*Revenue collection is way below the expectation and deficit is growing. Money has weakened considerably – a dollar now costs close to Rs 54, from Rs 45 or less in August this year.

The UPA II began its innings in 2009 with confidence. There was no Left Front to arm-twist it and hence there was no CMP (common minimum programme) – the policy framework that guided UPA I. Confidence seemingly turned to over-confidence and policy paralysis set in. A series of scams followed - 2G, CWG, Adarsh, IPLA, Isro spectrum etc. Simultaneously, a runaway inflation struck. Then came Anna Hazare and now, a legislative paralysis.

Nobody is talking about the mid-term polls yet. Polls are expensive business. The opposition is not yet ready to throw its hat in the ring. So the government survives, but only technically, like a brain dead man. Unable and seemingly incapable of doing anything.

Anna ko gussa kyon aata hai

governancenow.com, dec 15, 2011
And why our politicians do not get angry when they should
Something extraordinary happened on November 25. Our democratically elected representatives actually conducted some parliamentary business, only for a little while though, without bringing the houses down – something that hadn’t happened before and wouldn’t for the next five days of the winter session.

That day the presiding officers began the day’s proceedings by ‘condemning’ the assault on agriculture minister Sharad Pawar. This was followed by more of the same from leading members of the houses who were livid at the development. The prime minister, his cabinet colleagues and all major political parties had expressed their anguish the previous day itself, minutes after a youth slapped Pawar at a public function not far away from the parliament house saying, “This is my answer to corrupt politicians.” One veteran minister wondered aloud: “Don’t know where this country is going.”

For once, politicians of all hues buried their differences and united in venting their anger. This done, they proceeded to bring the houses down, that is, until December 7 when the government managed to cool the frayed tempers on FDI in retail.

One man is angry at this. He was then too when he was told about Pawar being slapped and asked his informants, the TV reporters: “Just one slap?” That was Anna Hazare. He did subsequently express remorse at his ‘non-Gandhian’ comment and does so again in his latest blog posting but this time he asks the politicians to think why Pawar was slapped.

Here is the link to Anna's blog: annahazaresays.indiaagainstcorruption.org

Why was Pawar slapped? Because there is public anger against unbridled corruption and runaway inflation, he writes. Then he proceeds to list some of Pawar’s contributions to public life. He says Pawar and his ministerial colleagues never bothered to redress Maharashtra farmers’ problems he has been raising for the past 22 years. As agriculture minister, Pawar imported wheat worth several crore of rupees, which was found unfit for human consumption and dumped. Pawar promoted corrupt ministers, and corrupt officials, against whom Anna had provided evidence and which led to the sacking of some of them but never prosecuted for their crimes. On the other hand, he and his colleagues have been hounded for years through inane inquiries and false cases for exposing the corrupt around Pawar.

Why a slap to Pawar evokes so much anger in our politicians who are perfectly at peace with Pawar’s many misdemeanours? Why they never lose cool when distressed farmers commit suicide across the country and for several years in running? Or when the farmers are killed in police firing for peacefully demanding their rights?

“Ek thappad ka gussa kai logon ko aaya, lekin pura jeevan samaj or desh ke liye arpan karte hue itni takleef di jati hai uska gussa kisi ko nahin aata. Yeh durbhagya ki baat hai.” (One slap evokes so much anger in so many but no one is angry when somebody who has dedicated his entire life to people’s welfare is being constantly persecuted.) The last reference is to Anna himself.

Quite a bit of food for thought.

Lokpal panel shortchanges parliament, opposition

governancenow.com, dec 12, 2011
Retains govt control on Lokpal, CBI; keeps PM, MPs, junior babus out
When Anna Hazare sat on a fast demanding a strong Lokpal in August this year, a big fuss was made about the ‘sanctity’ of parliament and its procedures by the parliamentarians, especially in view of the fact that the matter was pending with the parliamentary standing  committee then. Now that the standing committee has submitted its report we are wiser about that sentiment.

For one, it has shortchanged parliament itself by ignoring two of the three key elements of its ‘unanimous’ resolution adopted on August 27 envisioning the shape of Lokpal. The resolution read: “This House agrees ‘in principle’ on the following issues – (i) Citizen’s Charter, (ii) lower bureaucracy under Lokpal through an appropriate mechanism, and (iii) establishment of Lokayukta in the States”.

Also see:

Shouldn't the PM come within the ambit of Lokpal?
Team Anna explains the government's vision of Lokpal
Government's spin minister throws a no-ball at Lokpal

The standing committee report adopts the third - establishment of Lokayukta in States - but dumps the other two. Its report says, there should be separate mechanisms for the Citizen’s Charter and that the lower bureaucracy (Group C and D officers). Even ruling party members, Meenakshi Natrajan, PT Thomas and Deepa Dasmunshi, disagree on exclusion of the lower bureaucracy and give a dissenting note saying that Group C officers should be included. Interestingly, the panel changed its views after initially including lower bureaucracy in Lokpal’s ambit.

There are other key issues that render the Lokpal being envisaged by the standing committee ineffective. The selection panel for the Lokpal consists of nine members – prime minister, speaker of Lok Sabha, leaders of oppositions of two houses, a union minister nominated by the prime minister, a jurist nominated by government, a prominent public figure nominated by government, a sitting judge of supreme court and a chief justice of high court. As it is clear, the government has a majority say in the selection – five out nine members are controlled by it. This makes Lokpal a puppet in the hands of the government of the day.

Independence of the CBI, the premier investigating agency, has been compromised by retaining the current arrangement as per which the government retains administrative control over it, making it toothless and prone to political manipulation.

The standing committee is non-committal on inclusion of the prime minister in Lokpal’s ambit in spite of popular sentiments and contrarian views of the person occupying the august office himself and the members of the panel belonging to the opposition parties. The panel merely lists various options without taking a position. This evoked a maximum of five dissenting notes from the members belonging to the opposition parties.

On the other contentious issue, jurisdiction over the MPs themselves, the panel is in favour of maintaining existing arrangement which provides them immunity for anything they do inside parliament, notwithstanding two cash-for-votes scams and a cash-for-question scam. This attracts two dissenting notes.

With such a blatant act of sabotaging public sentiments, parliament’s unanimous resolution in some aspects and without empowering the toothless anti-corruption mechanism that exist today, the standing committee fails to do justice with the onerous task that it was dealing with. In fact, it is quite in keeping with parliament’s inglorious track record of the past 43 years - the period over which parliament has been deliberating the Lokpal issue without making any headway.

For how long will we have to live with such lazy policymaking?

governancenow.com, dec 7, 2011

For FDI in retail, simple things like more roads and power and direct buying from farmers will yield better results
The logjam over FDI in retail, and its eventual ‘holdback’, was neither unexpected nor probably unforeseen. Pause for a moment and revisit the circumstances under which this policy (51 percent in multi-brand and 100 percent in single-brand) was announced. The matter has been in public domain for years but the union government sprang a surprise on November 24, a couple of days into the winter session of parliament. By then, the opposition had paralysed parliament over several issues – home minister P Chidambaram’s alleged involvement in the 2G scam, statehood for Telangana, safety of Mullaperiyar dam, corruption, black money, runaway inflation, economic slowdown and so on. On top of it, Anna Hazare was threatening to fast again if the Lokpal bill was not passed in this very session. The FDI policy didn’t bring normalcy to parliament but it certainly diverted focus from more pressing issues. That probably was the intent anyway, given the slapdash manner in which the move was made.

Read update on all-party meet: Par logjam ends, govt puts FDI decision backburner

One doesn’t really need an ESP to foresee the holdup that followed. Those who pushed through the decision in the cabinet were very much part of the party (the Congress) that created a ruckus when the NDA made the first move to bring FDI in retail in 2002. They may blame the BJP (which led the NDA then) for changing its stand but the Congress (which leads the UPA) is equally guilty of the vice. What made them suddenly find the panacea to all our economic woes in FDI? Commerce and industry minister Anand Sharma is claiming that FDI in retail will add 10 million jobs in three years, the opposite of which his party was arguing with equal conviction in 2002.  His government also sees many other benefits – improved back-end infrastructure facility, new technologies and better marketing facilities leading to better prices to both the producers and consumers. In short, it will be good for growth and bring inflation down.

Had Sharma and his colleagues taken a closer look at the ground realities, they would have realized their folly. Poor infrastructure does lead to a huge loss of fruits, vegetables and food grains. Middlemen do corner a larger pie of the price consumers pay. The mandis, even those run by the government, do work through touts who rig prices to deprive farmers their dues. Fresh investment and new technologies would do a world of good to the sector, true. But do we need FDI to solve most of these problems? Even Sharma, who is championing the cause, is not sure. He is asking the states to amend their respective Agriculture Produce Marketing Committee (APMC) Act so as to ensure ‘direct’ purchase from farmers. But he never explains why in spite of this law in existence since 1960s, the state agencies continue to buy through touts. He never explains if Walmarts and Tescos will lay our roads and generate electric power – the two major hurdles in movement of farm produce, from the farm to the cold stores, mandis and markets. He won’t talk of inter-state tax barriers that shoot up price and lead to a bizarre phenomenon - surplus in one state co-exists with scarcity in another.

Visit Punjab and you will find potatoes rotting with no buyers while a kilo costs more than Rs 10 in Delhi. Let us not forget how prices come crashing down and neighbourhood markets get flooded with agriculture produce every time the government raids the mandis. So, what are we looking at Walmarts for? To bring us some trucks and carts and set up a few cold stores? And how is Sharma so sure of a FDI flood when the international scenario is so bleak and our FDI outflow is more than the inflow at present?

It is not our case that FDI is bad or useless. The point is we can and must do a few things to change our fate. It is a lazy government that thinks of and banks on FDI to solve all our problems.

What we need is something here and now

governancenow.com November 25 2011
 
FDI in retail will take years to be useful
At a time when a minister gets slapped for high inflation and the government faces daily flaks for doing nothing to bring the prices down for three years in running comes the hoopla over FDI in multi-brand retail. The cabinet, in a late night decision on Thursday, cleared 51 percent FDI in multi-brand retail and raised the bar in single-brand retail to 100 percent. This step, the government tells us, is being taken to help both the small farmers and the consumers on the plea that more FDI in retail will mean more investment in retail infrastructure, like cold store chains, new technologies and better marketing facilities for agriculture produce.

All of this may be true. Let’s hope it is. But even in the best case scenario, it will take years before the actual FDI flows in and several more years for the promised infrastructure and marketing facilities to materialize. A general business practice of playing it safe and taking immediate advantage of the market ( in this case by going in for packed food and readymade garments) before actually getting down to developing new infrastructure would suggest that the hopes being generated around the FDI in retail may not be something to look forward to in the short term. The inflation would, therefore, have no reason to pull back in the interim.

What would seem logical for the government then is to attempt something that would bring respites in the short term, say a couple of months or more, but decidedly not a 5 or 10-year plan that the FDI promises to be.

Moreover, the ham-handed manner in which the cabinet has gone about clearing the FDI policy points to an uncertain future. Though the issue has been pending for a long time and has decidedly been in the public domain, see how seriously it was taken up for a meaningful dialogue or debate in the country. Two of the Congress allies in the government, the DMK and Trinamool Congress, not only opposed it in the cabinet, they paralysed parliament the next day. The opposition parties of both left and right persuasions too lend their support to the DMK and Trinamool Congress.

Meanwhile, the media may not have taken up a strident posture either way, but provides a general feel-good picture that would please the policy makers and the corporate entities that stand to benefit. Phrases like “retail revolution”, “coming soon: world’s top retailers” and narratives like “you will soon be able to walk into a mega deep discount store run by global retailers…” to describe FDI in retail would make it seem something better is happening and should be lapped by the rest of the country.

Politicians are good at selling dreams that often don’t materialize. Look at the nuclear pact with the US on which our prime minister bet his office in 2008. Not one single unit of nuclear power has been generated three years down the line. Can we really afford to wait for 5, 10 or 15 years before the retail revolution takes shape?

Now you know: biz details of RS members

governancenow.com, nov 17, 2011

‘Register of interest’ finally goes public after ADR’s RTI plea
The Rajya Sabha secretariat has, for the first time, made public the 'register of interest' of the Rajya Sabha members – two years after an RTI application demanded the same.

The register contains ‘pecuniary’ details (that is, financial details) of 232 out of 242 members of the upper house, according to information released by the Association for Democratic Reforms (ADR), which had made the RTI plea.

According to the information in the register of interest, as many as 140 Rajya Sabha members have declared having no pecuniary interests – though 58 of them happen to be crorepatis, Jagdeep Chhokar, a founder of ADR, told the media here on Thursday.

Subba Reddy, a Congress MP from Andhra Pradesh, information and broadcasting minister Ambika Soni and Rajya Sabha ethics committee chairman Karan Singh fall in this category.

Pecuniary details in the register of interest are submitted under five major heads: remunerative directorship, regular remunerated activity, shareholding of controlling nature, paid consultancy and professional engagements.

As per the RTI response, 28 Rajya Sabha members have remunerative directorship in various companies.

Vijaya Mallya of Kingfisher holds remunerative directorship in 19 companies which gets him Rs 39.5 crore annually.

Naresh Gujral of Shiromani Akali Dal and Y P Trivedi of NCP have remunerative directorships in four and 11 companies respectively.

Anil Lad and Vijay Darda, both Congress MPs, have shareholdings of controlling nature in 27 companies and 21 companies respectively.

Total 43 members of the upper house have such shareholdings.

As many as 28 Rajya Sabha MPs are involved in regular remunerated activities in different firms. The members include Shobhana Bhartia of Hindustan Times group.

Seven Rajya Sabha members including Amar Singh and Ravi Shankar Prasad declared pecuniary details under the head ‘paid consultancy’. Singh, currently out on bail in the cash- for- vote scam, has made Rs 54 lakh as a paid consultant.  Prasad, a BJP MP made Rs 37 lakh as a paid consultant.

Singh also figures in the list of MPs who declared details in the form of ‘professional engagement’.

Singh earned Rs 50 crore through professional engagements.

Ram Jethmalani and Arun Jaitely, both BJP MPs and lawyers by profession, earned Rs 8.5 crore and Rs 10 crore via professional engagements.

Anil Bairwal of the Association for Democratic Reforms (ADR) had filed RTI application with the Rajya Sabha secretariat asking for the register of interest.

On June 3rd, the central information commission (CIC) directed the RS central public information officer (CPIO) to provide the information to the applicant within ten days.

However, the CPIO said that the RS ethics committee was considering the matter.

On October 3rd, the CIC issued a compliance notice to the Rajya Sabha CPIO after which Bairwal got the information.

The second report of the RS ethics committee, presented in December 1999 recommended the formation of the register of interest.

The fourth report of the ethic committee, in 2005, identified the five pecuniary interests and recommended that members declare their interests in the prescribed form for registration in the
‘Register of Members’ Interests’.

The report was adopted unanimously by the council and recommendations enforced from the May, 2005.

Here are highlights of the report prepared by ADR on the basis of information available in the register of interest:

Based on the declarations of Register of Member’s Interest made by 232 MPs of Rajya Sabha, 140 MPs have declared on the form that they have no business/financial interest whatsoever in any of the mentioned heads and 92 MPs have declared that they have financial interest in the mentioned heads.

Remunerative Directorship-

- 28 MPs have declared that they have some financial interest in the form of remunerative directorship of a company and 204 MPs have declared that they have no financial interest under this head.

- The highest amount received from remunerative directorship has been declared by Vijay Mallya (IND, Karnataka) (Rs 39.45 crore) followed by Naresh Gujral (SAD,Punjab) (Rs. 4.54 crore) and Vijay Darda (INC,Maharashtra) (Rs. 4.54 crore).

- The maximum number of directorships have been declared by Vijay Mallya (IND, Karnataka) (19) followed by Y.P. Trivedi (NCP, Maharashtra) (11) and Naresh Gujral  (SAD, Punjab) (4).

Shareholding of controlling nature-

- 33 MPs have declared that they have financial interest in the form of Shareholding of controlling nature and 199 MPs have declared that they have no financial interest under this head.

- The highest number of shareholdings in companies have been declared by Anil Lad (INC, Karnataka) (27 companies) followed by Vijay Darda (INC, Maharashtra) (21 companies) and Vijay Mallya (IND, Karnataka) (12 companies).

Regular Remunerated Activity

- 28 MPs have declared that they have financial interest in the form of Regular Remunerated Activity and 204 MPs have no declared financial interest under this head.

- The highest amount received from Regular Remunerated Activity has been declared by Shobhana Bhartia (Nominated)(Rs 2.67 crore) followed by Vijay Mallya (IND, Karnataka) (Rs 1.85 crore) and Satyanarayana Chowdry (TDP, AP) (Rs 1.68 crore).

Paid Consultancy-

- 7 MPs have declared that they have financial interest in the form of Paid Consultancy and 224 MPs have no declared financial interest under this head.

- The highest amount received from Paid Consultancy has been declared by Parimal Nathwani (Rs 1.29 crore) followed by Amar Singh (Rs 54 lac) and Ravi Shankar Prasad (Rs 37.73 lac).

Professional Engagement-

- 43 MPs have declared that they have financial interest in the form of Paid Consultancy and 189 MPs have no declared financial interest under this head.

- The highest amount received from Professional Engagements has been declared by Abhishek Manu Singhvi (INC,Rajasthan)(Rs 50 crore) followed by Arun Jaitley (BJP,Gujarat) (Rs 10 crore) and Ram Jethmalani (BJP,Rajasthan)(Rs 8.41 crore).

- MPs with high assets and  no declaration of pecuniary interest

- A total of 140 MPs out of the total 232 MPs have declared that they have no pecuniary interest.

- The top 3 MPs who have high assets with no declaration of pecuniary interest are Subbarami Reddy (INC,AP)(Rs 258.25 crore) followed by Karan Singh (INC,Delhi)(Rs 57.89 crore) and Rajkumar Dhoot (SS,Maharashtra)(Rs 29.53 crore).

- ADR demands the following steps should be taken:

- Details of spouse and dependent should also be disclosed in the form.

- There should be a thorough scrutiny of the declarations of the pecuniary interest.

- Issue of conflict of interest must be addressed  comprehensively in terms  of ministry/panel/committee that the MPs are part of and related financial interests.

Addtional details are in the attached report.

 

Montek is innocent...

governancenow.com, oct 11, 2011

Problem lies with policy rethink on poverty
Trust the government to introduce an element of ambiguity when it formulates welfare policies so that it has enough space to play around and play foul as and when it pleases with such policies, notwithstanding the grandstanding about its benevolence.

When planning commission deputy chairman Montek Singh Ahluwalia and rural development minister Jairam Ramesh made that grand declaration on October 3 – which junked the existing poverty line and removed caps on the number of beneficiaries of any welfare scheme – few noticed such an ambiguity cleverly introduced.

Para 4 of their joint statement read: “This methodology will seek to ensure that no poor or deprived household will be excluded from coverage under different government programmes and schemes. An expert committee will be appointed to ensure that this methodology is consistent with the provisions of the Food Security Bill as it finally emerges.”

Note the second sentence for ambiguity. At first glance, the ambiguity is not clear. On the contrary, it sounds perfectly logical and reasonable.

But that seemingly logical and reasonable stand is exposed only when you read Ahluwalia making that contradictory statement in his latest letter to attorney general Goolam Vahanvati, who would be appearing on behalf of the commission in the next hearing of the supreme court on food entitlement issue. It was during this litigation (PUCL vs Union of India and Others case) that the brouhaha over poverty line erupted in the first place and the planning commission was ridiculed for its affidavit that merely inflation-proofed the Tendulkar committee’s poverty line to say that anyone spending over Rs 32 in urban areas and Rs 26 in rural areas was not poor.

Ahluwalia wrote to Vahanvati saying two things: One, the planning commission is sticking to its poverty line and two, beneficiaries of subsidized food grains will be capped to fit the food security law being contemplated. This is the stand then for Vahanvati to take in the next hearing in the apex court.

This stand is now being questioned and Ahluwalia is being accused of changing his stand and sticking to the old policy of poverty line and capping the beneficiaries. The October 3 joint statement had clearly said that the existing poverty line had been junked, there would be no capping and that all the entitlements would be decided on the basis of the Socio-economic and Caste Census 2011 being carried out.

But Para 4 of the same statement had negated that in so far as food entitlement goes.

That is because, the Food Security Bill currently pending for passage says: In urban areas, a maximum of 50 percent of population will be given subsidized food, of which 28 percent will constitute “priority households” (read BPL families). In rural areas, a maximum of 75 percent of population will be given subsidized food, of which 46 percent will constitute “priority households” (read BPL families). The rest will be treated as APL families (that is 50 percent minus 28 percent and 75 percent minus 46 percent).

So, the capping is in the Food Security Bill.

And the logical thing for Ahluwalia and Ramesh would have been to say that this capping in the bill will be removed. They didn’t, let the contradiction remain and then, in Para 4, linked the contradiction to the new formulation to introduce the ambiguity.

Blame Ahluwalia and scream at him for changing his stand.

The truth is, he has not changed his stand. It was there. We failed to notice and scream at the right time.

The way out? Remove the capping in the bill. That is the essence of the October 3 policy rethinking. Isn’t it?

Trust the government again. This will not happen in a hurry, if at all.

'Crime and Punishment' by Khurshid

governancenow.com, Oct 11, 2011

All that matters is growth, even if it's fueled by black money
Our union law minister Salman Khurshid made some breathtaking observations that reflect how this government is fixated on growth at any cost.

First, his take. Speaking to the Indian Express on Sunday, he said: “What will affect the functioning of the government is if other institutions do not understand the kind of political economy we are faced with today: what is needed to encourage growth and investment? If you lock up top businessmen, will investment come? What optimal structure should be put in place for investment to come?”

He then clarified that he was referring to the judiciary and added that though the judiciary was making positive interventions in various fields, including in the fight against corruption, “it also has to understand the political economy”.

The comment comes in the wake of recent judicial intervention in the 2G scam that has led to the imprisonment of some leading businessmen. They have been accused of graft, dubious financial claims and deals and profiting from the spectrum allocation.

What then Khurshid is suggesting is this: Even if the top businessmen indulge in corruption and financial malpractices, don’t punish them. If you punish them, economic growth and investment will slow down.

Is this the law of the land? Or is this the law that our law minister wants?

There are ample evidences to suggest that our economy is generating a huge amount of black money that involves corporate entities. Global Financial Integrity, a Washington-based think tank, in its report of November 2010 had pointed out that the corrupt have drained India of $462 billion since 1948. Governance Now had pointed out in January this year (in the cover story titled 'Clasp of the Corporates') how tax concessions to corporate houses range from Rs 2.5 lakh to Rs 3 lakh crore. Veteran journalist P Sainath wrote in March this year how about Rs 240 crore of corporate income tax is being written off every single day (revenue foregone under the corporate income tax being Rs 88,263 crore for the financial year of 2010-11), adding that “the same amount leaves India each day in illicit fund flows to foreign banks”.

Khurshid’s observations would mean that black money is good money if it is reinvested in economy and turned white.

Khurshid’s comments also come at a time when Anna Hazare is taking his fight against corruption to another level by canvassing against political parties not supporting the Lokpal bill in the Hisar by-election.

Interestingly, caught in a bind, the government intends to toughen law to check corruption in corporate sector. The union home ministry is reported to be contemplating changes in the Indian Penal Code to deal with private sector contracts. Minister of state for DoPT, V Narayansamy, has been quoted as saying that the government intends to criminalise private sector bribery, realizing that private sector to private sector bribery was undermining fair and reasonable competition leading to unaffordable pricing.

But the law minister seems oblivious and unmindful. That is cause of worry.

Govt gets it right. Junks BPL, links schemes to special census

governancenow.com Oct 4, 2011

Plan panel accepts its poverty estimate was flawed
Notwithstanding any of the excuses that planning commission deputy chairman Montek Singh Ahluwalia has offered to justify his ridiculous affidavit before the supreme court on the poverty estimate, rural development minister Jairam Ramesh, seemingly, brought about a sensible policy rethink that their joint press conference of October 3 reflected. The press conference made two big points – one, that there would be no cap on the number of beneficiaries for the government welfare schemes, including distribution of subsidised food and two, the beneficiaries would be selected on the basis of the socio-economic caste census, rather than the poverty line determined by the plan panel.

These announcements answered the specific questions that the supreme court had posed in response to which the planning commission’s controversial affidavit was submitted. The affidavit did not answer the question about capping the number of beneficiaries. It only revised the poverty line upward by doing a lazy job of adjusting it to the June 2011 inflation level. Thus, the poverty line set by the Tendulkar committee, Rs 18 per capita per day in urban areas and Rs 15 per capita per day at the 2004-05 prices, became Rs 32 per capita per day for urban areas and Rs 26 per capita per day for the rural areas in the said affidavit. Once the planning commission submitted this affidavit, it made no sense for Ahluwalia to assert that it was a mere “factual explanation” and that the revised poverty estimate “would not decide benefits or entitlements to food subsidy”. Had that been the case, he wouldn’t have allowed such an affidavit in the first place.

As economists and food right activists have rightly pointed out, the planning commission’s poverty line estimate is actually a benchmark for the destitute rather than the poor. One may survive on the paltry sum of Rs 32 and Rs 26 in urban and rural areas, respectively, but not find healthy living condition or proper education. It is ridiculous to continue to follow the Tendulkar committee’s estimate, which was an indirect assessment based on an uncertain accuracy of the NSSO data. More so when it involves providing subsidized food to the people battling a high-level of malnutrition – 46 percent of children below the age of three are underweight, according to the government’s own finding in 2006.

It was Ramesh who publicly questioned the planning commission’s methodology, pointing out that a far more scientific and direct exercise to identify the BPL families was going on at the moment - Socio-economic and Caste Census of 2011 - which his rural development ministry is coordinating. Ahluwalia accepted that this census should form the basis to identify the beneficiaries. As for not capping the list of beneficiaries for the food subsidy and other welfare measures, the assertion came from Ramesh, not Ahluwalia.

Ahluwalia’s problem in dealing with the poverty and welfare measures stems from his concerns about growing subsidy involved, including the food subsidy, as he has pointed out so many times in the past. That is why he has been advocating dismantling of the public distribution system and replacing it with the direct cash transfer. With cash transfers he will have more control over the subsidy. He has cleverly used data to point out that about 52 percent of PDS supply is diverted to build his case for cash transfer. What he doesn’t reveal is that this finding is for a time immediately after the targeted PDS replaced the universal PDS in 1997. He has also ignored recent findings that show PDS diversion is going down substantially in many states. Development economist Jean Dreze and his group of researchers presented their findings after surveying nine states in July. They concluded that the PDS was witnessing “an impressive revival” across the country and that “the days when up to half of the PDS grain was diverted to the open market are gone”.

Ironically, Ahluwalia is never heard talking about corporate income tax written off every year. While food subsidy for 2011-12 stands at Rs 60,573 crore, the same budget documents state corporate income tax written off for 2010-11 stands at Rs 88,263 crore.

Congress and vote bank quota

governancenow.com Sept 22, 2011

Govt plans quota for Muslims, not development plans Sachar panel wanted

Union law minister Salman Khurshid announced on September 18 that the government was planning to bring in reservations for Muslims in educational institutions and government jobs. He didn’t provide details but going by his disclosure that the Andhra Pradesh model was being considered, it may be safely assumed that the plan is to provide four percent reservations for the religious minority group. So long as we continue with our policy of reservation as a means to empower the socially and economically backward segments of our society, there can be no argument against the latest move. After all, if reservations can be given on the basis of caste then why not on the basis of creed? And there is no denying that Muslims are one of the most backward communities in the country.

The reservation, however, is different. The Congress-led union government’s concern is not so much about improving the Muslim lot but to win their votes and thus, the next elections. It is vote-bank politics. That is why every now and then we have some group or other staging bandhs and blockades to press for a share in the reservation pie. The Jats enjoy reservation in some northern states but cut down water supply to Delhi a few months ago because they want reservation in union government jobs. The Gujjars of Rajasthan get reservation benefits as part of the OBC but want a larger share by being included in the list of the scheduled tribes. In Rajasthan, even upper caste Brahmins and Rajputs want reservation.

In 2004, the Congress-led UPA set up the Sachar committee to prepare a report on the social, economic and educational conditions of the Muslims. The committee suggested various welfare measures – more ‘regular’ schools, dedicated welfare funds, better representation in local bodies, better access to credit facilities, encouragement to mixed localities etc. Reservation was not one of those. The union government is yet to implement any of those measures (see interview with economist Abusaleh Shariff in this issue).

Instead, it set up the Ranganath Mishra commission which proposed 10 percent reservation for the Muslims and another five percent for other minority groups in education and government jobs. It is this measure Khurshid said his government was eager to implement, but only for the Muslims because they form a significant chunk of the vote bank (a little more than 13 percent of the population). With the looming UP assembly elections, chief minister Mayawati too is following the same path and has demanded reservations for the Muslims, as well as for the poor among the upper castes.

In January 2009, the Kerala high court made an interesting observation while dealing with the state government’s move to provide a quota for the poor students from the forward castes in educational institutions. The court said it was time to bring down the reservation in both government jobs and educational institutions because the socio-economic condition of the beneficiaries – scheduled castes, scheduled tribes and other backward classes – had undergone “revolutionary” changes and that it was also time to “awaken these communities from the slumber of satiated insouciance”. While the revolutionary changes the court talked about may be relevant to the discourse on the conditions of the targeted groups in that particular state, or those of the neighbouring states, but not for the entire country, reservation has been turned into a political sop nobody is willing to give a second look at.

There are far better ways of achieving genuine and lasting improvement in the socio-economic conditions of the underprivileged. Access to quality education and vocational training, access to easy credit facilities for setting up private business, access to good health care and civic infrastructure etc are some of these measures. As we argue in our cover story, Gujarat chief minister Narendra Modi has achieved remarkable success in improving the lot of everyone, including the Muslims, through such measures. Reservation only increases the hunger for more handouts without fundamentally altering those conditions that necessitate it in the first place.

Resurrecting Irom Sharmila

governancenow.com September 02 2011


A diversionary tactics, but a worthy one
Irom Chanu Sharmila, the ‘iron lady’ of Manipur, is back in the limelight. For a few weeks now, in fact. Certain media houses and public intellectuals resurrected her ever since Anna Hazare went on a fast at the Ramlila Grounds.

Not that hers is any lesser a fight. By all accounts, hers is fiercer, far more painful and courageous. She has been on a fast unto death for more than a decade, seeking withdrawal of the draconian Armed Forces (Special Powers) Act of 1958. Ever since then, she is languishing in judicial custody, with a yearly token release to fulfill certain legal obligations, and is being force-fed through the nose.

The trouble is that the long-forgotten woman has been resurrected only to serve the vested interests, to belittle Anna’s crusade.

Here is a typical example. Last night in ‘India @ 9’ programme, “What should be Anna’s next agenda”, CNN-IBN editor Rajdeep Sardesai discussed at length about Sharmila’s invitation to Anna to help her cause and then concluded with his advice to Anna at the end of it: “Please don’t become rent-a-cause activist.”

That speaks volumes of his real motive in propping up Sharmila. Clearly, he has little faith in Sharmila’s fight, or for that matter any fight against the oppressing, authoritarian and corrupt establishment. His channel is incessantly talking about Sharmila to divert attention away from Anna. Nothing more, nothing less.

No different is home minister P Chidambaram. He couldn’t help shedding some crocodile tears. He told media persons earlier in the day: “I am disappointed too. I am trying my best to revisit AFSPA, but as you know, one needs consensus within the government before amendments can be brought before parliament. We are trying.”

This is after remaining immune to her pain and that of those at the receiving end of the draconian AFSPA for more than a decade, or at least since 2004 when he became part of the UPA government.

Sharmila started her fast unto death on November 2, 2000. This was in protest against the killing of 10 civilians in Manipur in what has come to be known as the Malom Massacre. The Assam Rifles jawans sprayed bullets at innocent civilians waiting at the bus stand for no apparent reason.

The AFSPA meant that the killers couldn’t even be arrested or tried for their crimes. Instead of the killers, Sharmila was arrested on the charge of “attempting to commit suicide”, put in judicial custody and force-fed.

Everything was forgotten until July 2004, when a woman called Thangiam Manorama was picked by some other Assam Rifles jawans, raped and shot dead. Her body was dumped in a public place. The entire state erupted in protest. A few women staged a nude protest. It was only then prime minister Manmohan Singh reacted and promised to replace AFSPA with a “humane” law. A committee was appointed under Justice Jeevan Reddy, a retired judge of supreme court, to examine the law.

Reddy submitted is report in 2005. The first two sentences of his chapter dealing with recommendations read:

“The Armed Forces (Special Powers) Act, 1958 should be repealed. Therefore, recommending the continuation of the present Act, with or without amendments, does not arise.”

That sums of what AFSPA is all about. It has two draconian provisions. One, it gives the jawans power to “shoot to kill” and two, immunity from prosecution. Justice Reddy said, after AFSPA was imposed in “disturbed areas” that now includes Jammu and Kashmir, apart from the northeast, violence has increased.

But as Chidambaram said, there is no consensus in the government even after seven years of trying. Did anybody try, Mr Chidambaram?

In the meanwhile, Irom Chanu Sharmila continues to live in sub-human conditions. She saw some hope in Anna’s movement and appealed to him that now that he had broken his fast at the Ramlila Grounds, he should go to Manipur to help her fight the battle against AFSPA.

But Rajdeep, and surely many other public intellectuals like him, would like Anna to remain confined to Ralegan Siddhi lest the status quo is disturbed.

A citizen’s guide to Manipur imbroglio

Governance now, dec 16-31, 2011

Ethnic conflict in Manipur is entwined with the territorial aspiration of the Naga insurgents. Unless the latter is resolved, peace will elude the state
What is a ‘supra-state’ body, the prospect of which the prime minister scotched during his Manipur visit?
The key to a lasting peace in Manipur, and in the neighbourhood, lies in the resolution of the larger territorial aspiration of the Naga insurgents after they dropped secession from India as their main demand – though not officially or formally but which is implicit in their joining the peace talk with the union government in 1998. The insurgents have been pressing for ‘Greater Nagalim’ and it includes Nagaland plus all Naga-inhabited areas outside the state – parts of Manipur, Assam, Arunachal Pradesh and even the neighbouring country, Myanmar. The union government ruled this option out because of strong resistance from Manipur, Assam and Arunachal Pradesh whose assemblies have passed unanimous resolutions committing to protect their territorial integrity.
As an alternative, the union government offered to discuss what it described as the ‘second best’ scenario – a ‘supra-state’. This is a unique federal arrangement in which the Nagas are masters of all their affairs both inside and outside Nagaland, except for ‘law and order’ which would continue to be with the respective state governments. This can be achieved only through a major constitutional amendment. Given the complete secrecy in which peace talks are being carried out since 1998, it is not clear if the subject was ever broached with all the state governments involved but found its way to the media in Manipur during the last economic blockade, sparking a huge public outrage.
It was this anger that the prime minister was trying to quell when he scotched the possibility of a ‘supra-state’ and assured the Manipuris their territorial integrity during his visit to the state on December 3. The timing and the vehemence with which he did so betray political considerations. Manipur is going to the polls early next year and his words bring cheers to two of the three important ethnic groups in the state – the dominating Meiteis and the Kukis involved in a territorial fight with the Nagas, the third ethnic group, at present.
The prime minister’s posturing may do a lot of good to his party’s electoral prospects, which hopes to renew its mandate with the help of the Meiteis and Kukis, but not so to the raging ethnic conflict in the region. It may even mean a setback to the Naga talks, even if a temporary one.

How is Manipur’s ethnic conflict linked to the Naga peace talk?
Sadar Hills is a Kuki-dominated area within the Naga-dominated Senapati district of Manipur. The Kukis want a separate district of Sadar Hills for themselves which is anathema to the Nagas fighting for a pan-Naga state that includes the entire Senapati district. The Kukis started the economic blockade demanding a separate district for themselves and withdrew it once the state government agreed to it. The Nagas began a parallel blockade in protest and withdrew it when they were assured that nothing of the sort would happen without consulting them. Political confusion persists and, hence, the Nagas said their withdrawal of the blockade was temporary.
This was not the first blockade of its kind. The latest cycle of blockades and violence in Manipur began in 2002 when the union government unilaterally announced extension of its ceasefire with the Naga insurgents (first announced in 1997) to all Naga-inhabited areas, including Manipur. The Meiteis, who control the levers of power in Manipur, rose in protest against what they saw an affront to their dignity and territorial integrity. The Kukis have their differences with the Meiteis but found a common cause in their territorial aspirations against the Nagas. An end to these conflicting aspirations is thus linked to the outcome of the Naga talks.

How far has the Naga talks progressed?
It has been a 13-year-long tortuous process that began a year after the union government entered into a ceasefire agreement with the Naga insurgents in 1997. Two interlocutors, Swaraj Kaushal, former governor of Mizoram, and K Padmanabhaiah, former union home secretary, took the process till 2009 without a breakthrough. However, peace talks meant two major gains – peace returned to Nagaland and the insurgents dropped their demand for secession. RS Pandey, retired chief secretary of Nagaland, is carrying the talks forward now.
The biggest hurdle continues to be the ‘shape’ of a pan-Naga state on which there seems no convergence. The uncompromising posture of Manipur, Assam and Arunachal Pradesh means little leeway for the union government. Territorial integrity is a highly political and emotive issue for all the states involved and their people. So far, there is little indication of even starting a political dialogue with these states to find a middle ground.
There is a question mark over the peace talk itself. So far only the National Socialist Council of Nagaland (Issac-Muivah) faction has joined the table. Though this is the most dominating group, any attempt at a lasting solution has to necessarily involve competing groups with divergent positions, like NSCN (Khapland) factions, NSCN-Unification and Naga National Council. All attempts at reconciliation and a joint talk have so far been thwarted by the NSCN(I-M).
Within this limited exercise of negotiating a peace deal, there are many other issues too on which there is no agreement. These include demands for separate constitution, citizenship, emblem, flag, currency and complete control over natural resources. The issues which have been more or less resolved include independent legislative body, economic policies and policies relating to language, education, transport, judiciary, civil services and so on. But those in the know say nothing counts until every single issue is resolved amicably. There can’t be any piecemeal solution.
The most disheartening part, however, is that even after such a long journey the mood in New Delhi is far from being upbeat. There is little hope of a breakthrough anytime soon. n

prasanna@governancenow.com

Maken and his Dow rantings

edit, Governance Now Dec 16-31, 2011

A while ago, sports minister Ajay Maken asked the International Olympic Committee to keep the sentiments of the Bhopal gas tragedy victims in mind and drop Dow Chemicals from the list of sponsors for the 2012 London Olympics. 
Dow Chemicals, which in July last year signed an agreement with the IOC, is the company that took over Union Carbide, responsible for the Bhopal gas tragedy that killed over 15,000 people and injured over 5 lakh others in 1984.
While Maken’s concern is sterling, his motive is not. He knows well that it is the wrong door he is knocking at. But then the shrewd politician also knows that a knock is more important than the exactitude of the door itself.
Maken has a problem at hand though: the dead end. His senior party colleague and then Madhya Pradesh CM Arjun Singh, who ordered that Union Carbide chairman Warren Anderson be released and flown to New Delhi by the state plane, now rests in peace. Similar is the fate of PV Narasimha Rao, then union home minister who not only allowed Anderson a safe passage even before he landed in India but also got him released from the police custody in Bhopal. And that “someone” on whose orders Arjun Singh is said to have ordered Anderson’s release remained “someone” all along. A Nehru family loyalist, Arjun would have done anything to protect his PM.
Who will remind Maken that clarity also begins at home? He needs to knock at the madam’s door. A knock at her door is much more meaningful, and certainly more sensible, than taking up the matter with IOC. He won’t do that.
Dow footing the bill of a temporary decorative wrap over London’s Olympic stadium (as per the terms of partnership) has Maken now in a bad mood. But he was not angry when his own colleagues in the cabinet would not let the company clean up the Bhopal plant.
After Dow acquired Union Carbide in 2001, the ministry of chemicals and fertilisers wanted the company to clean up the plant in 2006. The plant still holds tonnes of toxic materials which have seeped through to contaminate groundwater and the environment, as an official study has established. The men who didn’t like the idea of Dow cleaning up the plant included then finance minister P Chidambaram, then commerce minister Kamal Nath, plan panel deputy chairman Montek Singh Ahluwalia and Congress spokesman and lawyer Abhishek Manu Singhvi among others.
Maken has also told IOC that “strong public sentiment exists in this matter”. He is right. That sentiment stems from a sense of outrage that people of this country suffered during one of the darkest hours of Indian democracy. Justice AH Ahmadi, the then CJI who, in 1996, diluted the charges against the Union Carbide executives from “culpable homicide not amounting to murder” that attracts 10 years of imprisonment to “causing death by negligence” that entailed two years of imprisonment, also dismissed a review petition filed against his order on March 10, 1997, a fortnight before he retired. Barring two, all the members of the apex court bench headed by Ahmadi which diluted charges were later elevated to the CJI’s post.  
But Maken is clear: he wants the IOC to take note of that “strong public sentiment”. Politicians in India are obviously exempt and free to stoke or scratch or play with that sentiment any time. As flies to the wanton boys….

You see Kamal, Joshi is better than josh!

Governance Now, Dec 1-15, 2011

Kamal Nath came to NHAI with a lot of pep. He promised 20 km of road a day. But during his time NHAI was artificially restricting  bidders to a favoured few, lavishing them with up to 40% viability gap funding and was itself heading for fiscal doom. Now, e-tendering has opened up the game and increased competition. Contractors are paying huge premiums and NHAI is raking in the moolah. Oh, the man at the top does make all the difference! 

Smarting from an apparent demotion from the commerce and industry portfolio, Kamal Nath wanted to appear in the next day’s headlines. So, on the day of taking over the ministry of road transport and highways in May 2009, he thundered that now that he was the man in charge, he would build 20 km of highways every day.
Now, this was good news for Indian economy. Highways are a key element in infrastructure. More and better highways mean smoother transport of goods and growth in economy. But how do you find funds for building highways at that speed?
One year and eight months later, when Nath was bundled out to another portfolio (in January 2011), the roads existed only on file notings. The ministry’s national highways authority of India (NHAI), mandated with the task of developing, contracting out and maintaining the national highways, wasn’t just thousands of miles away from the target, it was staring into an abyss of bankruptcy.
In fact, midway through 2010, the country was warned of a grave crisis building up in the NHAI – a crisis comparable to the ‘sub-prime mortgage’ crisis that triggered the downfall of the US economy. To put it simply, it means piling up the debt to the extent where repaying it becomes difficult and default is the only way out.
Gajendra Haldea, advisor to the planning commission deputy chairman, said in an internal paper that if NHAI continued its terrible policies, no further road development work would be possible after April 2011 because it would require an additional borrowing of `30,000 crore just to service the existing debt.
 Mercifully, because of a series of court cases and even CBI raids on his pet concessionaires (as the private contractors are called), Nath didn’t get to run the NHAI that far. He was replaced with CP Joshi, a mild-mannered academic-turned-politician from Rajasthan. 
Today, hoity-toity bluster is being replaced by real highways. The threat of bankruptcy has now receded and the future of NHAI is looking up.
But before we get into that here is a brief account of how Nath, who in his frustration due to their searching questions attacked Haldea and Yojana Bhavan folks as a bunch of arm-chair critics, endangered the NHAI by his ruinous strategy.

The details of his policies and practices were elaborated by Haldea in his “issues paper”. (Read the details in our cover story ‘Wrong Road, Kamal’, August 1-15, 2010.)
To recap briefly, here is what was happening: concessionaires (that is, private contractors) formed cartels, they made contracts for both the public-private partnership (PPP) and annuity mode projects expensive, and the bidding process was so restricted that projects were best bid only by three to four contractors, in many cases even less than that, though a large number of pre-qualified bidders existed in most cases (see box 1). All these, at the cost of the taxpayer.
Nath played a key role in some policy formulations (with a generous help from the union cabinet and the planning commission) that provided ridiculous financial concessions to the private partners and transferred the entire risk to the exchequer. These policies included a payment (by the NHAI) of up to 40 percent of the total project cost (TPC) to the concessionaires – know as viability gap funding (VGF) – and allowed the concessionaires to walk out two years after completing the project. The banks provided loans far in excess of the TPC, and without any collateral or guarantees. In case the concessionaires were to walk out without completing the project, it was the NHAI which was liable to pay 90 percent of the TPC to the lending banks (see box 2).
Thus, a private contractor needed to bring only a little amount by way of equity and could borrow far more public funds than the actual cost. If there are profits down the line, they can pocket it, otherwise they can exit the project, with NHAI and the lending institution holding the baby. All profits for private parties, losses, if any, are for public.
These lopsided policies that the union cabinet had lazily approved for the purpose of providing a stimulus to building infrastructure – highways – exist even now. Joshi hasn’t changed them and yet, sure bankruptcy is history now. Here’s how:
Joshi told Governance Now (see the accompanying interview) that he just changed the bidding process. He, with generous advice from Haldea who belongs to Rajasthan cadre of the IAS, threw it open and made the entire bidding process transparent through e-tendering, since March this year. This change attracted 25 or more bidders, instead of the artificially imposed constraint of three-four or less earlier. With the field opening up, many of these bidders not only refused to seek VGF from the NHAI, they promised to pay a “premium” instead.
The “premium” was to come from the concessionaires’ future earnings from the toll tax – through which they are to recover their investment and make their share of 15 percent profit. Competition did the trick, just as it has done with our telecom sector.
The first change came with the contract for 88-km Kota-Jhalawar road project. The concessionaire, Keti Construction Ltd, sought no VGF but offered an annual sum of `3.5 crore to the NHAI for the entire contract period, with a provision of 5 percent annual increase. The premium was to be payable from the day of the commercial operation date (COD). The contract was awarded on April 27. Since then, the number of such contracts has climbed up.
It is not a picture perfect story though. Details of 16 contracts signed by the NHAI since April (see box 3) shows that in the case 5, the concessionaires had to be given VGF to the extent of `1,342 crore. Notwithstanding that the net gain to the NHAI is to the tune of `15,729 crore per annum for the next 20 years or so (without taking into consideration the annual hike.
As box 3 shows, the cabinet committee on infrastructure had already approved VGF for 12 projects. But open bidding and competition brought the actual number of concessionaires seeking the VGF down to 5.
NHAI officials, even though they haven’t had a full-time chairman for several months, say the change happened not only because of transparency and open bidding but also because of the change in overall economic scenario and the perception of the entrepreneurs that an investment in the road sector was a viable economic option. Since the NHAI fixes a “uniform” toll tax all over the country, irrespective of the traffic volume (which is another terrible policy that calls for another story), the concessionaires made calculations of their income from toll tax and offered a portion of that to the NHAI. Since collection of toll tax will begin after the completion of the project and hence there is still time for the actual accrual of the ‘premium’, the NHAI officials view it as a “windfall” gain that dramatically improves its balance sheet.
Those in the know say that this change in the financial prospect means a lower burden on the NHAI and a “fast receding” fear of bankruptcy. Open bidding has put an end to cartelisation. Competition is fierce and the bids are less taxing.
What would have happened had Nath hadn’t overturned open bidding at the outset? Those in the know say the VGF might not have disappeared altogether, at any rate on all roads, but it would have come down substantially. As mentioned earlier, just on 16 roads there’s now a `15,729 crore lesser burden on NHAI as against what Nath has persuaded the cabinet to giving!
Here is another indicator. When a 27-km Gurgaon Expressway was given the green signal in 2002, much before Kamal Nath came to the scene, the concessionaire (Jaypee-DSC Ventures) offered to pay NHAI `61 crore of premium (original TPC was `550 crore, which went up with the delay in completion), instead of seeking VGF. In that sense this was the first project that yielded premium and Kamal Nath would surely have been aware of it and the potential to generate money for the NHAI, instead of gifting it away.
RP Indoria, DG, Road Development, says had that contract been awarded in the present circumstances, it would have probably fetched `1,000 crore of annual premium to the NHAI.
Nevertheless, an air of optimism now hangs in the corridors of Parivahan Bhavan because of the turnaround, prompting disappointment among the chosen few and grudging admiration among the rest that Joshi and a certain armchair critic may have pulled NHAI back from its highway to hell. n

feedback@governancenow.com
Bix 3All benefit private, all risk public!
The planning commission’s internal paper pointed out how public funds were being exposed to grave risk. Two very well-disguised ways of helping the private partners of the PPP have been elaborated in the paper.
1. Lending by banks
The banks lend far in excess of the TPC (total project cost) arrived at by the NHAI. For example, in case of Panaji-Karnataka border project IIFCL has lent more than three times in excess of the TPC (minus the viability gap funding or VGF). This kind of bloated lending means that the private partner “may not only spend beyond reasonable costs but also siphon out funds at public expense”.
But in the event of project failure, “the banks will not be able to recover anything beyond 90% of the TPC”. In the case of the Panaji-Karnataka border project, this means that the NHAI will pay the bank only 90% of the TPC (`196 crore) and not 90% of the `832 crore (which is the inflated project cost agreed to by IIFCL). The problem is this is happening across projects and just for 20 projects, IIFCL has over-lent `12,294 crore.
“Since most of the lending is by public sector banks, including IIFCL, in the event of project failure, these banks could plead that the excess loans were granted with full knowledge and participation of NHAI and the finance ministry and may, therefore demand a bailout. No matter who pays for these lapses, it is public money that will be lost.”
Thus, private concessionaires bring little by equity to the table, can borrow public funds far in excess of project costs and can exit when they wish. All benefit private, all risk public.
2. Grants for construction
Another big give-away for the private concessionaires is the viability gap funding (VGF). The Model Concession Agreement specifies a VGF of 20%. This was doubled by the committee on NHDP to 40% of TPC.
This “stimulus” allows the concessionaire to transfer most of its financial risks to the public.
To understand how this works, let’s take the example of a project with a TPC of `1,000 crore and VGF at 40%. Because TPC involves 75% construction cost and 25% financing cost, the construction cost works out to `750 crore. Construction cost includes the contractor’s profit at 15%, so the money she spends on construction works out to `652 crore or 65.2% of TPC. But a 40% VGF on `1,000 TPC would mean, NHAI gives the contractor `400 as VGF.
This means the contractor has to arrange for only `252 crore (`652 crore minus `400 crore). Here again, he can raise a loan of up to 20% of TPC from IIFCL which works out to `200 crore, leaving the contractor to raise bank loans of up to `400 crore to finance his/her contribution of `52 crore.
“That actually leaves a substantial surplus in their hands. This nominal equity means that the contractors can implement the project without any financial stake of their own.”
The bonanza for the contractors does not end there. By a recent amendment to the MCA, they are now allowed to walk out of the project barely two years after completion of construction. “This reduces their incentive to build a project that would last longer and have lower lifecycle costs, defeating the very purpose and objective of adopting the PPP model.”
NHAI releases these huge grants to the contractors without any bank guarantee as do the banks without any security. So when a contractor ups and goes, NHAI and the banks will be left holding the baby, which is always a highway, either half-done or completed.
But look at the cost to the NHAI. It would not only have sunk in `400 crore (VGF), but it will have to pay up 90% of `600 crore, the TPC to the banks. That works out to another `540 crore. Thus NHAI would end up paying `940 crore for a highway whose construction cost was only `652 crore.
If it were any asset other than a highway, NHAI or the banks can sell them and recover some money. But a highway cannot be sold. So the money lent to the runaway contractor will have to be borne by the exchequer.
Once again, all benefit private, all risk public.

“Now, concessionaires are giving us premium, instead of seeking VGF”

Governance Now, Dec 1-15, 2011

The national highway authority of India NHAI) is a classic case of what happens when a well-meaning minister takes charge. In less than a year after CP Joshi was appointed minister for road transport and highways, the gloom over the authority’s financial health has lifted.

Over a year ago, a planning commission “issues paper” (prepared by Gajendra Haldea, advisor to the deputy chairman of planning commission) had warned of an impending sub-prime-like crisis of our own because of a huge financial risk the PPP model of building roads had caused during his predecessor Kamal Nath’s regime (See our cover story, ‘Wrong road, Kamal’, August 1-15, 2010). Huge concessions to the private partners in the PPP, the issues paper had pointed out, meant an additional borrowing of  `30,000 crore to repay NHAI’s existing debts and had warned that it might not be possible to take up anymore road building projects after April 2011 because of the terrible policies being followed.

One of those policies meant that the NHAI would provide 40 percent of the total project cost to the concessionaire by way of viability gap funding (VGF). The policy remains in place. But Joshi has made it irrelevant. Instead of seeking VGF, the concessionaires are now offering “premium” to the NHAI! In the past few months, NHAI has signed 13 contracts in which the concessionaires have committed to paying more than `1,600 crore as annual premium for the next 25 years. What’s more, the premium will go up by five percent every year automatically.
Joshi talks about this dramatic turnaround story and more in an interview with Prasanna Mohanty and Yash Vardhan Shukla:

From building merely six to seven kilometers of roads a day for years, NHAI is now claiming to be building 10 km of roads a day on average for the past few months. How did this change happen?
Let us be very honest. It was because of the recession in 2006-7 and 2007-8, that my ministry couldn’t award contracts to build roads in sufficient numbers then. The economy was such that the entrepreneurs were not coming forward. Then the government asked BK Chaturvedi, a member of the planning commission, to look into the matter and he recommended certain things (which we followed). After that the entrepreneurs started responding.

So, initially, in 2006-7 and 2007-8 the total award was for less than 1,000 km of roads per year. Once a contract is awarded, the project takes roughly three to four years to complete. So, the impact of 2006-7 and 2007-8 was felt in 2009-10 and 2010-11. Since the award was less the construction was on the lower side. This was one of the reasons.

In the meanwhile, the entire economy changed. Then we started getting response. Now we are in a position to say that if we award contracts for about 7,300 km every year for three consecutive years then we will achieve the target of 20 km of roads per day. By the next general elections, in 2014, we will be able to achieve this. This year we will exceed awarding contracts for 7,300 km. The trend is significant and we are getting a good response.

What were BK Chaturvedi’s recommendations?One of the recommendations was to provide VGF to the concessionaires right away, at the award stage and in one go, so that funds are available with the concessionaires.  Earlier we used to give VGF at a later stage and in two parts. The report said since there was a financial problem, we should give whatever VGF has to be given, subject to a maximum of 40 percent of the total project cost, at the beginning and in one go. Secondly, a rider was put that the maximum cost of the road should not exceed `10 crore per km. This was meant to check cost escalation which could change the entire economy of the project.

Given the encouraging trend, will NHAI continue shelling out viability fund to the concessionaires?
The rule is very much there but after the e-tendering and open and transparent competition, the entrepreneurs are making their own financial calculations and are now saying that they will be able to build the roads without the government help. If you restrict bidding you give elbow room for manipulation. If you throw it open, as we have done now, a large number of entrepreneurs participate and there is competition. And because of the competition, now we don’t have to give money by way of VGF. On the contrary, we are getting premium. 

Will you please explain it?Assume that `100 is needed to build one km of road. In our existing PPP model, the concessionaire will arrange for `60 from the financial institutions on his own and get an aid of `40 from the government. After we opened the bidding, the bidders are saying that we don’t need `40 from the government. We will collect the entire sum of `100 from the financial institutions and after completing the project we will give you money from the toll tax we will be collecting.

For example, we have awarded a contract for building a 556 km road connecting Kishangarh in Rajasthan with Ahmadabad via Udaipur. The private company (GMR) that got the contract under the PPP has offered us `636 crore per annum for the next 25 years, with a provision of a five percent annual hike. We asked them to go ahead.

Like this, we have already awarded 13 contracts for various stretches of the national highways (see box) for which we will be getting more than `1,600 crore per annum for the next 25 years.

How did this remarkable turnaround, from NHAI giving VGF to builders to actually receiving premium from them, happen?This could be achieved through the intervention of e-tendering. Now we have a transparent bidding system. After taking charge of the ministry, I introduced this intervention and threw the bidding open for everyone. The e-tendering, which has now been made mandatory for every project, was started from March onwards. It has changed the scenario dramatically. While earlier NHAI used to get three to four bidders for each project now the number has now gone beyond 25.

This would mean that transparency in bidding and awarding contracts did the trick for the NHAI. What else did you do to bring transparency to the functioning of NHAI?Yes, that’s right. We introduced e-procurement simultaneously. We have also provided a user-friendly platform on Facebook for the users where they can raise issues relating to the road. My officials will address the complaint because in the BOT (build-operate-transfer) model it is the job of the concessionaire to maintain a uniform standard of road for a certain period. If you are paying for using the road, you have a right to proper road.

We are into two more interventions. Both are in the pilot stage. In one, the vehicles will carry a tag on their window pans, which will be captured on camera while passing through a toll plaza without stopping on the way and money will be directly charged from the bank account of the vehicle owner. We are working out the modalities as it will require a dedicated server and a tie-up with the banks for direct transfer of money.
Secondly, we are making arrangements with Google Earth to show alignment of the road so that sitting here I can see the road and figure out if it needs a deviation in its alignment or problems of the people are being addressed. When roads are built people complain about losing their shops or other properties. You have two options here: either you send officials to the spot or see it on Google Earth. We may make (the latter) an essential part of the detailed project report (DPR).
We are giving more space to IT so that we become more transparent and there is better accountability.

Road safety is a major issue. What is NHAI doing to address this problem?We are very keen to ensure road safety. We have already constituted three or four groups to study the problem. They have sent their reports and we are now studying them. Our roads are indeed very accident prone. We have a very high rate of casualty – about 4,00,000 a year.

You are also providing ambulances and pick-up vans on the highways.The contracts provide for ambulances and pick-up vans after a gap of 50 km but this is not commonly known and hence not followed by the concessionaires. We will launch a publicity campaign to spread awareness. We have asked the concessionaires to honour the agreement and display details like the vehicle number (of ambulance and pick-up van), the distance at which it is parked and telephone numbers (of the drivers) at the toll plazas for the convenience of the users.
We have introduced another IT intervention. One can now register vehicles online and get a driving licence anywhere in the country. All the data will be available centrally. Sitting here, a policeman can get all the details without having to approach the state government.

What is being done to address the problems being faced in certain areas like the northeast and the Maoist-affected areas?In the northeast, our main problem is landslides which cut down the working time. In the Maoist-affected areas, poor security and threat of extortion keep the contractors away. Nobody comes forward to build the roads. Therefore, we take the help of the Border Road Organisation. We are talking to the states to overcome the problems. It is helping but my worry is the slow pace of improvement.

What about land acquisition problem?This is not much of a problem because we don’t require much land. We are liberal and rational about providing compensations. The only problem areas are Kerala and West Bengal because of their commitments to the encroachers. We are discussing with them. If the states want to compensate the encroachers let them do it. We have no problem if the state governments pay for it.

NHAI is beset with many scams – from irregularities in awarding contracts to poor construction and premature collection of toll tax. How are you dealing with these matters?We are making everything transparent, which will take care of everything. Scams happen only when bidding is restricted or the process is influenced in any way. But we are making everything public.

Do you think NHAI requires a regulator?It is our misfortune that we keep creating more institutions. The real problem is that the institutions that have already been envisaged are not working properly. If judiciary delivers judgments on time it will work as a deterrent. If the cases are pending, how will the Lokpal help? If one institution is not delivering, what will another do? If all our institutions work properly, everything will be alright. n

prasanna@governancenow.com

Mr FM, name those 700 names

edit, Governance Now, Nov16-30, 2011
Don't play footsie with likely criminals, even terrorists

The union government’s insistence on keeping the names of 700 entities holding secret accounts in HSBC Bank in Geneva close to its heart reflects how sincere it is about fighting the black money menace. Not only did it grudgingly admit to having received the information from the French government after the media went public, finance minister Pranab Mukherjee justified it saying that the government “will stop getting any further information” if it didn’t “honour international treaties and go public with the names”. He had said the same thing when the German government provided details of 18 Indians having ill-gotten wealth stashed in LGT Bank in Liechtenstein. He said the names would be disclosed only when prosecution starts and the matter comes to the court. Investigations are on, he assured.
There is every reason to disbelieve him and his government. For one, more than two years have passed since LGT Bank details were received. Nothing is known about the progress in investigation. Secondly, in the case of HSBC information has been leaked to suggest that about `100 crore have been “recovered” by way of tax dues. This would indicate that there would be no prosecution at least in some cases and that those cases have been closed. This would also suggest that the government is treating it merely as a matter of tax evasion. At least two persons holding high offices have said that this may not always be true. In 2007, the then national security advisor, MK Narayanan, confirmed that terror fund was being routed into the Indian stock market through dubious overseas accounts. Earlier this year, former CBDT chairman Sudhir Chandra told Governance Now, “There is a definite link between the illicit money and a wide range of criminal activities that impinge on the national security issues. In many cases we have come across huge stashes of money coming from dubious sources. These sources could be narcotics, smuggling and terrorism.”
Even if we were to assume that these are simple cases of tax evasion, prudence demands that the source of the money is traced since it is difficult to imagine someone taking such an extraordinary step as to operate a secret account abroad just to avoid tax on legitimate income. We have the Bofors case and more recently, the Madhu Koda episode, to guide us. As for the secrecy clause in international treaties, experts have pointed out that nothing stops public disclosure when the money in question involves criminal activities.
There are more reasons. The HSBC details were squirreled out by an ex-employee before the French government stepped in. In that sense the information may be available outside the official channels. Now there is a buzz in the power corridors that several other countries too have passed on details about many more secret accounts and that the HSBC list may includes the name of three MPs. In such a scenario, the least a responsible government is expected to do is to take people into confidence and assure them that nothing would be done that would jeopardise national security or financial health of the country. And the very first step in that direction would be to name the names. Investigation into the source of ill-gotten wealth and prosecution would then become the next logical steps.

Will it and it will happen

edit, Governance Now, Nov 1-15, 2011

Follow Seshan, Vittal and Quraishi, Mr Justice Katju

Justice (retired) Markandey Katju, the new chairman of the Press Council of India, is unhappy with the state of the India media – both the print and the electronic ones. In his interview with Karan Thapar on CNN-IBN, he says the media is not working for the interest of the people; is very often anti-people; sometimes it divides people; promotes superstitions; publishes paid news and conducts frivolous debates in TV studios; adding for good measure that he thinks the majority of the media persons are of very poor intellectual level who have little knowledge of economic theories, political science, literature or philosophy. He points out that the self-regulation of the electronic media has failed and hence prescribes two solutions – (a) bring the electronic media into the ambit of the Press Council of India (PCI) and rename it Media Council and (b) give PCI more teeth so that it can stop government ads and suspend license to punish deviant behaviour.
Anyone familiar with the working of the Indian media would agree with Justice Katju’s views. Within the media, there have been considerable debates and introspection in the past few years. We have no problem in accepting Justice Katju’s diagnosis but we do have reservations about his prescription. What has Justice Katju or his predecessors done to address the many ills that afflict the Indian media? Absolutely nothing. Past three years have seen a heated debate on paid news. Repeated complaints forced the PCI to set up a sub-committee to go into the issue in 2009. The sub-committee did a good job, named a leading media house and described unholy practices like ‘paid content’ and ‘private treaties’. What did the PCI do? It suppressed the report until the Central Information Commission forced its hand.
The PCI accepts, in its covering note to the report, that the print media (PCI is a watchdog for the print media) functions “as a repository of public trust” and has an “obligation” to provide truthful and correct information. It also accepts that, “the phenomenon of paid news goes beyond the corruption of individual journalists and media companies. It has become pervasive, structured and highly organized and in the process, is undermining democracy in India.” What did it do in response to this betrayal of public trust and undermining of democracy? It issued a set of general “guidelines” and advisories. This is better than just advising the media to “introspect” when paid news first surfaced in 2003. It may not have much power but PCI does have the power “to admonish, reprimand and pass strictures”. It didn’t exercise that power.
On the contrary, PCI sought amendment in laws to give more teeth to the election commission and PCI to deal with paid news. Electoral laws have not been amended and yet, in October this year, the election commission threw out Umlesh Yadav, wife of BSP leader DP Yadav and MLA from Bisauli in UP, from the assembly and disqualified her for three years for getting paid news published but failing to account for it in her election expenditure - an innovative move.
There are many such examples. A seemingly powerless election commission was transformed into a powerful watchdog overnight, without external help, by TN Seshan in 90s. N Vittal spread terror among the bureaucrats with the toothless Central Vigilance Commission (CVC) Act a decade ago. Both used existing power innovatively and imaginatively, named and shamed the deviants and worked the media to their advantage. Power is often inadequate until someone knows how to use it. Chief election commissioner SY Quraishi did the same to disqualify Umlesh Yadav. If Justice Katju really wants to make a difference, he should begin by naming and shaming the deviants first.

Why we wish Nitish all the success

Governance Now, Nov 1-15, 2011

If he manages to transform the district administration it may pave the way for a bigger change – power to the local self-governing institutions
* The Commission noted that some Collectors were not even aware of all the laws under which they are empowered.

* In its interactions with some of the Collectors, the Commission noted that many of them were not fully aware of how many committees they are required to preside over.

These were two of the remarks of the second administrative reforms commission (ARC II), made in its 15th report on state and district administration and submitted to the union government in April 2009. The report painted a grim picture. From three primary functions during the British Raj when the post came into being – revenue collection, internal security and dispute resolution – the district collectors have come to be so overburdened that now they don’t even know what all they are supposed to do.

ARC II tried hard to list out all their responsibilities but couldn’t. It listed 15 main responsibilities – ranging from development plans of the district to welfare programmes, internal security, land and revenue administration, relief and disaster management, elections and census, local self-governing bodies and so on. It also listed 50 district-level committees that the district collectors are supposed to chair. (It took help of the district collector of Andhra Pradesh’s Anantapur in compiling the list, but added a caveat, “the  Collector indicated that the names of some Committees might be missing from the list”.) Then it went on to point out other organisations like the Red Cross societies, college governing bodies, sports associations and trusts that they may need to chair.

Had the commission visited Bihar, it would have learnt that the district collectors are supposed to chair not 50 but more than 120 committees and look after more than 500 welfare programmes of the state, in addition to more than 100 centrally sponsored schemes (CSS). Besides, they have to enforce hundred of laws, they being the chief executives or administrators of the districts.

In short, it is the responsibility of the district collectors to implement and enforce all laws and welfare schemes, monitor everything else that goes on in the districts, including the local self-governance bodies like the panchayats, while not neglecting the primary responsibilities of revenue collection, internal security and judicial and magisterial functions. If they were to chair one committee meeting once a week, they will get a chance to come back to the first committee only after more than two years.

No wonder ARC II commented that such widespread functions “without well-defined roles” result in “lack of clarity” and “diffusion” of the collectors’ responsibility. It therefore recommended, among other things, that the district collectors’ role be restricted to (a) certain “core” functions – such as land and revenue administration, maintenance of law and order, disaster management, public distribution and civil supplies, excise, elections, transport, census, protocol, general administration, treasury management and (b) general coordination with various departments/agencies of the state and union government at the district.

Nitish’s moveWhen Bihar chief minister Nitish Kumar turned his focus on administrative reforms in his second innings, he decided to first reduce the burden of the district collectors and hence the circular of September 19, 2011. What he is trying to achieve is – one, to put his house in order by delegating direct responsibilities and accountabilities of the district collectors for various works to the respective district-level departments, and two, restrict the union government from burdening the district collectors with central laws and schemes. 
Thus, the circular said: (a) the district collector will, as main representative of the state at the district level, provide “leadership” to the district-level departments and supervise their works but “no direct responsibility” for any departmental works be given to him/her and (b) in case the union government and any of its ministries require to pass on direct responsibilities to the district collector for any programme, they will have to seek “prior permission” of the state government.

This move has been hailed as a right step in the right direction by all, including the serving and retired bureaucrats from the state and outside. Former cabinet secretary TSR Subramanian, who along with a group of retired top bureaucrats is fighting for various administrative reform measures through their PIL in the supreme court, says the circular is a very positive step even though it merely reiterates the “traditional” role of the collector and the “prescribed” role of the functional heads of respective departments. NC Saxena, a retired bureaucrat and national advisory council (NAC) member, echoes similar sentiments.

What it means is this. The district collector’s main job has always been to provide overall leadership and coordinate with various departments to remove bottlenecks while implementation of various development and welfare works is the job of the respective district-level departments. “Why else do you need the line department hierarchy?” asks Subramanian. But as he and others point out, last 30 years have seen a plethora of general welfare programmes (through both the legislation and the schemes of the union and state governments) and since in the initial days the district-level departments, whose number has gone up gradually in the post-British era, were not capable enough the district collector came to be burdened with additional responsibilities.

It worsened over a period of time by what Subramanian terms “politicisation of administration and departmental turf-guarding which made coordination between various departments a difficult task” and Nripendra Misra, former chief of telecom regulatory authority of India (TRAI), calls an “administrative culture” that saw the chief ministers relying more on the district collectors to deliver. The CMs’ reliance eventually led to the departments putting more faith in the district collectors, rather than their own district heads.

Dual responsibility While Nitish Kumar is trying to set the internal administrative mechanism right by reducing the burden and providing sufficient space to the district collectors to lead from the front (and not get bogged down by the files and needless dabbling in everything), he realises this can’t be effective unless the union government is checked. Hence the caveat against the union government for burdening the district collectors with CSS.
There are about 150 CSS programmes at present, like MPLADS, MNREGS, NRHM, PMGSY, PDS, Indira Awas Yojna, ICDS and so on, run by various union ministries like those of rural development, health and education. In many of these cases funds are directly transferred to the district societies and require the district collectors to submit monthly and quarterly progress reports, fund utilisation certificates, physical verification of works, audit, data feeding in the MIS and so on.

Saxena, who carried out a study of the CSS, says the schemes have increased alarmingly over the past 30 years. In terms of funds, from just one-sixth of the planning commission-mandated funds for the state in the 80s to more than two-thirds now, CSS have come to demand a significant time of the district collector. In 2011-12 budget, a sum of Rs 1,88,573 crore has been set aside for CSS.

What does it mean for a state like Bihar? Vijay Prakash, principal secretary to the state’s department of planning and development, provides a broad picture. Assuming that a district collector handles about Rs 1,000 crore (the state’s plan outlay is Rs 24,000 crore and the state’s share of CSS comes to about an additional Rs 10,000 crore), 40 to 45 percent of it comprises of the CSS fund. That is the extent to which the CSS is burdening the district collector in financial terms.

The planning commission has been expressing its opposition to the CSS for a long time. Pronab Sen, advisor to the planning commission, says the plan panel considers it a “violation” of the basic federal structure of the constitution and would rather like to give the fund directly to the states and hold the states responsible for its proper utilisation. But the practice continues because various central ministries resist it, pointing out how historical evidence shows the states “delay” in fund disbursal (six months in some states) and “divert” central funds (many states used the fund to pay salary and buy furniture and vehicles). The CSS were necessitated because of the state governments’ poor record in taking care of health and education needs, social support systems etc. in the first place.

Saxena, who earlier served as secretary to the planning commission, says the solution lies in a “healthy balance” of central and state welfare measures, which means cutting down the number significantly. Currently, BK Chaturvedi, member of the planning commission, is trying to cut down the number to about one-third for the purpose of the 12th plan. That would certainly gladden the heart of Nitish Kumar and others who have had protested against CSS in the National Development Council meetings for the last 30 years. Such was the ruckus at the last NDC meeting held in October this year that the prime minister had to assure the chief ministers to “take care of” many of the CSS-related problems - which, incidentally, include inflexibility (‘one-size-fits-all’ design) and fiscal un-sustainability (inadequate financial support to the states).

Fundamental transformationWhile dealing with reforms at the state and district levels, the ARC II had pitched for another major step that both the union and state governments have completely ignored so far – devolution of power to the local self-governance bodies like the panchayats and the municipalities.

ARC II described the 73rd and 74th constitutional amendments, that paved the way for local self-governing bodies like the panchayats and municipalities, as the “most important institutional reform brought about in governance” after the reorganization of states. And then, it went on to say, “But there has been a marked reluctance on the part of most states to adequately transfer powers and functions, finances and functionaries to put local governments on the path envisaged by these constitutional amendments. As of now, most local governments are over-structured and weakly empowered. The Commission believes that India needs a fundamental transformation in governance and that empowered citizen-centric and accountable local governments are the core around which this transformation will take place.”

This is quite in keeping with former prime minister Rajiv Gandhi’s prescription for “non-responsive” district administration. (He did try to energise it by addressing the district collectors directly, but soon abandoned it because of various reasons.) Rajiv Gandhi envisioned a future when the answer could be found in the “representative” form of governance at the grassroots level – the panchayati raj institutions (PRIs). This was realised after his death (as it got enmeshed in a centre-state turf war in his lifetime). Then came the 73rd and 74th amendments, putting panchayats and municipalities on a firmer footing.

But the result has not been very encouraging. For one, the states’ reluctance to devolve adequate power has denied these bodies the opportunity to work to their true potential. Secondly, barring some exceptions, performance of the local self-governing bodies has not been too impressive for a variety of reasons. One of these is that the local bodies have become prisoners of the political parties, thereby inheriting all the ills of the governance systems of the state and national levels.

The combined effect of both is that there is little hope of the local self-governing bodies realising their potential to fundamentally alter the way we govern ourselves.
Seen from this perspective, Nitish Kumar’s reform presents a glimmer of hope. If devolving power to the line departments at the district level energises these departments, makes them more efficient, responsive and accountable, then the next logical step could be a big leap forward that ARC II hopes for – real devolution of power further down to the grassroots level to enable the citizens to make their own destiny. n

prasanna@governancenow.com
--