No real magic

The cash transfer scheme is bound to fail when no foolproof scheme to identify the beneficiaries has been developed.

This UPA government has discovered euphoric language to describe minor and superficial policy decisions. Rahul Gandhi described the cash transfer scheme as a ‘game changer.’ This is despite its present status of being on trial in some districts and for marginal social welfare payments. Finance minister P Chidambaram, usually a staid speaker, called it ‘magic.’ Our usually invisible and silent prime minister is confident that the new ‘reforms’ will revive the ‘animal spirits’ in the economy.

The delayed diesel price increase leaves substantial losses of oil companies that have to be subsidised by the government; FDI in retail is a straw horse put up by an over enthusiastic minister, that will fructify over the years and then affect the economy and especially agriculture, only marginally. Cash transfers are on a test. UDI and correspondent banks (ATMs) have yet to penetrate most villages. No foolproof scheme to identify target beneficiaries has been developed.

There are no plans yet to bring cash transfer to the big items, subsidised food grains and kerosene and employment guarantee scheme, among others. The national investment board to accelerate removal of investment bottlenecks by overriding turf protecting ministries like environment and forests has many challenges. The ‘reforms’ being done now are largely superficial and cosmetic.

The Kelkar report almost a decade ago asked for market determined prices for petroleum products, eliminating administered prices. It was shelved. Populism held back price increases for diesel, petrol and kerosene despite rises in crude prices. The government had to reimburse oil company losses as subsidies. Fertilizer subsidies, free electricity to farmers for pump sets, heavily subsidised rice or wheat in some states, write-offs of farm debts, the badly administered rural employment guarantee scheme, and other social schemes added to government deficits at the Centre and states. Politicians resist cuts even when there’s waste and theft in social programmes and in subsidies.

Administrative reforms, streamlining of bureaucratic procedures and transparency in government decision-making are some of the issues which demand urgent reform but they are not on the government’s agenda. Private-public partnerships in infrastructure suffer from poorly drafted agreements and supervision. Productivity of exploration and production of natural resources (coal, oil, gas, etc), is hindered by inefficient government ownership and control, opaque allotments, outdated technology and bureaucratic management. The new land legislation has to prove itself for land rights, easier land acquisition, transparency in sale of natural resources, and removing restrictions on foreign investment.

The Industry is clearly apprehensive. the on-off approach to exports of sugar, cotton, etc continue to hurt agriculture and exports. Incentives for FIIs (the ‘Mauritius route’ and participatory notes), have created volatile foreign inflows. Procedures to speedily approve foreign direct investment have yet to be introduced. White collar crimes and corruption need laws with severe penalties. The judiciary is constrained in numbers, status and remuneration.

Lack of policies

In India, agricultural productivity generally is lower than many Asian countries. Funds for resolving environmental issues like salinity, water logging, leaching of soil, and contamination of rivers are insufficient or misspent. Agricultural pricing and markets are severely distorted, not providing right ‘signals’ through agricultural prices. There is little private investment to improve the agricultural supply chain to urban markets, leading to product wastage and loss to farmers. Commission agents and wholesalers get a large share of consumer prices. Farmers get low prices. Free or below cost power has led to ground water depletion and salinity of land due to shift to water intensive crops. Coordinated policies for agriculture are lacking, cutting across different ministries.

Power generation is behind plan. Low tariffs leave distribution enterprises unable to pay for power. Government owned companies mine coal inefficiently. There are severe shortfalls in production. Captive mines opaquely given to private sector have not improved supplies. Gas based power plants suffer because of declining gas supplies. There is no transparent regulation of coal and gas production, costs and tariffs. Regulation of power has bankrupted most state electricity boards.
 The public sector commands key sectors --principally, power, coal, oil and gas, steel, aluminium, railways, road construction, food procurement and distribution. Except power, all are highly inefficient.    Administration has little transparency and individual accountability. Rampant corruption and inordinate delays put off investment. Cities and towns are poorly governed and planned. Sanitation, drinking water, housing, are neglected. Our bureaucracy is not designed to execute vast schemes for huge expenditures. Drastic reform of all administrative and police services is an urgent necessity.

India is among the worst countries to start a new business. The time taken for getting innumerable government permissions require simplified procedures. Domestic investment is also declining. India is rated among the most corrupt countries but governments has no will to reduce it. The judicial system is inordinately slow and with excessive scope for appeals.

Constitutional and statutory regulatory bodies must be staffed with qualified people, not merely retired bureaucrats. They must be respected, not interfered with. The public sector must either be truly autonomous or be fully privatised, especially coal, gas and power. Physical distribution of cheap food grains, kerosene, power, gas, etc must be replaced by a well planned scheme to transfer cash to targeted bank accounts.  All procedures must be simplified and made transparent. Judiciary must be expanded and subjected to time discipline.

This government has no concept of reform. In 1974 and in 1991 economic crises were dealt with speedily and in a coordinated manner. The 1991 reforms faced conservative resistance, but they were overcome. Today, the government faces much stronger opposition from many vested interests --politicians and bureaucrats at all levels, crony businessmen, head-in-the-sand ideologues. But can this government handle all of them?    

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