The 'main hun na' school of budgeting

Arun Shourie: Saturday, March 29, 2008

Arun Shourie puts the Budget to the aam aadmi test and argues why the UPA fails miserably

In the Budget for 1990/91, the VP Singh Government announced a loan waiver of Rs. 10,000 crore. The Government was soon out. I am not on the precedent, but on the accounting! The waiver had been included in the Budget.

Soon, a new Government was in office. Delivering the Budget speech on 24 July, 1991, the then Finance Minister was as stern as he was scornful about the loan waiver, and about the way it had been budgeted.

‘There is one large component of non-plan expenditure that is a burden on the exchequer,’ he told Parliament. ‘I refer to the Government’s obligation under the Rural Debt Relief Scheme. Unfortunately, there was a gross under-estimation of the total fiscal liability under this scheme which was introduced last year. In addition to the sum of Rs. 1500 crores provided in the revised estimates for last year, we have to provide Rs. 1500 crores in the current year. But this is not all. We may need a similar provision in the next year.’

Guess, who was so punctilious then. The words constitute paragraph 39, of the Budget Speech delivered that day by the then Finance Minister, Dr. Manmohan Singh.

And now? No provision at all for the Rs. 60,000 crore that the loan waiver is supposed to cost. ‘Main hun na’… ‘Credit me with some intelligence...’ ‘Funds will be found...’ ‘Modalities are being worked out…’

After much bewildered talk, the Prime Minister and Finance Minister did hit upon one source for financing the waiver: we may sell Public Sector equity, they suggested. On behalf of the CPI(M), Brinda Karat shot that down with one sentence. Chidambram then told Parliament – and this is after two weeks of confusion -- that he was confident that he would be able to carve Rs. 40,000 crore out of buoyant revenues this year, and that he was equally confident that it would not be difficult for whichever Government is in office next year to find the remaining Rs. 20,000 crore.

Take him at his word for a minute. If it is possible to be so confident on 14 and 17 March when he said as much to the two Houses of Parliament, why it could not have been said while announcing the waiver a fortnight earlier?

Here is Parliament being asked to approve a scheme of Rs. 60,000 crore with no inkling of where the money will come from, and, hence, with no idea of what its impact will be – on prices, on interest rates… Even of whom the waiver will benefit. Is this ‘accountability’? ‘Transparency’?

And this is just a typical omission.

The Sixth Pay Commission is to report soon. Given that election loom, the Government will certainly implement the pay hikes. The Fifth Pay Commission had increased emoluments by 35 per cent. There will be cascading effect for state governments, for municipalities, indeed for each and every institution even vaguely linked to the State machinery. There is no provision at all for this certain outlay in Chidambram’s Budget. When it is prudent to include Rs. 5,000 crore in the Railway Budget as the likely outflow on account of the Sixth Pay Commission increases, why is prudent not to make a provision for the same contingency in the General Budget?

Similarly, subsidies on petroleum products, on food and fertilizers are mentioned, but not included! The latter two alone are estimated to be over Rs. 63,000 crore. The Fiscal deficit is put at 1,33,287 crore in this Budget. Once you include the four items that have been left out – the loan waiver, the subsidies on petroleum, food and fertilizers -- plus the impact of the 6th Pay Commission, it is liable to be double the figure that has been indicated. Fiscal responsibility?

A reform they were to institute

‘Seven years ago, I placed before Parliament the first paper on subsidies,’ Chidambram said in the Budget for 2004/05. They need to be sharply targeted at the poor and the really needy. So? He has, he said, initiated a new study on them!

By the next Budget, he had taken further action: he had placed the study before Parliament. Subsidies are necessary, ‘However, we must now take up the task of restructuring the subsidy regime in a cautious manner and after a thorough discussion.’

Nothing was done even by the 2007/08 Budget. ‘The issue of subsidies is proving to be a divisive one,’ Chidambram said, ‘but I would urge Honourable Members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy.’ It isn’t that he had done nothing: ‘My Ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertilizer and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertilizer and petroleum subsidies, the latest being the Dr. C. Rangarajan Committee. I would urge Members to help the Government evolve a consensus on the issue of subsidies.’ Another consultant to Government.

The Prime Minister, of course, alternates his emphasis: reforms one day; reforms with a human face the next! And yet, at least on occasion, he has spoken clearly. The Gross Budgetary Support for the 11th Plan is going to be double of what it was during the 10th Plan, he told the Planning Commission last November. ‘These are large increases by any reckoning,’ he continued. ‘This will only be possible if we have strong growth, if tax revenues remain buoyant as they have been in recent years and if non-Plan expenditure is checked and checked effectively. We need to address the problem of mounting subsidies in food, fertilizers and now, in petroleum which is a recent phenomenon. Over Rs. 1 lakh crores are going to be spent this year alone on these three items. I would like my cabinet colleagues and the Planning Commission to reflect what these mean for our development options and what development options these subsidies are shutting out. Do they mean fewer schools, fewer hospitals, fewer scholarships, slower public investment in agriculture and poorer infrastructure? It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged.’

The warnings having been given, the task is done – what more are consultants to do, after all? There is no mention of the subject in Chidambram’s Budget speech this year.

But there is mention of one of these subsidies – that on fertilizers – in the document distributed with the Budget, Implementation of Budget 2007-2008. In the Budget for 2007/08, Chidambram had emphasized the need to distribute fertilizer subsidies by some alternate way – so that they reach the farmer directly rather than being eaten up by fertilizer companies. So, what is going to be done? ‘The fertilizer industry has agreed to work with the Department of Fertilizers,’ he told Parliament, ‘to conduct a study and find a solution.’ And what will happen once the study has been done? By now, you should be able to guess: ‘Based on the report, Government intends to implement a pilot programme in at least one district in each State in 2007-08.’

That was the last Budget. And what are we told now about what has been done on this matter? ‘The modalities for providing an alternative method of delivering the fertilizer subsidy directly to the farmer are being worked out. The proposal was examined by a Group of Ministers (GOM) and the Report is being finalized.’

In the meanwhile, all the ills continue: the industry does not get reimbursed in time; the farmer does not get the full benefit; the application of fertilizers remains distorted and our land is harmed.

Exactly the position in regard to the other subsidy, of Rs. 32,600 crore – that on food: the 61st Round of the NSS reveals that one half of the poorest quintile do not have either a BPL card or one for the Antyodaya Anna Yojana. On the other hand, more than a sixth of the richest quintile have BPL cards!

The Italians have the right expression for it

‘The Eleventh Plan target for additional power generation capacity is 78,577 MW,’ Chidambram told Parliament while speaking on this new Budget, adding, ‘which is more than the total capacity added in the previous three Plans.’ In the 10th Plan the target was 41,000 MW. Additional capacity that got commissioned was just about 21,000 MW. But why be niggardly in setting targets? John Galbriath had a word for Indian Planning: ‘therapeutic targetry’! But the sentence that scores for gall is the next one: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’

Just pause for a moment, and read that sentence again: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’ The trick in it is the benchmark that has been used, ‘Commercial Operation Date (COD)’ – a plant that has been completed is said to have attained ‘Commercial Operation Date’ once it has been in operation at full load for at least 72 hours. Ten power plants contributing 3020 MW were included when totaling up the achievements of the last year of the 10th Plan on the ground that they had been ‘commissioned’. They have been counted again among the achievements of the first year of the 11th Plan – on the ground that in regard to them ‘Commercial Operation Date’ has been achieved! The plants are the same ten. Nor is it just that: among these ten, is Ratnagiri CCPP (Dabhol) II, a plant that was completed in the Ninth Plan; among them is the atomic power plant at Kaiga – which is virtually shut for want of fuel; among them is Karbilangpi, a plant of the Sixth Plan! Nor indeed do the remaining ten plants – accounting for 3090 MW of the 10,000 MW for which Chidambram takes credit – testify to either reforms or execution in the power sector having improved. Each one of them has been under construction for years – among them is another Dabhol plant, Ratnagiri CCPP III, which too was completed in the Ninth Plan; among them are two plants at Purlia which were sanctioned in the Eighth Plan!

Claims and promises in regard to the Ultra Mega Power Projects in Chidambram’s successive budgets have been even more farcical, even more brazenly misleading. It is our intention to award five projects before December 31, 2006, he told Parliament in the Budget for 2006/07. By the 2007/08 Budget, this became, ‘Seven more UMPPs are under process and we are confident that at least two will be awarded by July, 2007.’ In this Budget, he says that the fourth UMPP ‘will be awarded shortly,’ and that five more can be brought to the bidding stage provided the states extend the requisite support. After listing four Ultra Mega Projects, his document of ‘accountability and transparency’, Implementation of Budget 2007-2008, reports ‘Five other suitable sites have been identified by the Central Electricity Authority’ – it proceeds to list five sites in five states. The fact as of 20 February, 2008 is that not one site has been finalized, not one. In regard to each of them, letters are going to and from central and state governments: I can supply the list at short notice.

And yet you can’t quite say that the Government has lied – notice the words it has used, ‘Five other suitable sites have been identified by the Central Electricity Authority.’ That doesn’t mean they have been settled, and, if you concluded as much, well, that is your problem.

The Italians have the right expression for this kind of reporting: suppressio veri suggestio falsi – to suppress the truth is to suggest the false!

A symptom

And yet the Budget is but a symptom of the ways of the Government:

•Just go on announcing schemes;

•Grab existing schemes, group them, give them a new name, and proclaim them as historic new initiatives;

•Announce huge grants and outlays, forget them;

•Advance false claims: those ‘Action Completed’s;

•Shove problems to the future – as in the loan waiver; shove blame on the past – even when doing so flatly contradicts what you have yourself stated in Parliament, as the Prime Minister’s ‘the unpaid distress bills of the NDA’ is flatly contradicted by what is set out in the Economic Survey 2003/04 that Chidambram himself tabled;

•Mislead – as in the calculation of the deficit;

•Double-count – as in regard to power;

•Proclaim the desirable –‘we must aim at outcomes, not just outlays,’ the necessity for reforms as in the Economic Survey – and make people believe that, because you have proclaimed the desirable, you are straining to attain it.

And do all this with full faith – that no one will actually read the documents you pile on them; that, even of they do, they will soon forget; that the media are the easiest to bamboozle…Mismanagement

The Budget is a symptom also of gross mismanagement of the economy. Apart from the fact that reforms have been at a complete standstill ever since this ‘dream-team’ of ‘reformers’ took office, their management has brought the country back into the vicious cycle of high interest rates, declining growth, and inflation. Till 2004 April, foodgrain stocks had been scrupulously kept 40 to 50 per cent higher than norms set by experts – so that fixers always knew that, were they to raise prices, Government could, and would, counter them by releasing stocks from its godowns. Ever since, stocks have been allowed to fall below the norms – with the result that traders today know that the Government just does not have the wherewithal to stabilize prices.

The result has been worsened by erratic policies. Exports of non-basmati rice were banned; soon the ban was lifted. Government did nothing as wheat output fell short; then it floated a tender to import wheat; then it cancelled the tender, then…

As prices kept rising, it hurtled to swat a fly with an axe – the axe of monetary policy: higher interest rates, tightened money supply… Prices continue to rise, and naturally so. Investment is discouraged, and naturally so. Growth rate of manufactures has already begun falling, predictably so…

The dream-team…

(Concluded)

For all stories visit www.indianexpress.com/arunshourie

On their own yardstick

Arun Shourie: Thursday, March 27, 2008

Arun Shourie puts the Budget to the aam aadmi test and argues why the UPA fails miserably

One problem is that while the Government committed itself in that new scripture – The National Common Minimum Programme – to doubling the proportion of GDP that is devoted to social sectors like health and education, in fact, as NC Saxena, member of the UPA’s National Advisory Board, points out, the proportion continues to hover around half the pledged targets.

But that is the lesser problem. The even more debilitating one has been much in the admonitions of the Prime Minister and the Finance Minister. In his Budget speech for 2005/06, Chidambram drew pointed attention to this: ‘At the same time,’ he told the Treasury Benches that were cheering his announcements of higher outlays, ‘I must caution that outlays do not necessarily mean outcomes. The people of the country are concerned with outcomes. The Prime Minister has repeatedly emphasized the need to improve the quality of implementation and enhance the efficiency and accountability of the delivery mechanism.’

So what did he propose to do? ‘During the course of the year, together with the Planning Commission, we shall put in place a mechanism to measure the development outcomes of all major programmes,’ he told Parliament. ‘We shall also ensure that programmes and schemes are not allowed to continue indefinitely from one Plan period to the next without an independent and in-depth evaluation.’ Given that activists were said to have the ear of the Highup, Chidambram added, ‘Civil society should also engage Government in a healthy debate on the efficiency of the delivery mechanism.’

Two years went by, little happened. Chidambram returned to the theme in his Budget of 2007/08. ‘There is no dearth of schemes,’ he told Parliament, ‘there is no dearth of funds. What needs to be done is to deliver the intended outcomes.’

The Prime Minister has been proclaiming the desideratum just as frequently and even more emphatically. ‘We have generated adequate resources in the last three years for use in social sector without sacrificing fiscal prudence,’ he told the ‘Roundtable on India’ organised by The Economist in March 2007. ‘However, we cannot spend our way to prosperity and having tangible outcomes is, therefore, as important as increasing outlays. This is the single biggest concern of our government today and we have to address this issue if we need greater returns on our social investments.’ And a few months later, in November, 2007, he told the full meeting of the Planning Commission, the Gross Budgetary Support provided for in the 11th Plan is almost double what it was in the 10th Plan. More than that ‘the architecture for inclusive growth’ has been laid out, the ‘basic elements’ of that architecture ‘are now fully in place.’ ‘This is a matter of satisfaction and indeed of pride,’ he said. ‘For the next few years, the emphasis must be on ensuring that these programmes deliver what they promise. We must work purposefully to realise the socio-economic transformation the Plan seeks to achieve.’

And what is happening on the ground? After all, these worthies are not consultants to Government. They are the ones directing it. The answer can be gleaned by picking up any one of what Chidambram calls ‘the flagship schemes’ of this Government.

If this is the flagship…

‘The object is to guarantee 100 days of employment in a year to one able-bodied person in every poor household,’ Chidambram told the cheering MPs during his Budget speech for 2004/05 as he explained the Government’s commitment to the poor. So, what was he going to do? Pending legislation, the Food for Work Programme is being extended to 150 districts.

And where is the money to come from? Chidambram’s solution was one that has become the hallmark of this Government: ‘Allocations under different schemes will be pulled together to support the Food for Work Programme,’ he declared. There are substantial funds totaling over Rs. 6,000 crore under SGRY, SGSY, SJSRY, REGP and PMRY.’ A typical stratagem: if there is one big programme, split it into five and announce five path-breaking, closer-to-the people initiatives; if there are five programmes, club them, and announce one historic initiative! In either event, rename them – giving them one of the two permissible names.

In the 2005/06 Budget, while announcing that he was increasing the allocation for this programme to Rs. 11,000 crore, Chidambram correctly noted that there were two components to the allocation – a cash component and a food component.

By the 2006/07, the commitment had got altered, a word got slipped in: while the original commitment was to ‘guarantee 100 days of employment in a year to one able-bodied person in every poor household,’ the commitment now became to guarantee 100 days of employment in a year to one able-bodied person in every rural household. As for allocation, Chidambram said, ‘In the current year, under a clutch of schemes including the Food For Work programme, a sum of Rs. 11,700 crore is expected to be spent on rural employment.’ A few sentences later, the figure was given as 11,300 crore. And there was to be in addition, Rs. 3,000 crore under the Sampoorna Gramin Rozgar Yojna (SGRY).

In the Budget for 2007/08, the scheme was expanded from 200 districts to 330, and the allocation was increased to Rs. 12,000 crore, plus another Rs. 2,800 crore for (SGRY) for rural employment in districts not covered by NREGS.

In this new Budget, Chidambram proclaims, the National Rural Employment Guarantee Scheme ‘has proved a historic measure of empowerment of Scheduled Castes and Scheduled Tribes, and, especially, women’; that the allocation for it will be raised to Rs. 16,000 crore, and that it will be rolled out to all 596 rural districts of India.

In a note that he has sent to all the Highups, NC Saxena punctures the balloon. First, he points out, since this Government took office, the allocation for rural employment has actually fallen! While Chidambram has been parading financial outlays, he has forgotten to mention what has been happening to that other component of outlays on this programme, the food component: this, Saxena shows, was sixty eight lakh tonnes in 2005/06; it fell to twenty four lakh tonnes in 2006/07; and this year, it was just a little more than seven lakh tonnes till Novemebr, 2007, and may not reach even fifteen lakh tonnes by end-March 2008. Converting these figures into cash, Saxena points out, the outlay by the central Government on wage employment schemes has come down from Rs. 18,406 crore in 2005/06 to Rs. 15,000 crore.

The second point he makes is almost cruel! Recall the other part of the announcement: the programme will be extended to all 596 rural districts of India. But one-fourth of the districts are short of labour, Saxena points out! ‘Reckless expansion will only promote migration and fudging of documents,’ he writes.

That must have been obvious, even to Chidambram. So, what happened? Rahul Gandhi, with his insights into India, is said to have ‘suggested’ that the programme be extended to all districts. The revelation having descended, Chidambram at once did the needful, as they say in Government! ‘They are perfect practitioners of dialectics,’ that distinguished civil servant, the late Ashok Mitra told me about the type, ‘Strong to the weak; weak to the strong’!

And then there is the fatal point, one to which …. has already drawn attention in The Indian Express: larger outlays or smaller, on the ground the programme is riddled with leakages, fraud and the rest. In the draft report on the Performance Audit of the NRGES that has been sent to Government in December 2007, the CAG states, among other things, that under the programme

•Only 3.2 per cent of the registered households have been given 100 days or more of employment;

•The average employment that has been provided to each household is just 18 days;

•While projects are to be taken up in low-wage areas, such areas have not even been identified in 53 of the test districts;

•Works have been taken up without the kind of planning and scrutiny that the guidelines require – on occasion just on the ‘recommendation’ of VIPs;

•While no more than 40 percent is to be spent on materials, in case after case much higher proportions – on occasion up to 80 per cent – are being spent on materials;

•Materials are being purchased without the mandatory tenders being called;

•Contrary to guidelines, work has been assigned to, and payments are being made to contractors and the like;

•Registers of materials received, and utilized of work assigned and executed are not being maintained;

•Workers are being paid wages that are far, far less than the minimum prescribed;

•Muster rolls as well as registers of materials and payments are being fudged wholesale – the report is full of shameful examples;

•When wages are not paid in time, workers are to be paid a compensation; this is not being paid – ‘because it has not been claimed,’ say those in-charge…

And so on. NC Saxena draws attention to these findings also about this ‘flagship’, saying only, ‘As regards its implementation, I think the CAG has said whatever needs to be said.’

Another flagship

Another ‘flagship’ that Chidambram mentions in his Budget is the provision of drinking water. This too has all the hallmarks of this Government.

‘I turn now to one of my big dreams,’ Chidambram declared in his Budget for 2004/05. He described how ‘Water is the lifeline of civilization,’ and lamented that the water bodies of yore had fallen into disrepair, and said that, ‘I therefore propose to launch a massive scheme to repair, renovate and restore all the water bodies that are directly linked to agriculture.’

So, what shall be done? ‘In the current year, we shall begin with pilot projects in at least five districts, and we shall select at least one district in each of the five regions of the country. The estimated cost is Rs.100 crore.’ The big dream has become a little dreamlet. Even so, from where shall the funds for even this dreamlet come? ‘Funds for the five pilot projects will be drawn from existing programmes such as SGRY, PMGJSY, DPAP, DDP and IWDP. Once the pilot projects are completed and validated, Government will launch the National Water Resources Development Project and complete it over a period of 7 to 10 years.’ And then there is the LIC, and those much derided institutions, the World bank, and others. Funds will not be a constraint.

The much bigger dream, of course, has been the Rajiv Gandhi National Drinking Water Mission. In this year’s Budget, Chidambram lists it again as one of the ‘flagship programmes’ of the UPA. He increases the allocation for it from 6,500 crore to 7,300 crore. And he carves out Rs. 200 crore out of this for providing drinking water for schools.

Excellent. Who can deny the importance of water? Who cannot agree that it is a shame that even 60 years after Independence we are not able to provide drinking water to all our people?

The first thing we have to remember is that this is almost an ancient programme. It used to be known as the Accelerated Rural Water Supply Programme – ARWSP.

Second, its implementation remains woeful, living up to Rajiv Gandhi’s statement that only 15% of outlays reach the poor in whose name they are defrayed. As Ganesh Pandey and Ravish Tiwari have reported in The Indian Express, the CAG has conducted a Performance Audit of this flagship also, and sent his findings to the Government in December, 2007:

•While guidelines require that states prepare Annual Plans for works that are to be taken up, of 26 states, 8 had not prepared the required Plans at all. Of the remaining 18, 9, while saying they had prepared them, did not submit them to the central Government; 10 had put together something at the state-level but these had no district or lower level details; Plans drawn up by 10 turned out to be ‘sketchy’; 9 had no shelf of schemes and likely size of allocations.

•While the guidelines require that 35 per cent of the outlay be on schemes that benefit SC/STs, the CAG’s Audit finds that in state after state, no separate targets or schemes have been formulated for the Scheduled Caste population; that the allocation, instead of being 35 per cent of the total, is much, much lower.

•An enormous portion of the funds have been diverted – for paying salaries, for defraying office expenses, for paying outstanding bills, for other schemes.

•Works said to have been completed do not exist; works have been ‘completed’ in non-existent villages; in other cases they have been taken up in villages that are already ‘fully covered’; works have been abandoned – in typical cases, pipes have been laid only part of the distance, pools have been dug where there is no water.

•Guidelines provide that the quality of water must be assessed: it is not assessed at all – water treatment plants have just not been installed as required.

•One half the Rural Protected Water Supply projects and a fifth of the tubewells shown as ‘completed’, found to be ‘non-functional’ or abandoned.

•In state after state, the expenditure figures turn out to be manifestly inflated; they turn out to be not just without authorization but ‘fictitious’.

•The Guidelines have provided a remedy very close to Chidambram’s heart – they require that Village Monitoring Committees and Special Monitoring and Inspection Units be set up; the CAG finds that in 14 states the committees are not holding regular meetings; 21 states have not nominated the required officials from the Health Department; 15 states have not established Special Monitoring and Investigation Units; in the remaining 11 states, these MIUs do not carry out field-level monitoring of quality of water, adequacy of service, etc.

•Guidelines require that the central and state governments monitor and evaluate the works from time to time: in 22 states, no evaluation studies have been carried out at all; in 17 states, officials from state headquarters have not visited districts, blocks and villages for inspections.

A ‘flagship’?

Or the tattered rag covering a sunken vessel?

(To be continued)

For all stories visit www.indianexpress.com/arunshourie

In this tech-driven world, we can’t be asleep at the wheel

Arun Shourie, Tuesday, September 12, 2006

The cost of squandering resources on populist schemes will be paid not just in missed advantages but also in the resulting social unrest. First in a three-part series

Among the propellers that are driving the world, technology is one of the most forceful. Six features about its advance have far-reaching consequences for India:

• To start with, what has seemed impossible suddenly begins to seem possible

• Second, whatever seems possible comes to pass

• Third, it comes to pass sooner than anyone had thought possible

• Fourth, with each decade, it comes to pass sooner and sooner. And there is good reason for that: the advances are cumulative

• Fifth, the advances are interdependent. Today, drug discovery is becoming critically dependent on biotechnology. Biotechnology, in turn, is critically dependent on advances in other technologies — DNA could not have been decoded but for advances in IT.

• Sixth, each advance has effects that spread farther than anyone had imagined. Today, the technologies that rivals have mastered are a major influence on the balance of power between countries. Companies rise and, just as swiftly are wiped out by some new Bill Gates working out of a garage. The livelihood of thousands disappears overnight as entire professions are wiped out and new ones appear.

Till just the other day in India, telephony was confined to fixed line instruments; PCOs were a leap forward — they provided unimagined access to those who could not get fixed line connections, and thousands got a new way of earning a living; today, with millions having mobiles, fewer go to PCOs.

Nor are we anywhere near the end: there is intense competition among service providers, each has invested crores in infrastructure; but now, thanks to advances in internet telephony, you can call the US or Europe for almost nothing. What will that do to the thousands of crores invested by companies in setting up telecom infrastructure?

The effects on national security are even more evident, just as they are of even greater consequence. Terrorists remind us every day of the consequences of the miniaturization and increased lethality of the technologies of violence. But the lesson is not lost on states. As technology advances, economies become progressively integrated. That induces the Chinese to acquire capabilities to hurl what they call “the assassin’s mace” at the “acupuncture points” of other, modern, integrated societies — national power grids, air-traffic control systems, rail-traffic control systems, financial and banking operations, communication networks — so that, by disrupting and corrupting them simultaneously, the societies are thrown into disarray for those few vital moments.

Lemmas

For us in India, pushed around as we are ever so often by Luddites, these features of technological change hold several lemmas.

First, as a consequence of technological and economic changes, every country is bound to be buffeted by massive dislocations. Take what is today the most successful example of propelling and managing change: China. According to official Chinese estimates, the “floating population” is anywhere between 120 and 140 million. As they lose rights to medical treatment and education once they leave their place of residence, the 20 million children in tow are now bereft of these services. And this is the situation in a country that has today the most purposive government among emerging economies.

So massive dislocations are inevitable. But equally important is the related lesson: the march of technology will not be slowed down just because we have not been able to handle the dislocations or are paralysed by the fear of them. A country paralysed by fear of such dislocations, unable to decide which of competing courses to adopt, which stops change, will not just fall behind. It will be wiped out. And for a simple reason: its rivals won’t slow down for it to solve its problems.

Third, as change is so rapid, as it is cumulative, falling behind for a while makes catching up very difficult. When affairs are stationary or change is slow, even if we falter for a while, we can catch up soon enough. But when change is rapid, once we falter, the one who has captured the lead is able to go on lengthening the distance. China and India were at par in the mid- and late seventies. China began reforms in 1978. Our political class — weak, imprisoned in slogans of the past — had to wait for a breakdown in 1991 to initiate reforms. That lapse has made all the difference. Today, even in the Indian market, in an industry like electronics, many of our manufacturers are traders in Chinese products.

Nor is one leap enough. One has to keep forging ahead. Again, the contrast is evident; China has sustained its momentum of reforms for 25 years; in India, splintered “coalitions” give everyone enough power to block everything, they leave no one with sufficient power to push anything.

Nor is it enough to catch change by the forelocks. As advances are interdependent, if we falter in one discipline, we will be drowned in a cascade.

Fifth, keeping up requires huge investments. We have had one major electronics complex — in Mohali, near Chandigarh. Even to this day it is not able to fabricate chips and the like at the submicron levels that have become customary. Building a new fab with the requisite capability costs $3-4 billion a piece. China is building six of them in one go. Countries that cannot muster up that kind of investment will have to forego those technologies or become hopelessly dependent on others for them.

The effects will not be just on consumer items, and exports. The fabs are vital for national security. Not being able to construct the latest ones is to put the country in danger. Countries which waste resources on boondoggles - like the Employment Guarantee Scheme, or unaccounted subsidies - don’t just put themselves at a competitive disadvantage but at risk.

Next, the new technologies require ever higher, ever more complex and ever changing skills. “The masses”, “the common man” just do not have them, and are not going to have them in the foreseeable future. It follows that countries which allow standards of higher education to fall; countries which do not institute systems to continually upgrade skills; countries which appoint and promote personnel on considerations other than merit (e.g., birth); countries which lose their best minds to others, will fall behind.

The technologies that are revolutionising the world today are developed by minuscule minorities, by microscopic scientific and engineering elites. To fail to value these elites, to trample in the name of “equality” the incentives and work-environment that would spur them to do their best in our country is to forfeit our future. One has only to bear two facts from recent history in mind as an antidote to the nonsense which progressives feed us so often. One, the leaders and movements that have shouted the most about “equality” are the very ones who set up the most tyrannical regimes, the ones that came to be marred by the most brazen inequalities — who has not read of the nomenklatura that came to rule, and eventually ruin, the USSR?

Second, when you are accosted for being an elitist on this score, when you are lectured about the “revolutionary creativity of the masses”, remind yourself of the fate of Mao’s Great Leap Forward, of those backyard steel furnaces, so idolised by our revolutionaries.

We thus have a duality. On the one side are two facts: without the new technologies, the country will be endangered; and these technologies will be developed by tiny elites. On the other side is the equally undeniable fact: the new technologies will just not provide the massive employment that the growth in population and labour force necessitate in India. Even a factory producing automobile parts looks like a Japanese “lights-out” factory. There are few persons on the shop floor: production is all CAD-CAM. The precision that is today demanded by manufacturers who will use these components in their cars and trucks is measured in microns; the dimensions have to be measured by laser beams. This means that for the kind of numbers that need to be absorbed - we need to create 80 million jobs in the next five years — we have to put massive resources into the only activities which can absorb such numbers: agriculture and infrastructure.

Thus, as Deng would have said, we have to walk on two legs. And that reinforces the point we glimpsed earlier: the cost of squandering resources on wasteful, populist schemes will not just be that we will not have those fabs, and thereby forfeit both competitive advantage and national security; we will foment social unrest.

Given these truisms, what must we be doing?

(To be continued)

An Extreme Case is not an Exception

Arun Shourie

That an area as large as Bihar should sink into quicksand is alarming enough by itself. But one of our problems is that collapse in Bihar no longer shakes us: "O, that is Bihar," we shrug.

Bihar is an extreme case, yes. But the point about an extreme case is that it is but one end of a continuum. Bihar is far from being an exception. Even the most prosperous states today exhibit the same symptoms. Not just Bihar, but Punjab too is having difficulty paying just the salaries of government staff. Not just Bihar, but state after state -- Rajasthan is the example of the month -- has defaulted on the repayments it has to make to the Centre. In Assam�s case, all financial transactions had to be halted, and the treasury had to be closed last week, as the state had no funds to meet even the day�s liabilities. It isn�t just that almost all of plan expenditure of Bihar is now financed through central funds, that is so in the case of most states: Rakesh Mohan, the director of the NCAER, draws attention to a telling figure -- as recently as the Sixth Plan, balances from current revenues financed 40 per cent of state plans, in the Eighth Plan their contribution was zero, today it is a substantial negative. It isn�t just that state enterprises in Bihar are in a woeful condition, they are in more or less that condition across the country: another figure that Rakesh Mohan mentions -- state enterprises were projected to contribute Rs 4,000 crore to the financing of the Eighth Plan, their actual contribution was minus Rs 2,723 crore.

All sorts of devices have been contrived by the Centre and states to camouflage defaults by state governments, all sorts of devices have been fabricated by states to divert central funds meant for capital expenditure to pay wages and salaries. A senior functionary was educating me the other day to the mystery behind plan projects remaining incomplete for years and years on end in state after state. There is more than lethargy, he explained. Under our system of accounting, so long as the project is a continuing one, salaries and wages of the staff working on it can be paid out of plan funds; once it is completed, these have to be paid out of the state�s own funds. Unable to pay even salary and wage bills of its employees, state after state keeps that last mile of the road incomplete...

And finances themselves are but a symptom. Entire systems have fallen apart. A former deputy comptroller and auditor general, C.B. Kumar, points out that of the 992 state government companies, the accounts of 783 companies are in arrears -- up to 10 years. In the case of many of them, accounts have not been finalised for even one year since their inception.

And the finances of states, the evaporation of control and supervision mechanisms in state owned companies -- these too are but symptoms. The malaise extends far beyond states, far beyond governments. "Non-performing assets" -- a euphemism to cover up moneys which have been given, handed out on collateral considerations -- now exceed Rs 43,000 crore: that feat has been accomplished not by state governments but by our "commercial" banks. The companies that have vanished with over Rs 20,000 crore belonging to small depositors are not government companies, they are companies floated by private entrepreneurs. Similarly, while the securities scam showed up the degree of morality and vigilance in our banks and financial institutions, could it have remained undetected if a profession wholly outside the state structure -- chartered accountants -- had been doing its job?

In a word, unless we wake up, Bihar is not just an extreme case, it is the future. And the condition to which Pakistan has sunk is a live warning of what happens when such problems are neglected.

Everything else points to the same urgency. Time does not stop just because we are preoccupied with our problems: we talk of the "21st century;" it is five weeks away. The world does not stop because we are busy battling the next caste: technologies continue to replace each other every two-three years; per capita income in China is already double that of India, but with China growing at 10-11 per cent, and us stuck at 6 per cent, the gap between us and them doubles every 14 years -- and the per capita income is just an indicator: military capability, and much else is subsumed in it.

Nor do our problems abate because we are busy sorting out our politics. In the last three-and-a-half years when our politicians were busy bringing down and installing governments, our population increased by over five crore. Even in the six months between the ouster of the Vajpayee government and the installation of the present Vajpayee government, our numbers would have increased by over 70 lakh. We must, therefore, act, as the Buddha would say, "with the urgency of a man whose hair is on fire". The allied point is just as obvious: there is no discord on these issues. Indeed, I believe there is consensus on almost all the issues which are at all within the realm of the possible. When liberalisation was launched, how the critics lampooned it. But where they were in power, those very persons and their parties were taking pride in proceeding on that route even faster than the central government. Similarly, when the critics acquired office at the Centre, they continued those very policies.

That is a large part of the problem today: on almost every practicable matter there is consensus on what should be done, everyone also sees that those steps should be taken forthwith, but when one party takes them, the other shouts and screams, and puts obstacles. So that nothing is allowed to proceed -- except by fits and starts. The same danger lurks today. The economic decisions which will be taken now are ones that carry forward the same process which successive governments have been furthering for a decade. But because this government will be announcing those policies, others will stall them.

There is a conviction -- which all parties need to outgrow -- that because one is in Opposition, one�s job is to oppose, to choke whatever whoever is in government is trying to do. Precisely because it does not have a better idea on the matter, the party out of office feels compelled to contrive differences. Often, a completely unrelated issue is made the occasion for blocking everything. Notice the minatory statements which Congress leaders have been making about Rajiv�s name in the Bofors� chargesheet.

Assume for a moment that there is ground for a genuine difference of opinion on the matter -- I do not see any ground either in law or fact, but assume that there is. How does that difference on this particular matter justify throttling legislation on, say, economic reforms? Even countries deal with each other on some issues in spite of there being sharp differences on other issues. Indeed, many who will today be arguing -- within the Congress, say -- against cooperating with the government on any issue are ones who, when it comes to Pakistan, are most energetic in arguing that we must keep identifying areas on which we can engage it in joint action in spite of what it is doing in Kashmir, and the rest. But when it comes to cooperating with the government of their own country, even when it seeks to further policies they had themselves initiated, Congressmen will think it perfectly in order that they hold back till it interferes in the judicial process and has a document which is before the courts altered in the way they specify. As all parties are in office somewhere or the other in the country, and as all of them are therefore disabled by such conceptions of what the proper role for an Opposition is, all have cause to revise their conduct. The cure liable to be more effective is for people to be alert, notice who is stalling essential legislation or policies, and for what reason, and punish him accordingly.

Governments too would do well to change their ways. At least in five respects. All too often, they lose interest in a remedy the moment it has been enacted. Mr N. Vittal, the chief vigilance commissioner, gives a telling example. In 1988, Parliament passed the Benami Transactions (Prohibition) Act. It was acclaimed to be a decisive step in tackling corruption -- indeed, so urgent and vital were its provisions acclaimed to be that they were first introduced by way of an Ordinance. Clause 5 of the Act specified that a procedure would be prescribed for acquiring property under the Act. Eleven years have gone by, no procedure has been prescribed. Governments have forgotten all about the Act. And not just governments: the other day when I referred to the Act and its fate in the Rajya Sabha, it was evident that MPs too had not bothered to check up on what they had passed. The first point therefore is: follow through on what you get through Parliament, follow through on the schemes you launch.

The second lesson, equally elementary, is about existing institutions. Every government feels impelled to launch new schemes, to set up new institutions. But the need today is to energise existing institutions. It is good that the government will be introducing legislation to set up the Lok Pal: the bill has been in the works for 30 years, and this will be the seventh version of the bill. So, it is good that at last the law will be passed, and the institution will be set up. But just as important is to activate the Lok Ayuktas: in state after state, they have been rendered moribund. Why not call a conference of existing and past Lok Ayuktas, garner their proposals to make the institution functional, and create public opinion for those changes to be enacted? Similarly, I was astonished to learn the other day that the comptroller and auditor general has a staff of 20,000 persons. They produce over a hundred audit reports every year. These run into 15,000 to 20,000 pages. They are packed with details -- often, as we have seen in the case of Bihar, with details of the most alarming kind. But can any one recall a single consequence which has followed as a result of these prodigious labours? The cure would not be to set up yet another institution, but to get together with present and past CAGs and take steps which would make the work of this institution fruitful. The third lesson is about the new institutions we set up. Unable to improve existing institutions, we set up some new one. Unable to get existing courts to speed up, we set up special courts, unable to get states to act reasonably on sharing river waters we enact the inter-state river water disputes law. But the manner we provide for the new institution to function is exactly the manner which has paralysed the old institution. The procedural regulations that special courts must adhere by are exactly the same as the regulations which clog existing courts. The personnel who man the inter-state river dispute tribunals are just the same as the ones that man existing courts: they bring to their new task the same approach, the same fixation on legalisms, on the date of this notification as against that one which hobble our courts. For the new institution to be different, its personnel, the procedural rules that are to govern its functioning, its entire ethos have to be radically different.

Fourth, the solutions must be on an altogether different scale, they must be of an altogether different kind than the ones to which we naturally gravitate. The backlog in courts? As a great concession we agree to the setting up of a dozen courts. But the Chief Justice was mentioning the other day that the requests which are pending for additional courts already total over 4,500. Setting up a dozen more courts -- and that too after years and years of the files going up and down -- is as good as doing nothing. Similarly, to get the inter-state water disputes machinery out of the current rut, we need to man the tribunals with persons whose entire approach will be different: who will craft design solutions rather than pronounce awards that hinge on legalisms.

And when we do alight on a solution, as Montek Ahluwalia with his vast experience points out, we must not look upon it as set in stone. That is the fifth lesson. As new technology beckoned, a new telecom policy was announced in 1994. But technology changed so fast that a newer policy was required by 1998. The steps which have been taken under it have already had to be altered twice. But technology is continuing to evolve at a dizzying pace: the technology to transmit voice over Internet with distortion is almost at hand; you will soon be able, therefore, to talk to persons overseas at the cost of a local call; that will devastate the finances of existing long distance operators. And so we can be certain that an entirely new telecom policy will be required three-four years from now. If we hold up that new policy on the old supposition that the existing policy had been announced just a short while ago, or if allegation-mongering inhibits governments from attempting new formulations, we will be enlarging the gap between us and the rest of the world.

Hence: when you pass a law, when you set up an institution, look back and see how it is working; instead of setting up new institutions, where possible energize existing ones; when you set up new institutions, ensure that their personnel, their operating procedures, their entire thinking is new; think anew repeatedly, and each time at a speed which will, at the least, match the progress of technology.

The Asian Age
November 12 1999