India Economic Policy Gaps, Oct. 2011 – A Bane for Common Man
By : Amit Bhushan
Gap in Policy formulation due to Government’s structure with various Ministries and Departments regulating different aspects policy making and service delivery is causing consternation among people of the country. The lords of these Ministries have different views, often motivated by their domestic constituency, ideology, political brinksmanship & chauvinism and sometimes even ulterior motives (which seems to be the case for Telecom sector policy making with disastrous consequences). The bureaucrats in the government are keen to protect/grow their turf (or decision arena, frequently for perks that may be showered upon them due to their hold on power/decision-making) with total disdain on how overall services are delivered to people and the impact piecemeal reforms may have on the overall well-being of common man. It seems unfortunate that a Government where technocrats are involved in relatively large number (in comparison to previous Governments/cabinet) seem so ill-equipped to read and understand these policy gaps and pull together necessary resources to mitigate there ill-effects. They seem to be regularly failing as a habit to read real reasons for hold-up in reforms and the underlying reasons and impact and happy looking at the piecemeal changes, GDP growth data and other items inconsequential to common man.
Let us analyze some possibilities, which are based on qualitative analysis (read wisdom of the author). A systematic data gathering is definitely required to analyze these possibilities.
1. The government is sponsored subsidy schemes to increase storage/cold storage capacity in private sector. Most undoubtedly like other schemes of government, the program is poorly administered, however due to marketing by equipment suppliers, the program took off and capacity was added. For storage owners to become profitable, they need ‘storage’ of goods with somebody to bear the cost of storage. Most obviously, the storage cost is to be borne by consumers of such goods. The understanding with which the Storage/Cold Storage scheme was conceived was that it would curb waste and thus improve availability. However, in reality wastage is a result of Farming practices along with Logistics infrastructure such as Storage/cold Storage. Thus storage itself has limited use in improving supplies through reduction of wastage. Now that a capacity to store is available, it is being put to use by counterfeit traders in disguise of producers. The result is that we have food inflation which seems to be outside government control since its own policies are driving it. Controlling this seems to be a low priority… Why?
The Government of the technocrats is trying to find fault with MNREGA scheme which is another one of their poorly implemented schemes. These technocrats are trying to convince masses through multi-channel communication channels that MNREGA has improved rural income and consumption and this is driving food inflation. Many in government would not concur to this idea.
Alas, the mandarins in government are still trying to work out a comprehensive farm to fork renaissance through Corporatization of Retailing which according to them shall cut down the number of layers involved in the supply chain and thus lower costs and improve efficiency. They provide no explanation for failure of the ‘Wholesale’ trade revolution i.e. the policy changes made to free the ‘Wholesale Trade’ of its shackles and which was suppose to deliver similar benefits. Our experience until now has been that the improvement in storage leads to increase in prices. Similarly, corporate activity in retail till now has only lead to improved supply of ‘made in china’ goods while inflation has not come down. Why and how MNCs in retailing shall bring down inflation is yet to be fully understood in light of our experience until now?
2. The government rolled out policy regards to SEZ scheme. The SEZs were supposed to facilitate promotion of Export oriented units by making infrastructure facilities available at reasonable cost. The result is that Land sharks gathered to corner parcels of Land, agricultural or otherwise, and MNCs looking to expand in India face a scarcity of commercial/industrial Land (artificially created). This result in escalated cost of project and MNCs are not so sure of benefitting out of sale of Real estate at the end of project, due to our numerous Land related Court procedures and Cases. With fluctuating currency, gyrating energy costs and not so conducive industrial environment, MNCs are willing to give India a miss. So the policy meant to get jobs into the country especially with a focus on IT and services jobs is resulting into vast amount of Job Losses. Government seems to be happily unaware of this fact or it believes that it has outsourced its Industrial promotion for exports to these SEZs. It off course has doled out tax incentives for the SEZs, but seems to be least bothered about the overall competitiveness of the country in the prevailing scenario.
The Government seems to be busy gathering data for the rise in exports from SEZs and projecting the success of its trade and commerce policies. However, the impact of exports growth from non-SEZ area, shift of export product from non-SEZ to SEZ is not being monitored. The ‘net gain or delta growth’ figure is not being studied. The common man is not being informed about the reactions of MNCs towards these SEZs and that whether MNCs looking to outsource production and/or services to low cost countries, are willing to invest in these SEZs. We also do not know what Business Attaches of the Embassy of various countries shall advise to these MNCs regards our SEZs.
We should consider the reaction of MNC land purchase team, who find it baffling that lands next to SEZ lad quote a fraction of price compared to SEZ land. The thing they are unable to figure out is complexity of our land laws, problems with regards to ownership/transfers, lack of clear guidelines about change of land use policy, getting power and water resources and plethora of other clearances from government. However, publics need to be informed about our overall competitiveness to attract jobs as a result of the policies or whether these policies are a hindrance to growth and their overall impact and mitigation methods.
3. Growth in Foreign trade or Commerce is touted as another success arena by the government. A cursory look at item-wise growth shall depict rise in refinery chemicals or output. This growth stems more out of West’s unwillingness to increase their refining capacity and their much stricter environment regulations. It is also a result of increase in prices of such goods rather than volumes for such exports. We also need to look at only the value addition part and its growth rather than overall exports since this is highly import dependent.
The next item showing increase if Gems and jewelry. The tenets are similar Petroleum based goods export since this is also highly imports dependent. Also, this may be growing on the back of rising prices of gold vis-a-vis USD rather than improvement in volumes. How much actual job creation has happened, needs to be examined for this manpower intensive industry? Also, the future direction and support issues need to be looked at.
The other item is export of transportation goods and machinery. It must be acknowledged that India has indeed shown some progress on this front. The next items are Electrical machinery followed by Iron & steel. Manufacturing of these goods is showing some signs of activity; however India has a long way to go before it is acknowledged as a supplier of any repute in these industry segments. We also need to understand how our competitiveness in IT and Services exports shall be nurtured and sustained and what is government doing to competitiveness of this area.
There is need to examine how our policy initiatives like signing of Trade Agreements and incentive structure are likely to support the growth and job creation in these areas. Also, if overall policy initiatives including SEZs etc. have helped or hindered competitiveness and job creation.
4. Power sector reforms are another example. The previous government (till 2009) carried out financial restructuring of the Distribution sector in the states. Some of the states like Orissa privatized distribution while others just managed to transfer their losses to Central governments for the taxpayers to bear such losses. It was assumed that the reformed sector shall act in a mature manner to stop further accumulation of losses and shall be privatized which may result is competition and improvement in services. However, the new government focus shifted generation. It rolled out a slew of generation projects and other initiatives, however the deterioration of the Distribution sector along with complex political wrangling with the State government has vitiated and stifled this growth. As a result the health of the sector seems to be deteriorating and public should be surprised if it made to pick the tab either through Debt restructuring with tax subsidy route or via transfer of losses to government coffers or through increased tariffs. How shall this impact future competitiveness of dependent sectors and overall impact of growth of this industry and dependent industries.
5. Roads sector is another one witnessing growth on the back of National Highway development programme. It is a bit curious to note that the cost of development of road in last 12-13 years from 1998 onwards has gone up by 16 times i.e. from approx. INR 10 mio. Per KM to INR 160 mio. Per KM. There is urgent need to understand the reasons for such increase. The development program is being sustained through Public-Private partnership. This largely implies that Private sector shall develop and maintain these Roads and private sector shall receive a sum of money to improve project viability and a concessionaire agreement to collect user charges for maintenance of the roads and to recover investment. There is urgent need to examine these long term tie ups of the government since poor management at this juncture is a long term cost on the people of the country. Basis the central government, some of the state governments too are taking similar initiatives. There is need to examine these as well and check what these agreements mean to long term competitiveness of the country or if these are temporary eyewash to show growth but shall be a drag in future. The power sector also needs to be examined with the same vigour as such agreements also abound in that sector as well.
6. Bharat Nirman is another hyped scheme of the government. The scheme is administered through state governments and by its own admission there have been leakages in administration of the scheme albeit by the state. The scheme is targeted towards development of rural infrastructure in the country. Ideally if such scheme is successful, rural production of goods such as food, handicrafts, tools, furniture, stitched garments, SSI and tiny sector items etc. should increase and consumer should feel the benefits. Also, there should be increase in rural consumption of Industrial goods. While rural consumption of industrial goods have been increasing but the reverse flow of rural goods in urban areas doesn’t seem to be happening. There is need to understand this phenomenon as to who the real beneficiaries of bharat nirman are and what are the actual benefits Bharat Nirman is delivering.
The ministers are publicly stating a limited role and responsibility for themselves and are engaged in passing the buck to one another. The concept of Group of Minister seems to be limited to bringing an agreement towards a policy or course of direction however actual implementation of the agreement is floundering with all ministries washing their hands off and no one coming forth to take responsibility. This is happening because different ministries, bureaucrats are busy protecting their turf or enhancing their roles during the change management process. Competing ministries and bureaucrats are concerned and drag their feet citing issues. The technocrats in the government are either operating out of their silos limited view and control of situation or engaged in ‘Intellectual Masturbation’ oblivious of the real problems but ready with ‘all explanations’. How far can this design drag and is it calculated political maneuvering or judgment error; is the question?