17 April, 2014

No emails after 6 PM please; we are French

If ever there was  a misleading post title - this is one. But I am feeling mischievous, and since when has journalistic puritanism been required in a blog ! So read on.

You may have caught the "news item" with exaggerated headlines which seemed to imply that the French had banned reading emails after 6 PM. The trouble was that they did no such thing.  What they did was a collective bargaining agreement for independent contract workers which insisted that they be given a day off after 7 days and that after 13 hours of work a day they were allowed to "disconnect communication tools".  Nowhere did it say they wouldn't read emails after 6 PM.

But the point is that the news item was entirely believable, given the stereotype of the French worker as lazy and prone to long lunches. Nothing could be farther from the truth. The French work as hard as anybody else, at least in the private sector. I worked in a French company for a while - I should know. But the trouble is that with news like the 35 hour work week, draconian union rights, etc etc, the French have an image  of laziness and so anything that reinforces that stereotype is easily believed.

Stereotypes abound in business.  How often have I been asked in immigration counters in various countries if I "was in IT" ? The stereotype of an Indian foreign traveler is that of a coder. And if you are traveling to Australia, the stereotype is that you are not only a coder but are smuggling in 74 packets of every spice known on earth, 4 varieties of murukkus, 18 sweets, etc etc.

The Chinese business stereotype is that of an untrustworthy shifty individual who is out to steal your secrets. The worker stereotype is of a guy or a girl willing to work endless hours in poor conditions for a pittance.  The supplier stereotype is of somebody who can deliver poor quality at incredibly low prices. All three stereotypes are now largely wrong. 

The German stereotype is of precision and excellence in making things. Manufacturing genius. Balderdash now. German "quality" is nothing to write home about. Anybody who owns a Volkswagen car in India should know.

The American stereotype is of a loud bully who knows nothing about the world outside his home town. Again grossly wrong. If ever there was a collectively internationally savvy business race, it is the American. Notice that I refer only to the business community. Jane Doe , despite being a starlet,  might think Europe is a country.

Think of the Nigerian stereotype of utter corruption and email finance scams. Again this is increasingly becoming  untrue. Nigeria recently became the biggest economy in the continent displacing South Africa, admittedly by some jiggery pokery, but you now HAVE to do business in Nigeria if you want to be a global player and it is not that corrupt.

The trouble with stereotypes is that they are so hard to shake off. The brand gets sullied for a long time if the stereotype is negative (a la France or Nigeria) and gets undeserving benefit if it is positive (a la Germany). By that yardstick, perhaps the Indian stereotype of a coder is not so bad. At least it has the connotation of being "brainy" as one immigration officer in the US told me !

Actually widely differing, and wrong, stereotypes abound inside India. The Bong is a long winded lazy bum. The Punjabi is loud and crass. The "Golti" is doing M Tech to maximise dowry. The Kannadiga is sleeping after a large dose of ragi mudde. The Mallu is either coming from or going to the Gulf, but will not work inside his state. The Gujju is out to make money and nothing else.  The Tamil exists solely on curd rice. The sisters from the North East are all "chinkies  of easy morals"  (what a horrible, awful, wrong and offensive stereotype). But all that is forgotten when we step outside and land in a foreign shore. We then become a "brainy coder". Three cheers to the ignorant immigration officer in the West for forging an absent national unity, at least in  stereotype !

14 April, 2014

The awfulness of PC

No; not P.Chidambaram , the outgoing Finance Minister of India. The PC I refer to is Political Correctness. I have a healthy disdain for politically correct expressions, usually the pet infatuation of the Left.  But what happened in Mozilla, the company which puts out the Firefox browser, is nothing short of outrageous.

What happened was this. Brendon Eich was appointed CEO of Mozilla. Within 10 days he resigned. Or rather was forced to resign. Why ? Because there was a backlash against his contributing $1000 to a campaign in 2008 on a referendum on gay marriage in California . He donated to the campaign that sought to ban gay marriage. The donation was made 6 years ago. The "Mozilla community" objected to a guy who was anti gay marriage being the CEO. So he had to go.

This is political correctness at its worst . There is absolutely no merit in sacking him, or if you would like it "creating conditions that led him to resign". Consider the following arguments

  • The matter had nothing to do with his qualifications, experience or performance as CEO of Mozilla
  • In fact it had nothing to do with Mozilla at all and it was a private act by him. As far as I know, making a campaign contribution, even though the stance may not be to everybody's liking is not a violation of the law in the US.
  • He is not evangelising or actively lobbying for ban on gay marriage. All he did was make a donation to a campaign that reflects his personal views.
  • There is zero evidence that he would not treat gays equally in the company . If a law was enacted allowing gay marriage,  and if he then discriminated against gay couples, then he is performing a criminal act and will be prosecuted. There is not even an accusation that he proposed to do anything like that
  • The issue of gay marriage is not by any means a settled one in the US - this is a thorny social issue and there are lots of opinions for and against. The issue is coming up repeatedly in the Supreme Court. This is not an issue like say Nazism or Al Qaedaism where there is a near unanimous opinion.
  • Brendon Eich has never said (nor is he even being accused) that he is anti gay. He is only against gay marriage. There is not a shred of evidence that he has discriminated against gays in his career.
  • He is perfectly entitled to his personal opinion as long as he follows the law of the land and does not let a personal opinion be to the detriment of the company.

It is none of anybody's business, especially that of the Mozilla Board, to be dictating to anybody what his  opinion on non business matters should be . Companies should not be espousing for or against social issues. That is none of their business. They should simply follow the law . Social issues ought to be debated and pushed by individual citizens and enacted by elected representatives. Encouraging companies to lobby on behalf of social issues is the most dangerous step any society can take - look at the mayhem that political contributions by companies is causing in the US.

It is a crying shame that Brendon Eich has been forced out  by a bunch of PC obsessed fanatics. I may not agree with Eich's views, but I absolutely defend his right to have them. Isn't that what the definition of freedom is ?

Shame on you Mozilla.

Full Disclosure : This blogger is a dedicated user of Firefox and is considering abandoning that product !

08 April, 2014

How to sell all this to the electorate

Maybe I should amend the title to "Can all this be sold to the electorate" ?  Well, I am not sure whether this can or cannot be sold (admittedly a difficult task), but I strongly believe it SHOULD be. In a democracy, we elect the form of government we want. However imperfect, it is better , in the long run, than any other alternative. But a sensible democracy is only possible when presented with a choice of ideas - not a choice of personalities as Indian democracy tends to be.

Despite the Indian electorate being enamoured of freebies, open to bribery, largely illiterate, etc etc, it is not dumb. It is actually a highly intelligent electorate which maximises personal benefit ( why not ) and decides on the choices presented. It is the fault of the political class that they have not presented a different nature of choice.

I believe, its a complete misnomer that subsidies and freebies win elections. They do not. Consider the Congress party's last 5 years. Two major doles - the Rural Employment Guarantee and the Food Security Act are nothing but giveaways; totaling in excess of Rs 50,000 crores. Has it given them any electoral advantage ? None.  What about the state of Tamil Nadu - where parties competed with each other to dole out mixies and grinders. The DMK, which started this and faithfully implemented the promise, was thrown out at the last election. The Samajwadi party , which doled out free laptops in UP, is facing a fair defeat in this polls.  Many parties have written off loans, given free power to farmers etc etc - that hasn't always won them elections.

The Indian electorate has changed. Good governance wins elections now. The examples of Gujarat, Madhya Pradesh, Bihar and Orissa, and to a certain extent Assam are showing us the way forward. Spread across the political spectrum , they are indicative of a trend. Development and economics works and it can win elections. After all, the current frontrunner is running precisely on this plank.

The challenge for the political class is to explain economics in a simple way to the electorate. Almost nobody has cracked this (anywhere in the world). But that doesn't mean we should not try. Present the Indian budget in an even simpler form than what I outlined a few posts back. And then engage in a national debate  as to what the priorities should be. An honest, non corrupt leader, meaningfully engaging this issue will resonate with the voters. Indians understand debt and the need to live within our means very well - it is in our culture. Engage in a debate with them on priorities. I am willing to bet that a consensus amongst a vast majority will be reached, which would be sensible economically.

There are however some pre requistes for a politician engaging in an economic debate

  • He or she must be completely non corrupt personally. At the moment only Manmohan Singh, Mamta Banerjee,  and perhaps Narendra Modi qualify.
  • He or she must be completely free of crony capitalism (both the gentlemen stand accused of this)
  • He or she must have credibility (Manmohan Singh's has gone and the lady does her best to undermine her's) .

Such a leader must present the case for reform  to the Indian electorate.  It may not win him the election, but I strongly feel it won't lose him one. Building up some steam and buy in, makes the job of implementing them easier later on. Once the track record has been established, it will guarantee him future victories in elections far better than any populist measures will.

So here is a suggestion to the combatants in the elections

  • Choose a personally non corrupt leader (most major parties have such individuals)
  • Outline the boundaries of the economic plan. Of course, this is only aspect of a manifesto - others including social, political, cultural, and other issues are equally important
  • Once in power, implement rigorously with zero tolerance for crony capitalism. State funding of elections, will help in this.
  • When the time comes five years hence for re election, I submit you would win easily.
An alternate route to winning this election, I suggest,  will doom you to defeat in the next one. So what, you might ask ? After all five years of power and moneys are pretty good . Yes, maybe. But politicians will quickly discover that short term gains are not that attractive to them any more. They all aspire for a place in history.  That is certainly true of those who want to become the Prime Minister. A place in history comes with  the nation doing extraordinarily well - not by thuggery or maximising personal wealth.

With this post, I rest my case on the economic manifesto for India.

We enter a crucial next month when we as a nation will make a choice.  May we have the strength to chose wisely, and carefully. And May the Force be with the new leader, whoever that may be, and his government, to serve India well. May we be judged in times to come, as a generation which turned the corner for India. 

Amen.

06 April, 2014

Get the poor to subsidise the poor

I am not sure what the Tamil Nadu government is. A bootlegger ? A bottomless pit ? A great implementer ? A humane  carer of the unfortunate ? A bunch of eunuchs in the court of a megalomaniac ? All of the above ? Read on.

I was tempted to take a one post detour from the economic manifesto for the country as a whole, to shine a spotlight on Tamil Nadu. This was prompted by a comment from myfloatingthoughts asking for an opinion on the freebies and other doles that bedevil this state. When I examined the financial situation of Tamil Nadu, it is a complex nuanced position. A mixture of the good, the bad and the awful. Judge for yourself.


                                                                                                      Rs Crores

REVENUES

State sales taxes                                                                                33,970
Profits and taxes from liquor sales                                                      23,400
State's share of central taxes                                                             14,520
Property Taxes                                                                                    8,338
Others                                                                                               21,549

Total Revenues                                         1,01,777


EXPENDITURE

Interest                                                                                              10,196
Freebies  (the awful kind like mixers, grinders)                                      8,350  
Pensions                                                                                            13,680
Unproductive expenditure                                                             32,226


Education                                                                                          16,293
Agriculture                                                                                           6,346
Health                                                                                                 5,365
Power                                                                                                 4,368
Urban Development                                                                            4,148
Other Revenue productive expenditure                                              10,108
Other Capital productive expenditure                                                 28,362
Productive expenditure                                                                 79,032

Grants to local bodies and Panchayats                                          9,233

Total Expenditure                                     1,20,491

Note : Classifications of" "unproductive" and "productive" are my own    


One thing immediately stands out from the revenues - the Tamil Nadu government is essentially a liquor company. It has commandeered a monopoly of the liquor distribution in the state. Liquor consumption is booming in Tamil Nadu, aggressively driven by TASMAC - so much so that the per capita liquor consumption in the state is the highest in the country. If you have seen a TASMAC outlet anywhere in the state, you would know it is one of the dingiest and most depressing of all places. Only the poor frequent TASMAC. If ever there was a case of the state robbing the poor ..........

The thing that stands out on the expenditure side is that pensions are a bigger problem than freebies. The freebie nonsense is a relatively small amount and can be turned off, for many of the freebies like mixers and grinders (the largest one is laptops)  are one time affairs. The real problem is pensions, to the 7 lakh retired employees of the state. It is a sobering thought that 1% of the population of the state (and relatively well to do at that) corners 14% of the state revenues. Wonderful.

The better side of the story is that a considerable portion of the expenditure actually goes to productive uses. The state has always been a leader in education. Its health sector is also one of the better managed ones in the country. Its roads are good. It has faced a chronic shortage of power and has stepped up investment in this sector by a huge amount. Irrespective of which political party is ruling, productive expenditure has always been high. Yes, a significant portion of this expenditure is siphoned away by the political operators - for this is one of the most corrupt states in the country. Yet, a fair amount does actually get spent. So the situation is not that bad.

There are no elections to the state due for a couple of years. When the state elections come, the chief issues , economically speaking,  for the state are

  • Is it ethically right for the state to remain financially afloat purely by getting the poor to be fully drunk.
  • What to do about pensions
  • How can we get a greater proportion of well meaning productive expenditure to be actually spent instead of being siphoned away

I am willing to bet not one of these will be debated election time.              

03 April, 2014

The virus of corruption

In the previous posts developing the economic manifesto, we had parked the issue of corruption to be discussed separately. We now address the tackling of corruption, arguably one of India's biggest problems and one which is indisputably linked with any economic road map.

My first submission is that corruption can never be totally eliminated - for it stems from one of the basic human  vices - greed. We can, and should, control it as much as possible. But elimination is impossible.  Nowhere on earth has corruption been made extinct.

The battle against corruption needs to be tackled on three fronts

  • Minimise the chances of corruption by removing the need for government clearances, permits, licenses, etc except for where this is absolutely necessary
  • Transparency and oversight over commercial transactions involving the government
  • A powerful and vigilant independent body that monitors, checks and prosecutes cases of corruption

The problem with the Anna Hazare movement is that it exclusively focused on the third element and completely bypassed the first two. The reason why his political successor, the AAP, will not succeed in tackiling corruption is that it too exclusively focuses on Item No 3 and actually seeks to increase the first problem.

The first front of the battle has to be to eliminate the need for licenses, permits, and various clearances, that have long outlived their utility and which are exclusively designed to breed corruption. Every commercial activity in India is subject to a plethora of rules, procedures and licenses, three fourths of which are not required and are primarily the source of petty corruption. These can be eliminated easily by

  • Trawling through such laws and repealing them
  • Consolidating all others and making them single window procedures
  • Making them  transparent, online and therefore not subject to the whims and fancies of the babus

There are many examples of this being successfully done in India. In 1991, we took the bold step of abolishing Industrial licensing , a previously unthinkable step. P Chidambaram, then a young turk full of energy simply abolished the Controller of Exports and Imports in one stroke - one of the most corrupt bodies then ( famous quip of his when he met the worthy was,  "I can understand somewhat your trying to control imports, but why on earth are you controlling exports !") . It has been done and can be done now.  It doesn't need a financial emergency to goad action. I am not advocating the Wild West at all - clearances such as pollution, fire safety, etc are paramount. But do you have to have laws saying the font size in which the name board of your company has to be in and the  need for first having Kannada and then only English in the name board. Or the need to inform the local babu everytime you have to open the office on Kannada Rajyotsava day ?  You would be amazed how many such requirements exist.

The second, and most important battle is to govern the processes of economic transactions with the government.  These are primarily in the areas of price fixation for assets owned by the government - spectrum, coal, etc,  and the execution of government projects such as roads, public events like the Commonwealth Games, etc. This can be achieved by 

  • Clear and transparent, published rules governing each type of such transactions
  • Oversight by independent regulators (already happens today when such transactions come under the purview of SEBI or TRAI or RBI, etc). As a corollary, make all these regulators independent, starting with the RBI.
  • Create an ombudsman body, staffed by eminent independent Indians, who will pre approve all transactions above a certain limit (very high limit obviously)
  • Government to get out of price fixation for products (like electricity, gas, coal, etc ) everywhere and leave it to markets. If it wishes to intervene, these will be in the form of open market interventions, very similar to how the RBI acts today
  • Pricing of natural resources is to be through an open transparent auction (like what happened for 3G telecom)
A leader who is personally non corrupt, powerful and is prepared to leave government decisions in the hands of professionals will ensure that this is effective. Something like this is what has happened in Gujarat and is the reason for the halo around that leader. Copy the model elsewhere, although that will take some doing with two of the three gargantuan megalomaniac ladies that dot our political landscape.

The third (and only the third) step is to create a powerful, anti corruption oversight body. In the absence of the first two steps, this will never be effective. But in conjunction with the first two, this can be a solid weapon. Enough has been said on this subject. Simply enact the Lokpal Bill.

Is all this simplisitic. Yes, it is. I had no desire to write a thesis, but I will be happy to get into a detailed discussion on any aspect with any reader.

There is a missing ingredient in all this. It is the moral fabric and value system of the citizens of India - a factor rightfully emphasised repeatedly by The Million Miler, one of the regular commenters.  Unfortunately this is India's greatest weakness. The moral fabric of the nation and its citizenry, I am deeply saddened to say,  has been completely torn apart. It pains me to say this, but we are a corrupt nation intrinsically. It is a rare Indian who is not corrupt at heart. He expects everybody else to be clean, but doesn't think a fraction of a second before bribing anybody to get his job done.  That is the reason why corruption will always be a significant element in Indian life. A messiah is needed who will lift us from the sad levels to which our values have degraded to. Until then, we cannot eliminate corruption. But we can try to contain it.

01 April, 2014

Lock the checkbook

After considering the revenue side in the previous post, let us turn our attention to expenditure. This is important, as the pattern of expenditure reflects our priorities and the debate really ought to be on whether the priorities are right or should there be a different set of priorities.

Even if you disagree on my classification of "productive" and "non productive" expenditure when I outlined the current state of India's finances, it is obvious to anybody that we should decrease non productive expenditure and increase the productive expenditure. However exactly the opposite has been taking place over the last 30-40 years. There is little doubt in my mind that a correction is required. But the correction should be gradual - any sudden reversal will trigger a revolution on the streets and is impractical.

Here are my set of proposals for the expenditure priorities

  • You can do absolutely nothing on the interest line as these are past commitments. However the one thing that you can do is stop it from going beyond control. My proposal is to decrease the rate of increase over the next five years so that it peaks in the fifth year and thereafter falls. We cannot do any better considering where we are starting
  • In an ideal world, we can do away with defence expenditure, but humanity will never reach that state of idealism. Given the geopolitical situation we are in, it can be argued that we should be spending more. However given the state of finances I propose only modest half of inflation increase in the defence budget for the next five years. Once we reach somewhere near a balanced budget, our defence expenditure should increase gradually so that in 20 years it is at the same % of GDP as China
  • We now come to the most vexing of areas - subsidies. I am not a votary of zero subsidies. Far from it. In a poor country like India, the unfortunate need  assistance. What I am absolutely opposed to is subsidy to the "rich". Here are my proposals
    • Food subsidy should be retained and grown at a modest 3% per year. Subsidy to everybody but the real poor should be stopped (currently I am entitled to some rations). The Public Distribution System is very patchy in various states - the example of Tamil Nadu, where it is probably best done should be copied in other states. The combination of better implementation, a la Tamil Nadu and stoppage of subsidies to anybody above the poverty line means we can substantially cover and enhance the benefit to everybody below the poverty line.
    • There is zero logic to Petroleum subsidies other than kerosene subsidy (which is the only subsidy that goes to the poor). The argument that raising the price of diesel will affect the common man is specious - the level of deficit financing is a bigger cause of inflation that a diesel price hike.  Reduce petroleum subsidy over 3 years gradually leaving only the kerosene subsidy as an expenditure item.
    • There is also little justification for the fertiliser subsidy.  Phase it out over 5 years by drip feeding increase in price of fertilisers . More price increase when the monsoons are good, less or no price increase when the monsoons fail. We are a food surplus nation at the moment. Even if there is a temporary fall in foodgrain production, we can absorb it.
    •  Retain all rural development subsidies other than the NREGA, which is surely one of the most awful schemes of the previous government. Phase this out over three years.
  • Pensions to government staff is a monster - it is inflation indexed and most pensioners earn well above what their salaries were when they were working. There is little justification in cosseting this lot. Abolish inflation indexing and continue the pensions . However for current employees, make the pension scheme contributory - both employer and employee contribute every month and the corpus built up becomes the pension. Do this in stages. First abolish benefit scheme for new recruits, then for the under 30s, then for the under 40s, fiddle the inflation numbers to halt the runaway increase, then increase pensions by only half of inflation and so on. The power of creeping reforms is not to be underestimated.
  • Keep all other "non productive expenditure", but grow them only at half the inflation rate and demand efficiencies to make up for the balance. There are examples in India today of states which are efficient in implementation. We have to copy the most efficient states model to the other states
  •  Productive expenditure has to be increased substantially. Double the spend on Health and Roads over the next 5 years. Corporatise Railways (keep them in the public sector)  and let them raise their own borrowings in the market for investment. A  correction in passenger fares (amongst the lowest in the world) and freight rates (highest in the world) has to take place - drip feed the correction over  3 years.
  • Education is being heavily invested upon - both by the Centre and the States. I propose a further 50% increase over 5 years. The regulatory bodies in education are amongst the most corrupt in India. Abolish them and reconstitute a professional body of experts - not bureaucrats.
  •  Industry needs no substantial increase in investment (the private sector has to do this). Agriculture does. I am not an expert on agricultural policy, but there is a substantial need for reform. The level of investment needs to be doubled over 5 years. An expert committee with the likes of MS Swaminathan can draw up a comprehensive policy and the government must implement it in toto.
 Based on the above proposals the finances of the central government at the start of its term (now) , at  its mid point in 3 years time and the end of its term in five years is presented below.

 
                          2013                    2017                2019
                       Rs cr                 Rs cr              Rs cr




Revenues 1,056,381 1,406,043 1,701,312




Expenditure


Interest 380,066 447,811 471,727
Defence 203,672 222,558 236,112
Food Subsidy 92,000 100,531 106,653
Fertiliser Subsidy 67,971 27,188 0
Petroleum Subsidy 85,480 34,192 37,697
Rural Devp Subsidies  78,452 50,000 55,000
Pensions to Govt staff 74,076 63,511 57,319
North East Subsidies 24,262 28,086 30,965
Police 43,148 49,949 55,069
All Others 144,227 157,601 167,199
Non Productive Expenditure 1,193,354 1,181,427 1,217,740
Education 67,398 89,707 108,545
Health 30,145 45,847 60,632
Railways 30,223 12,089
Roads 21,399 32,545 43,041
Agriculture 17,557 26,702 35,313
Industry 22,393 25,923 28,580
All Others 88,926 118,361 143,216
Productive Expenditure 278,041 351,173 419,328
Grants to States for Plan Expenditure 119,039 149,955 174,907
Total Expenditure 1,590,434 1,682,555 1,811,975 

As you can see we can come close to achieving a balanced budget despite increasing productive expenditure significantly and not eliminating every subsidy. With some luck and a higher growth rate, we can even hit a balanced budget. Once that happens, we enter a virtuous cycle - interest burden starts to diminish and we can substantially up the productive expenditure. Massive step up in education, health and infrastructure would then be possible. That would be basis to seek re election.

I believe the debates we have had on expenditure  in the past are every cursory.  Expenditure is all about priorities. Any individual expenditure or subsidy can always be justified. The problem comes when we are presented with the totality of the revenue and expenditure situation and then asked to defend if our favourite subsidy has to be continued then what alternate item should be cut. When we agitate on the streets for the cooking gas subsidy, we would do well to remember that.

Yes I know I haven't tackled the political saleability of all this. I promise not to duck this and do a full post of how we can sell this to the voters.

Waiting for all your comments. By all means tear me apart on any specific proposal. But remember, you have to present what would be the alternative !