We should not forget the equity dimension of PSU privatization

Prime Minister Narendra Modi’s statement that “the government has no business to remain in business" is the clearest articulation of the reason why India must privatize the hundreds of public-sector enterprises that its Union and state governments run. In doing so, he departs from earlier prime ministers, who preferred incremental dilution of government shareholding, or a cautious one-by-one approach in the sale of public enterprises. The invention of the term ‘disinvestment’, which for two decades has been used to describe the privatization of public sector enterprises in India, showed both a lack of clarity of purpose on the part of previous governments and also their need to apologetically cloak the policy against criticism from ideologues across the political spectrum. It is to Modi’s credit that he has decided to use his political capital to declare that privatization of public sector enterprises is in the national interest and thus ought to be carried out whole-heartedly. This is a welcome break from the past.

To realize the ambition of raising over ₹2.5 trillion from the monetization and sale of state-owned businesses and assets, the Modi government will have to get two crucial things right.The first is well known: Process. After Niti Aayog recommends what to do with each of the 300-odd public enterprises, it will be examined by a committee of secretaries, then by a committee of ministers, before the Department of Investment and Public Asset Management (DIPAM) puts it to the Cabinet Committee on Economic Affairs (CCEA) for ‘in-principle’ approval. Instead of this long route, either Niti Aayog or DIPAM should directly take it to the CCEA.The Union government currently does not have an administrative setup and sufficient talent with the professional skills needed to carry out what is at its core a corporate mergers and acquisitions role. What is more, good civil servants will hesitate from taking up the job for fear of a career- or retirement-ruining scandal. Outsourcing the job to private investment banks could bring greater efficiency to the process if done right, but opens up a host of conflict-of-interest issues that would be difficult to manage in the Indian context. The ideal setup is a special purpose department that has political sponsorship, administrative clout, professional talent, incentives for transparency, rewards for performance, and insulation from scandal. So it will have to be a new hybrid species of the genus Governmenta, incorporating many genes, functions and adaptations from the genus Privata. For if we continue with the current administrative machinery and processes, the gap between the country’s disinvestment targets and actual proceeds will yawn even more widely.The second issue is perhaps more important but gets a lot less attention: Equity. Not equity as in shares, but equity as in fairness. The Prime Minister mentioned stakeholder mapping in the context of transparency and competition in implementation. For privatization to be successful, widely accepted and in the public interest, stakeholder mapping should be vastly expanded to cover all sections of society that will be affected by the reforms.The government has done well to announce that the proceeds from the sale of public-sector enterprises will be routed “to public welfare schemes in areas like water and sanitation, education and healthcare." Finance minister Nirmala Sitharaman noted that the money is "not being raised to fill acertain hole in the Consolidated Fund of India. The money being raised from disinvestment will go towards infrastructure." The promise that the sale of public assets will be used for long-term investments in human and physical infrastructure addresses the baseline equity issue. It will be a good idea to put legislative safeguards on this promise, to prevent governments from violating the compact in the future. Let’s recall that the National Investment Fund (NIF), set up in 2005 with similar intent, saw a withdrawal in 2009 “in view of the difficult economic situation caused by the global slowdown of 2008-09 and a severe drought in 2009-10".Next, there are misgivings that privatization will lead to job losses and that candidates entitled to job reservations will be worse off. The former can partly be addressed as part of the privatization agreement. The latter requires political engagement and policy solutions. One way is for the government to upgrade its investment in promoting Dalit entrepreneurship in particular. Equity considerations thus demand that public policy creates better upfront pathways for people to attain a higher socio-economic status than they stand to lose once public sector enterprises are privatized.Many public sector businesses were created by governments at a time when India was poorer, incomes were smaller, the tax base narrower and tax rates higher. They were financed using large parts of our parents’ and grandparents’ incomes. Is it not fair that the original investors should benefit from the sale of assets that the government created with their money? There is an argument for putting part of the proceeds in the retirement accounts and pensions of our oldest taxpayers, as a way to compensate them for the sacrifices they made to finance the socialist state. Their voice is not politically strong, their demands not strident, but recognizing their contribution is the right thing to do.This piece was originally published in The Mint

Making State Finance Commissions work

State Finance Commissions (SFC), constitutional bodies that recommend allocating resources between state and local governments, have had a chequered history in India. In yet another attempt to revive these institutions, the Fifteenth Union Finance Commission (15th UFC) recommended that the submission of SFC reports be a precondition for local governments to receive additional grants. The intention here is to nudge state governments to take SFCs seriously. In this article, we look at how this attempt might play out.Read the full article in Deccan Herald

Does the budget meet India’s Defence requirements?

Until 2019, defence spending made headlines around just two events in a year. The first was when the Union budget was tabled in Parliament, and the second was when the Swedish thinktank, SIPRI, released its formidable comparative military expenditure report. That scenario changed in FY 2020-21. China’s incursions in Ladakh highlighted the urgent and long-term need to prioritise defence. It brought home the point that the central focus of military planning should be China, not Pakistan. This need for prioritisation came even as the pandemic caused a drop in both economic activity and government revenue. Given this backdrop, the government had a challenging task on its hands. There are four key takeaways from the Union Budget 2021-22 for defence.Read the full article on Hindustan Times

An analysis of Social Security Measures : Union Budget 2021-22

This is a draft version of the article published in Prajavani, which is accessible here.

The COVID19 pandemic and its economic impact clearly showed that India's social protection measures were not enough. An analysis of the social security measures in the Union Budget 2021-22 can help us understand the Governments' priorities. The most important questions to be asked - Has the Union government prioritised social protection in the Budget? If yes, what is the realistic outcome it wants to achieve?

Read the full draft here.

Budget’s disinvestment targets are heroic. Modi govt must show unprecedented transparency

More than macroeconomic numbers like fiscal deficits, outlays and revenue targets, we can get a good sense of the Budget by looking at the tax rates. If there are new or higher taxes, or more complicated tax rules, it is usually a bad Budget. If there are lower taxes and compliance simplified, it’s a great Budget. And if, like the Budget Finance Minister Nirmala Sitharaman presented Monday, where the taxes remain unchanged amid an attempt to simplify their administration, then it’s a decent Budget. Considering that the Narendra Modi government does not intend to raise direct taxes amid the additional spending in the wake of the Covid-19 pandemic, by the tax-rate yardstick, we can grant that it is a fairly good Budget.Read the full article on ThePrint

Looking beyond the Budget numbers to see if government schemes really work

On February 1, the Union Finance Minister will present the annual financial statement — commonly called the Union Budget — to the Parliament. Soon after that, TV discussions and newspaper columns will be flooded with conversations on new schemes announced and monies allocated — why didn’t the government reduce subsidies by x per cent, why didn’t the government increase health expenditure by y per cent and so on.Read the full article in Deccan Herald

Voting Technology: Time for electoral reforms

The possibility of improving the quality of leadership is the redeeming feature of democracy. Declining standards in political probity, the unrepresentative character of the elected legislatures, corrupt practices like electoral bonds are major concerns and call for reform of the electoral system.According to an analysis of affidavits of winners in the 2019 Lok Sabha elections, 43% have criminal cases and 29% have serious criminal cases against them including offences where maximum punishment is five years or more. These offences are non-bailable and relate to assault, kidnap, rape, murder, electoral offences like bribery, corruption causing loss to exchequer, and crimes against women. In 2009, it was 30% and 14% respectively, and the present figures indicate that the number of elected parliamentarians with serious offences has doubled over the past 10 years. As excuses, the foisting of false cases and the pathologies of the criminal justice system are touted to prevent reform. Ironically, a weak criminal justice system favours the perpetuation of political deceit. To expect that the narrow self-interests of political parties will let them push for electoral reform that improves leadership quality would be deluding.Read the full article in Deccan Herald

Indians have put their Republic on a pedestal, forgotten to practice it each day

It’s Republic Day. We will celebrate it as usual with a grand military parade in New Delhi, and flag-hoisting functions at government offices, educational institutions, apartment complexes and neighbourhoods. We will sing patriotic songs, honour our soldiers, listen to a speech by a chief guest and enjoy the rest of the holiday. In some of these functions, we will read out the Preamble to the Constitution aloud, a very good practice that started in recent years and one that ought to become more popular. These apart, there are some unusual developments this year with the invited foreign dignitary unable to turn up in New Delhi and uninvited farmers turning up in their thousands instead, for their very own Republic Day parade.Read the full article on ThePrint

Why the Rupee Overvaluation must be kept in check

Inflation is nothing but erosion of the purchasing power of the money in your pocket. If in one year the price of vegetables, milk or petrol goes up by 10 per cent, it is as if the Rs 100 in your pocket has gone down to Rs 90.

Read the full article in Times of India

Weaning away foreign investment from China

Over the past few years, there has been much discussion about India attracting firms that might be seeking to exit China. Initially, these conversations were driven by changes in the Chinese economy, such as rising labour costs, shifting focus towards new technologies and declining productivity. There was a sense that these changes, coupled with improving infrastructure and ease of doing business in India, would make India an attractive option.

Read the full article in the Hindustan Times here.

Cautious Optimism

The welcome to the new year was wishfully cheerful, riding more hope than evidence. Economic data that is coming out is still mixed, yet hopeful. But to have survived the year 2020 is itself a cause of celebration.Read the full article on OrissaPost

DCGI’s Covaxin ‘approval’ is political jumla. It reinforces idea of Modi’s Atmanirbhar Bharat

Other than to the highly credulous, it is pretty obvious that the Drugs Controller General of India’s ‘approval’ for Bharat Biotech’s indigenous vaccine candidate, Covaxin, was announced for extra-scientific reasons. It has neither completed Phase 3 clinical trials, nor has the safety and efficacy data been published. In fact, the drug regulator has not so much approved the vaccine for general public use, but rather granted permission for “restricted use in emergency situation in public interest as an abundant precaution, in clinical trial mode…”.

Again, other than to the highly credulous, it is pretty obvious that such an ‘approval’ was announced alongside that of the Serum Institute’s Covishield for political reasons. The Narendra Modi government did not want to lose the opportunity to score political points: that India has produced an indigenous vaccine under the leadership of Prime Minister Narendra Modi.

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Having survived 2020 is in itself a cause for celebration

The welcome to the new year was wishfully cheerful, riding more on hope than on evidence. The economic data that is coming out is still mixed, yet hopeful. But to have survived 2020 is itself a cause for celebration. Disease, death, economic destruction and yet resilience, fortitude and determination is how most people experienced the last year. Most of the country, for much of 2020, was in lockdown mode, which was progressively diluted.The lockdown is still operative in many States. It has affected jobs, income and livelihoods, especially in the informal sector. The plight of the urban migrant workers in the country is now well known, and was even mentioned by the Prime Minister in his radio address. The rural economy turned out to be their saviour. The adverse economic impact on small and medium businesses has been severe. The exact detailed economic picture of India’s vast informal sector becomes clear only with a lag.Read the full article in the Free Press Journal

The big convergence challenge that we face in this new decade

We enter the third decade of this millennium amid rising doubts, risks and worries about technology, markets, nationalism, democracy and the world order. The unqualified enthusiasm for them that we saw in the past two decades has given way to concerns about what their right dosage is, and what, if any, are the antidotes should we have willy-nilly overdosed on any of them. This is good. Societies that try to answer them truthfully and thoughtfully can expect to emerge stronger and more successful in 2030. For public policy, as for investors and value creators, the opportunities and risks lie at the intersection of technology, health, society and geopolitics.Read the full article in The Mint

India, China and the Proverbial 13-year gap that is widening

Two years ago, the Chinese people celebrated 40 years of the launch of their economic reforms. The achievement of this period is breath-taking.

Read the full article on Times of India

Why blocking Sci-Hub will actually hurt national interest

Earlier this month, three foreign academic publishers sued two foreign websites for copyright infringement in a case before the Delhi High Court. Elsevier, Wiley, and American Chemical Society, among the world’s largest publishers of academic papers, wanted the court to block Sci-Hub and LibGen, the largest providers of ‘free downloads’ of their content in India. This case is important because it can have a significant impact on the broader research, academic and education environment in India.Read More on ThePrint

V-shaped recovery anticipated, but it's the human capital base of economy that needs care

Macroeconomic winds are blowing favourably as we enter the New Year. Stock markets are at an all-time high. Share price indices are up nearly 60 per cent from their lows of March. The stock market is supposed to be a harbinger of economic times to come, so clearly it is indicating a strong revival. Liquidity in the banking system is more than ample. Interest rates are at multi-decadal lows. The gap between Indian and Western policy rates is the lowest it has been in a long time. Coupled with inflation rates above 6 per cent.Read the full article on Free Press Journal

Let 2021 be the Year of Empathy

It has been a helluva year. Full of tragic struggle against a deadly invisible virus. So many loved ones lost, so sudden. Not even being allowed to see the dying patient. Friends and well-wishers reduced to sending heartfelt

condolences by text messages. Of the city’s migrant workers and families walking for a thousand kilometres to their

villages. Because their livelihoods in the city had been shut down.

Read the full article on Mumbai Mirror

A firebrand farmer leader

During the current farmers’ agitation there was much scorn heaped on a farmer who had the audacity to speak in polished English to journalists.

Read more at Mumbai Mirror

Bharat Bandh — India’s slide into constitutional grey zone where politics decides right or wrong

It is nearly impossible to apply objective constitutional principles to determine rights and wrongs with respect to the ongoing farmers’ protests. And this should concern patriotic Indians.

Ordinarily, coercive public protests and today’s Bharat Bandh cannot be considered constitutional methods and would fall into the category of the “grammar of anarchy” that Dr. B.R. Ambedkar warned us about. But he qualified his disapproval of public protests and satyagraha with the condition that “where constitutional methods are open, there can be no justification for these unconstitutional methods.” Given how the Narendra Modi government pushed through the agricultural reforms in a truncated session of Parliament, and the infinite wisdom and boundless patience of the judges of the Supreme Court, the protesting farmers can reasonably argue that constitutional methods are too unreliable. But then again, how is it justified for farmers — no matter how legitimate their grievances — to block roads and hold up the lives and livelihoods of other people? Shouldn’t the law be enforced to protect the livelihoods and property of innocent people adversely affected by protests and the Bharat Bandh?Read more at ThePrint