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Superficial versus deep reforms

Rahul Gandhi may consider them game-changers and the finance minister magic, but they don?t even scratch the surface in terms of what we need.

The UPA government has recently announced certain measures, which Rahul Gandhi considers to be ?game changers?, the finance minister ?magic?, and the Prime Minister a reviver of ?animal spirits?. They are superficial and cosmetic, not the deep reforms that will hurt the vested interests that this government protects.

The Kelkar report asking for elimination of administered prices for petroleum products was shelved. Politicians held back price increases for diesel, petrol and kerosene despite rise in crude prices. Government had to recognise oil company losses as subsidies in Union Budgets. Fertiliser subsidies, free electricity to farmers for pump sets, heavily subsidised rice or wheat in some states, write-offs of farmer debts, the badly administered rural employment guarantee scheme, and other social schemes added to government deficits at the centre and states. Huge government expenditures on social welfare schemes, are spent inefficiently and wastefully, with considerable theft.

Today?s government will not even cut waste and theft in social programmes and subsidies. Instead they take superficial measures. Reforms in agriculture, administration, bureaucratic procedures, and transparency in government decision-making, are not on the agenda. Infrastructure and exploiting natural resources are bogged in opaque allotments of spectrum, coal mines, iron ore mining, etc. Huge losses to the central exchequer of potential revenues are prevalent. Land legislation to protect land rights and permit easier land acquisition, transparency in sale of natural resources, removing restrictions on foreign investment are haphazard with continuing time-consuming procedures. On-off approach to exports of sugar, cotton, etc. continue. Incentives for financial institutional investment facilities (the ?Mauritius route? and participatory notes that enable money laundering), continue. Simplifying procedures to allow speedy foreign direct investment are not introduced. Laws to make criminal offences of white collar crimes and corruption, with severe penalties are not considered. The judiciary is constrained in numbers, status and remuneration.

Agricultural productivity in every crop is significantly lower than many Asian nations. Environmental issues like salinity, water logging, leaching of soil, and contamination of rivers receive misspent funds. Agricultural pricing and markets are severely distorted, and hence do not provide ?signals? through agricultural prices. Little investment to improve the agricultural supply chain to urban markets has resulted in considerable wastage. Commission agents and wholesalers take away a large share of consumer prices while farmers are left with low prices. Free or below cost power has led to ground water depletion and salinity of land due to shift to water intensive crops. Coordinated policies for agriculture must cut across different ministries.

Power generation remains behind planned targets. Coal is inefficiently mined, with severe shortfalls in production. Captive mines opaquely given to private sector have not helped. Gas-based power plants suffer because gas supplies have dwindled. The regulatory mechanism for power has allowed state electricity boards to lose substantial amount of money. Neither coal nor gas production is transparently regulated for production and prices.

The public sector commands key sectors?power, coal, oil and gas, steel, aluminum, railways, road construction, food procurement and distribution. All are highly inefficient, and exhibit ineffective planning, vast thefts by politicians and bureaucrats, and poor quality and availability.

Administration lacks in transparency and individual accountability, and experiences rampant corruption. Cities and towns are poorly governed and planned. Sanitation, drinking water, housing, are neglected. A bureaucracy not designed to execute vast schemes for huge expenditures is expected to do so efficiently and honestly. Drastic reform of all administrative and police services is a vital necessity.

India is rated amongst the worst countries to do business in. The primary reason is the time taken over getting innumerable government permissions. Simplified procedures are a must for attracting foreign investment. Domestic investment is also looking for overseas pastures for the same reason. Annual reviews of corruption in different countries rate India among the most corrupt. Corruption should be a criminal offence. The judicial system while reasonably effective is short on the number of judges, with poor remuneration. Reforms now have to correct our institutional structures, systems and procedures. Haphazard superficial changes are not enough. Direct cash transfers by themselves will do little. The Aadhar project is ambitious and unique. It will take time for the country to be covered.

There must be foolproof identification of desired beneficiaries. For reducing waste and theft in subsidies and help to the poor, an easily accessible ATM-type bank network must be in place. Mere cash transfers without a supporting banking system and means for identifying target beneficiaries will take us nowhere. Village power-hierarchies of caste and community must not come in the way. Social audits must be by trained people with immediate resultant actions.

Political parties must immediately agree on these basic reforms. For a start, slash government expenditures to reduce government deficits permanently. Administrative reform (including police) must ensure individual accountability and transparency in decisions. Constitutional and statutory regulatory bodies must be staffed with qualified people, not merely retired bureaucrats. They must be respected, not interfered with. The public sector must either be truly autonomous or be fully privatised, especially coal, gas, power. Procedures for all purposes must be simplified and transparent. Judiciary must be expanded and subjected to time discipline. This government has no concept of reform. In past crises it acted in a coordinated fashion and speedily. In 1991 reforms removed obvious barriers. The reforms today have to dig deeper. They face vested interests in and outside government. But they are unavoidable.

The author is former director general, NCAER, and was the first chairman of CERC

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First published on: 25-12-2012 at 01:26 IST
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