Mirroring India’s Future: The Decline of Retailers and Farmers in Mexico

Mirroring India’s Future: The Decline of Retailers and Farmers in Mexico

Arun Kumar

Chairperson and Sukhamoy Chakravarty Chair Professor, CESP, SSS, JNU.

A computer systems analyst was the driver of the taxi which took me from the airport to the hotel in Mexico city. A cheerful English speaking man who talked about himself and his family’s woes in the hour it took to cover the 30 kms. He wanted to know about the global economic crisis so that he could figure out why things were bad in Mexico for people like him. He complained about unemployment and his inability to get the right job without connections - a fate his children also face. He put the blame on the US and its policies and corruption in society. These themes were repeated many a times during my week of stay in Mexico.

The taxi passed through many commercial and residential areas but no small shops were visible. There were big malls, automobile dealers, petrol stations, restaurants, pharmacy stores and car repair shops. I wondered if they were inside the colonies. A friend who had been posted in the Indian Embassy in the mid-1980s had mentioned that there were fruit stores everywhere and one could make a meal of fruits in the evening but such shops were no where in evidence. I speculated if this was the future of the Indian metropolises.

The absence of small stores was perplexing but more intriguing was the serious unemployment given that Mexico has been a part of NAFTA since 1994 and which brought in much foreign investment, many factories have relocated from the US to Northern Mexico to supply the US and Canadian markets and so on. The city was bustling with cars and it is prosperous compared to India with a per capita income ten times ours. There are layers of flyovers one on top of the other but there were traffic jams. During day time, it takes 2 – 3 hours to cover a distance that takes 25 minutes early in the morning. Public transport system consists of rail, buses and trams but people are stuck in traffic for a good part of their day. The city has to spread horizontally since it is built on land fill and there is lots of water below the surface. Thus, multi-storeyed buildings require expensive deep foundations. So, most buildings are one or two stories high and that has forced the city of 25 million to spread out.

Old timers remember that Mexico city had small stores till the mid 1980s. Only the organized sector stores survive now, like, the Sanborn chain belonging to Mr. Slim, the richest man in the world. Sanborn has had a unique model of a restaurant on the first floor and a gift shop, pharmacy and other such conveniences on the ground floor. The young I talked to did not remember any time when there were corner stores in the residential colonies. From the Hotel window, perched 8 floors up, I could see malls but no small stores. Sears, Walmart, McDonalds and so on were all there like, anywhere in the USA. In residential colonies, I did see a few small stores but most of them were American `Seven Eleven’ stores. But, there are pavement stalls and markets where the poor purchase their necessities. It was ironic to see the workers in ties from the malls cross the street to eat at the pavement stalls – perhaps they could not afford to eat in the mall.

On a visit to the charming centre of town it was refreshing to see streets lined with small stores. My escort told me that many people came here to shop because it was cheaper here then in the malls. I found a sweet shop named Cellaya established in 1874, much like our Halwai shops. It had the equivalent of kaju, pista and badam barfis, but very expensive.

I went outside Mexico city to Teotihuacan to see the Pyramids. The huge pyramid of the Sun god is apparently a few times larger than the biggest Egyptian pyramids. It was a part of an ancient city 2,000 years back which was over 3 miles long and had more than 1.5 lakh people. All this was awe inspiring but it was tiring because it involved hours of walking and climbing up and down. At the end of it all we went to the neighbouring town to eat. At its entrance over the road there was a beautiful arch which announced `Teotihuacan Pueblo con Encanto’. There the streets were lined with small stores.

The next day I visited the village Tlalnepantla in Morelos. I counted dozens of small shops for a population of a few thousand. This is a revolutionary village. Alvaro, our host, was an economics graduate who settled down here 40 years back. He does Nopal (cactus) cultivation along with the rest of the villagers. His small garden at the house had trees bearing guava, avacados, lime, lukat and so on. He has successfully experimented with creating a village republic. It was amazing to see the hilly village surrounded by 4,000 hectares of Nopal cultivation. Even more breathtaking was the clear view of the distant volcano from which a plume of smoke emanated.

The village rejected the corrupt political parties. They selected their own leader and did not recognize the president of the municipality, a party man. The government sent in troops declaring Alvaro and others as terrorists and they had to go underground. There were protests all over Mexico and especially in the Universities. The government was forced to drop the charges and come to an agreement. Land here belongs to the community and cannot be sold to outsiders. Hearing that an Indian professor was visiting the village, its leaders came with lunch and cactus products - cooked as vegetable, turned into pickle and marmalade– very delicious. Alvero asked about Gandhi, his philosophy of non-violence and how it could be applied in modern society. Gandhi seems to have a special place in Mexico. A chain of book stores is called `Gandhi’. There are parks and roads named after Gandhi.

The farmers are upset with the USA and NAFTA. They complained that the free market had enabled subsidized food to come from the US and destroyed their agriculture which now contributes only 4% of GDP. Thus, the two big employers, agriculture and retail trade have suffered in the last two decades and that is why unemployment is high (5.2%) but underemployment maybe 25%. I met a professor who said his son got a job only because of his connections and another said his son doing a Ph.D. is worried about the future. Why is this happening with so much foreign investment? This unemployment has driven down wages so that a starting Asst Prof in the University complained that he barely makes ends meet with his salary determined by the number of lectures he gives in the month. He thought that the taxi driver was better off than himself.

Worse, in Northern Mexico where investments from the US have poured in, Mafia has taken over and there is lawlessness. There the state seems to be withering away. Unemployed youth joins the Mafia. There is drug trafficking and illegal migration of youth into the US. It is this migration that has kept unemployment from getting worse. The migrants send money back home. So, remittances along with income from petroleum exports and tourism keep the Mexican economy afloat and prevent the crisis from deepening.

The proximity to the US, free trade with it and the investments from there have instead of solving Mexico’s problems led to a deepening crisis of unemployment, decline of traditional agriculture and to the demise of small retailers in metro cities. I wondered whether what I was seeing in Mexico was India fast forwarded twenty years, when the Metros will see lots of cars and traffic jams, unemployment, malls but few small retail stores and agriculture in crisis. Small stores are likely to survive in small towns and villages.

Our crisis is likely to be worse than Mexico’s since we do not border the largest economy in the world where our youth could illegally migrate nor are we likely to get investment in per capita terms matching what Mexico has got nor do we have petroleum or tourism income to prop us up. So, does Mexico mirror a part of our future if we continue with our current policies? What the mirror does not reflect maybe even bleaker because we are not Mexico.

arunkumar1000@hotmail.com

The Growing Divide between Economics and Politics in India

The Growing Divide between Economics and Politics in India

Arun Kumar

Chairperson and Sukhamoy Chakravarty Chair Professor, CESP,SSS, JNU.

Mainstream.

Government has gone for a slew of `reforms’ and drawn strong protest from people and the political parties both in UPA and outside it. The package consists of raising of price of diesel, restricting LPG cylinder supply at subsidized prices to 6 per annum per family and allowing FDI in aviation sector and in multi-brand retail trading (MBRT). The first step is inflationary since it will immediately impact all prices through the cascading effect. In the current scenario of high inflation it can only further damage the ruling political party. According to the government, liberalization of foreign investment will boost investments and raise the rate of growth of the economy. Quarter after quarter the rate of industrial growth has not only been falling but even been negative in some of the quarters.

Foreign investment, hardly a few per cent of the total investment in the economy, cannot change this trend. Even if it rises, that will take time to materialize and, therefore, cannot have any immediate impact on the economic growth rate. Further, it is hardly a panacea for the ills of the industrial sector which is suffering from uncertainty due to corruption and declining exports. The stock markets have reacted positively but that cannot spur growth. Thus, the government is unlikely to derive any short term benefit from this policy. There will be the cosmetic effect that the charge of policy paralysis may no more stick to UPAII and foreign press can no more criticize the PM of inaction.

There is no disagreement on the inflationary impact of the steps taken to reduce under recoveries in petro goods. This is justified on grounds of the need to control the fiscal deficit and the health of the petroleum sector. However, there is a sharp divide on the issue of allowing FDI in multi brand retail trade. The government had proposed it in November 2011 but withheld implementation due to the widespread opposition to it. It had said that it would consult everyone before implementing this policy. The current reaction suggests that there was inadequate consultation and that the step is being taken for some other reason.

The government claims that FDI in retail will boost the economy, provide large scale employment to youth, lead to lowering of consumer prices, better prices to the farmers, reduction in wastage in farm produce, improvements in technology and creation of infrastructure. It has been presented as a win-win situation for the nation. It is only supposed to be anti-middlemen in the supply chain who squeeze both the farmers and the consumers. Traders are labelled as the vested interests who oppose this step. It is argued that the MNCs would not displace the neighbourhood stores which will continue to flourish. Finally, it is said that the Indian corporates are already operating in this sector and they have not wiped out the local stores.

Walmart, the largest multi-brand retailer in the world has been itching to enter the Indian markets and has had a tie up with the Mittals. Its global sales were over $400 billion in 2009 and it employed 2.1 million workers. In India, if the turnover of the retail trade is taken to be the personal consumption, it would be $650 billion in 2009 and this sector offered employment to at least 30 million. If companies like Walmart were to enter India and displace the existing retail stores, they would only employ 3 million workers for India’s current level of sales. This would not happen suddenly but the trend would be clear.

The small stores would not disappear immediately. To begin with their growth in sales volume would slow down as the sales of the big retailers rises. That is already the effect of  the emergence of the malls and the coming of the Indian big retailers like, Reliance and Big Bazaar. The crowds in these stores are at the expense of what could have been the clientele in the small stores. Does one see the poor in these stores? No, a huge segregation is taking place.

The government is touting an increase in investments in the retail sector to spur growth. But, as small stores begin to suffer, their rather substantial investments would slow down. One need go to any market in India, even in small towns and see how the neighbourhood stores have grown. The sleepy Khan Market has turned into a fancy shopping centre (mall without a common roof) in the heart of Delhi. Has all this happened without investment?

The government claims that the companies with FDI will have to source 30% from the MSME sector which will help the growth of this sector. But does the Indian retail sector which is likely to be displaced not source more than 30% of its supplies from the MSMEs? Further, given the global linkages of the MNCs, they are likely to buy more from outside the country than the Indian small retailers do and this will adversely affect demand.

Thus, whether it is employment generation or the amount of investment or the impact on MSME sector, one has to see the net effect of the entry of MNCs in multi-brand retail trade. In the case of employment and MSMEs, there would be an adverse effect and in the case of investment the net effect even if positive would be too small to boost growth.

The expected positive impact of elimination of middlemen for farmers will be illusory given that India has a large number of very small farmers (unlike in the USA) and big business would not be able to deal with them. Further, given the deep pockets of the MNCs, speculation in food prices in India would only increase. The states are being given the freedom whether to implement the policy or not. But once the MNCs are ensconced in Delhi would state capitals be able to resist? It has to be a national policy either way.

The proponents argue that there would be backward linkages with the setting up of infrastructure that is presently lacking and that new technology would be introduced in India. Did Amul not set up infrastructure for milk marketing? Have the Indian organized sector in retail not been creating infrastructure? What is the high technology that Indian retailers cannot set up or evolve in India? If Indian big business has not found it profitable to set up more infrastructure and supply chains then would MNCs find it profitable to do so?

Consider the entry of Pepsi Cola in India in 1988. It promised revolution in tomato and potato farming in India to produce potato chips and tomato ketchup. By 1992 it had invested Rs. 80 crores and was buying from 80 farmers only. When Coca Cola was allowed to enter India without any conditionalities then Pepsi also demanded that it be exempted from its promises. The lesson is that promises made to gain entry are hardly implemented.

Today, the USA and Europe face massive unemployment. How far have the MNCs in retail which dominate these markets helped in reducing it? Walmart is growing but wherever it has gone, employment has declined. In India, where under employment in the unorganized sectors is massive, entry of organized sector firms can only aggravate the situation. They will not employ the poor and ill educated labour working in the small neighbourhood retail stores. Thus, they may create some employment for the middle class, public school educated youth but what of others?

Given all these imponderables for the Indian economy why is the government pushing ahead with this policy, in spite of the disquiet in the public? Indian big business in retail has been tying up with MNCs through various means like, Private Equity (PE), FII and PN route. The black funds of the Indian big business and politicians (some of whom are big businessmen) has been `round tripped’ into India. Thus, the Indian political class and big business are interested in the entry of FDI so that they can bring their funds back. To them the threat of MNCs is secondary.

Genuine Indian big business will not be able to survive the competition because FDI will come via tax havens like, Mauritius and be exempt from taxes. The former would have to sell out to the latter whether of Indian or foreign hue. Is another potential scam brewing? In brief, the ruling class is acting on its own behalf while over looking the larger interest of the Indian people – this is the growing divide between politics and economics in India.

 arunkumar1000@hotmail.com

Legality and Illegality in India: Black Economy, Illegal Activities and Money Laundering

Legality and Illegality in India: Black Economy, Illegal Activities and Money Laundering

Arun Kumar

CESP, SSS, JNU.

Published in German as: "Tatort Arbeitsplatz". Grenzenlos Illegal – Transnationale organisierte Kriminalität. Böll.Thema 

The black economy in India is estimated to be about 50% of GDP, in other words, it adds to the GDP about $600 billion annually. Linked to this is the annual flight of capital from the country with about 15% of the annual generation of black incomes going out of the economy, that is, approximately $90 billion. According to a recent report of Global Financial Integrity based in Washington, India has lost about $462 billion of capital since independence (1947) with most of the sum going out in the period after 1991 when the New Econo0mic Policies were launched. According to the report and others this is an under estimate of the Indian capital illegally taken out of the country. In brief, a poor country has been exporting capital on a large scale leading to an accentuation of the shortage of foreign exchange and of capital in the country, thereby setting back development in the nation.

The black economy is generated in both illegal (mafia, drug trafficking, crime and so on) and legal activities. All incomes generated in illegal activities are by definition black whether they are high profits that should pay taxes or wages that are below the taxable limit. In the case of legal activities, incomes that ought to have been declared and tax paid on them but are not declared are black incomes. However, in the legal activities in India many incomes are below the taxable level, like, of wage earners and those in the informal sectors and therefore no tax is required to be paid on them. In such cases, whether declared on not these incomes cannot be treated as black incomes. Thus, as shown in Kumar (1999), black incomes in India are factor incomes that should have been declared to direct tax authorities but are not.

In India, the black economy affects every economic activity (industry, finance, agriculture and so on) in the country and all the elite sections of population (politicians, businessmen, executive, teachers, doctors and so on) are involved in it. For the generation of black incomes, some illegality has to be committed, that is, rules have to be bent. For instance, businessmen do not show the full income from their sales in their balance sheets and pay less of the various taxes, like, VAT, income tax and corporation tax, applicable to their production. Doctors do not reveal their full income from their practice and take illegal cuts from the testing laboratories where they send patients for tests or may sell organs illegally and so on. Teachers may increase the marks of students or leak out question papers to help students for a consideration. Policemen rather than check illegality collect a weekly payment (called `hafta’) from those committing illegality so that crime proliferates. Politicians bend policies for the favoured ones so as to give an advantage to them over their rivals and charge a consideration (a bribe or a cut) for that.

In brief, during the normal task of carrying out their daily economic activity, elite sections indulge in illegality. In the scams exposed recently top judges, top military men, top politicians, top businessmen and so on have been caught misusing their powers to earn illegitimate incomes which amount to black incomes.

The dividing line between illegality and legality is indeed thin because illegality is committed in the normal legal activities of people. Those earning black incomes try to make out that they are carrying out their economic activity in the routine way by masking their illegality. So a doctor who is supposed to recommend diagnostic tests may prescribe unnecessary tests so as to get a larger kickback from the testing laboratories. However, the patient can not make out that the test is unnecessary and would not like to take the risk of not going for the test lest something go wrong. The Obstetrician may go for a C-section delivery even if the normal delivery is possible so as to make more money for herself and the clinic/hospital. The patient going through the labour pains is in no position to judge whether a normal delivery was feasible or not.

There is a large amount of black income generation in the financial sector because of the secrecy that operates in this sector. For instance, black incomes are converted to white incomes and vice versa via the book entry method in the stock markets. This is characterized as money laundering where dirty money is cleaned and put into legitimate activities. Similarly, bank accounts maybe opened and used for illegal funds transfer by circumventing the `know your customer’ (KYC) provisions of banking sector. The managers of banks connive in this because they are confident that they will not be caught given the secrecy. They have the discretionary powers to bend rules and they can do so for a consideration. Banks try to attract prized customers (big corporations and High Net Worth Individuals) from whom they can get large amount of businesses. For this they overlook the procedures and extend extra help which is often misused by businesses.

For the prized customers, the financial sector runs illegal services, like, helping them with transfer of funds to tax havens. In the recent financial collapse in 2008, failing banks were found to have hundreds of subsidiaries in tax havens. The only purpose of this could have been to help their clients to shift funds around via shell companies to escape taxation in their home countries or to launder their illegal funds. Thus, there is flight of capital from all countries, developed and developing, but perhaps the scale of such leakages is higher in the case of the developing countries and also they are net losers while the developed countries are net gainers so that the developing countries are characterized by flight of capital.

As the Financial Action Task Force Report of 1996 said, the volume of transactions in the financial system are huge so looking for the illegal transactions is looking for a needle in the haystack. In spite of the best efforts of the software experts, it has been impossible to trace the illegal transfers (a few trillion dollars) out of the hundreds of trillions of dollars of annual global transactions. This is an important aspect of the losing battle that national governments have fought against flight of capital and havala transfers.

The governments of tax haven countries are in league with the people trying to park illegal funds in the financial institutions under their jurisdiction. This is because it is a highly profitable business. Further, national governments in developing countries often connive in these activities since the top people are in league with those committing these illegalities. Why is that so?

For the black economy to be 50% of GDP in India and to be affecting all economic activities and to be prevalent amongst all the elite sections of society, it has to be systematic and systemic with laws systematically violated. It can not be ad-hoc or anecdotal, taking place some of the time and not at other times. So, in Delhi, building bye-laws are violated on a large scale and encroachment of public land has occurred on a vast scale. In this there is the connivance of the builders, politicians, bureaucrats, policemen and so on. That is, all those in charge of the law of the land are a party to it and each one of them makes an extra income by allowing the illegality to occur.

In brief, there is an underlying triad which operates to allow systematic illegality to take place. It has been suggested that the criminal has become a part of the nexus in the last three decades. Either the politician or the businessman is a criminal. Thus, a large number of politicians and elected representatives have cases against them. This has led to the spread of criminalization in society and resistance to illegality has weakened amongst the people and also the official machinery. Regulatory agencies (say, intelligence agencies, police men, inspectors and so on) have weakened due to their involvement in illegality. They are used to put a cover on the illegalities of their masters, the top businessmen, politicians and bureaucrats and so they indulge in this in the routine way and also do some small illegalities for lesser people.

Those in power are the ones indulging in illegality under the garb of acting within the law. Hence they are not interested in solving the problem of growing black economy and illegality in society. They benefit from it and encourage it. They have private information about how the black economy functions but are not interested in tackling it since that would hurt their interest. They make a pretence of solving the problem by changing rules and making new laws but all of them are subverted to find new ways of making black incomes.

In India, at least 40 Committees and Commissions have looked into the different aspects of the black economy over the last sixty years and have made thousands of suggestions and hundreds of them have been implemented but the black economy continues to proliferate. Thus, it is not that the policy maker does not know what should be done to tackle the problem but the political will is lacking amongst the elite sections because of their self interest. In this sense, the problem is a political one and one of weak democracy where those who are in power are not accountable to the people of the country. That is why the Right to Information is an important tool to fight illegality and black economy – it undermines secrecy. In India it has been implemented in a diluted way after 2005 and has produced some results and in the long run it holds hope of achieving much by narrowing the gap between legality and illegality.

arunkumar1000@hotmail.com.

White Paper on Black Money: Much Ado About Nothing

White Paper on Black Money: Much Ado About Nothing.

Arun Kumar

CESP, SSS, JNU.

The Hindu, May 26, 2012.

A White Paper on a subject is issued by the government presumably to give a definitive view on it and inform the public of an important issue. The paper on Black Money does nothing of the sort. The opposition had also been demanding such a paper given the large number of scams that have been in the news. But the paper hardly deals with any of them.

The Finance Minister in his Preface admits that he is presenting `… this document now in response to an assurance given to the Parliament.’ The implication is that he is not giving anything definitive. He also says that he would have been happier if he `… could have included the conclusions of reports of three premier institutions that have been tasked to quantify the magnitude of black money.’ It is surprising that these three institutions are only looking at the magnitude rather than the gamut of issues that the black economy throws up. Thus, even after these reports are presented we may not have a better understanding. After all, knowing the quantum of black money in the country is not the same thing as analysing how to deal with the problem.

The White Paper consists of five chapters and several appendices spread over about 100 pages. The chapters are on Estimation, Institutions to deal with the problem, Framework for tackling the problem and the Way forward. This seems like a lot. The Report lifts many arguments from this author’s book on the subject and from these columns in the last year and a quarter. But it flatters to deceive.

The title itself is incorrect. What is estimated is the annual generation of black incomes in an economy and not how much black money there is in the economy. The various estimates mentioned are of black income and not black money. The definition of `black money’ given itself is erroneous with money confused for assets. Even an elementary economics or commerce text book suggests that money is only one part of the portfolio of assets that an economic agent may own. Hence referring to the whole by a part is not appropriate. The definitional confusion is made worse when it is stated that `the term black money would also include income that is concealed from public authorities’. It is like saying that what we will call a `herd of cows’ would also include `hippos’.

Be that as it may, the report does not give an estimate but simply quotes estimates from reports that were written more than 25 years back; ignoring later literature that has also brought about greater clarity in the matter. The first chapter ends with the title, `Need for more research’. Why state the obvious? The earlier reports that this Paper relies upon had pointed to how big the problem already was, so why has the government not studied it since then?

It quotes the GFI report of 2010 on how much illicit flows have taken place from India since independence. The GFI report itself mentions that their figure is a gross under estimate. It is convenient to quote from the GFI report because it gives a low figure but why has the government in the last year and a half not made the effort to remove deficiencies in the GFI methodology and used the data it has in its archives to arrive at a better estimate. The intelligence agencies and the various organizations collect a lot of data that could have been used.

The Paper does service to the public by listing the many agencies involved in dealing with the problem. So far so good, but why have these large number of agencies failed in the task they should have been performing, namely, checking the growth of the black economy? What are the problems they have faced? Why prosecution fails most of the time whether relating to the income tax department or police or the CBI? Why therefore there is contempt for law amongst the powerful and increasing number of people resort to illegality resulting in the growth of the black economy?

A large number of laws to check the black economy are mentioned but there is no analysis of why they have been ineffective in controlling the problem. A law on paper differs substantially from its practice. Much space is devoted in the Paper to the international treaties and efforts at the global level. This is convenient since the black wealth held outside is small compared to what is held in the country. Further, it is far more difficult to get at the black wealth held abroad compared to tackling it what is held in the country. Thus, it becomes convenient to discuss the former rather than the latter.

Most of the wealth held abroad illegally will not be in the names of the actual beneficiaries but in the names of shell companies and so on. Thus, most of it cannot be tracked to an Indian entity. The data on deposits in Swiss Banks given in the Paper indicates that Indians have between 0.13 and 0.29% of the deposits. This should be no surprise since the illicit funds would not be held in the names of the beneficiaries but others. There is no analysis of this problem or of how money is transferred out of the country. We could have been enlightened if information with the intelligence agencies about tax havens and the modus operandi of taking funds out of the country or of generating incomes outside India were revealed.

The interface between the judiciary and the investigative agencies is an important aspect of non-implementation of the laws of the land and the contempt they have come to be held in by the public. That is the cause of the judicial delays with 4 crore cases pending. Even routine matters that should be decided on in a few months drag on for years. This encourages illegality and the prevalence of the black economy. The functioning of the judiciary needed to be dissected.

The paper lists real estate, bullion and jewellery as some of the important activities where black money is generated. This again reflects a definitional confusion. These constitute transfers of black savings from one individual to another. So, these activities circulate black incomes but do not generate them like other activities do that are counted in GDP.

In the chapter `Way Forward’, strategies are listed but again no new ground is broken. As has been pointed out earlier in these columns, DTAA and TIEA are about declared incomes abroad and not black savings held abroad. Similarly, voluntary disclosure schemes have been discredited in the past. The CAG has said that it makes people into habitual tax offenders. It turns honest people into dishonest ones. Further, the Mauritius route was created deliberately by policy makers as an amnesty scheme and as the Paper notes, it is successfully used for round tripping. The government knew it and opposed the challenge to the Mauritius route in the Supreme Court. The White Paper fails to make an analysis of this issue.

The paper skirts the most important question, namely, why laws do not get implemented? It avoids mentioning the nexus between the politicians, the officialdom and the businessmen which drives the black economy? How the criminals have entered the nexus so that today many politicians and businessmen have a criminal background and have contempt for law. Why have the large number of steps taken in the past to control the black economy have not worked?

The answer to the many acts of omission and commission in the Paper lies in the fact that the existence and the control of the black economy are political questions. Dealing with the black economy is not a narrowly technical question that can be tackled by a few more laws or a few steps here and there or strengthening of a few provisions of law or through computerization. Whether it is the ruling party or the opposition, national or regional parties, all of them have been mired in the black economy. The question is one of political will. Should the Paper not have called a spade a spade rather than avoiding the difficult question all together?

But then a White Paper is a political document and not a technical one. It helps the government white wash its image. It must divert the attention of the public from the difficult questions. After all it cannot be an instrument of generating the political will to action - a task that only movements and the political process can accomplish.

arunkumar1000@hotmail.com. 

Union Budget 2012-13: Missing a Vision

Union Budget 2012-13: Missing a Vision

Arun Kumar

CESP, SSS, JNU.

Mainstream, March 24, 2012.

I.          Introduction: The Context of `Reform’

The IMF Managing Director commented days after the presentation of the Union Budget 2012-13 that India should have the `appetite for change’. Apparently she implied that the Finance Minister should have pushed forward the necessary reforms in policies. She further added that there was need for `leadership and consensus’ and this implies a disappointment with the budget as it was presented. Two points arise. What does she mean by reform and whether she is aware of the political compulsions within which the budget was framed? No matter what a stream of thinking may say about separating economics from politics, the two are deeply inter-twined.

What is the reform that the IMF MD wants? As the head of the international institution which has been pushing the interest of global capital, it is clear she is speaking for that interest alone to the exclusion of all others. It is not that businesses have not retained the concessions they have obtained in the past, like, the tax expenditures of over Rs.5 lakh crore or many new ones like, sops to investments and especially foreign investment. Perhaps, contrary to the expectations of the reformers that they would get major new concessions the budget contains threats to their capacity to generate black incomes, like, measures to close loopholes in tax laws and some with retrospective effect. The IMF represents a powerful vested interest in our policy making.

Since 1991 when the New Economic Policies (NEP) were introduced `reform’ has stood for pro business polices – thus, it is a politically loaded term in a deeply divided society. Due to the pressure from international institutions like, the IMF and the World Bank (and their local business allies) `reform’ has globally come to stand for pro-business market based policies. This has become the universal meaning of the term instead of the dictionary meaning `change for the better’. Thus, politics and economics in times of `reform’ are deeply intertwined and not separate from each other as often claimed.

II.        The Crisis Ridden Context of the Union Budget

The budget was presented in the midst of a crisis for the ruling UPA government. The poor performance in the recently concluded State elections, especially in Uttar Pradesh, had demoralised the ruling Congress party. The Railway budget presented two days earlier had resulted in a political storm in the UPA with the TMC demanding the resignation of the Railway Minister, its own party man, for proposing across the board passenger fare hike. It was expected that Shri Pranab Mukherjee, the Finance Minister and the most experienced Minister in the government would manage matters in such a way that the Congress party’s declining fortunes would stabilize somewhat if not begin to look up. It was expected that there would be deft political management.

On the economic front, the FM was faced with a slowing economy and a persisting global crisis.  Since the two factors are inter-linked, the national economic challenge is getting more intractable. Due to opening up of the economy since 1991, all major markets in India are impacted by global events. Over these matters the national government has little control so the economy is buffeted. This has been the case with commodity prices, like, petroleum products and food, the financial markets which have witnessed wild fluctuations and foreign trade which has seen adverse movements.

The situation is worsened by the internal challenge which is being posed by the `reforms’ based on the philosophy of `growth at any cost’ resulting in deteriorating conditions for the workers and the environment which in turn adversely impacts the workers. This policy has resulted in growing inequity resulting in rising social tension across the nation. It led to a decline in the growth of demand in the economy and to the slow down in the industrial sector witnessed in the last year.

In the name of encouraging private businesses, `reforms’ have allowed a permissive environment that has led to a rapidly growing black economy and to increased corruption. The consequence has again been adverse for the workers and income distribution. It led to crony capitalism getting entrenched in society. Important decisions have been taken on the basis of contacts. As the public finally reacted to it and movements erupted since 2010, the government’s credibility has been challenged and it became crisis ridden. This has slowed down investment decisions and has become another cause for the slowdown in the economy.

The challenges for the economy are many and the Union Budget as the largest economic event of the year was expected to take care of some of them. For instance, the PM himself has said that it is a crying shame that there is massive malnourishment in the country. Per capita consumption of foodgrains has declined sharply since 1991. The quality of education and health, where available to the poor, is indifferent at best. Governance is weak due to the black economy and consequent policy failure. It is not that the nation lacks the resources for development but the growing black economy which has become more than 50% of GDP results in the inability of the government to access them and the private sector fritters them away.

Last year, the global economic crisis worsened after a brief pause in 2010. This time it is not emanating from the world of finance as in 2007 and 2008 but from political factors in USA and the Euro zone. Hence it is deeper than the crisis starting 2007-08. The nation needs to take advance steps to protect itself from the ill effects of the likely global crisis in the coming years. For this it must defend its markets to protect the poor and boost the economy. This cannot be done by opening the markets more as the `reformers’ (including the (IMF MD) would want the policy makers to do. That would only lead to demand leaking out with little benefit to India. Like, in 2008, expenditures must be increased in rural areas and on those items which do not lead to demand for foreign goods – increase expenditures on the poor. The Budget just presented does not quite do that and in fact expenditures on such an important scheme like, MGNREGS is being slashed from Rs.40,000 crore to Rs.33,000 crore even though the FM liberally praises the scheme in para 108 of his speech.

           

III.       Some Budgetary Proposals

The Union Budget for 2012-13 plans for an expenditure of Rs.14,90,925 crore or about 15% of GDP with an expected GDP of Rs.101,59,884 crore. These are huge sums of money and can finance a very large number of schemes for all sections of population. Thus, even if the overall direction of the budget may not be clear or even in the wrong direction, the Finance Minister can claim to have done a lot.

Under `Inclusion’, the Finance Minister has announced increased allocations for SC and ST sub plans of about 18%. For Food Security, there is a 58% increase on Integrated Child Development Services (ICDS). Mid day meals provision has been increased by 15%. Allocation for rural drinking water and sanitation has been increased by 27%. Pradhan Mantri Gram Sadak Yojana (PMGSY) has been allotted 20% more. Backward Regions Grant Fund scheme has been given about 22% more. Budget for Sarva Shiksha Abhiyan (SSA) has been increased by 21.7%. Rashtriya Madhyamik Shiksha Abhiyan (RMSA) is allotted nearly 29% more. For National Rural Health Mission (NRHM) allocation has been raised by 15%.

In addition one may list a few of the schemes that will in some way or the other benefit the marginalized sections: creation of mega handloom clusters, technical support to handloom weavers, market access to Micro and Small Enterprises, Multi-sectoral Nutrition Augmentation Programme, Scheme for Empowerment of Adolescent Girls, SABLA, Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA), Rural Infrastructure Development Fund, National Urban Health Mission, Pradhan Mantri Swasthya Suraksha Yojana (PMSSY), Swarnjayanti Gram Swarozgar Yojana (SGS), National Rural Livelihood Mission (NRLM), Mahila Kisan Sashaktikaran Pariyojana, Women’s SHG’s Development Fund, Bharat Livelihoods Foundation of India, Prime Minister’s Employment Generation Programme (PMEGP), National Skill Development Fund (NSDF), Indira Gandhi National Widow Pension Scheme and Indira Gandhi National Disability Pension Scheme, National Family Benefit scheme and a co-contributory scheme SWAVALAMBAN.

While the FM talks a lot about rural development and according it priority the Central Plan figures do not bear this out. In 2011-12, expenditures on this head are less than budgeted by 13%. Further, the amount budgeted for 2012-13 is less than what was spent in 2010-11, in spite of the high rate of inflation. Agriculture and Allied activities are expected to increase by 18% but in 2011-12 less was spent than in 2010-11. How can one have faith that this pattern would not be repeated? It also brings into question the government’s good intentions regarding the rural sector and agriculture.

While the FM’s speech devotes a major portion to these items of concern to the marginalized, in terms of total allocations they are small. A bulk of the expenditures will be on Revenue Account (Rs.12,86,109 crore) and that too on non-Plan (Rs.8,65,596 crore) and a large part of the latter is pre committed for interest payment (Rs.3,19,759 crore). The three big items of non-Plan Revenue Account add up to 72% - these are Interest payment, Defence and Subsidies. Further, establishment expenses are estimated to be about Rs.1,15,352 crore and most of it is on non-Plan account. With this added, 85.33% of the amount is committed and not available for development. Given that Defence is a holy cow and subsidies a consequence of poverty and other policy mistakes which force subsidies to be given, the over all leeway for the government to spend on essential schemes listed above is rather less.

 Establishment expenses are for the running of ministries and departments and there will be an estimated 34,11,340 employees in 2012-13, an increase of 64,667 employees over 2011-12. Of the total employment, Railways account for 38.9%, the Police for 29.8%, the Home Ministry as a whole (including Police) for 30.55%, Ministry of communication for 13.93% and Ministry of Finance for 5.42%. All of them together account for 88.83% of the total employment in the Central government establishment.

Even though the total expenditures were more than the budgeted amount by about 5%, there was a 2.5% shortfall in capital expenditures in 2011-12 compared to what was budgeted and the amount spent was almost the same as in 2010-11. The Plan expenditure was less by about Rs.15,000 crore (3.5%). This is not unexpected since it happens many a times that the Plan expenditures are less than what was shown in the budget. The Central Plan outlay was less by Rs.34,000 crore or about 6%. If this target had been met, the deficits would have been much higher. Similarly, if the expenditures on rural development and MGNREGS had been as planned, the deficit would have been even higher. The point is that it is the non-Plan revenue account expenditures that have gone up beyond what was budgeted.

In 2012-13, the Expenditures are slated to go up by 13%. But the Capital Account expenditures are budgeted to go up by almost 30% and Plan expenditures by 22.2%.  Plan expenditure is budgeted at 34.9% and Capital expenditures at 13.75% of the total expenditure. These are up substantially but given the past experience it is likely that these targets may not be met since the government will be under pressure to show a lower deficit in the budget to meet its fiscal deficit target.

IV.       Budgetary Arithmetic in Doubt

Revenue receipts of the government have turned out to be less in 2011-12 because the tax collections are less and so are the disinvestments. As pointed out above, since the expenditures are more while the receipts are less, the Revenue and the Fiscal deficits have turned out to be much more (4.4% and 5.9%) than targeted (3.4% and 4.6%). Accordingly, borrowings have risen sharply by 26.4%. This will lead to a sharp rise in the interest burden next year. But this is not adequately reflected in the next year’s interest payment figures.

This raises the question of whether the FM has given a realistic budget or is there likely to be slippage? Revenue receipts are taken to rise by about 22%. An optimistic figure is assumed so that the Revenue and the Fiscal deficits can be shown to be less than this year.

The Services Tax and the Union Excise duties have been increased to meet this increased target even though it is known that this will be inflationary. Further, this will lead to a lowering of demand and that will lower the growth rate of the economy. This has not been factored in while assuming a higher growth rate of the economy for the coming year. If the growth rate turns out to be less (as was the case for the current year, 2011-12) then the entire calculation of revenue will not be correct and the deficit can turn out to be larger.

Further, if inflation rate increases, it will be difficult to cut subsidies and DA payment to government servants and pensioner will be higher. The government has instead assumed a sharp drop in subsidies by 12%. The Government is also cutting back on MGNREGS. If these expectations are not fulfilled then there will be a higher deficit.

The Finance Minister bases his budgetary calculations on the basis of the projections of growth of the economy. So if the growth turns out to be less as it did in 2011-12, the budget also does not fulfil its targets. The FM has expressed the hope that things would improve in 2012-13 but the basis of this optimism is not clear. In his speech, he has stated,

“I expect India’s GDP growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent. I expect average inflation to be lower next year. I also expect the current account deficit to be smaller, aided by improvement in domestic financial savings”.

            In his speech last year also he expressed similar sentiments but they have been belied,

“ … the Indian economy is expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12. I expect the average inflation to be lower next year and the current account deficit smaller and better managed with higher domestic savings rate and stable capital flows”.

The growth rate of the economy was expected to increase from 8.4% in 2010-11 to 9 % in 2011-12 but the actual growth rate may be less than 6.9%. Thus, the underlying assumptions in drafting the budget turned out to be incorrect. As pointed out above, revenues have been lower while expenditures have been higher or not spent on certain key schemes and therefore, deficits are higher than budgeted.

V.            Need for Basic Change in the Philosophy of Development

While one way of looking at the large number of schemes for the marginalized sections of society, listed above, is that the government is concerned about the lot of the poor. But the constant increase in the number of schemes and the allocations to them would suggest that the government is not successful in achieving its objective of improving the lot of the marginalized. This can be because the schemes may be inadequate to the task or that there is some fundamental flaw in the government’s basic policies. Both factors appear to be true.

Allocations are indeed inadequate for the task at hand. The problem is compounded by the black economy, so that funds do not reach the ground and of the amount that reaches the ground a part is wasted and/or siphoned out. Thus, there is large scale policy failure especially for the marginalized sections whose voice is weak.

The second aspect is equally crucial. There is a basic flaw in the government’s policy framework which is based on `growth at any cost’ with little concern for distribution and the environment. Fundamental problems are emanating from this philosophy so that the various schemes continuing and the new ones being launched are mere palliatives. Further, as the new schemes are launched the focus shifts from some of the earlier ones and they tend to languish without serving much of the purpose.

Take for instance, MGNREGS scheme the funding for which is sought to be cut on the ground that the money allotted is not being fully spent. The scheme has come in for fulsome praise from the FM in para 108 and yet it is sought to be curtailed. Rather than identify the reasons for the shortfall and make it more effective and expand it, the opposite is being done, reflecting a casual approach.

The increase in the number of schemes and additional allocations for them result in the expansion of bureaucracy. Given the state of our bureaucracy, this results in greater amount of corruption and waste of funds. Thus, the dilemma is that the marginalized need the schemes but in the long run it does not solve the problem and perpetuates them. The `reformers’ are all too happy to use the argument of corruption and ineffectiveness to get the expenditures on the marginalized sections curtailed. This enables them to get more for themselves.

The reformers see the problems as emanating only from supply side. They believe that the market will solve all problems. They do not see that the marginalized are even more marginal in the market and need state intervention. The reformers have less faith in human beings and more in automation and machines. So, the Adhar card for which a lot allocation is being made is expected to solve problems of delivery through direct cash transfers which will eliminate the human being from transactions. While these kinds of technological fixes can solve some of the problems they can also create new ones.

For instance, with ATMs while delays maybe eliminated crime of a different kind has come. Salary payment directly into the employees bank account has eliminated a kind of corruption that used to flourish but black income generation has only increased since new forms of it have emerged. What also needs to be remembered is that there is always a human element behind all technology and that can foul up its use in unanticipated ways.

VI.       Conclusion

The analysis in this piece points to many positive aspects of the budget just presented by the FM. There are the various schemes to tackle the rapidly growing black economy. There is the promise of a white paper on the black economy and so on. However, the positives are overwhelmed by the overall lack of a direction, especially for the marginalized. This is a result of a lack of a long term vision amongst policy makers and to the manipulation of the budgetary arithmetic to suit the needs of the business community.

Education presents a concrete example of a lack of clear long term vision fouling up increased allocations. Problems in education are not only persisting but are getting aggravated. While there is numerical expansion, quality is being compromised. Many even doubt that there is numerical expansion since data is not very reliable. Children in fifth standard do not even have the skills of what a first standard child should theoretically have. Further, even though there has been a rapid expansion of institutions of excellence, like, the IITs, IIMs and Central Universities, standards are on the decline.

Institutions are not just buildings but people running them. These elite institutions had been facing shortage of good faculty and this has increased as more or less the same number of capable faculty members are now spread across many more institutions. Thus, standards are on the decline in the existing good institutions which are sought to be replicated. There is no quick fix to having more of higher education but the policy makers think that there is one. They are resorting to standardization in all forms of ways without understanding that standards cannot be achieved via standardization. The two are often the anti-thesis of each other.

To be fair to the FM, this lack of a long term vision is not a recent phenomenon but a long term one. The problem has perhaps been further aggravated because the government has been a crisis ridden one and has not had the time to think through what it wishes to do. It seems to not even be able to cater to its political interest. By presenting an inflationary budget it is not making itself popular while it needs to regain its appeal with the public. Whatever the implications of the budget for the ruling party, for the nation this is tragic since there is a need for a government that can face the multifaceted challenges confronting the country.

arunkumar1000@hotmail.com. 

The Corrupt Rule the Roost

The Corrupt Rule the Roost

Arun Kumar

CESP/SSS, JNU.

The Hindu, January 7, 2012

Lokpal has failed to become the law of the land in 2011. The Lok Sabha passed it after some acrimony but the Rajya Sabha did not even vote on it. Three distinct views emerged during the debate both inside and outside the Parliament. First, it is a weak bill not worth passing in its present form. Secondly, it is better to have some sort of Lokpal even if it is not what it ought to be. Lastly, the Bill would create a monstrous institution that will undermine Indian democracy, especially because it would affect the functioning of the legislators and the PM.

Many parliamentarians (publicly and/or privately) understandably supported the third view given that either they themselves or some of their party colleagues (current or former) face charges of corruption. They argue that Indian democracy is one of the best in the world so why disturb it by creating a new institution which would have powers over the people’s representatives. While this has some merit, perhaps the real worry is the truncation of their capacity to wheel and deal. Do they not see that the public is angry with the political class because it believes that they undermine democracy? A Chief Minister resigns because of corruption charges but installs his wife as the CM. Many accused of corruption have become CMs or Ministers. Politicians often make public statements only to blatantly deny them soon thereafter, showing utter disregard for public opinion which has reacted by increasingly becoming contemptuous of them.

The middle position prevailed in the Lok Sabha but did not pass muster in the Rajya Sabha. The argument is that it is better to have some kind of Lokpal than none. A middle path is favoured over the extreme positions. However, one may ask whether the middle of two incorrect positions can automatically be correct or even the middle of one incorrect and a correct position be the correct one? It was argued, for instance, that even if the CBI remains under the government’s control it may be granted more autonomy. The moot question is whether such a CBI can be effective?

Some suggest that not having the constitutional status would weaken the Lokpal. It is true that the constitutional status rather than a statutory one is better but how would that by itself make the functioning of Lokpal effective. It is argued that a government unhappy with the Lokpal can remove her/him, as had happened earlier in the case of the Punjab and Haryana Lokayukta or have the Bill modified through a simple majority in Parliament. However, in today’s environment, this would be difficult since now the movements against corruption are much stronger than earlier. The moot question is how would a constitutional position help in curbing corruption if the Lokpal itself is weak because of the inadequate provisions in the Bill? India has several constitutional authorities (like, CAG and CVC) to check malpractices in institutions but illegality has only grown.

Is it the case that because the Election Commission is a constitutional body, it is successful? Elections to five states were announced last week. Since this is the season for fighting corruption, the Election Commission announced steps to reduce the role of black money in elections. Income tax officers will be posted to monitor expenditures, separate bank accounts will have to be opened by candidates to receive and spend funds and so on. These seem timely since much black money is used in elections resulting in forging of ties between the politicians and the corrupt. Most candidates spend way above the election expenditure limit since they buy votes, hire workers, travel, organize meetings and so on. The politicians accepting funds know that a quid pro quo is expected of them. There are also the wealthy fighting elections using their own black funds. They also pay off the party leadership to get the nomination. They may not be obliged to others but their motive is not selfless service but to further their business interests.

Election Commissions have tried to curb the role of black money in elections but no matter what they have tried, the politicians have proved cleverer and have circumvented everything thrown at them. Mr. Sheshan, as Chief Election Commissioner, cracked the whip but many politicians have said in private that he only succeeded in driving spending underground. There are reports of large cash movements during election time. It is good that this is to be monitored but will that be effective? One election organizer of a candidate in the last parliamentary elections admitted that money came in sacks. Apparently, counting machines were installed in safe houses where cash coming in suitcases was counted and distributed to candidates.

In the last two decades none of the election commissioners have been accused of being corrupt even though there have been accusations of biases. Yet, it has not been successful in checking the malpractices in elections that result in the compromised getting elected who then claim legitimacy and propagate corruption with impunity. Yes, booth capturing has declined but new forms of getting votes have emerged. There are election expenditure limits but these are a pittance compared to the actual expenditures. Parties and candidates are supposed to get their accounts audited but can unrecorded transactions be audited? Now candidates will be required to maintain a separate bank account for election purposes. But the black money donated to the candidates and parties will not be deposited in these accounts.

The failure of a constitutional body like, the Election Commission to check the growing scale of corrupt practices in elections has important lessons for reform of the existing watchdog institutions and for Lokpal. India has a multitude of watchdog institutions – constitutional and statutory. What is their experience?

The CAG audits government departments to track malpractices but those in power have found ways to get around it. Intelligence agencies (IB, Revenue intelligence and so on) keep tabs on important people and their wheeling and dealing and have vast amounts of information but illegality has only grown. There are the CVC, CBI and the various police agencies.  Each government department has its Vigilance wing. There are agencies to protect the environment but the powerful are violating environmental laws with impunity, like, in the case of Lavasa or the Adarsh Society building in Mumbai. The Reddy brothers in Karnataka obtained the silence of those that mattered. There are regulatory authorities (like, SEBI and TRAI) to check private businesses but they have not been able to prevent the 2G scam or insider trading in the stock markets. The RBI regulates the financial institutions but repeatedly it is found wanting as in the Harshad Mehta scam, failures of Cooperative Banks and so on.

The Information Commission oversees the Right to Information which has shown some success but increasingly the whistle blowers are being eliminated and its success has remained limited to the highly literate. Media is a watchdog which has exposed innumerable cases of corruption but now it is increasingly entangled in the phenomenon of paid news and is found to be hobnobbing with the powerful and the compromised.

Last but not the least, judiciary is an independent constitutional body yet the number of cases of corruption against judges is increasing. Cases are piling up and now the number of pending cases has crossed four crore resulting in miscarriage of justice in many instances.

In brief, neither independence of functioning nor constitutional status has helped watchdog institutions to effectively perform their assigned task. The reason is that democracy, the super watchdog which should deliver all round accountability, is weak. The ruling class has played havoc with the watchdog institutions so as to control them for their narrow ends. That is why the demand for a strong Lokpal. Democracy ought to have ensured accountability of institutions. Vote should have weeded out the corrupt but it is doing the opposite - the honest rarely win elections.

Democracy has become formalistic. Legislatures should check corruption but it would not be so if the elected are beholden to the corrupt or are corrupt. The problem is political that cannot be resolved by technical fixes or having more laws that are anyway circumvented. A weak democracy presents a no-win situation: if democracy is weak the corrupt get elected and misuse their autonomy; if the legislators’ autonomy is curbed, democracy weakens. Only a highly conscious public can deliver autonomous and incorruptible legislators and not rules. That is why there is a need for political movements that can change the national consciousness, a task being addressed by the movement against corruption and for Lokpal. So, the question is, can there be strong watchdogs in a weak democracy?

arunkumar1000@hotmail.com

Bureaucratisation comes to JNU

Arun Kumar

CESP/SSS, JNU.

The Hindu, December 17, 2011.

JNU, one of the few Indian institutions of higher education resisting bureaucratization is on the verge of giving up. Its Academic Council has recently approved the implementation of the UGC dictated points based system of evaluation for faculty recruitment and promotions. Why is the UGC imposing such a system on the universities?

There is talk of reaping the demographic dividend of India’s young population given that the developed world has a rapidly aging population. Trade in Education under WTO is seen to give a natural advantage to India with its young and English speaking population. To realize these goals, MHRD and UGC obviously believe that the changes they are imposing on the universities are necessary.

Another strand of this strategy is to encourage foreign institutions and the Indian private sector to set up educational institutions to improve educational standards. It is argued that the prevailing standards in most existing (largely public sector) institutions are poor and that they lack the resources to rectify the problem. In this context, financing of higher education is crucial but that needs another piece.

Globalization today involves a race for knowledge generation. Whether it is software, nano technology, manufacturing technologies, climate change, trade negotiations or financial institutions and so on, one who generates better ideas would dominate in the world. Higher education which is expected to generate ideas then becomes crucial and perhaps this is more important than reaping the demographic dividend.

While enrollment in higher education has increased, quality is a concern. Only a handful of institutions produce world class talent which the press plays up every year by highlighting the six figure salary offers they get. At the cutting edge, we have a shortage of manpower because we produce little of it and also most of it is lost through brain drain. Many bright students also leave the country because they are unable to get admission to good institutions.

The need for high quality institutions is obvious. MHRD is trying to replicate the success of elite institutions, like, Central Universities, AIIMS, IITs and IIMs by setting up more of them. In addition, new private institutions in professional disciplines have emerged, like in, medicine, engineering and management. But can buildings turn into institutions of excellence so mechanically?

Premiere institutions face a 30% shortage of faculty. With the opening up of more of them, the shortage has only spread, threatening the standards in the existing institutions. In many private institutions and open universities quality of faculty recruited is indifferent, resulting in poor quality of teaching. Institutions that would hardly be accepted as universities in any country have come up as Deemed Universities.

There are reports of corruption in setting up many of the private institutions. They not only charge high fees, they also extort capitation fees. At times, these institutions are set up to buy real estate at concessional prices and make a quick buck. To get recognition, apparently the officials from the regulatory authority (UGC or AICTE) are bribed - no wonder some of the heads of these bodies have been accused of corruption.

Higher education passes knowledge from one generation to the next and can help society advance by generating new knowledge. The former enables routine tasks to be carried out while the latter equips society to move beyond its present stage and to meet emerging challenges. Copying ideas from the developed world is often inappropriate since they may not be relevant for our stage of development. The two roles require imparting high quality training to students which in turn necessitates high quality faculty. Mr. Jairam Ramesh suggested that the IITs, the most elite institutions in the country, lack world class faculty and he was attacked all around. Not that he was wrong but he hurt the sense of false national pride of many.

Quantity is important but by itself it cannot ensure quality since that requires special efforts. A hundred indifferent lectures can only kill the interest of the students while one inspired lecture can ignite a spark, make learning fun. It is that which motivates academics to become good teachers and high quality researchers - not bureaucratic fiat.

Unfortunately, many of the academics produced by our present system have themselves hardly understood their subject. They dictate notes in class, killing the interest of students. Often, education is less about learning and more a burden which has to be endured to obtain a degree to get a job. Examinations largely test a student’s capacity to reproduce mugged up notes and not the knowledge acquired. The emergence of `Kota schools’ and coaching institutes that train students mechanically is a natural corollary. No wonder, book shops around the universities largely stock mug books for competitive examinations – medical, engineering, civil services, banking and so on.

Authorities are aware of these deficiencies but they lack the understanding of what higher education needs. UGC has introduced one scheme after another, often at the instance of the Pay Commissions. Like, the Mehrotra Committee in 1986 suggested the creation of Academic Staff Colleges to train teachers – to upgrade skills. Since then, promotion of Assistant Professors under Career Advancement has been contingent on attending these colleges. To promote research, academics with M.Phil. and Ph.D. degrees are given increments in pay. To make faculty work harder, hierarchy in academia has been increased so that academics face a selection committee more often. NET examination was introduced to ensure minimum standards amongst teachers in higher education.

These schemes involving huge expenditures have hardly impacted quality leading to the current state of affairs. Rather than understand that the failure of these schemes is in-built since they are divorced from the needs of higher education, the bureaucrats governing higher education have gone for more of the same. Disinterested `academics’ have found ways of beating the system. Today there is a flood of M.Phil. and Ph.D. and NET qualified students without improvement in quality. Academics go through Academic Staff Colleges but with little impact on skills. The reason is that none of these measures ignite the desire to learn. One can take the horse to water but cannot force it to drink.

Now, the UGC, in an attempt to improve the quality of faculty, is enforcing a bureaucratized system of evaluation of faculty, under `UGC 2010 Regulations’, based on a numerical system of indexing merit (API). It would lead to `paper chase’. How many papers or books written, conferences attended, projects completed and so on? All these can be churned out in large numbers with little originality and that will help indifferent academics accumulate points. Already, there is a mushrooming of `refereed journals’, national seminars and publishers who charge money to print books. High quality research requires years to produce and in the new system this would get few points. Producing critiques that challenge authority opening new vistas are not easy to publish and hence would be considered worthless under the new rules. The quantum of work done by an academic is important only to the extent of its quality.

Education is not like a normal homogenized product, like, soaps or same size shiny red tomatoes. An institution of higher education is not like a factory or an office where time and motion study can be used to measure productivity. In fact, there is a need to let a hundred flowers bloom and celebrate dissent as the essence of higher education. Unfortunately, to the education bureaucracy (often including academics) this is anathema.

The short sightedness being displayed by the UGC and to which the academic leadership is succumbing is the result of both poverty of thought and insecurity. Army generals, civil servants and net-workers are often appointed to the top positions in educational institutions not because of their academic quality but due to their closeness either to those in power or to the moneyed. The objective function of such people is to serve the interest of their benefactors rather than that of the academic body or society in general. Hence their focus becomes smooth management rather than cultivation of an environment to encourage knowledge generation. With the recent AC decision, JNU is sliding down this path and caving in to adopt bureaucratized standards of performance. Its academics are failing to stand up to the bureaucratization being imposed by the UGC. A University, expected to give a lead to other institutions is letting down both itself and the nation.

In brief, the bureaucratized UGC while ostensibly promoting excellence has been systematically undermining it for long since it thinks standards can be achieved through standardization little realizing that often the latter is the anti-thesis of the former.

arunkumar1000@hotmail.com