Friday, February 23, 2007

Heroic Buddhadev 25 February, 2007

When you have been teaching bad ideas to people for a couple of generations, they tend to catch up with you. This is poor Buddhadev’s Bhattacharya’s dilemma, as he attempts heroically to break with his desperate past. To begin with, he has to contend with the pervasive envy of peasant societies in places like Singur and Nandigram. Peasants believe that society’s wealth is more or less fixed so that one person’s gain must be another’s loss. They view the social system as a zero sum game and it is hard to imagine that the overall pie may actually grow in a way that everyone will be unbelievably better off through mutual cooperation (by selling land, for example, to Tata’s car factory).

Furthermore, Buddhadev must deal with the communist cadres’ suspicion of the market, which is now so built into Bengali genes, and it is exceeded only by their general hatred of businessmen. In the 1980s, I used to work in Mumbai and I worried that our factory was next door to that of a famous European company that had been on strike for almost a year. Their Marxist trade union leader had the dangerous psychological make up of Duryodhana. Once he said at a gate meeting: “I don’t care if we sink this factory as long as the European manager goes down with us.” When this kind of attitude gets institutionalized in the mental make-up of a militant movement, the result is de-industrialization. This is what happened in West Bengal in the 1970s. Company after company left the state as the unions preferred to sink the economy rather than come to agreement with industry.

Like Deng in China, Buddhadeva is determined to make a break with this self-destructive past and bring prosperity to his people--despite themselves. He sees in the Special Economic Zones (SEZs) his chance to bring about an industrial revolution in Bengal. He realises that SEZs will only create pockets of world class infrastructure. Ideally, he would like the whole of Bengal to have world class roads, ports, power plants, but reforming is slow business in a democracy. So, you create pockets and hope the effects spill over. But in a democracy you must also face your Nandigrams, something that Deng didn’t have to think about in China.

The significance of Nandigram is that it has brought home to everyone the unfairness of our present, inhumane system of forcibly acquiring land from farmers. As Swaminathan Aiyar has eloquently pointed out, government should not be in the business of acquiring land. It ought to be a voluntary transaction between farmers and industry. And if there is a deadlock--say if five percent of the farmers refuse to sell, then it should be put to a community vote. I do hope that this is the sort of model displacement policy that the centre is working on at the moment. Because of competition between so many SEZs, I think our farmers are going to get rich beyond their dreams in the months ahead.
We are now at a tipping point, and if we don’t seize the moment, history will not forgive us. With all their flaws, SEZs will create millions of jobs and eventually lift the poor into the middle class. Fifty years hence when India’s per capita income is $25,000 per year, historians will remember Buddhadev’s vision of a vibrant, prosperous, and forward looking India. In comparison, Mamta Banerji, V. P. Singh and Medha Patkar’s India is a perpetually victimized peasant society that belongs in the garbage dump of history

Check naka blues 11, February, 2007

In my last column I described a wondrous journey along a world class highway on the Golden Quadrilateral. What I didn’t write about is the continuing, unhappy plight of truckers that I saw parked on the way, waiting to pay bribes at check nakas. It is such a common sight that I didn’t notice it until a foreigner asked, “What are all those trucks lined up for?” I had to explain what an octroi post is. We walked over to an idling truck driver, who told us that he had been waiting for six hours, and it looked like the bribe was going to double this time because the Sahib’s daughter was getting married. He also has to worry about police posts, and a normal journey, which should take 24 hours, takes 44 hours. He spends half of it waiting and negotiating bribes.

So, a new irony is upon us--the speed of trucks has risen 40 to 60 percent with good four and six lane highways, but we remain mired in the old inefficiencies of bad governance. A transport system is at the heart of global competitiveness, and for a country with the second highest growth rate in the world, octroi nakas are a huge drag. They also prevent India from becoming a common market. Municipalities levy octroi in order to earn revenues, but it is an inefficient and obsolete tax that has been phased out in all modern nations.

Vijay Kelkar had held out the hope of eliminating octroi. He proposed sensibly that all indirect taxes should be merged into a single, universal Goods and Service Tax (GST). From this tax, municipalities would be compensated for the loss from octroi. Mr Chidambaram followed up by announcing that the GST would come into force in 2010. The nation took the historic step towards GST by enacting state Value Added Tax last year. Since there are huge legislative changes and negotiations required if we are to meet the 2010 deadline, the government shouldn’t lose time and it should set up an Empowered Committee on GST in the coming Budget.

Check nakas not only slow down the movement of goods across the nation, they destroy the moral character of our people. Transparency International reports that India’s trucking industry pays Rs 22,200 crores in bribes each year. This is equal roughly to what India’s truck drivers earn annually by way of salaries. If you are a truck driver, how do you explain this to your son? Is this the India in which he will grow up? Our governance failures are not only the failures of institutions--they also have a moral dimension.

“The Sanskrit Mahabharata came to be the continuing repository of crisis in the public discourse of classical India" writes the scholar, David Gitomer. Our contemporary world is also “in permanent crisis, a world whose karmic dominoes of human weakness reach into past and future horizons until bounded by creation and apocalypse”. Just as the Mahabharata had a problem with the self-destructive kshatriya social institutions of its time, we have a problem with all our governance institutions. The great insight of the science of economics is that people respond to incentives. Smart governments are able to reward the good and punish the bad behaviour of its employees. Britain, which gave us many of our institutions, has quietly transformed its governance institutions in the past 20 years. We must do the same. Reforming is never easy—it is like waging a war at Kurukshetra—but it must be done.

Don’t say ‘what’, tell me ‘how’ 28 January 2007

I was driving down from Jaipur to Ajmer. But I could have been anywhere. The six lane highway was a smooth beauty and the pot-holed India of the PWD was a hazy memory. Then the wondrous colours of Rajasthan appeared and for an instant I thought I had entered a certain paradise, which seemed to unite modernity with tradition, world-class infrastructure with the ineffable loveliness of old India.

What makes the Jaipur-Kishangarh section of the golden quadrilateral special is that it is a true public-private partnership based on transparent legal contracts that might be a model for the world. Such contracts have created a new level of trust and are enabling India to access funds, skills and technologies from the best companies in the world, who will build and operate our roads, ports, bridges, airports, and container trains, and transfer them to the state in 15 to 30 years. Gajendra Haldea, an unusual economist-lawyer of integrity and conviction, drew up these model contracts at the Planning Commission. As a result he is the most hated man in Delhi’s infrastructure ministries. This dharma warrior has demolished opportunities for corruption. Soon we shall have 20,000 km of highways, hundreds of private container trains, and many private ports and airports—all in public private partnership. These quiet steps teach us that reforms are not about the ‘what’ but the ‘how’. They are less about economics and more about law.

Before 1991, we believed that infrastructure was a natural monopoly of the state. If a road had to be built, the PWD would do it. In that era of ‘high bureaucratic modernism’ private contractors were treated like scum to be bilked. So, we got roads with pot holes. The same mentality obtained in ports, telephones, and power plants. In 1991, the government was bankrupt and it turned to the private sector to build power plants, highways, and telecom. But it did not know how to manage the process. Neither did many officers and ministers have honest intentions. We lost a decade in a bungled era of licence fees, crony capitalism and sweetheart deals whose symbol is Enron. Serious infrastructure companies came and ran away.
A new era of genuine public-private partnerships began with the new telecom policy based on ‘revenue sharing’ and the excellent Electricity Act of 2003. These two landmarks showed that we had finally learned the principles of open access, free competition, transparent bidding, and a level field for all players. We also chose some good regulators, who understood that the state ought to be an enabler and an umpire and not a protector of its own monopolies. Haldea’s contracts for highways and freight trains were the next logical step. Whereas the telecom policy has released an amazing revolution, bringing untold benefits to millions, the Electricity Act sadly remains unimplemented. Aside from this one depressing sector, we seem to have found the answer for our physical infrastructure. It is time now to extend public-private partnerships to social infrastructure, and give the poor some reprieve from failed government schools and hospitals—let them choose their provider.

Indian public officials are good at talking but bad at delivering results. But even if they possessed the implementation skills of a Sreedharan at Delhi’s Metro, I would still opt for public private partnerships. The reason is that they focus the state’s attention on governance and the private sector’s on building national wealth. Moreover, it is an idea uniquely suited to our democracy where ordinary citizens can do extraordinary things if the state will let them.