Ban Bandhs

Parties have a right to protest but bandhs will only pile misery for the common man
Times of India – Political parties certainly have the right to demonstrate and protest peacefully. But this shouldn’t come at the cost of disrupting lives of common people. Parties enforcing bandhs should know that they have no right to come in the way of people who are pursuing their livelihood.

Though the effect of Monday’s (Nov 28) bandh was severe in Kerala and Tripura, parts of Odisha and Bihar, local traders in other states kept their shops open in defiance. The stoppage of a few trains in Bihar is deplorable. Such incidents result in a harrowing time for commuters.

In 1998, the Supreme Court had upheld a Kerala high court ruling banning political bandhs. But the tradition of calling for bandhs continues. If people feel strongly about an issue, they will participate willingly enough in protests. No coercion is required for this.

Bandhs do little except trample upon fundamental rights of citizens. more>



The great Indian chemotherapy

Demonetization causes intense pain, government needs to demonstrate more empathy
By Chetan Bhagat – Black money in India is like a cancer. It has spread all over the country, almost like a parallel circulatory system for our economy. The use of currency notes is a big part of it. Black money stalls growth, kills efficiency and keeps the economy sub-optimal. To that extent, to cure black money, a government is justified in a treatment that resembles chemotherapy. The demonetization step is, therefore, welcome.

However, what is not acceptable is the government (or its fanboys) gloating over the brilliance of their idea to do a chemo, and being unwilling to look at or address the ugly side effects that come with it. No doctor gloats after giving a patient a chemo. They work to lessen the pain of the patient and limit the impact on good, weak cells.

For India’s poor, all it takes to make them descend in a negative spiral of abject poverty is one brutal blow – daily wages lost for a few months, savings wiped out because no bank took them, a job loss as their employer shut down, an industry downturn or a hospital turning them away – and they can never get back on their feet again. The chemo of demonetization can do that. To ignore this is insensitive and irresponsible. more>



Now reform political funding

If we have the will, here’s how to make a lasting impact on black money
By Baijayant ‘Jay’ Panda – Sure, the currency portion of illicit assets is relatively small, with much more held in gold, real estate etc. But being by far the most fungible, cash is the most crucial part of the black economy. And it is by no means insignificant, with an estimated Rs 3 lakh crore ($43.66B) and perhaps more now expected to be extinguished.

This one-time flushing of a chunk of black money is a significant blow to its users, but a lasting impact requires several other steps.

The good news is that unlike 1978, when the last demonetization saw black money get hit but come roaring back, the ground realities are very different now. Mandatory linkage to PAN and Aadhaar cards for most transactions will be one of the fundamental ways to check the re-generation of black money. But the single biggest step would be to start cleaning up political funding.

The most important aspect of election finance reform is to shift the focus from limiting campaign expenses to rigidly enforcing the legitimacy and traceability of the money trail. Our decades’ long, utopian thrust on capping campaign expenses has not worked, it has only pushed money under the carpet. This is the root cause, the motivation for black money, and for the mechanisms that generate it. more>



Narendra Modi takes a great leap backwards. Mao would approve

By Amit Varma – Mao’s infamous Great Leap Forward included plenty of edicts besides the death warrant to sparrows. They all stemmed from the delusion that the leader of a country could redesign an entire society to conform to a master plan. The 20th century is full of cautionary tales that warn against such delusion, such as the communism of Mao and Stalin, and the fascism of Hitler. Yet, we do not learn.

Narendra Modi‘s demonetization of old 1000 and 500 rupee notes is one such folly, a blunder in every imaginable way. It doesn’t achieve its intended purpose. And its unintended consequences could devastate the lives of the poor, and cripple our economy.

Modi claims that this move is an attack against black money and corruption. This is not true, and here are four reasons why. One, as per a recent estimate, only 6% of black money is kept in the form of cash. Two, new 2000 and 500 rupee notes are on the way, and a black market for conversion from old to new is already thriving. Three, as various economists have pointed out, this attacks the stock and not the flow of black money. To strike at black money and corruption, you need to strike at their root causes.

Corruption and black money are a consequence of big government, of one set of individuals having discretionary powers over the actions of others. more>


Why small finance faces a big wipeout

By Swaminathan S Anklesaria Aiyar – What the media and sundry pundits seem scarcely aware of is the carnage occurring in the small-finance sector. This has low visibility , but is absolutely vital for financing the vast majority of small businesses, who have little or no access to the formal banking system.

The financiers who reach these millions of small businesses are called non-banking finance companies (NBFCs). They range from big corporates like Bajaj Finance and Shriram Transport Finance to small microfinance institutions. They are able to reach grassroots businesses that banks cannot, and so play a vital but little-appreciated role in greasing the wheels of medium, small and micro enterprises.

Of India’s 100 million shopkeepers, barely 2% have the machines to accept credit and debit cards: the rest are cash-based. Much the same is true of a horde of other small businesses, transporters and traders.These small folk have all suffered a sharp drop in business. Many are parts of value chains, starting from raw material producers and ending at the retail level.

All are reeling under a shortage of currency notes.One the one hand, customers have reduced spending for want of currency notes. On the other hand, businesses do not garner enough currency notes to make cash repayments of loans.

If their current problems last just a few weeks, they will recover. If the problems continue for two months, the damage will be substantial and could spark a mini-financial crisis among the small lenders that keep the economy moving. more>



Economic development assistance is debt trap

The Times of India feature, “A ‘Risky’ State of Affairs,” (Oct. 18, 2016) describes the dismal state of development projects in Kerala.

The report says, “A comparison of the World Bank’s rating for its projects in Kerala and other southern Indian states show that risk factor is ‘substantial’ for two categories in Kerala – ‘Political and Governance’ and ‘Institutional Capacity for Implementation and Sustainability.’

“What is worrying is the ‘substantial’ SORT (Systematic Operations Risk Rating Tool) rating for two aspects of the on-going World Bank part-funded Kerala State Transport Project – 2 (KSTP-2), a five-year project which began in July 2013. The International Bank for Reconstruction and Development (World Bank) is funding $216 million of the total expected cost of $445 million.

“World Bank officials might downplay the substantial risk rating as the Kerala Government is their client and the bank couldn’t survive alienating its clients.” a policy maker commented on conditions of anonymity.

“According to the document, these aspects pose governance challenges to the current project: political interference in project implementation, poor quality of works, delayed payments to contractors, delayed decision-making, repeated termination and rebidding of contracts, poor sustainability arrangements for roads and lack of mechanisms for adequate citizen feedback and public disclosure.

“There is a substantial likelihood that weak institutional capacity for implementing and sustaining the operation or operational engagement may adversely impact the project development outcome. The implementing agencies have limited experience with bank and other multilateral development partner operations. The implementing agencies have some in-house capacity, but external consultants play an important role in the design and day-to-day operation implementation. Staff turnover is substantial and they have limited access to relevant training. There are significant gaps in the agencies’ monitoring and evaluation of arrangements, and the lines of accountability are somewhat unclear.”

“How many of bureaucrats have the expertise to see these projects through?” asks D Narayana, director, Gulati Institute of Finance Taxation. “First thing they need is this expertise and then commitment.”

Even in the World Bank’s restrained language, the problems facing development projects in Kerala are clear: institutional capability deficits, lack of expertise among bureaucrats, lack of management skills, lack of dedication, and corruption.

It is not difficult to trace the causes of these problems. The problem starts with education. Kerala Government has full control of the quality of the education in the state – and the goal is to ensure uniform mediocrity. For example, recently there is a new initiative to offer WiFi in schools. However, such cosmetic efforts will not result in the skills needed for a vibrant economy. Studies have found that computers, smartphones and internet can be an inhibitor for learning. Fundamental education reforms are essential for effective functioning of the state economy. For instance, OECD recommends, “Governments should develop smart innovation strategies for education with the right policy mix to give meaning and purpose to innovation, including creating an innovation-friendly culture.”

Kerala Government and its agencies need change of mindset to bring real benefits from development projects. Here is an outline of a typical process for a development project.

  1. Target an agency to get loan from.
  2. Find a consultant who can prepare a proposal that will be accepted by the funding agency.
  3. Once the loan is approved, find another consultant to manage the project.
  4. Hire other consultants to implement the project.
    (In practice, there may be additional creative steps.)

The result of this process is that the supervising agency does not have the skills, know-how or expertise needed to supervise the project successfully — a problem identified in the World Bank report. In addition, the process inhibits the supervising agencies from acquiring essential expertise and know-how for effective project implementation (institutional capacity).

Kerala Government has so far received development loans from World bank, ADB, governments of Japan, France, Germany and others. Some of them are in the early stages. Projects that are due for completion share the fate of the World Bank KSTP-2 project or worse.

The situation with these development loans is all the more deplorable because there is no need for these loans in the first place. Kerala has huge amount of bank deposits and gold holdings to finance these projects and more. The problem is people (depositors) don’t trust the Kerala Government with their money. Instead, Kerala Government goes to these development agencies for loans to squander away, without accountability — as the World Bank has identified.

The economic development agencies — World Bank, ADB (Asian Development Bank [2]), governments of Japan [2], France [2], Germany [2] — are doing a disservice to the people of Kerala by giving loans to Kerala Government and its agencies by helping politicians and bureaucrats escape accountability.

What Kerala needs is assistance with institutional capability and capacity building. The priority for the economic development agencies need to be helping with institutional capacity building, not loans. Otherwise, they are just helping Kerala Government get deeper into the debt trap it is in.