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Budget 2017: 5 reforms India needs but Arun Jaitley won't propose today

Change in the political economy of India is governed by Newton’s first law. That is, status quo will continue unless impacted upon by an external force.

Major transformations in India have arrived at in the wake of crises. The political operating system is governed by two key principles. Politicians pursue ideas and policies that are electorally rewarding. Bureaucracy enables ideas that which are feasible – in other words, those that do not upend the structure of power that they wield.

Here are five major reforms that should ideally be part of Budget but will not be because they do not satisfy the diktat of necessary and sufficient conditions. Till propelled by a crisis, political interests will thwart them.

Arun Jaitley. PTI

Arun Jaitley. PTI

Downsize government

India decontrolled steel in 1992. The decision will celebrate the silver jubilee this year. Yet India continues to have ministry for steel. Telecommunications has a regulator and a commission yet there is also a ministry for telecommunications. The Ministry for Coal is basically the ministry for Coal India and the ministry for civil aviation it would seem is the ministry for Air India.

The Centre has departments for rural development, agriculture, agriculture education, animal husbandry, dairy, fisheries – which are not on the Union List in the Constitution. Education, health and family welfare are essentially responsibility of the states. And departments like urban development, housing, urban poverty alleviation are latter day creations.

There is little or no justification for the existence of at least a dozen departments. The NITI Aayog had some months back recommended that states downsize government to 30 departments for effective decentralisation. Why shouldn’t the Centre with over 50 departments – and a plethora of autonomous bodies – follow this sage advice? Why not restore what were till 1976 state subjects to the states?

Why it will not happen: Because parties need ministries, places to park doers and political pests.

Dismantle permission raj

The accepted wisdom is that India needs to woo investments to propel the virtuous cycle – to generate jobs to create incomes to boost consumption and spur growth. This aspiration is daunted by permission raj - the multi-layered system of clearances and regulations.

Investors need to get between 40 and 120 clearances at multiple levels – a flow chart would be a graphic visual of mileage and costs.

This government has made ease of doing business a focal point of its reforms to make India investment friendly. This is easier said than done – a point visible in rankings and in the delays in investment proposals translating into projects. Suffice to say India trails all its BRICS peers in ease of doing business. The issue is not whether clearances are faster now or not. The issue is whether the permissions listed have justification to be on the list.

Why not design a policy template at the centre and liberate investors from multiple (central and state) clearances? Why not let state governments deal with it– they are as elected and as accountable as the central government. Why not dismantle the permission raj?

Why it will not happen: Politics is about power – to give and to deny. Permission raj delivers it.

Liberate PSUs, Set up Indian Temasek

The Government of India is the largest business house — it dominates banking, makes steel, chemicals, fertilisers, and explores and markets petroleum products, operates Air India and even runs hotels.

How are public enterprises run? Of the 234 public enterprises, 163 are making profits and 71 are making losses – over 36 of them for five years. The enterprises lose around Rs 20,000 crore a year – roughly over Rs 50 crore a day. The total loss: estimated at Rs 119,230 crore. The market value of two private banks is more than the market value of two dozen government-owned banks.

The seductive theory about public enterprises is about ownership. That till such time the government owns an enterprise it will lose money. There are enough success stories - in Singapore, Germany or Sweden, for instance – to illustrate state entrepreneurship.

The cause of rot in India, thanks to the reporting structure, is about the quality of management—or if you please, political management. The crux is the inability to shield enterprises from what the Swedes call “ministerial rule”. India has many professionally managed enterprises run by Indians. Why not create a sovereign fund or an investment trust aka Temasek, KFA. Shift the enterprises out of ministries, invite global managers to run them – start with financial sector.

Why it will not happen: Parties loathe parting with what they see as symbols of their power and opportunities for pelf.


Every year elected representatives get money from the government to spend on their constituencies under the Local Area Development Scheme -- MPs get Rs 5 crore and MLAs, depending on the state, get between Rs 1 crore and Rs 3 crore.

In theory MPs/MLAs are expected to get their constituency on the development grid and ensure systemic accountability for outcomes. Thanks to multiple failures, in a bizarre and Indian twist the elected have engineered a bypass and access to a kitty to fund political petting – often tiling and retiling of pavements or re-re-refurbishing parks. It begs the question should there be a system within a system that operates on individual discretion rather than institutional logic.

India spends around Rs 10,000 crore every year or over Rs 50,000 crore in five years just on the MPLADs and MLA LADs. Sure there are guidelines and there is audit. Yet laudable outcomes are few and far. Unsurprisingly administrators, MPs and MLAs admit in private that the Local Area Development Scheme is a much misused idea – it has been reduced to a petty contracts programme. This militates with the aspiration of good governance. Why not abolish the Local Area Development Schemes?

Why it will not happen: Vested interests will ensure those who must vote for will choose to vote against it.

Tax cash donations to parties

The top category of donors to parties in the world’s largest democracy is “unknown sources”. Just two large parties collected over Rs 1,800 crore from contributions and sale of coupons in just one year. It is no secret that a large part of the donations are ill-gotten gains channelised into party funds. India has over 1900 registered parties of which nearly a third don’t contest elections – which means they could very well be political laundromats.

The government has been persuading those in society to go digital and deploy less cash. There is no reason why political parties should shy away from the cause and account for every donation. The Election Commission recently recommended that the cap on anonymous donations be lowered from Rs 20,000 to Rs 2000. Fact is the Rs 20,000 cap was arbitrary and so is the Rs 2000 cap. More to the point the lowering of the cap from Rs 20,000 to Rs 2000 for anonymous donations is unlikely to curb the flow of unaccounted wealth into political parties.

If parties are currently using anonymity to convert quid-pro-quo cash into donations there is no reason why the lowering of cap will inhibit them. Why not tax all cash donations of political parties – if not at the 50 per cent IDIS rates then at least at rates corporates pay?

Why it will not happen: Cash affords secrecy and liquidity, key to sustaining the business model of politics.

The author is a political-economy analyst and the author of Accidental India: A History of the Nation’s Passage through Crisis and Change. He tweets @shankkaraiyar

Updated Date: Feb 01, 2017 07:20 AM

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