Arun Shouries article on IE. Must Read

[Guest]

Also where did you get this figure of 90 Billion dollars for infrastructure projects? If This is true then its really good for india economy. India needs to upgrade its infrastucture urgently asap. So don't cry if India spends 90 billion dollars of borrowed money. Cry why its not spending 500 billion on infrastructure.

[Guest]

http://www.indianexpress.com/full_story....t_id=40417
THE REFORMS MANDATE PART-I

<i>When spirit is willing, flesh has a way </i>

Direction of Reforms is unchanged. This shows its robustness, that reforms are not the whim and fancy of individuals but dictated by compulsions in economy and polity

<b>ARUN SHOURIE </b>

• We lost a generation in economic growth to ‘‘socialism’’ and its instrument — the license-quota raj.

• The process of liberating the country from that shackle — a process that we can subsume under the generic ‘‘Reforms’’ — has been going on since 1991.

• The broad thrust of this process is to transfer power from state to society — and to thereby unleash the country’s productive potential.

• Today we have the fifth Prime Minister — and the sixth Government — since the process began. But the direction of Reforms has continued unchanged. Those who have denounced the Reforms when they were out of office have, when they assumed office, continued them in the same direction.

• Today we have a score of political parties in office in different parts of the country — indeed, many more than a score: the Government at the Centre itself has 24 or so parties in it. Where they are not in office, the parties denounce the very Reforms which they are advancing where they are in office.

• All this shows the robustness of the Reforms. It shows that the Reforms are not the whim or fancy of some individuals. They are dictated by the compulsions that our polity and economy face on the one side, and are propelled by the opportunities that have opened up on the other.

• The Reforms have covered a very wide front indeed. Not all of them were, indeed they could not be, envisaged at any single point of time. Some of them started in one form, and then evolved into something quite different: the transformation of disinvestment from the disposal of minority shares — most often merely to financial institutions which themselves were in thrall of Government — to the transfer of management control and ownership to strategic partners is a typical case. In a word, Reforms have, ‘‘like straw sandals’’ — to pluck Mao’s metaphor for Revolutions — taken shape in the making.

• Several of the Reforms have gone very far indeed — the abolition of import-export as well as industrial licensing, for instance. And they have proceeded with a degree of ease that conventional wisdom had warned would just not be the case. Apart from one lunch-time demonstration in the lawns adjacent to Udyog Bhavan, there was no effective opposition to the scrapping of import-export licensing, and the hacking off of entire limbs — the Controller of Imports and Exports, the Directorate General of Technical Development.

These institutions had been citadels of immense power. Commentators had long warned that civil servants and politicians would never give up that power, and that, therefore, reforming these structures would be next to impossible. That indeed was the case as long as the effort was to ‘‘reform’’ the structures. Many would recall the numerous efforts that were made, the numberless committees that were set up to shorten the time that issuing these licenses used to take. Every proposal was in a sense ‘‘implemented’’. But within months the system used to revert to the status quo ante, much like a stretched spring does the moment we let go of it.

But when ‘‘Reform’’ was given up, and the functions were just hacked off, there was no resistance. The observers had under-estimated the power of illegitimacy: the entire arrangement had become so illegitimate that every effort to save it was seen as a surreptitious effort to shield privileges and the power to dispense patronage.

• But it is equally true that several other Reforms have remained stuck — labour laws, the Government’s announcements regarding reducing its equity in nationalised banks to 33 per cent or less, the condition of cooperative banks, that of public expenditure.

• In some other areas progress has been a stop-go affair: privatisation is an obvious example.

• But even in regard to these areas we should remember one feature about Reforms in India: when a Reform is first proposed, there is a lot of shouting and wailing; three years later when that Reform is implemented, even the critics do not notice!

Recall the shouting just three years ago about the amendments to the Patents Act — it seemed for a moment that the Government would be brought down by the critics; how many of those very critics today even know whether, and if so how many, Exclusive Marketing Rights have been given to foreign companies?

Remember the shouting and denouncing at the time foreign insurance companies were being allowed to enter the Indian market? How many of those critics can today tell us how many foreign companies have begun insurance operations in India? How many can tell us what share of the insurance market those companies have captured? How many have bothered to ascertain whether the dire consequences they had forecast have come to prevail?

Disinvestment is in the same league. On the one hand, there is a lot of shouting against it when we attempt to execute it in Delhi; on the other, state government after state government is quietly disinvesting its enterprises — ever so often after asking us, after office-hours, so to say, to help them settle the procedures they are to follow!

• Each Reform paves the way for the other one. Whoever carries a Reform through at one place — say, in a state — enables someone else to carry it through elsewhere. Indeed, one Reform creates pressures that other Reforms be put through. Import-Export licensing is abolished. Trade increases. Traders and manufacturers demand that the ports be improved so that turn-around times may come down to Singapore levels, that the DGFT accepts electronic filing of forms...

• Moreover, the effects of Reforms are not additive. Even ‘‘multiplicative’’ does not describe the effects adequately. They are more akin to a chemical reaction. An altogether new situation results as Reforms react on each other — as they facilitate each other, as they overturn attitudes, as they redistribute power and legitimacy.

• Most important, the Reforms have been vindicated by results:

— A great deal of power has been transferred from the state apparatus — the less robust part of our country — to society.

— Thereby the productive potential inherent in our country has been unleashed: one new area of activity after another has erupted — Information Technology to automobile components. We cannot even contemplate the situation today in which every firm launching any step in regard to any aspect of any of these activities — the initiation of any aspect, the expansion of any unit engaged in any activity, the alteration in the focus of any unit in any activity — would have had to wait upon some government department to grant permissions that the laws and rules required. And yet that is how things were just 12 years ago.

— By throwing our firms into the waters of competition the Reforms have achieved what committees and theses could never have accomplished: they have got our industry and our services to become competitive, to become world-class.

As is evident from these features, there is a consensus in practice about Reforms. Yet, their course has been bedevilled by obstacles, their progress has meandered, some have even had to be reversed. What are the impediments? What should be done about them?

On being governed fitfully

The first — in a sense, the basic — difficulty lies in what has become of governance. During the last 40 years — that is, ever since 1962, the year that broke Pandit Nehru’s heart — India has been governed for just months at a time. A government comes. It announces bold initiatives. It is soon distracted — by some crisis, some scandal. Sometimes it recovers for a bit, announces ‘‘visions’’ and ‘‘plans’’ and Reforms again, only to get sidetracked by a new bout of crises, scandals, factional pressures... Some of the Reforms that have been attempted, or have been forced by circumstances, have ended up being just short sprints.

Mr Rajiv Gandhi assumed office amidst great hope. Not burdened by the past, he looked to the future. He initiated changes of various kinds — from technology missions to retraining of civil servants. That was in 1985. By mid-1987 the Government was so distracted that these initiatives were all but forgotten.

Breakdown on the external account compelled the political class under Mr Narasimha Rao to commence Reforms in 1991. By 1993, that initiative too ran to ground. The process was taken up again in 2000 under Mr Vajpayee. By mid-2002 it was being pushed and pulled in all directions. Only Herculean effort — and that by Mr Vajpayee himself — got the process back on the rails. The months since he did so show by contrast the wide range of Reforms that can be put in place when governments are allowed to focus.

Reform doesn’t consist in just replacing the head of a financial institution or a vice-chancellor — the new ones will be no different because they will be selected by the same sort who had selected and controlled the previous bunch. Reform doesn’t consist in passing yet another law — for it will not be adhered to any more than the one it is replacing. Even changing a policy is only a part, just a specific instrument of Reform.

When things have gone as deep into the marrow of governance as they have in India, Reform consists in overturning entire structures, in transforming habits, in changing the way people look at the world, it consists in a sense of changing their very nature. As structures, policies, the conduct of officials of state and ordinary folk all act on each other, Reform entails working on all these fronts. Simultaneously.

Thus,

• The effort has to be focused.

• It has to be across the board.

• It has to be unrelenting.

• It has to be sustained.

That being the case, Reform can only be carried through by governments that are secure in the knowledge that they are in office for years, by governments whose horizon lies in the far-distance, whose concern extends beyond the current session of the legislature, the next election.

This has been the single, most significant difference between China and India in the last 25 years.

‘‘But India is a democracy,’’ we say. Yes and no. Our elections are free and fair. Our media is free. But, equally, what we see in our legislatures, the quality of many who people our public life — that is not democracy, it is disarray, it is free-fall. In any case, governance is not golf: that we are a democracy does not entitle us to a handicap. The virtues and benefits that come with being a democracy are to be an additionality. They cannot be a substitute for other ingredients of national strength. The world is not going to slow down, our adversaries are not going to dilute the power they are acquiring out of compassion for the fact that we are a democracy.

Fractured, distracted electorates

At the base is the electorate. Electorates weaned on caste etc. throw up legislators who are ill-equipped for even basic governance, to say nothing of Reform. And there is another problem. When one overriding issue has been posed to it — the Emergency — it has acted with great wisdom. But a system that has to wait for such singular events has positioned itself for great trouble. It has disabled itself from handling the gradual rot. That is why large swathes of the country — UP, Bihar, Jharkhand — are in the condition in which they are today.

Suitability apart, fractured electorates yield fractured legislatures.

And fractures disable.

Every policy, every structure causes a particular pattern of discourse, of power to congeal around it: minimum support prices for agricultural products, subsidies for chemical fertilisers, the patronage — from contributions to ‘‘foundations’’, to advertisements in publications, to cars and guest houses — that is dispensed through PSUs. The moment you attempt to reform the arrangement, the rentiers get together to thwart the change. Moreover, though just a part, on occasion a very small and discredited part of the whole — power engineers in a state — these persons are determined and organised. And that for an obvious reason: the amounts they stand to lose if the Reform succeeds are huge: the T&D losses of the Delhi Vidyut Board — not the ‘‘Transmission and Distribution’’ losses but the ‘‘Theft and Dacoity’’ losses — alone have been 55% in parts of Delhi. On the other hand, the vast numbers who would eventually benefit from the Reform are diffuse, scattered, and, most important, confused by decades of hectoring — that reducing subsidies on fertilisers, for instance, is ‘‘anti-farmer’’, that public sector units, for instance, are ‘‘crown jewels’’. Preconditioned, they are easy to mislead.

To be continued

[Guest]

<b>The painful task of self-improvement</b>

Why are Reforms difficult to implement? Precisely because it is still the old vested interests that must do the implementing
ARUN SHOURIE
The current Parliament has had 40-odd parties — many a party on the hunt for issues by which it can make a noise, and be noticed; each party not in office convinced that being in opposition means that one must denounce whatever it is that those in office propose — even if it be the very thing that it was doing when it was in office, indeed even if it be the very thing that it is doing where it is in office today.

These parties in turn have half a dozen factions apiece — I have seen one faction leader after another being suddenly triggered to denounce a proposal because he had just learnt that the leader of the other faction had supported it in some meeting. The Reform has thus but to be launched that an avalanche of denunciation descends on it, and obstacles are devised.

Fragmentation apart, our system places the authority to change things in the hands of the very persons and institutions whose mores have brought them to their current pass. Electoral Reforms? Politicians, many of whom wouldn’t be where they are but for the permissive peculiarities in the present arrangements, are the ones who will decide: can we be surprised at the unanimity, and alacrity with which all political parties rejected the Supreme Court judgment that sought no more than minimal improvement — that information about the criminal record of the candidate, about his assets and educational qualifications be included in the nomination papers? The very legislators who would be embarrassed by the disclosure shall decide.

Punishment for violating rules on the floor of the House? Adherence to the Resolution they had passed unanimously — that the Question Hour shall not be suspended, that a member who enters the well of the House shall automatically stand suspended? The very members who violate the rules day in and day out, who storm the well, who demand every other day that the Question Hour be suspended will decide.

Pruning vigilance procedures so that corrupt officers may be brought to book? A committee of the same baraadri will examine the matter. Yes, of course, corruption is cancer. We will, therefore, have Lok Ayuktas in every state — but each of them will be hand-picked by the very persons many of whom would be ruined were that authority to do its job.

What we have made of administration paralyses. Describing the Nationalist Regime in Nanking, a doctoral work reported, ‘‘Administration had degenerated into correspondence’’. Our administrative system works in much the same way — notings on a file; the file moving up and down a silo; at last its being sent across to another silo; its going down and then coming up in that silo; its being sent back to the silo from which it came... And anyone at any level in any silo in a position to send it on some other journey — ‘‘The opinion of the Law Department may be obtained...’’

And each silo is set up to, is conditioned to assess each proposal from a very narrow, specialised viewpoint. The Law Department will go by what some officer had said the law requires in some other case. The judge will go by the commas and words and caveats in affidavits, circulars, notifications. The civil servant and minister will often go by — rather, that he will refuse to budge on grounds of — turf. Imagine what things would be if each of these personage were to assess the proposal by the totality of its impact, if each were to assess it by keeping in mind not the specialised mandate for which it has been set up but by what the whole is — the economic environment, the hurricanes of technology.

So, a sort of Clausewitzian ‘‘friction’’ within each institution, and the same sort — but squared — between institutions... Often help arrives, help of an order beyond one’s expectation: the judgment of the Supreme Court in the BALCO case enabled us to vault over several obstacles for months. Just as often meteors descend — sometimes from the same quarter: the Supreme Court’s somewhat incomprehensible judgment on the HPCL/BPCL case has brought the disinvestment process to a virtual halt.

But those within the state apparatus are not the only ones who get a hand in. As the Reform proceeds, it dislocates many outside the governmental apparatus who have made themselves comfortable under the old arrangements: corporate lobbyists soon begin their maneuvers, for instance, to ensure that some rival of their principal does not get ahead because of the new arrangement. And what ability they have — to dress up corporate interest in high principle.

And don’t forget crabbiness. As the Reform gathers steam, it stokes envy. Precisely because it is new, the Reform becomes, the person who is piloting it becomes the focus of coverage in the media. He is applauded — for battling odds, for forging a new direction. That is enough to ignite others to mob him.

For a brief while, of course, the informed sections laud the Reform. They make much of the reformer. But soon, as the rentiers group, as they block the Reform, and ambush the reformer, even these sections distance themselves. Unable to stand up to the bullies, to those who — under the cloak of great principles — are actually ripping the country, they paste the failure on to the reformer! ‘‘Pig-headed,’’ they say, ‘‘Headstrong,’’ they say, ‘‘Not enough of a politician,’’ they say, the very ones who were lauding him for not being a politician!

It is as if we were to start hacking a path through the Amazon forest. By the time we have proceeded a hundred yards, the undergrowth takes over again. It is through these thickets that Reforms have to be steered. What kind of leaders can do so? What can we do to help them?

Reforms and the consummate artist

To steer Reforms through such thickets is, above all, an art. To sometimes stand up to a storm. At others, as Mr Ramnath Goenka used to counsel, to be the humble grass — ‘‘The tree that turns to face the storm and defy it, the storm uproots it,’’ he would remind us; ‘‘the grass bends, the storm passes, the grass straightens up.’’ Sometimes, when blocked by an obstacle, to create a crisis, to go on strike, so to say — ‘‘all or nothing’’. At others, to go by that delicious quip of Atalji. ‘‘Pakistan has been ready to resume dialogue,’’ Musharraf said at the Non-Aligned Summit in Kuala Lumpur. ‘‘India has not responded to our efforts. So, I too have lost interest in resuming the dialogue. It takes two hands to clap.’’ Asked for his reaction to Musharraf’s statement, Atalji said, ‘‘Koyi baat nahin. Agar taali nahin bajti to chutki bajaate rahen. Kuch na kuch bajaate rehna chaahiye.’’ To force the issue sometimes — recall, the way Atalji forced the issue on the Patents Act, on the Insurance Act. At others, as he does often, to let it ripen, and then just pick the fruit up from the ground. Better still, let someone else pick it up...

As art is what Reform is, one needs an artist at the top. That is what we have had in the last few years in the Prime Minister — a consummate artist. And that has made all the difference.

What can we do to push things along a bit, what can we do to help the artist along a bit?


Will breakdowns deliver?

One option of course is to wait for, to look forward to successive breakdowns. They will compel — or liberate — even a weak political class, as the one on external account did in 1991, to at last do the right thing. But who can say who will be in office when the next breakdown comes? Will he have hands that are strong enough, a comprehension that is robust enough to put the breakdown to work? Will he have a team to carry the changes through? True, there is a ratchet effect in these matters: some changes do get embedded, but — and the country’s experience in 1991/93 is a vivid reminder — the moment the immediate crisis has been contained, the process of reforms is brought to a crawl, and everyone relapses into the old comfortable, accustomed ways.

Moreover, the metaphor of a ‘‘breakdown’’ is itself misleading. It conjures up the image of some dramatic thunderclap which at last wakes people up. But look at Bihar: there has been no ‘‘breakdown’’ in that sense; things have just gone on disintegrating — with everyone getting accustomed to worse and worse.

On the other side, the world is galloping ahead. If the distance between China and India increases, that will not just mean that our people could be better off than they are. The distance will translate into an ever-growing threat to our security.

So, we can’t leave the process to meander along as it will. We must set its direction, we must set its pace. What can we do to help?


Build on the change that has already come about

To an extent the Reforms that have been implemented since the early ’90s have themselves cleared the path for further Reforms.

The gloom-and-doom prophecies that were made about the disasters that Reforms would bring down upon our country have all turned out to have been miasmas. The country has got used to Reforms, to doing things in new ways. Influential sections are impatient that the change is not faster, that areas like labour laws have yet to be improved.

Demography plain and simple is by itself bound to have a major impact in the future. Few realise that 54 per cent of Indians today are less than 25 years of age. And they matter: the average age of the ones who are creating Rs 60,000 crores worth of wealth every year in Information Technology is just 26 years! These youngsters care little for the rhetoric of our doomsayers. They are not afraid of the world. They feel they can out-do the competition. They know they have outdone the competition in field after field. They just want the freedom to do so. They just want the wherewithal, the environment — precisely the things that Reforms bring about — to do so.

Moreover, the critics of Reform have talked themselves out. They are stuck at slogans. But the debate in economic policy today is about details — and on those details, these critics have little to add. Of course, there is the minatory promise. For four years I have been told that a comprehensive paper is soon going to be released setting out an alternative — not just to the Reforms that are being brought about but to the entire ‘‘western’’ economic system that we are said to be aping. The paper seems to be another of those files — ‘‘Sir, abhi voh file apne office tak pahunchi nahin.’’

Even political parties are changing. It is the Marxist Government of Kerala that christened the state as ‘‘God’s own country’’ — and that to promote tourism: surely, a pastime of the Leisure Class! It is the Marxist Government of West Bengal that has brought the power sector to heel, that has notified Information Technology as a ‘‘public utility’’ and thereby put it beyond the mischief of bandhs and strikes. It is that very Marxist Government which places advertisements in bourgeois papers listing the multinationals with which it has signed MoUs.

There is another equally consequential advantage — today there is a competition among states, indeed among several cities too to be the preferred investment destination. Investors are therefore in a position to induce, even demand improvements. They should continue to do so.

And they should proclaim — openly and unambigously — why they are choosing one location and shunning the other. The fact that investors have shunned their state for the past 15 years is one of the strongest propellers of the changes that the Government of West Bengal is bringing about.

How can we put this environment, these various advantages to work?

[Guest]

<b>How to create a lean, clean governing machine</b>
There must be a strong man at the top to steer Reforms. But he must be dealt a fair hand. Equally, for top posts, talent must be rewarded, even if this means ignoring seniority
ARUN SHOURIE

Presidential governance

The most important thing is to see the nature of our governments. We talk of ourselves as a parliamentary system, and in some senses we are — that the catchment from which a Prime Minister may choose ministers is limited to Members of Parliament, for instance, is a serious limitation. But once constituted, the government is presidential — indeed, often the elections too are presidential: often a single question dominates the people’s mind — ‘‘Who shall be PM/CM?’’

The Prime Minister is not ‘‘the first among equals’’. He is the dominant determinant. I can speak of the current case at first hand. Many of us will go on arguing what we will. At some point Atalji will say, ‘‘Theek hai,’’ and all argument is ended. The proposition to which he has just assented becomes the decision. And yet he is a more consensual, democratic Prime Minister than one can imagine. The Reforms that we associate with Dr Manmohan Singh could not have been carried through without the backing of Mr Narasimha Rao. Not one of the hosts of changes that have been put into effect in the last five years could have been carried through without the backing and guidance of Mr Vajpayee. Hence the over-riding importance of the one we choose as Prime Minister.

His team

But he must be dealt a fair hand. Even to run the ministries, to say nothing of thinking out and carrying through Reforms requires high professionalism. ‘‘Imagine what would have happened,’’ my friend Bimal Jalan said the other day, ‘‘if our external account had been managed the way X has been handled’’ — I leave the matter at ‘‘X’’ as Bimal is not one to permit me to disclose the decision he used as an example!

Nothing could be truer. Today our foreign exchange reserves are increasing by a billion dollars a month. Four years ago, a moment came when we began losing a billion dollars every few weeks. At such moments one wrong step by the RBI, one unguarded statement would have sparked a run on the Rupee, a rush of dollars out of the country. Remember that ‘‘the fundamentals’’ of the Brazilian, Argentine, Mexican, and nearer home the South East Asian economies are not what tumbled overnight — elusive perceptions did, a defiant statement here a wrong decision there, and they began losing a billion dollars a week till the economies were down on their knees.

The first difficulty is that our electorate, and much of our political class, does not attach sufficient attention to competence. But even if it did, that would not be enough. Competence, though indispensable, is not sufficient. Piloting change requires another element — one to which the electorate and the political class attach even less significance. That is, integrity. There is scarcely a change in policy that does not affect different sections, different corporate entities differentially. In the major economic ministries, everyday matters come up for decision that have implications of crores and crores. Corporate rivals are quick to circulate allegations — they are able to plant them in papers with ease. The people too are prepared to believe the worst about everyone. The person who is entrusted with devising and carrying through a Reform must, therefore, be beyond suspicion. Else, the Reform itself will be derailed by the allegations against the person.

The moral is simple: help the one in whose hands you place the country or the state — give him a clear majority so that policies are not at the mercy of fringe groups; and give him a set of persons who have the conviction, the integrity, the competence, the stamina — each a distinct attribute, each indispensable — to manage economic affairs, in particular Reforms.

In the present circumstances, asking for even this much seems a lot. But clearly, it will not be enough. One has to spend just a day in it to realise that no Prime Minister, not even a Presidential-Prime Minister can disregard the clamour in Parliament, no Prime Minister can disregard the dispositions of generality of the political class. There are thus just two options: either through the present electoral process the general level of this class is raised or some way is found to redefine the relationship of the Executive and the Legislature. UK is not the only democratic country. The USA, France, Germany are no less democratic. Yet the relationship of the two branches is very different in each instance. We should study these, and commence a national discourse on alternative arrangements. It is entirely possible to make adjustments without in any way diluting the Basic Structure of the Constitution — indeed, we could well end up strengthening it by ensuring more effective governance.

A simple change that will trigger improvement

Short of getting a better lot through elections, one proposal that Bimal Jalan has long urged will pay rich returns. Government should select twenty-odd senior positions — the head of Intelligence Agencies, Secretaries of vital ministries like Finance, External Affairs, Home etc., and openly declare that for these twenty positions, it will not go by seniority, that it will select the person best suited for the job.

But even with clear majorities and a competent set to carry through the vision of a Prime Minister or Chief Minister, execution will be a problem unless three or four additional things are done.

Educate your rulers

One, a dialogue among institutions — in particular with the judiciary. Most judges would be as innocent of the shop floor, of the rough and tumble of markets as us journalists. Yet their pronouncements have the most far-reaching effects on economic operations. Every occasion must, therefore, be seized, as many as can be contrived should be contrived to bring the realities of technological change and of the current economy to our judges. As some of them may be hesitant to directly participate in discussions and workshops on these matters, we should engage with retired judges and with lawyers: they are of the same family, and we can be confident that what they pick up at such exchanges will trickle through to their sitting brethren.

It is for the same reason that I have come to see some merit in sending legislators on trips abroad: seeing where the world is going cannot but stir some at least among them to clear the blocks that we place in each other’s path at home. If only our trade unionists could be sequestered in China for a while! Surely, even they would see that if we continue to hobble our enterprises by laws and practices as they exist today, we will kill their chances of competing with Chinese companies, and thereby render jobless the very workers whose interests these union leaders are sworn to protect.

Processes

The second head concerns what is a paralysing infirmity today — the processes of the Executive: from the items that are taken to successive levels right up to the items that require the seal of the Cabinet; to tender procedures; to the number of persons and departments that have to be consulted over a question. Reforming these, pruning them, hacking many of them away, making them transparent, will, I have little doubt, have to be one of the main points of focus of the Government after the elections. And the improvements in these processes must reach the municipal level — for unless land is made available at that level no vision statements, no bold policy pronouncements will lead to actual production, that is where the power will have to go on, the water to flow into the factory.

Rewarding performance

Third, the decades-old formulae by which the Planning and Finance Commissions allocate funds should be stood on their head. In their current form, they scarcely reward performance, Reform, improvement. Indeed, if a state is kept poor, if its finances are so mismanaged that its current account deficit remains high and intractable, it gets ‘‘rewarded’’ — the allocation to it under various heads is higher. It is only under a few programmes — the Accelerated Irrigation and Power programmes, for instance, that expeditious execution brings rewards. But the amounts set apart for these programmes are a pittance compared to overall allocations. The proportions should be reversed. And the scale multiplied.

The latter depends on the other key area of Reform: current expenditures of governments. Both to provide rewards for performance that would actually make it worth the while for states to affect improvements, and to provide funds for investment in infrastructure that would sustain industrial growth, it is current expenditure of central and state governments that has to be restructured. And that means first and foremost acting on the politically unmentionable — subsidies. This is perhaps the one area in which a breakdown alone will give the political class the reason to do what everyone knows has to be done

[Guest]

<b>Change must be a revolution from below, it involves every one of us </b>

There is a great deal to be done. Media, businessmen and academics must all play a crucial role in improving public life and not remain trapped in laziness, shoddiness or empty glamour

ARUN SHOURIE

It is not enough for a revolution that policies and structures keep getting changed from the top. A million persons must be doing a million new things. Indeed, they must get into the habit of tinkering with and improving things — spontaneously, every day, forever. When they get into this habit, a habit exemplified in the American case by a magazine like Popular Mechanics, things that require to be changed for the better will get improved, of course. The even greater gain will be the change that would have come about in the way we look at things. We would have got into the habit of looking for solutions, of doing things, of doing things by ourselves. The air will change. Instead of being afraid of the future, we will embrace it, and busy ourselves to bringing about the Reforms that will equip us for it.

There are two excellent initiatives that show the way — the Honey Bee initiative that was begun by Professor Anil Gupta of IIM Ahmedabad, and the National Innovation Foundation that Dr Mashelkar and his associates steer. In Honey Bee students are encouraged to spend time in villages and locate inventive solutions that have been developed by ordinary folk for problems they encountered. The Foundation sifts such innovations, bestows awards for the best ones, and provides assistance for multiplying innovativeness. These are the kinds of initiatives that we need to spread to every part of the country.

The second project requires deployment of the organisational capabilities on a much greater scale. As Reforms have unleashed productive potential in sector after sector, they cannot but be benefiting the ‘‘average Indian’’ too. The data itself shows that the period of Reforms is also the period in which there has been a faster reduction in the proportion of people below the poverty line than any other period. So, I am not fazed by the hectoring, ‘‘Reforms have not helped the poor.’’

But there are two points of an altogether different kind. First, all change dislocates. Buses and three-wheelers come. Those making tongas, those driving them, those who were rearing horses for them — all go out of business. SMS wipes out the paging industry. Ever cheaper mobiles hit the custom of PCO operators. The usual counsel is, ‘‘The country must develop adequate social security nets for workers who are liable to be dislocated by change.’’ That is easier said than done: we just do not have the resources to weave nets of the order that would be required to deal with the kinds of numbers that, say, China has reportedly to handle today — anywhere up to a hundred million are said to be floating from city to Chinese city in search of work. We have neither the resources nor the political and administrative structure to contain that kind of dislocation.

The other consideration comes into view when we consider the by-now well known figures about the IT industry: six lakh youngsters are producing seventy thousand crores worth of wealth every year. By every count that is a fantastic achievement, and it helps the country in a dozen different ways. The other way of looking at the figures is, ‘‘Creating wealth of seventy thousand crores absorbs only six lakh persons.’’ In a word, the new knowledge-based industries in which India is set to excel — and for which the Reforms vastly multiply our comparative advantage — will not create that order of jobs that we require.

The only way therefore is to go in for projects that will engage millions: bio-fuels, organic farming, medicinal plants, infrastructure projects of the kind the Prime Minister has initiated — the rural roads programme, the Golden Quadrilateral, the East-West Highway, the inter-linking of rivers. These schemes are vital in themselves. They are necessary also for the success of Reforms

Three vital agents

But for reasons that we encountered earlier, for any of these things to happen those outside the political system have to ‘‘give history a helping hand’’. Three communities can play a vital role — intellectuals, the media, and entrepreneurs.

One of the regrettable facts that are brought home to one assigned economic portfolios in Government is how little guidance he can garner from books on Economics and economic policy, from journals and newspapers. I have three portfolios at present — privatisation, Information Technology and Telecommunications. Each of these is an active arena, and two of the three are areas of vociferous contention. Every step is a policy issue. Each choice involves a host of considerations. In privatisation and even more so in telecom there are intense corporate battles over every tiny step. How one longs for the sober, detached, detailed, in a word for academic analysis. But I confess: I have scarcely come across a piece which enriched my colleagues and me, which made our decisions better informed.

By contrast, I learnt a great deal from discussion, even from fleeting exchanges with leaders in the political arena — say, from a person like Mr Yashwant Sinha. None of them would claim to be an economist — and yet their remarks even on the details have been far, far more instructive than those that we encounter in books and journals and from editorial commentators. I have learnt a great deal from some of the civil servants with whom I have had the chance to work. I have learnt a lot even from a simple rule that I have had in regard to businessmen. Every businessman has been welcome to my office — even those who have a direct interest in the policy options that we were considering at that moment. But upon entry, each must first pay a tax: before I hear him on the matter in which he is interested, he must give me one useful idea relating to my work. That simple rule has brought me — free! — many innovative, shrewd ideas.

But from academics and their writings, from commentators who people the editorial pages, I can scarcely source a suggestion that had not already come up in our day-to-day discussions. And yet, academics and commentators would be the first to say that the governmental structure is so ossified that it cannot generate a fresh idea!

There was one exception. And that came from Dr Roddam Narasimha. Mr Arun Singh mentioned his work to me. Once we established contact, Dr Narasimha sent me a paper on no-frills airlines. That paper, and my distaste for financing buildings, is what led to our stopping what had long been the rage as far as civil aviation in the Northeast is concerned — the construction of new runways and airport buildings. Instead, the money was allocated as a subsidy to Indian Airlines for it to hire four 50-seater aircraft and start a taxi service connecting all capitals in the region. That excellent idea has borne rich fruit: where a person wanting to travel from Silchar to Guwahati — both in Assam — had earlier to go first to Kolkata, spend the night there, and then catch another flight the next day to Guwahati, today the entire area is knit together by those four planes flying from airport to airport throughout the day.

Of course, this is just one person’s testimony, mine. But it is the testimony of a person who is naturally inclined to look for guidance to writings of academics and commentators, of one who is reporting the experience of running three active ministries. We can set personal testimony aside and look just at what is available in the public domain. Look, for instance, at the way judgments of American and British judges are analysed by academics and commentators, and contrast that with the fate judgments of our courts suffer — there is hardly any scholarly analysis of the latter. This single contrast explains a good part of the distance in the quality of the respective judgments.

Remedying this situation is entirely within our hands: I would, therefore, plead with academics to do much more to analyse policy options, decisions, judgments.

I would urge the same thing of the media. Sometimes mere neglect by the media is enough to make a lamentable situation worse. How is it that the media has completely neglected to awaken the country to the consequences that 15 years of Communist rule has had for industrial investment in West Bengal, and therefore for employment? By treating the antics of the rulers of Bihar as just entertainment, are we not papering over the alarming consequences such malgovernance is building up for the security of the country? How come the journalists reporting out of Madhya Pradesh during the last decade never awakened us to the condition to which infrastructure had fallen?

The first thing, therefore, is to remain focused. Please do not let these new fads — ‘‘life style journalism’’; do not let the new theses — ‘‘we are in the infotainment business’’; do not let the new catch-phrases — ‘‘a newspaper is a product, it has to be marketed as a brand’’ — distract you. Great opportunities beckon the country. It also faces life and death issues. Our job is to keep the reader’s eyes glued to them, to research options, to dissect the choices that governments make. Not to divert. Not to entertain.

And that is very different from, it is the exact opposite of just regurgitating what X or Y alleges.

Even in the context of the sorts of specific items that have come up for mention above, the media can do a lot to prepare the ground for reform:

• Document the uses to which PSUs are put — from cars and hotel rooms to not depositing mandatory dues in the Provident Fund Account; from the time it takes to arrive at a business decision to cost and time over-runs in implementing it, and whether anyone has ever been brought to book for such dereliction; from the consequences of appointing senior executives by seniority to whether the enterprises have kept up with advances in technology; and if they haven’t, is it not the private entrepreneur in that sector — the very one to be a counter-weight to whom the PSU is being kept around — is he not the one who reaps a rentier’s windfall?

• Document the reality about subsidies — who reaps the 45,000 crore that are spent on these every year?

• Nail the corporate interest that has been dressed up as national interest.

• Enforce the rule that no party shall block where it is in opposition what it is doing where it is in power, that no party when out of office shall denounce and block the very measures it took when it was in power.

Professionals and businessmen too can contribute a great deal. As a result of the reforms that have already been implemented, the balance of power — and even more so, of legitimacy — has shifted from Delhi to Mumbai, to Bangalore, to Hyderabad — industrialists do not stand around in corridors of government offices the way they had to five-ten years ago. Quite the contrary: governments look over their shoulders to see whether their latest announcement has had the desired effect on industry.

We must press ahead in this direction through every available device: be it ever so little as outsourcing a particular function, or more substantial — privatization of governmental units, fiscal incentives that would make it worthwhile for corporates to set up the kinds of foundations that have been so vital in the transformation of the US and Europe.

Professionals and entrepreneurs are the ones who are affecting changes in their spheres today. But these changes are confined to specific spheres. They cannot survive if the state structure disintegrates: howsoever sturdy the buildings we construct, when the earth on which they stand itself subsides, how can the buildings survive?

The first thing that professionals and the business community need to do is to realise this truism. And act on it. Businessmen still suffer from a hangover from the license-quota days: their preoccupation is not that the apparatus of governance improve; their aim — and their skill — is to use the apparatus to strike a private deal for themselves, to advance their interest, or, better still, to derail a rival. Shed this habit, attend to the general issues of governance, of society, join hands to ensure those policies and changes in procedures etc. that will help not just you but all to advance faster.

But to do this, there is one pre-requisite. They must shed timidity. Journalists write of businessmen as ‘‘Captains of Industry’’, as ‘‘Tycoons’’, as ‘‘Mughals’’, as ‘‘Media Barons’’. But I have had occasion to see them fawn and cringe before sundry politicians. Captains? Tycoons? Mughals? I am led to ask myself. Power and legitimacy have shifted to professionals and entrepreneurs. Seize them, put them to work for the common well.

Address the issues of our time. Finance intellectual effort, create the enabling eco-system for rigorous, detailed research on these issues. And make the results of that effort, the solutions that emerge from it, the dominant constituent of discourse in our country. True, the Constitution Review Commission has sunk into oblivion. But why should leaders of society wait upon Government to set up such a Commission? They should analyse, to continue the example, or they should enable others to analyse, the country’s experience on different Articles of the Constitution. They should inject the results into discourse throughout the country.


The most important task

But the most important task is to improve the type in public life.

‘‘Why is India in the condition we see around us today?’’ Professor P. Indiresan asked me one day. While I was fumbling for an answer, he pronounced, ‘‘Indiresan’s Law’’. ‘‘Indiresan’s Law?’’ I asked. ‘‘You don’t know Indiresan’s Law?’’ he asked in mock astonishment. ‘‘You should, It is: Second-rate persons select third-rate persons. You do that for fifty years and you get to where we are.’’ An almost complete explanation.

Nor is it enough to ensure that truly competent persons are at the helm. Even the Prime Minister who has unapproachable authority has to heed the notions and declamations of the general political class. So, the general level of the class itself has to be raised. The forthcoming elections are yet another opportunity to do so. The stakes are as high as they can be: whether the plane that has just taken off will continue in flight will depend on the outcome. And all of us have a responsibility in this regard.

We often blame voters for the deterioration in the quality of persons in our legislatures, and thereby our governments. But other sections — businessmen, for instance — can scarcely escape the blame: they finance and patronise many of these persons and their parties. Why not make your support conditional on the party fielding a better type of candidate? Why not make it conditional on the performance of the elected person in legislatures, in governments?

Can journalists escape blame — the disintegration of governance in parts like Bihar has been aided by the way media has lionised many ‘‘a man of the masses’’. Media can reverse all this. It can play a significant, direct role. It must continue nailing malfeasance, in mercilessly exposing, in hounding the corrupt and inefficient. Done truthfully, such effort cannot but serve the country. If the politician or party is thereby ousted, the media would have removed a tumour. If in spite of the facts having been nailed, the person and party continue, the political class would itself lose another ounce of legitimacy. In turn that will help transfer power and legitimacy — from the state to society. And that will accelerate the change that has commenced.

The point of it

The moral is simple and familiar:

• A great deal has been done.

• A great deal remains to be done.

• Each of us can do much to ensure that gets done.

The point in public life, as in life itself, is to do one’s bit.

[Guest]

part 4 of the series.....

Praise, praise all our countrymen and women

True, wherever we look, we can spot a problem. But it is just as true — wherever we look, we will find a solution. And not just a solution in the abstract. We will find someone who has put that solution into effect. Ever so often the solution is lying in front of our eyes — unused, neglected.

Kochi receives a lot of rain. Yet there is acute water shortage in the city. Indeed, readers will be astonished to learn, as I was when I was in the area, that even Cherrapunji — the place that, we used to be taught in our school-days, receives the maximum rainfall in the world — is short of water for eight months in the year!

But there is the simplest solution, it is right in front of our eyes. The largest water-harvesting project in Kochi, Down to Earth reports, has been undertaken at the Maharaja’s College — it will harvest over 3 lakh litres. The project uses two tanks that were once upon a time used for a gas plant by the college’s Chemistry Department but had for long been lying abandoned. As part of the National Service Scheme, students cleaned the tanks, they strengthened the floor. In Hamirpur, Himachal Pradesh, water is being harvested by rehabilitating the traditional hand-hewn caves, the khatris. In Jharbeda, a tribal village in Sundergarh, Orissa, water has been harvested by rehabilitating the local ghagra, a pond-like structure lying at the base of the slope of a hill — the pond has been revived, and a wide drain dug from the top of the hill to carry rain water to this structure. In Chennai, a commendable programme has been initiated to revive temple tanks. In another excellent initiative, water which used to flow out to the sea via storm-water drains is being channelled into the aquifer — the drains have been repaired, muck and leaves etc. have been cleared out, the bottoms of the drains have been left unpaved, shallow trenches and percolation pits have been dug along the way. The simplest steps, nothing that requires space-science, using areas, structures that were lying abandoned, broken down in front of everyone’s eyes. And yet steps that spell the difference between an obstacle and an opportunity.

For such steps to become a habit with us, we need to internalise three Gandhian lessons:

• Just as development is not just outlays, it certainly isn’t just Government outlays, a revolution is not one person doing one incredible thing but a million persons doing a million things differently.

• Each one of us can be a part of that sort of revolution. I am reminded of this every day as I see my father, now 91, labouring away with just a ballpoint and paper; as I travel and persons come up and direct me to convey their gratitude to him, I realise how, with just that ballpoint and blank paper he has made a difference, and each of us can make a difference to the lives of thousands in the farthest corners of the country.

• Every little thing we do can be part of that revolution. I was staying at a Zen temple once in Kyoto. The lady of the house was quietly at work after dinner. She was cutting the edges of wrapping paper in which gifts had been brought to the temple so that the paper could be gifted for use again. She told me that used stamps are systematically collected and sent abroad — to be sold to stamp collectors, the proceeds in turn being given to charity organisations.

One of the most conscientious of officers I have ever come across, Narottam Tripathi retired as UP’s Secretary, Forests. Since then — he is now past 80 — he has devoted himself to helping retired government servants, who are too old or otherwise unable, and their families to collect their pension benefits, to access medical facilities.

Remember Gandhiji — he had a programme for everyone. If someone could face death, he had a programme for her. If one could not face death but could devote her life to constructive work, he had a programme. If one could give up his career and go to jail, he had a programme. If one could not do that but spin in the privacy of one’s home, Gandhiji had a programme. If one could not do even that much but could merely sing, Gandhiji had the Ramdhun, the evening prayer through which one could attune to the national struggle for freedom. Nor was all this just formal association. Everything was linked to the great purpose as every little rivulet contributes to the mighty Brahmaputra.

Development is no different. There is a related fact. In sphere after sphere, in every part of the country individuals and groups are doing work that is both creative as well as service. If only one-tenth of the effort that is spent to knit together ‘‘activists’’ who are shouting against something were spent on knitting those who are doing good work, would that not work a revolution? An even simpler effort would help immensely. All too often we do not even notice the good work that is being done right next to us, nor the person doing it. When we do notice her or him, all too often we just watch. Often we watch with a sort of ‘‘malign neglect’’. We almost wait for him to fail — ‘‘Bahut samajhtaa thaa apne aap ko...’’ Often we paste a motive on him, ‘‘Failed in his job... A publicity hound...’’ Having pasted a motive, we exempt ourselves from doing anything like him. After all, we have not failed at our jobs, after all we are not desperate for publicity... We must reverse these attitudes:

• Look out for such work;

• Let persons doing such work know that you treasure what they are doing and are grateful to them.

.............................

[Guest]

There is a telling remark that R R Diwakar once attributed to Annie
Besant. Annie Besant was immersed in and committed to India. She was a
close friend of Diwakar’s father, the well-known philosopher, Dr Bhagwan
Das, and used to stay in their house in Benaras. ‘‘What is the matter
with us?’’ Diwakar recalled asking her often. ‘‘You love us. But you
never answer this question. How is it that just a few Englishmen are able
to rule over us? What is the deficiency in us?’’ She would always change
the subject. But one day he persisted. After a long pause she remarked,
‘‘You are not a generous people.’’ ......

<b>Praise, praise all our countrymen and women by Arun Shourie</b>
http://www.indianexpress.com/full_story.ph...=42275&spf=true
India Express, March 04, 2004
(The writer is Union Minister for Disinvestment, Communications and
Information Technology)

Wherever we look, we will find a solution - True, wherever we look, we
can spot a problem. But it is just as true — wherever we look, we will
find a solution. And not just a solution in the abstract. We will find
someone who has put that solution into effect. Ever so often the
solution is lying in front of our eyes — unused, neglected.

Kochi receives a lot of rain. Yet there is acute water shortage in the
city. Indeed, readers will be astonished to learn, as I was when I was
in the area, that even Cherrapunji — the place that, we used to be
taught in our school-days, receives the maximum rainfall in the world — is
short of water for eight months in the year!

But there is the simplest solution, it is right in front of our eyes.
The largest water-harvesting project in Kochi, Down to Earth reports,
has been undertaken at the Maharaja’s College — it will harvest over 3
lakh litres. The project uses two tanks that were once upon a time used
for a gas plant by the college’s Chemistry Department but had for long
been lying abandoned. As part of the National Service Scheme, students
cleaned the tanks, they strengthened the floor. In Hamirpur, Himachal
Pradesh, water is being harvested by rehabilitating the traditional
hand-hewn caves, the khatris. In Jharbeda, a tribal village in Sundergarh,
Orissa, water has been harvested by rehabilitating the local ghagra, a
pond-like structure lying at the base of the slope of a hill — the pond
has been revived, and a wide drain dug from the top of the hill to
carry rain water to this structure. In Chennai, a commendable programme has
been initiated to revive temple tanks. In another excellent initiative,
water which used to flow out to the sea via storm-water drains is being
channelled into the aquifer — the drains have been repaired, muck and
leaves etc. have been cleared out, the bottoms of the drains have been
left unpaved, shallow trenches and percolation pits have been dug along
the way. The simplest steps, nothing that requires space-science, using
areas, structures that were lying abandoned, broken down in front of
everyone’s eyes. And yet steps that spell the difference between an
obstacle and an opportunity.

For such steps to become a habit with us, we need to internalise three
Gandhian lessons:

• Just as development is not just outlays, it certainly isn’t just
Government outlays, a revolution is not one person doing one incredible
thing but a million persons doing a million things differently.

• Each one of us can be a part of that sort of revolution. I am
reminded of this every day as I see my father, now 91, labouring away with
just a ballpoint and paper; as I travel and persons come up and direct me
to convey their gratitude to him, I realise how, with just that
ballpoint and blank paper he has made a difference, and each of us can make a
difference to the lives of thousands in the farthest corners of the
country.

• Every little thing we do can be part of that revolution. I was
staying at a Zen temple once in Kyoto. The lady of the house was quietly at
work after dinner. She was cutting the edges of wrapping paper in which
gifts had been brought to the temple so that the paper could be gifted
for use again. She told me that used stamps are systematically
collected and sent abroad — to be sold to stamp collectors, the proceeds in
turn being given to charity organisations.

One of the most conscientious of officers I have ever come across,
Narottam Tripathi retired as UP’s Secretary, Forests. Since then — he is
now past 80 — he has devoted himself to helping retired government
servants, who are too old or otherwise unable, and their families to collect
their pension benefits, to access medical facilities.

Remember Gandhiji — he had a programme for everyone. If someone could
face death, he had a programme for her. If one could not face death but
could devote her life to constructive work, he had a programme. If one
could give up his career and go to jail, he had a programme. If one
could not do that but spin in the privacy of one’s home, Gandhiji had a
programme. If one could not do even that much but could merely sing,
Gandhiji had the Ramdhun, the evening prayer through which one could attune
to the national struggle for freedom. Nor was all this just formal
association. Everything was linked to the great purpose as every little
rivulet contributes to the mighty Brahmaputra.

Development is no different. There is a related fact. In sphere after
sphere, in every part of the country individuals and groups are doing
work that is both creative as well as service. If only one-tenth of the
effort that is spent to knit together ‘‘activists’’ who are shouting
against something were spent on knitting those who are doing good work,
would that not work a revolution? An even simpler effort would help
immensely. All too often we do not even notice the good work that is being
done right next to us, nor the person doing it. When we do notice her or
him, all too often we just watch. Often we watch with a sort of
‘‘malign neglect’’. We almost wait for him to fail — ‘‘Bahut samajhtaa thaa
apne aap ko...’’ Often we paste a motive on him, ‘‘Failed in his job... A
publicity hound...’’ Having pasted a motive, we exempt ourselves from
doing anything like him. After all, we have not failed at our jobs,
after all we are not desperate for publicity... We must reverse these
attitudes:

• Look out for such work;

• Let persons doing such work know that you treasure what they are
doing and are grateful to them.

I would put great store by even these simple, costless changes — even a
change just in the way we look. Were we to act even on that lovely
slogan from Thailand, ‘‘Those who smile thrice a day, will please make it
six times,’’ we would commence a change within us, and thereby in our
environment. When we look out not for problems, not for deficiencies, for
things not done, not for the one next to us who is not doing his bit,
but for things done, for persons doing good, even more so when we
ourselves do something to help — specially if we do something to help someone
who cannot do anything for us in return — our entire outlook changes.
Over time, we are transformed.

It is the lesson that everyone living with a handicapped child learns —
serving the helpless child changes us inside out. It has been truly
said, ‘‘Service is selfish!’’ So, we should scout for solutions — around
us, on the Internet, in survival manuals. And translate them into our
own day-to-day life. A thing that needs to be done will get done, of
course. But even more consequential, the feeling of helplessness that so
often envelopes us will evaporate. Once a group, and not just an
individual, adopts the solution, the transformation will naturally be much
wider. Account after account of the kind that I have recalled above reports
how, once they had got together to execute the project, feuding,
acrimonious conglomerations became communities. Constructing that check-dam,
building a community gobar-gas plant and systematically collecting dung
and agricultural waste for it, cultivating Spirulina, harvesting water
vaulted bickering sections above caste, above narrow religiosity.

An acute observation, a noble example

There is a telling remark that R R Diwakar once attributed to Annie
Besant. Annie Besant was immersed in and committed to India. She was a
close friend of Diwakar’s father, the well-known philosopher, Dr Bhagwan
Das, and used to stay in their house in Benaras. ‘‘What is the matter
with us?’’ Diwakar recalled asking her often. ‘‘You love us. But you
never answer this question. How is it that just a few Englishmen are able
to rule over us? What is the deficiency in us?’’ She would always change
the subject. But one day he persisted. After a long pause she remarked,
‘‘You are not a generous people.’’

A pregnant observation. We cannot stand the success of another. Our
throats dry up when we have to praise another. By contrast, how quick we
are to locate and proclaim faults in others. I have a private game. I
often ask persons in public life, on occasion persons in other
professions too, ‘‘Who are the five persons you admire most?’’ They take much
longer to answer than they do when I ask them, ‘‘Who in your estimation
are the five most undesirable persons?’’ And when they do answer, there
is a telling difference. The list of persons they admire consists mostly
of persons who have passed away, while the list of undesirables
consists mostly of persons who are around! And there is another difference.
The list of persons they admire seldom has a person from their own group
or profession; the list of undesirables consists almost wholly of
persons from their own profession, often from their own group!

The counter-example is Ramana Maharshi. So many who spent time with him
noticed that he saw only what was good in another. Ramana devotees will
remember a tell-tale incident. In his Reminiscences, Kunjaswami
narrates: ‘‘In Tiruvannamalai, there was a rich man by name Kandaswamy. His
conduct was not particularly good and the local people detested him. He
used to come and see Sri Bhagavan occasionally. In his last days, he
suffered from poverty. Once he wanted some special gruel and sent word
through someone to the ashram. He was staying in a dilapidated temple
opposite the ashram. Sri Bhagavan arranged for gruel to be sent to him.
This was sent on three successive days. On the fourth day, Kandaswamy
passed away. We informed Sri Bhagavan of this. We thought Sri Bhagavan
would not have anything good to say about this man. What a surprise! Sri
Bhagavan said, ‘Nobody can keep his body and clothes as clean as
Kandaswamy. He was next to Injikollai Dishitar in cleanliness. He used neither
oil nor soap. He would come to the tank at eight in the morning and
start washing his dhoti and towel. By the time he finished his bath, it
would be 12 noon. His hair and beard were spotlessly clean.’ We were
really ashamed of ourselves. Sri Bhagavan was unique in seeing only the
good in others.’’

‘‘Seeing only the good in others,’’ at least in those who are doing
good work — what a good way to begin to be Ramana.

[Guest]

<b>Tigers, termites and tenacity</b>

Mar 11th 2004

<i>As an election looms, Arun Shourie, India's privatisation minister, beats the drum for market reform</i>

Get article background

THESE are glory days for Arun Shourie. As the public face of the Indian government's privatisation programme, he is basking in the success of the Indian stockmarket's largest-ever public share issue. Its offer of 10% of the shares in ONGC, an oil exploration and production company, was the last of a hectic spate of six privatisation issues. The offering was fully sold within minutes, and when it closes on March 13th will raise some 100 billion rupees ($2.2 billion). This is a godsend for a government struggling to meet its fiscal-deficit target ahead of a general election on April 20th. Just as important for Mr Shourie is to see another lurch forward in India's erratic economic liberalisation.

The success of the sales matters. It will encourage boldness in other areas—“like drum-beaters bringing out the tiger,” as he puts it. It will also burnish Mr Shourie's reputation. Like reform itself, the minister has suffered his share of setbacks. One came last September, when the Supreme Court ruled that the privatisation of two state oil companies required a vote in parliament. This had the effect of stalling his favoured method of disposing of the government's assets—selling control to strategic investors, rather than minority chunks to the market. At the time, Mr Shourie vented his frustration by saying the ruling showed the difference between India and China: “In India, everybody has a veto.”

Mr Shourie was a well-known author and journalist before he was head-hunted into the unelected upper house of India's parliament by the Bharatiya Janata Party (BJP), which heads India's ruling coalition, in 1998. His last book, “Courts and their Judgments”, complained about the way India's law courts have extended their roles, because of the shortcomings of India's other institutions. His next one will examine how the internal processes of government have come to resemble the termites that ate away at a tree in his garden, leaving little but a piece of bark that now decorates his book-lined ministerial office. It will draw on his experience of trying to practise what he used to preach as an economist at the World Bank, since he became minister of “disinvestment” in 2001.

Mr Shourie likes to cite a study of the Kuomintang's China in 1936: “administration degenerates into mere correspondence.” In India, he says, every file probably needs the signature of 20 senior civil servants, any one of whom can stop its progress. Take his struggle to sell a government-owned hotel chain. He found that not one of the 30-odd hotels in the group had the title deed to its lands. Demerging the company to sell the properties individually needed the consent of all the employees, who held 0.5% of the equity. Securing a list of its debts took six months. One Delhi hotel was embroiled in a 15-year lawsuit with another arm of government about its ground rent. Mr Shourie recalls his exasperated plea to his civil servants: “It must be written in some bloody document.”

But he boasts of a tenacity nurtured in his days as a crusading editor of a newspaper known for its dogged pursuit of scandals. “I am a Graduate of the Indian Express; we exhaust the other fellows.” Victims of this persistence include not just civil servants and judges, but politicians. After about 20 parliamentary debates on privatisation in the past four years, the most recent were adjourned for want of a quorum.

As this implies, Mr Shourie sees the politicians themselves as obstacles to getting things done. “The quality of many who people our public life—that is not democracy, it is disarray, it is free-fall.” Yet he refuses to use India's democratic system as an excuse for the country's painfully slow pace of economic progress over the past 20 years compared with China. “Governance”, he argues, “is not golf: that we are a democracy does not entitle us to a handicap.”

The pending tray
There often seem to be more stops than starts in the Indian reform process. But much has been achieved since 1991, when the old system of industrial licensing and import controls was overturned in favour of gradual liberalisation. The industries that form his other portfolio—communications and information technology—are cases in point. The government's hands-off approach to the IT business has allowed it to become a world-beater. And in telecoms, liberalisation has sparked a boom—India is adding nearly 2m mobile-phone connections a month.

Yet even there, Mr Shourie is smarting from a setback: his failure in January to gain cabinet approval to open the telecoms sector to majority foreign ownership. He ran into resistance from a wing of his party that is suspicious of globalisation. Mr Shourie and other unelected economic liberals rely heavily on the support of the prime minister, Atal Behari Vajpayee.

Mr Shourie hopes that the next government will continue reforming—even if Congress, the main opposition party, wins. Congress launched the reforms in government, but now often seems opposed to them. Everybody opposes reform in opposition, argues Mr Shourie, but in office, finds it the only option. The priorities now are to tackle the deficit, by cutting government subsidies, and to devise new formulae for the distribution of funds between states and the federal government. At present, non-performance is rewarded and success penalised.

But Mr Shourie is also known for his outspoken backing of many of the “Hindu nationalist” issues identified with the BJP. This makes him the object of much anger from India's Muslim minority. Mr Shourie, however, claims there is convergence here, too, as any party in power will have to “accommodate itself to the diversity of India”. Those who fear the BJP's communal tendencies are merely in remission will find this unconvincing. More persuasive may be Mr Shourie's argument that the only way the BJP can win a consensus for its Hindu demands is to deliver efficient government.
http://www.economist.com/people/displaySto...tory_id=2498792

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I admire Shourie, but fail to understand the lack of a sense of "strategic sectors" in a country's economy.

[Guest]

Aaah ! after reading Tavleen Singh - do please read this..

<b>Talking themselves into a corner</b>
On disinvestment and privatisation, between the CMP release and President’s address, lie reality bites

ARUN SHOURIE

[Guest]

Arun Shouries latest on economy.
OCTOBER 1, 2004

PART-III The many states of despair and callousness

SEPTEMBER 30, 2004
PART-II The mystery of how a report slips under a table

SEPTEMBER 29, 2004
PART-I Left out of the public glare

[Guest]

<b>The Arun Shourie </b>Site

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<b>Extracted from Will the Iron Fence Save a Tree Hollowed by Termites?, Arun Shourie’s new book that is being published by Rupa & Co, this month.</b> <!--emo&:cool--><img src='style_emoticons/<#EMO_DIR#>/specool.gif' border='0' style='vertical-align:middle' alt='specool.gif' /><!--endemo-->

<b>Has Musharraf’s heart changed? And why? </b>
<i>While US is looking at India to counter the growing power of China, Beijing is making overtures to ensure that New Delhi is not available to Washington as an instrument to ‘contain’ it. The result is the Musharraf of the changed heart</i>

<b>Mullah-Military: The unholy alliance</b>
<i>Instead of empowering liberal, democratic voices, Musharraf regime has co-opted the religious Right and relies on it to counter civilian opposition</i>

<b>A failed State, a Talibanised society</b>
<i>Pak is unable to think of an identity except as ‘Not India’, except as the country whose mission is to dismember India </i>

[Guest]

As much as I admire Arun Shourie and his writings, it frustates me to read these regurgatative articles AFTER the fact. NDA-BJP governed the country for a number of years. WHAT exactly did they do wrt Pakistan? Nada, zilch, shunya. Do you recall ABV with his "ninda" and "regret" that they missed the opportunity to teach Pakistan a lesson. Padmanabhan with his "woh bilkul nange theey."

Enough already! The NDA-BJP had their chance and BLEW it. And, supposedly, that was India's strongest card!

[Guest]

The Centre and the Centaur, Part-I


While the government deliberates
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The CAG report on the privatisation of the two Centaur hotels in Mumbai has led to an inquiry. In the politically-inspired cacophony, it is not being understood how hard the government worked to ensure there was a bidder, that his guarantees were examined, that he was held to his bid and every paisa paid to the government
 
Arun Shourie
 
‘‘But the original valuation of the hotel was Rs. 246 crore, the Government says. How was this brought down to a reserve price of Rs 101 crore?’’ The correspondents at the press conference were minatory.
I do not know where this figure of Rs 246 crore has come from, I said. On what basis have the calculations for this been made? I asked. Who has made them? Were they made in the mid-1990s when the hotel was earning a profit of Rs 27 crore a year or when it was incurring a loss - as it was in the years preceding disinvestment. The reporters did not know either the basis for that figure or who had calculated it, or when. Yet the insistence, a sort of ‘‘explain or else’’. There is no mention of the Rs 246 crore valuation in the CAG report.

‘‘But was it right that Kerkar was on the Board of Air India one day and the very next day he became a bidder for the hotel?’’ another questioner demanded with the same insistence and belligerence. Again, there is no mention of this in the CAG’s report. As the reporters had been so aggressive, I sought the facts from a colleague who had worked on the transaction. The records showed that Kerkar had been on the Board of Air India till 10 December 1998. The bids were called in October/November 2001! When was the valuation done? I inquired. Sometime in 2001, the person told me. But the way the matter had been projected was that Kerkar had been on the Board of Air India one day and the next day he had become a bidder for a property of its subsidiary! Just a few days had to pass, and the matter was lifted even higher. Kerkar was said to have been a member not just of the Board of Air India till the very eve of bidding, he was said to have been a member of the Disinvestment Commission itself!

In any event, the insinuation completely disregarded the fact that the procedures we had set up ensured that no bidder would have any difficulty in learning what any other bidder knew. In each instance, a ‘‘data room’’ was prepared. It contained every conceivable bit of information about the enterprise. Each bidder was invited to inspect every detail. Teams of accountants, lawyers, finance people from the bidders would spend long hours going through every scrap. And if they wanted further information on any particular, that was collected and furnished.


One bidder

‘‘But what about there having been only one bidder? The CAG says that as there was only one bidder the advantages of competition did not accrue.’’ We should be thankful that there was at least one bidder. In the case of eleven enterprises, after we had slogged for one and a half to two years on each to them, we had to return them to the Ministry of Heavy Industries and Public Enterprises - because not even one bidder was willing to take them over. (Incidentally, each of those companies continues to languish, each remains a drain on the Exchequer.) The question had then been put to the Cabinet Committee on Disinvestment as a policy issue: what should be done if only one bidder is left? The Cabinet Committee decided, and the decision was announced, that, even if there is only one bidder left, the process should be completed. The CAG report itself records that, in the case of the Juhu hotel, twenty had expressed an interest and entered the process.

That by the end only was one was left was typical. In case after case, as the bidders learnt more about the enterprise, more and more of them concluded that they would only be taking on headaches were they to win the competition. In several cases they were given a vivid pre-view of what to expect. When the Advisors and potential bidders reached the Janpath Hotel in Delhi, they were mobbed. In the Kovalam Hotel in Kerala, they were chased, and barely escaped. Even the Secretary of the Disinvestment Department, had to have heavy police guard when he visited BALCO.

Nor are the hotels the only cases in which Government had to deal with the situation of there being just one bidder. Paradeep Phosphates, Modern Foods, Jessops — in such enterprises too there was only one bidder left. Had the Government abandoned the process, the enterprises would still be hemorrhaging, as they had been for years. In the short time since they were disinvested, the enterprises have completely turned around — wages have increased up to 30 per cent; production has increased up to 250 per cent; instead of bleeding the exchequer, they are earning profits and will contribute to governmental revenues. Nor is the NDA Government at the Centre, the only one which completed the process even though in such cases there was only one bidder. In each of the three circles of the Delhi Vidyut Board which were put up for disinvestment by the Congress-I Government in Delhi, there was only one bidder. Not only did the Congress-I Government complete the disinvestment in favour of the single bidder

• After rejecting the bids, it entered into negotiations with that single bidder — Reliance in two circles, and the TATAs in the third.

• It then gave huge — that is the correct word — to the single bidders.

• Each of the bidders maintained that the concessions were not sufficient. The Congress-I Government then increased the concessions very substantially again.

These new terms were not communicated to the bidders who had been in the race earlier and had dropped out. They were communicated only to those two single bidders. You wouldn’t have heard the CAG or the Congress-I, nor, of course, the Marxists on any of this!


Written record

‘‘But there is no written record of why the bidders withdrew from the process in the Centaur disinvestment, the CAG report charges.’’ Did the Congress-I Government of Delhi get the bidders who withdrew from the race for the privatization of the Delhi Vidyut Board to record their reasons in writing? Or take the case that is currently in progress. The CPI(M) Government in West Bengal is disinvesting the Great Eastern Hotel of Kolkata - one of the symbols of the condition of these enterprises. The Indian Express of 27 May, 2005 reported that one of the principal potential bidders, Kenilworth, has withdrawn. ‘‘Kenilworth has not offered any reason for the last minute decision to opt out,’’ the Managing Director of the Hotel told the Express. Should the CPI(M) Government be hauled up? What difference would a written statement make? The bidder would record some generality, ‘‘Upon inspection of information in the data room, we found that the enterprise would not have synergy with the operations of our group.’’ Actually, asking the potential bidders to furnish such statements will make a difference. For the worse. Bidders, who are hesitant to enter the fray in any case, would now have one more apprehension: if, upon finding out the real condition of the enterprise, they decide to opt out, they will have to give statements in writing, or what they say will be reduced to writing in Government files, and that could become the subject of interrogation by the CBI, CVC, PAC.

Take the cases that I recalled earlier, of the staff cornering and chasing the bidders. Were the bidder to record in writing, ‘‘Having got a glimpse of what kind of employees we would have to contend with, I realised that we would be taking on trouble, that this kind of work-culture would eventually infect our other enterprises also, and, therefore, I am withdrawing from the process.’’ Or if, after inspecting the premises of Ashoka Hotel, he were to record, ‘‘As we could not get any assurance from Government that the 300 illegal quarters that have been built on the premises, would be demolished.’’ Or if, after inspecting the ITDC property in Mahabalipuram, he were to record, ‘‘As upon visiting the site we discovered that a cremation ground and two burial grounds have been set up right in the premises.’’ Were he to record any of this in writing, would there not be the charge that he had written all this only to depress the value of the property so as to enable another bidder, who was in fact in league with him, to purchase it at the lower price? And would that not result in a CBI inquiry into his affairs? Some way to maximize competition!


Scrutiny

‘‘But it isn’t just that only one bidder was left. The CAG says that adequate scrutiny was not done about his financial strength.’’ Government is not into doing academic studies of bidders. For Government the one thing that mattered was that, whoever the bidder is, pays up the amount he has bid. And this transaction — exactly like every other disinvestment transaction completed by the NDA Government — shows that the procedures and criteria that had been adopted ensured that the bidder paid every paisa of the bid. It just so happens that in this particular case, eight commercial banks had assessed this bidder’s financial strength. They had independently assessed his proposal of investing in the hotel. They had concluded that the bidder was creditworthy, and that the transaction was a viable one. Early on in the disinvestment process, the Cabinet Committee on Disinvestment approved a list of grounds on which bidders and advisors were to be disqualified. In several well-known cases commercial rivals brought enormous pressure to bear demanding that this or that bidder be disqualified. The Ministry and the Cabinet Committee on Disinvestment always went strictly by those grounds.If the party fell afoul of those criteria, there was no one who could get the person included. If the party did not fall afoul of the criteria, there was no one who could get it excluded. Had the question of disqualification of Tulip come up, it would have been adjudged exactly on the same criteria. Had we gone by subjective assessments of ‘‘financial strength’’ and the like, and excluded parties, we would have been charged - that we were deliberately disqualifying potential bidders to steer the transaction to some pre-selected bidder!

‘‘But one of the banks says that he has defaulted in repaying the amounts due to it.’’ As on the ‘‘Rs. 246 crore valuation,’’ as on Kerkar having been on the Board one day and become a bidder the next, the facts are not clear at all. When I have inquired which is the bank that says so, different answers have been forthcoming - the most frequent one being, ‘‘But everyone is saying so.’’ Assume that to be the case, assume that Tulip has defaulted to a bank. At the initiative of the NDA Government, Parliament passed a law that gives full powers to the bank as well as the Government to seize the assets of the defaulter as well as visit other punishments on the defaulter. Why are the bank and the Government not using those powers? Should one conclude that they are going out of their way to be lenient to this man for collateral reasons? And demand that there should be a CBI inquiry into their failure to use the powers that they have under the law?

‘‘But the CAG says that you gave him extensions, and then didn’t charge him interest for late payment.’’

Anyone with the slightest knowledge of economic and business matters knows that mergers and acquisitions take months and years. Getting the man to pay up on March 11, 2002 instead of 31 December, 2001 is to be seen in this context - to say nothing of the time-overruns that are characteristic of government operations in general. And one must understand the purpose for which deadlines and bank guarantees were instituted by us. We had the sorry experience of the telecom sector before us, and not just in India. That experience was to be repeated later in the bidding for FM Radio stations. Bidders would bid very high, and then escape - they wouldn’t pay. This happened in India’s case when the telecom sector was opened up. It happened in the 3G licence bids in Europe too. In the few cases in which bidders actually paid up the exorbitant bids they had filed, they went bankrupt - and thereby hurt not just themselves but the sectors also. For this reason, we specified a deadline within which the winner must pay, and also the amount he would forfeit if he did not pay up. That is why each bid had to be accompanied by a guarantee from a bank which we could encash in the event of the bidder winning the bid and then not paying up. The purpose of these rquirements was not to prove our ‘‘power’’, not to prove that we were ‘‘tough’’. The purpose was to get the money out of the bidder that he had promised to pay. In the case of this hotel, Tulip had filed a bid that was 53 per cent higher than the reserve price - Rs. 153 crore instead of Rs. 101 crore 60 lakhs. The reserve price used to be a carefully guarded secret. That is one reason why we were able to get prices much higher than it in case after case. Once the bid was accepted by the Cabinet Committee on Disinvestment, we would announce the reserve price as well as the bids that had been filed by different bidders. In this case too, the same procedure was followed. After the Cabinet meeting, I would have but announced the reserve price, and this bidder would have realised that he had filed what from his point of view, and that of institutions from whom he may have wanted to raise residual money, was an excessive bid.


Our objective from then on - as in every such case when the party had filed a bid much higher than the reserve price - was to ensure that he did not get out of his obligation to pay the full amount.

Hence, when he asked for a few days more in which to arrange some residual amount, that extension was granted. But on one condition. The original amount that he would have had to forfeit had he not paid was Rs. five crore. When he requested a few extra days, this amount was raised to 10 per cent of his bid — to Rs 15.3 crore. He seemed to be trying to hem and haw again. I directed that the bank guarantee be encashed. That was on 1 February, 2002. Within two or three days, he deposited a banker’s cheque of Rs 10 crore. As the day for payment approached, Tulip asked for a further extension on the ground that meetings of all the Boards of the concerned banks had not taken place, and the banks needed a few more days to sanction the loans. Kerkar requested another extension - with the offer that he would file an additional bank guarantee so that, if he did not pay up by the agreed date, he would forfeit, not Rs 153 crore, but Rs 36 crore. My colleague, JK Chattopadhyaya, Under Secretary, examined the guarantee Kerkar had furnished. He found infirmities in it. Kerkar was, therefore, informed that the guarantee was not acceptable. To put pressure on him, on 21 February, 2002, I directed a second time that the guarantee - this time of Rs 15.3 crore be encashed.

Kerkar and his team rushed to report that the banks had agreed to loan the amounts that Tulip needed.

We held him to the bid he had filed, and Government got every paisa. It was precisely the pressure that was put on him — by twice directing that his guarantee be encashed — that ensured that he could not wriggle out of what was a bid 53 per cent higher than the reserve price.

‘‘But the CAG says that you facilitated the financing of the purchase of the hotel by this bidder by holding a meeting of the banks.’’

While on other, I merely differ with what the CAG’s report says, this is the one point on which I feel the report falls short of what is worthy of high constitutional office. And I will explain why
  <!--QuoteEnd--><!--QuoteEEnd-->

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Part II

The elastic foot-ruler

Analysis


special to the express

The Centre and the Centaur, Part-II

The elastic foot-ruler
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--> 
The CAG report says that there was only a single bidder in the Centaur hotels. But the CAG’s own report notes that in regard to the privatisation of the Delhi Vidyut Board by the Congress-I Government, in each of the three circles, there was just one bidder
 
Arun Shourie
 
One of the many concoctions that were put out was that officials and I had called a meeting of bankers to get them to lend money to Tulip to buy the hotel. The CAG’s report lends an ear to this twaddle by saying that we facilitated the financing of the transaction. In fact, officials of the Disinvestment Ministry and I met representatives of the banks for exactly the opposite reason. With its request for a few extra days to put together the finances it needed, Tulip Hospitality had furnished a bank guarantee for almost seven times the original guarantee. We had rejected it. I had twice directed that the guarantee be encashed. Kerkar had rushed in to report that the banks were ready to lend the money. I told him that, in view of the infirm guarantee he had furnished, we could not take him at his word. But the banks are prepared to affirm directly that they have decided to lend Tulip the money, Kerkar and his team said. We work seven days a week, I told him, they can come, my colleagues and I will meet them.
23 February, 2002: It was a crowded meeting—representatives from eight banks, lawyers, our Advisors, my colleagues, Tulip’s personnel were all packed into a Committee Room in the Planning Commission. Kerkar reported that Tulip would be putting up Rs 44 crore, the rest would be loaned by banks. The bank representatives affirmed that they had decided to loan money—each indicated the amount that his bank had decided to advance. I told them that for us to proceed, we would need what they had stated to be put down in writing, that I would be working in my room and, should they reduce what they had said to paper, they could call me back. They wrote down what they had stated—name of bank; name and designation of representative; amount the bank would lend; signature. The minutes were dictated, typed, and signed in the presence of the bank personnel. I was called back. I then said that what they had stated in writing, would have to be confirmed by the head offices in writing—within four days.

The confirmations came by February 27, 2002. The transaction documents were completed. Government got the amount due. And only then was the hotel handed over.

‘‘But why did you not charge interest for late-payment?’’

That is a strange comment indeed. When Government had not handed over the asset, where was the question of charging interest?


Valuation

‘‘But what about valuation? Does the CAG not say that the Hotel was undervalued?’’

The CAG report makes two observations in this regard. It says that the surcharge of two per cent on corporate tax was not taken into account; that this lowered the tax rate, and thereby raised the cost of debt in the calculation. The CAG report itself gives the reasons on account of which Advisors did not build this surcharge into the calculation. The report itself notes that this surcharge has varied from time to time from 15 to two per cent. It will be impossible for the Government to prescribe a particular figure and a particular way for calculating the cost of debt irrespective of the sector and the borrower.

The CAG raises another equally minute point. The report observes that the risk free equity used for the calculation should have been for 10 years at 9.3% instead of at 9.9% for 25 years. This kind of issue was debated time and again by experts and officers. The successive records of the Evaluation Committee of Joint Secretaries will contain reasons on which the particular figures and periods were chosen. It would not just be a feat; it would be downright wrong-headed to prescribe a uniform rate irrespective of the sector and irrespective of the uncertainty that afflicts different periods for which these calculations are made. Risk free equity for the same number of years, at the same rate? The risk factors in the metals sector are much, much less than those that afflict another sector, say hotels and tourism. Similarly, the horizon over which an investor will have to plan to recoup his investment will be vastly different in the wake of 9/11 than it was before it; the horizon over which an investor in the steel and aluminium sectors will expect to recoup his investment now that Chinese demand is absorbing all we can supply is much shorter than it was three years ago. So, it will be interesting to see if Government or the CAG himself can decree a uniform rate-across sectors and over time!

The CAG says that, while in the first round the median of the range suggested by the Advisors was taken as the reserve price, in the final round the reserve price was taken at the lower end of the band. His report sets out the reasons on pages 45-46 on account of which the Evaluation Committee (headed by the Joint Secretary and Financial Adviser, Ministry of Civil Aviation and comprising senior officers of Ministry of Disinvestment, Ministry of Finance, Department of Public Enterprises and Managing Directors of Air India and Hotel Corporation), chose the reserve price which it did.

The Committee of Secretaries headed by the Cabinet Secretary, and later the Cabinet Committee on Disinvestment found these reasons to be valid. It is important to remember that each of the judgements had to be made by officers and the Government in circumstances prevailing at a particular time. The position regarding the relaxation of the turnover levy is the same. In the first round, the bids were below par. They were rejected. The Cabinet Committee asked the Department to re-examine the terms. The Department listed three alternatives. The Committee of Secretaries recommended a reduction in the turnover levy from 6.5% to 2.5%. The Cabinet Committee approved this proposal. It is this reduction which enabled the transaction to go through.

‘‘Revenue loss, revenue loss’’! But for the reduction, the hotel would still be bleeding Air-India, and, therefore, the public exchequer. No ‘‘Revenue saved, revenue saved’’?!

In any event, these are technical minutiae, and experts can revisit them to see if they can devise the sort of uniformity that the CAG is looking for. But three points are in order: a sense of proportion; the presumption that if someone makes a profit after he purchases a property or a company, that shows that the company had been undervalued; and the CAG’s own standards.


The range of expert estimates

A few examples will make clear what the actual facts regarding valuation are. IPCL has three plants—at Vadodara, Nagathone and Gandhar. The Government had decided to disinvest the company as a whole. IOC urged that the Vadodra plant be hived off, and they be allowed to buy it—the plant is adjacent to their refinery in Vadodra, the Chairman of IOC told me, it uses the throughput of the refinery. The Government revised its decision accordingly. The question now was what IOC should pay IPCL for the plant. Notice that both IPCL and IOC were public sector units—each was functioning under its respective ministry. The plant itself was a physical fact well known to all —it had been in operation for several years. Both PSUs engaged well known experts to value the plant. IOC’s calculations put the value of the plant at Rs 300 crore. IPCL’s calculations put the value at Rs 1,300 crore. Meetings followed meetings. The matter was referred to the Committee on Dispute Resolution headed by the Cabinet Secretary. The differences could not be resolved. Each of the PSUs stuck to its valuation figure. Eventually, the Government had to revert to its original decision, and disinvest all the three plants together.

Or recall Maruti. At a time when Maruti controlled 85 per cent of the market, the Congress-I Government sold 26 per cent of the shares of Maruti to Suzuki, and then another 25 per cent. It handed them the control of the company—without charging a single paisa as control premium. Even though Maruti’s share in the market had fallen to 47 per cent, and even though control had already been handed over to Suzuki, the NDA Government extracted Rs 1,000 crore from Suzuki as control premium. It secured eighteen times the price at which the Congress-I Government had handed over shares to Suzuki. As there are to be inquiries, should we begin with the sale of Maruti shares by the Congress-I Government—which would naturally have been done with the approval of the then Finance Minister, Dr Manmohan Singh.

The examples can be multiplied many times over. The point is that the value that bidders and experts will place on the same enterprise will differ by a wide margin. That is why in a pregnant observation in the BALCO judgement, the Supreme Court rightly observed that, in the ultimate analysis, the value of an enterprise is what the highest bidder is prepared to pay for it.


‘‘But he sold the hotel, and made a profit’’

The next inference is that because a buyer made a profit by reselling the enterprise, the enterprise had been undervalued. This is totally divorced from reality.

The events that followed the disinvestment of IPCL nail this. In the IPCL race, Reliance eventually out-bid the others. While the reserve price was Rs 131, Reliance paid Rs 231 per share. Today the price of that share is Rs 167—half of what Reliance paid. Does this mean that the Government had over-valued the company? Or that the Government should compensate the successful bidder for the ‘‘excess price’’ that was taken from him? To say nothing of giving officers and me some credit!

Incidentally, the public sector company, IOC filed a bid for the same IPCL of only Rs 128 per share. Does the fact that its bid was so close to the reserve price—of Rs 131—prove that the reserve price had been calculated correctly? Or does it indicate that Indian Oil deliberately filed a low bid to give credence to the bid that Reliance was filing?

Consider IOC again. A public sector company, it paid Rs 1551 per share for IBP, another public sector company. Today that share fetches just Rs 539. Should IOC officials be penalised for wasting money?

Conversely, in the case of CMC, the TATAs won the bid paying Rs 177 per share. The price of the share rose to around Rs 800. Should there be an inquiry into that? In VSNL, the same TATAs paid Rs 202 per share. The price went up to a maximum of Rs 240 per share. Should there have been an inquiry for undervaluation? Then it fell to a minimum of Rs 70. Should TATAs have been compensated? Today the price is Rs 207. More significant from the point of view of the TATAs, they have had much trouble since then with the enterprise—in part because of sharply increased competition in the sector which the policies of the NDA Government brought about. Should they be compensated? And the then Disinvestment Department rewarded for disinvesting the company in the nick of time? To the first point, therefore—namely, that the value that is put on an enterprise will differ vastly—one has to add a second one: some who win a bid will gain; others will lose in the subsequent months. That a bidder loses money subsequently is no evidence that the enterprise was overvalued at the time of sale. Similarly, that the bidder gains a profit—either by holding on to the enterprise or selling it—is no evidence that the enterprise was undervalued. These are commercial decisions—even among those who gain, some winners will profit, others will suffer what is called ‘‘the winner’s curse’’.


The one constant—allegations

But, because of the condition to which public discourse has fallen, there is one constant—there is always an allegation. In VSNL, bids filed by the two bidders TATAs and Reliance were as close to as can be—TATAs beat Reliance by a hair’s breadth: TATAs valued the transaction at Rs 1493 crore; Reliance valued it at Rs 1,400 crore. The allegation in such cases was, ‘‘That proves price-fixing. Otherwise how could the two bids be so close to each other?’’ In BALCO, in IPCL, the bids were far apart. Sterlite valued BALCO at Rs 550 crore. Hindalco valued it at just about half that, that is Rs 275 crore. The allegation was, ‘‘Hindalco has given such a low bid only to make the bid by Sterlite look good.’’

The technical minutiae on which the CAG has based his criticisms should be assessed against such vast differences in the valuations done by competent experts, as well as the vast variations of values over time. In such transactions, Advisors are chosen with the greatest care and transparency—through international competitive bidding. It is their job to do the detailed calculations. These calculations are examined by two separate committees of a score of officers. The points that the CAG picks out are specifically debated at length in each transaction. The circumstances prevalent at that time, the nature of the sector—all have to be taken into account in determining the constituents that go into valuation. To enjoin the kind of uniformity that the CAG has prescribed will cripple the process. It is the surest way to frighten officials and others involved in the valuation to just apply mechanical formulae, and not examine the condition and circumstances of the enterprise at all.


The elastic yardstick

There is another point to note. Recall the minutiae on which the CAG’s observations hang—that a 2% surcharge was not included in one calculation; that in one case the cost of risk free equity was taken at 9.9% as it was taken to be required for 25 years and not at 9.3% for 10 years. The gravamen of his observations is that in some other transactions, the 2% surcharge was included, etc. It is indeed telling that if something differs from what was thought appropriate in other sectors, the CAG takes exception. When what is done in this instance—for instance, setting up a Special Purpose Vehicle for the transaction—is the same as is done in other cases, he glides over the fact!

But there is another tell-tale fact, and it is best seen by what the CAG himself has been doing in other cases.

Contrast what stance the CAG’s own report takes in regard to the privatisation of the Delhi Vidyut Board by the Congress-I Government. In each of the three circles, there was just one bidder. The CAG does not seem to think that by proceeding to hand over the circle to that single bidder, the Congress-I Government deprived itself and the country of the benefits of competition. He notes, but you would not have noticed the Congress-I note, that, after the bids of the single bidder were rejected, the Congress-I Government entered into private negotiations with the single bidder in each circle, and then gave very, very heavy concessions.

But I am on what the CAG found about valuation, and the delicacy with which he thought it fit to deal with it.

The valuation was put at Rs 3,160 crore, records the CAG. He also records that the balance sheet which the consultant prepared, and on the basis of which bids were taken had a discrepancy from the actual balance sheet—a discrepancy of Rupees 1,007 crore! With a total value of Rs 3,160 crore, a small discrepancy of Rs 1,007 crore!! But no great calamity falls on the Congress-I Government of Delhi.

The next contrast is delicious as can be. The CAG records that he asked the (Congress-I) Government for the basis of the valuation. In response, he records, ‘‘Government stated (October 2003) that the details of the calculation was (sic) available only with the consultants in their computer modeling which were not available with the Government. It was added that the consultants normally did not disclose their computer modeling as they regarded it as their business secret.’’ How convenient! The Government does not know, and the consultant will not tell! But the even more important feature is that the CAG seems quite satisfied—he does not press for details of this wondrous thing, computer modelling! He lets the matter rest with the assertion of the (Congress-I) Government—that they have not details, and the consultants ‘‘normally’’ regard these as commercial secrets. What a twist!

In the Bofors case, the Congress-I Government refused to divulge the names of the middlemen, and maintained that the company too could not be pressed to disclose them as they were both bound by ‘‘customer confidentiality’’. (And they had an Attorney General handy to give an opinion—a legal opinion— to he effect that, given the clause on ‘‘customer confidentiality’’, the company was perfectly within its right not to disclose the names of the middlemen even though the customer—the Congress-I Government—was saying in Parliament every day that it wanted the names to be disclosed!) In the Delhi Vidyut Board case, the Congress-I Government says that even it cannot find the bases of the valuation because the consultants normally regard these as a commercial secret!

‘‘However,’’ the CAG continues, ‘‘the Government furnished a note on the methodology adopted in asset valuation.’’ That the note was nothing but a string of empty inanities becomes clear from the next sentence: ‘‘A scrutiny of the note indicated that while the general methodology had been explained, the basic figures adopted, the weightages given and assumptions made were not indicated and hence the basis of arriving at the final figure of Rs 3,160 crore could not be verified.’’ The only observation of the CAG is that ‘‘The Government had evidently relied solely on the report of the consultant.’’ In this case, the CAG is quite content at not being furnished ‘‘the basic figures, the weightages given and the assumptions made’’. And in the hotels—2 per cent surcharge, 9.9% risk free equity instead of 9.3%.... In this case, it is evidently all right for the Government to have ‘‘relied solely on the report of the consultant.’’ In the hotels case, the fact that that two committees of officials examined the calculations of the Advisors, and then recommended that they be accepted, and then the Cabinet Committee approved their recommendation, why that is horrible!

An elastic foot-ruler, I am afraid.
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[Guest]

The Centre and the Centaur, Part-III

One of the ‘conditions of employment’


All procedures and practices have been thrown to the winds by a government determined at all costs to score political points against the NDA

Arun Shourie
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Reacting to the Government’s announcement that there will be an inquiry, Yashwant Sinha made three important points.
• He drew attention to the disdain with which, earlier the very same day, the Government had thrown out the report of Justice Phukan. He pointed to the way the disproportionate assets case against Laloo Yadav was killed by this very Government through the procured ruling of an officer specially brought from elsewhere for the purpose, and what strictures the Supreme Court had then passed. He pointed to the way the Nanavati Commission has been brushed aside, and what has been ‘‘found’’ by a specially selected judge on Godhra. He pointed to the strange spectacle that had been enacted the previous day in Parliament: Mayawati’s followers had held up the proceedings; she had berated the Government in characteristic language—and said in so many words that, unless the CBI was stopped from pursuing the case of disproportionate assets against her, she would withdraw support from this Government; after consulting colleagues, the Government representative had then stated that, as she is a supporter of the Government, the Government will review what can be done about the case! Sinha had drawn attention to what is being done to kill the case against Satish Sharma. A Government which every other day proceeds in this manner, Sinha said, has ordered an inquiry.

• The second point he made has important implications in law, and for parliamentary practice. Every second day, in the House we are harangued—by no one more than the Communists—about the authority of Parliament, about how it cannot be bypassed, etc. It so happens that there is a settled procedure for reports of the CAG. His reports are reports to Parliament. They are to be considered by the Public Accounts Committee. Once the PAC submits its report, Parliament is to discuss the matter, and the Government is to indicate what it is going to do. Time without number, members have insisted that there must be no departure from this procedure. ‘‘Authority of Parliament is involved,’’ they have declaimed, ‘‘Sanctity of Parliament is involved. We will not allow a mockery to be made of a Committee of Parliament.’’

There are three circumstances in which alone Parliament need not wait for the report of the PAC. If the CAG has found that there has been serious fraud; if he has found that there has been defalcation; if he has found that there has been misappropriation of funds—in these cases, while the prescribed procedure must still be followed and the report sent to the PAC, Parliament may take up the matter without waiting for the PAC to finalise its report. Sinha pointed out that, in regard to the disinvestment of hotels, the CAG has not alleged in the slightest that there has been any corruption, misappropriation, defalcation, or anything of the kind. He has talked of concepts and procedures—matters on which experts can, and do differ; matters that were carefully considered within the Government at various levels, and on which the Government took a particular view. But the well-settled procedure has been thrown to the winds. An inquiry! What happened to all those proclamations? Parliament is supreme. We will not allow a mockery to be made of a Committee of Parliament. What happened? The Communists gave what they said is an ultimatum. Hence, bourgeois procedures be damned!

• The third point Sinha made goes to the marrow of the Cabinet system of Government. Every step of every decision on disinvestment, he pointed out, was taken not by one officer or one minister on his own, but by two committees of officials—a committee of Joint Secretaries, and another one of Secretaries headed by the Cabinet Secretary—and by the Cabinet Committee on Disinvestment headed by the Prime Minister. If there is going to be an inquiry, let it be an inquiry into all of them, Sinha said.

Of course, we should expect no answer. ‘‘The moving finger having writ, moves on’’! Specially when it is being yanked and pulled to demonstrate that they are the ones who have power.

There was one feature that always put obstacles in giving effect to decisions like disinvestment of an enterprise. To that has now been added another one. The original feature reflected the nature of our business class, though it is, of course, not confined to that class. The moment a strong bidder entered the race, we would be bombarded with all sorts of allegations about him. About the TATAs in Air-India, VSNL, CMC; about Sterlite in BALCO, Hindustan Zinc; about Reliance in IPCL, VSNL; about Ruias in Jessops; about the Birlas in Paradeep Phosphates. Stories in papers, writs in courts, letters upon letters from legislators. The barrage would be so intense that a normal officer would hesitate to proceed with the process—‘‘Why walk in this minefield?’’

To this has now being added the prospect of inquiries. For me the inquiry is an opportunity to nail lies. But for officers, it is a warning—do your job honestly, with dispatch, and motives will be pasted; the next government will order an inquiry. Administration is not going to be improved by using checklists in annual evaluations, but by giving confidence to officers that they will not suffer for doing the right thing. Keep track of this disinvestment inquiry as it proceeds, and assess what inferences officials are liable to draw from each turn in it.

Nor will the lesson be lost on investors, especially on the foreign investors whom this Government is trying to convince, as it keeps chanting, that ‘‘Reforms are on track.’’


Three impressions about India are deeply etched among foreign investors, and also among foreign governments who have been trying to speed up economic cooperation between their countries and ours. The first is corruption. At first blush, you may think that by ordering an inquiry—even if there is no apparent wrong-doing, even if this Government is doing so under duress—governments are conveying the signal that India is determined to nail the corrupt. But investors and foreign governments are not fools. They will see the pattern as clearly as anyone else. Perhaps even quicker. They constitute a small community—information about ‘‘Who is who’’, ‘‘Who is whose’’ is being exchanged incessantly in this community. Each of them—investors as well as governments—has dealt with a range of governments and civil servants. They know who falls in which category—and when they see cases being killed against one kind, and fabricated against another, they know what the events spell for the corruption they have to face.

The second impression about India is that every step will take forever. And the third that in the end, something or the other will happen, and India will not be able to carry through on its announcements and assurances. What has happened on labour law reform; the scandal that we are not able to decide on what we should do to get the Dabhol power plant working; what has happened on privatisation; the years and years for which we have not been able to improve our airports. The pettifogging observations, and the ‘‘ultimatum’’ in response to which the Government has decided to hold an inquiry such as the present one—these reinforce both these impressions. From all this, in the specific context of privatisation, some sages, for instance those in The Economic Times, conclude that the strategic sales route should be given up—it leads to controversies of this kind—and we should only do IPOs.

But IPOs are what were being done between 1991 and 1998. Government holdings worth Rs 18,000 crore were sold. The response was so abysmally poor—even for shares of an enterprise like GAIL—that the Government had to direct financial institutions like UTI to buy the shares. This, in turn, inflicted severe losses on the institutions, and contributed to the crises into which they were eventually plunged. But the more important point is that, in spite of disinvestment of that kind, the nature of each of those enterprises remained exactly as it had been—governmental. Neither the management culture nor the work culture improved. It was because of this costly experience—spread over seven years—that the strategic route was adopted. Moreover, when so few are prepared to examine facts, allegations can be flung at IPOs too. ‘‘The offer price has been fixed low to strip the State, and benefit the rich’’; ‘‘The allotment to high net worth individuals should have been lower—this is clearly an attempt to benefit a few selected individuals and companies at the expense of the country’’. At what decision in India are allegations not hurled?

Should one do the wrong thing to escape charges, and, as seems to be the case, inquiries?

Quite the contrary, and I would address this specially to the sterling civil servants who worked with me:

• We should look upon allegations and inquiries as one of the ‘‘conditions of employment,’’ so to say; as one of the things we will have to put up with—like transfers to out-of-the-way places—as the price of doing good work in the India of today.

• Allegations and inquiries give us the opportunity to get facts across to much larger numbers than we could have without them.

• In the end, the good and honest bear witness to the state to which affairs have fallen by what is done to them.

And there are incidental, immediate advantages too. Last year I had written up almost 250 pages of a book on the public sector—with the working title, ‘‘The truly private sector.’’ I lost interest—switched to a book on national security, which is being published this month. The CAG’s observations, and the decision of the Government to institute an inquiry have got my adrenaline flowing again! I’ll resume work on that book about the public sector. Not just that, my task has been, to use the words of the CAG, facilitated! The CAG’s observations have already provided me material for ten-odd pages. The inquiry will provide material for a full chapter. And it will be the easiest one to write.

All I have to do is to keep a record of each question, and a sketch-in-words of each interrogator!


Concluded
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[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Consumer activist H D Shourie passes away</b> 
Agencies/ New Delhi
H<b> D Shourie, consumer activist and father of former Union Minister Arun Shourie, died here Tuesday</b>. The 93-year-old retired ICS officer and founder of `Common Cause` is survived by two sons and a daughter. He will be cremated this evening in Lodhi crematorium.

Arun Shourie, former Disinvestment and Communication Minister in the Vajpayee government, said his father died in sleep this morning, a day after he fell sick. The doctors said H D Shourie is believed to have died due to heart attack.

Arun Shourie had lost his mother last year.

Heart & soul of common man in courts

Retired civil servant H D Shourie and his NGO 'common Cause' were to the system and bureaucracy what the proverbial red rag is for the bull, knocking at the doors of the courts against what they perceived as "injustice".

He championed the common man's cause by fighting for protection of their rights before the courts.

93-year old Shourie served the public for more than 30 years as an ICS official but actually he never retired from public service till he breathed his last.

He prepared petitions all by himself before sending them to lawyers, bringing to court's notice the violations of fundamental rights of common man.

Shourie, through his 25-year-old NGO Common Cause, filed a whopping number of 70 writ petitions-- PILs-- before the Supreme Court and the Delhi High Court.

These PILs, unlike the recent trend of petitions seeking publicity, always got due attention from both the bench and the bar.

His first notable brush with success was <b>in 1980 when he successfully challenged in the Supreme Court the upward revision of pension only to government employees, who retired after April 1, 1979. The apex court allowed his petition and directed the government to pay all retired employees their enhanced pension.</b>

If one has legal right to information today, it was almost a single-handed effort on the part of Shourie, who five years ago started a crusade against the iron curtain over what happened in government.

Another major achievement of his NGO was the detailed inquiry ordered<b> in 1996 by Supreme Court into the "misuse" of official position by then Petroleum Minister Satish Sharma in allotments of petrol pumps and dealership of LPG.</b>

The result was allotment of hundreds of petrol pumps out of the minister's discretionary quota were cancelled and were auctioned in public.

<b>Delhi Rent Control Act, pollution, regulating the election expenses by the political parties, regulating broadcast by cable operators, Delhi master plan, iodisation of salt ... the list of his achievements is endless as Shourie presented meticulously researched petitions convincing the courts to take action</b>.

<b>It was Shourie who dared even the advocates, who used to paralyse the courts with frequent strikes much to the discomfort of the litigants.</b> On his PIL, the Supreme Court declared strike by lawyers as illegal.

Much before the consumer movement grew in the country and consumer redressal cells were established, Shourie had set up the NGO 'common Cause', with prior permission from a similar NGO in USA, which today boasts of 5,000 members from different walks of life.
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[Guest]

<b>The General Theory of Revelations and Responses</b>
<i>ARUN SHOURIE </i>

[Guest]

It's been two years since this fascinating and very articulate thread was last contributed to and I am curious to know if there are any fundamental shifts from the views expressed in here now that my raison d'etre is to immerse myself in Indian business life before my first trip to New Delhi?

Many thanks, and in any instance a very informative read.

Charles