Separatist Movement

As a corporate strategist, one of my biggest battles was to avoid the extremes of cynicism and idealism.

In every organization, you will find people who will put their hands up and say that nothing can be done. They will gladly recount all the problems and challenges but will not care to think about solutions. Moreover, they will work hard to dissuade anyone else who wishes to move forward. Often, they are charming and witty, with funny comments about the futility of doing anything. These guys are the most dangerous for any organisation, they suck all positive energy out of the system.

Not so dangerous, yet problematic for progress are the idealists. They are the dreamers who seek perfection everywhere. Every organisation has a few of them and they are surely needed. They set the bar high on what is needed to be achieved. Where these guys go wrong (sometimes) is their belief that things must change immediately and anything otherwise is worth nothing. Instead of using their dreams to set direction for the future, they mope about the present and find fault with everything / everyone. Or they come up with crazy solutions to shake everything up ("let's fire everybody" "let's sell that business").

Both the cynics and the idealists are elitists on their respective high-horses, disregarding the reality of the rest of the organization that wants to patiently move forward. The reality of every organization is between "nothing can be done" and "everything should be perfect". A good leader will be guided by the idealist's dreams and will weed out the cynicism.

As we look around in India, ahead of the national elections, I see a lot of people undecided about what to do. As I wrote earlier, exercising the NOTA (till such time as it counts as a "vote") is a cop-out towards one of these two elitist extremes.

Let us all have fiercely ambitious dreams of what we want India to be like but let not cynicism or idealism cause us to separate ourselves from the reality of today.

Manifesto 2014: Expectations from the new Indian Government

A few weeks ago, I requested my Facebook friends to help me in drafting a manifesto of expectations. I wrote:

I am planning to write an economic manifesto (demand) from the next government. I would like to use that to evaluate/choose the national party that comes closest to what I care about. Obviously, it will be an economic right manifesto, and my sympathies are very clear. But I want to do this objectively so that it can help other like-minded (or undecided) people make their choice. If you'd like to collaborate on this, please let me know.

Many of us have already made up our minds about which party to vote for, but there are quite a few who appear (based on their public pronouncements at least) undecided. For the former group, this manifesto would be a way of putting pressure on the chosen party to take cognizance of our demands. For the latter group, this may be a way to evaluate the various options available. 

As I warned at the outset, this is an economically right manifesto. Also, please note that this is not a fully-baked document (some points have more detail than the others) and reflects the views of a few people who helped me in this effort. You are free to pick and choose topics from the below as your manifesto, or add new topics. Please share your feedback in the comments below so that I can update this post with more content.

Manifesto 2014

1.    Manufacturing Sector

A lot has been written about Manufacturing and everyone seems to agree that manufacturing growth is essential for job creation; however, mere lip service, vision or dreams are insufficient. Revival of manufacturing requires several urgent steps, some which are detailed below:
 
a)    Labour reforms - Recognize that unions create a labor aristocracy of insiders and hurt more people than they help. Also recognize that manufacturing investment will flow only where it is profitable - and that India is today much higher cost on a productivity adjusted basis than China, S.E. Asia, et al. Abolish all laws that give the government a role in determining employment terms (other than basic health and safety related laws). Allow employers to create non-union workplaces. Allow employers to adopt hire and fire policies if they so desire. Create a national unemployment insurance system funded by worker and employer contributions, which would guarantee a worker a wage equal to his last drawn wage for 20% of the period for which he was last employed, or 6 months, whichever is less. Allow employers to immediately dismiss any workmen for cause and prosecute violence in workplaces on a priority basis.

b)   Land acquisition - Get the government out of land acquisition for industry, and restore the fundamental right to property. Allow land acquisition only for infrastructure projects that require contiguous land, such as airports, ports, highways and railway lines. Hand over mineral rights to land owners, so that they have an incentive to sell the rights to those who would exploit the same. Get rid of government restrictions on changes in land use patterns. In short, instead of allowing politically connected folks to acquire agricultural land and reap the benefits of converting it to industrial or urban land, throw it open to the market. There is nothing wrong with industry paying market prices for land. In cities, set uniform and high FSI limits (eg. 10 in Bombay) with clear offset rules - viz. allowing only 50-60% of plot areas to be built on. Allow automatic conversion of industrial land into commercial or residential land to enable urban regeneration. 65 years of socialist planning have not created beautiful cities - hence abandon urban planning and throw it open to the market.

c)    Power availability & pricing -  Make power available to those who need it, at fair prices. Stop any form of electricity subsidies. Introduce competition (Open Access) at the distribution level (many of the principles of Electricity Act of 2003 remain un-implemented even today).

d)    Skill development - See more under Education
 

 
2.    Foreign Investments

Recognize that India is a capital scarce economy, and that India needs FDI in all sectors. Allow 100% FDI under the automatic route in all sectors, and give national treatment to foreign owned companies. Requiring an Indian JV partner often opens up opportunistic rent-seeking behavior (see examples from telecom sector where Indian "entrepreneurs" minted money as the FDI norms opened up subsequently). There is enough evidence that strategic, long-term investors will partner with Indian companies that provide local capabilities, even when there are no FDI restrictions. Have a small negative list of countries or sectors where 100% FDI is not permitted in strategic sectors with national security implications.

A few key sectors are discussed below:
 
a)    Multi-brand Retail: 100% FDI without any state-wise restrictions. In order to boost employment and infrastructure in semi-urban, it could be specified that stores are not permitted within municipal limits of the eight metros. Rapid expansion of supply chain by leveraging existing FCI infrasturcture. Reasonable minimum local sourcing norms may be applied but not just restricted to small-scale producers.

b)   Defence: 100% FDI in local manufacturing of defence equipment. All defence procurement, even from an overseas supplier, should require indigenous manufacturing (not just assembly of kits) within X-years of being awarded a contract. 

c)   Banking: Give national treatment to foreign banks. Allow banks to be licensed as either wholesale banks (which are not subject to priority sector or rural coverage norms, but can open only limited branches and can't accept retail deposits, other than salary accounts for corporate clients) or retail banks (subject to the whole gamut of regulations).

d)   News Media: If India suffers from crony capitalism, the news media sector is an equal participant. While there is a lot of competition in Indian media, unfortunately a lot of it is owned by those that are part of the "establishment". There is a need for real competition in this sector. The web has anyway opened up international media to those that have Internet access; there is no reason to prevent the "un-connected" from having a similar choice.
 
3.    Education

Amend the Constitution, if necessary, to permit "for profit" educational institutions. Allow private sector to participate in the education sector, both at school and college levels. 100% FDI should be permitted at post-graduation and above level. A national regulatory body should be created to protect students’ and parents’ interests. Right to Education (RTE) Act should be immediately repealed and fresh legislation brought in its place. Unaided educational institutions should not be subject to interference from government bodies such as the AICTE,and should not be obliged to comply with reservations and other Government policies. For  school education, gradually phase out Government schools and grant school vouchers to families, that can be used in any school of their choice, irrespective of the medium of education.
(Read RealityCheckInd's blog posts for a reality check on the RTE act.)

4.    Public Sector Undertakings

The Government has no business to be in business. All existing public sector undertakings must follow the below path towards exiting government control:
a)    In sectors where PSUs collectively have greater than 50% share of market (e.g. oil & gas, power generation, ordnance factories/defence manufacturing etc.), GoI can continue to retain strategic stake in those PSUs. Professional management and Boards, independent of Government control to be put in place. Government should sell its stake to the public, progressively down to 26% within 5 years. There should be a cap of 49% on all forms of Government ownership, including other PSUs and government-owned funds (LIC, GIC, etc.).
b)   In sectors where private sector has majority market share (e.g. telecom, airlines, scooters, etc.), the Government has no reason to continue being in business. GoI should divest its stake in such companies over the next 5 years; in case some of them are currently loss-making, a 3-year turn-around plan should be implemented prior to sale. If such a company doesn’t turn profitable within 3-years and remains unsold subsequently, then it should be shut down.
c) Ensure that the government is subject to the same corporate governance norms as other shareholders. Ensure that government nominees on the board of PSUs (or former PSUs) are subject to the same fiduciary duties as directors of private companies. Prosecute and jail PSU managers who respond to informal directives from the GOI on pricing, spending etc.

5.    Taxation

Simplification and rationalization of tax code is a must. The objective should be to widen the tax net to as many people as possible while making it extremely simple for payees to pay and the Government to collect. Two possible options to be considered (more debate needed before a final decision is taken):

Modification of existing system:
a) Extreme simplification of Income Tax: 0% upto Rs 300K, 10% for 300K-1000K, 20% for 1000K-2500K and 25% for >2500K. No exemptions of any kind. Announce in 2014; effective April 1, 2015
b) Introduction of GST by April 1, 2015.
c) Reduce the corporate tax rate to 20% and apply it on consolidated GAAP profits from Indian operations
d) Tax dividend income and capital gains at marginal tax rate

Radical new system (as proposed by Arthakranti):
Abolish all taxes. Introduce a Banking Transaction Tax (say, 2%). Eliminate Rs 500 and Rs 1000 currency notes, and legal sanctity of any cash transaction greater than Rs 5000. Publish a white paper by October 2014 and implement effective April 1, 2015.
(Read this article and more by Rightwingindian on the topic of BTT)


6.    Government Expenditure and Subsidies

  • Prohibit uncapped spending on any account.
  • Force the government to establish a priority order for expenses in the budget
  • Prohibit fraudulent accounting by the government and force it to adhere to GAAP
  • Ensure that government servant's salaries are costed correctly, including the full cost of pensions, accommodation and other perks. 
  • Ensure that no government servant earns more than the median wage in the private sector for a similar function on a total comp basis. Offer government servants all cash packages (with monetized perks).


7.    Constitutional Amendments
  • Remove “Socialist” from the Preamble.
  • Repeal the First Amendment regarding restrictions to freedom of speech. The only restriction should be regarding any incitement to violence and threat to national security (which should get covered under normal criminal codes)
  • Provide validity to same-gender relationships and marriages. (may not require Constitutional amendment and just a change in CPC) 
  • Introduce a Uniform Civil Code
  • Treat all individuals equally before the law and not as members of groups
  • Scrap the Directive Principles of State Policy
  • Propose a realistic road-map (as envisaged by the founding fathers) towards ending of all reservations in Government education and jobs. No new reservations (particularly in private sector education or employment) to be introduced.

India Elections: Stability?

One of the question that I have heard on Twitter and elsewhere is regarding the importance of a stable government. It is quite clear that no political party or formation appears to be strong enough pan-India to expect a clear majority. In fact, in the last 30 years, it was only in 1984 on the back of a Congress sympathy wave that any single party had obtained a clear majority (INC: 404). The only other time somebody got close enough was in 1991 (INC: 244), again due to another sympathy wave. 

If a party/pre-poll alliance has 200-240 seats, they might hope to stitch together the support of a few other regional parties to get to the 272 majority mark. Any alliance that appears close enough will try and seek to inch closer - the request would be for a majority mandate in the name of stability. For the other groups that are unlikely to form a government by themselves, the strategy would be to gain as many seats as possible to prevent a stable majority government. In this election, as per most opinion polls and general perception, the BJP-led NDA is in the first category; the INC-led UPA, the rag-tag Third Front and the dark horse, AAP are in the latter group. 

For me, and most people I know, the debate was earlier simply between the UPA and the NDA. Now, after the Delhi elections, AAP has emerged as an option in several urban constituencies. There are broadly four types of people:

1. Clearly support UPA: Tough for me to articulate why, so let me share what the CEO of a media company has written on his Twitter bio: "A Congress supporter, primarily because of its right-of-center economic beliefs, its secular credentials, and the stature of its senior most leaders".

2. Clearly support NDA: Fond memories of 1999-2004 NDA rule; Enamoured by Modi and his Gujarat story; Economic right-wing/free market liberal; possibly an Internet Hindu / Right-winger

3. Clearly support AAP: Can't stand the INC or the BJP (the old world politics); want to participate in changing the face of Indian politics; economic right-of-center beliefs; anti-corruption

4. Undecided / Search for Perfection: Best described by this tweet: "i like the idea of kejriwal not the person, the idea of modi not the person. dont like the idea of rahul but like the person. now what to do"

(Note: these categories are not necessarily exhaustive nor are these descriptions universal of all such supporters... please feel free to suggest changes.)

In this post, I am not going to discuss the relative pros and cons of each of these formations. But the key question is this... should we seek to vote in a government that will remain stable for the next five years, or not? Irrespective of which party that is.

As I alluded to in my previous post, and described in greater detail earlier, five years can do a lot of good or damage to a country. Just a few years ago, India was the darling of global investors; all of us were taking 8-9% GDP growth rates as given and there was talk of double digit growth. We are now at half those levels. For a poor country like India, rapid growth is the only way to increase per-capita income levels. The question is simple: at a time when global and Indian investors are shying away from the Indian markets, domestic demand (our greatest strength) has slowed and demographics (our other so-called strength) could become a liability, can the country afford 1-3 years more of uncertainty?

One view, held mostly by Type 3 and 4 above, would say, Yes, it doesn't really matter. In the long run, what are a few years more. We cannot let the corruption-tainted UPA come back to power and surely don't want a divisive Modi-led government. I paraphrase the ending of this 2011 Outlook article: Nevertheless, India can survive poor governance for the next few years but what it cannot survive is [insert your cause/concern]. Even if the promise of high (..) growth is accepted at its face value, it is simply not worth risking the [inexperience / corruption / dictatorship / polarization]. 

The other view would say that it is already too late. Undoing the poor governance of the previous five years will take a few years of decisive action and it will take more than five years to recover lost ground. These views come from people who should know a thing or two about India's economic situation. The Economic Times wrote a few months ago: 

"In India, a potential additional source of uncertainty is the coming general election,'' said (Raghuram) Rajan in his foreword to the latest Financial Stability Report. "A stable new government would be positive for the economy." 

The same article goes on to say: 

"The negative outlook indicates that we may lower the rating to 'speculative' grade next year if the government that takes office after the general election does not appear capable of reversing India's low economic growth,'' Standard & Poor's, a rating company, said on November 7, reiterating its negative outlook.  

In 2014, the only two alliances that are capable of forming a stable national government, have an agenda for the same (whether you agree with it or not) and also the requisite experience are the UPA and the NDA. I would have given the AAP a slight benefit of the doubt if it had shown any aptitude (or intent) to govern Delhi when given the opportunity. Can we afford another Delhi-like experiment for 49 days or 49 weeks? I think not.

Therefore, my conclusion is that we have to vote in 2014 with the goal of ensuring a stable government. Types 1 to 3 will probably not change their minds now, but the Type 4 folks (and there are probably many of them) will have to make a choice of voting for either the UPA or the NDA. Of course, they have the option to abstain or exercise the NOTA, but isn't that a cop-out? We might want a perfect / ideal solution to the problem that we face but the reality is that we will never get the PM candidate who has the ideas of Mr. Modi and Mr. Kejriwal and the personality of Mr. Gandhi. We have to choose between real people: Mr. Modi, Mr. Gandhi, Mr Kejriwal, Ms Jayalalitha or Ms Banerjee. At least with the first two, I think, we have a chance of a stable government. 

But is just stability sufficient? Of course, not... and that's for subsequent discussion.

Election Season in India

General elections are expected to be announced within a couple of days. In the next 6-10 weeks over 700 million people in India will have to make up their minds about whom to vote as their representative to the Lok Sabha. That decision would surely impact India for the next five years (unless, God forbid, we end up with a situation that calls for a re-election even earlier; more on this later) and possibly set the direction for several years after that. We know how much havoc can be created in just five years, so we surely cannot afford another such five years. 

Over the course of a few posts, I would like to share some thoughts on the decision problem facing us. Those of you who engage with me on Twitter or Facebook probably know where my vote is headed, but nothing is written in stone. I hope that this process of discussion will also help me either confirm my choice or make a new one. It is always good to keep an open mind, even if you are extremely committed to a philosophy / ideology. The process of inquiry can only help: if there's no change, it will reinforce your commitment; if there's a change required, it will convince you to make the shift.

The first debate / issue / question: Do I vote for my MP or do I vote for a party at the national level? 

As a parliamentary democracy (following the British model), the system is that we should choose the best person to represent us at our constituency and the chosen MPs will essentially select the government / executive. Unlike the American presidential system, we do not vote for a Prime Minister or a national winning party. This is an issue that has vexed me the most. At a national level, I might support a party but when I look at their (or their ally's) candidate in my constituency, I am loathe to vote for such a person because of his/her record. I might find some other person on the ballot sheet more appealing as my MP; what should I do?

The idea of a representative democracy, unfortunately, was severely impacted by the 1985 52nd Constitutional Amendment, also known as the Anti-defection Law (see here for a good overview / analysis of the law; pdf). On all essential matters, an MP is just a representative of his/her party, with limited scope for truly representing the constituency. Therefore, when we vote for a candidate, we are actually voting for that candidate's party. Till this law is amended in some form giving MPs greater freedom in the creation of a government or the passage of laws, your vote is for a party.

So, I am going to choose a party that I support at the national level and will vote for that party's candidate in my constituency, irrespective of who he/she is. One, I hope that the party I choose will nominate a candidate that I will not mind supporting (the onus is now on that party). Two, the choice of the candidate has greater local impact in municipal and state elections; the direct impact of an MP on real micro issues is quite limited, I suspect.

PS. I wish I had (formally) studied more about politics, governance, the Constitution, etc. but I haven't... my knowledge is based on my limited, spare time readings and discussions I observe on Twitter. I am treating these blog posts as part of my learning process and look forward to comments from those who know better.