“Distributed Growth model” is the need of the hour. Growth alone will not suffice.
India’s budget preparation is in the final leg and it will be unveiled soon. Last two budgets have put the focus correctly; by giving thrust to rural development, agriculture and infrastructure, but the bureaucratic red-tape has been an impediment. We have a long way to go and we need to evolve a new model – the ‘Distributed growth model’. All these decades, we have chased the ever-elusive “double digit” growth, but we are not going to achieve that with the current approach.
“Too many economists spoil the budget”. We had a world-class economist running the country for a decade, we had the best economists running the RBI and the erstwhile Planning Commission, and we still could not achieve double digit growth, and floundered. So, it’s time to have a fresh look at our economic approach. A mere change in the interest rates have not done anything, and will not. Economy is not about tax collections, interest rates or money supply alone, it is much more. ‘Text book economists’ do not understand the country’s complexities, and neither they do good to the economy, or to economics. Also, the general perception is, that only 3 % pay taxes. Yes, 3 percent may be paying direct taxes but every citizen of India pays taxes indirectly when s/he purchases a product from the market. With GST implemented, all the more! So, to use this reason of low tax payer’s base is wrongfully placed.
It is time we considered a model that leads to growth which percolates downwards and spreads wide, that what I call as, ‘Distributed Growth model”. How do we make it happen?
Let’s look at the following data;
- More money in the hands of the poor : There are about 250 million households in India and of these, about 25 % are BPL. So, we need to continue and enhance their earnings with “Mission 62.5 million households”.
- Agriculture : The number of cultivators and agricultural labourers added together make up around 263 million or 22% of the population (@1.2 Bn population based on 2011 census). Investment in ‘Irrigation’, in agri-allied sectors, and in setting up forward linkages with markets in towns, and for exports is the need. Special ‘Agri-infra & Irrigation mission’ project is needed to fire the most important engine of our growth – Agriculture.
- MSME : As per the annual report of the MSME Ministry (2015-16), MSME sector employs about 80 million people in about 36.1 million units. Out of these, units in rural areas are 20 million and number of women enterprises are 2.6 million. MSME needs to expand more to semi-urban and rural areas and engage youth and women entrepreneurs, and also boost MSMEs expansion in food processing, agriculture based and allied segments, high-end tooling, IOT and niche manufacturing. MSME is where massive employment and income gets generated. It will not only ensure success of ‘Make in India’, but most importantly, as the MSME employees themselves are the customers of “Make in India’, it will create ‘customers’ for such products. With such customers available, ‘Make in India’ will be a grand success. MSME is the second engine of the economy that needs to be fired up
- Six states (Bihar, Uttar Pradesh, Rajasthan, Madhya Pradesh, Jharkhand and Chhattisgarh) have 42 percent of population and 56 % of the total population growth. Luckily, all these are under BJP. We need to invest more in uplifting the economy of these states. Lower growth in these states can drag down the overall growth of the country.
- Retailers number 13 million and we need to carefully tread FDI in online and retail segments. 100 % Investment in Retail for daily use products might be myopic, and the policy makers need to be careful if BJP wants to run this country for another 25 years! Also, we need to create innovative models to explore, to seek investments in retail and grow the standalone stores at the same time
- Tourism: India has about 10 million tourist arrivals and this can become 5 times. Imagine the number of hotels & convention centres, cabs, guides etc. that will come up and the best part, without any Government investment, as the private sector will invest seeing the business potential. Government must focus on tourism as a job creator and a foreign exchange earner. India has so much to offer to global and domestic tourists! Focus on ASEAN and expand beyond .
Health & Education
Recent study had revealed that 50 million go below poverty line due to healthcare costs. Also, it is a known fact that most of the ‘educated’ are not ‘skilled enough’ to do the jobs that the country needs as its economy evolves. Hence, education and health needs investment. If the workforce is not healthy and competent, how can the economy be strong? In fact, anecdotally (since I am not an economist by training), I would take the liberty of stating that GDP growth would be equal to the GDP spends on education, and health! Our healthcare system and education system is in shambles and it needs massive investment. For achieving ‘distributed growth model’, investment in health and education are a precondition.
Strongest thing about India’s economy is ‘1.34 billion consumers’, who run the consumption story (growth engine) for the country, and we add about 18 million new consumers every year. With more opportunities for consumers from Agriculture, MSME and Tourism; and assuring them with quality health and education; we will fire the economy to grow 10 percent a year, and that too, sustainably.
I see foreign trained economist keep warning India about the Fiscal discipline. If the investments are going in areas outlined above and not in opex, we must not worry. Even if the fiscal deficit reaches 5 percent, investments in these sectors will payback, and our economy will be amongst the 3rd largest in a decade. USA is a case in point. It is too big an economy and though its fiscal arithmetic is baffling, does it worry about its ratings or deficit!!?
In oil rich Gulf countries, GDP and GDP per capita appears fantastic as statistics, but since the oil fields are in the hands of a few royal families, the wealth gets concentrated in a few hands. Recently, the annual Oxfam survey has found that the wealthiest 1 % Indians garnered 73 % of the wealth created in 2017. This is due to the ‘Concentrated Growth model’. So growth alone with not suffice , and we need ‘distributed growth’. In the “Distributed Growth” model lies the answer. India should move to this model before the gap between ‘have’s’ and ‘have nots’ increases more!
What the policy makers must aim is on enhancing the income and money in the hands of consumers by creating more avenues to work, earn and spend. This will happen if we invest in agriculture and value addition in allied agro based industries, MSME, tourism, infra, health & education.
Lastly, let us not forget, electorate will evaluate Modi government’s performance on health, education, employment, electricity and inflation. These hold the key to a massive win in 2019.
Good economics is long term politics!
Rajendra Pratap Gupta is a leading public policy expert. Views are personal
Kill bureaucracy to convert Red tape toRed Carpet
On May 28th, I wrote the article in the ET; ‘Bureaucrat Mukt Bharat (http://blogs.economictimes.indiatimes.com/et-commentary/steel-frame-of-bureaucracy-is-an-obstacle-to-development-its-time-to-rehaul-it/).
On Independence day, we heard the Hon’ble PM saying that his Government’s motto is to reform, perform and transform. Also, on 01st September, Carnegie Endowment for International Peace wrote, “India’s economy has grown rapidly in recent years, but the country’s bureaucratic quality is widely perceived to be either stagnant or in decline”. A former PM had once said about the Indian Civil Service (ICS) , the earlier avatar of IAS; “as neither Indian, nor civil, nor a service.”
I think it is time to re-look at overhauling the bureaucracy, if we wish to realize the vision of Modi’s idea of India
We need speed, we need efficiency and we need effectiveness in our entire chain of command. This is the pre-requisite in realizing the vision of the greatest statesman – Modi.
We have had a mixed bag of experience with the bureaucracy in implementing some of the key announcements from the Hon’ble Prime Minister, and the commitment on budget announcements and schemes. I have the following suggestions;
The reason our bureaucracy fails is because of the following;
- Unlike the politician, who have to go to the electorate every five years seeking ‘votes’ as his ‘appraisal’ for the performance, bureaucrats come with a ‘seniority based promotion’ and a defined retirement age and hence, they are least bothered for their performance reviews and also that these ACRs (Annual Confidential Reports) for performance reviews can be ‘managed’.
- Also, since bureaucrats make the ACRs of these bureaucrats, the norm is ‘do no harm’, and they are generally rated between 8-10 in the ACRs and the chain continues year after year, badge after badge. Actually, now there is no merit in looking at these ACRs. Even the most corrupt and inefficient officers had the best of ACRs
- Most of the bureaucrats are there for ‘authority’ and ‘administration’, and not development. Their approach is to ‘control’ and ‘Govern’ and not – ‘work as a team’ for ‘development’.
- Also, if one gauges the real working of majority of these bureaucrats, they don’t work for anyone, but they work for themselves, and then, there are ego’s, differences, grudges and dislikes for other bureaucrats. So there is never a ‘team approach’ in whatever they do and this drags the performance of the Government.
- Bureaucrats are more ‘procedure driven’ than ‘Outcome driven’. They focus more on following procedures and not necessarily on the outcome or performance, and that is why files take months to travel from one desk to another. Famously, one of the best performing Minister, Sh. Nitin Gadkari said on 09th May 2016, that it took him a 9-month wait for an approval for an automated parking. This is when Sh. Nitin Gadkari ji is known for being really fast in getting things done within the bureaucracy, and hence we can imagine what other ministers must be facing!
So, the time has come when we think out of the box and overhaul this system. Else, in 2019, our biggest failure will be because of the inefficient and unaccountable bureaucracy who will fail to implement Government’s key schemes.
We need to focus on the team approach; ‘One India, One team, one Goal’, that touches and transforms life till the last man standing in the line.
Re-defining the Appraisal System: As of now, we have an appraisal system that looks at ACRs, which only counts for an individual’s performance. If the performance and payment of the bureaucrat was based besides his individual performance (50% weightage) , the performance of his department / ministry (25%weightage) and the overall performance of the Government (25% weightage) , then the bureaucrats would work as a team and give up the siloed approach . So the first change is;
Move from ACR to CPR (Comprehensive Performance Review), which includes
- Individual Performance Review (IPR). Based on the yearly goals/ deliverables assigned
- A) Secretary’s goal should be decided by the Minister of the department
- B) Deliverables of the Joint Secretary and above decided by the Secretary of the department and the chain follows down
- Department’s Performance Review (DPR). Overall departmental review be based on the goals set for the year for the department / Ministry
- Government Performance Review (GPR). This is the overall performance rating of the Government based on the
- a) facts / data based self assessment by the Ministry / department (10 % weightage)
- b) Annual online survey taken by the citizens, for all the departments / ministries at the central level (15 % weightage)
Weightage for each level of review for the Comprehensive Performance Review (CPR) :
- Individual Performance Review (IPR) should have 50 percent weightage
- Department’s Performance Review (DPR) should have 25 percent weightage
- Government Performance Review (GPR) should have 25 percent weightage
Increments, variable pay/ incentives and promotions of officials should be based on CPR
Implementation: Can be in a phased manner ;
- Option 1: We could start the IPR (Individual Performance Review) & DPR (Department’s Performance Review) from 2017 at the Joint Secretary level, and the CPR (which includes the overall Government review) can start from 2018
- Option 2: CPR (Comprehensive Performance Review) can start at the Secretary level from 2017
- Move to the Joint Secretary level from 2018
- From 2019, the same can applied to employees holding the post of director rank in the government – Central
- Option 3: Have CPR only for Secretaries in 2017, and rest can be in a phased manner
Parameters for IPR could be picked up from what is already defined under ACR, but it must be more specific like;
- For Defining / planning time bound quantifiable and measurable deliverables for the year (20 % weightage)
- Completion of targets within the time frame (20 % weightage)
- Completion of targets without increase in budgets (15 % weightage)
- Utilization of funds (15 % weightage)
- Disposal of files & Grievances (15 % weightage)
- Innovations (15 % weightage)
For any of the misses, the weightage be objectively apportioned.
Department’s Performance Review (DPR)
- Every department must define / plan its key yearly deliverables / priorities. This must be done by the TEAM – Minister in-charge and officers up to the rank of Joint Secretary (20 % weightage)
- Completion of targets within the time frame (25 % weightage)
- Completion of targets without increase in budgets (20 % weightage)
- Utilization of funds (20 % weightage)
- Disposal of grievances (15 % weightage)
For any of the misses, the weightage be objectively apportioned.
Government Performance Review (GPR)
A part for the GPR be based on actual data / facts, and must be done by an independent government agency (40 percent weightage) and the rest must be based on public perception (60%) ; or it can be made (50 %) of actual assessment by an independent agency and (50 %) by public voting ;
- Implementation of key schemes goals Vs. achievements (10 % weightage)
- Meeting the Inflation target (5 % weightage)
- Fiscal deficit (5 % weightage)
- GDP Growth (5 % weightage)
- Utilization of funds (5 % weightage)
- Disposal of grievances (10 % weightage)
The government works for the citizens, and finally it is the citizens who are the best judge of its performance. Parameters 1-6 above can be objectively judged with data / facts, and others can be subjectively judged by the citizens under Jan Bhagidhari Assessment (JBA) through online voting.
At the end, it is the Government ‘for the people’, so the people must rate the Government on overall performance through public voting, after Government presents its self- appraisals on the points mentioned from 1-6 above.
The voting should be open for 30 days for the public to vote by a missed call from their registered mobile number on a toll free number; (60 % weightage should be assigned to public perception / judgment on performance) and 40 % on self appraisal / independent assessment by the Government.
Major change in bureaucracy is about making it a ‘performance based contractual service’: Also, one reaches the rank of Joint Secretary after a minimum service of 17 years. Joint Secretary is the actual ‘official’ who runs the show for the Government on a day-to-day basis, but if one sees the performance of the Joint Secretary, in a real sense, s/he does not feel accountable to anyone. The reality is, that now they are more driven by authority and administration and less by duty and development.
The biggest bane of bureaucracy is their job security and on one can demote them or remove them. When politicians have to go every five years for their performance review and renewing their term before the electorate, why should the top officials not undergo a review and renew based on their performance? Let us give them job security, but for performers. The Government is serious about a ‘Big Change’, and has to go and seek appraisal from the voters in 2019, but most of the bureaucrats are not as serious. They have been used to seeing government after government for decades. For them, this is all routine office work but for the Government, it is an implementation emergency. This is the only way to bridge the divide and bring about a cultural change for performance, accountability and rewards. Today, only the politicians are accountable but not bureaucrats! And it is time to change and fix the accountability based transparent review process / system.
All officers of the rank of Joint Secretary and above must be put on a 5-year contract, based on their performance review, with a performance based financial incentive for their outstanding work. So, the salary structure should have a fixed pay and a variable component . If they fail to live up to the performance standards (IPR) below 80 % for three years (out of five year term), they must be relieved. Let us not forget that the ‘Best are first to be hired and last to be fired’. So no worry for the best performers, rest should worry about themselves.
Even, Nirmal Kumar Mukarji, the last serving Indian Civil Service (ICS) officer in India who retired as Cabinet Secretary in 1980, as chief guest at the Indian Administrative Service’s 50th Anniversary celebrations 1997, had called for an end to the all-India tenured services.
Also, PS to the Minister is considered an important bureaucrat but he is a junior IAS. (below the rank of Joint Secretary), and hence s/he plays safe dealing with his seniors, as one day he might have to work under them, and the loser in this case always is the Minister. So, we need to consider that the PS to the Minister be a Special Secretary rank .
eOffice & eFile – Files are taking months to move from one table to another . e-Office / eFile concept must be implemented. No file should take more than three weeks and pass more than three levels. If there is a delay of more than a week, the note should be made on the file justifying the reasons for delay
Modi has the intent, the will and the vision and he is working really hard. Will his administrative system be able to catch up? There is a big difference in how the minister and the common man are handled by the bureaucrats. So the first impression here, should not be the last impression! Bureaucracy is slowly putting red tape to the red carpet !
Modi rightly said recently, “We cannot march through the twenty first century with the administrative systems of the nineteenth century”. If we see, we still have ‘Collectors’ in post British India, and this itself shows that the bureaucracy is still in 19th Century! A senior IAS wrote to me, ‘Modi is ahead of time’ and I said ‘ Yes, Modi is definitely ahead of time but unfortunately, the bureaucracy is still in the 19th century’. When Modi was thinking of Planning Commission, he made a profound statement, “Sometime it is better to build a new house than to repair the old one”. May be the same approach is needed for the ‘institution’ called bureaucracy. Do we repair the old house or / and build another one. The transition is critical and we have no time to lose. It needs to start soon and there should be a time bound plan to implement it
Rajendra Pratap Gupta
Please see the total debt , interest and principal payments by the Government of India . Still do you think that we can pull this country out of the mess under the UPA ? We need radical changes
As per data made available by the Ministry of Finance on debt vide RTI dated 13th May 2013 letter dated AAAD/COORD/ L(1)2012; AS ON 31/12/2012
Government Loans :
Total multilateral debt is INR 2,401,829,740,367
Total bilateral debt is INR 1,046,418,091,740
Total Government loans ( multi-lateral and bilateral ) is INR 3,448,247,832,107
Non – Government loans
Multi-lateral INR 302,495,682,321
Bilateral INR 190,240,677,456
Total Non-governmental Multilateral & Bilateral loans – INR 492,736,359, 778
Grand total ( Government & Non-Government ) 3,940,984,191,885
Total yearly payments of interests & principal
2011-12 2012-13 ( 01.04.12 – 31.12.2012) Figures in 1000 INR
Interest 2425686378 2028398390
Principal 34823428250 24641868095
Recently , very few people noticed a four line news that , Moody’s Investor Service downgraded the so-called financial strengths ratings and the baseline credit assessments of;
1. Bank of Baroda
2. Canara Bank
3. Punjab National Bank
The outlook on Union Bank of India has also been changed to negative .
This is the first indicator of ‘Gloom & Doom’ that is set to hit the economy soon. Somehow , India has missed the recession in 2008 , but India will now enter into recessionary phase that is likely to last between 3 -6 years .
Somehow , the investments that came due to ‘overselling’ the India story like the SEZs, power plants , airports are fading off and most of the infrastructure companies are under a huge pile of debt. More NPAs and job losses will follow .
I see that not a single politician or an economist can put his head out and speak the truth that India is hitting a phase of recession ( probably , they do not know it , like the American crisis ). From a high of 9 per cent growth , we are already down by 45 % in our GDP growth . How else do we define recession ? Are we already not into a recession with companies laying off people every month and our growth slowing down by 45 % ?
Let us accept the situation and plan now. Else , India will be headed for an unprecedented crisis. I am not more worried with 2014 election as much as the rapidly falling economy . On many occasions ,i have pointed my friends across political parties that they would be better off losing 2014 elections than winning them , as there is enormous crisis to be faced, and a lot of dirty and hard work to be done to reverse the falling fortunes of this country and it is not going to be an easy 2014 for politics and politicians .
Let us consider this situation ;
India needs foreign exchange – USD . This can come due to ;
- Reduced imports
Now , exports might start shrinking or remain the same , so not much can be done on that front .
FDI comes in India for
1. Either setting up manufacturing
2. Investment in corporates / stock markets
All the money that comes in FDI needs to produce profits due to either exports or domestic consumption . Both are not going to happen the way investors look at ROI or IRR on their investments as the local consumption story is missing . India has already passed off 100s of millions of poor as ‘middle income aspirational class wanting to spend’ , and this was the biggest fraud of Sonia & MMS led congress government and 100s of corporates have lost millions of dollars every month and are now exiting India or slowing down
Only way the foreigners can make money is dabbling billions of USD in stock markets . So, now FDI’s constitute 11.2 % of GDP in India (2011-12) , and FIIs can play a spoil sport for Indian Economy and generate a balance of payment crisis in any trading hour !
Also, how i could i miss writing about another direct cash transfer scheme of Congress ! Party has got a new way to make money ‘ CSR spending’ under the new companies act .Now politicians can ask corporates for CSR spending and bang ! You know why this bill got passed so easily. And if i am a corporate and i wish to get a license or avoid something OR seeking favours like Robber Vadra, i will give money under CSR to a politician’s NGO….. Wow , another MNAREGA, NRHM and a wonderful legal cash transfer scheme , So who says that XYZ paid bribes , now you cannot prove it , it was just a CSR spending . So, corporates , what are you waiting for , come buy your Rajya Sabha seat , it just cost 100 crores in CSR spending ! Come and block your seats now , it is election year , and sweet -legal deals available through all state leaders and through various national schemes , we have legalised bribes and you have an option to chose your preferred medium . Hurry, this is the last congress government. Hurry up, come , before we run out of time as Elections are likely in November
BTW, time for any sensible politician to come out with a job creation and wealth generation model for India before thinking of FDI or going back to 9 per cent growth
Earlier we realise , the better it is . India is into a recession now !
Rajendra Pratap Gupta
On 8th February , 2013, i wrote about the ‘Oxytocin’ injections that the Government is giving to our economy to draw out milk…….here is the proof.
Life Insurance Corporation was the most dependable automated teller machine for the government in the past year, buying record amounts of bonds and stocks of public-sector firms. Which was shown as ‘successful divestment by the Government’.
The state-run insurer’s purchase of government bonds rose 20%, and it bought nearly 40% of the shares sold via offer for sale (OFS) in four out of total seven PSUissues, said people familiar with the investments.
Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure.
LIC invested Rs 236 crore in Nalco (35% of the OFS size), Rs 142 crore in RCF (45%), Rs 608 crore in Hindustan CopperBSE 0.87 % (44%), Rs 923 crore in NTPCBSE -0.35 % (5%), Rs 1,069 crore in SAIL (71%) and Rs 282 crore in NMDCBSE 2.50 % (4.7%).
LIC had contributed 81% to the government’s Rs 14,000-crore mop-up from share sales in 2011-12 by investing Rs 11,400 crore in ONGC
LIC invests in government securities with a view to holding them till maturity, and mark-to-market losses in the interim are not good. It would be a good practice to evaluate returns on redemption each time it happens and compare it with benchmark government bond rates. “Any shortfall in the return should be compensated by the government,”
Also, LICs mandate to invest 50 % in Government securities should be re-looked .
So the big question is , was this really divestment or a ‘back door buyout’ & a ‘face saver’ from a state controlled financier with public money, which could have yielded better returns had the LIC invested into blue chip companies . We all know that the state run PSUs will perform poorly when compared to other blue chip firms . Does it not warrant a CAG inquiry into the management ( mismanagement ) of LICs investments under duress ( from Chidambaram ) ?
LIC is failing in its fiduciary responsibilities to its investors ( people of this country who buy insurance policies from LIC ) , who invest Rs. 450 crore a day in LIC . Time to raise this issue and realise , that the actual divestment figure shown by the Government was a back door forced buyback by a family firm ( Government’s family firm- LIC )
Rajendra Pratap Gupta
Please see the data below . If you carefully examine the data , a few things are apparent ;
1. Sales drop in tractors indicate poor state of affairs in agri- rural India ( decline in agricultural sector )
2. Sales drop in Medium and heavy ( M&H) segment indicate actual decline in industrial output
3. Sales drop in light commercial vehicles (LCV ) indicate that the ‘Public sentiment’ is negative .
In the tractor segment 3,44,911 units were produced as against 3,72,282 units in the same period of last FY, registering 7% decline according to the data of Tractor Manufacturers Association [TMA].
As per the data of the Society of Indian Automobile Manufacturers [SIAM], total production in M& H segment was 2,11,530 vehicles against 2,72,400 in the same period of last financial year.
Source : http://www.business-standard.com/article/companies/steep-fall-in-commercial-vehicle-production-in-apr-dec-113012500139_1.html
VE Commercial Vehicle sales down 20% in December
By PTI Jan 01 2013 , New Delhi
I am not an economist , so in case, my predictions go wrong ( so far, i have not been wrong on a single occasion ), i do have an option to take refuge in my lack of educational qualifications in the Economic theory unlike the proficient doctors of economics do at PM’s office , Planning Commission & the Finance ministry …..
My belief is that in 2013-14;
1. This Government will struggle to revive growth
2. Inflation ‘might’ ( 50 % chances ) come down a bit , as consumption story of India will go down
3. Manufacturing sector will slow down
4. Fiscal deficit will increase, and might create a balance of payments problem , or the Government will open more avenues for FDI ( or bend to the demands of the industrialists )
5. Tax collections will go down
6. Divestment target will not be met under the current situation unless some more ‘targets’ are divested
7. India might face a ‘security threat’ before the next elections
8. Investor confidence cannot be revived due to ‘Governance deficit’ and ‘Scamful’ Government at the centre .
Also, you can expect this Government to come out with injecting ‘Oxytocin’ in the economy as mentioned in my earlier blog ….. but this will be a short-term story, and will further dent the strength of the economy
Overall, not a good omen for job seekers and this nation . Hopefully, this will be the last budget for Congress
Rajendra Pratap Gupta