ALTERNATE BUDGET

A Budget for Rahul Gandhi

01 March 2012 | Alternate Budget

The future of the inheritor, and more importantly, of India, depends on fighting corruption. Here is how Pranabda can use the Budget to tame the monster

“While we should always be prepared to reconsider the methods we adopt, should this become necessary, we have to strive with all our strength for our planned development by conserving all our resources, increasing production and trying to ensure progressively a more equitable distribution and to thus raise the standards of the great mass of our people,” - Jawaharlal Nehru as Union Finance Minister

February 28, 1970: “It is generally accepted that social, economic and political stability is not possible without the growth of productive forces and the augmentation of national wealth. Also, that such growth and increase in wealth cannot be sustained without due regard to the welfare of the weaker sections of the community,” - Indira Gandhi as Union Finance Minister

February 28, 1987: “Twenty nine years ago, presenting the country's Budget, Jawaharlal Nehru told this house [that...] we have to strive with all our strength for our planned development by conserving all our resources, increasing production and trying to ensure progressively a more equitable distribution and to thus raise the standards of the great mass of our people…Our principal objectives are the elimination of poverty and the building of a strong, modern, self reliant independent economy,” - Rajiv Gandhi as Union Finance Minister

Some of you would be aware of how and why these three former prime ministers also had to don the hat of a Union Finance Minister. For those who haven't found time to check out this bit of deliciously ironical history, here is a brief recap. In 1958, the son-in-law of Nehru and Indira Gandhi's husband raised uncomfortable questions about the role of the then Finance Minister T.T Krishnamachari in what became the “Mundhra scam”. TTK, as he was popularly known, was forced to resign in February 1958 and Nehru had to temporarily take over as the Finance Minister. In 1969, the Congress party split and the then Union Finance Minister Morarji Desai quit the government. Desai was strongly opposed to the “socialist” vision being gradually adopted by the then Prime Minister Indira Gandhi. She preferred to take over the Finance portfolio after the exit of Desai. Her titanic tussle with Desai and its consequences resulted in the ‘license permit' and ‘inspector raj' era, issues that continue to haunt India till date. In 1987, V.P Singh, a loyal and trusted aide of Indira Gandhi and Rajiv Gandhi, was ready to present his third successive budget to the nation. Prime Minister Rajiv Gandhi, for reasons future historians will be better able to explain, shifted Singh and chose to present the budget. Within a few weeks, the Bofors scam started tormenting him.

Many of you who have been waiting for my 12th successive Alternative Budget this time must be wondering why I have taken a historical detour even before talking about the proposals I have in mind this year. Many of you might even be wondering about the headline for this year's Alternative Budget: “A Budget for Rahul Gandhi”. I'll address the second issue first. One fine day in August 2010, out of nowhere, I got a call from the office of Rahul Gandhi informing me that he wanted to meet me. I was taken aback as I had made no such request to meet him. Despite my initial surprise, I decided to go and meet Rahul to see what he had in his mind. In the brief meeting we had, he kept asking me what I wanted from him and since I had gone with no expectations, I spoke to him about the Alternative Budgets that IIPM Think Tank comes out with every year. I didn't expect him to give it much of a thought but I was pleasantly surprised to see him quite interested in it and asking me several questions around it. The meeting ended with him requesting me to send a copy of my next Alternative Budget in time for his perusal. Come February 2011, I did that. However, there was no response from his office and the real budget hardly took note of my suggestions, which were all to do with changing the plight of the farmers in our country (http://www.thesundayindian.com/en/story/do-dooni-chaar-budget/12869/). So this time, keeping in mind that in any case, there is a very high probability of Rahul Gandhi becoming Prime Minister in 2014 (and since history repeats itself endlessly in India, I wouldn't be shocked to see Rahul Gandhi like his great grandfather, his grandmother and his father present a Union Budget in the future), I thought of addressing the budget directly to him; Rahul being young, I believe he has a higher probability of taking a note of it than Pranabda! Moreover, I am certain even Pranabda will be presenting this year's budget with Rahul Gandhi's future Prime Ministerial prospect in mind!

But it is my historical detour quoted at the start that I think holds more relevance for the future of India. The reasons I have quoted Nehru, Indira and Rajiv in their avatars as finance ministers are twofold. The first: there is no doubt that all three were passionate about India and did try their best in their own ways to at least minimize, if not eliminate poverty from India. No objective analyst can doubt their intentions. The second: the primary reason why all three largely failed in their efforts is because of corruption that started as a harmful disease in the Nehru era and now is a malignant cancer that is corroding the insides of India, even as Rahul Gandhi makes a pitch for his personal tryst with destiny. As Dr Pranab Mukherjee makes the final preparations to read his speech as Finance Minister on March 16, 2012, and as Rahul Gandhi gets ready to absorb the import of the verdict delivered by the voters of Uttar Pradesh, both surely must be aware of two things. Corruption and good governance will most definitely play a big role in the 2014 Lok Sabha elections. And that it could well be a kind of a last chance for Dr Mukhrejee and the Gandhi scion to use the two remaining budgets before 2014 to send a loud and clear message to voters that the two (and Congress per se) actually walk the talk when it comes to curing India of corruption. On this hinges the political future of Rahul Gandhi. More importantly, on this hinges the future of India. Quite simply, India can no longer afford tall promises and noble intentions even as we march towards hell for the poor.

In 2009, when the UPA surprise, surprise stormed back to power and the Congress an even bigger surprise won more than 200 Lok Sabha seats for the first time since 1991, I presented my Alternative Budget with a headline that raised quite a few eyebrows. The headline was “Khao aur Khilao Budget”. My premise was simple: it is impossible to change a rotten system overnight in an electoral democracy and yet Dr Mukherjee should be able to implement many proposals that would make a huge difference to poverty, inequality, education, healthcare and governance “even if corruption continued, albeit on a lower scale”. That Alternative Budget surprise, surprise again was a huge ‘hit'; and many economists, analysts and bureaucrats, and even politicians, appreciated some of my ‘realistic' proposals. One such proposal went with the following headline: “A census, a national database and biometric cards for the Poor.” I further wrote, “The FM must allocate another Rs 2000 crore and rope in the Election Commission to provide the poor with biometric photo identity cards. Smart card technology is easily available... I estimate that at least 250 million Indians will get these smart cards and claim welfare scheme funds and resources. Knowing Indians, many undeserving people will sneak into this database while many deserving ones will get left out. But we are not talking about achieving perfection in this budget.” (For more details, log on to http://www.thesundayindian.com/en/story/arindam-chaudhuri-presents-the-khao-aur-khilao-budget/19/7719/)

I doubt if Dr Mukherjee and the former Infosys CEO Nandan Nilekani found time to read my Alternative Budget in 2009 in this magazine and our sister publication Business and Economy. And yet, I was delighted a few months later when UPA-2 actually announced the UIAD project that was all about biometric cards. I feel a little sad when I read newspaper reports about how vested interests are trying to stall, or even kill the UIAD project. And yet, it made me think that there are people in policy making who are genuinely thinking about tackling ‘leakages', which is a polite word for blatant, shameless and parasitic corruption. As with everything else in India, when it comes to corruption, there is a lot of despair; and a lot of hope. The very fact that biometric cards are now a reality for the poor in many districts of India makes me concentrate more on hope than despair.

But to give the devil her due, I have no choice but to highlight some statistics and studies that reveal how corruption must be a cause of despair for all well-meaning citizens of this country. The primary reason for a country being ranked very low on ‘the quality of life indicators' is not poverty or lack of resources but corruption and poor governance. Despite tall promises and about 65 Union budgets some presented by charismatic prime ministers India's ranking continues to be pathetic at just about 125. Not surprising because 400 million Indians are still illiterate, 750 million Indians lack access to basic sanitation and 1,000 million Indians spend their own family money on healthcare because the State has failed to act in that area. Look at the Transparency Index, or the Competitiveness Index or any other damn index and you will realize that India has a pathetic record of taking care of its poor and underprivileged. And it continues to do so despite so many social welfare programmes launched by this UPA government since 2004 when it came to power. The astonishing thing is that Indians still appear to be largely optimistic when we see results of global surveys. And then I realize those survey guys probably never went to slums or villages where farmers were committing suicide.

There is another way to look at how corruption is corroding our innards. Back in the 1980s, Rajiv Gandhi said that about 85% of the money meant for social welfare schemes was eaten away by corruption. If anything, despite RTI and the rise of social activism, media activism and judicial activism, corruption has only gotten worse. One interesting data here. Together, the Centre and all the states have spent close to Rs 20 lakh crore on education since the UPA came to power. This includes plan and non plan expenditures. Assume that Rajiv Gandhi was exaggerating and only 50% of the funds get ‘diverted', you still have a figure of close to Rs 10 lakh crores siphoned away in the name of education. Add health, irrigation, rural electrification, roadways et al and you can well imagine the extent of corruption in India. And almost all of it could have been used to lift the desperately poor above the poverty line. Forget Swiss Banks and black money. I honestly think we in the media should start an audit of expenditures on these schemes meant for the poor and prove how much was actually ‘diverted'. I know activists and the media are already doing it. But no positive outcome seems to come out despite judicial intervention. That brings me close to my proposals this year in my Alternative Budget.

But before I start presenting my proposals, let me share something that we all know. Corruption is flourishing in India because the corrupt are more likely get away with it. I have nothing personal against the former Telecom Minister Sukh Ram who has been convicted again and again on charges of corruption. But the case has dragged on for so long that he is now in his late eighties. I felt troubled about the future of India when I read in a paper that the 96 year old Sheila Kaul a former Congress minister who faces corruption charges was summoned to appear in court despite her lawyer arguing about her age and health. I think Indians are so fed up with corruption and the system that encourages it that they might think that people in their late eighties and nineties are getting just desserts. The simple reason why corruption flourishes in India is that our judicial system is completely broken down and paralysed. We get occasional glimpses of what the judiciary can do like in the cases of Priyadarshani Matto, Jessica Lal, the 2G scam and many others. But they are not even a drop in the ocean.

So what can Pranabda do if he presents a budget for Rahul Gandhi?

Well, he should tackle the key issue of corruption that has rattled the government this year, in particular during the Anna Hazare movement and the Ramdev fiasco! Yes, as of now, both the issues have been managed, but the truth is that it won't be long before more agitations rock the country if it is not tackled properly. Thus, this budget keeps tackling corruption as its top priority! The biggest sufferers of corruption are the poor as the high and mighty use corruption to their benefit.

Here are my suggestions for this year's Alternative Budget.

Key resource allocations:

Transform the judiciary The Lokpal has been given its silent burial with a completely manipulative and flawed bill. Though the Lokpal bill in its ideal best had the power to make a big impact to deter corruption, I never believed that this was the first priority when it came to tackling corruption. The first priority as I also told Arvind Kejrival during one of our interactions has to be necessarily a massive focus on judicial reforms. Unfortunately, most people don't understand its real relevance and those who do are sitting in power and thus keeping it dysfunctional so that the corrupt can make merry! If Rahul Gandhi is really keen to change this country and make an impact in the field of reducing corruption, he has to awaken the sleeping and completely dysfunctional judiciary of this country!

I was truly shocked when a colleague pointed out that less than 1% is allocated by the Central and State budgets every year for the judiciary. In the Ninth Five Year Plan, the government set aside Rs 385 crore for the judiciary. That works out to 0.078% of total plan expenditure. In the tenth Five year Plan, the allocation was increased to Rs 700 crores; about 0.071% of total plan expenditure. In the Eleventh Five Year Plan which is in progress, the allocation was ‘generously' raised to Rs 1470 crore. As a percentage of total plan expenditure, things haven't improved at all. These figures are so laughably small that I marvel at how the judiciary functions at all!

All this, while new laws, amendments to existing laws, a massive increase in corruption and the rise of activism have led to more and more cases piling up even as old cases continue to languish. As I stated earlier, and have often stated in the past, the only way to reduce corruption in India is to make the judiciary more effective. Till the corrupt remain convinced that they can either escape punishment or delay it indefinitely, corruption will continue to increase. The one and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. In America, they have ten times more judges per million people than in India. If we are to try and achieve such standards we need to have about 100,000 more judges. It sounds huge but is surely achievable in a span of five years. And to have 20,000 additional judges per year, we have to budget for an additional amount of approximately Rs.6,000 crores per year, assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs.30,00,000 per year.

So if I were Pranabda, I would use the 2012 Budget to announce that Rs 6,000 crores have been allocated for the judiciary in the coming fiscal, with a commitment to increase it to Rs 10,000 crores in the next fiscal. India desperately needs such a big ticket and transformational move. The budget must unveil a concrete plan whereby the Law Ministry works with Supreme Court and High Court judges to draw up firstly a concrete blueprint to “quadruple” the number of judges and courts before the general elections in 2014; and secondly, to draw up a blueprint that will compel litigants, lawyers and judges to commit to a time frame to settle cases. First, this will send a huge message to voters that the government actually means business. Second, it will actually transform governance in India. If those facing corruption charges know that they could be convicted in less than a year and their property confiscated and auctioned as it has started happening in some isolated cases the incentives for corruption will vastly diminish, if not disappear altogether. This is far more important than making noise about a Lokpal. This is very doable. No progress was made for almost two decades in Bihar when it came to tackling corruption cases. Then Chief Minister Nitish Kumar set up fast track courts and lo and behold, the corrupt actually started getting convicted quickly.

These massive allocations for the judiciary will ensure that ‘fast track' courts do not remain exceptions but become the norm in Indian judiciary.

Focus on education and healthcare

For close to a decade, I have been repeating the simple fact that without education and healthcare, there is just no way that India can ever hope or dream of catching up with China. It is a disgrace that public expenditure on health and education at less than 2% of GDP is less than the share taken away by myriad subsidies and exemptions. The only way out is a massive increase in allocations for schemes like Sarva Shiksha Abhiyaan and National Rural health Mission. But as I have often pointed out, merely allotting more money without improving governance and reducing corruption will not help. For a more detailed perusal of my proposals, do read my 2010 Alternative Budget that went with the headline “A Budget for Three Idiots” (http://www.thesundayindian.com/article.php?category_id=28&article_id=637). The recommendations I have made in that proposal are even more relevant today.

Focus on employment generation schemes and slum removal schemes to give people dignified existence

As I had suggested last year, If I were in the place of Pranabda, I would increase the allocation for the rural Indian mainly farmers by a straightforward Rs.100,000 crore a year. The obvious question is why? Well, everything has to be in some context. And the context here is that rural India needs 150 million jobs to be created. As a committed government, our aim should be to do this in a span of 5 years and not 65 years. Thus, we have to create 30 million jobs a year. In rural India, a job can still be created by investing about Rs.33,750 per job. This would justify the necessity for an additional I,00,000 crore per year. Half of the money would be invested every year towards improving physical infrastructure in rural India including effective irrigation facilities, better and functional roads, a vast network of cold storages and regular supply of electricity. The other half would be every year invested towards improving social infrastructure in rural India including providing much better access to education, health and sanitation. The first would lead to a dramatic improvement in productivity in rural India and result into vastly superior income levels for farmers. The second would lead to a dramatic improvement in human development indicators in rural India. And both will create jobs, removing the massive rural unemployment from India.

I would also suggest another Rs.120,000 crores be allocated for 25 million jobs to be created for the urban unemployed. In urban India, the cost of creating a job dramatically multiplies to about Rs.240,000 per head. Thus, to create 5 million jobs per year, we would require the amount I mention above. The urban poor also need another thing apart from employment. They need dignity of existence so that another Slumdog Millionaire is not made on India by Western imperialists. For that, we need to budget another additional Rs.24,000 crore per year for five years to create 15 million urban flats of minimum 250 sq. feet each.

Key resource mobilizers:

The question one might ask is where do we get all the money from? From my book, The Great Indian Dream which I co-authored with my father to each of the past 11 Alternative Budgets, I have highlighted various innovative ways to generate revenues. The irony is that over the years the governments have picked up all those ideas but unfortunately used the resources generated to make more black money. So all of you can turn back to my past budgets for more ideas as this time, I just give three simple ideas mainly using the crores of black money stashed abroad to go with our anti corruption theme of the budget!!

Legalize black money

I suggest that we legalize all the black money stashed abroad by giving a simple 10% tax payable in five equal installments of a mere 2% each! But with two key riders. First, that the government will take genuine steps to recover the money stashed abroad and all black money recovered after one year will be nationalized. And second, that there will be measures in place to ensure that future generations of black money becomes almost impossible. And of course, with a functional judiciary, no one will go unpunished. With estimates of overseas black money as high as Rs.75,00,000 crores, legalizing black money will lead us to a huge new revenue stream of a minimum of Rs.7,50,000 crore in five years or Rs.1,50,000 crore per year, making up for a huge portion of the money required to put my previous allocation proposals to action.

Eliminate exemptions

Let me start with something like the biometric cards that I had suggested back in 2009. I am not a finance whiz but many of my colleagues and associates talk about how the Direct Tax Code (DTC) and the General Sales Tax (GST) regimes that were supposed to be launched this year will make life simpler for taxpayers. If only things were that simple. If I were Pranabda who was looking to help Rahul Gandhi inherit the mantle, I would do something dramatic. Let me put the word dramatic in context. When V. P. Singh presented the budget in 1985, as did Dr Manmohan Singh in 1991 and Chidambaram in 1997, Indians citizens couldn't believe that such changes were possible. So why can't Pranabda do something that will make the middle class taxpayer happy? Please introduce a simpler tax form to replace the ‘saral'; ‘saral' clearly is a torture for the honest taxpaying citizens who fume because it is they who pay the taxes. For all incomes up to Rs 5 lakh, Pranabda should make it clear that Income Tax guys will not question such returns at all. Anyway, what money can our Khao aur Khilao manadarins earn from middle class Indians whose tax is anyway deducted at source?

The second big thing I would do is to withdraw all exemptions. Yes, I mean it. I mean, fix a limit for capital gains, fix one for other incomes; do anything, but stop exemptions and the complicated way of calculating them. Corruption happens when rules are complicated and when your tax code deliberately encourages tax payers to evade taxes. I am quite shocked by the recommendations of the Economic Advisory Committee to raise taxes. Come on: just let go of the exemptions so that individuals and companies and organizations don't have to spend weeks talking strategy with tax accountants

It is because of a bewildering plethora of exemptions that just about 2% of Indians pay income tax while common sense and actual numbers dictate that at least 10% of Indians should be paying income tax. An important part of this elimination of exemptions would be to bring agricultural income under the tax net. Many years ago, when there were charges against former Bihar Chief Minister and Lalu Prasad Yadav's wife Rabri Devi on disproportionate assets and income, she had actually tongue firmly in cheek informed tax authorities that she earned a few crore rupees by selling milk and other dairy products! Almost every multi-millionaire in India owns a sprawling farmhouse and acquires the status of a farmer. This is just one example of how such exemptions have completely perverted the system. This sorry tale of exemptions is not confined just to direct taxes. There are numerous exemptions and complications even in the case of excise and customs duties. Interestingly, it is this bewilderingly complicated tax system that is responsible for almost 70% of disputes and cases pending in Indian courts. Just imagine the impact on the effectiveness of Indian judiciary if the need for such needless litigation was eliminated at the source!

This one simple move by Pranabda can act as a revolutionary trigger that will go a long way in reducing corruption, making voters happy, helping Rahul Gandhi win in 2014 and much more. My colleagues have been doing back of the envelope calculations and they estimate that this simple proposal will result in extra tax revenues of at least Rs 3 lakh crore a year. The annual budget for all social welfare schemes is less than Rs 1 lakh crore.

Abolish most subsidies

Needless subsidies and the distortions and havoc they are creating in the Indian economy are yet another classic example of the road to hell being often paved with noble intentions. A majority of farmers in India are so poor that they can barely afford to buy the food they produce, forget hi tech seeds and fertilisers. And yet, the fertilizer subsidy bill is crossing Rs 1 lakh crore a year. Have you ever seen a poor man own and drive a diesel car or own and operate a diesel generator or a pump set? And yet, subsidizing diesel is costing upwards of Rs 50,000 crores a year. How many Below the Poverty Line citizens have you seen using LPG cylinders to cook food? And yet, subsidies on LPG cylinders cost upwards of Rs 20,000 crore a year. There are dozens of similar examples. These subsidies not only distort the economy, they also lead to massive corruption. Kerosene subsidy is just a case in point. It has created malignant mafia empires across India that siphon off the subsidized kerosene meant for the poor and happily adulterate petrol and diesel with it. This mafia has no compunction in killing people who cross their paths. If I were Pranabda, I would take the ‘bold' step of abolishing all such subsidies and using the biometric photo identity cards to directly subsidise goods and services meant for the truly poor. As I mentioned earlier, history has an uncanny ability of repeating itself in India. In 1982, Rajiv Gandhi was anointed the inheritor. Thirty years down the road, his son, Rahul Gandhi is the inheritor. In 1982, Dr Pranab Mukjerjee presented the Union Budget. In 2012, he is again presenting the Union Budget. Back then, the ‘system' ensured that Rajiv Gandhi largely failed in his efforts to mobilize India's youth and energy to transform India. A few years from now, will we be compelled to say the same things about Rahul Gandhi?

ALTERNATE BUDGET

His Last Chance

31 January 2013 | Alternate Budget

“The art of leadership is saying no, not saying yes. It is very easy to say yes.”

“Leadership is about solving problems. The day soldiers stop bringing you their problems is the day you have stopped leading them. They have either lost confidence that you can help or concluded that you do not care. Either is a failure of leadership.” “This light of history is pitiless; it has a strange and divine quality that, luminous as it is, and precisely because it is luminous, often casts a shadow just where we saw a radiance; out of the same man it makes two different phantoms, and the one attacks and punishes the other, the darkness of the despot struggles with the splendor of the captain. Hence a truer measure in the final judgment of the nations. Babylon violated diminishes Alexander; Rome enslaved diminishes Caesar; massacred Jerusalem diminishes Titus. Tyranny follows the tyrant. Woe to the man who leaves behind a shadow that bears his form.”

This is the thirteenth time in 13 years that I am starting the presentation of my Alternative Budget. Yes, my friends and dear readers, it has been 13 years since I first presented a set of suggestions to the then Union finance minister and branded it as an Alternative Budget (of course Dr. Malay Chaudhuri – the Founder Director of IIPM – had been writing budget alternatives for many years before that and our jointly authored book, The Great Indian Dream, also deals with the same in a great detail). There have been a few, rare occasions when finance ministers have unveiled proposals that have made me hopeful about the future of India. On most occasions, the budgets have been a series of fatuous statements and flogged-to-death proposals that have done virtually nothing to make a difference to the fundamental problems that confront India. But I don’t need to repeat and rehash a list of those proposals since every Indian with some knowledge of economics and some common sense knows that budgets have been a spectacular and persistent failure when it comes to solving India’s problems.

But there is something poignant about 2013. Both the headline of the story: His Last Chance and the three quotes I have borrowed hold a particular significance for our Prime Minister Manmohan Singh. When he became prime minister in 2004 after Sonia Gandhi refused the pleadings of her Congress sycophants, Dr Singh came with unparalleled experience in matters pertaining to administration and economics. After all, wasn’t he the man who uncaged both the Indian tiger and the elephant in 1991 through a series of bold and path breaking measures in his first Budget as finance minister? Wasn’t he the man who had already served the Government and the nation in a large variety of administrative duties? After all, wasn’t he the ultimate insider who knew how the country is run and what bold steps were required to propel India towards a sustained 10 per cent per year GDP growth rate? Most important, wasn’t he the best person then who understood how sloth, red tape and a complete lack of accountability in the bureaucracy and the administration were crippling a million Indian dreams? Was it any surprise then that many of us (now foolishly in hindsight) expected at least some substantial steps ahead – if not a 1991 like revolution – in the management of the country and the economy?

Is it any surprise that we have been bitterly disappointed and feel completely let down? Allow me to remind you of the first quote in this write up, attributed famously to Tony Blair. It talks about leadership being the art of saying no. Dr Singh has repeatedly failed to say no. He has failed to say no to people like A Raja and Suresh Kalmadi who are alleged to have indulged in unprecedented corruption. He has failed to say no to people like Lalu Yadav who used their clout in 2005 to topple the democratically elected government of Nitish Kumar. He has failed to say no to some really crazy and harebrained schemes cooked by Jholawala members of the National Advisory Council. In almost all cases that really matter for the future of India, Dr Singh has failed to say no. He has repeatedly failed this test of leadership.

Now let’s go to the second quote, given by Colin Powell. Using military analogy, it says that soldiers will not come to you with their problems if they think you are incapable of solving them and if they think you don’t care. Dr Singh, you have clearly proven to be incapable and you have been so tight-lipped, reticent and mysteriously silent over the last almost nine years that none of us know exactly how much you care. The third quote, from Victor Hugo, is the most compelling and devastating. It talks about how history judges the legacy of leaders. There is no doubt that Dr Singh still carries the aura of unimpeachable integrity and personal financial honesty in public life. But of what use is that integrity and honesty when history will not only judge the UPA as the most corrupt, but also the most arrogant, unresponsive and repressive when it comes to dealing with opposition of all hues? Let me give you another analogy. Imagine Dr Singh as the principal of a college. As principal and an individual, his integrity is beyond question. So is his experience in managing the affairs of the college. But what if other teachers in the college are openly selling exam question papers to rich students for a profit, and even selling off furniture, library books and laboratory equipment belonging to the college? Of what use is your personal integrity to students of that college, except the privileged few and the criminally inclined who can bribe or browbeat their way through? Sad, but most Indian citizens are like hapless students of that college. Now, they have begun to question both his integrity and his timidity.

And yet, common sense says that there must be a lot of intelligence, a lot of pride, a lot of self respect and a sense of duty in that man. Surely he knows that he will be the longest serving Prime Minister of India after Jawaharlal Nehru and Indira Gandhi. Surely he knows that both of them, as also P. V. Narashima Rao and Atal Bihari Vajpayee have left behind legacies that may be controversial but powerful legacies nevertheless. Narasimha Rao’s track record will remain tarred with the Babri demolition and the Harshad Mehta scam. But history will judge him, and not Manmohan Singh, as the leader behind the path breaking economic reforms of 1991. The track record of Vajpayee will be tainted with the 2002 riots in Gujarat and his government’s capitulation to terrorists in the 1999 hijacking. But history will judge him, and not Manmohan Singh as the leader who took relations with America to a new strategic level? Does Dr Singh want to be a Prime Minister who served for ten successive years and failed to leave behind a durable legacy? Surely, there must be some ego in the man, some desire to be remembered fondly, if not very favourably by history.

And it is not as if he does not have options and choices. Let’s first eliminate the options that he doesn’t have and those he shouldn’t exercise. In the first category comes politics. Now, even a school student knows that Dr. Singh is Prime Minister because Sonia Gandhi gave him the job. All of us know he remains PM only as long as Sonia Gandhi desires so or thinks it is in her and her family and party’s interests. So disengaged has this Prime Minister been from the rough and rumble of politics that he has chosen not to contest Lok Sabha elections. Do remember: even the late I. K. Gujral, who was himself no grassroots politician, contested Lok Sabha elections and won when he became Prime Minister.

This single act of running away from battle will forever mar the legacy of Dr. Singh in the political arena. In any case, with Rahul Gandhi being anointed as the next leader of the party, there is not much that Dr Singh can do. He also knows that he will not be the Prime Minister again even if the UPA somehow conjures up some magic and wins another term in the 2014 Lok Sabha elections.

Perhaps that awareness has been motivating him to try and leave a legacy behind in another arena. Put simply, Dr. Singh wants to be the Prime Minister who overcame all obstacles and actually managed to normalize relations with Pakistan. That has been his driving motto since 2009 and he and his advisors and band of peaceniks have offered every possible olive branch to Pakistan. They have actually bent over backwards to make Pakistan a normal neighbour, if not an ally and a friend. But like all peaceniks before this bunch, they have repeatedly failed in their efforts. And they will keep failing as long as the “deep state” in Pakistan remains convinced that it can control Pakistan as long as India remains the eternal enemy. Dr. Singh must not forget that the United States will disengage from Afghanistan in 2014. And he must not forget bitter lessons of history. The insurgency in Kashmir started just a few months after the Soviet Union withdrew its troops from Afghanistan in the late 1980s. Many Jehadis who were busy in Afghanistan and the north west of Pakistan then turned their attention and energy into liberating Kashmir. Something similar is bound to happen in 2014.

So I beg of Dr Singh to abandon his foolish dreams of leaving behind a legacy of good relations with Pakistan. India simply cannot afford such romantic folly.

So what options does Dr. Singh really have? The signs have been visible since the summer of 2012 and he must grab the opportunity with both hands. Since 2004, Sonia Gandhi and her band of Jholawala members of the NAC have been dictating economic policy. The policy has been simple: just keep dishing out welfare schemes for the poor and to hell with common sense economics. I hate saying this: but not a single major step to accelerate economic growth has been taken by the UPA government since 2004. But the chickens have started coming home to roost. Our GDP growth rate, which remained mostly in excess of 8 per cent a year during the first decade of this century, has crashed. Latest estimates indicate that the GDP growth rates fiscal 2012-13 will be a dismal 5.4 per cent. Almost all analysts are unanimous in saying that the growth rate in the next year will also be around 5 per cent. Let us do some basic number crunching to realize how devastating this decline in growth rate has been. I have always maintained through 13 years of my alternative budgets, my books and other write-ups and speeches that the Indian economy can grow in excess of 10 per cent a year on a sustained basis. Basically we are missing out on about 5 per cent of GDP growth that we could have achieved. The GDP of India is now at about $2 trillion. 5 per cent of that works out to $100 billion. So in just two years, the Indian economy has lost potential GDP – or income – worth $200 billion. That kind of money would have financed most welfare schemes for an entire generation. The lower growth has also resulted in lower than expected tax collections. It has also resulted in unmanageable and unsustainable fiscal deficits. Luckily for India, Sonia Gandhi seems to have realized in 2012 that there simply is no money with the government to throw at poor people in the name of welfare schemes named after members of her family. This realization resulted in the half hearted attempts at reform that were carried out in the second half of 2012 and subsequently by raising the price of diesel and LPG, by allowing FDI in retail and civil aviation and recently by hiking railway fares. I have been crying myself hoarse for about 13 years to the effect that diesel prices must be increased to a point where it is no longer subsidized. I have been repeatedly saying that a diesel price hike will not lead to massive inflation. I am happy to see that members of the UPA government are now taking pains to explain that very logic.

Quite clearly, now that Sonia Gandhi seems to have given the green signal, there is a window of opportunity for Dr. Singh to finally do what he was expected to do since 2004. And do remember, the return of P. Chidambaram as Union Finance Minister after Pranab Mukherjee became the President was another signal by Sonia Gandhi that she is ok with pragmatic and liberal economic policies. My humble request to both Dr. Singh and Chidambaram is not to let this golden opportunity be missed by presenting yet another budget loaded with welfare schemes for the poor and populist measures aimed at the Lok Sabha elections of 2014. By all means dole out welfare schemes; I have repeatedly stressed their importance in the last five or six alternative budgets. But please also take steps and announce measures that will take the Indian economy back to the path of sustained high growth.

Back in 2008, when I presented my Alternative Budget and titled it as Ban the Budget, I had argued that budgets had become meaningless exercises because finance ministers and governments were not leveraging the budget to make fundamental changes. I had argued that the budget is such a powerful instrument in an economy like India that it can actually fundamentally change the nature and quality of governance in the country. Just recall how just one budget presented by Dr. Singh as Finance Minister in 1991 changed the destiny of the Indian economy. Also remember that for all its flaws and all the corruption and plunder, the Rural Employment Guarantee Scheme has actually resulted in big increases in real wages and real consumption in Indian villages. So the first step is to identify those selected policy changes or budget allocations that can make fundamental changes.

This year, the fundamental steps needed are crystal clear. In 2009, I had created a furore by presenting my Alternative Budget with a headline: Khao Aur Khilao Budget. Apart from being thought provoking and provocative, my purpose was to highlight the fact that how poor governance and corruption at every level had negated all the good intentions – if there were any – and all the policies of the government. Corruption can kill dignity and kill dreams with impunity. Just recall the horrific gang-rape and murder of the 23-year-old girl in Delhi that sparked such a huge nationwide outrage.

The simple fact is that the dastardly crime was the direct consequence of corruption. First, there is corruption in the transport department of Delhi that allows such predatory, unlicensed and unregulated buses to run by taking bribes. Second, there is corruption in the Police department where it is the norm for traffic policemen to take bribes and allow unlicensed buses to roam freely. The hard fact is: the disgrace of December 16 would not have happened if corrupt transport department officials had not let that bus run illegal services. And if corrupt traffic cops had stopped and seized the illegal bus instead of taking a bribe and letting it ferry passengers at will. This is not just the story of Delhi; it is the story of every state, city, town and village in this country.

And why is corruption so rampant and why is no one able to make a dent on it despite so many pious proclamations? The reason is that our judicial and administrative systems have virtually collapsed. In 2011, the title of my Alternative Budget was A Budget for Rahul Gandhi. Please allow me to quote at some length from that document to get a feel of what I have in mind when I say this is the last chance for Dr. Manmohan Singh.

“But before I start presenting my budget proposals, let me share something that we all know. Corruption is flourishing in India because the corrupt are more likely to get away with it. It is deeply sad to note that 1 per cent is allocated by the central and state budgets for the judiciary. In the Ninth Five Year Plan, the government allocated Rs.385 crore for the judiciary. That works out to 0.078 per cent of total plan expenditure ... In the Eleventh Five Year Plan, the allocation was “generously” raised to Rs.1,470 crore. As a percentage of total plan expenditure, things haven’t improved at all. These figures are so laughably small that I often wonder how the judiciary functions at all”. In the same document, I had quoted statistics which indicated that USA had ten times more judges per million people than India. It is a similarly depressing story when it comes to police forces in India. Let me quote from the statistics released by the National Crime Records Bureau in 2010: “Thus the civil police strength in position was 75.6 per cent of the sanctioned strength and 24.4 per cent of the posts were vacant ... the proportion of women civil police to total civil police was 1:20”. There were more shocking revelations. The total expenditure on police forces in India is less than 0.5 per cent of GDP. India has just about 140 policemen for every lakh of population, with the numbers dipping to below 70 in the poorer states. In Europe and the United States, they usually have at least 400 policemen for every lakh of population.

So my main proposal in this last chance budget and my suggestion to Dr. Singh and Chidambaram is crystal clear. In my 2011 budget, I had proposed an allocation of Rs.6,000 crore each year for five consecutive years to increase the strength of the judiciary and its effectiveness. But there is huge momentum and popular support right now for drastic and dramatic reforms in our judicial and administrative machinery.

Apart from the above as I have often stated in the past, the only way to reduce corruption in India is to make the judiciary more effective. Till the corrupt remain convinced that they can either escape punishment or delay it indefinitely, corruption will continue to increase. The one and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. As I just wrote, in America, they have ten times more judges per million people than in India. If we are to try and achieve such standards we need to have about 100,000 more judges. It sounds huge but is surely achievable in a span of five years. And to have 20,000 additional judges per year, we have to budget for an additional amount of approximately Rs.6,000 crores per year, assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs.30,00,000 per year.

In the event, I propose that expenditure on judiciary and police forces be increased to 1.5 per cent each of GDP. But as we have often seen, merely increasing expenditure is never a solution in corrupt India. I would set aside a minimum of Rs 6,000 crore to immediately set up special fast track courts that would try cases, specially those of corruption. I would hire experienced lawyers and judges who have retired recently to wear their robes again. These courts would try corruption cases against senior government officials and politicians. Any member of the public can use the RTI Act to gather incriminating information and file complaints against officials in such cases. Once activists, citizens and whistle blowers bring forth their formal complaints in front of these special fast track courts, there would be no requirement of obtaining a sanction to prosecute such officials and politicians from the “appropriate authority”. The courts would be required to complete the hearings and deliver their verdicts in one year. If convicted, the politicians and senior officials must be forever barred from public life and all their assets seized. In vase of frivolous complaints or complaints meant to harass, severe punishments must be imposed on the complainants so that only genuine complainants and whistle blowers are encouraged to go after the corrupt. But the operative word here is senior officials and politicians. If a bunch of senior officials and politicians are convicted by these special fast track courts, a huge message will go out to all corrupt people in the country. Even if all such special fast track courts manage 100 notable convictions in a year, they would have done their job. It is only the fear of punishment and a jail sentence that will deter the corrupt in this country. And through these special fast track courts, the accused will get all opportunities to defend themselves and their actions. And please do not say that India does not have the resources to spare Rs.6,000 crores a year to set up and operate these special fast track courts on an immediate basis. If former President Pratibha Patil can spend Rs.18 crores on just one foreign trip, surely there is enough money going around to implement this decision.

This one decision will also help Dr. Singh, Chidambaram and the UPA with their so called trump card of direct cash transfers based on the Aadhar or the Unique Identity System using biometric technology. In my 2009 Khao Aur Khilao Budget that generated so much controversy, I had proposed the allocation of Rs.2,000 crores for a unique identity card scheme that will immensely help poor Indians. It is a rare suggestion of mine that has actually been implemented because the former CEO of Infosys Nandan Nilekani was actually hired to lead an effort to deliver such smart cards to all Indians. Like everything else in India, there seem to be many glitches with even this smart card scheme. But I firmly believe that when our special fast track courts actually start delivering guilty verdicts, we would see many glitches and leakages of this scheme actually disappear.

I won’t go into the nitty gritty of the other proposals that I have in mind for Dr. Singh and Chidambaram. You can access my last alternative budget on the website of our publication The Sunday Indian (http://www.thesundayindian.com/en/story/a-budget-for-rahul-gandhi/71/30890/) and get a fairly good idea of my suggestions over the years in the section titled 'Key Resource Allocations' and onwards. In any case, I have been repeating them for more than 10 years. But I must mention a few that are not only close to my heart, but also critical for the future of India. In 2010, I had presented a budget with the headline: A Budget for Three Idiots. The central theme of that Budget was primary and secondary education. India will never reap any demographic dividend unless there is a drastic overhaul in our education system. Apart from a big increase in budget outlays for education, I had proposed an inventive scheme for school teachers and principals whose students delivered excellent results. My proposal, was simple: a Rs.1 lakh a year cash inventive for teachers in whose schools students not only “passed” to the next level but also remained in the school till their “board exams”. Economics is based upon common sense and incentives, and I am convinced that these incentives will encourage teachers to actually attend schools and teach their students. In the same budget, I had also proposed that NREGA funds be utilized to build actual schools in villages with concrete buildings and bathrooms. This would have a generational impact on the education system. I had also proposed a massive increase in scholarships to all poor students who want to pursue college or professional studies after passing out from school. Smart cards based on biometric technology will come in very handy in identifying these students.

The surprising thing is: these are very doable things. I mean, we can plan to send an Indian to the moon by 2020; surely we can do these simple and basic things. So my request to Dr. Manmohan Singh is very simple and very clear: for nine years, you have carried on with the tag of being a non performer and a non leader. You also know that there will be no more budgets with you as Prime Minister after this 2013 exercise since the one presented in 2014 before the Lok Sabha elections would be a vote on account. I appeal not just to your sense of duty and patriotism but also to your sense of history and your ego. This really is the last chance for you to redeem yourself.

ALTERNATE BUDGET

The Alternative Budget

22 February 2011 | Alternate Budget

The biggest concern that comes to my mind when I think of the budget is the shameful neglect of the agriculture sector, farmers and the poor by the Government of India, by successive finance ministers of the country, though they all regularly pay lip service to their cause. This alternative budget is genuinely dedicated to India, and its masses – the poor.
In the Union Budget presented for 2010-11, the Finance Minister Pranab Mukherjee had allocated a total of Rs. 12,836 crore – up from Rs. 10,527 crore in 2009-10 – for agriculture, allied activities and irrigation. Add that fancy term ‘rural development’ and you get a total Budget allocation of about Rs. 67,000 crore. That is less than 15% of the total funds allocated by the Finance Minister in 2010-11. And this is despite the stated concern of the UPA government about the distress being faced by rural India, which is the real India. Rural India needs 150 million jobs to be created. As a committed government, our aim should be to do this in a span of 5 years and not 65 years. Thus, we have to create 30 million jobs a year. In rural India, a job still can be created by investing about Rs. 33,750 per job. This would mean the necessity for an additional Rs. I,00,000 crore per year. In my Alternative Budget therefore, firstly, I would increase the allocation for the rural Indian – mainly farmers – by a straightforward Rs 100,000 crore a year. Half of the money would be invested every year towards improving physical infrastructure in rural India, including effective irrigation facilities, better and functional roads, a vast network of cold storages and regular supply of electricity. The other half would be every year invested towards improving social infrastructure in rural India – including much better access to education, health and sanitation. The first would lead to a dramatic improvement in productivity in rural India and result into vastly superior income levels for farmers. The second would lead to a dramatic improvement in human development indicators in rural India. And both will create jobs, removing the massive rural unemployment from India..
Poor in India live in cities too. So I would suggest another Rs. 1,20,000 crores to be allocated for 25 million jobs to be created for the urban unemployed. In urban India, the cost of creating a job dramatically multiplies to about Rs. 2,40,000 per head. Thus, to create 5 million jobs per year, we would require the amount I just mentioned.
The urban poor need another thing apart from employment. They need dignity of existence so that another Slumdog Millionaire is not made on India by Western imperialists. For that, we need to budget another additional Rs. 24,000 crore per year for five years to create 15 million urban flats of minimum 250 sq feet each.
I also want to focus on one burning issue of this year though it doesn’t directly relate to the poor alone. Corruption. And the only and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. In America, they have ten times more judges per million people than in India. If we are to try and achieve such standards, we need to have about 1,00,000 more judges. It sounds huge but is surely achievable again in a span of five years. And to have 20,000 additional judges per year, we have to budget for approximately Rs. 6,000 crores per year additionally assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs. 30,00,000 per year.
Thus the total additional funds required is about Rs. 2,50,000 cr. First and foremost, these funds should have been made available from our existing budget of more than Rs. 6,00,000 crores since it pertains to 85% Indians. Secondly a huge amount of these funds will come from duplication of allocation in various schemes like NREGA etc. However I will assume the government is not willing to do so and the entire fund has to be generated through new sources. So how do we do that?

How the Future Will Arrive


I will firstly suggest just one very simple and long overdue revenue raising proposal – just do away with the subsidies on LPG, kerosene and diesel. They have led to huge distortions in the economy and have absolutely not benefited the so called beneficiaries for whom the subsidies were allegedly meant. Rather, you have cases where honest officials are being burnt alive when they have tried to stop the theft of subsidized kerosene. In 2010-11, the combined subsidy for all three would amount to a little less than Rs. 100,000 crore. As simple as that. Just one decision from Pranab Da after consultations with Sonia Gandhi and Manmohan Singh could make it happen.
The second source I will suggest is legalizing all the black money stashed abroad by giving a simple 10% tax offer, payable in five equal installments of a mere 2% each! But all this with two key riders. First, that the government will take genuine steps to recover the money stashed abroad and all black money recovered after one year will be nationalized. And second, that there will be measures in place to ensure that future generation of black money becomes almost impossible. And of course, with a functional judiciary. With something as high as an estimated Rs. 75,00,000 crores stashed abroad, this will lead us to a huge new revenue stream of a minimum of Rs.7,50,000 crore in five years – or Rs. 1,50,000 crore per year, making up for the balance required to put my proposals into action.
At the end, all I would like to say is that no one can deny that the Indian farmer and poor too need to share in the spoils of globalization. What happens if farm productivity in India touches the level of China and poor start getting purchasing power? The truth of it all is that in the real sense, it is also going to benefit the corporate sector immensely. For, once the poor have purchasing power, it is the corporate sector which will reap the benefits like how the Chinese corporations have been getting advantaged.

The real question is: will our system make an effort to go back to the Do Dooni Chaar ways or stick with the current obsession with Do Dooni Paanch?

ALTERNATE BUDGET

Do Dooni Chaar Budget

01 February 2011 | Alternate Budget

Why and how we must save farmers and agriculture to save india

The movie Do Duni Chaar higlighted the power of simple truths & facts. This Alternative Budget based on agriculture is dedicated to Indians who deserve a less catchy & more simple theme

Often, the most profound and transformational changes can be achieved by taking simple and easy decisions that are usually very hard to take. Those simple decisions become hard to take because we – particularly more so in India – have this inexplicable and inexcusable habit of trying our best to avoid reality; to blink and look the other way even when harsh realities stare at us unblinkingly. While brainstorming for the multiple award winning movie Do Dooni Chaar, we were very clear that the lead characters must be confronted with choices that are gut wrenching even though they appear simple. I personally think the movie touched a chord with people across India because it highlighted the power of simple truths and simple facts; and because it enabled ordinary Indians to transcend obstacles by sticking to simplicity, honesty and integrity; and most importantly because the characters had the guts to face facts and reality as they are and call a spade a spade. We could have loaded Do Dooni Chaar with liberal doses of jargon, semantics, polemics, clichés, grandstanding and dissembling. I am proud that our team didn’t succumb to such temptations.

I have spent days reliving the Do Dooni Chaar experience as I struggle to think of a theme that will become the highlight of my eleventh consecutive Alternative Budget; the sixth time in as many years that this magazine will showcase it on its cover. The three previous themes of my Alternative Budget proved to be a major hit with thousands of readers and opinion makers. All three had a touch of ‘naughty’ in them. In 2008, we had asked the Finance Minister to ‘Ban the Budget’. In 2009, we showcased India’s seeming helplessness in fighting corruption by requesting the Finance Minister to present a ‘Khao Aur Khilao Budget’. And in 2010, I do admit we decided to ride on the immense popularity of that blockbuster – and yet eye opening movie – by presenting ‘A Budget for Three Idiots’. This time around, some colleagues suggested that we ride the Cricket World Cup fever and call my 2011 Alternative Budget the ‘De Ghoomake Budget’. There is little doubt that the theme would have been catchy, and even rib tickling. Eventually, what persuaded me not to opt for the obviously popular and catchy theme is the kind of Indians this Alternative Budget is dedicated to. And the realization that those Indians deserve a less catchy and more simple, yet powerful theme. Hence the decision to call my 11th Alternative Budget the Do Dooni Chaar Budget. (Of course, some colleagues were insisting I call it the Do Dooni Paanch Budget as a tribute to Indian politicians!).

REVISITING LAL BAHADUR SHASTRI: JAI JAWAAN JAI KISAAN

Before I go any further, let me add here that this Alternative Budget is dedicated to that most unsung and unheralded of Indian politicians who personified the power of simplicity – Lal Bahadur Shastri. Yes, it is dedicated to the man who coined the term ‘Jai Jawaan, Jai Kisaan’ and made it immortal. Sadly – like most things in India – even this immortal term has been systematically degraded down into a tired cliché that people spout more out of indifferent rote than any conviction...

The simple fact is that India has degraded the Indian farmer into a comic book cliché at best and a disgustingly treated step child at worst. The simpler, and more glaring fact is that unless the Indian farmer and Indian agriculture participate in economic well being and prosperity, India doesn’t have much of a future, either as an economy or as a nation. In fact, along with education and health, the most neglected area for every single Finance Minister since 1947 has been agriculture. The disgraceful neglect of the three is the most important reason why India ranks near the bottom in virtually all indicators of human development. My alternative budgets in the last few years have repeatedly pointed out and suggested innovative ways in which India can improve its dismal record on health and education. This year, the Alternative Budget will focus on the Indian farmer and Indian agriculture.

Of course, if you go by recent media reports, I might just have picked up the wrong topic to highlight this year. After all, statistics reveal that the agriculture sector will grow at about 5.5% in the current year; one of the best performances in recent years. In fact, it is the unusually high rate of growth of the agriculture sector that will ensure that the GDP of India grows at a healthy 8.6% in the current year. Then again, the media has been filled for months with screaming headlines about high and persistently rising prices of food and vegetables. Who can forget the shock – both to the psyche and family budgets – caused by onion prices shooting up to Rs.90 a kg in recent times? If you do go to the market to buy vegetables, you must have realized that prices of every item have virtually gone through the roof. Add to this the jingoistic claims made by our policy makers that India ranks in the top 5 globally when it comes to the production of food, vegetables, milk, poultry, cotton, tea and what not.

But as many of you know, the reality is starkly different, and shocking. Let me start with data compiled by the Na- tional Crime Records Bureau (NCRB). The latest year for which data is available is 2009. In that one year, 17,638 farmers committed suicide – one almost every half hour. The state that took the lead – as always – in the numbers of farmer suicides was Maharashtra, the state to which our Union Agriculture Minister and current cricket Czar proudly belongs (See Chart). The top three states in terms of farmer suicides are Maharashtra, Andhra Pradesh and Karnataka – one ruled by Congress in alliance with the Pawar led NCP, the second ruled by Congress and the third ruled by the BJP. In less than 15 years since official NCRB records were kept (state governments never bothered to keep proper records of farmer suicides till 1997), more than 2,50,000 farmers have committed suicide. You can be sure that the figure for 2010 will be higher, and that for 2011 even higher. Worse, everybody involved in this dirty and shocking numbers game knows that state governments routinely ignore or under report cases of farmer suicides. The actual figure is bound to be much higher. There can be no more damning indictment of our economic policy making and successive union budgets than this simple, stark and shocking fact about the extent of farmer suicides.

There would be little doubt that a large reason for this is the extent of indebtedness of farm households across India. ‘Reliable’ data for the same are available only from the National Sample Survey No. 59 of 2003. In that survey, Andhra topped the charts with more than 80% of farm households being indebted (Around that time, Andhra had also acquired the dubious reputation as the number one farmer suicide state of India). In the same period, 61% of farm households in Kerala, 65% in Karnataka, 51% in Madhya Pradesh, 74% in Tamil Nadu and 55% in Maharashtra were found to be indebted. Things and times have changed since then and independent research now suggests that Maharashtra, Andhra and Karnataka now lead the table in indebtedness of farmers. They also happen to be the top states when it comes to farmer suicides.

BEYOND FARMER SUICIDES

There is a larger picture that is hidden behind these numbers; and that is the shameful neglect of the agriculture sector by the Government of India, and by successive finance ministers of the country, though they all regularly pay lip service to the cause of the farmer. The most telling indicator of this is shockingly declining levels of investment in this crucial sector. One particular set of data shows how pathetic the situation is. During 1980-81, the share of Gross Capital Formation (GCF) in agriculture out of total GCF was just about 18%. Now, 18% for a sector on which close to two thirds of the total population depend on livelihoods is bad enough. What happens subsequently is worse. The percentage keeps falling steadily since then and by the end of the 20th century, it is a pathetic 5.8% (See Chart). Even as the Indian farmer has suffered ignominy after ignominy, the government has kept on reducing investments in agriculture. By the time, the UPA came to power in 2004, there was a lot of talk of turning things around. And, during the Eleventh Five Year Plan (2007- 12), there was talk of a substantial increase in investments in agriculture. The two finance ministers since 2004, P. Chidambaram and Pranab Mukherjee have used every Budget speech they have given to announce more and more fancy schemes for the farmer and the agriculture sector. In fact, it was proudly announced that the allocation for agriculture and allied sectors in the 11th Five Year Plan was raised to Rs.50,924 crores, up from Rs.21,068 crore during the 10th Five Year Plan. Yet, the mid term review of the 11th Five Year Plan officially admits that the share of agriculture and allied sectors in total plan allocation has not budged a millimeter from the 2.4% it was in earlier five year plans. So much for the government claims about really caring for the farmer and trying its best to bring about a transformation in Indian agriculture.

There are some more shocking facts that I would like to highlight about agriculture. The first is the abysmal performance of India as compared to other countries when it comes to productivity. Even the top states of the country in terms of productivity, Punjab and Haryana, perform very badly when compared to China and quite pathetically when it comes to countries like South Korea, Japan, Australia and the United States, to name just a few countries (See Chart). But let’s not confine ourselves to the usual comparisons and go on a spree of belittling India by merely comparing it with other countries that have delivered performances that should make our politicians and policy makers hang their heads in shame. Let us look only at statistics from within India to understand why agriculture is facing such an unprecedented crisis.

We all knew that the Green Revolution was a reality by the 1970s and India had finally broken out of the famine trap by then. We also know how politicians, policy makers and analysts keep reminding us of the wonders of Green Revolution and how it made India self sufficient when it comes to food. That much is true. But what is hardly ever talked about in policy circles and the media – barring some honorable exceptions – is how Green Revolution is history and how all the fruits of that endeavour have already been frittered away. Between 1980 and 1990, the average annual growth in the per hectare yield of wheat was a commendable – if not spectacular – 3.1%. During the period from 1990 to 1999, the growth rate in yield declined heavily to 1.83 %. Worse, between 2000 and 2009, the average annual yield growth rate in wheat crashed to a meager 0.68%. Everybody knows that spectacular growth in wheat production and yield was one of the highlights of the Green Revolution. Even official data now clearly indicates that growth has almost completely tapered off . Rice has not performed much better. During the 1980 to 1990 decade, average annual growth rate in yield was 3.19%; it crashed to 1.34% during the next decade before recovering marginally to 1.61% during 2000-2009. This steady and consistent decline in the growth rate of yields is the principal reason why India lags so miserably behind other major nations when it comes to farm productivity. And it is also the major reason why farm incomes have not been going up in a manner they should.

Look at it another way. In the 60 years between 1950 and 2010, food grain production went up by a factor of 4.5. In the same period, production of steel went up by 65 times; the output of cement soared by about 60 times and the generation of electricity went up by more than 140 times (Just for your information, agriculture accounted for 31% of total electricity consumed in India in 1995. By 2008, the share had crashed to 24%). Interestingly, even the consumption of fertilizers – used only in agriculture – went up by more than 70 times in 50 years between 1960 and 2010 (See Chart).

THE IRRIGATION SCAM: WILL THE CAG PLEASE TAKE NOTE?

The obvious question we would ask is: Why are yields in agriculture stagnating even though there is such a massive increase in fertilizer consumption? The blame lies entirely with the government and successive finance ministers. And we can dig up numerous instances of how policy makers in India have neglected, ignored and degraded agriculture in India. But just one example will suffice. I will take the liberty of quoting former Finance Minister P. Chidambaram when he presented the first UPA budget back in 2004. He said, “The Accelerated Irrigation Benefit Programme (AIBP) was introduced in 1996- 97 and was allotted large funds year after year. Yet, out of 178 large and medium irrigation projects that were identified, only 28 have been completed.” Chidambaram went on to announce how irrigation and the completion of stalled irrigation projects would become the top priority for his government. The fact is, his government has done nothing to change this pathetic situation and was in fact not revealing even more embarrassing statistics about the state of irrigation in India. Recently disclosed official data reveal the following: the government spent more than Rs.1,30,000 crore between 1993 and 1998 on major and medium irrigation projects. In the same duration, the area irrigated by canals (supposed to be fed by major and medium projects) declined from 17.6 million hectares to 15.3 million hectares. Just look at the shocking numbers: successive governments have spent more than Rs.1,30,000 crore on irrigation projects and the actual area under irrigation has fallen (See Chart). We all know where the money must have gone! It’s another scam! More shocking, ‘official’ data indicates that farm area fed by tube wells has gone up by more than 70% in the same period. We all know where the money meant to dig tube wells goes to! Even more shocking, the actual use of groundwater – where farmers use natural ponds, lakes and techniques like water harvesting – has increased by less than 10% in the same period. The simple fact is: there is no money to be made from natural ground water sources!

By know, even these selected morsels of data related to the agriculture sector in India would have convinced even the most cynical that successive finance ministers have played a cruel joke on the Indian farmer. If you add to this tale of calumny the equally shocking neglect on the front of human development indicators like education, health, sanitation and basic infrastructure like roads and electricity, it is clear that Indian politicians, politicians – and even the media – don’t care a fig about the Indian farmer and Indian agriculture. I have given data on the pathetic access rural Indians have to education, health and infrastructure many number of times in the past to recount it again in detail. Suffice to say that 85% of Indians below the poverty line including about 45% below the destitution line (the government’s definition of the poverty line at 400 rupees per head per month) live in villages; that almost 60% of rural India is illiterate and more than 75% of rural households don’t have access to clean drinking water and basic sanitation.

This alleged concern for the poor and the aam aadmi would have been a joke were it not such a cruel travesty. And I think, it is now the historic duty of the Finance Minister to redress such wrongs as fast as possible. The honourable Finance Minister Pranab Mukherjee is well aware that the Marxists will be decisively thrown out of power from West Bengal in elections very soon after he presents his budget. He would also know that voters-mostly farmers and rural households-have got fed up of the lies and false promises of the Marxists who claimed to care for the poor and the downtrodden. So, I would think it makes even electoral sense for Pranabda to start doing simple Do Dooni Chaar kind of things in his budget, if the Congress is serious about its belief that Rahul Gandhi is destined to be the Prime Minister after Lok Sabha elections in 2014. Quite simply, his priorities should be simple and stark: lets rescue and revive the Indian farmer both from the trap of low productivity-low incomes and poor education & health and unemployability in the 21st century except as virtual bonded labour in NREGA programs.

This alleged concern for the poor and the aam aadmi would have been a joke were it not such a cruel travesty. And I think, it is now the historic duty of the Finance Minister to redress such wrongs as fast as possible. The honourable Finance Minister Pranab Mukherjee is well aware that the Marxists will be decisively thrown out of power from West Bengal in elections very soon after he presents his budget. He would also know that voters-mostly farmers and rural households-have got fed up of the lies and false promises of the Marxists who claimed to care for the poor and the downtrodden. So, I would think it makes even electoral sense for Pranabda to start doing simple Do Dooni Chaar kind of things in his budget, if the Congress is serious about its belief that Rahul Gandhi is destined to be the Prime Minister after Lok Sabha elections in 2014. Quite simply, his priorities should be simple and stark: lets rescue and revive the Indian farmer both from the trap of low productivity-low incomes and poor education & health and unemployability in the 21st century except as virtual bonded labour in NREGA programs.

In keeping with the Do Dooni Chaar theme, I would like to keep my suggestions simple, and short. My Alternative Budget would address two issues: raise productivity in agriculture so that incomes of farmers rise at least moderately, if not as fast as the denizens of Shining India; equally important, provide quality education and health care to children of farmers so that they can compete with other Indians for both jobs and entrepreneurship skills in the next decade. Both can be achieved with simple steps; all it needs is political vision, administrative integrity and that simple-but oft en tough-job of calling a spade a spade. And I can lay down those steps in just a few paragraphs that will follow.

Quite obviously, a lot of money is required for what I am proposing. The farmer and his world have been so badly neglected for so long that only a massive increase in resources can begin to make him catch up. And we don’t need or want the kind of false promises made earlier by previous governments and finance ministers – like the one about doubling Plan allocations for agriculture during the 11th Five Year Plan only to admit later that the sector still accounts for 2.4% of Plan allocations despite tall talk, grandstanding, polemics and clichés.

In the Union Budget presented for 2010-11, the Finance Minister Pranab Mukherjee had allocated a total of Rs.12,836 crore; up from Rs.10,527 crore in 2009-10 for agriculture, allied activities and irrigation. Add that fancy term ‘rural development’ and you get a total Budget allocation of about Rs.67,000 crore. That is less than 15% of the total funds allocated by the Finance Minister in 2010-11. And this is despite the stated concern of the UPA government about the distress being faced by rural India – which is the real India

In my Alternative Budget, firstly I would therefore increase the allocation for the Rural Indian – mainly farmers – by a straightforward Rs.100,000 crore a year. The obvious question is why? Well, everything has to be in some context. And the context here is that rural India needs 150 million jobs to be created. As a committed government our aim should be to do this in a span of 5 years and not 65 years. Thus, we have to create 30 million jobs a year. In rural India still a job can be created by investing about Rs.33,750 per job. This would mean the necessity for an additional I,00,000 crore per year. Half of the money would be invested every year towards improving physical infrastructure in rural India – including effective irrigation facilities, better and functional roads, a vast network of cold storages and regular supply of electricity. The other half would be every year towards improving social infrastructure in rural India – including much better access to education, health and sanitation. The first would lead to a dramatic improvement in productivity in rural India and result into vastly superior income levels for farmers. The second would lead to a dramatic improvement in human development indicators in rural India. And both will create jobs, removing the massive rural unemployment from India.

Do I care about the 5% top Indians and the corporate sector? Frankly speaking I don’t. With about 85% of Indians living in poverty its time we worked genuinely for them. So this alternate budget is for our farmers and poor. And poor live in cities too. So I would suggest another 1,20,000 crores to be allocated for 25 million jobs to be created for the urban unemployed. In urban India the cost of creating a job dramatically multiplies to about Rs.2,40,000 per head. Thus, to create 5 million jobs per year, we would require the amount I just mentioned.

The urban poor need another thing apart from employment. They need dignity of existence so that another Slumdog Millionaire is not made on India by western imperialists. For that we need to budget another additional Rs.24,000 crore per year for five years to create 15 million urban flats of minimum 250 sq. feet each.

Though I don’t want to care much about urban India in this budget, since Pranabda will in any case do enough; yet I want to focus on one burning issue of this year. Corruption. And the only and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. In America they have ten times more judges per million people than in India. If we are to try and achieve such standards we need to have about 1,00,000 more judges. It sounds huge but is surely achievable again in a span of five years. And to have 20,000 additional judges per year we have to budget for approx. Rs.6,000 crores per year additionally assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs.30,00,000 per year.

Thus the total additional funds required is about Rs.2,50,000 crores. First and foremost, these funds should have been made available from our existing budget of more than 6,00,000 crores since it pertains to 85% Indians. Secondly, a huge amount of these funds will come from duplication of allocation in various schemes like NREGA etc. However, I will assume the government is not willing to do so and the entire fund has to be generated through new sources. So how do we do that?

HOW THE FUTURE WILL ARRIVE

In keeping with the simple is best philosophy of Do Dooni Chaar, I will firstly suggest just one very simple and long overdue revenue raising proposal – just do away with the subsidies on LPG, Kerosene and Diesel. They have led to huge distortions in the economy and have absolutely not benefited the so called beneficiaries for whom the subsidies were allegedly meant. Rather, you have cases where honest officials being burnt alive when they have tried to stop the theft of subsidized kerosene. In 2010- 11, the combined subsidy for all three would amount to a little less than Rs.100,000 crore. As simple as that. Just one decision from Pranabda after consultations with Sonia Gandhi and Manmohan Singh could make it happen.

The second source, I will suggest, is legalizing all the black money stashed abroad by giving a simple 10% tax payable in five equal installments of a mere 2% each! With two key riders. First, that government will take genuine steps to recover the money stashed abroad and all black money recovered after one year will be nationalized. And second, that there will be measures in place to ensure that future generation of black money becomes almost impossible. And of course, with a functional judiciary, no one will go unpunished. With something as high as an estimated Rs.75,00,000 crores stashed abroad, this will lead us to a huge new revenuestream of a minimum of Rs.7,50,000 crore in five years – or Rs.1,50,000 crore per year, making up for the balance required to my proposals into action.

Of course, in the longer run, we will have to devise simple and innovative ways to ensure that the funds allocated for the farm sector are used properly and effectively. And the only way to do that is by truly empowering the beneficiaries. In my 2006 and 2010 alternative budgets, I had argued that the government must spend huge amounts of money on popularizing the use of the Right to Information Act so that Indian citizens can monitor the performance of programs and schemes that are meant to benefit them. More specifically, in my ‘Budget for Three Idiots’ in 2010, I had actually suggested a novel and innovative carrot and stick approach to ensure better performance of social welfare schemes. My logic was simple – even corrupt Indian officials are human beings and will respond to the right incentives. For example, I had suggested a Rs.1 lakh incentive per year for teachers who delivered the best ‘pass’ and ‘retention’ rates in village schools. The total annual expenditure for such a scheme would amount to just Rs.5,000 crores across India. Of course, the rider I had added was this: the Rs.1 Lakh incentive would be disbursed only after 5 years when it has been proven that the teacher has been genuinely successful. The prospect of an additional income of Rs.1 lakh per year, along with appreciation and admiration of peers, would be a great incentive for teachers to compete amongst themselves to deliver the best results. I had also suggested in that Budget that NREGA funds be used to construct schools and health care centers with labourers whose children would actually use them working on them.

I would extend the same logic to all projects, programs and schemes operating in rural India. For instance, engineers working on rural road construction would earn huge cash incentives if ‘their’ roads are good and remain functional even after a few monsoons. Of course, I would use the stick too: assets of all those teachers, engineers, doctors and other government officials who demonstrably fail to deliver results would be frozen. This might sound Utopian right now. But believe me, it will not be very difficult to implement once the UIAD project is completed in the near future. In the long run, the UIAD project and the right education policy would ensure that children from villages would emerge as teachers, doctors, engineers, supervisors, overseers and technicians who would look after cold storages, electricity lines, irrigation projects, road maintenance and repairs and the delivery of health, education and sanitation. I am utterly confident that this can all happen in just 10 years. Of course, it would take enormous political will to take these simple steps.

Some of you might feel a sense of anti-climax at this moment. But as I explained right at the beginning of this piece, the simplest and most powerful steps do not take lengthy arguments, clichés, jargon and polemics to be argued. Just think about it. No one can deny that the Indian farmer needs to share spoils of globalization. What happens if farm productivity in India touches the level of China? The annual income of the Indian farm sector would simply double very quickly. This would have a huge impact on the other sectors of the economy as well, and India’s GDP can actually grow at a rate much faster than 10% every year. The truth of it all is that, in the real sense, it is also going to benefit the corporate sector immensely. For once the poor have purchasing power, it is the corporate sector which will reap the benefits like the Chinese corporations are doing.

The real question is: will our system make an effort to go back to the Do Dooni Chaar ways or stick with the current obsession with Do Dooni Paanch?

ALTERNATE BUDGET

An Objectiveless and Timid Budget

01 March 2010 | Alternate Budget

It was clearly a budget for the mango people who live in India and not the aam aadmi who lives in Bharat.

Shortage of a hundred and fifty million rural employment jobs. Shortage of twenty five million urban employment jobs… Additional Rs 1 lakh crore required to replace urban slums… And Rs 10,000 crore required every year for five years to give justice to every Indian by ramping up the judiciary… Another Rs 20,000 crore required every year to make universal primary education a reality and have equality in education opportunities… And additional Rs 10,000 crore required annually to give some basic access to health facilities… Welcome to India. A country where the hospital beds to population ratio is 1:1422, ranked 161 alongside sub-Saharan African countries, against an ideal ratio of 1:333 prescribed by the United Nations. A country with 2.4 million temples but only 1.4 million temples of education i.e. schools… A country with 30 million cases pending in courts, making life hell for the common man who wants justice, because our courts have only 12 judges per million population compared to 120 judges per million in the developed world.

In the middle of such an environment, what’s the role of an annual budget? Is it to maintain status quo or to give the world a robust signal that we are committed to our people – the 45 crore people who earn below 1.25 dollars a day? If the objective is to maintain the status quo, then Pranabda has delivered a perfect budget, as loudly proclaimed by each and every member of the equally objectiveless and visionless industry organisations like FICCI, CII and ASSOCHAM etc. They were too happy that the entire stimulus package had not been withdrawn. As it is, the spokespersons aren’t independent intellectuals. They are timid business men – however rich they might be – scared to ever speak against the government as their businesses are at stake! In most cases, they aren’t even capable of commenting on the budget, such low is their understanding. But they are the people who give the bytes and that’s what next days headlines look like in papers indirectly and directly owned by them and mostly run by sold out editors or editors intellectually incapable of analyzing a budget or how it needs to be. So the verdict that they have given is thumbs up!

The man on the street, of course, has no voice. And his concerns are of no importance to politicians or media. Media has no vision to effectively and constantly focus on their cause in order to effect a change. They are more interested in rapes, murders and sex, which keep the readers confined to intellectually dumbed-down dustbins of these media houses.

The truth, however, is that if we were to look at this budget from the perspective of people – those 45 crore that I mentioned above and another 35 crore who are just marginally better off – then this budget is a hoax for them. Allocations to the best scheme of the Sonia government, or for that matter any government in ages – the NREGA scheme – wasn’t even increased enough to cover the inflation! What was done was a mere increase from Rs 39,000 crore to about Rs 41,000 crore. At a point of time when the common man is being made to pay an astoundingly scary Rs 50 per kg for sugar and Rs 100 per kg for dal, when the food inflation has touched horrific proportions and when they were looking up to the budget for some relief, forget immediate relief measures, there were no signs of any long run relief either in this budget. No lip service even to stop hoarding. No measures to stop speculation in food. No recommendation of strict punishment to the hoarders and no announcement of using the country’s huge forex reserves to import basic food necessities to increase supply and reduce prices. In other words, totally shocking. The reference to the aam aadmi went missing. It was clearly a budget for the mango people who live in India and not the aam aadmi who lives in Bharat.

The long-run steps to increase agriculture growth through a new green revolution got a token Rs 400crore. Nothing could have been more hilarious. Now, NBFCs (non banking financial institutions) can open banks and Rahul Bajaj must be very happy with his part of lobbying. But the real requirement of financial inclusion, which reaches a rotting low of less than 200 million people compared to the required 900 million people, still remains unsolved. At a time when so much had to be done for the poor who are the direct sufferers of the high inflation, the government gave away Rs 26,000 crore to the middle class and rich through its new tax structure favouring the two per cent top class of people who pay taxes in this country! I have been always for lesser taxes to increase tax base, but in a year like this, such a move was a bit too much to accept, especially when compared to the lack of commitment of resources for the bottom 70 percent people.

The allocation of Rs 22,300 crore is marginally up for national rural health but still is too less when you look at the fact that 85 percent of Indians do not have access to health insurance; and every year, an estimated 30 million people slip below the poverty line because they have to meet healthcare expenses though out-of- pocket expenses.

So is all bad? No! We are now going to have a new symbol for currency; similar to the dollar and the euro. And some agency, which will design it, will make a lot of money! It’s assumed that the developed world is so full of donkeys that despite the pathetic conditions that we have bestowed upon a majority of our people, the developed world will respect India due to a new symbol of our currency. Oh yes, how can I forget that in times of such internal security crisis and naxalite movement, a hilarious number of 2000 new paramilitary forces will be employed!

All in all, there have been some welcome extra investment in infrastructure and highways, good non-pollution initiatives, and some great tax structure changes if you are a tax-payer. For the rest, it has been an objectiveless exercise. Bringing me back to the question, ‘why have such a budget at all?’ When throughout the year, the government in any case keeps announcing various policies, then why should we not let the budget be a mere statement of results? Why this sham? There is no accountability… the poor hardly get anything; and to top it all, during the last year, a whopping Rs 1 lakh crore of allocated funds remained unused! It will only grow this year. I repeat, to me it was an objectiveless budget. A mere timepass.

ALTERNATE BUDGET

A Budget for Three Idiots

01 February 2010 |Alternate Budget

“History is a race between education and catastrophe.” H G Wells
“All who have meditated on the art of governing mankind have been convinced that the fate of empires depends on the education of youth.” Aristotle
I think this is the first time I have started a write-up with quotes from famous people. I normally do not do that, because I usually feel so strongly and passionately about issues that I simply start writing and words just flow out in a torrent. But I am making an exception this time. And I have strong reasons for doing so.

Let me digress a little before stating them. This will be the 10th consecutive year that I have written and presented an ‘Alternative Budget’. This will be the 5th consecutive year that the ‘Alternative Budget’ appears in Business & Economy (Yes, your favourite magazine – when it comes to sharp, incisive and thought-provoking intellectual analysis – is about to complete 5 years!). For close to 10 years, I have been repeating ad nauseam that India can never hope to be a country that is respected in the 21st century unless there is a drastic and dramatic overhaul of social infrastructure. Apart from occasional good news on that front, budgets over the last decade have been largely disappointing when it comes to dealing with social infrastructure. Of course, lip service and wise quotes from historical personalities have always been offered by successive finance ministers. Of course, ambitious schemes with thousands of crores of budgetary allocations have been launched. Of course, well meaning policies have been designed and implemented. But has there been a really substantive improvement in outcomes? Do poor Indians actually have better access to healthcare now than they had when the 21st century began? Do they actually have better access to education? You know the answers as well as I do.

I have often been frustrated and dismayed by the answers. This prompted me to present an Alternative Budget in 2008 with a headline Ban the Budget. My logic was that too much needless attention was lavished on the Union Budget. My suggestion to the Finance Minister was to use the Union Budget to launch some path-breaking policies for the social infrastructure sector and let nitty gritty issues be handled through the year during the normal course. In 2009, I went a step ahead and presented an Alternative Budget with a headline Khao aur Khilao Budget. My logic was simple. I raised a fundamental question: How come China and South Korea with levels of corruption as deep and endemic as India have delivered fantastic outcomes in social infrastructure while India has failed to do so? I also argued that economics was all about incentives and if a Union Budget offered the right kind of incentives, stakeholders in India, too, could dramatically improve social infrastructure. Just in case you are interested in what the Khao aur Khilao Budget suggested, please visit www.businessandeconomy.org/09072009/storyd.asp?sid=4485&pageno=1

Having digressed a little, let me come now to the theme and headline of my Alternative Budget this year. It is called A Budget for Three Idiots. You guessed it. It has been inspired by the iconoclastic movie that revealed how hollow our education system is. It also offered us hope and redemption. And it told us poignantly that the biggest challenge for India in the 21st century is to transform its education system. The quotes that appear right at the top of this write-up tell me that thinkers and philosophers throughout history have consistently argued that a society, a nation or a civilization simply cannot survive – far from flourish – without the right kind of education. Aristotle mused about the power of education to sustain an Empire more than 2,000 years ago. And in the 20th century, George Orwell, the author of timeless classics like Animal Farm and 1984 highlighted the importance of education in an equally compelling manner.

Of course, you don’t need to be a philosopher to understand the value and power of education to make or alternatively mar the future of India in the 21st century. And the way things are going at the moment, only the naïve will believe that India is on the cusp of an era where it will reap the much talked about ‘demographic dividend’. Just a few days ago, the international body UNESCO released a report called ‘Education for All Development Index’. It tracks the progress made by various nations on the key Millennium Development Goals of achieving universal education by 2015 from 1999 to 2007. The results in the report are sobering, if not disturbing for those who keep prattling childishly about India’s demographic dividend. The rank given to India is 105, below Bhutan, Zambia, Vietnam and Ghana to name just a few. That is not really surprising since India is consistently ranked pathetically when it comes to human development indicators; and justifiably so. More disturbing are results buried in some tables in the 300-plus page report. A staggering 49 percent of the children drop out of school before they reach elementary level. And before you start talking about some sinister western conspiracy to show India in a poor light, please remember that the report is based on government released statistics.

Let me present some data in a different way to puncture this triumphal talk about India’s demographic dividend. The total number of illiterates in India (as per the official definition of literacy) is more than the combined population of England, France, Germany, Italy Spain, Norway, Sweden, Denmark, South Korea and Japan. If you take a more realistic definition of literacy, the number of illiterates in India would be more than the entire population of the whole of Europe. Each year, the number of children in primary school who drop out altogether is more than the population of Australia. Each year, the number of Indian children who fail to go beyond class V is more than the population of South Korea. Each year, the number of Indian children who cannot cross the secondary school barrier is more than the population of Japan. Look at it in another way; the number of illiterates in India is more than the population of India in 1947, when Jawaharlal Nehru sought to make a tryst with destiny. What’s more, the number of places of worship currently stands at 2.4 million, whereas the number of places for education stands at 1.5 million! I am sure that things would not have improved since 2000, when the Planning Commission reported that almost 44% of all workers were illiterate and some 22.7% had done schooling till primary level! One would be really optimistic to talk about the demographic dividend in the face of such humiliatingly distressing data. And unless a drastic overhaul is launched right away, hundreds of millions of young Indians will be condemned to live on the margins by the beginning of next decade; and India will be condemned to remain a third rate power!

That brings me back to the Budget for Three Idiots. If things are as bad as they seem, how can Indians like me have even an iota of hope for the future? Actually we can, and we should. Every crisis is an opportunity, as they say, and this could be a game-changing opportunity for the Finance Minister. Often, the right set of people under the right leadership at the right time trigger changes that can have seismic impacts. It needed a Rajiv Gandhi in the 1980s to rope in Sam Pitroda from the United States to launch technology missions that could change India. Pitroda faced insurmountable challenges from vested interests and even quit in a huff. But it was his team at C-Dot that had sown the seeds of the telecom revolution that is sweeping across India. In 1991, on the verge of defaulting on its debt obligations, a shaky Congress regime under P. V. Narashima Rao made Manmohan Singh the Finance Minister and gave him a mandate to dismantle the license permit raj and unleash the entrepreneurial spirits of India. The results are there for you and me to see and marvel at. The current regime – the second term of the UPA – has a similar mix of people who can deliver change. In a stroke of inspirational genius, UPA Chairperson Sonia Gandhi and Prime Minister Manmohan Singh have made Kapil Sibal the Union HRD Minister. And with a pragmatic, seasoned and wise Pranab Mukherjee as the Union Finance Minister, one can definitely be hopeful.

For most of the past 20 years or so, the Arjun Singhs of India have been HRD ministers. And both you and I know what they did with and to the education system in India – running patronage networks that were doling out deemed university status to fly-by-night operators as if there was no tomorrow. As against that, just recently, Mr Sibal outlined his vision as the HRD Minister in an exclusive write up for The Sunday Indian dated February 7, 2010 (you can read his exclusive write up at www.thesundayindian.com). Quite clearly, Kapil Sibal has the mandate from Sonia Gandhi and Manmohan Singh to play game-changer. And in Pranab Mukherjee, he has an ally who can come out with the right mix of policy instruments and initiatives in his Union Budget. There is another fact I must not forget to point out. The UPA has appointed the same Sam Pitroda (the man behind the telecom revolution in India) as the Chairman of a newly formed Knowledge Commission. Predictably, he and the Knowledge Commission have been persistently hamstrung, criticized and sabotaged by vested interests. It is time now for Kapil Sibal and Pranab Mukherjee to examine and implement the proposals that have been suggested by the body in tandem.

And now for a Budget for Three Idiots. Who are the ‘Three Idiots’ who will play the key roles in this transformational exercise? The stakeholders, of course. The first set of ‘idiots’ would be the students (and their parents) who can actually help India reap the demographic dividend in the next two decades. The second set of ‘idiots’ would be the teachers and administrators, whose job is to ensure that Indian children and youth get the kind of education and skills that will make them human resource assets in the 21st century. The third set of ‘idiots’ would be the regulators whose job is to ensure that schools, colleges and universities – both in the public and the private sector – deliver the kind of education and skills that India needs in the future. As Finance Minister, Pranab Mukherjee can partner with his colleague Kapil Sibal and implement a set of bold policy initiatives that will simultaneously target all the ‘three idiots’. Piecemeal efforts targeted at one set of ‘idiots’ have been tried in the past. But clearly, they have failed. That is why the school dropout ratio remains so alarmingly high despite schemes like Sarva Shiksha Abhiyan and Midday Meals. The basic problem is, the latter two sets of ‘idiots’ simply haven’t been doing their jobs, leading to untold misery for the first set of ‘idiots,’ which is the students and their parents. Quite simply, in most cases in India, the teachers don’t teach and the regulators don’t regulate. As per reports, there is an estimated shortage of around 25 lakh teachers! Worse, the State has been perpetually reluctant and has been suicidal in withdrawing from its most fundamental duty – of imparting primary education.

So the Budget for Three Idiots should start with the basics and keep it simple. Though accurate data will be available after the actual Budget is presented on February 26, 2010, the government will spend approximately Rs.25,000 crore on Sarva Shiksha Abhiyaan and the Midday Meal scheme. In consultation with Kapil Sibal, the Finance Minister must quadruple the allocation to Rs.100,000 crores. You think that is too much? Think again. The National University of Educational Panning & Administration conducted a survey of 1.1 million primary and upper primary schools across 604 districts of India in 2007. The survey found that close to 100,000 such schools did not have a single functional classroom. About 14% of such schools in urban areas and more than 9% of schools in rural areas did not have any classroom. Another 100,000 schools were in desperate need of urgent repairs and were literally crumbling apart. How do you expect children to come to schools and get even a semblance of education without classrooms – forget about libraries, laboratories and toilets? And where would the midday meals be cooked and where would the children eat those meals? As such, our budgetary allocation on education, as a percentage of GDP, is a meagre 3%, whereas for a nation like Cuba, it is around 18%; clearly indicating the priority they attach to education as a whole.

The Finance Minister can tweak the crucial NREGA and make it mandatory for the funds to be utilized for productive assets like durable buildings and classrooms for the more than 1 million primary schools in India. Not only will at least one member of a poor family get 100 days of employment; but children of such families can then hope to go to functional schools with physical infrastructure. This is not a complicated policy initiative; but it will be game-changing. Functional schools with physical infrastructure will ensure that future generations of children will have access to schools, while their parents have earned a livelihood constructing those same schools. In effect, the actual allocation for Sarva Shiksha Abhiyaan and Midday Meal schemes will not be Rs.100,000 crores, as a large part of NREGA funds will be utilized for this. More importantly, since parents will understand that the very future of their children lies in those modest buildings, they will gladly take all help they can from activists to ensure that corrupt contractors do not cheat their children. It will be a classically win-win policy, even with the notorious corruption that is associated with the implementation of such schemes. The same model can be subsequently implemented for secondary schools too, where the problem is even more acute (as per World Bank, gross enrollment ratio in secondary education is lower than world average, even less then East Asia and Latin America) with the same transformational results - a classic mix of NREGA with Sarva Shiksha Abhiyaan.

Now that the first set of ‘idiots’ have a school to go to, the challenge is to make teachers and principals actually work in those schools. One huge and persistent problem has been the tendency of teachers and principals to simply not show up at schools. The best and most innovative way to tackle this is to use the same NREGA and Sarva Shiksha Abhiyaan funds to implement a carrot and stick policy. The Finance Minister should announce a cash incentive of Rs.1 lakh for teachers who deliver the best ‘pass’ and ‘student retention’ ratios in their classrooms. Similarly, an incentive of Rs.2 lakh should be announced for principals whose schools deliver the best ‘pass’ and ‘student retention’ results. There are about 4 million such school teachers and principals in India. Even if only one in 10 gets that kind of incentive, the total funds spent in a year would not be more than Rs.5,000 crore. And the fact that only one in 10 will get that incentive will make teachers and principals compete to deliver better quality education. And how do you check fudging? Quite simple actually – the incentives would be given only after 5 years of results have been demonstrated, both for primary and secondary schools. So, a teacher would get the incentive only after he or she has successfully steered students from class I through class V. It would be very simple for the UID project being piloted by Nandan Nilekani to keep and monitor the data.

These proposals, implemented through a Budget for Three Idiots, will actually lead towards universal primary education. But then, what will poor students do when they pass out of school and seek education that will help them build a career? Are there enough opportunities and capacities for higher education? Not really. Currently, around 10 million (according to the last report by Ministry of HRD, 2005-06) students apply to colleges every year. And there are only 20,769 colleges in all, and just 490 universities. And mind you, here we are referring to just general education. The situation gets worse when it comes to professional education. The second question is that can these poor students afford higher and professional education, even if the capacities are created? Quite simply, they cannot. The Budget for Three Idiots must increase the allocation for post-matric scholarships by more than 10 times to about Rs.20,000 crore. This will ensure that no poor student fails to get a decent professional education for want of money. Along with scholarships there should also be a provision for unsecured education loans through banks on relatively low interest rates. Probably India is the only nation in its league, which still offers education loans against collateral security!

And what about the third set of ‘idiots’. I am even more optimistic here because Kapil Sibal has already initiated steps to dismantle corrupt and dysfunctional regulatory bodies like AICTE and UGC with something better, more efficient and transparent. The Finance Minister just has to tweak a little and simply transfer the funds allocated for such bodies to a super regulator that will soon be in place.

Agreed, even though the proposals in this Budget for Three Idiots are simple, they will not be easy to implement because of vested interests. But I think if anyone can do this, it is the current team! And please don’t even think of whining about where the money will come from. I have been saying ad nauseam for almost a decade that abolishing direct and hidden subsidies for the middle class and the rich will easily generate the funds required by a Budget for Three Idiots.

Our education system has been churning out idiots for a few generations. Don’t you think it is time we changed that? All we need is the will to re-orient the existing programs like NREGA and Sarva Shiksha Abhiyaan. Really, it could be as simple as that. And India could well be on its way to miracle!

[B6] DR. ARINDAM ON INDIAN ECONOMY

Agriculture needs more holistic reforms

31 January 2014 | Dr. Arindam on Indian Economy

“While, like last year, I seek the blessings of Lord Indra to bestow on us timely and bountiful monsoons, I would pray to Goddess Lakshmi as well. I think it is a good strategy to diversify one's risks,” are the words of the ex-finance minister (and now President) Mr. Pranab Mukherjee during his budget speech for the year 2011-12. The statement is symbolic of the unfortunate ways in which our ministers have been keener on invoking Gods and Goddesses rather than depending on science and technology and straightforward ground level solutions to come to the rescue of India's dwindling agriculture sector, which employs around 50% of India’s workforce, but is decreasing in its contribution to the GDP year after year. “As per latest estimates released by Central Statistics Office (CSO) the share of agricultural products/Agriculture and Allied Sectors in Gross Domestic Product (GDP) of the country was 51.9 per cent in 1950-51, which has now come down to 13.7 per cent in 2012-13 at 2004-05 prices...” This statement of Minister of State for Agriculture Tariq Anwar last month in a reply to a query in the Rajya Sabha shows the pathetic downfall of a once glowing sector. Even in absolute terms, India’s foodgrain production declined to 250.14 million tonnes in 2012-13 from 259.32 tonnes in 2011-2012.
What continues rising in this sector is just the number of farmer suicides, which reached a shameful figure of 15,440 in 2012, close to 50 farmer suicides every single day of the year, as per the National Crime Records Bureau. The government itself admits that since 1995, more than 300,000 farmers have committed suicide.
Leaving aside our pseudo-intellectual ministers, it’s more important to understand the real problems of agriculture. At the farm level, the usual suspects are clearly the ones that are addressed the least. The acreage in India has been around 140 million hectares, but with the number of farmers increasing, the divisions in land have resulted in decrease in productivity and diminishing economies of scale, what to say about reduced financing options and killing debt traps. Apart from this, lack of irrigation, warehousing/cold-storage facilities, and an almost non-existent technology support from the government also are critical issues for farmers, pushing them towards destitution.
But what takes the cake in the whole value chain is something else. Every year, like an annual event or an Indian festival, vegetables and agri-products find themselves in a comedy circus. On the one hand, our government boasts of record yields, whereas on the other, this so called hollow boast of ‘record yields’ fails to reach its real customers. Think about it – as per the government, we’ve had one of the best monsoons this year. The Central Water Commission confirmed in August 2013 that our water reserves nationally are now at an ever-high level in a decade. We’re apparently experiencing a bumper crop year. Clearly, such a claim is laughable when you consider the rising prices of fruits and vegetables all around.
SubmitBut then, isn’t that the case every year? Every year, onions, tomatoes and other essential food items find themselves being upgraded from basic necessities to luxurious items. And the chief culprits for this and the related obscene price rise are hoarding and black marketing. However, despite repeated offences by traders and recurring problems of agri-products pricing, not much heed towards agriculture reforms at the ground level has been given. Unlike other nations, agriculture in India is still treated as a child of a lesser God. Take for instance China. After 1994, the government of China introduced policies that limited the amount of grains that could be imported (giving a boost to domestic production). This brought the domestic farmers to the centre stage and increased the domestic supply of crops. In 1995, a policy named “Governor’s Grain Bag Responsibility System” was incepted, which made the local governors accountable for supply and demand and also for maintaining the prices in their jurisdiction. Later, by the end of 1997, China introduced agricultural industrialisation management strategies for professionalising the flow of produce to the market and morphing the entire agriculture system into a market-oriented system. The next in the line was balancing production in urban and rural areas, wherein urban industries were asked to facilitate agriculture and guide rural farmers for better yields. The reforms didn’t end here.
Comprehending the need for sustainable development and long-term progress, the agriculture reforms included compulsory rural education, financial security, internationalisation of farming and market openness. As I wrote in one of my previous editorials where I compared India and China, as per a World Bank study, an Indian farmer contributed $400 to the agriculture sector back in 1994, which increased to $500 by the end of 2009 (a mere increase of 25 per cent); while a Chinese farmer increased his contribution by 85 per cent and is currently adding $550 to the sector. Going further, the Chinese government has definite and clear-cut policies to check food inflation, price rise and hoarding. All big traders are provided with guidelines to report to the authorities within 24 hours if they decide to increase the food prices by 4 or more per cent. Moreover, criminalising unethical activities, the government has provisions of imposing penalties on those cartels (especially for traders dealing with flour, rice, noodles, cooking oil, milk and gas) that are found influencing prices. The fine can go upto a million yuan and imprisonment. Besides all these reforms, China also adopted land reforms to allow every farmer to own his land for agriculture and exposed their farmers to scientific and technology-oriented farming. This is evident from close to 10,000 agricultural patents that today China owns compared to around 50 by India. In a similar tone, Argentina allows its authorities to freeze prices and imposes fines and imprisonment in case of any breach.
Contrast this with India. The conviction rate under the Essential Commodities Act, 1955 and the Prevention of Blackmarketing and Maintenance of Supplies Act, 1980, was only 2.47 per cent in 2009, 3.55 per cent in 2010 and 6.68 per cent in 2011. While unlettered Indian politicians exclaim that the rise in prices will benefit the Indian farmer – without realising that the Indian farmer is still selling at the minimum price only, while the so called ‘benefit’ is being gained by the hoarder and final retailer – others can’t even make up their mind on whether export bans should be put in place to rein in prices. In 2011, an onion export ban (that was put in place because of rising onion prices) was lifted in ten days flat by a committee of Empowered Group of Ministers, led by – no surprises – the then finance minister Pranab Mukherjee. The situation is quite similar even now. On August 13, 2013, Food Minister K. V. Thomas said, “We would wait for 10 days and if the prices do not comedown, would ban exports,” Minister said. On August 23, 2013, just ten days later, he said, “Currently there is no proposal under consideration to ban the export of onion... Prices of commodities including vegetables like onion and tomatoes are mainly governed by market forces of demand and supply, cost of transportation and storage, weather conditions etc.” But then, where’s the ground level action against hoarders that should have been undertaken days, if not weeks ago?
Increase in onions prices is just an indicator of several malaises that are floating seamlessly in our agriculture system. For a start, the agriculture ministry should immediately take steps to introduce stringent laws against hoarding, publicly arrest hoarders and initiate action against them, and open the market further for agriculture produce. After all, here we are talking about policies that are not for a few crore farmers but for the entire nation and for the larger good of the economy and society.

[B7] DR. ARINDAM ON INDIAN ECONOMY

Private Equity: The double-edged sword!

31 January 2014 | Dr. Arindam on Indian Economy

When it comes to Private Equity (PE), there can be numerous schools of thought. You have the group that would completely go gaga over PE. You have another that would simply want to wipe off this infatuation from the market. There is also one that would hold PE responsible for failed, inefficient and weak government policies. In India unfortunately, what we have (mostly) seen so far is the havoc that PE has caused. And I clearly see it as one key reason that has snowballed into the economic crisis that we face today.
It was back in 1946 when PE emerged in the American market in its true sense. The era between 1960s to 1980s saw the Vanderbilts, Whitneys, Rockefellers and Warburgs build fortunes in businesses ranging from real estate construction projects to airlines, banking to whatever moved on the streets of Silicon Valley. Running parallel and equally fast was Warren Buffet, who through Leverage Buy-Outs (LBOs) acquired one corporation after another. The US Congress then opposed every change in tax policy that could have made life more difficult for PE firms (the Carter Tax Plan of 1977 was the first of such acts that failed to be enacted). What followed up until 1990 was quite understandable (given the quick, sweet success PE had witnessed in its early years). Thousands of PE labels mushroomed across the globe.
But beneath this rolling of the Red Carpet was a weakly-constructed foundation. Cracks on the PE wall first became visible in the first half of the 1990s. Ills related to the massive rise in leveraged buyouts that were financed by junk bonds led to the-then collapse of the LBO industry. Amidst various companies that went into a tailspin was a big name – Drexel Burnham Lambert. This one company that was credited for the boom in PE back in the 1980s had several allegations made against it. The firm was charged with insider trading and had to file for Chapter 11 in 1990. Thus, one of the founding pillars of PE was turned to dust. Companies and markets across the globe experienced a similar avalanche.
The ‘true’ global effect of PE became more publicised and shamefully dramatic in the early 21st century. It began with the dot-com bubble bursting. This disaster has so far caused the maximum damage because it sent more than just tremors across the global financial market. It shook the very belief in Private Equity (and Venture Capitalism). In the quick years that followed this early 2000s disaster, more than half of PE firms that had invested their dimes and coffers in web start-ups were forced to throw in their towels. Of course, the market as a whole, and the investors were left at the mercy of no modern capitalistic gods. Many IT firms that had become bigger with the prime support of PE saw the cash and asset balance levels in their wells fall. Much below even the amount of capital initially invested! And the biggest reason for such an unwanted outcome was that those very PE firms that had promised to fuel their dreams ran out of fuel themselves. They backed out in the name of retreat and failed to live up to their investment commitments. By the end of the year 2000, globally, the count of PE firms fell by a horrific 50 per cent!
Obviously, India was not one to remain idle when it came to being mesmerised by this hypnotic trick and believing in the permanent magic of a volatile formula. It was one of those markets that felt the maximum impact of the dot-com bubble slap. The Indian IT industry came under huge pressures – returns vapourised for some time and much hope was lost. There are huge apprehensions still – that have spread to other verticals. Even today, every now and then, cases of insider trading and embezzlement are reported across various sectors. And we’re not even counting unrevealed scams yet. Private equity dealings in the first decade of the 21st century has left us in ruins. Worse, during this period, PE entered one sector after another and that resulted in excess supply being created. The bubble of a hope that PE generated ruined organisations far and wide – some temporarily and some forever – with excess pressure of expansion that has left them in a complete mess with visible supply-demand mismatch.
Take for instance the case of the much-hyped – and one that still finds fanatic believers – industry (in India) called Real Estate. Real estate was once considered an immovably strong and non-volatile sector. Then came PE intervention, and left the industry in a shambles. It’s one heck of a mess you cannot just ignore. Back in the 1997-2003 period, withdrawal of funds by PE led to a crash in Mumbai region’s real estate business. The same was repeated in the 2011-2012 period when prices of real estate properties fell by 20 per cent (and higher) in Delhi and Mumbai. The fundamentals of the entire sector have seen a paradigm shift after the SEZ Act of 2005. Most residential and commercial concrete jungles that were built post-2005 were aimed towards investors who wished to park their money in real estate properties. Ghost towns were being built all around the metros and bigger cities, and were sold at prices that were headed for the moon. [Forever it seemed.] What is the present scenario? When PE investors decided to stop funding such ‘(not-so-)concrete’ dreams by cutting off the supply of money, the expected came to pass. Empty malls, vacant residential properties, half-completed high rises and incompletely dug up construction sites with building material left untouched for months is a common sight. Not many souls move about in such ghost towns these days! How PE has totally tricked buyers and sellers in an entire industry is an incredible story to be told. But not one to gain inspiration from.
Holistically stated, the purely economical repercussions of PE’s entry and exit across sectors and markets have also led to several socio-economic crises. In a 2011 study by the University of Chicago, Harvard Business School and the US Census Bureau, it was proved that “companies tend to terminate more employees after a buyout compared to competitors in the same sector.” “After a PE buyout, employment in existing operations tends to decline relative to other companies in the same industry by about 3 per cent. Many of those job losses are undoubtedly painful,” writes Prof. Steven Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, in a 2012 article titled, ‘How to think about Private Equity’. But PE investments always offer higher returns given the risks. Right? Actually, no! In a 2005 study by Prof. Steven Kaplan of the University of Chicago Booth School of Business and Prof. Antoinette Schoar of MIT, covering the period ranging from 1980 to 2001, it was revealed that, “Investors actually made slightly less on PE deals than they could have by investing in an S&P 500 Index fund.”
All in all, PE funding not only degrades and makes a sector volatile but also injects malpractices into companies. Thought leaders have not been very vocal about it, but in the West, film-makers have tried to depict the same through their works. Today, PE funding worldwide is headed southwards. And that is good news. It implies greater stability for the global economy as a whole. A more sustainable future, if I may add. In the last one decade or so, PE ownership across companies has reduced by leaps.
Going back where I started, when it comes to PE funding, there are several schools of thought, but when it comes to India, the thought that PE can and will leave you in ruins appears most logical. The Indian government has to be very careful going forward about the manner in which it allows PE to enter any given sector – whether it be for the sake of developing Greenfield projects in the most undesirable of sectors or for the sake of lighting a bulb in the most underdeveloped of villages.
PE is a double-edged sword. Popular perception is that it makes you stronger – but only until you measure the blood you have lost. Period!

[B8] DR. ARINDAM ON INDIAN ECONOMY

Gold reserves of India can make India a golden bird again... at least economically!

31 January 2014 | Dr. Arindam on Indian Economy

Many may not be aware, especially in our part of the world, that back in the year 1933, on April 5, US President Franklin D Roosevelt signed one of the most controversial orders in American economic history. The Executive Order No. 6102 criminalized the possession of gold by individuals and corporations and forbid “the hoarding of gold coins, gold bullion, and gold certificates within the continental United States.” This order was an extension of the Presidential Proclamation No. 2039 that criminalized the hoarding, possession and ownership of gold or bullion, and imposed a monetary penalty of $10,000 (equal to more $170,000 in today’s value) and imprisonment for as long as ten years on individuals falling foul of the law.
Obviously, such laws on hindsight look very undemocratic and politically suicidal; but then, if one were to explore it and go beneath the surface, the big picture may gradually get vivider. In tough economic times, gold and similar forms of monetary elements can become a key source of increasing money flow in the market. One should remember that most nations (including ours) have at one time or the other even printed money based on the amount of gold kept in the federal bank (Reserve Bank of India, in the case of India). In other words, hoarding of gold by communities, corporations and individuals not only decreases the flow of money (given the unproductive capital locked within such hoarded gold) but also to a large extent disturbs the supply-demand equilibrium of gold and bullion. Before I reach India, let me in brief discuss the way Uncle Sam tapped (or as many critics would say, exploited) the Executive Order No 6102. The order forced every American citizen to surrender all their gold, leave 160 gms, to the Federal Reserve in exchange of a fixed amount of money. After receiving most of the gold, the US government increased gold prices manifold, thus churning out a huge amount of profit, which was used for the Exchange Stabilization Fund (ESF), a fund that enables the American government to control currency exchange rates. In 1964, the previous laws were modified and the ownership of ‘gold certificates’ was legalized, followed by the legalising of gold trade in 1974 – after almost three and a half decades.
The importance of and aspiration for gold ownership in India requires no introduction. Despite economic turmoil, the consumer demand for gold is up by 51 per cent in Q2 2013 while the demand for gold bars and coins is up by 116 per cent. As per various unofficial estimates, more than 60,000 tonnes of gold are lying idle in the form of jewellery and ornaments all across the nation. Going by the current price of gold at the rate of Rs.35,000 for ten grams, this unaccounted reserves could create a possibility of reaping about Rs.2,10,00,000 crores in money supply! Going by World Gold Council figures, Indians hold 20,000 tonnes of gold (which is an absurdly less figure, as a single temple in South India holds more than 1000 tonnes of gold); even considering this reduced figure of 20,000 tonnes (which is 33% of the unofficial estimates), the amount we’re talking about would be nothing less than Rs.70,00,000 crores! Against these jaw-dropping numbers, what looks hilariously minuscule is the state of RBI. Despite such huge national deposits of gold, RBI has an official reserve of a mere 550 tonnes of gold, compared to 1000 tonnes of China (which is again debatable) and 9000 tonnes of US.
The Government of India should immediately draft and announce a Central Gold Bond scheme, where it should ask people to deposit their gold with the government in lieu of Central Gold bonds at a fixed rate of interest of around 9%. One reason I mention this percentage is because in my calculations, I have realised that despite the huge surge in gold price, in the last 65 years the same has increased by only around 9% per annum compounded. With respect to the government’s gold bond scheme, people should of course be allowed to take back their gold after say a period of 15 years. The same will be applicable for temples, trusts and other similar institutions; for them, the government could even make it compulsory to deposit all gold and make hoarding beyond a limit illegal. These institutions should be thankful that the government is not nationalizing their gold hoardings, given the immense employment generation potential this money can have. Thus, a huge percentage of gold in physical form would be directed to the Reserve Bank, which, in turn, would utilise the same to increase the money flow and to adjust the exchange rates of our currency. Similar schemes have been in the past practiced by many European and African nations, with the latest being Venezuela.
This one scheme would serve several purposes. Firstly, it will make the INR stronger, subsequently boosting international trade, especially our mandatory imports; because, with the INR getting weaker, the cost of doing cross-border trade is increasing and the old deals signed at old exchange rates are becoming infeasible to continue. Secondly, it will create huge employment opportunities if the money so sourced is invested honestly in infrastructure or for energy generation/oil production and other such extremely key needs of this country. The money thus minted should only be used for employment generation and entrepreneurship, which eventually would increase jobs in the market and would spirally improve the flow of money further. Thirdly, the entire process of converting physical gold to paper gold would decrease the incidents of gold smuggling and gold hoarding and above all make all gold possession transparent.
Apparently, as of now, it is impossible to even estimate the amount of gold lying inside our nation; and most of these gold hoardings have evaded taxes too; as even today, domestic consumption of gold is not through authorised outlets but through trusted local gold traders. In such cases, tax-evasion is a cake-walk.
Such schemes would obviously invite criticism, but when the economy is going through tough times, the political corridors need to take some tough and non-populist steps. The only apprehension that I see here are scams and corruption. Even an iota of embezzlement would create a dynamo effect and ruin the entire economy and social harmony. In such a situation, the entire execution needs to necessarily be politically independent and under a body such as CAG or Supreme Court with everything being tracked electronically and centrally. The fall of INR to Rs.68.80 per dollar is a matter of utter shame, especially after luxuriously introducing an expensive sign for rupee! After all, as they say, looks can be quite deceptive!