Japan’s green Keynesianism

Since the Tohoku earthquake and the Fukushima meltdown struck Japan earlier this year, the country’s economics and politics has been in turmoil. The Prime Minister Mr. Kan has been under a lot of pressure to resign, but he has asked for the passage of three bills as a “condition”:

a ¥2 trillion ($25 billion) supplementary budget to cope with the disaster; the issuance of bonds to finance the 2011-12 budget deficit; and an electricity initiative to broaden the scope of feed-in tariffs to encourage more use of renewable energy in the national grid.

Presumably, this is at least as much about Mr. Kan’s ameliorating (in his perception) his legacy post-Fukushima as it is about any intrinsic ideology or political patronage. The combination of statist environmentalism and asymmetrical Keynesianism (where are the Keynesians demanding that a surplus be run during boom times?) is dangerous to any country – but amongst developed countries, Japan with its high debt-to-economy ratio must be especially careful.

For the last two decades, Japan has been building redundant infrastructure (matching in uselessness useless bridges in Alaska or highways in Chinese Gobi Desert), the country has run a very loose fiscal and somewhat loose monetary policy, and yet the country’s politicians refuse to further liberalize sectors like agriculture and retail where Japan is relatively inefficient. If the retort here is “food security”, Japan can easily have “food reserves” just like many countries have “oil reserves”. But of course the real reason is the political economy of a few retailers and fewer still farmers holding to hostage an entire economy.

Similarly, another no-brainer in Japan’s context is allowing more skilled immigration – the country is heading towards a major demographic contraction; many of the government bonds have been bought by its own people (a positive so far), but they are about to retire and they will encash, no matter what.

Unless freer trade, freer markets, and freer immigration is not three additional conditions Mr. Kan is ready to emphasize, his legacy will be that of just another Japanese Prime Minister who had to go under the disgrace of disaster.

An Indian in Germany

This post is to write about my impressions of Germany, where I was for a two-week seminar recently (this genre being very much inspired by my co-blogger Dhruva’s insightful posts on “An Indian in Israel” and “An Indian in China” )

While Germany is certainly not as exotic to the Indian mind as Israel, or perhaps even China – and two weeks is hardly enough to even begin observing a country – nonetheless I found the country to be very interesting in certain ways:

1. Germany’s cost of living.

When you have to pay 3+ euros for a bottle of drinking water, you know you are in an expensive place. North-western Europe definitely seemed more expensive than the USA on a PPP basis – granted that many of its prices have a VAT incorporated, whereas many American states do not have a sales tax (and hence effectively let tourists pass tax-free). Even then, given the PIIGS debt crisis, it seemed to me that the Euro was slightly overvalued. Maybe a monetary break-up is due.

2. A vibrant but not-very-integrated-yet Muslim minority

Speaking of expenses, the only tasty (and presumably) healthy food that was affordable was Turkish food. It was in all the towns – and of course reminded me of Indian food. The folks at the restaurant were very friendly, but it seemed to me that German Muslims (mostly of Turkish descent) are socially not very integrated yet, and economically still lagging significantly (unlike, say, American Muslims)

3. Palpable differences in standards of living exist between the erstwhile “East” and “West”

I spent some time in and around Cologne, and some time in and around Rostock. The former is West Germany (not very far from Brussels and Amsterdam), whereas the latter is on the Baltic sea in the north-east of the country. Despite unification two decades ago, the East still lacks economically. Partly this is because of restrictive labor laws – which has counter-intuitively prevented the East from re-surging as fast as it could.

4. The Autobahns

Are simply impeccable, better than American highways (though I hear not as good as the Chinese ones). They of course drive on the “wrong” side – and many of their autobahns do not have speed limits! But because everybody follows some rules – left lane for the fastest, do not overtake from the right, and so on – it works. Could not help but think about India….

5. Where are the young people?

Germany is a greying country – at least the “native” white population. Apparently, there are some empty or almost-empty government schools around. The same waste should be replicated in India two or three decades from now, unless of course we privatize before that.

6. The Germans are punctual.

And I mean, really punctual. A few international seminar participants may have missed the bus a couple of times as part of our seminar travels.

7. A unique democratic model and a strong federal structure

A combination of Proportionate Representation (PR) and first-past-the-post. The PR method has a cut-off of at least 5 percent of votes. But can this or should this be replicated in India, I think not? We may soon have real bodies like the IUML and the VHP becoming more dominant, and parties like BSP no longer obliged to form inter-community coalitions. The German federal structure is also very unique – maybe not as strong as the American or the Swiss one – but nonetheless, on issues like education etc., the central government has relatively very little say.

8. Too touchy about neo-Fascists?

Perhaps because I was being “guided” by the Free Democratic Party supporters (liberals), there was repeated condemnation of the National Democratic Party (NDP) as neo-fascists – an equally strong condemnation was not reserved for the far-left parties. While I was glad that the Germans were very keen to suppress any neo-fascist movement, did they come across as too keen? Moreover, apparently many of the NDP leaders are government agents! Where does one cross internal security needs and start entering political interference mode? Germany is one of the great success stories of the last century’s second half (and more recently post-recession) but is it completely at peace with its past?

Feminists’ worst nightmare?

This very readable WSJ review of the book "Unnatural Selection" by Mara Hvistendhal – which documents the tragic reality of tens of millions of girls being aborted in countries like India and China over the last few decades – caught my eye for another reason, one that I had often thought about during my discussions with American feminists and "liberals" in college. That is, to quote from the review itself:

There is so much to recommend in "Unnatural Selection" that it's sad to report that Ms. Hvistendahl often displays an unbecoming political provincialism. …Ms. Hvistendahl is particularly worried that the "right wing" or the "Christian right"—as she labels those whose politics differ from her own—will use sex-selective abortion as part of a wider war on abortion itself. She believes that something must be done about the purposeful aborting of female babies or it could lead to "feminists' worst nightmare: a ban on all abortions."

It is telling that Ms. Hvistendahl identifies a ban on abortion—and not the killing of tens of millions of unborn girls—as the "worst nightmare" of feminism. Even though 163 million girls have been denied life solely because of their gender, she can't help seeing the problem through the lens of an American political issue. Yet, while she is not willing to say that something has gone terribly wrong with the pro-abortion movement, she does recognize that two ideas are coming into conflict: "After decades of fighting for a woman's right to choose the outcome of her own pregnancy, it is difficult to turn around and point out that women are abusing that right."

So what does she propose?

Late in "Unnatural Selection," Ms. Hvistendahl makes some suggestions as to how such "abuse" might be curbed without infringing on a woman's right to have an abortion. In attempting to serve these two diametrically opposed ideas, she proposes banning the common practice of revealing the sex of a baby to parents during ultrasound testing. And not just ban it, but have rigorous government enforcement, which would include nationwide sting operations designed to send doctors and ultrasound techs and nurses who reveal the sex of babies to jail. Beyond the police surveillance of obstetrics facilities, doctors would be required to "investigate women carrying female fetuses more thoroughly" when they request abortions, in order to ensure that their motives are not illegal.

As the reviewer Jonathan Last rightly responds

Such a regime borders on the absurd. It is neither feasible nor tolerable—nor efficacious: Sex determination has been against the law in both China and India for years, to no effect. I suspect that Ms. Hvistendahl's counter-argument would be that China and India do not enforce their laws rigorously enough.

But then I do not fully agree with the reviewer's following words:

For if "choice" is the moral imperative guiding abortion, then there is no way to take a stand against "gendercide." Aborting a baby because she is a girl is no different from aborting a baby because she has Down syndrome or because the mother's "mental health" requires it. Choice is choice. One Indian abortionist tells Ms. Hvistendahl: "I have patients who come and say 'I want to abort because if this baby is born it will be a Gemini, but I want a Libra.' " This is where choice leads. This is where choice has already led. Ms. Hvistendahl may wish the matter otherwise, but there are only two alternatives: Restrict abortion or accept the slaughter of millions of baby girls and the calamities that are likely to come with it.

It is true that is problematic to imply that abortion is OK, unless you happen to kill girls. If abortion is wrong, so is aborting boys, sick babies (as the reviewer writes) or indeed children being born because of extreme and unusual circumstances like rape, incest etc. That is, IF abortion is wrong. This blogger does not have the philosophical, moral, or theological (Christian, Hindu or otherwise) arsenal to answer that normative question. It is, to use a much-despised phrase, "above his pay grade".

But I do think that there could be a way of squaring this circle somewhat – short of unrealistic bans of on all ultrasounds, and short of a ban on all abortions. Why not re-direct our welfare states (the existing ones in the West and Japan, and the incipient ones in India and China) towards the young, rather than the old? Generously subsidize every child birth – half in the form of an education savings account for the child to be used in the coming years, say, and half – this is what could be crucial – for the biological mother.

In other words, give women – at least relatively poor women – a monetary incentive to have babies. Now, of course this is, to channel Newt Gingrich, right wing social engineering, which ironically could have various unintended consequences – adverse ones for social conservatives, ironically. For example, would this further encourage single and/or underage motherhood, especially amongst socio-economically underprivileged women? Maybe the monetary incentive should be higher for married women? – but then wouldn't that a) be less targeted – married women may be marginally less likely to abort babies b) economically "regressive" – married women may also tend to be financially better off, on average. Perhaps, a better way would be to have a "top-up" subsidy for babies which are given out for adoption via the appropriate procedures. Of course, it goes without saying, there is no silver bullet here.

In short, while there is no easy clear-cut answer for one of the great moral debates of our times but to make abortions "rare", at least one set of tools has to rely on monetary incentives. Subsidize child-birth, especially adoptions, and cut government welfare for the aged (especially those coming from the upper-middle classes). In the US, this could mean partially mean-testing Social Security whereas in India it could mean having more of our healthcare/maternity budgets re-directed towards subsidizing births of female children, and a further subsidy for adoptions (especially that of girls).

Whither the Hindu right

Amit has a post partially in response to this post on Broadmind. Ashok Malik and Arvind Kumar have also weighed in. Amit says:

There is no denying the fact that there is a concerted effort to define what constitutes the Right in India. The economic right which has assumed the intellectual mantle to define alternate (to the Congress’s socialist agenda) policies and governance agenda wants the Right to emerge as a Liberal Nationalist movement. For them anything to do with Hindu Right is taboo…

This is the heart of the issue. What should the Indian right be – firstly in an ideal situation, and secondly given the political realities that we face?

I will certainly be losing accuracy here, but generalization is called for to model the debate. We have the Hindu nationalists on one side, and the liberal nationalists on the other – both disagreeing to some extent with the current government's economic and foreign policies. But when it comes to domestic, religious and socio-cultural issues, there is an apparent schism. The introspection caused by MF Husain's death recently is a good case to examine. The liberal side says Husain was an Indian citizen and because of our laws and lawsuits – as well as a small but violent minority – he could not paint whatever he wanted to. That is unacceptable, period – and I could not agree more. The Internet Hindu side says it is not Husain painting Hindu goddesses in nude that necessarily offends them the most, but the double standards when it comes to Tasleema Nasreen's expulsion, Da Vinci Code movie bans, and so on. And that is a very strong point too.

But if hypocrisy is what really rankles some, then there is an easy way to resolve this. A lot has happened – regrettable or not – but will the Hindu nationalists now support an American-style First Amendment pro-free speech measure in India and lobby BJP to push for it? That is, would they really be fine with people like MF Husain and Arundhati Roy painting and expressing anything? Anything? Even a Ram version of this? Or a tricolour version of this? Because only then would speech like Mohammad cartoons, Bangladeshi genocide tell-alls, and salacious gossip about Christ be protected. With such an amendment, there is no or little chance for any hypocrisy on the part of our politicians as they try to pander for votes. They will simply no longer have discretion to divide-and-rule.

But those who do not support such an amendment, then they are merely complaining about the (real or perceived) inconsistent applications of discretionary power in the hands of government, not really about the discretionary power itself. And make no mistake – laws that can punish you for casteist comments, blasphemous statements, and seditious writings will always be applied in a discretionary manner. Given the reality that pseudo-liberal and left-leaning luminaries are well entrenched in our media, some incidents are more likely to be reported than others. Some grievances are more likely to be stroked than others. Attacks on MF Husain were all condemnable and wrong in and of themselves. But if you so much as even try to contextualize any of these, you will be toast in the public sphere. Fair or not, but that is how it is. Certain songs and movies will be banned, edited or censored – whereas other works of art (which are equally offensive to other groups) would be allowed.

My principles tell me that there is nothing wrong if somebody expresses himself or herself so long as no one else's liberty or property is physically or financially harmed. But you may not agree with my principles. Fair enough. Yet, my political intuition also tells me that the BJP/RSS junta is never going to win enough votes, seats and media influence to (a) first preserve these anti-speech and other such illiberal laws and then (b) somehow apply them more "consistently" or "fairly". Therefore, even from a non-principled but more "realistic" point of view, the only way to stop such offenses against the "Hindu community" is to create deterrence. That is, if you want a community to discourage those members amongst them who offend other communities, then those communities need to know that the state will not be able to selectively "protect" them from offensive speech committed by those in other communities either.

But I do not think we need to be so Machiavellian (or Kautilyan, lest I be accused of being inauthentic). The Hindu community not only has no papacy (oops, another "non-Indic" reference) or holy bureaucracy, it has no one correct orthodox theology either. Moreover, non-violence has always been an important part of religions born in ancient India. Our cultural sensibilities at their very best value persuasion and reject coercion.  When persuasion fails, ostracizing can be followed – but coercion, no. Therefore, in my humble view, most Hindus should have no problem supporting free speech – and if they do, where is the difference with the liberal nationalist crowd?

Moreover, its not just about speech. On major issues like Article 370 and Universal Civil Code, liberal nationalists and the Internet Hindu crowd are on the same page. The Ram Mandir issue has almost been resolved by the courts. There may be some difference on relatively minor issues like cow protection, forcing people to sing Vande Mataram etc – but by and large there are no major problems. The Hindu right does not care about gay rights (or lack of them), abortion is not a major issue here, the feminism/sexual revolutions in India are proceeding in India in a mature and low-key manner, the Pakistan issue is not half as important for our globalizing and growing economy as it may have been a decade ago. Honestly, where are the substantive differences? Amit had written – to repeat – that "There is no denying the fact that there is a concerted effort to define what constitutes the Right in India". I want to make that point more specific before we even get to the specifics of liberalism/economics/foreign policy in some future discussion.

I think there should be a more concerted effort first to define what constitutes the Hindu right in India. Should we leave the Hindu right to only self described Internet Hindu activists? Their faults have been exaggerated, I do sincerely believe, but even in this post Amit manages to get a nice parting shot incorporated – "Presumably they (the Liberal Nationalists) have been subsumed by left’s contempt for anything native, anything Hindu". So anybody who disagrees with you about the role of Hinduism and its self-proclaimed vanguard in Indian politics and the Indian state (not the role of Hinduism in our popular culture, private education, and so on) is just another brown sahib?! Unfortunate. But this is exactly what this "debate" has been reduced to – ad hominem from both sides, without any major substantive differences underneath.

If most Internet Hindus are actually not bigots, but simply sick and tired of the double standards they see all around them – their best bet is actually to join ranks with the liberal nationalists. The Hindu right definitely outnumbers the liberal right for now and the foreseeable future. But it must also not be smug about getting only a fifth of the country's polled votes, and should anticipate future demographic trends. I have not met many (I said "many", not "any") young, educated, urban female professionals who are breathlessly waiting for 2014 so that they finally cast a vote for the BJP. You can ignore this group for now, but it is growing rapidly. Nagpur, we have a problem.

If you are complaining about Munnu getting the rosagullah, and not Chunnu (despite the fact that Chunnu is the elder one and does more house work) you have already missed the plot. Chunnu-Munnu in real life are voting adults, and the government is not their mother and should not have the power to dispense or withhold delightful Bengali sweets. India needs a genuinely liberal and nationalist alternative – one that in a happy co-incidence fulfills the political demands of the overwhelmingly moderate yet silent majority of Hindus too.

 

What’s Wrong with the Right?

It was 1999 – Pope John Paul II was visiting India, and the newly-formed BJP-led NDA government under AB Vajpayee was in a bind over how to contain extremist Hindu fundamentalist factions which were not just a part of the broader Sangh Parivar, but also the BJP itself. In an interview to Outlook magazine, Attorney-General Soli Sorabjee recounted:

When the VHP burnt an effigy of the Pope, Vajpayee slapped his forehead in disgust and said “Pagal hain.” (“They’re mad.”)

As commentator Ashok Malik wrote last year, most of this Hindutva fringe now seems to have “migrated to the Internet”. Mr Malik characterized the “Internet Hindus” as “a collective of the intellectually inadequate, the professionally frustrated and the plain bigoted.” A permanent sense of victimhood and an irreversible inferiority complex are two more attributes that can be added to this list.

His description would have been apt to describe some of the self-anointed Hindu activists who burnt effigies of the Pope in 1999. Over the last two decades, such groups have damaged paintings by the celebrated artist M.F. Husain and demonized academics such as Wendy Doniger.

Bereft of an intellectual anchor, their only response to constructive criticism is to cheerlead. Those who don’t join the cheerleading are “secularists” or worse, “Congressis / Congis”, they snigger to each other, rejoicing in their isolated bacchanalia, and self-reinforcing their own relevance and value to the public debate.

When groups behave in this crude and imbecile fashion, they end up shrinking their own political constituencies and isolating themselves in the long-run. They project victimhood instead of confidence, narrow-mindedness instead of a broad vision. They cannot disagree without being disagreeable.

Because of such behaviour, the terms of the debate are changed – the question of the merit or demerit in the Pope’s organization, M.F. Husain’s paintings or Wendy Doniger’s historiography is lost. They pay no heed to AB Vajpayee’s counsel –“Kitaab ka jawaab kitaab se do.”

They want to agglomerate cheerleaders for the political groups they support, and subject thoughtful and constructive critics to abuse. They mistake rants for analysis and hopelessly partisan rhetoric for persuasive prose. They think bulldozing opponents is the way to persuade them. They are incapable of putting forth an alternative agenda, and don’t hesitate to spew venom on those who do.

They prattle about “Center-Right” policies and governance without having any clue what that entails – attempting to co-opt that label is, in fact, a shallow effort at sounding credible. The Internet Hindus have no new ideas to offer – all they can do is react.

Mostly mindless, Pavlovian attacks on the Congress party, Nehru-Gandhi family and sections of the media that are considered by the Internet Hindus to be biased, are tweeted and re-tweeted, cited and re-cited with glee. The Internet Hindus are devoid of any principles. If somebody they’ve been fundamentally opposing and even making fun of, were to start toeing their line of thought, they’d quickly cite them to score cheap and ephemeral points.

They have a “with-us-or-against-us” attitude, but alas, all they really are is a bunch of Twitter accounts, with no identity or influence in the real world – and by their disagreeable behaviour, they turn away fence-sitters and marginal voters, who are dissatisfied with the intellectual Left and Congress party. They defame India’s Right-wing and destroy its credibility more than any of their political opponents ever could.

This leads to even more frustration, and ever-increasing victimhood. The (vicious) cycle is complete. Rinse, wash, repeat.

AB Vajpayee on Economic Reforms and Growth

Atal Bihari Vajpayee became Prime Minister on March 19 1998, when the BJP-led National Democratic Alliance formed the government. On April 28 1998, Prime Minister Vajpayee addressed the National Conference of the Confederation of Indian Industry. This was his first address to any industry association as Prime Minister. The speech is worth reading in full. Vajpayee reaffirms the government’s commitment to reforms and underscores the importance of economic growth.

The full text [PDF link] is reproduced here for the record:

In the recently concluded general elections, the people have given a mandate to the BJP and its allies to govern. At the same time, it is a fractured mandate. The challenge before us is to do full justice to our job even though we have a fractured mandate. I assure you, that in spite of some teething problems, the people’s desire to see a stable, strong and action- oriented Government in New Delhi will be fulfilled. We have accepted the challenge.

The theme for this conference — “Bringing Growth Back: Economy, Education and Employment” — captures in a nutshell, the main thrust of our alliance’s National Agenda for Governance, which is the blueprint for our policies. And as such there is a happy convergence of the concerns of the Government and the Indian industry. Such a participative relationship will enable India to realize her full potential of economic growth, and the well being of our people. I have good reason to be emphatic on this point. Today, not only the global standing of a nation, but also its security, integrity and stability indeed its very existence as a nation — is dependent on its economic strength.

I firmly believe, therefore, that the time has come to insulate the nation’s economy as much as possible from the turmoil in its democratic polity. It is high time all sections of our society, including those in business, industry and politics, sank their partisan obsessions and focused their attention on the all-important national imperative: Growth. Let the common patriotic mantra for one and all be: Growth, More Growth and Still More Growth. With the Union Budget due for presentation in early June, this is an opportune time to spell out our philosophy of growth. The National Agenda has stated in clear and unambiguous terms that my Government “shall strive to develop a national consensus on all major issues confronting the nation”.

The problems facing the Indian economy are too many, too complex and far too important to be subjected to a partisan approach. We simply cannot afford to play politics with the nation’s economy anymore. This in- deed will be the real test of patriotism on the economic front. This point demands candid and even self-critical elaboration. The first phase of economic liberalization was launched in 1991. Some of the reforms brought about positive changes. Unfortunately, the measures taken to free the economy were not matched by checks and balances. And we have paid a price for those lapses. Also, the liberalization process suffered from inadequate attention to the eradication of unemployment and to many critical issues in the social sector such as health-care, education and housing. Importantly, it failed to give a momentum to infrastructure development, which is now choking growth.

In our view, the reasons lie in the failure of the Government to effectively address the core concerns of the Indian industry. They lie in the failure of the Indian industry to appreciate the core concerns of the Government. They also lie in the failure of both the Government and the Industry to convince the Common Man that he too has a stake — a vital stake — in the reform process. That is why, during the election campaign, I repeatedly stressed that India urgently needs to reform the reform process. To explain what we mean by this, let me first enumerate what I think are the three main complaints of the Industry against the Government, the three main complaints of the Government against the Industry, and also the three main complaints of the Common Man against both the Government and the Industry.

The three chief complaints of the Industry against the Government are:

One: Industry thinks the Government is the root cause of avoidable delays owing to excessive controls.

Even after seven years of reforms, a typical industrialist is forced to spend considerable time in management of the Government than in management of his own business.

Two: Industry complains that the Government takes too much, but provides too little and that too haphazardly.

Three: The Government is in all those areas of business in which it had no business to be there in the first place.

Now let us look at the three chief complaints of the Government against the Industry:

One: Government feels that the Industry does not share its social objectives.

Two: Government thinks the Industry wants the Government to abide by the canons of Good Governance such as transparency, accountability and fiscal prudence. Fair enough.

But does the Industry itself follow transparent accounting and strict norms of disclosure? Does it meet its obligations towards consumers, workers, shareholders, bankers, the environment and the society in general?

Three: Many industrialists want competition — but in other industries. In their own industry, they want protection.

Now, what are the Common Man’s perceptions of both the Government and the Industry? He thinks that —

One: The top people in both the Government and the Industry are hand-in-glove to make the system work for their own self-enrichment.

Two: Neither the Government nor the Industry cares for the real needs of the people.

Three: There are two separate sets of laws in this country: one for the ordinary people and the other for the ‘Big People’ in the Government and the Industry.

Now, let us ask ourselves:

• Are any of the above perceptions wrong? No.

• Isn’t it a fact that no genuine reform process is possible without squarely addressing these valid perceptions? Yes.

That is why I say that India urgently needs to reform the reform process.

We need to reform the Government, which is the engine in any nation’s development strategy. The Government must become a helper, and not a hurdle. Therefore, I urge each and everyone in the Government — from the minister to the lowest clerk — to recognize their duty and responsibility flowing from this commitment.

We need to reform the Industry. Broadly speaking, every industry and industrialist is entitled to grow to their fullest potential. But without recourse to unethical practices or evasions of dues to the State.

We need to also reform the mentality of the Common Citizen. He must realize the imperatives of hard work, quality work, and discipline. Responsible citizenry demands no less.

And barring those who belong to the weaker sections of society — and hence deserve all the support of affirmative action that we can render unto them — the others should begin to respect the laws which fashion and govern a sound economy. Which means, they must pay for what they use. And, yes, they must also get what they pay for. In short, the nation as a whole needs to reform itself in order to be able to effectively face the new challenges, and seize the new opportunities, of the 21st Century.

Let us together create a Mindset Revolution to harmonize the objectives of Economic Liberalization and Social Liberation. Let us together build a strong, prosperous and self-confident India, freed from the curses of mass unemployment, illiteracy and other manifes- tations of underdevelopment. And let us make India a global economic power in the 21st Century.

The key to translating this Vision into Reality is Growth: Growth with employment and equity. In our National Agenda, we have pledged to bring sustainable GDP growth into the 7%-8% bracket, from the present level of 5%. Many people doubt if it is an achievable target. I would say that this is a moderate target, given both India’s capacity and necessity. Even at this rate of 7%- 8%, India has to wait for well over half a century to catch up with the developed world.

Can we afford to be slower than this?

We must grow faster. We can grow faster. We simply have no other alternative. In the sphere of the economy, I should tell you plainly that I have inherited a weak, deficit-ridden economy. But I am not complaining. My job is not to harp on the past but to look to the future, not to complain but to lead.

Ladies and Gentlemen, I would like to utilize this occasion to tell you and the nation what my Government will do in the next three months.

All of us are legitimately concerned about the prolonged downturn in the economy. Industry, especially, is looking to the Government to take necessary steps to kick-start the economy.

This is no doubt dictated by the objective of faster economic growth. But it is also necessitated by my own Government’s stated goal of creating at least ten million new jobs each year in the economy. We shall soon announce a series of schemes to mobilize investible funds from idled resources existing in the country but unavailable to the exchequer. In consultation with trade and industry we will take all necessary steps to reduce the currently untenable level of NPAs of banks and financial institutions. We will also devise machinery for resolving disputes between the revenue departments and trade and industry to speedily obtain for the Government what is legitimately the State’s. Also, suitable policy measures will be taken to tap new and unconventional sources of funding, such as debt market instruments and pension and insurance funds, for infrastructure projects.

II. The Government is committed to broaden, deepen and speed up the process of internal liberalization.

In the case of globalisation, we will adopt a carefully calibrated approach, for reasons most of you appreciate. The Government will play the role less and less of an active player in the economy, and more and more of a legislator, facilitator and regulator. Where necessary, it will be the protector of India’s commerce and industry. My Government’s relationship with Industry will be based on trust, not marred by mistrust.

I come from a political tradition that does not look upon commerce and industry with suspicion. When it was conventional political expediency to decry entrepreneurship, we championed their cause. As a government, we will do more. As a concrete proof of this approach, we will soon appoint a commission to comprehensively review in a short time frame all the administrative laws, rules and regulations governing industry and trade. Such of them which have outlived their utility will be either totally scrapped or radically simplified. With this move, we aim to enable Indian entrepreneurs — small, medium or big — to create more wealth for themselves and for the nation.

III. The Companies Act will be drastically overhauled. The Foreign Exchange Regulation Act (FERA) will be replaced with legislation consistent with current needs.

We will ensure that crucial Government Orders are not passed without first ascertaining their consequences
on domestic industry. Many of the problems faced by Industry are at the State and local level. The process of internal liberalization will be widened to reach those operational levels. With this in view, we have recently appointed a Special Task Force, headed by Shri Bhairon Singh Shekhawat, to advise the Government on devo- lution of financial and administrative powers to the States.

IV. Infrastructure development is the very backbone of any strategy aimed at achieving higher growth and large-scale employment generation.

However, an unfortunate impression gained ground after the first phase of liberalization that the Government will have less and less to do with infrastructure development. As a result, a slowdown has taken place in investments in this vital area of the economy. My Government will substantially increase investments in infrastructure development. Simultaneously, private sector investments will receive far greater policy and implementation support.

The Minister for Power has just recently announced wide-ranging initiatives on the power front. My Government will take firm decisions — and also support firm decisions of State Governments — to bring financial viability to the power sector.

The State Electricity Boards are bankrupt and need restructuring. The drain on internally raised resources has to stop. In this regard, the country should take note of the bold but painful steps the Andhra Pradesh Chief Minister, Shri Chandrababu Naidu, has taken to guard and raise the viability of power generation and distribution in his State. We also support, in this regard, the initiatives of the Orissa Government.

V. Delays in implementation has been the bane of infrastructure projects in India. They have led to not only cost and time overruns, but also loss of opportunities in downstream income and employment genera- tion. This neglect and waste will be positively addressed.

Towards this end, the Prime Minister’s Office will directly monitor all projects capitalized at more than Rs. One hundred crores each in the areas of power, roads and bridges, dams and irrigation, telecommunication, oil and energy, railways, ports and airports. My office will seek a monthly progress report on all such projects and ensure that they are completed and commissioned on due dates.

VI. Agriculture is the very heart of our economy and culture. Farm production has to reach a growth rate of at least 5%. Otherwise our goals of overall economic growth and employment generation, as also our prom- ise to build a Hunger-Free India by the year 2010 will remain unfulfilled. Food security on a long-term basis is our urgent and immediate concern.

The Government plans to earmark substantial Plan funds for public investment in agriculture, rural development, irrigation, horticulture, afforestation, waste- land development and related rural infrastructure. We will also pay special attention to the modernization of the agro-processing industry. It has immense potential for employment generation.

Agro-processing industry provides a critical link between the agriculturist and the urban consumer. We will strengthen this link, among other things, by encouraging collaboration between the cooperative agriculture sector and the corporate sector. Opportunities in exports of food products will be vigorously pursued.

VII. We intend to give vastly higher policy attention to the small-scale industry and the Bhagidari sector, as these are important sources of self-employment.

This sector makes the highest contribution to the country’s GDP. My Government will welcome suggestions from the CII and other Industry organizations as how to provide to this sector critical developmental inputs such as easy, adequate and timely credit; marketing infrastructure; and appropriate technology.

VIII. Housing and construction are the greatest generators of productive employment, next only to agriculture and services. The National Agenda for Governance has pledged to facilitate construction of two million new housing units each year, with priority for low and middle-income family needs.

Within the next 60 days, my Government will unveil a National Housing Policy. All impediments in the realization of our stated goals in the Policy will be removed forthwith. The Urban Land Ceiling Act will be suitably amended to facilitate realization of hous- ing goals and to boost construction.

IX. Information technology is an area of special importance. It has already revolutionized the world. No country can hope to develop global competitiveness if it ignores information technology.

This is one area where India can quickly establish global dominance. India can be fully competitive in this area with tremendous pay-offs in terms of income generation and creation of high quality jobs. This area also provides an alternative, attainable opportunity to Indian business and industry to become software czars. Just three Indian companies, not exactly household names, have today a market capitalization of Rupees Thirteen thousand crores. And all are also aggressively exporting. In this connection, I invite specific suggestions from trade and industry for removing any bottlenecks in the way of faster growth of the Info-Tech industry.

In the National Agenda, we have pledged to make India a software superpower. Within the next 30 days, we will set up a National Information Technology Task Force, which will formulate a draft National Informatics Policy.

X. The Government will initiate immediate steps to effect reforms in the Public Sector. These will embrace the whole gamut of imaginative restructuring, including transparent disinvestment and reducing PSU losses

XI. Indian industry must improve its global competitiveness and strengthen its export muscle. We cannot succeed in Swadeshi development if we do not export. The new Exim Policy seeks to provide special support to our exporters.

There is a social dimension to making Indian Industry competitive. Capital-intensive structural adjustments in industrialized countries have given them a competitive edge in global markets. But they have also entailed massive lay-offs. Many of these countries have welfare schemes to cushion unemployment. India does not. Unemployment in India is more than a statistic. It means hardship and ruin for the unemployed person and his family. Sometimes even suicides. Let us keep this dimension in mind when we formulate growth strategies. In view of the rigorous time table of the World Trade Organization (WTO), I suggest that Industry and the Government sit together and draw up a schedule upto the year 2005. We should then work backwards to closely monitor our forward movement in export promotion.

XII. Let me also say a few words on our policy towards foreign investment. Swadeshi does not mean that we do not value foreign investment. It only means that the bulk of the resources needed for our development must be mobilized by ourselves.

This is why we propose to take necessary steps to raise the rate of savings from 26% of GDP at present to about 30%. However, these domestic resources can, and need to be supplemented by foreign resources also. We welcome foreign investment in areas of our special priority such as infrastructure development, hi-tech, transfer of better management practices, upgradation of product quality to help export capability, and critical global marketing linkages.

I would also like to state categorically that no investor who has been given permission hitherto to operate will find the permission withdrawn or narrowed in scope. Government is a continuing entity. Towards this end, my Government will soon formulate transparent, non-discriminatory and non-discretionary policies governing Foreign Direct Investments. The Foreign Investment Promotion Board (FIPB) will be required and also empowered to give a firm “Yes” or “No” answer to every proposal involving FDI within a deadline of 60 days.

XIII. The importance of education in achieving our national objectives in growth and employment can hardly be overstated.

Enriched Human Resources are a critical input in any economic activity. In the knowledge-driven economy of today, they have become the most precious forms of capital. We need to improve quality and standards at all levels of the Education Pyramid. My Government is fully committed to promoting the cause of Total Literacy through elementary education, informal education and adult literacy.

I urge the CII and other Industry organizations to take a lead in giving an impetus to employment-oriented technical education on a massive scale. This will help the country develop much-needed primary and intermediate industry skills to improve the productivity of industry and services in cities, towns and semi-urban areas throughout the country.

Ladies and Gentlemen, as a nation, let all of us Think Big. I would particularly urge Indian Industry to —

• Draw up big plans. When the big become bigger, the small and medium players would grow up to occupy their places;

• Set up manufacturing, marketing and finance units of global size and eventually global presence;

• Develop brands and products that will rule the world;

• And, through all this, plant the proud flag of India on the map of global business and industry in the early years of the 21st Century.

My Government is more than ready to be your partner in the realization of your dreams. Will you be a partner in the realization of my Government’s agenda?

I seek the active participation of one and all in this endeavor, confident that I’ll have it in full measure.

Thank you.

This inaugural address was delivered on April 28, 1998 at Vigyan Bhavan, New Delhi.

Another transcription, in a collection of AB Vajpayee’s speeches as prime minister edited by Sujata K. Dass notes these additional points:

Our Government will also move decisively in other important areas such as the power sector, telecom sector, ports, airports and highways. We are determined to speedily increase the size of the export basket and also to diversify its contents. Our emphasis now will be improving decision-making and implementation of policies and projects to make all these sectors more attractive to private sector and foreign investment. Towards this end, the Government shall radically simplify rules and procedures that cause delays.

Distinguished businessmen, I can sum up the brief narration of the Government’s multifaceted initiatives in the economic sphere in just five words: India Is On The Move. The experience of the last decade of this century has given us many useful tips on how India can move faster in the first decade of the next century. The world will soon see the emergence of a strong and prosperous India, in which the basic needs of all her one billion children will have been fully met.

An economically resurgent India will be a source of stability and long term growth for the world economy. It will also contribute significantly to the emergence of a fair and equitable system of global trade and business serving reliable basis for universal peace and prosperity tomorrow.

In this endeavour to achieve self-growth and global growth, India actively seeks the participation of the international business community. If India is already a good business proposition, I can assure you that it will be even better in the times to come.

Bhushan Has Cost India More Than 2G Scam

Civil society activist Prashant Bhushan said today:

Bhushan said the present Lokpal Bill was not “perfect” and needed improvements. He said in any case, the office of the Lokpal would only be able to deal with “supply side corruption”.

“Unless we deal with the demand side as well (from the corporate sector), we would not be able to fight corruption effectively,” he said.

Mr Bhushan has appropriated terminology from Economics to manufacture a sophistry, that has been duly deconstructed by fellow blogger V. Anantha Nageswaran at The Gold Standard.

Let’s go back over 7 years, when then-Disinvestment Minister Arun Shourie took on powerful special interest groups to try and privatize oil public sector undertakings BPCL and HPCL. Mr Prashant Bhushan was the first person to file a Public Interest Litigation against the government’s decision:

Earlier, the Court had issued notices on a petition filed by Centre for Public Interest Litigation (CPIL). Counsel for CPIL Prashant Bhushan on Friday requested the Court to list for hearing its petition, in which pleadings were complete.

The Supreme Court went on to ask the government to block the privatization, demanding that the government should seek parliamentary approval for the same, which effectively killed off Shourie’s valiant effort. Nine months later, the BJP-led NDA government, which had championed privatization of state-owned companies, was voted out.

Oil prices in July 2003, when the Supreme Court delivered its judgment, were about US$25. Since then, because of the government control over the retailing and distribution of fuels, Indian taxpayers have had to fork out tens of thousands of crores because prices at the pump haven’t been in sync with the market price, which touched US$ 150 in 2008 and continues to exceed US$ 100 today.

The under recoveries are estimated to exceed Rs 2 lac crore (over US$ 40 billion) for this year, and have cost the government over Rs 1.5 lac crore since 2006 alone. Had Mr Bhushan and his cohorts not opposed Arun Shourie’s efforts with such alacrity, India would have likely been on a far stronger fiscal footing.

Bhushanomics and Manmohanomics is a lethal combination that is ruining India’s fiscal position and stunting our economic rise. We should not take economic growth for granted – the only way India can eradicate poverty and corruption is to promote economic freedom.

New Ports Bill Is Regressive and Draconian

The Economic Times reports:

The union government will introduce a bill, the Port Regulatory Authority Bill, in the next session of Parliament to regulate all ports in the country but the move has dismayed the rapidly-growing private ports that are currently free to fix tariffs and the state governments that control them.

Shipping Ministry officials say the bill would provide a level playing field to government-owned major ports by allowing them the flexibility to fix their own tariffs. But officials at private ports say the proposed bill actually empowers regulatory authorities to issue tariff guidelines even for private ports.

In the name of creating a “level playing field”, the UPA government proposes to tell private companies how they should be running their business. To achieve that objective, the government should be privatizing ports and exiting the ports and shipping sector.

Economic Times quotes an infrastructure consultant from Ernst & Young as saying:

“The guidelines prescribed in the bill may not make a big difference to the existing regime. But port operators fear of embedded laws of the regulators, including powers to cancel licences and levy huge penalties. It is time to set laws according to international standards,” said Samir Kanabar, partner – infrastructure practice, Ernst and Young. According to him, the regulatory body should be like the Telecom Regulatory Authority of India (Trai) looking after the interests of the consumers and let the market forces determine the tariff.

Daily News & Analysis also has a report on the proposed Bill.

Mint notes in its editorial:

All in all, the plan is to install a thick bureaucratic layer in a system that has worked well so far. The growth in the business of minor, private, ports proves this amply. If even after charging higher rates these ports continue to generate business, then the problem lies elsewhere. Regulation can only throw a spanner in their works.

Sure, this is one way of providing a “level playing field” for the major ports, but the thinking behind the Bill can hardly be termed positive. If, in an unregulated environment, minor ports are working well, then it goes to show that their business practices are acceptable to their users. The government should steer clear of them.

RIP Pietro Ferrero Jr.

Mr. Ferrero Jr., in an unfortunate incident, died yesterday at the age of 47. He was the thirdgeneration of a great family business that brought us Nutella and Ferroro Rocher, amongst other chocolate products.

The Ferroros have made a lot of people a little happier than what they they otherwise would have been. I am also amongst those who have enjoyed their products often. While I cannot vouch for all their businesses, they seem to have made money by voluntarily accepting small amounts from millions of people in exchange for their chocolates. Indeed, Michele Ferroro, who survives his son’s tragic death, is the richest man in Italy by some estimates.

What an amazing family. If Pietro Ferroro Jr.’s soul can hear me, I just want to say two words – thank you.

Uncle Sam’s health check-up

Today the S&P sounded a warning about American sovereign debt. While the equity market fell, the more relevant market – the bond market – shrugged the report, again showing rating agencies to be anything but a lead indicator. But what is behind the soaring American debt?

The most important structural reason for the American federal government’s high spending, deficits and debts is Medicare (subsidized healthcare for the old), Medicaid (subsidized healthcare for the poor) and now (unless repealed in 2012) Obama-care (subsidized healthcare for almost everybody else too)

The other worries are trivial in comparison. Current deficits are caused more by low tax/GDP ratios because of an epic yet temporary recession rather than Obama’s stimulus and Bush’s bailouts. Social security is a simple actuarial problem that can be more than fixed by raising retirement age by only one month per year. Three wars have and are bloating their defense budget, but even a saving of 1 percent GDP every year or a current cut of around 150 billion dollars in defense spending pales against the ~50 trillion dollars of unfunded liabilities the US faces (yes, we are comparing flow vs stock here, but even a 3 percent coupon on 50 trillion is 1500 billion, and 1500>>150)

So the diagnosis finds healthcare entitlements to be the problem. Well, how to cure it then?

Both the Democratic President Obama and the Republican star-wonk Paul Ryan genuinely seem interested in limiting government’s per-recipient’s health spending (though Obama would prefer to have a few million more recipients). Both have talked about bending down the cost curve in the long run. But the methods differ.

Obama wants medical experts, scientists, ethicists and well-meaning technocrats deciding which treatment should be subsidized and how much – perhaps, focus less on end-of-life treatments. Ryan has proposed vouchers or premium support – let people shop around for the cheapest/best treatment and give vouchers to people (sized according to needs, and perhaps other conditions)

Prima facie, both may sound like reasonable approaches. Indeed, you can tweak Ryan’s vouchers/conditions and make them more egalitarian – and make Obama’s medical insurance exchanges even more market-friendly. Therefore, there are no significant normative differences (at least not many that cannot be reconciled) between the Democratic and Republican approach. Both believe in slowing down the growth of health subsidies, while recognizing the need for government redistribution.

What we face is substantially a policy/positivist debate regarding which method is more efficient. The Democrats say how having more centrally-decided medical spending will provide significant bargaining advantages when the government procures supplies and hence will reduce costs. The Republicans say the third-payer issue, which government intervention accentuates, de-links medical costs from patient incentives, and hence vouchers present a partial remedy.

My personal judgement is that the Republicans/Paul Ryan are more correct than Democrats/Barack Obama. Public choice theory should remind us that the government is not Walmart (a private company which does extract significant bargaining powers from its suppliers). The government does not have shareholders to report to – but yes a lot of lobbyists often. A theoretical bargaining advantage of the Feds is likely to get dissipated amongst commercial and political pulls and pushes. Moreover, the third-payer issue persists in such a system.

For American fiscal solvency – and global financial health – the Democrats should rethink their opposition to medical vouchers. Democratic exegesis has already found the entire Ryan Plan to be partially insolvent; hence they can extract tax reform and more egalitarian vouchers during congressional passage. The current American entitlements must be killed to protect the American welfare state. Separate the normative from the positive; adopt choice as a comprehensive progressive slogan.