Column : Two-step India

Written by Sunil Jain | Updated: Dec 19 2012, 06:13am hrs
When foreigners call India a land of contradictions, its not for nothing. The latest policy of reservations in promotions is a classic example of this, not just in term of the policy itself, but also in the manner in which it got passed in the Rajya Sabha. Ostensibly, the Samajwadi Party is opposed to itonly because more reservations for SC/STs cuts into its OBC vote bankbut it walked out in Parliament to allow the Bill to be passed, and at the same time maintained its independence by getting a party leader to state that the UPA was coercing Mulayam Singh Yadav to pass Bills he didnt agree with.

That the Bill makes a mockery of reservations isnt saying much. It is true, of course, the original scheme of reservations envisaged by the framers of the Constitution was for a short period of a decade, but weve done so much worse, each mockery seems just a minor step forward, ek dhakka aur de as it were. Reservations were for 10 years, were going strong at 65; BP Mandal used a sleight of hand to convert caste to class and NSS data shows that, thanks to the benefits got from reservations, OBC numbers have grown far in excess of what could be expected from natural birth ratesthat means more people are declaring themselves to be OBCs to get the advantages the tag confers; reservations were meant for just entry-level college, weve extended them to even super-specialities with government and the judiciary besting each other in terms of who could stretch the envelope further (Arun Shouries Falling Over Backwards, the updated edition, has the gory details; and also see; reservations were for jobs, and now were extending them to even promotions in jobs. So what was meant to be a means to prevent discrimination has now become a positive discriminationArun Shourie shows in the case of an Assistant Engineer rising to become an Assistant Executive Engineer, the SC candidate gets the job 9 years before the general category candidate who is ahead by 30 places in the entry seniority list.

And yes, no politician sees any contradiction in staffing Indias bureaucracy with people who dont make it on meritArun Jaitley has insisted on the merit criterion not being sacrificed, but even hes not serious about itand yet wanting India to be globally competitive.

Whats interesting is how such contradictions apply to almost any other field you can think of. The UPAs flagship MGNREGA was supposed to be about giving unemployment benefits to the unemployed but thanks to its high and inflation-indexed wages, it has probably ended up creating more unemployment as farm-owners are now buying more tractorsnot surprising given that rural wages have risen around 20% a year for the last three years. Its unfair, of course, to blame everything on MGNREGA since other policies like the protection to the labour aristocracy are more to blame, but its important to keep in mind that employment elasticity has plummetedfrom 0.44 in 1999-2000 to 2004-05 to as low as 0.01 in 2004-05 to 2009-10. As a result, while GDP grew 1.6 times between 1999-2000 to 2004-05 and employment from 396.8 million to 457.5 million, this slowed dramatically later. Between 2004-05 and 2009-10, GDP grew 2 times while employment barely grew, from 457.5 million to just 460.2 million.

In the economic field, were in favour of raising gas prices along the lines that Reliance Industries wantsthats a good thing since free-market prices encourages more investments. But the problem is that freeing up gas prices without freeing up fertiliser and power pricing is a bit like opening a tap while tying a knot at another place in the pipeit just starts ballooning up before it finally bursts.

This, of course, wont be the first time were doing this. In the 1980s, there was a parallel LPG marketing scheme that saw hundreds of crore of investment going waste when the government subsidies made private sales unviable; in the 1990s, the government allowed the private sector to set up petrol/diesel outlets after committing to end diesel subsidiesthe latter never happened, forcing Reliance and Essar who had set up their outlets to shut them down. A small aside, Jagdish Khattar saw the Delhi-Gurgaon-type inter-city traffic booming and got Suzuki to design the petrol-driven Versa for this marketit was more comfortable and a lot more fuel efficient than the diesel Sumos on the road then, but the Versa died a natural death since, while Khattar was foolish enough to think a Cabinet commitment meant something, the price differential between petrol and diesel has only risen with each year.

It gets even more curious when it comes to affordable telephony. So far the government position seems to have been that, after the auctions in 2001, give telcos extra spectrum for free once they attained certain subscriber milestonesthough the spectrum was given free, the government got its money back through annual revenue-shares. The government now wants to have both the upfront licence fee as well as the annual revenue-share and is, in the bargain, threatening the very survival of telcos since the combined cost of approximately 24-26% of annual revenues renders telecom completely unviable.

The best example of two-step India, of course, is that touched upon in the finance ministrys mid-year economic review on Monday. The government procures wheat and rice essentially to provide them at low prices for the poor. So, in order to get enough grain, it announces attractive procurement prices for farmers. As of today, it has more than 3 times the grain it needs to stock for buffer purposes; though the government is avowedly doing its utmost to fight inflation, it refuses to sell the grain in the open market even though this would result in a major dampening of inflation in these items which continues unchecked. And since it doesnt have enough storage, in the bargain, the grain rots. If the government procurement wasnt bad enough, the states announce bonuses on top of the central price (how else will farmers vote for us yaar) and so, in many states, there is no private trade left in some commodities.

Obviously the excess build up of grain stocks wouldnt have happened had exports been allowed freely all this while. And if we didnt have a stop-go policy on exports, we could have built up some sustainable global competitive advantage by now. But promoting reservationsin this case saying Indian grain can only be used by Indian consumerswhile looking to be globally competitive is something we began this column with.