The structuring of PM-Cares has pointers to the path PM Modi needs to take, to free government decision-making.
A lot has been said about the structuring of the PM-Cares Covid-19 calamity fund over the past few months, mostly derogatory. The fund cannot be audited by the CAG, so there is no way to find out who is donating money or where it is being spent; but then, the PM National Relief Fund (NRF) that is touted as the alternative can’t be audited by CAG either. Indeed, the NRF even officially had the Congress president as a member, so much for NRF being above political affiliations! But, other than the Congress president’s ex-officio membership in the NRF, there seems to be no real reason why PM-Cares needed to be set up since NRF already existed.
But given the likely size of the donations to PM-Cares, a more meaningful discussion is about why even the NRF was kept outside the purview of the CAG. The idea, essentially, was to keep the spending decisions flexible—critical in times of disaster-mitigation—instead of these getting caught up in issues of whether the spending was justified, whether purchases were made from the lowest bidder, etc. It is obvious that spending decisions of a government are quite different in scale than those of a calamity relief fund, but surely if there is a broad trust in government, ways around the L-1 chokehold—and not just for PSUs—can be found?
Certainly, corruption must be reduced, but the solution can’t be such that it chokes off decision-making; things have reached such a stage that even well-reputed bureaucrats are scared to take more than fairly basic decisions. A good example, in this context, is the Trai’s arbitrary and unjustified recommendation—based on a complaint by RJio—to impose a Rs 3,050-crore fine last year on the older mobile phone firms like Bharti Airtel and Vodafone Idea (read bit.ly/2ByeymV on why this was totally arbitrary).
Trai doesn’t even have the powers to levy such a fine, but the Digital Communications Commission (DCC), whose high-profile members include the telecom, industry and finance secretaries, along with the CEO of NITI Aayog, didn’t have the ability to turn down the recommendation. DCC simply rubber-stamped it while asking Trai to reduce the penalty to a nominal amount. Trai turned down the request, and the high-powered DCC rubber-stamped this again! The matter remains in a limbo with a decision taken, but not implemented. India’s economic history is littered with several such examples of everyone in the government knowing what is the right thing, but no one actually wanting to be the person to do it.
In the case of PSUs, while the whole CAG/CVC/CBI process is focused on preventing the ‘theft’ of a few crore rupees—or maybe tens of crore—in most cases, not a word is spoken about the loss of Rs 1.7 lakh crore in the relative market value of PSUs since prime minister Narendra Modi first came to power in 2014. When Modi came to power the PSUs were worth 21.7 % of the market value of all stocks and this is down to a mere 8.9% today; the difference is the notional loss in value of the PSUs. While every industry has its own ups and downs, since PSUs are a diversified lot, the main reason for the value-destruction is that their decision-making is sluggish due to all the constraints they work under.
That is where atmanirbharta and wanting to woo manufacturers from China comes in. If decision-making remains sclerotic under even a prime minister as powerful as Modi, what hope do others have? But, unless sweeping reforms are made across the board, the talk of India becoming atmanirbhar will remain just that. Electronics minister Ravi Shankar Prasad struck a positive note when, while announcing the details of the new electronics manufacturing programme, he said atmanirbharta didn’t mean India was going to be more inward-looking—with higher import duties—but that it was going to be globally competitive and would, in fact, become a valuable part of the global supply chain for mobile phone production.
He may well be right in that his scheme may catapult India into the big league, but what he didn’t say is that it took around a year for the scheme to be finalised. Few global firms taking decisions to shift production are going to wait for that long and, as it happens, there are still lots of ways for bureaucrats to stymie the plan in its execution on the ground. Perhaps why, a Nomura study last year found that, of the 56 firms that left China between April 2018 and August 2019, just three relocated to India, 11 had moved to Taiwan and 26 to Vietnam.
When reforms on the ground get difficult—and sometimes even before!—the default option is to raise protection levels. Some years ago, prior to Prasad’s scheme, the government’s plan to promote mobile phone production was to raise import duties on components. This raised production, but did little to boost exports to offset the increased imports; and costs of mobile phones also kept rising. And now, at CII, the prime minister spoke of the need to reduce ‘unnecessary’ imports.
Unnecessary is defined as something that could be produced in India—he mentioned air-conditioners at CII—but surely such a thought process ignores the reality of global value chains? Part of the plan, The Indian Express reports, is to increase the customs duty on six key components by 50-165%; and this is when, less than two years ago, the government has already doubled the basic customs duty on ACs to 20% based on demands of domestic AC manufacturers.
Instead of such plans, the government would have done better to concentrate on the really ‘unnecessary’ imports—on gold, for instance—and tried to find solutions. A solution to gold is not to hike duties as it has over the years—this only penalises households investing in gold—but to allow banks and others to offer gold bonds. Ideally, the government should take care of the hedging and forex costs of the banks who buy futures in global metal exchanges; such a product can help slash imports of gold for investment purposes.
Similarly, cutting ‘unnecessary’ imports would have focused on faster mining licenses/clearances, since minerals, including oil, comprise 55% of India’s imports bill. Keep in mind, the earlier mobile phone manufacturing plan—by hiking import duties—did nothing to curtail imports or to boost exports to offset the imports. All the talk of atmanirbharta is good but, in the absence of sweeping reforms, the fallback plan is likely to be more isolation and increased import duties which will make India even more uncompetitive. That would be a real tragedy.