Tag: Economic Reforms

A reliable succour?

Looking through the lens of social realities, rather than just in economic terms, revival of old pension scheme appears to be a viable proposition

A recent debate has been triggered on the issue of demand of the government employees to be given pension as it was done before 2005 under the old pension scheme (OPS), and not as per the new pension scheme (NPS) — brought into existence by Central Government in 2005 and adopted by all state governments except West Bengal at different points of time. Uttar Pradesh has been witnessing a major agitation in this regard by various employee associations and, recently, in the run up to the assembly elections, the Samajwadi party had promised in their manifesto that they would revive the old pension scheme if voted to power. Soon thereafter, the Government of Rajasthan went ahead and announced the implementation of the old pension policy for their employees. Recently, I also noticed advertisements appearing in newspapers justifying this decision and pointing out its several benefits. In a similar vein, the Government of Chhattisgarh is seriously considering reviving OPS and several other states are also actively examining the issue.

Noted economists and several retired civil servants have been voicing serious reservation on the revival of the OPS. Their contention is that this would be a financial disaster for the public finances of state governments as salaries and pensions were a major drain on the state resources and were increasing every day due to increase in the number of employees. Additionally, longevity of people was causing a huge strain on the budgetary position of governments, leaving limited resources for expenditure on capital items or social areas like health and education. It is true that the logic used to replace OPS by NPS was that the pension liabilities were rising too fast and the state finances would not be able to bear their burden. To discuss the implications further, it is essential to understand the mechanics of both the schemes. In the OPS, a retiring government officer or employee was entitled to 50 per cent of his last basic pay drawn as a monthly pension till the end of his life. He would also be eligible for an increase in dearness allowances announced from time to time to counter inflation by the government. In the case of the death of the employee, his wife was entitled to get 50 per cent of the pension amount for her life. The NPS does away with this system and instead provides for a monthly contribution being made by the employee (10 per cent) and the concerned government (14 per cent) of the basic salary of an employee and this contribution has been kept in a separate fund where fund manager is expected to invest this in the market and get good returns. On the date of his retirement, a lump sum is available for the employee where he can draw 40 per cent and leave the balance 60 per cent in an annuity scheme to get monthly returns. It is true that this would have a lesser impact on the cash flow on the governments than the OPS. However, it must be examined as to why it is being universally opposed almost by all officers and employees who joined service after 2004.

The employees argue that the NPS is linked to the market. They are apprehensive that the amount contributed is being invested in the stock market and that they would get an amount at the time of retirement which is determined by the stock market. There is, thus, no certainty as to what the value of their contribution would be and nor do they have any role in deciding how the amount is to be invested. Employees have different number of years of service and with the age of entry to almost all government services having been increased significantly, many employees are retiring even after just around 20 years of service. During this period, the NPS corpus that is created by their contribution is too small to give any significant lump sum return or a viable stream of returns through annuity. The employees’ associations have been quick to point out several cases where on retirement the employee has been getting a measly sum under the NPS which is too meager to enable the employee to live his balance life with any sense of dignity or comfort. The problem has been further compounded by the fact that many state governments have not been making their contributions regularly to the corpus and also that there is no real time knowledge that an employee has about the fate of his pension fund. Significantly, they point out that if the NPS is as attractive as OPS as pointed out in justification by some governments then why is it that their senior officers who joined the service before 2004 are availing the facility of OPS and not opting for NPS. Similarly, they allege that the policymakers have themselves not made NPS applicable to them. It is also significant to point out that NPS has not been made applicable to the armed forces where the OPS is continuing. In a recent advertisement issued by Rajasthan Government, it was pointed out that the second national judicial pay commission has recommended OPS for the judicial services and the national human rights commission has also expressed its opinion that the state should examine the human rights element involved in NPS vs OPS.

Even though it would not be correct to examine this issue from a purely financial angle I would like to first examine this aspect. All that the OPS is saying is that 50 per cent of the last salary should be given as pension on a monthly basis. There is no reason why state governments cannot plan for this by continuing with the 14 per cent contribution every month and keeping it in a separate corpus and earning returns on it. The budget size of each government is increasing by almost 10 per cent every year and there is no reason why the contribution to the pension cannot be increased by the same amount every year. In this way, the government will be spending only as much every year as they are spending under the NPS. The returns on this corpus can come as an addition to the state finances and, from this, a monthly pension can quite easily be paid to the retiring employees from the government treasury. In this way, I do not foresee any extra pressure on state finances which could imply curtailment of expenditure on physical and social infrastructure. Other innovative ways of handling the situation can also be thought of.

The crucial thing is that the old pension acts as a social safety net for the retiring employees. You only have to look around to see that it is a pension or family pension which allows a pensioner to live a life of dignity and enables him to address his health issues that crop up after retirement. The society is such that children look after their parents if the parents are earning a monthly income to cater to their needs. If a lump sum amount is given then it rarely remains with the old parents, as the children lay claims on the amount to meet some immediate financial requirements of theirs. An OPS ensures that a retiring employee is not dependent on his children and lives in comfort for the remaining part of his life. Every issue should not be seen simply in economic terms and the realities of social life need to be factored in. The government should seriously consider reviving OPS to keep their employees motivated and also get the best brains to apply for government jobs. If the apprehensions around NPS were not genuine then the phenomenon of almost all employees and teachers agitating on a regular basis for revival of OPS would not be there. Policymakers must view this issue not as simply an economic problem but one concerned with providing lifelong social security which is a major objective of a welfare state.

Click to read original article.

Should the parties promise freebies?

Freebies are not good economics but they often happen to be good politics as they become important reasons for a political party to get elected

Just last month the elections to the State assemblies of Uttar Pradesh, Uttrakhand, Punjab, Goa and Manipur were held. In the build up to the elections all political parties promised a lot of monetary benefits to the electorate which could be called doles or freebies. A PIL has been moved before the Supreme Court to direct the political parties to restrict the promise of freebies in order to have money available for developmental schemes. The Supreme Court has admitted the petition and also commented that political parties should indicate how they will arrange the funds to fulfill the promises made by them in their manifestos.

Last week the Prime Minister held a meeting with Secretaries of various departments of Government of India in which amongst the feedback given by officers there was a consensus that promise of freebies should be avoided otherwise they put unnecessary strain on the public finances and can lead to unsustainable deficits. It is true that prudent public finance management needs to ascertain the resources and allocate them to items of expenditure that would lead to a faster rate of growth for the economy. Expenditure on physical infrastructure like roads, energy or irrigation leads to creation of an environment that is conducive for private investment to flow into the manufacturing and services sector contributing to higher momentum of growth. It has also become increasingly clear that development of human capital is essential to bring about all round development of the economy and accordingly the tax payer’s money is best spent on social sectors like education and health. Various committees have been set up from time to time by Government of India and State Governments to evaluate the public expenditure and to indicate the road map for future expenditure targeting.

Freebies are not good economics but they often happen to be good politics as they become important reasons for a political party to get elected. Ultimately, politics is all about gaining political power and for that one has to win elections. There is no denying that in the long run good economics would be good politics as it would lead to greater employment and development. However, elections are very often fought on immediate issues and, therefore, the freebie culture has caught on. Political parties which do not have a chance of winning the elections promise the moon but the voter is aware that these are empty pronouncements and is not lured by them. It becomes a different matter when political parties who are serious contenders to form Government promise freebies because they will have to honor them on coming to power which could have a negative impact on the state finances.

It is advisable that any political party promising freebies in their manifesto must indicate from where they will get the resources to implement the promises if elected to power. The voter must be alert to ask these questions and be aware of the financial impact on promises being made. In reality this is generally not true and freebies do help parties in getting votes and the voter does not go into the financials aspects. This is the prime reason why the political parties race against each other to promise freebies. It is also true that a freebie which has been given by one government is likely to continue as no other government will be able to face the reaction if they propose to discontinue them. For example, many states promise free power to farmers. This leads to excess extraction of ground water and also continuation of traditional cropping patterns. However, this kind of free power is difficult for any new Government to remove as it would lead to their becoming unpopular.

At the same time, I feel a distinction must be made between a freebie and a genuine welfare measure. In India we have a welfare economy because growth has to be inclusive to take care of the vast majority of people who are still poor and are not able to get the basic minimum amenities of a decent livelihood. In the recent elections to the UP assembly a major factor of victory of the ruling party was the vote they got from the “beneficiary class”. These were voters who had benefited from schemes like Pradhan Mantri Awas Yojana (housing for all) and the distribution of free ration to those who had been pushed into poverty due to impact of the COVID pandemic. These schemes would come under the category of welfare measures which a government must take to address the problem of the poor and the under privileged.

Then, again, many political parties promise loan waivers and win elections on this basis. This is, in my opinion, a regressive measure. It leads to lack of financial discipline, impacts future loaning by banks and creates a big burden on the State. Most States which have promised and implemented loan waiver have had to reduce the expenditure on essential, physical and social infrastructure in order to manage the deficit in the budget. The long run impact of this on economic development is adverse. Once again it can be argued by its proponents that this is a welfare measure to alleviate distress of the farmers.

I recall that for the best part of my career we used to talk about plan and non-plan expenditure. Every Government focused on increasing the plan expenditure which led to creation of new assets and tried to keep to non-plan expenditure as low as possible. Whenever, there was an economy drive the immediate step taken was to slash the non-plan budget by a certain percentage. This led to a situation where maintenance of assets suffered hugely and the education and police departments bore the brunt as the maximum expenditure in their budget was on salaries which was essential and could in no way be labelled as a drag on the economy. Fortunately, this distinction is no longer there. Money is the same whether plan or non-plan. Too much emphasis on subsides and freebies does distort the financial position of the State. The criticality of financial prudence can only be over looked if one is prepared to face a financial crisis like the Sri Lankan economy is facing today. However, every welfare measure in favor of the poor and underprivileged should not be construed as a freebie as prime objective of the State is to look after the welfare of its citizens. There is a thin line between two but still one can distinguish between a genuinely inclusive policy and an unnecessary and unwarranted freebie. The latter should be avoided but the former is essential for a welfare State.

Click to read original article.

Two-tier route to growth?

While the Budgetary focus on physical infrastructure for growth is a step in right direction, neglect of social infrastructure will likely propel inequality


The Union Budget for the year 2022-23 has continued with the emphasis on growth with the expectation that a high rate of growth would lead to a better quality of life for people. Nobody can dispute that growth is important but there is also the spectre of rising inequalities which cannot be overlooked. Growth has to be inclusive in nature and it is against this paradigm that the Union Budget needs to be evaluated.

We must start with the positives. There is a substantial increase of 35 per cent in the capital expenditure with ambitious targets for roads, railways and ports. This emphasis on development of physical infrastructure was very much required to lay the foundation for industrial growth and economic development. It will also create a demand for items like steel and cement, which should act as an incentive for increase in private investment and also provide jobs for those involved in the construction activities. The real test of the matter would lie in the implementation in both quality and quantity terms. Looking at the trend of expenditure against the current year’s Budget, the prospects do not look very bright but then one should not be unduly pessimistic, and hope that the government machinery will be able to fulfill the ambitious goals of capital expenditure that have been provided for in the Budget. It is also significant that despite the increase in government revenues, this expenditure will have to be met through additional borrowings which will increase the substantial interest liability in the Budget.

The second-most significant aspect in the Budget is the clear focus on digital technology. In every sector in the Budget statement, one finds schemes related to introduction of digital technology. This will definitely improve the functioning of various departments and provide better services to the people. We have the concept of drones in agriculture to improve crop statistics as well as land records. In the education sector, E-Vidya is being used to develop about 200 channels to provide quality education to the school-going children. Similarly, in the health sector, digital healthcare has been given paramount importance. This is the age of technology and only that country will go forward which develops a knowledge economy. The importance given to digital technology is a step in the right direction and prepares India to face the disruptive challenges posed by the fast-changing technological environment. This should also lead to a creation of a new set of job opportunities for the youth.

My main concerns around the Budget are regarding the sectors of health and education that haven’t seen any increase in budgetary allocation. Besides, apart from introducing digital technology there is no new scheme to bring about qualitative improvement in education and healthcare. The development of social infrastructure is as important as the physical one. We have examples of various countries which first focused on education and healthcare to develop their human capital and then emphasised on physical infrastructure. Only a well-educated and healthy society can take full advantage of the opportunities created by enhancement of capital expenditure. Health and education should be the topmost priorities of the nation and this should have been reflected in the Budget. For instance, having a digital health card and digital infrastructure is undoubtedly useful but digital intervention without a sound physical foundation is not likely to yield the required outcomes. Healthcare will improve only if there are more doctors, nurses, paramedics, ICU beds, hospitals and other health-related infrastructure. This requires significantly stepping up the expenditure in public health, which is still languishing at only about 1.3 per cent of GDP whereas it should be stepped up to 2.5 per cent at the earliest. The pandemic has exposed the huge gaps in our healthcare system, particularly in the rural areas. This should have sensitized the government to accord highest priority to the health sector.

Similarly, the pandemic has created huge issues in the education sector, which should have been reflected in the Budget. E-Vidya is a welcome move but it is no substitute for improving the education infrastructure, quality of teaching and learning outcomes. I am also mystified by the reduction of allocation for the crucial MGNREGA scheme. People are still suffering from the adverse impacts of the pandemic which has pushed millions into poverty, who require the safety net of a rural employment guarantee scheme like MGNREGA. Also, I was looking forward to the introduction of an urban employment guarantee act along the same lines as MGNREGA to cater to the unemployment problem in urban areas. This could have helped in creating productive assets and more consumer demand. In fact, the Budget has not taken any significant step towards enhancing consumer demand which contributes more than 50 per cent to the GDP and acts as a stimulus to private investment.

Previous year’s Budget talked big on disinvestment and privatisation but current year’s Budget is silent on these goals. For the current year, against the target of Rs 1.75 lakh crore only about Rs 9,000 crore has been realised. Expectations are that with the LIC IPO, it would reach Rs 78,000 crore. The roadmap for the future is not clear. It may be that not being able to push through the structural reforms in agriculture, the government has become a little cautious. Furthermore, the government had announced monetisation of Rs 6 lakh crore of public assets and there were talks of realising Rs 88,000 crore this year itself. Once again, the Budget has not spelt out any details regarding this.

The middle class, particularly the salaried section, was eagerly looking forward to some benefits in income tax but the Budget has not touched the income tax rate at all. A reduction could have once again stimulated consumer demand by putting more disposable income in the hands of the people. However, it is noteworthy that the tax rates have been kept constant which is a positive point in itself.

We can hail the budget as being a growth-oriented one, and also appreciate the stress on digital technology. However, in a society where inequalities have gone up over the last few years, more thought could have been given to the inclusiveness and development of human capital.


Click to read original article.

A letter from Alok Ranjan to all IAS aspirants

Alok Ranjan, the former Chief Secretary of the Government of Uttar Pradesh, has had the career that most people dream of. So, he has put together the information that every aspiring officer should know. While sharing his own experiences, he has provided a deep understanding of the IAS as an institution, valuable tips and insight for cracking the daunting UPSC exam, and how to build a successful career in the services.

Dear Readers,

It was a difficult decision after having done my MBA from IIM Ahmadabad to resign from my job and write the IAS examination. I was fortunate to succeed in the exam in my first attempt and secured 4th position in India in the IAS and was allotted to the Uttar Pradesh cadre. I retired in 2016 after 38 years of a very fulfilling and satisfying career. I can say with complete confidence that no other service or job can provide the diversity and richness of experience that a career in the IAS provides.

I often meet young boys and girls embarking upon a career and find that most of them have dreams of joining the IAS or the civil services. Despite the numerous alternative career opportunities that are available, civil service is still the preferred choice of many. Students prepare for years to get through the hallowed portals of the civil service. For those who succeed it is a realization of their cherished aspirations while others keep making honest efforts year after year hoping that one day they shall succeed.

This book is for those young boys and girls who nurture the desire to join the IAS. I want to communicate through this book that it is possible to get selected in the IAS provided you have the right kind of motivation and are prepared to put in the requisite amount of dedicated hard work. This book is also about the challenges and opportunities that an IAS officer faces during his service period. it is not an autobiography but I have used interesting anecdotes from my career to illustrate the situations that an IAS officer faces and the leadership principles which are essential for him to ensure quality public service delivery and good governance. It is for this reason that this book would be of interest to the serving IAS officers as well as all those who are concerned in any way with issues related to public policy. A student must think of joining the IAS if she wants to bring about a positive change in society and contribute to the development of the country. Issues of power, position, and status cannot be ignored but they should not be the prime motivation for joining the IAS. This service gives you the opportunity of touching numerous human lives. You can bring about a transformation in the quality of life of the citizens. This book is all about making a difference to society which should be the main goal of an IAS officer.

A person interested in joining the IAS should prepare herself mentally for at least three to five year before the IAS exam. He should take a keen interest in current affairs and also read widely on all possible subjects. This is an extremely tough exam where you have to compete against thousands for a hundred seats and therefore your preparation has to be that much more solid and deeper. It is best to devote at least one year of single-minded focus and effort to this exam. You need to develop your personality as well as your communication skills as well as a logical and analytical way of thinking. This book will give those preparing for IAS some very useful tips for both the written exam and the personality test. I have talked about the experiences of an IAS officer as a District Magistrate which is, perhaps, the most rewarding and exciting posting in the service. A young IAS officer gets the opportunity of leading the entire team at the district and he is the voice of the government at the District level. Any scheme gets implemented if the District Magistrate takes it up. There is tremendous authority attached to this post but along with this comes a great sense of responsibility and accountability. It is, indeed, a thrilling assignment and most IAS officers never tire of talking about what they achieved in the Districts.

State Government provides a tremendous opportunity to make policies that could influence the life of the ordinary citizen. You could be looking after education and make a mark by improving the quality of education or you could be looking after the health and can make a difference by reducing infant and maternal mortality. Every post in the IAS has the potential of giving you an opportunity to bring about a positive change in the lives of people. A great experience at the State level is the post of the Chief Secretary who leads all the government officers and employees in fulfilling the ideal of good governance. IAS gives an opportunity of working with the Government of India where you get National and International experience and the policies you make impact the entire nation.

I have also discussed some of the common myths and beliefs about the IAS like the need for domain specialization, promotion on the basis of seniority, political interference, corruption, professional integrity, and lack of promptness in decision making. I have tried to show how some of these could be individual attributes but the system also plays a great role in molding the personality and administrative style of an IAS officer.

It is my fervent belief that a career in the IAS can be hugely satisfying but the relevance of the IAS for the future requires the service to introspect and reinvent itself and for this, it has to look within and make itself responsive to the changing needs of the 21 st century. The IAS is not merely a job but is a service to society and the Nation. The greatest reward that an IAS officer can get is when the common man on the street feels that a positive difference has been made in his life.

All the best!

Click to read original article.

How did the ICS evolve into the IAS?

Alok Ranjan’s Making a Difference provides an insider’s unique perspective on the IAS and the role it plays in public administration and development. Here’s an excerpt from the book about how this service evolved over a period of time.

I often hear people talk about the Indian Civil Service (ICS) and compare the IAS unfavourably with it. It is important to understand in this context that the nature of the job, responsibility, working environment and expectations of the people from the IAS differed hugely from that of the ICS in the colonial days. It is, undoubtedly, the successor service to the ICS but it is not the same and cannot be the same.

For those who are unstinted in their praise for the ICS, it is a sobering thought to be told that this hallowed service was considered neither Indian nor Civil nor a service by the great leaders of the nationalist movement. Yet it would be interesting to trace the journey of the ICS, its origins and contribution, and then try to understand how it evolved into the IAS. It would be relevant to examine how the IAS itself is evolving and undergoing change in its character, nature, diversity and reputation.

In the eighteenth century, the East India Company gradually spread its tentacles through most of India and from a professed trading company, it became an agency of governance on behalf of Britain. Naturally, administering such a huge country needed the Army and the Civil Service. Teenaged men were recruited into the East India Company Civil Service and they spent their time in India collecting revenue for the company and maintaining law and order. In 1800, Governor-General Lord Wellesley decided that teenaged recruits would have to undergo special training in India. For this, he decided to set up the college of Fort William in Calcutta, but this proposal had not been approved by the company’s Directors in London.

 The Directors did however establish a college in Hertford Castle in England in 1806 and then moved to Haileybury three years later. The selection of candidates to Haileybury was by a process of nomination by the Directors. They had to be seventeen years old and come from distinguished families. There was no question of selection based on merit; family pedigree was considered the most important attribute. People joined the civil service for adventure and with a spirit of altruism. The salaries and the pensions offered were very attractive. After nomination and before joining Haileybury, the candidates had to take some kind of a written and oral exam where they were tested in history and mathematics as well as language. The foundational course at Haileybury was for two years and the candidate studied mathematics, philosophy, literature, law, history, general economics as well as Indian languages. Sanskrit, Persian and Arabic were also taught. It is a different matter that these languages were not of much use when the civil servant landed in India. They had to administer in the vernacular languages and learn them as soon as they were posted to the field. The educational atmosphere at Haileybury was not very demanding and most candidates focused on just clearing the exams. There were lectures for about two hours everyday and a lot of free time was available to socialize and indulge themselves in drink. There was, however, the minority who studied hard and were known as ‘Steadies’, much like the ‘Keen Type Probationers (KTP)’ of our time who took the training at the Mussoorie academy very seriously. Though discipline was lax at Haileybury, a feeling of esprit de corps was very visible and close friendships were formed which lasted for a long time. Haileybury continued till 1857 when the British Government took over the governance of India from the East India Company, and introduced a system of selection into the ICS on merit, through a competitive examination.

The British Government made this change as they felt that selection by patronage would no longer meet the needs of governance and that meritorious candidates were required. Initially, the ICS drew a majority of its entrants from the Universities of Oxford and Cambridge but this soon changed. The Macaulay Committee laid out the guidelines of the selection which prescribed the maximum age limit initially as twenty-three but subsequently brought it down to twenty one. The committee designed an exam that demanded strong factual memory and a concentrated study of academic texts. The graduates had to study beyond their university syllabi to prepare for the exam and much like today, establishments like Crammer came up to prepare candidates for the exam.

There was a lot of criticism of this ‘Crammer’ system and many felt that unsuitable candidates were being selected just by preparing some questions that happened to appear in the examination paper. Still, many were of the view that the selection system provided better candidates than the earlier system that was based on patronage. This was followed by the Lord Salisbury Reforms which decided that candidates would take the exam at the school leaving age (seventeen to nineteen years) and then they would be on probation, studying in a university for two years. This system lasted from 1879–1892 but some leaders were of the opinion that candidates were being selected at too raw an age and they did not take their probation period in the university seriously. Another criticism was that it deterred Indian candidates from taking the exam.

Since the 1830s, Indians had joined the Government of India (GOI) in the capacity of Deputy Collectors, Deputy Magistrates and bore the burden of governance supervised by a handful of British ICS men. Lord Cornwallis in the eighteenth century had excluded Indians from high positions in the government. The 1853 Act opened up the service to all natural-born subjects of the crown. However, it was near impossible for Indians to compete as it was expensive and there were religious considerations which did not allow Indians to go to London to attempt the exam. Satyendra Nath Tagore was the first Indian to have been selected. In 1869, four Indians qualified, including Surendra Nath Banerjee and Romesh Chandra Dutt. The Indian National Congress in 1885 appealed for a simultaneous exam at a centre in India. In 1886, the government appointed a Public Service Commission which raised the age limit for the ICS to twenty-three years, enabling more Indians to write the exam. Even then, till 1910, only 6 percent of the ICS were Indians.

Click to read original article.

A success saga

Apart from ensuring efficient operation, the sale of Air India will provide major fillip to disinvestment target and open the floodgates for further privatization

The biggest news on the economic policy front recently has been the privatization of Air India. This has happened after years of debate and discussion and efforts made by various governments to do something about Air India which had become an albatross around the neck of the government. In 2001, an effort was made to offload 40 per cent of the equity of Air India to the private sector whereas in 2018 this was raised to 76 per cent. Both these efforts failed because they focused on disinvestment and not complete privatization. This meant that the private sector would always have the Government as the big brother breathing down their neck. Moreover, the bid parameters prepared on both these occasions did not take into account the sensitivities of the private sector. The reason behind these moves was that the Government was still not prepared to let go Air India and was concerned about the political ramifications of privatization. Moreover, the bureaucracy always has the propensity to play safe and they formulated the terms and conditions accordingly. Notably, 2018 was very close to the 2019 general elections and it is never possible to go for large-scale structural reforms close to an election.

Having come into power with a comfortable majority, the current government embarked upon a clear path of reforms. Finance minister, in her budget speech, clearly outlined growth as an objective to be pursued and stated that privatization of public sector units would be one of the priorities. The Government mentioned that it would go ahead with privatizing two public sector banks this year, and divide the public sector units into strategic and non-strategic sectors, also mandating that the latter category would be privatized. Air India was on top of the list but there were enough sceptics who doubted the will of the Government as well as the capacity of the bureaucracy in implementing these measures. However, the events have proved the doubters wrong and Air India has been sold to the TATAs. As Ratan Tata tweeted, it was like a ‘homecoming’ because the Government had taken over the airlines which had been set up by the TATAs. I read somewhere that JRD Tata had told the then minister, Jagjivan Ram, that the government would not be able to run the airline properly as it required a skill set very different from that required for running government departments. Future events clearly showed how prescient JRD Tata was. Mr Tata was retained as the chairman, and for a couple of decades, Air India performed creditably well as one of the best airlines in the world. However, over the time the inefficiencies of the government working culture led to the decline of Air India. After 1991, the spurt in the number of private sector airlines further worsened the situation for Air India. The 2007 merger between Air India and Indian Airlines also turned out to be unsuccessful.

Since 2009-10, Rs 1.10 lakh crores has been pumped into Air India. It has been argued on various platforms that this amount of taxpayer’s money could have been utilized much better if spent on sectors like education and health. In fact, the secretary of the department made a statement that the government was losing Rs 20 crores every day while running Air India. The net worth of Air India was minus 44,000 crores. A pragmatic privatization plan was prepared where, out of the cumulative debt of Rs 61,562 crores as of August 31, 2021, the Tatas would be taking over a debt of Rs 15,300 crores and the remaining Rs 46,262 crores will go to an SPV called Air India asset holding company. The government expects to retire Rs 14,000 crores of this debt through monetization of assets as per the newly declared policy of the national monetization pipeline. In addition, the government will get Rs 18,000 crores. This amount, by itself, would not be sufficient to help the government to achieve its disinvestment targets of Rs 1,75,000 crores for 2021-22. At the moment, only Rs 9,111 crores has been achieved through disinvestment. The story of the last two years had been similar, where against the target of Rs 2,10,000 crores for 2020-21, only Rs 32,847 crores was achieved whereas for 2019-20 only Rs 15,297 crores was achieved against the target of Rs 1,05,000 crores. It can be seen from the figures that so far the government has not been very successful with its disinvestment plan. However, Air India privatization would give a major fillip to the entire process of disinvestment. Many more such deals are likely to be made in the future. The Shipping Corporation of India, BPCL and BEML, are some of the corporations next in the line for privatization.

It will be interesting to see how the TATAs can turn Air India around. It is not going to be a cakewalk as there is enough competition in both the external and the domestic aviation sector, with Indigo cornering as much as 57 per cent of the market share in the domestic sector as compared to about 13 per cent of Air India. There is no doubt that a large infusion of capital will have to be made by TATAs to improve the level of services to make the airline profitable. The TATAs can do so but it will take time and an influential leadership. The employees of Air India need to be handled tactfully. In recent years, Air India has offered VRS schemes and has reduced the number of their employees from around 27,000 to 13,500 and the employee per aircraft ratio from 221 to 95. There is a long way to go from here. A system of performance-linked rewards should be introduced for the employees and facilities put at par with those prevalent in the rest of the industry. The private sector will be able to take decisions in a much more commercial manner than it has been possible for Air India as a public sector corporation. Tatas are today running two airlines in joint venture – Air Asia and Vistara and none of the two are earning profits. In any case, the situation is likely to be better than it is today.

Privatization of Air India is a major economic reform that has been made possible by a strong political will and leadership, and initiatives taken by the top bureaucracy. Credit must be given to the Secretary of DIPAM and his team for successfully carrying out this reform. It is a feather in the cap of the Civil Service as well. It also indicates the government’s determination to proceed further with its policy of reducing the role of government in the economy. It augurs well for the future.

Click to read original article.

Far too ambitious?

NMP is indeed a bold reform initiative but its effectiveness will depend on how the structural impediments are removed and unemployment challenge is averted


The Union Budget for 2021-22 clearly brought out that the economic policy of the government is geared towards growth which would lead to the overall prosperity of the people. Privatization policy was also clearly mentioned in the budget. In addition, the budget spoke of the need to create a national monetization pipeline of brown field projects to finance fresh investment in physical as well as social infrastructure. NITI Aayog was tasked to prepare the policy framework for this announcement and, recently, the Government of India announced its policy along with a detailed guidebook covering all aspects of the same. The government declared that it has prepared a national monetization pipeline that would unleash a latent potential of six lakh crore or USD 81 billion by 2025. The target for the current year is Rs 88,000 crore. It is indeed a very ambitious programme and also a very bold reform initiative.

The policy says that there will be no sale of assets and only brownfield assets would be leased out for a certain period of time to private sector investors or an investment trust that will operate and maintain the assets as well as make investments and, at the end of the lease period, hand over the assets back to the government. The assets identified for this purpose are roads valuing 1,60,200 crores; railways 1,52,496 crores; power transmission 45,200 crores; power generation 39,832 crores; gas pipeline 24,462 crores and mining 28,747 crores. Additionally, there are some other sectors also like telecom, sports stadiums etc.

The strategic objective of the national monetization pipeline, according to NITI Aayog, is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies which can thereafter be leveraged for the augmentation of greenfield infrastructure creation. In essence, this means that a lot of public sector assets are lying underutilized and they are not being managed and operated efficiently because of the inherent structural impediments of the public sector, and which can be transformed by the private sector to generate resources that can be utilized for the development of new infrastructure. There is no denying the fact that to achieve a high rate of growth, India needs substantial investment in infrastructure which raises the question of the availability of resources. For quite some time, economists and administrators have been grappling with this problem of financing infrastructure. The national monetization pipeline is an innovative solution in this direction and, by all means, can be called a significant structural reform in creating value in infrastructure.

However, the crucial thing is the implementation of this policy. Historically, we have seen that the ambitious targets of disinvestment have not been met year after year due to various procedural bottlenecks. In light of this, it is difficult to see how such a massive scale monetization of public assets can be executed in the given time frame. Personally, I feel that it would be difficult to achieve the 88 thousand crores target for the current year and six lakh crores till 2025. The matter of Air India privatization and that of BPCL pending for years exemplify how such matters take a long time to materialize.

The experience of public-private partnership (PPP) would be vital in implementing the NMP. Various models like upfront lump-sum payment or annuity payment were devised to implement PPP and they are as many success stories as failures. I remember one of the first PPP projects in UP was the bridge on the Noida Delhi highway. The private concessionaire was expected to collect toll for a certain number of years but there was a massive agitation by the farmers and residents of the area after some years and, finally, the toll barrier had to be shut down. There were views on both sides. Some claimed that the PPP agreement had been drafted to give extra benefit to the concessionaire while some felt that the concessionaire was entitled as per the agreement to collect toll for the stipulated number of years. In any case, the whole episode showed the kind of problems that a PPP agreement can lead to. Even in NMP, this crucial issue of valuation of the assets, amount of lump-sum payment and other terms and conditions would determine the success of the policy. The private sector has often argued that the PPP documents are prepared in a manner that private developers do not get a reasonable rate of return on their investment, making it unviable for them. There is no doubt that the civil servants who draft the agreements along with consultants are inclined to err on the side of caution. They deliberately want to put such conditions which would shield them against any inquiry in the future. Naturally, this leads to putting conditions that impact the viability of the project. NMP is a new policy and the civil servants do not have prior experience and, despite the guidelines formulated by NITI Aayog, there is a likelihood that such terms and conditions may get framed that adversely impact the rate of return to the private investors, implying that they would not evince interest in bidding for the assets. Of course, in the case of PPP, things improved over time as the civil servants got more experienced and repeated guidelines were issued by the government. Similar learning experience is possible in the case of NMP but this will take time, making it difficult to achieve the NMP targets in the prescribed time frame.

The fear of subsequent allegations of corruption is not entirely unfounded. You can look around and see the number of cases of privatization or disinvestment where inquiries are going on and there have even been court directives to investigate and lodge criminal complaints. It is, thus, important that the Government of India evolves the system to protect the civil servants from any undue harm if they faithfully, and with bona fide intentions, carry out the NMP exercise.

Apart from above, the private sector would only come forward if it gets a higher rate of return than it would get through an alternative opportunity of investment. Not all assets listed in NMP are likely to give this kind of a return. This could lead to a situation of cherry-picking where the private sector bids for assets with the greatest potential of returns and avoids the others. The implication being that not all assets listed in the NMP will get a private bidder. The more lucrative assets will get bidders while the ones with less potential will remain with the public sector. I saw an example of this when in Uttar Pradesh we wanted to bring in the private sector in power distribution in the districts. We found that the private sector was keen to take up only the city areas where it was easy to collect power dues and did not want to go into the rural areas at all. This meant that the state power corporation would lose its best accounts and remain saddled with the most problematic. We had then decided to offer a package of rural plus city consumers. Not many bids were received as per this model. This is very much possible in the NMP also. We already saw when the Railways wanted the private sector to run some trains, only the public sector corporation IRCTC came forward. This again gives weight to my argument that the entire NMP list of six lakh crores is not likely to get private bidders.

Moreover, there would be issues relating to the employees. Will the private sector retain them? Will the terms and conditions remain the same? What will happen to the crucial issue of reservation in case the private sector does recruitment of its own? There are various social objectives that these assets are fulfilling and it would need to be seen whether the private sector would continue to do so. Moreover, if the public sector has not been performing then it is due to various structural impediments which would need to be analyzed, otherwise, they would constrain the working of the private sector also. Further, a private-sector monopoly is no better than a public sector one.

It is also important to see how the regulators would respond to this kind of initiative. There would also be the need for an open and transparent dispute resolution mechanism. Finally, a special independent authority would need to be created to monitor the entire process.

NMP is a bold reform initiative that could unlock funds for further development of social and physical infrastructure but there are a lot of implementation issues that need to be handled. Also, we should be aware that the targets set are far too ambitious.

Click to read original article.


Required underpinning

To ensure ample employment generation and smooth economic recovery, the ailments of the MSME sector has to be addressed

I recently read in newspapers that a Parliamentary committee on micro, medium and small industries (MSME) has found that the sector is not in good health and needs special measures to come out of the negative impact of the pandemic. The committee observed that enough is not being done to support the sector. It strongly recommended making finance available to the sector at a concessional rate of interest of three to four per cent and also a longer repayment period. I agree with this. Worldwide, the MSME sector is known for its potential for job creation. The sector contributes to 90 per cent of the businesses and provides 50 per cent of employment worldwide. A World Bank estimate has projected that by 2030, 600 million jobs would be required globally and the MSME sector will play a crucial role in this.

The MSME sector is second only to agriculture in terms of employment generation in India. There are close to 6.5 crore industries in the sector that provide employment to about 11 crore people and contribute 29 per cent of GDP and 31.89 per cent of gross value added (GVA). It is one of the major pillars of the economy and accounts for 48.9 per cent of Indian exports. The sector lays out the foundation for flagship government policies like Make in India, Atmanirbhar Bharat and startup/standup India. One district one product (ODOP) scheme of the UP government is also based on the MSME sector.

The Union Government recently changed the definition of MSME on the demands of various industry associations and with the idea of benefitting a large number of industries with various facilities offered by the government. According to the new definition, all industries having investment in plant, machinery and equipment of not more than Rs one crore and an annual turnover of up to Rs three crore are categorised as micro. Similarly, the corresponding norms for the small sector are Rs 10 crore and Rs 50 crore and, for the medium sector, Rs 50 crore and Rs 250 crore. This was hailed as a major achievement in the interest of the MSME sector. However, my interaction with members of the industry gives a different picture. The micro sector feels that this new definition works counter to their interests, as it is now the industries belonging to the medium and the small sector that have a greater capacity to access the benefits of government schemes allowing them to corner disproportionate gains. A little-known reality is that the micro sector is 99 per cent of the MSME sector. There are 6.30 crore micro units whereas; the corresponding figure for the small enterprises is 3.31 lakh and, for the medium, 0.05 lakh. Clearly, the major contribution to the national economy and employment comes from the micro sector which is largely unorganised. This sector plays a major role in bringing people above the poverty line and provides goods and services to the maximum number of people. This sector is often run by people who are not aware of government policies. They are reluctant to register themselves as they want to avoid the numerous regulatory norms. The sector also suffers from a deficiency in financial literacy, leading to a lack of financial inclusion.

The biggest need of this sector is finance. However, people in this sector resort to informal sources of finance — often at a higher rate of interest. Many don’t even go for loans and generate funds as equity from their friends and relatives. They work on thin margins and often have high input costs. It is thus imperative that credit at a low cost is made available at the right time to the micro firms without any collateral.

The micro sector has to be handled differently. The new definition of MSME may not be easy to change as there is a lobby that wants it that way. There should be a separate cell in both the Union and state governments to deal with the problems of the micro sectors. In every government scheme for the MSME sector, a fixed amount should be designated for the micro sector. The government has prescribed a 45-day limit for the payments to be made to the MSME sector and has also devised a mechanism where grievances relating to nonpayment can be addressed. Unfortunately, the reality is that the payments are still not forthcoming despite the assurances at the highest level. This payment clause needs to be enforced in the wake of the precarious financial position of the sector. There is also a definite requirement to set up a payment recovery tribunal to handle such issues in the MSME sector.

The MSME sector, especially the micro sector, is unable to market its products as the units do not have the knowledge and expertise to do so. The portal designed by National Skill Development Corporation could be a big help. It needs to be further activated. The state governments should also design similar portals. Further, the micro-units cannot afford to pay earnest money (EMD) against all tenders. At least in public sector undertakings, the government should waive the EMD requirements. There is also a case for mandating 25 per cent procurement by the government or public sector enterprises from the MSME sector. In the past, these kinds of orders have been issued, but not fully complied with because the issues of quality have been raised. This sector has to certainly introspect and become quality conscious. The sector requires better access to modern technology and the government must come up with innovative schemes to make this possible.

There are a plethora of schemes for the MSME sector. The real problem is that of awareness regarding these schemes. The government agencies must conduct regular awareness programmes to make sure that even the micro units can avail the benefits. The district industry centres should do the required handholding for this purpose. Many MSME units do not know how to avail the benefits of government schemes. A single window system is required, as often the entrepreneur is made to wait for months and run from pillar to post to get the benefits. There should be a prescribed nodal authority to monitor this process.

Covid has led to the closure of more than 33 per cent of MSME units, and a large number are somehow surviving. They require immediate relief which could be in the form of direct cash support or indirect exemptions from fixed charges for utilities like power. Relief in taxes would also help. The government should concentrate on developing this sector by using the cluster approach where they can provide common facilities. Also, a specific intervention for rehabilitation of the sick units is called for.

The MSME sector is vital to employment generation and bringing about economic recovery. Special focus is required for the micro sector. Post-Covid, the governments should focus on supporting the existing units rather than try and get new investment. The government has the right intentions but it needs to understand the ground realities and address them at the earliest.

Click to read original article.

‘Inappropriate’ measure

The strategy of incentives and disincentives counters the population policy 2021-30, UP government should explore effective options like poverty control and up-skilling


The latest UP population policy has created a lot of interest and debate. Civil servants, both working and retired, as well as intellectuals, are voicing divergent opinions. There is no denying that population control, stabilization and welfare are issues of concern, particularly in Uttar Pradesh where the current total fertility rate (TFR) is 2.7 as compared to the replacement rate of 2.1 and the national average of 2.2. It is significant to note that India, as a country, has almost attained the replacement level of TFR, and the two states where further work is required are Uttar Pradesh and Bihar. Many southern states like Kerala and Tamil Nadu have TFR well below the replacement level. It has been argued that the population of Uttar Pradesh is one of the major causes of its slower rate of development as compared to the rest of India. It is a fact that despite being one of the top states in GSDP — which is currently around 19 lakh crore, contributing to 8.35 per cent of the GDP of the country — UP remains amongst the bottom three states in terms of per capita income. It is for this reason that there is a focus on population control which is in fact a desirable objective towards which the state should work. The only question is regarding the strategy and tactics to achieve this goal.

Let me first clarify that two documents need to be studied. On July 11, which is World population day, UP Chief Minister unveiled the UP population policy 2021-30. At the same time, the UP law commission has posted on its website a proposed bill regarding population control in the state and invited comments from all. It is the latter that has become a topic of debate as it has recommended a series of incentives and disincentives for public servants and others if they restrict the size of their family to either two children or one child.

The population policy 2021-30 is a continuation of steps taken after the population policy of 2000 and has drawn a link between development and control of the population. The population policy of 2000 had projected that by 2016, UP shall attain a TFR of 2.1 but it has not been able to do so. In the light of this, the announced policy has talked about improving the overall public health scenario. It has also emphasized the elimination of social issues like girls being married at an early age and there not being a gap between two children. This policy has rightly pointed out that more awareness about contraception measures need to be created along with improved availability of contraceptive methods. Significantly, it has talked of the education of the girl child and its impact on controlling the population. It has appreciated the efforts which have brought down the infant mortality rate (IMR) from 83 in 2000 to 43 in 2016 and maternal mortality rate from 707 in 1998 to 197 in 2016. These figures are to be further brought down by taking quality measures in coming years. This policy says that the overall objective is to improve the quality of life. It aims that by 2026, the TFR would be brought down to 2.1 and by 2030 to 1.9. There can be no argument with any of these policy statements and they need to be appreciated. However, it also mentions that the UP government is considering a new law to control the population by incorporating a set of incentives and disincentives proposed by the UP law commission.

The proposed bill suggests that a public servant who adopts the two-child norm by undergoing voluntary sterilization operation upon himself or their spouse shall be given certain incentives. These include two additional increments, subsidy towards purchase of a plot or house from a government agency, soft loan for construction or purchase of a house, rebate on house tax, water tax and electricity dues, maternity or paternity leave of 12 months with full salary, three per cent increase in employer’s contribution under the national pension scheme and free health and insurance coverage. It further states that a public servant, who has only one child and undergoes voluntary sterilization, shall, in addition to the above incentives, get additional increments — free health care and insurance for the single child till the age of 20, free education up to graduation, preference to a single child in government jobs and in admission to all educational institutions.

The bill goes further to talk about members of the general public other than public servants. Apart from making them eligible for similar incentives as for public servants, it says that if a couple living below the poverty line has only one child, then they would be eligible for a lump sum of Rs 80,000 if the child is a boy and Rs one lakh if the child is a girl. This is followed by the recommendations which need to be considered as they talk about disincentives and revocation of incentives. Any couple which contravenes the two-child norm shall be debarred from benefits under government welfare schemes and also all the incentives that have been proposed. It also says that a ration card would be limited to four people and there would be a bar on contesting elections to the local bodies. There is a clause that says that other disincentives can be imposed. It also bars such couples from applying for government jobs and puts a bar on promotion in government services and on receiving any kind of government subsidies.

The single child recommendation is a bit too radical. We have seen the case of China where they adopted a single child policy and had to retrace their steps recently because of the negative consequences of this policy which led to a large ageing population with a much smaller younger population to support them. In addition, in a country like India, with its preference for a male child, this measure would certainly be inviting female infanticide in a big way. The current sex ratio in UP at the time of birth is already skewed at 903 females per 1,000 males and this policy would encourage unsafe sex-selective abortions and further skew the ratio. Moreover, the disincentives like no subsidized ration or no government job will impact the vulnerable sections of the population disproportionately.

Even historically, disincentives have never really worked. Such measures always lead to putting excessive powers in the hands of the bureaucracy which tends to misuse those, causing harassment to the common people. The events of the emergency in 1975-76 are a testimony. The population can be controlled without resorting to such measures as has been clearly shown by the example of the southern states. Even in UP, there has been a significant decline in TFR and this can be accelerated further by focusing on education of the girl child, providing better nutrition, improving public health and increasing the pace of all-around development. These measures have worked all over the world.

The UP government strangely talks about bringing about a balance among various communities through its population policy. It is not clear how this will be made possible. Will the government fix the number of children for different communities?

The most significant thing is that the disincentives work against the poor. It is the poor who have a higher TFR and will suffer from the proposed disincentives. The objective of a welfare state is to work for the benefit of the poor rather than formulating laws that restrict the poor from getting government jobs or benefits of government schemes. I would go as far as to say that perhaps the most effective population control measure is the elimination of poverty. Moreover, we should view the population as a resource rather than as a liability. Even the honourable Prime Minister had spoken about the tremendous opportunity that our population and demographic dividend is providing us. We have to focus on providing education, skills and jobs to these people rather than fritter away our energies on implementing a system of incentives and disincentives. These proposed measures, in fact, run counter to the population policy 2021-30 declared by the government, and would actually make it ineffective. I may also point out that a technical group on population projections for 2011-36, constituted by the Government of India, has projected that UP will achieve the replacement level of the required TFR by 2025. There is, thus, no need for coercive policies.


Click to read original article.

Decentralized governance

Direct elections to the post of ZP chairperson and proper devolution of resources could ensure smooth delivery of public services and reduce corruption

The recent elections to the post of chairman of Zila Parishad in UP made me think about the reality and the possibilities of decentralisation of governance through the third tier of government. I was disturbed by the allegations of use of money power, muscle power and partisan attitude of the local government officers in the indirect election. Such a perception about the election process demeans the office of the chairman and also puts a question mark on the functioning of the third tier of government. An immediate solution to this kind of situation would be to carry out an amendment in the relevant Act and go in for direct elections to the post of chairman. This will give much more stability, credibility, legitimacy and accountability to the institution and also enable the third tier to function in a manner that the 73rd constitutional amendment has envisaged.

I recall that in 1980, I was posted as an administrator of a municipal corporation in Uttar Pradesh and, after one year of my tenure, the elections to the post of corporators and mayor were held. At that time the mayor was elected through an indirect election where the corporators were the voters. I personally witnessed the money power that was used to buy votes by the contestants, and the person who won was reputed to have spent a fortune. Almost immediately after taking the charge, the mayor began to look for avenues to recover his investment and this led to a clash between us. I am not commenting on any one individual but on the system. Indirect elections always tend to bring in these imperfections. A direct election is always a much better alternative. Later on, the Act was amended and we began to have direct elections to the post of mayor in UP. This brought about a big change in the entire system. The mayors today are true representatives of people and have much more acceptance in the society. In fact, more powers should be devolved on the mayor to make him/her the actual leader of a municipal corporation with full accountability to the people. In a similar manner, if direct elections are held for the post of the chairman of Zila Parishad, the elected person would become a genuine representative of the people and local governance will be empowered. I also feel that this system could lead to more people of talent and leadership quality contest for the elections. With this amendment, the institution of the chairman of Zila Parishad would become much more powerful and responsible towards people. I foresee that there could be opposition to this from the bureaucracy. The elected members of the legislature and parliament may also oppose it because the chairman of ZP would be directly elected by a larger vote base than them.

The 73rd amendment in 1992 provided for a three-tier Panchayat system at the village level, intermediate level and district level. This was specifically meant to give these institutions the required status and dignity of viable and responsive people’s bodies. Article 40 of the constitution had laid down, as part of the directive principles of state policy, that every state shall organise village Panchayats and endow them with such power and authority as may be necessary to enable them to function as units of self-government. However, due to the absence of regular elections, insufficient representation of weaker sections and women, inadequate devolution of powers and lack of financial resources, these institutions have not been able to fulfil their role.

As a consequence of 73rd amendment, the three tiers of local self-government have come into existence in most states but the level to which the functions, functionaries and finances that have been devolved to them vary from state to state. States like Karnataka and Maharashtra have set examples of a much higher devolution of power than Uttar Pradesh and Bihar. However, almost all states now have a state election commission which ensures that regular elections to these three tiers are held; the earlier practice of keeping these institutions in a state of suspension is no longer possible. This, by itself, is a major change. The election process gives due representation to women, scheduled castes and scheduled tribes and weaker sections to make them truly representative of the society. Most states have also constituted a state finance commission which decides upon the percentage of state resources that would be transferred to the urban and rural local bodies. In UP, 15 per cent of the state resources are transferred to these local bodies even though successive state finance commissions have recommended a higher percentage. There is indeed a pressing need for such a step.

True decentralisation of power would lead to definite improvement in the delivery of public services to the people. For example, Uttar Pradesh has close to two lakh elementary schools. It is humanly impossible for a state-level secretary or a director or a district-level education officer to monitor the functioning of the village schools. This can be best done by the local village Panchayat. The same is true for ICDS nutrition centers and health sub-centers and other local-level development schemes. This is only possible if local self-government institutions have the power over the functionaries of concerned departments. Practically, departments do not allow this to happen and the government employees threaten to go on strike if put under the jurisdiction of the Panchayats. State governments are not very keen on allowing the Zila Parishad to plan for the development of the district. There is a district planning committee which formulates district plans but, at least in UP, I found that these plans do not find a place in the state budget. I found that schemes which are to be a part of the district plan are identified but very often resources are allocated on the basis of decisions taken at the state level. The ideal situation should be that a fixed percentage of the state budget should be allotted for district plans as drawn up by the Zila Parishads. The ZP should prepare these plans on the basis of plans prepared by the village and intermediate Panchayats. Further, the village panchayat and other tiers have the powers of local taxation as per article 243 H of the constitution but internal revenue at the national level is barely four per cent of their total revenues. There is a case for these institutions to raise their internal revenues. Today, a major part of the revenue comes from devolution from state finance commission and central finance commission. Also, in a lot of schemes, funds are now being directly sent to the Panchayats, making it possible for them to spend on local needs. However, this has also created a situation where there are allegations of corruption against the elected members of the local government. These institutions need to be mentored and nurtured with patience so that they become genuinely accountable to the people. To control corruption, the mechanisms of local fund audit, social audit and having an ombudsman for a cluster of villages can certainly help.

It is in the interest for better governance to devolve funds, functionaries and functions to the local self-government institutions with a system of audit and oversight agencies to see that the funds are spent properly. To make this happen, direct elections to the post of chairman of ZP are also necessary. It will need a lot of vision on the part of the political parties and support of the bureaucracy to make these three tiers of government genuine institutions of decentralized governance.


Click to read original article.