Reduce subsidies and educate people to increase their earnings

Deregulate Diesel and start reducing subsidies on LPG and Kerosene. Spend the money saved in subsidy on creating better infrastructure in rural schools. We need more and more young people, who can change jobs easily than the people looking for job protection. This will help in creating a healthy labour relations, as employers will be on their toes to retain the existing employees. This is what we observe in young professionals working in modern private sector involving banks, insurance, KPOs and BPOs. We need to increase their numbers. 

Large PSUs need to list their subsidiaries

PSUs like Coal India should list their subsidiaries to unlock the value. Listing will need the appointment of Independent Directors and the management will be more accountable to outside shareholders. Competition among the subsidiaries will improve the efficiency. Improvement in efficiency of subsidiaries will improve overall results of the concerned PSU.

Encouraging start-ups

Software majors like Infosys and Wipro are encouraging strart-ups. Will Brick and Mortar biggies follow.

World need more entrepreneurs for fair competition leading reduced costs and innovations.

Disinvest and disinvest

Govt. needs to disinvest in PSUs not just for raising budgetary resources, but for broader public participation. Moreover, once listed with minimum 25% pubic participation, the PSUs must detached from the administrative ministry and should be allowed to operate freely in the competitive environment.

There are still large number of PSUs, which are not listed. Steps be taken for their listing in immediate future. Apart from this, there are also subsidiaries and joint ventures of PSUs. These need to be listed too for letting public of performance of individual subsidiaries. Railways too have some well run outfits like IRCTC, IRCON and railway should be allowed to raise resources by selling stake in them.

Broader public participation and large floating stock will be healthy for the companies, economy and stock markets.

Startups willing to innovate and take on biggies

Infosys, Mindtree, HCL, Flipkart, Musigma, Micromax and list continues for Indian start ups taking on biggies in the market place.

In special feature appearing on The Economic Times dated 14th August, 2014, we come to know new startups like Forus Healthcare, IndioLabs, SKL Medtech developing and marketing Medical Devices to serve the underdeveloped rural market to take on biggies like GE and Philips.

Startups backed up by venture capitalists is the future of India. Our Society needs to accept this.

It is therefore urgent improve the basic education system and not just support the conventional business.

It is better, we recognise it early and empower our youth through education and skills to take on the world.

Raghuram Rajan speaks his mind on our system

This is an excerpt from a speech India’s Reserve Bank of India chairman Raghuram Rajan delivered this week. The full text is available here. 

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Even as our democracy and our economy have become more vibrant, an important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians.

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By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?

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A hypothesis on the persistence of crony capitalism

One widely held hypothesis is that our country suffers from want of a “few good men” in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these “good” people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?

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Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. In a speech I made before the Bombay Chamber of Commerce in 2008, I argued that the tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives.

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Let me explain. Our provision of public goods is unfortunately biased against access by the poor. In a number of states, ration shops do not supply what is due, even if one has a ration card – and too many amongst the poor do not have a ration card or a BPL card; Teachers do not show up at schools to teach; The police do not register crimes, or encroachments, especially if committed by the rich and powerful; Public hospitals are not adequately staffed and ostensibly free medicines are not available at the dispensary; …I can go on, but you know the all-too-familiar picture.

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This is where the crooked but savvy politician fits in. While the poor do not have the money to “purchase” public services that are their right, they have a vote that the politician wants. The politician does a little bit to make life a little more tolerable for his poor constituents – a government job here, an FIR registered there, a land right honoured somewhere else. For this, he gets the gratitude of his voters, and more important, their vote. Of course, there are many politicians who are honest and genuinely want to improve the lot of their voters. But perhaps the system tolerates corruption because the street smart politician is better at making the wheels of the bureaucracy creak, however slowly, in favour of his constituents. And such a system is self-sustaining. An idealist who is unwilling to “work” the system can promise to reform it, but the voters know there is little one person can do. Moreover, who will provide the patronage while the idealist is fighting the system? So why not stay with the fixer you know even if it means the reformist loses his deposit?

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So the circle is complete. The poor and the under-privileged need the politician to help them get jobs and public services. The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged. Every constituency is tied to the other in a cycle of dependence, which ensures that the status quo prevails. Well-meaning political leaders and governments have tried, and are trying, to break this vicious cycle. How do we get more politicians to move from “fixing” the system to reforming the system? The obvious answer is to either improve the quality of public services or reduce the public’s dependence on them. Both approaches are necessary. But then how does one improve the quality of public services? The typical answer has been to increase the resources devoted to the service, and to change how it is managed. A number of worthwhile efforts are underway to improve the quality of public education and healthcare. But if resources leak or public servants are not motivated, which is likely in the worst governed states, these interventions are not very effective.

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Some have argued that making a public service a right can change delivery. It is hard to imagine that simply legislating rights and creating a public expectation of delivery will, in fact, ensure delivery. After all, is there not an expectation that a ration card holder will get decent grain from the fair price shop, yet all too frequently grain is not available or is of poor quality. Information decentralization can help. Knowing how many medicines the local public dispensary received, or how much money the local school is getting for mid-day meals, can help the public monitor delivery and alert higher-ups when the benefits are not delivered. But the public delivery system is usually most apathetic where the public is poorly educated, of low social status, and disorganized, so monitoring by the poor is also unlikely to be effective.

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Some argue that this is why the middle class should enjoy public benefits along with the poor, so that the former can protest against poor delivery, which will ensure high quality for all. But making benefits universal is costly, and may still lead to indifferent delivery for the poor. The middle class may live in different areas from the poor. Indeed, even when located in the same area, the poor may not even patronize facilities frequented by the middle class because they feel out of place. And even when all patronize the same facility, providers may be able to discriminate between the voluble middle class and the uncomplaining poor. So if more resources or better management are inadequate answers, what might work?

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The answer may partly lie in reducing the public’s dependence on government-provided jobs or public services. A good private sector job, for example, may give a household the money to get private healthcare, education, and supplies, and reduce their need for public services. Income could increase an individual’s status and increase the respect they are accorded by the teacher, the policeman or the bureaucrat. But how does a poor man get a good job if he has not benefited from good healthcare and education in the first place? In this modern world where good skills are critical to a good job, the unskilled have little recourse but to take a poorly-paying job or to look for the patronage that will get them a good job. So do we not arrive at a contradiction: the good delivery of public services is essential to escape the dependence on bad public services?

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Money liberates and Empowers…

We need to go back to the drawing board. There is a way out of this contradiction, developing the idea that money liberates. Could we not give poor households cash instead of promising them public services? A poor household with cash can patronize whomsoever it wants, and not just the monopolistic government provider. Because the poor can pay for their medicines or their food, they will command respect from the private provider. Not only will a corrupt fair price shop owner not be able to divert the grain he gets since he has to sell at market price, but because he has to compete with the shop across the street, he cannot afford to be surly or lazy.

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The government can add to the effects of empowering the poor by instilling a genuine cost to being uncompetitive – by shutting down parts of the public delivery systems that do not generate enough custom. Much of what we need to do is already possible. The government intends to announce a scheme for full financial inclusion on Independence Day. It includes identifying the poor, creating unique biometric identifiers for them, opening linked bank accounts, and making government transfers into those accounts. When fully rolled out, I believe it will give the poor the choice and respect as well as the services they had to beg for in the past. It can break a link between poor public service, patronage, and corruption that is growing more worrisome over time.

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Excerpted from the RBI governor’s speech at the Twentieth Lalit Doshi Memorial Lecture on August 11, 2014 at Mumbai.

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Twin cities of Kharagpur and Midnapur

I had been Salboni today. Happy to note that there is no fear of  Maoists now. But we need to speed up the development work there. Road between Kharagpur and Midnapur is narrow and pathetic. We need to develop these into twin towns as they are very close to each other. Good connectivity with twin townships and their composite growth can change the economy of entire south bengal.
 

Multiple service providers for various utility services

Most of the utility services in India like Electricity, Transport services are controlled by state corporations. It is high time, we explore private service providers for these purposes. Like telecom services, we should have multiple service providers for electricity with options available to the customer to choose. Instead of individual bus or taxi operators, we need transport corporations for providing services to commuters. Transport corporations are likely to be more organised and planned than individual standalone taxi or bus.

Transport corporations and Electricity service providers will try to compete each other for building their brand image. Govt. need to subsidise these corporations, if it wants to keep utility services cheap. It can use the losses of Govt. corporations for this funding.

Ultimately, the loss and subsidy will come down and services will improve due to competition. Moreover, the Govt. can slowly withdraw from these services.

Inflation cannot be tamed by monetary policy alone

Recent views of RBI Governor clearly establish that inflation has to targeted on permanent basis. Changes only in monetary policy will not help. Monetary policy takes care of demand side only. Supply side has to be taken care by the administration and society. In India, we do not find enough competition in many businesses, specially the capital intensive ones. This hinders new ideas and research in business. There are plenty of SMEs in India, who languish at the same scale for years. There needs to be societal change for encouraging them to scale up.

Promoters themselves, bankers, consultants, Govt. and other stakeholders need to change themselves for this. Govt. can also help by offering certain services to private sector. Enough competition will bring down the prices by improvement in supplies of goods and services.

  

Engineering and MBA institutes need backward integration.

Engineering Colleges and MBA institutes have mushroomed all over the country very fast.  At present, some of the lower ranked institutes are facing difficulties in getting students, as they are unable to place them with right organisations at reasonably good packages. It is high time, these institutes make backward integration with Plus two schools in their neibourhood to upgrade the skillsets of the students.They should organise group discussions and debates.  They can also take free classes for deserving and meritorious students to improve their communicative skills and logical reasoning.

 This will improve the quality of the intake of these institutes and ultimately raise the talent pool in the country. 

Realty bubble must burst

Competition commission of India has asked the top builders to explain the conditions imposed on buyers, whereas they go scotfree for delayed construction. It is hightime the pressure should be built on builders for timely performance. They deliberately hike the rates gradually to create artificial demand. The project is generally delayed due to unsold inventory. They invest in the project, as they sell. As such, they have little at stake. If they are forced to perform in time, they will be forced to offer discounted rates.

The property bubble must burst making the housing affordable for common man.