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Thursday, November 1, 2012

The Poverty Industry

Poverty  is an industry sustained, perpetuated and continuously reproduced by the State. It is possibly the most lucrative sector of the parallel  ‘rent’ economy which supports  and funds our politics. It provides sustenance to millions of contractors and businessmen who function as the back end of  the poverty supply chain. It is the main source of income for the parasitic officialdom that adds value- nuisance value- to the  poverty reproduction process. It gives nourishment to vast numbers of economists and policy scientists, NGO activists, and of course in a category by themselves-members of the NAC and the Planning Commission.

If only this was heavy handed sarcasm ! The frightening reality is that the  contemporary Indian State survives on poverty as an industry and this industry needs the  poor  to exist in large numbers to consume its products and services. While a small  shrinking of the market through some incidental  trickle down effect  of real growth could be tolerated, any genuine reform which can catapult the growth rate or ensure a more direct redistribution of wealth will never be permitted. Indian politics today, revolves around the State and the unprecedented rent seeking opportunities that open up when one captures  State power and the size of this ‘rent economy’ is mind boggling .

The business itself is not limited to visible ‘ poverty alleviation’  programmes but to a range of activities and State interventions  taken in the name of the poor. It is both insidious and perverse. Perverse, because even genuine, well meaning intentions get converted into the most devious stratagems for extracting rent , disempowering the poor and conserving them in a state of poverty. Insidious, because the politics of poverty uses the rhetoric of social justice to disguise its true intent. 

 At the heart of this thesis are three  interrelated questions . What  constitutes poverty and what are its determinants ? Why do the poor continue to stay poor in spite of billions spent on them and for them (but never by them) ?   And who gets enriched by the poor staying poor ?

Poverty is difficult to define because of its multi dimensionality, but we do know that it is a  denial of choices, opportunities and resources leading to a life of deprivation, insecurity and degraded environmental conditions. This denial is structural in which the poor are forced to be in a situation of perpetual subordination, inferiority, dependence and powerlessness. They cannot engage with the economy and society except through a relationship of dependence on their superiors and on terms determined by them.

Who are these superiors?   The Great Unthinking Left automatically concludes that these are the owners of capital who fatten themselves on surpluses created by an exploited working class. Their conclusions have to fit predetermined theoretical categories irrespective of whether those categories correspond to actual conditions. The fact is that the majority of  organised industrial capital  needs a good, strong, and stable market  for its products and services. Poverty depresses this market and prevents growth.  Capital, inherently and by definition cannot survive without growth and therefore poverty and backwardness are its enemies not its friends. Yes, capital needs commodification of labour, its relationship with labour is problematic, often exploitative, but it does not need vast numbers of poor.

So who needs the poor and whose interests are best served if the poor remain poor? 

One of the biggest flaws in our understanding of India’s political economy is a very inadequate understanding of the Indian State. Recalling the sociologist, Hamza Alawi’s famous thesis, we know that  at their independence India and Pakistan inherited a State  apparatus which was ‘overdeveloped’ in relation to the development of classes in society. The subsequent growth of the Indian State has not just been independent of the development of classes, it has spawned the growth of the State as a class by itself - in that its interests, its ideology, its network of connections, its way of working can be differentiated from other classes in civil society. In fact it is not just a class, but almost a universe in itself, with its own processes of accumulation and legitimation, its own economy and its own contradictions. This universe consists not just of the politicians and the mandarinate but a vast group of contractors, traders, fixers, touts, mafiosi groups, academics and activists, and business empires built around State monopolies. They derive their businesses from the State and their lives are inextricably intertwined with the State and the use of State power in thousands of different ways.

Broadly categorised, there are seven different ( though overlapping)  business sectors. The most obvious is the one in which the business opportunities arise from implementing  poverty  related  schemes,(NREGA, for example) programmes, projects for the State, including hard core areas like infrastructure building, civil works, labour contracts, transportation etc and soft core areas like academic research, statistical surveys, measuring poverty levels and providing a multiple variety of feedback  and evaluation reports etc. 

The second set of businesses are related to the State serving as a  gigantic market  for products and services procured by it either for consumption or for redistribution. Again the range is vast- from paper and stationery products to military stores,  to food and nutrition products, to medicines and healthcare products, to e-governance services and so on.  Not all but a substantial part of this is  related to State expenditure on poverty.

The third set is derived from State monopoly on scarce resources- land, forests, minerals, hydrocarbons, river waters, terrestrial and satellite spectrum, to list a few. While the relationship of these businesses to the Poverty Industry is indirect, poverty provides an umbrella justification for continuing monopoly ownership and control over the resource, and preventing local communities in whose habitats the resources are located, especially tribal groups, from claiming any ownership rights or any share of the benefits of commercial use of the resource. it is extremely important to keep local communities at bay and in a relationship of subordination and dependence to the State and its contractors/ collaborators. Maintaining poverty is vital to these interests as is resisting any genuine  transfer of political power to   communities and local governments.

The fourth set revolves around State subsidies, specifically subsidies on food grain, fertiliser, diesel, kerosene and LPG. These are very high volume transactions and the value chain is very long and complex offering opportunities for illegal gains and mediation at every stage- procurement/ import, transportation, warehousing, sorting, grading, packaging, wholesale distribution and retailing. The trade is conducted with  complete opacity almost entirely through State owned monopolies which allows everyone to pretend that there is a ‘social’ benefit being served and therefore the monopoly must be maintained. 

The fifth is in the related areas of  the controlled trade in certain essential commodities-- pulses, edible oils and sugar where periodic policy interventions are taken for the sake of price stabilisation  and/ or for protecting  and furthering farmers’  interests or the interests of poor consumers. Again a class of contractors and subcontractors, agents and middlemen effectively control the trade and run huge empires with very high levels of liquidity and abundant availability of cash- an extremely useful asset for maintaining a cosy relationship with the State apparatus and the political class. 

The sixth, relates to the business of credit for the poor- rural credit, farm credit, differential rates of interest credit, micro credit, credit for women, credit for micro enterprises, credit for artisans and craftspersons, credit for self help groups, co-operative credit - it is a business which runs into  many, many billions. There are many ways through which the flows are channelled to a chain of intermediaries, both outside the system and within, creating a new class of billionaires.

Ironically, farm sector credit often  become a means of strengthening and fattening the  same conventional money lender/ arhtiya who was sought to be replaced by the organised banking sector in the first place. What happens is something like this. A farmer needs finance for a variety of consumption needs during the year which are not necessarily related to agriculture. Farm loans from the commercial banks or cooperative credit institutions are available only for very specific purposes e.g mechanisation, pump sets for irrigation, fertiliser. The trade in these products and services is also controlled by the same arhtiya. This arhtiya helps his client farmer obtain a cheap loan by fabricating the necessary paperwork  for him and then converts it  into a cash loan at an extortionist rate of interest. As the farmer is now more bound than ever to sell his produce at harvest time  to the Arhtiya the risk of defaulting on repayment is minimal. This provides universal satisfaction. The credit institution can meet its lending targets and be assured of recovery. The moneylender gets to make money using someone else's funds. The farmer gets to meet his consumption needs so no one needs to complain.

The seventh is the alcohol trade- not the manufacturing, but the distribution and retail of it. The relationship  of this trade with poverty is only because  State policy interventions for  curbing alcohol consumption of the poor are seen as welfare measures, which require a control , licensing and taxation regime of incredible complexity and a vast staff infrastructure to administer this regime. The regulatory framework is quintessentially designed to leak and to provide maximum opportunities for, literally, siphoning off, vast sums through tax evasion. 

These seven business ‘verticals’, if they can be so called, share many common characteristics. Poverty provides the legitimacy, the social justification for their sustenance. Mass poverty also provides the volumes. The businesses are intimately connected with the State apparatus and in fact, are derived from it. They require State owned monopoly  organisations/ institutions to  ‘channel’ them and provide the cover for illicit operations. Most of the businesses are either carried out in cash or convert banking transactions to cash transactions through ingenious methods. All the income streams are through blatant tax evasion-income tax, vat, sales tax, excise,royalty payments, custom duties and therefore require a very close collusive relationship with the State machinery.Many of the businesses require the use of  criminal coercion and violence to quell resistance from the people as well as  from honest officials. All the businesses require the poor to be powerless and dependent on the State for their survival.

A significant feature of this perverse, State sponsored and State derived capitalism is that it is dominated by the owner/ promoter capitalist having a clutch of closely held companies, sole proprietor firms, partnerships or at best private limited, unlisted companies which rarely feature in the media. The main players remain in the shadows and are generally confined to life in private farmhouses,  only occasionally providing glimpses into their opulence. Their social circles are populated mostly by underworld musclemen, backroom politicians, sleazy bureaucrats and a bevy of ‘ladies of the night’. Many tend to be deeply religious and are major  cash donors to temples and little known religious trusts. Some occasionally dabble in the film industry. Unless their progeny bring them notoriety by smashing their BMWs or Lamborghinis or Porsches, they keep a low profile. Once they cross a certain threshold of wealth, acquired through collusion ( mostly illicit ) with the state machinery, some of them foray into legitimate corporate businesses- real estate development, hotels and resorts, malls and multiplexes, infrastructure contracts on a larger scale, energy -- being the favourites. Many continue to retain  the original, collusive, trading dominated, cash generation  opportunities even as they gradually shift focus to more respectable corporate businesses. The cash businesses are important to retain collusive control of politics and the corporate profile critical to gaining respectability and opening windows for success in legitimate enterprise. Many of today's corporate giants have grown in this fashion.

Two aspects of this perverse form of capitalism have to be highlighted. The first is the manner in which it reduces all politics to ‘realpolitiks’ such that underlying the text of any political issue is a subtext of greed, venality and  hard  nosed political horse trading. So differences  between political parties in political philosophy, ideology,  principles, values and strategy are completely hypocritical and opportunistic and meant only to mask the competition for gaining control over State power and the Poverty business. Most political battles, therefore, have value  primarily as a kind of charade played out to keep alive the pretense of fighting for principles and values. Indeed, the charade has a sufficient degree of realism to make some players believe that there is a genuine clash of philosophies, but the primary purpose of maintaining such differences is to ensure that each political formation/group retains the loyalty and allegiance of its  specific constituencies. However, these differences can be happily abandoned when it comes to the actual exercise of State power. Alliances between different political groupings can be formed and reformed, changed and shuffled  around with insuperable ease because everyone in the game knows what the ‘real’ issues are. Politics is therefore, intrinsically and inherently corrupt in the Indian context.

While this may be a universal phenomenon, the major difference with western capitalist societies is threefold.  Firstly, the larger share of capitalist development in those societies is on account of legitimate entrepreneurship  and technological innovation, unrelated to the State and most business opportunities lie outside the arena of the State. While sharp business practices, unethical conduct, insider trading, exploitative labour relations, irresponsible environmental  management and all the attendant ills of capitalism may be rampant, the businesses themselves are not derived from the State. The State may serve as an instrument for protecting and furthering class interests but it does not constitute a class by and for itself. Secondly, the realm of politics and public policy is a real world where differences in approach, in philosophy, in values actually matter and people vote on the basis of their own ideological/political perceptions. It matters, for example, what position a party or a candidate takes on taxation, on government spending, on gender, on arms control, on foreign policy and so on and differences do not disappear once votes have been won. In our context, on the other hand, such differences are a kind of shadow play and of no import once power has been captured. Thirdly, there is a vast sphere of social, economic and cultural activity in which the State has no role whatsoever. The realm of the Private is much bigger than that of the Public, unlike us where the Public sphere encroaches into every aspect of our daily lives creating a relationship of perpetual dependence on the State such that permissions have to be obtained for almost any and every human activity. The State dominates our minds in ways that are quite unthinkable there. It is this relationship of dependence that virtually guarantees the persistence of poverty as a permanent feature.

The second aspect that deserves being highlighted is the conundrum of ‘black money’. Conventionally, it is assumed that evaded taxes constitute the black economy and that most of this wealth  is  either spent on real estate, diamonds, gold  and conspicuous consumption or secreted away in tax havens abroad. The situation is a little more complex. There are those  who are engaged in regular business activities but do not like to pay taxes and therefore resort to various means of tax evasion - undervaluation of property, benami transactions, under and over invoicing of transactions,  but the main source of their revenues  are  legitimate business activities. The only illegitimate part is the evasion of taxes. Such businessmen maintain approximately 60 to 70% of their income in ‘black’ but most of it goes into either lifestyle related consumption or real estate or gold and diamonds.

This  kind of ‘black’ income sustains  a substantial part of our economy and through ‘conspicuous consumption’ such as opulent weddings supports the hand and cottage sector. It creates massive self- employment and independent livelihood opportunities and it enables the  conservation and the continued nurture  of hand based skills. A grand wedding, for example, generates very lucrative incomes for a vast number of people- from the person producing hand made paper for the invitation cards, the graphic designer, the wedding planner, the event management team, the dressmaker, the embroiderer, the weaver of fine fabrics, the tailor, the bangle maker and the bangle seller, the mehndi artist, the caterer, the cook, the waiter, the tentwallah, the ghorawallah, the brass band, the entertainers and the performing artists, the gift basket maker, and of course the producer/grower of fruit and vegetables and flowers, poultry, meat and food grains.One fat Indian wedding, thus, generates more useful and productive employment, nurtures and gives sustenance to non alienated, creative, skilled labour than a dozen leaky, wasteful and dependence creating poverty amelioration schemes. So ‘black’ money spent in the country and going into the  domestic economy  is actually more beneficial than ‘white’. A substantial part of the black money  consumption oriented spending becomes ‘white’ through the payment of taxes like VAT.

The second set of black money generators, on the other hand, are those  who have made their money through illegitimate activities, mainly by using their access to State power to siphon off and criminally misappropriate taxed resources. These ‘white’ taxed resources, therefore, are the ones which go into the secret chests of the political parties, the pockets of a bloated and corrupt officialdom and the hidden vaults of the captains of the poverty industry. As the bulk of this income is gained  through illegal and corrupt means it is necessary to secrete  it  to foreign tax havens. The bulk of the ‘black’ money in foreign bank accounts is, therefore, generated, I suspect, by these ‘white’ taxed revenues.

Lumping all capitalists as uniformly evil and not being able to differentiate between those who are a part of this nexus  between the State, politics and poverty and those who are not, can blunt the edge of any democratic resistance and subvert any genuine reform, however well intentioned it may be. Our tools of understanding of both Indian capitalism and the Indian State have to be honed substantially to be able to know whom to build alliances with and whom to fight against and what kind of reform strategies to formulate. This  parasitic form of capitalism, which feeds on and fattens itself on the State, prevents genuine capitalist growth, is infinitely more exploitative and completely perverts the political process. It has a strong vested interest in perpetuating poverty and in maintaining a constant and continuing state of disempowerment. Organised  industrial capital on the other hand requires  stable, effective demand and much lower levels of inequality for its growth. It is therefore a natural ally for carrying out reforms aimed at reducing the State and adopting non statist, market friendly instruments of growth and inclusion. 

Is there a way out ? Obviously, for poverty to disappear the following things have to happen- the stranglehold of the Big State on the economy and on politics has to go, the focus has to shift from State led ‘inclusion’  and devious redistribution to straightforward growth led by the organised corporate sector with the State confined to physical infrastructure creation; direct and conditional income transfers to the poor have to replace programmes guaranteeing  wage slavery and dependence; the poor have to be democratically empowered to find their own ways out of poverty with women  (in particular the girlchild)  forming the avant-garde; women have to be made the custodians of ecological and environmental assets and eco services and compensated for their stewardship; high technology interventions have to be used to mainstream the craft/ hand/ artisanal sector to economic growth  processes and new  business models designed to make decentralised, boutique units the principal means of value added production for localised markets as well as  for high value, eco sensitive export markets; communities have to have decision making powers with appropriate technological assistance in the use of natural resources available in their habitats.

 But why should an entrenched rentier State allow this to happen and why should it allow its rent seeking opportunities to be circumscribed? All that and more has to be the subject of another long essay. Suffice it say that there are emerging windows of opportunity in the resurgence of federalist and devolutionary impulses in the polity, demands for greater autonomy and more decentralisation, the ascendance of women as a political force and the growth of private sector industry unconnected with the State . How these trends can be made use of to forge new alliances towards transforming politics as well as economics is the real challenge.

Saturday, September 8, 2012

Two months ago, at the peak of the ’Tatra gate’/ COAS versus MOD imbroglio, I had attempted an analytical understanding  of corruption in defence procurements- ‘why’ does it occur and what is special about it, ‘where’ does it occur and ‘how’ does it occur. Some of those arguments need reiteration and some  further peculiarities of the Indian Defence establishment  need to be highlighted because corruption  is so deeply embedded in the  very architecture of the establishment that only a radical redesign of that architecture can offer a way out.

On the question of ‘why’ I had  in the earlier article referred to the ‘monopsonistic’ ( a monopoly on the demand side) nature of the  defence market, combined with, paradoxically a limited number of suppliers because of the whimsies and uncertainties of the market. A perverse kind of monopoly therefore prevails both on the demand as well as the supply side leading to an extremely unhealthy buyer seller relationship.

While buyer seller relationships in the defence market are universally complex they are not necessarily as unhealthy as in our case. The Indian defence establishment, modelled somewhat on the Soviet system, is a closed universe which does not permit  access to any  healthy external  market forces or influences. The Defence Empire consists of three distinct Kingdoms each having its own duchies, provinces, satrapies and fiefdoms. These are the Department of Defence, the Department of Defence Production and the Department of Defence Research. Each of these kingdoms have their own, exclusive, ’rent seeking’ preserves which they jealously guard. The kingdoms of Defence Production and Defence Research, in particular, control gigantic  subordinate establishments,-PSUs, Ordnance Factories and Defence Laboratories- all hugely lumpy, capital guzzling investments, set up over thousands and thousands of acres of land on a scale lavish enough to shame Donald Trump and Mukesh Ambani. The ostensible justification for these monstrously inefficient investments is to achieve some kind of strategic self reliance which is tightly controlled by the State. Private industry has to be kept away except by way of reluctant ancillarisation and supply of some components- a process which opens up yet another area of rent seeking opportunities.

In theory, the relationship between the three kingdoms and the Armed Forces these kingdoms are meant to serve is supposed to function like this. The Armed Forces work out their present and futuristic requirements, qualitatively ( the GSQRs) and quantitatively (elsewhere I have shown how highly convoluted and corruption prone this exercise can be) and communicate these to the Defence Research establishment. The DRDO develops the products to match these requirements. The Armed Forces try out and approve the prototypes or the pilots and then Defence Production comes in to ’designate’ one of their units to ( a typical Indian usage) ‘productionise’ the product. The product is inducted into service and everyone lives happily thereafter, until the next product development cycle begins. Because  everything is within the confines of the MOD it is supposedly insulated from corrupting influences from outside.

Practice shows a perfect perversion of theory. First, each kingdom and each fiefdom within each kingdom has its own bewilderingly complex procedures, and crossing each stage of these designed hurdles within each of those fiefdoms, requires intermediation, facilitation and payment of ‘rent’. Rent seeking opportunities increase geometrically. By way of illustration, those framing GSQRs do so primarily by drooling over Janes’s catalogues and cherry picking specifications from different  competing products in the hope that they will achieve the best combination. The smarter international players try to enter at this stage itself to influence the framing of requirements in a way that is favourable to their existing product range or the ones they are developing for the international market. Considerable sums exchange hands at this stage itself. Once framed and passed on to the Defence Labs ( or sometimes directly to the production agencies as the gestation period for indigenous R&D may be unacceptably long) the Labs decide which are the parts of technology  (knowhow and knowwhy)they themselves will develop, which aspects they will seek technology cooperation with international partners and which parts or components they will fully import and then integrate with the full system (e.g the engine in an aircraft or a tank). The processes by which these decisions are taken are completely opaque and  the jealously guarded turf of the R&D establishment, providing room for heavy duty influence peddling and mediation. Inevitably, the tendency to reinvent the wheel ( being the softer option because adaptation  on the other hand involves considerable drudgery and a soiling of hands which our technology developers are not ready for) delays the product development cycle and on the one hand leads to extraordinary pressure from the Armed Forces ( their preparedness cannot be sacrificed for indigenous capacity development) for imports and on the other ensures that by the time the product is even halfway developed it is already completely out of synch with contemporary technology and rapidly changing requirements. Making the product acceptable at this stage again requires heavy intermediation and facilitation, the burden for which is borne by the foreign ’ component’ supplier. Component import is more often than not a euphemism for full scale technology/ know how import and termed ‘component import’ when done by the R&D establishment and ‘technology import’ when done by others.

It is evident that each stage of procurement in each kingdom adds to the cost. The costs get hugely magnified once the prototype or the pilot gets scaled up for production. At the production stage in the kingdom of Defence Production another vast avenue of rent seeking emerges. Because the production units are set up at such a heavy cost and because they are designed for ‘cost plus’ operations there is little incentive for cost efficiency. The Armed Forces rightly resent having to pay high costs for technologically outdated products ( the Tatra is a classic example) and therefore have a bias towards direct imports ( which keeps their own ant the Department of Defence’s rent seeking opportunities intact) and the production units need to sustain their  high cost operations. So the production units desperately seek to maintain demand and take the route  of outsourcing some part of the production through the private sector who is required to pay for maintaining the demand at sustainable levels. Hence, the offer of bribes simply to maintain demand.

The story goes on and on and one can elaborate a hundred different ways in which corruption is guaranteed by the system. To bring about any change I can only repeat my suggestions in an earlier article.What can be done to change ? First,  devolve and delegate  clear and full decision making authority for procurements massively down the chain of command- from the Ministry to the Service Headquarters, from the Service Headquarters to the Commands, Commands to the Corps and Corps to the Divisions. Restrict the role of the Ministry to procurement of major weapon systems and platforms. Have a clear hierarchy of Budget Holders who are fully responsible, within their budgets to take all decisions for achieving budgeted outcomes. Second, simplify procedures dramatically, moving from administrative controls and restrictions to budget based methods of control. Third, enhance the level of discretion available to the decision makers rather than reduce or constrict it. There is no substitute for trust. Trust a group of wise and professionally competent men to weigh the pros and cons of each option and take a decision they feel is in the best interests of all stakeholders. Guarantee them complete protection from any allegations of misuse of trust. Four, distinguish between middlemen/agents who perform a genuine service for the supplier and the deal fixers,  and give the former legal recognition and allow them free and easy access to the buyers/ decision makers making interactions with them transparent and aboveboard. Five, make a transition from engineering solution based specifications to critical performance parameters, share these parameters with potential suppliers and test product performance against these parameters. Six, integrate the Departments of Defence Production and Defence Research with the Department of Defence and privatise the Defence PSUs, the Ordnance Factories and the Defence Labs by converting them into widely held public limited companies answerable to their shareholders for performance and  thereby encourage  a shift from  pure ‘buy’ decisions to  ‘ buy and make’ decisions from a customer friendly industry.

While this may appear too radical an agenda, the point is that the kind of changes in procurement policies and systems that have been attempted so far have managed to achieve the impossible- deterred the honest from taking any decision and paralysed the system and paradoxically, substantially increased the opportunities for the dishonest to eke out his ‘rent’ from a vast new range of hurdles which a supplier has to go through to secure business. Only radical reform can break this deadlock.

Wednesday, April 4, 2012

Defence Procurements- A Class apart

In the media frenzy generated by General V.K Singh’s not so startling revelations our genius for muddling very different issues and focussing on the more salacious aspects of them has once again become very evident. Knee jerk reactions like the reference to the CBI of the Tatra procurements will ensure that the flaws in the decision making process remain unaddressed and the opportunity for serious and radical systemic reforms is again passed over.

There are at least four distinct sets of issues the current episode throws up - the issue of defence procurements (policies, systems, processes), the issue of the relationship between the Service Headquarters and the Ministry, the issue of the conduct of the Army Chief and that of the Minister and the issue of the state of our defence preparedness. Each of these deserves a separate analysis.

This essay confines itself to the issue of corruption in defence procurements. ‘Why’ does it occur and what is special about corruption in defence? ‘ Where’ does it occur and relatedly, ‘how’ does it occur ?

The issue of ‘why’ is complex. Many reasons make it different from corruption elsewhere. The market is what is called ‘monopsonistic’ i.e a monopoly on the demand side rather than the supply side and monopolies of both kinds can be pernicious. Paradoxically, however, given the uncertainties and the whimsies of the market the number of suppliers is also limited. This necessarily leads to an unhealthy relationship between the buyer and the supplier which veers between being cosy and crony like to being tense and adversarial. The risks involved are considerable and therefore the need for intermediation often very necessary.

Security concerns necessitate a veil of secrecy on defence acquisitions making it very difficult to apply the rules of transparency applicable elsewhere. Perversely, the need for confidentiality also becomes an excuse for conducting business in devious and furtive ways.

The nature of the market therefore, is one which provides fertile breeding ground for corrupt practices. What increases the complexity is the incredibly tortuous system of procurement designed by the Indian bureaucracy on the famous CYA principle, which ensures that multiple opportunities for charging rent arise and this rent has to be paid and is paid, irrespective of who one chooses to buy from and irrespective of their being honest jokers in the pack at different levels. Procedures, intended to prevent foul play,paradoxically and ironically achieve the opposite of illicit payments being made simply for play to happen- foul or fair.

Which brings us to the question of ‘how’, but before that let us briefly look at the interesting issue of ‘where’ ? There are three separate tracks that all procurements in MOD go through and each of these tracks has a bewildering multiplicity of hurdles and passes through so many stages that it would make a Steeplechase track look silken and smooth.

The first is the track of demand estimation, demand vetting, demand projection and inter se priority determination. This is an exercise firmly in the domain of the Service Headquarters and it is here that decisions are taken on the numbers/ volume required and the inter se priority to be accorded to the items to be procured within available budgets . It is astonishing how incredibly unpredictable this can be. Capital intensive production capacities set up at huge costs on the basis of long term, sustained demand, go abegging for orders simply because a new COAS changes priorities, or a transaction does not go in favour of the desired party, or because the one projecting the demand does not like the face of the supplier or the supplier does not appoint the right intermediary. As no one can be penalised for not wanting to buy, huge sums are paid simply to sustain demand, especially when it comes to repeat orders.

The second track is the technical one - from framing the GSQRs, to preparing the engineering specifications, technical trials, user trials, and techno commercial evaluations before the procurement process commences and the entire spectrum of post contract activities related to quality inspections, controls and quality assurance. This is the jealously guarded turf of the Service Headquarters and brooks no interference from anyone outside. The procedural labyrinth which any supplier has to go through to have his product declared as technically acceptable is Kafkaesque beyond anything Kafka could have imagined and offers limitless opportunities for seeking rent. Most suppliers provide for huge margins in their costs to go through this ordeal successfully, and those who do not or cannot afford to inevitably suffer. Being a purely technical matter, neither the processes nor the practices are ever audited or subjected to independent professional scrutiny.

The third track is the actual procurement one, where the onus shifts to the Ministry and the dreaded Babu.Here, there is a well established hierarchy of rent collectors along the approval chain. The approval cycle itself is so complicated and so lengthy that the opportunity for each functionary or facilitator to collect his share of the booty along the nuisance value chain is maximised . At no stage does anyone really need to circumvent or short circuit the procedure because following the procedure itself provides the opportunity. For the rent collectors/ facilitators along the approval chain, it is not necessary to either deviate from procedure or to influence the purchase decision in favour of any bidder. All he needs to do is to keep the process moving forward because all the bidders open a kind of Letter of Credit with the established chain of rent collectors before the procurement process begins and as each stage of the transaction is crossed , the rent gets automatically paid at the appropriate level. At the apex of the decision making chain is the Chief Collector, which could be the Minister/ Prime Minister , or his/her confidante who gets the highest share of the rent. It matters little who wins an order, because payment is made for the final approval being granted and not for deciding in any one’s favour.The drill is so well established that the flow of rent rarely gets disrupted except when there is a falling out among the middlemen or one of them decides to violate the Thieves’ Code of Honour.

What can be done to change ? First, devolve and delegate clear and full decision making authority for procurements massively down the chain of command- from the Ministry to the Service Headquarters, from the Service Headquarters to the Commands, Commands to the Corps and Corps to the Divisions. Restrict the role of the Ministry to procurement of major weapon systems and platforms. Have a clear hierarchy of Budget Holders who are fully responsible, within their budgets to take all decisions for achieving budgeted outcomes. Second, simplify procedures dramatically, moving from administrative controls and restrictions to budget based methods of control. Third, enhance the level of discretion available to the decision makers rather than reduce or constrict it. There is no substitute for trust. Trust a group of wise and professionally competent men to weigh the pros and cons of each option and take a decision they feel is in the best interests of all stakeholders. Guarantee them complete protection from any allegations of misuse of trust. Four, distinguish between middlemen/agents who perform a genuine service for the supplier and the deal fixers, and give the former legal recognition and allow them free and easy access to the buyers/ decision makers making interactions with them transparent and aboveboard. Five, make a transition from engineering solution based specifications to critical performance parameters, share these parameters with potential suppliers and test product performance against these parameters. Six, integrate the Departments of Defence Production and Defence Research with the Department of Defence and privatise the Defence PSUs, the Ordnance Factories and the Defence Labs by converting them into widely held public limited companies answerable to their shareholders for performance and thereby encourage a shift from pure ‘buy’ decisions to ‘ buy and make’ decisions from a customer friendly industry.

While this may appear too radical an agenda, the point is that the kind of changes in procurement policies and systems that have been attempted so far have managed to achieve the impossible- deterred the honest from taking any decision and paralysed the system and paradoxically, substantially increased the opportunities for the dishonest to eke out his ‘rent’ from a vast new range of hurdles which a supplier has to go through to secure business. Only radical reform can break this deadlock.

Wednesday, February 29, 2012

The States will not get bullied anymore

It feels good when the States of the Indian Union muster up sufficient strength to show the Government of the Union the raised middle finger. For so long having been the victims of the arrogance of the Union and its gross insensitivity to federal ways of working, the States have realised that power equations have changed and they now deserve to be treated with greater respect. First the FDI in retail, then the LokPal/ Lok Ayukta Bill, and now the NCTC- the States have shown that they will not wag their tails each time they are asked to do so. The ways in which policies are framed and grand plans laid out, the protocol now will have to be very, very different.

But first, entrenched attitudes have to change. Much discussion on our federalism still revolves around whether our Constitution is quasi federal, or federal with a unitary bias or unitary with federal features. Couched in legal, juridical terms this pointless debate assumes that political reality will follow the original intent of the Constitution makers in giving the Union a dominating role. The reality, however, is in conflict with this design. The Indian polity is by now irreversibly federal and coalitionary and the imposition of a unitary culture in governance can now never succeed. The existence of superior and exceptional powers with the Union to subdue or supersede the States does not mean that these powers have to be used. What is important is to accept the federal nature of the polity and align administrative structures and processes to this reality. And this is what a Congress led Government refuses to do. So used is it to a High Command style of functioning of unquestioned supremacy in decision making that each time it gets a rebuff it simply goes into a sulk and shelves important policy reform hoping to reimpose its will when it can regain the kind of brute majority it was accustomed to in the past.

Many people in the Union Government continue to see federalism as a problem. The States are at best seen as ‘implementers’ of superior decisions taken by the Union rather than as valued partners. The very fact that both in popular and official discourse people refer to the Union as the ‘Centre’ and ‘Central Government’ - terms which do not exist in the Constitution is a reflection of this attitude. A Union is a union of partners, whereas as a Centre is the inner core of a unitary whole. Appreciating this difference is crucial.

Many also continue to conflate the ‘national’ with ‘central’ and ’regional’ with the States, quite forgetting that without the states coming together there is no Union. Take the proposed NCTC for example. In its favour it is argued that terrorism is a ‘national’ problem which does not respect State boundaries and therefore has to be dealt with by the ‘Central’ Government. This is a deeply flawed argument. Most problems or issues are universal and impact simultaneously at international, national, regional and local levels-be it Climate Change, or terrorism, or poverty, or infrastructure, or security. The problems themselves are never completely ‘international’ or ‘national’ or ‘local’, they simply impact differently at different levels. So countering terrorism has to be not just at the global or national levels but at all levels and each level requires a custom made strategy. Otherwise, it could well be argued that as terrorism does not respect national boundaries, decisions on countering it should be taken by the US Government -being the leader of the global fight against terror!

The second argument is that of the need for better national level co ordination. But coordination does not require a centralised command and control architecture, it requires a networking one. . Information and intelligence is best gathered in a decentralised manner with the active participation of local level agencies, made to conform to agreed standards, pooled into a commonly owned resource and made accessible and useful to all stakeholders. This is possible only in an organisational framework which is confederal and which is jointly owned by the Union and the States, not one in which the Union alone exercises centralised bureaucratic control .

People forget that the more federal the processes, the more democratic and the more collegial, more the possibilities of strategies and actions being better coordinated. This also enables a better pooling of skills, ideas and human resources in the task of policy making. It was this consideration which made the Constitution makers provide for a unique mechanism in the shape of the Inter State Council under Article 263 of the Constitution for the Union and the States partnering each other in identifying issues of common concern, investigating them and arriving at policy recommendations. The Council is chaired by the Prime Minister and has all the Chief Ministers and selected Ministers of the Union as members. While the Constitutional provision had existed from the very beginning the Council was constituted only in 1990 when the Sarkaria Commission highlighted its potential usefulness and a non Congress Government seized the opportunity to set it up.

The unique value of the ISC lies in the fact that it brings the Governments of the Union and the States on a neutral platform as equals and not as superiors and subordinates. In its composition it is perfectly balanced with neither the States nor the Union in a position to dominate. While its recommendations are meant to be advisory, given that they come from the highest levels of Government, they are not capable of being easily shelved or ignored.

Experience shows that the best way of evolving consensus on conflictual issues is by having all the parties define the problem together. If there is consensus on defining a problem comprehensively having everyone to agree to the solution becomes very simple. Had an attempt been made by using the agency of the ISC to collectively define the problem and then investigate it together through the independent Secretariat of the ISC there would never have been the kind of opposition the Union now faces from its constituent units.

Congress led Governments have not yet accepted the inevitability of increased power of the States and the need for a more consensual, inclusive way doing things. They forget that federalism is one of our greatest strengths and deepening it only strengthens the union, not weaken it. Government is surely not the place to sing ‘Ekla chalo re’.

Monday, February 6, 2012

The Black Farce of Jaipur

In terms of duplicity, deviousness and hypocrisy in governance and the display of sheer contempt for democracy and secularism, the conduct of UPA II in the Rushdie/ Jaipur Literary Festival episode marks a new low. The incident is not an isolated one, following as it does the shameful behaviour in the cases of M F Husain, and Taslima Nasreen. Democratic and secular practice has been corrupted, and this corruption is infinitely more treacherous than that of the financial kind .

Is this an over reaction, the ‘pseudo anger’ of the elite, liberal intellectual taken in by ‘western’ notions of freedom of speech and stemming from a lack of understanding of the complex socio cultural environment we live in ? Is one being completely ignorant of the difficulties that any administration confronts in maintaining public harmony? Is the reaction commensurate with the gravity of the alleged misconduct ?

It is mostly other members of the same liberal intellectual elite who dub this reaction as elitist and downplay its insidious impact. This stems from the condescension with which many of us treat the practice of democracy- as a plaything of the elite and not the bread and butter concern of the common man. The fact is that in a country of such gross inequities, democracy is the only means of survival with dignity that the common man has and protecting it, nurturing it and resisting attacks on it is the single most important responsibility we have as citizens.

In the Rushdie matter, as events unfolded themselves a few things became very clear. To a party going out of its way to woo the Muslim vote in U.P and fiercely competing with the SP and the BSP in doing so, the Congress could ill afford to antagonise the Deobandis and the Owaisis, not so much to garner votes as not to lose them. In the stakes for competitive communalism the Congress bets slyly and secretively but it bets big. Rushdie had to be stopped from coming without the Congress and the UPA Government showing their hand. So it followed a classic three pronged strategy of deviousness: First , make the State Government take the lead in dealing with the issue so that the federal excuse is always available to pass the buck and have the national level party and Government spokespersons maintain a politically and legally correct stance ; Second, fabricate a scare which is plausible enough for the JLP organisers to willingly persuade Rushdie that it will be in every one's best interests if he does not come and ensure that the decision is publicly seen as one taken reluctantly and voluntarily by Rushdie himself ; Third, keep the Islamist loony fringe protest boiling so that the threat perception remains and the JLP organisers are not emboldened into any further bit of adventurism. It did not expect that an alert media would uncover the bogus nature of the scare and thereby expose the deviousness of their plan.

It is obvious that the masterminding of this ploy was done by the Congress party leadership within the Central Government with assured access to the I.B. The Rajasthan Government was used merely to distance the Centre from any direct role. In turn, the Rajasthan Government played its assigned role to perfection and managed to scare the organisers to an extent where the choice was between having Rushdie or having the festival. Obviously no organiser is going to waste millions on standing up for a principle especially when he is led to believe that he is acting in the larger interests of the nation. The scare was sufficient to make the organisers a tad defensive about the conduct of the Government and they then took it on themselves to try and contain subsequent voices of protest.

I was witness to Amitava Kumar and Hari Kunzru taking a spontaneous decision to read out from the Satanic Verses during their Friday afternoon session. Many of us were sitting around in the private lounge reserved for writer/speakers ( and their spouses) when Amitava and Hari Kunzru said that they felt that it would be an appropriate way to demonstrate solidarity with Rushdie and register their protest. We could not see anything wrong with it. Yet when they started reading out to the spontaneous applause of the packed Durbar Hall, they were stopped midway by the organisers and the session ended soon thereafter in a tame manner. There was no one in the audience who objected and the directions to stop were most probably instigated by the police authorities ubiquitously present at the venue. Meanwhile in another session Ruchir Joshi and Jeet Thayil did the same thing and chose the more provocative parts of Satanic Verses to make their point, once again to spontaneous applause. They too were cut short midway by the organisers and all four were given a polite dressing down for taking the organisers by surprise and and were painted a grim picture of the horrifying consequences that could follow such a blatantly illegal act. As it turns out there was nothing illegal in what they did, but given the nervousness of the organisers it was easy to believe ( a belief buttressed by legal opinion available from a legal luminary present) that some obscure provision of the IPC had been violated by reading out from a banned text and that grim consequences would follow this impulsive gesture. With the entire festival believed to be under threat of closure and rumours of the imminent arrest of the Fab Four feverishly doing the rounds, all four were presumably advised to quietly leave the city and allow the temperatures to come down. So even a very tame, civilised, literary gesture of solidarity was converted by the Rajasthan Government authorities into a threat to public order to achieve an execrable political purpose.

There are several voices of apology attempting to justify the conduct of the Government. The most favoured argument is to range the freedom available to a reckless writer belonging to the most privileged section of society, living in a foreign country against the sensitivities of a complex multi religious, multi cultural society. It is posed as a case of freedom of creative expression of one against the ‘sentiments’ of the masses. The second is the ‘limits to freedom’ argument. The argument is that no freedoms are absolute and romantic notions of freedom of speech borrowed from the liberal west are not applicable in our context. Restrictions have to be imposed in the interests of public order. The third argument is to make this an isolated case of Rushdie versus the Rest of India, where the focus shifts to Rushdie’s intemperance and his lack of contrition at his continued acts of blasphemy, his dubious merits as a writer and his penchant for attracting publicity to himself. The fourth argument is the one coming from the Indian version of secularism which while ostensibly treating all religions/faiths as equally deserving of deference believes that minority faiths, such as, Islam deserve a more aggressively visible demonstration of deference to protect its followers from a predatory majority.Posed in this manner it seems almost reasonable that in the case of the latest Rushdie episode the ‘larger’ interests of the nation prevailed against the interests of a minority of liberal intellectuals.

These arguments are both perverse and fallacious. Freedom of speech and expression is not just one of the Rights available in a democracy, it is its very foundation. Everything else is dependent on it. It is fundamental to democracy in the most fundamentally defining way. Safeguarding the Right, conserving it and promoting it is the foremost responsibility of the State more important than anything else that it does. It is an enforceable Right and failure to protect it amounts to the complete abdication of its most primary responsibility. Freedom of speech includes the freedom to listen, to receive information, to demand information, to discuss and debate and is therefore universal, not just the right of one individual to express himself. Limits on it can only be imposed by law and not by executive action. The limits/restrictions have to be exceptional and justified in the rarest of circumstances.

The perversity of the argument is manifold. First, it places the limits on a Constitutionally guaranteed freedom at a higher pedestal than the freedom itself and makes these restrictions the basis for policy and action rather than the freedom. By this logic, arbitrary and completely illegitimate restrictions on freedom have to be treated as sacrosanct but the freedom itself can be trampled upon with impunity. So the State instead of ensuring an environment where people can enjoy their freedom without fear or peril, supports and abets the creation of an environment of fear to deny them their freedom. Second, those who threaten to disturb public order with ominous warnings of possible violence find protection and tacit encouragement from the State,their threats justified as natural expressions of outrage against a known provocateur but those organising a peaceful and orderly assembly of citizens simply to provide a platform for creative individual expression are threatened with prosecution for attempting to do so. Third, the feelings and the rights of a moderate majority wanting simply to listen to a famous writer are held in complete contempt and treated as inferior to the sentiments of a loony, Talibanist fringe whose rights to vilify and demonise a great writer are upheld as being legitimate and justified. This is reverse secularism at its worst.

The Rushdie episode is a reminder of the extreme fragility and vulnerability of our traditions of democratic practice and how easily and readily the State is prepared to trample over them. While peaceful, democratic resistance at the grassroots have always been suppressed by the State ruthlessly in the interests of security and public order for a long time, the world of the Arts and Literature had generally been left untouched. With MF Husain, Rushdie, Taslima Nasreen that world too is no longer safe from the authoritarian strains that run through our polity. Supporting the right to dissent, to be a contrarian, to be irreverent, to blaspheme, to mock and to deflate authority and pompousness, to expose hypocrisy is what makes a democracy. As intellectuals it is our bounden duty to stand up for it and fight its erosion continuously. What the Government did in this case is utterly abominable and as intellectuals it is our duty to expose it and shame it.