Issue 56 Vol III, January 31, 2008

F O C U S

Punjab’s downslide
Gobind Thukral

IN March last year when Parkash Singh Badal became chief minister fourth time, he rightly raised great hopes. This was further strengthened by the choice of some key officers. His new chief secretary, Ramesh Inder Singh, his principal secretary Darbara Singh Guru and his police Chief N.P.S Aulakh, all are intelligent and committed officers. Only criticism against Mr Badal at that time was putting too many relatives in the cabinet. Now in just one year the optimism he created has given way to despair. Somewhere the government is fumbling.

It is true that Mr Badal did not inherit from the pervious Congress a healthy state of affairs in Punjab. Its fiscal health was dreadful as was the economy and much worse the governance had taken a back seat. The agrarian crisis, the farmers suicides stared him as did the empty schools, hospitals sans doctors and medicines. Yet if that had not been the case, the Congress would not have lost power. Akali Dal and BJP would not have been enjoying the glory of power.

Punjab’s officialdom was not known for much initiative and drive. But those who could put in hard labour and offer sensible advice, their leadership role is increasingly being undermined and ignored. No one else is responsible except the political executive; the Akali BJP leadership. Many committed officers are also feeling disheartened and there are frequent transfers at all levels. Imagine a situation when there is no dearth of officers, crucial posts in civil and police administration in the field are vacant. One particular powerful minister has had five secretaries in less than one year. There is a kind of hiatus emerging between the civil service and the political executive. It is bad and surely undermines the already pathetic administration. If that was not the case, why the officers should be instructed through letters to show respect to the elected representatives; MPs and MLAs? The chief secretary in his review meetings with secretaries and heads of departments finds performance at times not up to the mark.

The major malaise the government faces is the poor state of fiscal performance, besides governance. The government is virtually broke and is living on borrowed money. This year it shall end up borrowing Rs 5,000 crore. It has no money to buy extra power and Punjab, both rural and urban is reeling under heavy power cuts. Power board is in a mess that it would be a miracle to bring it back to health. The government is yet to pay Rs 2,400 crore it owes as subsidy and its line losses and power theft are shuddering, despite a seasoned officer at the helm of affairs.

Finance minister is declaring from the top of the roof that he would complete Rs 5100 crore plan by March end this year. Only 40 per cent of the target has been achieved till December 2008. He needs to pump in Rs 3000 crore more. While some statistical jugglery is always possible, there seems be no way to honour the commitment made in the Punjab assembly. At present, Punjab is giving Rs 4,000 crore as interest on the loan worth Rs 50,000 crore availed during the past decades. Next year the loan money will go up to Rs 55,000 crore. Punjab has already availed loan of about Rs 3,000 crore during the current fiscal year. It will touch Rs 5,000 crore by March 31.

Punjab needs to mobilise additional resources to the tune of Rs 3,000 crore to Rs 4,000 crore to expand the size of its annual plan for the next fiscal year and meet the financial liabilities, including the liability of power subsidy to the tune of Rs 1,500 crore, Then there will be enhanced bill of the atta-dal scheme during the next year.

Look at the tax recovery. It is at one level bound with the state of economy and the other at efforts to mop resources. There is low vat compliance in the absence of billing. Black market flourishes at all levels. Punjabis are great consumers, but where goes the tax money.  The government gets nothing much from the small and medium traders. Tax collection is very poor if we compare with Haryana. Collection from VAT by the end of December was just Rs 3,950 crore. This is an increase of just 11.5 per cent over the corresponding period last fiscal year. The government had projected 25 percent. The result is till the December-end Rs 1,325 crore was released for the implementation of the core plan.

The number of registered dealers number is 1, 63,615 not even half if we look the scale of commercial activity in high consuming society like Punjab. But 63431 pay no vat as their turnover annual is five lakh only. Another 38,000 pay an annual tax of less than Rs 10,000/ only 3204 pay more than Rs ten lakh annually.

Punjab is unable to use central aid in the absence of matching contribution and at other times because of official apathy. Take urban and rural water supply Punjab was unable to utilise Rs 700 crore allocated by the Union Government under the centrally-sponsored schemes.

For decades, Punjab has been fighting battles with its neighbouring states over river waters. However, what has gone wrong with its own canal irrigation network over the years, its political masters have failed to see. There is a criminal neglect and the capacity to irrigate the area through canal network has come down to just 28 per cent by 2006-07 whereas it was more than 42 per cent in 1990-91. Interestingly, irrigation through tube well network has gone up from 57 per cent in 1990-91 to 71 per cent by the 2006-07. In 1990-91 the total irrigated area in Punjab was 39, 09,000 hectares. Through canals the area irrigated during that year was 16, 60,000 hectares and through tube wells 22, 33,000 hectares. All this means depleting the ground water level, making irrigation costly and difficult.

Faced with serious crisis, the political masters have hit on a new trick. Sell government property and fill the coffers all in the name of development. It would certainly enrich some private companies and individuals but definitely not help the process of development.  It is like a farmer selling his land to pay the debt and then think of developing his farm. Ridiculous indeed.

Punjab government has hired two companies, Feedback Ventures Pvt Ltd and IL & FS-IDC, to prepare project reports to guide the government in effectively disposing of such land at big cost when the entire information is being supplied by the government offices. 13,413 public property sites have been ear marked for such sale. The government plans to initially transfer vacant properties in the name of the Punjab Infrastructure Development Board.  And then sell these in the name of commercial use.

Punjab wants to expand its annual plan for the next fiscal year to Rs 6,000 crore whereas Haryana’s plan is of Rs 6,300 crore. Actually, even if Punjab’s plan is for Rs 6,000 crore, it will be 50 per cent of the Haryana’s plan. Haryana’s entire plan of Rs 6,300 is a budget plan, which means that it will be funded from the provisions made in the budget, whereas Punjab’s plan will include component of electricity board, infra structure board and other projects.

The Badal government has reached a stage where there are not many choices. It can not postpone restructuring of subsidies. It should not withdraw these as that would hit the poor.  It can double the tax recovery easily even at the present rate. Make taxation system simpler and monitor it better and stop political interference. The rich should have no license to steal the public money.

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An Asian Century?
Ishtiaq Ahmed

THE great historian Eric Hobsbawm described the 20th century as the century of extremes. Burgeoning industrialisation, scientific breakthroughs in the fight against disease and the concomitant rising rates of human survival and economic growth, the end of colonial domination, and the spread of democracy were some of the outstanding achievements of that period.

On the other hand, during the same period some of the bloodiest conflicts in history broke out, among them the two world wars, which killed millions of people. Also, despite enormous economic growth and end of colonialism, poverty and poverty-related forms of human degradation continued to afflict the wretched of the earth, most of whom were found in Africa, Asia and Latin America.

The 20th century epitomised the leadership of the West. That leadership had become a fact of history from at least the beginning of the 19th century, when European powers completed their expansion into Asia and Africa, reached its zenith at the beginning of the 20th century. But then the empires received severe blows as a result of wars among them, as well as from the freedom and liberation struggles in the colonies.

These days one hears quite so often that the 21st century is going to be an Asian century. Such optimism is justified because after several centuries Asian societies are exuding great dynamism and progress. East Asia, South-East Asia, China and now India are emerging as engines of economic growth.

Will this contagion also affect the mainly Muslim-majority countries of west and central Asia? But, more importantly, will an Asian 21st century, characterised by economic growth and rapid industrialisation and urbanisation, be very different from the 20th century if it only replicates what was done in the last century?

How will the 21st century not be a century of extremes, or perhaps of stark contrasts between the successful and the failed; the haves and the have-nots; the powerful and the weak? In other words, will it not be a continuation of the Western century but with some Asian trappings?

Some people have been talking about Asian values as distinctly different from Western values. In a nutshell the difference is supposed to be between the individualistic ethos of the West and communitarian approach to life in Asia. It is only with urbanisation and overall improvement in standards of living that individualism became a central norm in Western society. So, communitarian solidarity is not only an Asian characteristic.

One can even argue that individualism is not bad at all, as long as it means that society accepts the rights of each person to make his or her choices freely. It does not mean that individuals cease to think in terms of their family and friends. On the other hand, community pressures can be very stultifying and oppressive. It is therefore important that the individual does enjoy autonomy.

I think the main strength of Asian societies has been their ability to handle cultural, religious and ethnic pluralism more successfully than Western societies. Pluralism in West Europe dates only from the end of the Second World War, while in the United States and Canada, as far as non-Europeans are concerned, it started only in the 1950s and in Australia and New Zealand in the 1970s.

In eastern and central Europe the communist regimes restricted the mobility of people strictly, with the result that they were ethnically homogeneous and minorities were suppressed. Consequently, after the fall of the communist regimes, but especially when they opened up for tourism and to join the EU, racist movements quickly appeared.

On the other hand, Asian civilisations were largely pluralist. The dhimmi system created space for Christians and Jews to live among Muslims, though not as equals. Moreover, the development of Sufi thought and brotherhoods mellowed down the harsh side of monotheistic belief. God was conceived more as an object of love than of fear.

In South Asia the various sects of Hinduism provided scope for diversity notwithstanding the tyranny of the caste system. The fact that millions of gods and goddesses were worshipped, besides the main Hindu pantheon, encouraged great plurality of local beliefs and practices. Buddhism and Jainism provided outlets for further diversity, and with the arrival of Islam and Christianity, and indeed the birth of Sikhism, there was greater cultural heterogeneity.

The Chinese civilisation developed its own peculiar type of pluralism. While Confucianism prescribed a civic code of ethics and was patronised by the state, popular religion in the form of Taoism and Buddhism created a possibility for greater cultural variation.

South-East Asian nations such as Indonesia, Malaysia and Singapore have always been multicultural. Islam, brought to this region by Arab sailors and merchants, did not erase their Hindu-Buddhist traditions altogether, and therefore South-East Asia managed cultural and ethnic diversity more successfully. Japan was the most ethnically homogeneous society in Asia, and one wonders if that explains why it was attracted to fascism more than any other nation in Asia.

The main danger to Asian pluralism is the rise of religious fundamentalism in many parts of this vast continent. Islamic, Hindu and Buddhist fundamentalisms negate pluralism and are therefore the contemporary protagonists of fascist ideas. They should not be allowed to hijack the Asian Century.

[The writer is a professor of political science and a visiting senior research fellow at the Institute of South Asian Studies (ISAS), National University of Singapore. Email: isasia@nus.edu.sgCourtesy
Courtesy News Pakistan http://www.thenews.com.pk/print1.asp?id=91164]

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Whither Governance?
Gobind Thukral

Governance in India at the national or state levels was not known for efficiency or honesty. Yet there was always a modicum of functioning and after independence India moved forward.  It seems liberalisation has meant less and less of governance and more and more of flourishing private enterprise. Government is in aid pr the private sector alone. There could be some theoretical support for having less government in many spheres of public activity, but liberalisation did not mean lean or efficient governance, it only meant entry of private players in the governance of the country. The government’s hefty machine continued to remain bloated, inefficient and corrupt, yet another dimension was added of the private sector into government. Sometimes intentions were good to add efficiency; at times it only meant making some quick buck at the cost of the public exchequer. In many cases it also meant a sharper downfall in public delivery system.

It was conveniently forgotten that an economically backward country like India that was stirring out of long years of slavery direly needed a committed efficient welfare system. However, governance gradually was replaced by populist slogans and became less efficient. Those states in India or those departments at the center that got good chief ministers or ministers did deliver.

The Transparency International’s annual Corruption Perception Index 2007 reveals that India has registered an integrity score of 3.5 and now ranks 72 among 180 countries. There is a clear strong correlation between corruption and governance and elimination of poverty. Forty percent of the countries scoring below three points, where corruption is perceived as rampant, are classified by the World Bank as low income countries. According to these reports politicians, police, judiciary and public service areas are the most corrupt. We all know that corruption breeds inefficiency.

Look around Punjab. It offers a miserable picture as far good governance and honesty are concerned. Yet every time, some new work is started, a new department or corporation is also crated. There was one Public Works Department and it took care of all the roads, public buildings and bridges. As the work load increased, instead of strengthening the department and streamlining its working, Mandi Board was given the work of rural roads. Later, Punjab Infra Structure Board was created. Yet we find that bridges and roads are being built under build operate system where a contractor who builds a bridge or a stretch of road, spends  from his own pocket and then charges fee from all types of vehicles over a fixed period. It has been noticed that first the estimates for the project are escalated are much above the real cost and then a long period; ten to 30 years is allowed to charge fee. The contractors end up making big money and the public which has already paid road tax besides other taxes suffers not in terms of money but also harassment and wastage of precious time. Another bottleneck has been created.  Public protest has little impact. Yet gradually as has been observed, people would become restive and take law into their own hands. In five years time, many roads already constructed or proposed to be constructed would become toll roads as would be the bridges.

Now we have the departments and spend huge taxpayer’s money in managing these, yet outside agencies work and make huge money. Take the case of health services. We had one health department. It looked after health services and medical education. It was bifurcated into two; health and medical education. One medical university too was created. Later, Health Services Corporation was created. But look at the health services; hospitals, dispensaries and primary health centers. There are not enough doctors even in chief minister Prakash Singh Badal or finance minister Manpreet Badal’s constituencies. About supply of medicine less said the better. And medical colleges are sans teachers and staff. What good the university and the corporation have done.

Previous Congress government introduced a new scheme where a doctor was paid lump sum and he was told to recruit other paramedical staff and offer services. Same way several thousand schools were shifted to panchayat department after the government found that it was not capable of either providing infra structure like buildings or teachers. It had no political will to push errand teachers to schools. Later, ad hoc teachers with low salaries were recruited. The result; education system is in mess and it would surely become messier as the government establishes the so called Adarsh schools. Two classes of schools will lead to more divisions in society. Mr Badal has now kindly declared that the year 2008 would be the year of education. What it means and how it is being done no one knows.

And, there are several state corporations that contribute nothing and waste costly sources, but the government keeps appointing committees to review their working and decisions to close these down are never taken. Public cannot fathom what stops the government from saving crores of rupees.

Same way free power to farmers and other poor sections has one result; the Punjab State Electricity Board is today not only over staffed, but one of the most inefficient organisations. Its line losses, staggering around 30 per cent also mean huge power theft. There is no serious attempt to restructure it or provide promised money for subsidies. It has to borrow huge money and pay heavy interest. It’s virtually broke and bankrupt. Whenever the government is confronted from taking hard decisions, it runs away and starts thinking of withdrawing free power to farm sector. It knows it can not do that. In fact, fiscal mismanagement is touching new heights.

Experts in public administration have simpler principles and most officers are taught those during their training. Start governing and stop creating fat organisations that eat huge funds. Same organisation or department can deliver provided it is managed efficiently. What good these new departments and institutions have done. There is certainly some method in this madness. How otherwise one would could explain that a premier institution like Punjab Agriculture University at Ludhiana is being stared of funds for research. And then told it does not require its research farm of 1200 acres or so and it should be sold. There is a big money as an acre can easily fetch Rs five crore would be sold to a private builder for Rs one crore.

Remember those industrial training institutes. First starve these of funds, staff and mismanage and then hand over these to private industries houses whose only interest is in the prime property. Who is governing and ruling us is very obvious.

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Jitters in stock market
Gagandeep Singh writes from Waterloo, Canada

IN the mid for January 2008 there was magnanimous seismic activity in stock markets around the world and the markets worldwide felt strong tremors. On Monday, January 21 the markets around the globe tumbled as a house of cards on the renewed fears of recession in US economy.

It was the biggest fall in the stock markets since September 11, 2001. Around $350 billon in investor wealth was wiped out in European markets and Asian markets dropped as much as 15%. There was bloodbath in the markets and stocks were hammered like anything. The fall reminded October 1987’s fall on Black Monday when Dow Jones Industrial Average dropped by 508 or 22.6%.

Luckily on January 21 the US markets were closed for Martin Luther King day holiday. Federal Reserve moved in quickly to arrest the fall in US stock markets by reducing US benchmark interest rate by three quarters of a percentage point which was the biggest rate cut in more than two decades.

The decline in stock markets can be attributed to meltdown in US subprime market. The share of subprime mortgages doubled in a decade to 20% in 2006. The market started to look shaky but, low teaser rates and different refinancing schemes were introduced to keep the market afloat.

As the housing bubble busted, it became increasingly difficult task for the borrowers to payback their mortgages. In October 2007, 16% of subprime loans were in 90 days delinquent period or were heading toward foreclosures, a figure which rose to 21% in January, 2008. It is estimated that subprime defaults would range between US $200-300 billion. Mortgage lenders were the first to take hit followed by individuals and institutions holding mortgage backed securities. Many hedge funds and other institutional investors holding mortgage backed securities also incurred significant losses.

Many banks, mortgage lenders and hedge funds suffered significant loss. Citigroup lost $24 billion, Merrill Lynch $22.5 billion, UBS AG $13.7 billion, Bank of America $4.8 billion, CIBC $3.2 billion are amongst the major looser in this financial crisis. The top management had to bear the brunt. CEO’s of Citigroup and Merrill Lynch were forced to resign. Established companies in mortgage market such as New Century Financial, American Home Mortgage, Ameriquest and American Freedom Mortgage have filed for bankruptcy.

Coming back to meltdown in stock markets, generally speaking, the stock market is ruled by two emotions: the emotion of greed and the emotion of fear. People have greed to make more and more money out of stock market and at the same time they are fearful not to loose their money.

When the emotion of greed is predominantly heavy (not to say that economic conditions don’t support it), the stock market moves up and the reverse is true when fear of loosing money takes charge of emotions. How else can stock like MMTC (traded on BSE) reach gravity defying heights from Rs 2300 to whopping Rs 56931 in one year?

Derivative instruments like futures and options are devised to lure investors to invest greater amount of money in the market. An investor, by contributing small chunk of money can enter into a contract to either sell or buy shares at a specified due date. It helps the investors because they don’t have to contribute the whole amount upfront (rest of the amount is usually funded by banks). Lest they forget that the shares prices do not always go northwards.

When the share prices fall, the banks call up brokers to deposit the money so that they can cover up their risk. Since the brokers are almost always invested to their neck and they are unable to deposit back to the bank the called for money, the banks are left with no option but to sell the shares in open market which has the cascading effect and it reduces the price of stock further. This leads to a chain reaction and there’s a free fall in the market.

It is about time that sanity prevails in markets. Clearly the fundamentals were tossed for greed to make more money. The prices of many shares especially in the Asian markets do not fundamentally support the actual growth in their respective companies. The valuations of shares have moved too far ahead and better adjustments are anticipated in the future.

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