Editorial 1
Editorial 2
Power to bind and loose
Letters to the editor


wealth is health

The Reserve Bank of India has just released its report on currency and finance. The report has raised several questions about the stability of the financial system and the fiscal health of the Indian economy. It points out that the unrestrained growth in loan guarantees issued by both the Central and state governments has the potential of destabilizing the entire financial structure. These guarantees are essentially given to the financial institutions, and constitute implicit liabilities of the government. They have now reached the alarmingly high level of nine per cent of gross domestic product. These guarantees also reduce the incentives of the financial institutions to carry out comprehensive checks about the creditworthiness of their clients. This may be an important contributory factor underlying the unsustainable level of non-performing assets of these institutions. The report is also extremely critical about the steep increase in overall government debt. The failure of the government to control its borrowings has several adverse effects. To the extent that the governments are competing with the private sector for the available supply of credit in the economy, the higher the level of government borrowing, the less is left available for the private sector. Government borrowing “crowds out” private investment in the economist’s parlance. The high level of government borrowing is also responsible for the failure of interest rates to come down by any significant amount. This is particularly unfortunate at the present juncture because the relatively low rate of inflation means that real interest rates are rather high. This can act as a severe constraint on fresh investment — at a time when the economy is poised to take off after a couple of years of stagnation.

The government has been forced to borrow larger and larger amounts because of the persistence of very large revenue deficits of the government sector over several years. There are even fears that the government sector may fall into an internal debt trap, where it borrows ever larger amounts simply in order to service its previous debts. Such fears are not completely unfounded. The government is borrowing at nominal rates hovering around 11 per cent. Since the rate of inflation is around 4.5 per cent, this translates to a real rate of interest of around 6.5 per cent. Since the latter figure is very close to the rate of growth of the GDP, the rate of return on government borrowings may actually turn out to be lower than the real rate of interest. Much has been written about the failure of successive Indian governments to control expenditure and raise additional resources. But all this discussion seems to have no effect on either government expenditure or revenue. The combined revenue receipts in the revised estimate for 1998-99 fell short of the budgeted amount by just over five per cent. This shortfall is primarily on account of lower tax collections. Yet government expenditure was higher than the budgeted figure.

This trend must be reversed — the first priority of the government must be to restore fiscal health. Otherwise, economic reforms in other sectors will simply fail to bear fruit. The best way to reduce the deficit is through planned cuts in subsidies and a widening of the tax net. If the government is unable to do so voluntarily, then appropriate legislation which would force the government to adhere to well defined norms is the only solution.    


czar abdicates

Mr Boris Yeltsin’s announcement that he is stepping down as president of Russia was more sudden than surprising. Under the Russian constitution Mr Yeltsin is forbidden from running again for the Russian presidency. The next elections are scheduled for less than three months from now. The overriding political goal of Mr Yeltsin for some time has been to ensure his successor is a handpicked loyalist. This is important to the coteries that dominate the court of “Czar Boris”. Many of them, such as the claque surrounding his daughter, are grossly corrupt. Ensuring that a friendly person rules in the Kremlin after March has been the main theme of their and Mr Yeltsin’s politicking. Mr Yeltsin has not had much success in finding this successor. His last one, Mr Yevgeny Primakov, eventually formed an alliance with Mr Yeltsin’s most powerful rival, the mayor of Moscow, Mr Yuri Luzhkov. But Mr Yeltsin believes he has found a winner in the present prime minister, Mr Vladimir Putin. Mr Putin was an unknown personage from a security background. However, his successful military campaign in Chechnya made him a national hero. His popularity was confirmed in the recent legislative elections where his endorsement of Mr Yeltsin’s party ensured its sweeping the political centre. The next step was to prepare him for the presidential slot so he can step in Mr Yeltsin’ s soon to be vacant shoes.

It is hard to judge the reasons for Mr Yeltsin’s timing. However, with the war in Chechnya still going well — though the real test will be the guerrilla warfare that will follow after the fall of Grozny — it seems the Kremlin coteries believe Mr Putin needs to show why he deserves the most important political position. Mr Putin’s selling point is less the war than the fact he is the first Russian leader in years to show any ability to actually perform. Mr Yeltsin’s vision and governance skills in his early years was a key reason for his early political success. The problem is that if Mr Putin is as able a president as he is a prime minister, it is hard to see why he should continue to kowtow to Mr Yeltsin’s cronies once he assumes the most powerful political post in Russia.    

Haryana, Orissa, and West Bengal are among the Indian states that can be placed in the category of intermediate reformers. While these states have not undertaken wide-ranging reforms, however, they have implemented a series of reform measures that have separated them from the others. Power sector reform, for example, is an area where Haryana and Orissa have undertaken numerous steps. In June 1997, the Haryana state assembly approved the Haryana electricity reform bill that lays down the legal basis to establish an independent regulatory commission and to unbundle the Haryana state electricity board into a generating company, a transmission company and a number of distribution companies.

It is expected that the distribution network will be fully privatized by 2002. These measures will also be accompanied by tariff adjustments, comprehensive financial restructuring, and the implementation of a large investment program (about $ 1.8 billion over 10 years) that includes transmission and distribution rehabilitation and expansion, generation plant modernization, demand side management and end-use energy efficiency improvement. The World Bank has agreed to support Haryana’s efforts to the extent of $ 600 million over a period of eight to 10 years, through a series of adaptable programme loans, a new lending instrument approved in September 1997.

Haryana’s power sector reform programme involves the following: the unbundling and structural separation of generation, transmission, and distribution into separate services to be provided by separate companies and the incorporation of the new companies under the Companies Act.

Besides, it involves the privatization of the distribution system, private sector participation generation and transmission utilities, competitive bidding for new generation, as well as the development of an autonomous power sector regulatory agency. Moreover, it involves supply and end-use efficiency improvements and enhanced environmental protection and, finally, reforming the electricity tariffs at the bulk power, transmission and retail levels.

Additionally as part of the reform process, the state government has invited bids from private promoters — domestic and foreign — to set up small hydro-electrical power projects.

The state announced incentives for these producers which include exemption from electricity duty, sales tax exemption for plant and machinery purchased for the project and a Rs 2.25 per unit sale price to the HSEB with a five per cent annual escalation rate.

The Haryana State Energy Development Agency has also come up with incentives for power projects based on non-conventional energy sources. The Haryana government is promoting private investment to harness non-conventional energy sources for generating electricity. The state government has identified biomass, waste recycling, mini hydel plants, wind and solar powered plants as approved power sources.

In 1992-93, the average tariff for agriculture was 25.5 paise kilowatt per hour. It has been raised over the years and was 50.0 paise/kWh in 1997-98. In the industrial sector, the average power tariff for 1992-93 was 171 paise/kWh and has been raised to 319.0 paise/kWh in 1997-98.

Orissa leads in power sector reforms at the state level. The state government enacted an amendment to India’s national electricity acts of 1910 and 1948: the Orissa Electricity Reform Act, which became effective on April 1, 1996. Subsequently, the state government established the Orissa electricity regulatory commission. The commission announced its first tariff decision and issued its licenses to the transmission and distribution company, GRIDCO, in March 1997. The commission’s tariff order inter alia authorizes GRIDCO to adjust its tariffs effective from April 1, 1997. The commission restructured residential and agricultural tariffs so as to contain cross-subsidization.

Keeping in view the policy of the central government to attract private entrepreneurs, Orissa state has worked out an innovative policy to provide basic infrastructure projects including the buying of and through the Orissa Power Generating Corporation. The state’s chronic power deficit is being tackled by nine hydro projects with a total generating capacity of more than 7,000 megawatts.

The Orissa reform legislation contains several reform features, the first of which is restructuring. The former OSEB has been corporatized and is designed to be managed on commercial principles in its new form GRIDCO. While the newly formed GRIDCO has been put in charge of transmission and distribution, the hydro power generating stations, owned by the government, have been taken over by the Orissa Hydro Power Corporation.

The second is unbundling. The reform structure has incorporated principles of functional unbundling with regard to generation, transmission and distribution to be managed by separate corporations/companies. With regard to privatization, the OER Act, 1995 aims at fostering private participation in generation and gradual privatization of transmission and distribution.

The third is the regulatory commission. An important component is establishment of the Orissa electricity regulatory commission for ensuring achievement of objectives given in the Orissa Electricity Reform Act, 1995. Fourth comes licensing. Government ownership and direct control have given way to a licensing system in respect of transmission and distribution activities. Finally, tariff. Determining tariff which would ensure a commercial rate of return for investment in the electricity industry while preserving rights of all categories of consumers with respect to cost, efficiency and quality of service.

The power tariff on agriculture in 1992-93 was 30.9 paise/kWh. In 1993-94 it was dropped to 21.2 paise/kWh. The subsequent year, 1994-95, the power tariff on agriculture rose to 53.1 paise/kWh and was raised to 55.0 paise/kWh in 1996-97.

The average tariff for industry has also been increased. The 1992-93 tariff stood at 89.1 paise/kWh and was raised to 220.3 paise/kWh in 1996-97.

Economic reforms at the state level have an unfinished agenda. While some states have demonstrated their commitment by implementing reforms in certain sectors of the state economy, a majority is yet to initiate any significant policy changes. Even the reform-oriented states have avoided taking on reforms in some areas, such as fiscal reform in general and reduction of revenue deficits in particular, state-owned enterprise reform, and state electricity board reform, except in Haryana and Orissa. The state governments have continued with subsidy schemes irrespective of whether or not the subsidies are reaching the target groups. While Haryana and Orissa have undertaken some hard reform measures in the power sector, they have not initiated any major policy reform in other sectors of the economy.

Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh are badly in need of reform. All are land locked states, while the reform-oriented states are coastal, and hence can develop as major platforms for labour-intensive manufacturing exports. Statistics prove that reform-oriented states have performed much better whether in terms of economic indicators, such as growth rates or foreign direct investment flows, or social indicators, such as birth/death rates, infant mortality rates or literacy rates.

Jeffrey D. Sachs is director, Centre for International Development, Harvard University. N. Bajpai is associate, Harvard Institute for International Development, US    


In the role of the overseas man

Sir — It is heartening to see that many young Indian actors are making it big on stage in the West, Raj Ghatak being one of the most recent success stories (“East side story at the West End”, Dec 25). But all good news is tinged with irony. Actors are seen as more successful even when they find bit roles in plays in the West, rather than when they land meaty roles in English plays in India. Moreover, Asian actors should know — and examine the moral of — the fact that some talented actors like Roshan Seth have come back dejectedly from the those golden shores. The Indian English theatre is suffering not merely because of the lack of a proper theatre audience, but because good actors are keen to move to greener pastures in search of fame and money, often burning themselves out. There has hardly been any Indian actor in England who is seen on an equal footing with theatre stalwarts like Anthony Hopkins or Kenneth Branagh. Are we to believe that no Indian actor performing on the British stage has ever been as talented?

Yours faithfully,
Abhimanyu Dasgupta, Calcutta

Bill of contention

Sir — It is difficult to understand what prompted the government and political parties to moot a bill on women’s reservation since women in India already enjoy equal rights and privileges that has long been guaranteed in the Constitution. In fact, in most cases women do enjoy more privileges than their male counterparts. Once the bill is passed in Parliament, reservation is bound to be extended to education, business and service sectors.

Taking the pretext of reservation, many incompetent women will be selected, thereby depriving competent men. Since competent women already get their due recognition in different fields, there should not be a need for another legislation for women’s reservation.

If a bill is to be passed at all, it should be for making women shoulder equal responsibilities as employees of both government and private organizations, along with enjoying equal rights and privileges with their male counterparts.

I suggest the following provisions to be incorporated in the bill if it is to be passed at all. First, women officers and employees of government departments, banks, insurance companies and other private bodies should also be transferred like their male counterparts. Second, women officers and employees are to be allocated equal responsibilities in line with male employees and be made accountable.

Yours faithfully,
Debasish Mukherjee, Cuttack

Sir — The progress of a nation depends upon its attitude towards women. In the last Lok Sabha elections, participation of women was quite low. Women’s reservation bill, if passed, would not only increase their involvement in politics but would encourage them in other fields as well.

Yours faithfully,
Ranjan K. Joarder, Dhanbad

Sir —The women’s reservation bill was finally introduced in Parliament amidst unruly scenes on the last day of the winter session . The envisaged 33 percent reservation do not seem to have any chance of being passed in Parliament in its present form. The Samajwadi Party, the Rashtriya Janata Dal and the Bahujan Samaj Party are against the bill. These caste-ridden political parties want reservation for women of other backward classes, Dalits, and other minority communities as well.

The question is how to select the constituencies for women. Will the 33 percent constituencies be selected by lottery before each election? Prime Minister Atal Behari Vajpayee may have to move out of the Lucknow constituency if it becomes allotted to a woman candidate. Even Sonia Gandhi may have to lose the right to contest from Bellary and Amethi if these constituencies are not allotted to women by lottery. Reserving particular constituencies for women may see the end to many politicians’ dominance over one particular constituency.

Instead of reservation of constituencies, why don’t the proponents of the bill opt for reservation among candidates of registered parties?

Yours faithfully,
Indu Bhusan Bose, Howrah

Sir — There has been a series of protests and demonstrations against the recent Supreme Court judgment barring reservation in promotion. I would like to draw attention to the fact that in spite of the reservation policy being followed for the last 50 years, there has not been any significant improvement in the condition of scheduled castes and scheduled tribes. The reason is that the benefits of reservation in jobs has been cornered by a small percentage of SC/ST.

This is the group which is most vociferous in protesting against the recent Supreme Court judgment. Those really in need of the benefits have been neglected. By denying the rights to the poorer sections of the reserved category, are the affluent classes not oppressing the countless unemployed youth?

Yours faithfully,
Pradeep Munda, Ranchi

Sir —The reservation policy followed by the government is open to the public today. The SC/ST, along with the other backward classes, enjoy all the benefits due to reservation made for them in employment and education. Moreover, their application fees are either exempted or reduced to half.

They are also paid travelling allowances for interview calls. This does not benefit the needy. This has only benefited a small group of people who are already well off. In fact, it could also be argued that this has done a great deal of harm to the rest.

Those benefiting from the quota system find employment irrespective of their knowledge or technical qualification whereas a better deserving candidate outside the quota may not find employment. The quality of work is also deteriorating because of this.

It is becoming increasingly difficult for candidates from the general category to find employment in public sector organizations. While there are special training programmes for the SC/ST candidates, an economically weak person from the general category cannot avail himself of this training.

It would do great harm to our nation if such reservation policies continue to operate. A time may come when the Brahmins and Kayasthas may demand reservations. I would ask the government to withdraw the biased reservation policy immediately.

Instead, reservation can be based on annual family income. This would help the poor get education at a cheap rate and hence find better employment opportunities.

Yours faithfully,
K. Mukherjee, Calcutta

Sir —The women’s reservation bill brought to the fore how our elected representatives behave when it comes to challenging their chauvinism in the domain of politics.

It took a long while for Indira Gandhi, the only woman prime minister in our country, to prove that she was no less than her male counterparts. It becomes difficult for men in politics to come to terms with the fact that women can compete with them in the areas traditionally denied to them.

Notwithstanding the fact that work at home might be equally, if not a more, demanding task for women, it is felt that women have never really done well in politics because they are not “made” for the job. Thus, any encroachment into that realm is being vehemently opposed to by sexist politicians.

It is a welcome change in the Indian political scenario that the women politicians have come together in spite of differences in their party ideologies. Generally they find it extremely difficult to come out of the shadows of their political father figures.

That the likes of Mulayam Singh Yadav continue to protest against the bill indicates that some politicians feel a threat coming their way. This potent fear is all the more reason for the proponents of the bill to feel that their efforts, after all, might not be entirely wasted.

Yours faithfully,
Nupur Bose, Calcutta

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